-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VBHUCE0k4EJrD4v/mhHw/5IeRcJ+20U+4zV4HyGw/yfak3W5P5oZpXf122u7iztm HQY4gaiqtwwONLP5FUoX4A== 0000898430-99-000178.txt : 19990121 0000898430-99-000178.hdr.sgml : 19990121 ACCESSION NUMBER: 0000898430-99-000178 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 19990120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEAP TICKETS INC CENTRAL INDEX KEY: 0001076411 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 990338363 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-70841 FILM NUMBER: 99508769 BUSINESS ADDRESS: STREET 1: 1440 KAPIOLANI BLVD STREET 2: STE 800 CITY: HONOLULU STATE: HI ZIP: 96814 BUSINESS PHONE: 8089457439 MAIL ADDRESS: STREET 1: 1440 KAPIOLANI BLVD STREET 2: STE 800 CITY: HONOLULU STATE: HI ZIP: 96814 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on January 20, 1999 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 -------------- CHEAP TICKETS, INC. (Exact Name of Registrant as Specified in Its Charter) -------------- Delaware 561599 99-0338363 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
1440 Kapiolani Boulevard, Honolulu, Hawaii 96814 (808) 945-7439 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) -------------- Michael J. Hartley Chairman of the Board, Chief Executive Officer and President Cheap Tickets, Inc. 1440 Kapiolani Boulevard, Honolulu, Hawaii 96814 (808) 945-7439 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies of all communications to be sent to: Henry M. Fields, Esq. Arthur J. Simon, Esq. Victor H. Sim, Esq. Diane Bono, Esq. Mavis L. Yee, Esq. SONNENSCHEIN NATH & ROSENTHAL MORRISON & FOERSTER LLP 8000 Sears Tower, Chicago, Illinois 60606 555 West Fifth Street, Los Angeles, California 90013-1024 (312) 876-8000 (213) 892-5200
-------------- 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 - -------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------
Proposed Proposed Amount maximum maximum Amount of Title of each class of to be offering price aggregate registration securities to be registered registered(1) per unit(1) offering price(2) fee(2) - -------------------------------------------------------------------------------------------------- Common Stock, par value [$.001]...... shares $ $50,000,000 $15,841.00 - --------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Includes shares which the Underwriters have options to purchase to cover, if any, over-allotments. (2) Estimated solely for purpose of calculating the amount of the registration fee. This estimate is made in accordance with Rule 457(c) under the Securities Act of 1933, as amended. -------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +Information in this Prospectus is not complete and may be changed. We may not + +sell these securities until the time the registration statement filed with + +the Securities and Exchange Commission becomes effective. This Prospectus is + +not an offer to sell the securities and we are not soliciting an offer to buy + +these securities in any state where the offer or sale is not permitted or + +would be unlawful prior to registration or qualification under the securities + +laws of any such state. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION PROSPECTUS Shares www.cheaptickets.com [LOGO OF CHEAP TICKETS INC. APPEARS HERE] Common Stock We are a leading retail seller of discount tickets for domestic leisure air travel. We are the leading seller of non-published fares for regularly scheduled domestic routes. We sell our tickets through call centers, retail stores and our Internet site at "www.cheaptickets.com."
Per The Offering Share Total ------------ ----- ----- This is our initial public Public Offering Price.............. $ $ offering, and no market currently Underwriting Discounts............. $ $ exists for our shares. The offering Proceeds to Cheap Tickets, Inc. ... $ $ price may not reflect the market price of our shares after the Offering.
We have granted the Underwriters the right to purchase an additional [ ] shares to cover over-allotments. The Underwriters expect to deliver shares of Common Stock to purchasers on or about [ ], 1999. ------------ Proposed Trading Symbol: Nasdaq National Market--CTIX ------------ This investment involves a high degree of risk. You should purchase shares only if you can afford a complete loss. See "Risk Factors" commencing on Page 7. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------ William Blair & Company Dain Rauscher Wessels a division of Dain Rauscher Incorporated , 1999 Inside Cover: [Picture of artwork depicting logos of airlines served, picture of Cheap Tickets' logo with URL "www.cheaptickets.com" below and pictures of representative vacation locations served] Text: "Cheap Tickets offers the largest selection of non-published and published leisure fares, including 375,000 proprietary fares and millions of published SABRE fares." [ARTWORK] Back Inside Cover: [Various pictures of the Company's Website] Text: "Cheap Tickets offers an online economic solution for consumers looking for the absolute cheapest travel tickets." [ARTWORK] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF COMMON STOCK OF THE COMPANY INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING." THESE TRANSACTIONS MAY BE MADE ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, all share and per share data and information in this Prospectus [assumes that the Company will split its Common Stock -for-one] and assumes that the Underwriters will not exercise their over-allotment option. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors." THE COMPANY We are a leading retail seller of discount tickets for domestic leisure air travel. In 1998, we sold approximately 963,000 airline tickets through call centers, retail stores and our Internet site at "www.cheaptickets.com." We are the leading seller of non-published fares for regularly scheduled domestic routes. Non-published fares are tickets that we buy from airlines and resell to consumers at significant discounts off published fares. Sales of non-published fares accounted for approximately 59% of our airline gross bookings in 1998. We have rights to buy these fares under contracts from over 25 airline carriers, including America West, American, Continental, TWA and US Airways. We purchase these fares only when we resell them to customers, so that we do not carry inventory. We also offer a full complement of regularly published fares, affording customers a breadth of choice in leisure travel tickets at attractive prices that we believe is unmatched in the industry. We also sell cruise tickets, auto rentals and hotel reservations. We began selling tickets over the Internet in October 1997. In 1998, we sold 97,000 tickets through our website, generating $25 million in gross bookings. Internet sales represented approximately 9% of our gross bookings in 1998 and 15% in the fourth quarter of 1998, reflecting the rapid increase in Internet sales as a percentage of gross bookings. At December 31, 1998, we had over 430,000 registered online users, with 180,000 registering in the fourth quarter of 1998. Since 1986, we have provided an efficient distribution channel for airlines to sell excess capacity without eroding their published fare structures. Domestic airlines had average excess system capacity of 32.5% from 1995 to 1997, and excess capacity is estimated to be 29.4% in 1998. We seek to match excess capacity with consumer demand for the lowest price available. Currently, we offer approximately 375,000 non-published fares at any given time, covering most major domestic and international routes. We set prices on these fares lower than those available on published fares to meet the demands of leisure travelers. These fares contain restrictions typically making them unattractive for full fare passengers, who seek the convenience of tickets that can be exchanged or canceled and do not have advance purchase or minimum stay requirements. We believe our track record of selling excess capacity without compromising the airlines' fare structures provides a strong incentive for the airlines to continue to use us as the premier outlet for the sale of domestic non-published fares. We also offer to customers a full menu of regularly published fares in addition to non-published fares. In 1994, we became the first non-airline to file our non-published fares through the Airline Tariff Publishing Corporation. This allows us to integrate our non-published fares with published fares in a special area of the SABRE reservations system to which only we have access. This system automatically sorts through millions of fares, including our non- published fares, to identify the lowest fares available for the desired itinerary. These fares are then posted in ascending price order for use by our reservation agents and Internet customers. The travel industry is large and growing. Consumers in the United States spent $126 billion on travel through travel agencies in 1997, up from $101 billion in 1995. Airline travel continues to be the largest segment of the industry, with $70.5 billion, or 56%, of total travel booked through travel agencies in 1997. 3 Increasingly, the Internet has become an attractive method to sell travel tickets directly to the public. Currently, travel represents the second largest online retail category sold over the Internet. Online airline travel bookings were $1.6 billion in 1998 and are expected to grow at a compounded annual growth rate of 46%, reaching $10.6 billion in 2003. Our growth strategy is to expand our customer base, significantly increase our brand awareness, expand our strategic relationships and increase call center productivity. First, we plan to capitalize on our position as the market leader in selling non-published fares to rapidly grow our Internet ticket sales. We intend to broaden our online visibility with Internet content, commerce and service providers. Second, we plan to aggressively expand brand recognition nationally and internationally. To accomplish this goal, we intend to augment our successful print media marketing and increase advertising on leading websites and in other media. Third, we plan to expand existing and establish new strategic relationships with airlines to increase sales of their excess capacity. We also intend to seek new relationships with other travel suppliers, certain Internet portals and travel-related websites. Finally, we plan to expand our call center capacity through improved productivity. We intend to invest substantial resources in developing, acquiring and implementing technological enhancements to our call centers. Our executive offices are located at 1440 Kapiolani Boulevard, Honolulu, Hawaii 96814; our telephone number is (808) 945-7439 and our facsimile number is (808) 946-3844. We were incorporated in Hawaii in 1986 and reincorporated in Delaware on February 1, 1999. THE OFFERING Common Stock offered by the Company........................... [ ] shares Common Stock to be outstanding after the Offering................ [ ] shares(1) Use of proceeds.................... For advertising and brand development; for development of technological infrastructure; to redeem outstanding Mandatorily Redeemable Preferred Stock; and for general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol............................ CTIX
- -------- (1) Based on the number of shares outstanding as of September 30, 1998. Excludes [47,200] shares of Common Stock issuable and [94,203] shares reserved for issuance under the 1997 Stock Option Plan as of September 30, 1998. Includes [212,104] shares of Common Stock issuable upon the exercise of warrants outstanding as of September 30, 1998. It is anticipated that all the warrants will be exercised immediately prior to the closing of the Offering. Excludes [ ] shares reserved for issuance under the 1999 Stock Incentive Plan. See Notes 5 and 12 to the Financial Statements, "Management--Employee Stock Plans," "Description of Capital Stock." ---------------- 4 SUMMARY FINANCIAL DATA (in thousands, except per share and operating data) Set forth below are summary financial data of the Company for the periods indicated, which have been derived from the Company's audited and unaudited financial statements. The operating data were not audited. The summary financial data set forth below should be read in conjunction with the Company's Financial Statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Nine Months Year Ended December 31, Ended September 30, -------------------------- -------------------- 1995 1996 1997 1997 1998 -------- -------- -------- --------- --------- Gross bookings (unaudited)(1)........... $ 91,994 $105,944 $153,674 $ 112,084 $ 199,115 ======== ======== ======== ========= ========= Results of Operations: Non-published fares....... $ 66,340 $ 58,982 $ 96,379 $ 73,714 $ 122,995 Commissions............... 2,738 5,614 6,470 4,674 8,053 -------- -------- -------- --------- --------- Net revenues(1)......... 69,078 64,596 102,849 78,388 131,048 Gross profit.............. 12,654 15,428 21,479 16,403 26,501 Selling, general and administrative expenses.. 11,921 14,352 23,091 16,561 24,093(2) -------- -------- -------- --------- --------- Net operating income (loss)................. 733 1,076 (1,612) (158) 2,408 Net earnings (loss)....... $ 17 $ 674 $ (1,009) $ (111) $ 1,473 Basic earnings (loss) per share(3)................. $ [0.02 $ 0.63 $ (1.14) $ (0.22) $ 1.00] Number of shares used in computing basic earnings (loss) per share(3)...... [1,054 1,065 1,108 1,108 1,090] Diluted earnings (loss) per share(3)............. $ [0.02 $ 0.63 $ (1.14) $ (0.22) $ 0.84] Number of shares used in computing diluted earnings (loss) per share(3)............. [1,054 1,065 1,108 1,108 1,302] Operating Data: Airline tickets sold:..... 313,863 357,551 554,403 393,936 682,239 Call centers............ 313,863 357,551 552,383 393,936 626,184 Internet................ -- -- 2,020 -- 56,055 Registered Internet users.................... -- -- 5,000 -- 250,218
September 30, 1998 ---------------------- Actual As Adjusted(4) ------- -------------- Balance Sheet Data: Net working capital ................................. $ 4,247 $ Total assets......................................... 14,903 Long-term debt....................................... 1,098 1,098 Mandatorily Redeemable Preferred Stock(5)............ 4,007 -- Stockholders' equity................................. 1,897
- -------- (1) Gross bookings is a memorandum item and is not included in the Company's results of operations. It consists of the aggregate retail value of non- published fares and published fares that are sold on a commission basis. Net revenues consist of sales of non-published fares and commissions. Commissions (including incentive overrides) are earned primarily on published fares sold and include certain other payments based on the volume of transactions. Gross bookings are not required by generally accepted accounting principles ("GAAP") and should not be considered in isolation or as a substitute for other information prepared in accordance with GAAP. The Company believes that gross bookings provide a useful comparison between historical periods, and year-to-year changes in such information provide a useful measure of market acceptance of the Company's products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." (2) In the second quarter of 1998, the Company issued stock options to employees to acquire [47,200] shares of the Company's Common Stock at [$2.50] per share. Total compensation associated with these options amounted to $26,600 of which $1,795 has been charged to operations for the nine months ended September 30, 1998. The remainder will be charged over the remaining five-year vesting period of the options, with the exception of $1,000, which will be charged at the closing of the Offering at which time [10,000] options vest by their terms. 5 (3) See Notes 1 and 5 to the Financial Statements for the calculation of earnings per share, including an explanation of the number of shares used in computing the amount of basic and diluted earnings per share. [Further adjustment for pre-offering split.] (4) As adjusted to reflect (1) the receipt of net proceeds of the Offering; (2) the redemption of the Mandatorily Redeemable Preferred Stock (including a charge for the unaccreted discount); (3) the exercise of warrants to purchase up to [212,104] shares of Common Stock at an exercise price [$0.01] per share; and (4) the immediate recognition of unearned compensation related to certain stock options that fully vest upon the completion of this Offering. (5) The Mandatorily Redeemable Preferred Stock is required to be redeemed upon the closing of this Offering. The redemption price upon the closing of this Offering will be approximately $4.8 million. See "Capitalization." The Preferred Stock was issued at a discount of $885,170. The Company is accreting the discount over a five year period. At redemption, it is anticipated that the unaccreted discount will be $580,439. Upon redemption, the unaccreted discount will be charged directly to stockholders' equity, and have a dilutive effect on the calculation of earnings per share. 6 RISK FACTORS In addition to the other information we provide in this Prospectus, you should carefully consider the following risks before deciding whether to invest in our Common Stock. These are not the only risks we face. Some risks are not yet known to us and there are others we do not currently believe are material but could later turn out to be so. All of these could hurt our business. The trading price of our Common Stock could decline because of general market conditions or if any or all of these risks came to pass, and you could lose all or part of your investment. In evaluating the risks of investing in us, you should also evaluate the other information set forth in this Prospectus, including our financial statements and the notes accompanying them. Reliance on Travel Suppliers; No Long-Term Contracts. In 1998, approximately 98% of our gross bookings came from the sale of airline tickets. The tickets consist of two kinds: (1) Non-published fares. These are tickets we acquire from the airlines and resell to consumers at substantial discounts off published fares. The airlines sell us tickets at these non-published fares primarily to dispose of excess capacity without eroding published fare structures. In 1998, non- published fares represented about 59% of our airline gross bookings and 92% of our net revenues, and we believe that our continuing ability to obtain them is key to our success. We have contracts with more than 25 airlines that permit us to acquire non-published fares on routes designated in the contracts at specified prices. These contracts do not require airlines to provide a specific quantity of tickets or to deal with us exclusively. Although the terms vary, the typical contract is for a period from one to one and a half years, and many are cancelable on 30 days' notice or less. We have a consistent record of renewing these contracts, but airlines may decide not to do business with us or to dispose of excess capacity themselves or through others. At times in the past, airlines have renewed contracts with us on less favorable terms and this may continue to occur in the future. In addition, there may be times when they have less excess capacity to sell. In 1998, approximately 50% of our gross bookings of non- published fares came from tickets we bought from three airlines, of which 24% came from one airline. Our business could be hurt by: . Refusals by airlines to renew contracts; . Lack of available excess capacity for an extended time period; . Renewals of the contracts on less favorable terms; or . Cancellation of contracts. (2) Published fares. These are tickets offered generally by travel agents, airlines and online travel companies. We sell them to customers on a commission basis. Sales of published fares represented approximately 41% of our airline gross bookings and approximately 7% of our net revenues in 1998. We have no published fare contracts, consistent with industry practice. As a result, the airlines could at any time decline to sell tickets through us. This would significantly decrease the amount and breadth of our available tickets and could materially hurt our business. In 1998, approximately 2% of our gross bookings came from the sale of cruise tickets, auto rentals and hotel reservations. Our business strategy is to increase the percentage of such alternative travel offerings as a percentage of our revenues. These travel providers could choose not to do business with us at any time. If we cannot obtain alternative travel offerings in the future, we may not be able fully to realize on our growth strategy. See "Business--Cheap Tickets Growth Strategy--Broaden Existing Products and Offerings." Dependence on Commission Rates. We earned approximately 26% of our gross profit in 1998 from commissions paid by airlines. However, they are not required to pay any particular commission rates, or any commissions at all. In recent years, airlines 7 have reduced rates and capped per-ticket commissions. In addition, they have further reduced rates and capped commissions for online reservations. In January 1999, one major carrier announced it would impose a surcharge ($1 one- way, $2 roundtrip) on any domestic ticket purchased anywhere except on that carrier's own Internet site. Thus, air carriers could further reduce, restrict or eliminate altogether commissions or impose surcharges for tickets not sold by them at any time. This could hurt our business. See "Business--Products and Services," "Business--Strategic Relationships" and "Business--Airline Ticket Sales." Unpredictability of Future Revenues; Fluctuations in Quarterly Results. Our business is seasonal due to customers' leisure travel patterns and changes in the availability of non-published fares. As a result, we typically have higher sales and gross profit in the second and third quarters and lower sales and gross profit in the fourth quarter, and historically we have experienced losses in net income in the fourth quarter. During periods of high- volume air travel, such as occur in the fourth quarter of each year, we historically have had access to fewer non-published fares, and such fares on certain major routes may be unavailable. Online gross bookings may also tend to be seasonal and may decline or grow less rapidly in the summer months. The seasonal sales cycle is fairly predictable, but the cycle may shift year-to- year, corresponding to changes in the economy or other factors affecting the market such as price wars. This could lead to unusual volatility in revenues and earnings. Gross profit may be impacted by a number of different factors, including: . the amount of fares sold; . the percentage of gross bookings represented by non-published fare sales; . the gross margin percentages on non-published fare sales. These percentages in turn can be impacted by the sales mix of airlines, whose net fare prices to us vary, and by competitive factors on various routes and the possible elimination of profitable routes; . rates of commissions on published fare sales; and . the amount of volume bonuses. Any change in these factors could materially affect our gross margins and operating results in future periods. Other events outside our control, including those set forth in other risk factors, may cause us to experience significant fluctuations in revenues and earnings. We intend to increase operating expenses in anticipation of future sales. If these increased sales do not occur or occur only in subsequent periods, we may experience downward fluctuations in our earnings. As a result of the foregoing factors, our annual or quarterly results of operations may be below the expectations of public market analysts and investors. This in turn could result in a decline in the value of our Common Stock. Dependence on the Travel Industry. We earn almost all our revenues from the travel industry, particularly from leisure travel. Leisure travel is highly sensitive to personal discretionary spending levels and thus tends to decline during general economic downturns. In addition, other adverse trends or events that tend to reduce leisure travel are likely to harm our business. These may include: . Political instability; . Regional hostilities; . Terrorism; . Fuel price escalation; 8 . Travel-related accidents; . Bad weather; or . Airline or other travel related strikes. See "--Unpredictability of Future Revenues; Fluctuations in Quarterly Results," "Business--Airline Ticket Sales" and "Business--Industry Background." Competition. We compete in ticket sales against travel wholesalers, consolidators, online travel companies, airlines and travel agents based on price and quality of service. In the leisure travel market, we also compete against frequent flyer awards and charter flights. Some of our actual and potential competitors have longer histories, larger customer bases, greater brand recognition or significantly greater financial, marketing and other resources than we do. These competitors may also enter into strategic or commercial relationships with larger, more established or well-financed companies. Certain of our competitors may be able to secure tickets and other travel products from airlines and travel suppliers on more favorable terms. They may also devote greater resources to marketing and promotional campaigns and substantially more resources to website and systems development. In addition, new technologies may increase competitive pressures on us. Increased competition may result in reduced operating margins, loss of market share and decreased brand recognition. There can be no assurance that we will be able to compete successfully against current and future competitors. Competition for Non-Published Fares. Sellers of Non-Published Fares. Our existing direct competition for non- published fares comes largely from companies that specialize in the distribution of discounted fares in the form of regularly scheduled and chartered flights. We believe that the market for the sale of non-published fares is highly fragmented. For international routes, it is highly competitive, with numerous participants offering deeply discounted fares. For domestic routes, there are few sellers, and they generally have contracts with a small number of carriers for a limited number of routes. We are the leading seller of non-published fares for regularly scheduled domestic routes and have contracts with many carriers covering most major domestic and international routes. As the domestic airline industry continues to evolve, other competitors could increase their share of the market, or new ones could enter the market. Such developments could hurt our business. Online Travel Companies. Online travel companies are rapidly increasing their shares of airline ticket sales, but, with limited exceptions (for example, Priceline.com, Inc.), to our knowledge, non-published fares for regularly scheduled domestic routes are not currently offered by other online travel companies. If airlines were to make such fares generally available to online travel companies, presumably they would risk eroding published fare structures. However, one or more online companies, a number of which possess larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than us, may succeed in accessing non- published fares. If they do, it could hurt our business. Airlines and Travel Agents. Airlines do not generally offer non-published fares directly or indirectly through affiliates or travel agents for regularly scheduled travel, presumably to prevent the erosion of their published fare structures. Some airlines have begun to offer limited special discounted fares through their Internet sites that are not generally made available to travel agents. These fares are typically offered on a last-minute, "special sale" basis. In addition, some airlines offer special promotional fares combining low base prices and the use of frequent flyer awards. Airlines may expand their offering of special promotional fares, enter the non-published fare market or sell non-published tickets through travel agents. Any such change in strategy by the airline industry could hurt our business. 9 Certain Competitive Factors Affecting Non-Published Fares. Published fares also compete with our non-published fares. They effectively establish price ceilings for our non-published fares. From time to time, airlines also offer special fares, which may compete directly with our non- published fares. Direct competition also comes from the airlines when fare wars break out. Proliferation of special fares or the outbreak of fare wars could hurt our business. Competition for Published Fares. In the sale of published fares, we currently compete with airlines, traditional travel agents, online travel services and travel industry reservation databases. The online travel services market is new, rapidly evolving and intensely competitive, and we expect such competition to intensify in the future. In the online travel services market, we compete for published fares with similar commercial websites of other companies, such as Expedia (operated by Microsoft Corporation), Travelocity (operated by SABRE Group Holdings Inc., a majority-owned subsidiary of American Airlines), Preview Travel, Inc., Cendant Corporation, TravelWeb (operated by Pegasus), Internet Travel Network, Biztravel.com and TheTrip.com, among others. Several traditional travel agencies, including larger travel agencies such as American Express Travel Related Services Co. Inc., Uniglobe Travel, Travel Services International, 800 Travel Systems and Carlson Wagonlit Travel, have established, or may establish in the future, commercial websites offering online travel services. Several airlines also have established commercial websites to sell their tickets and offer other online travel services. In January 1999, one major carrier announced that it would impose a surcharge ($1 one-way, $2 roundtrip) on any domestic ticket purchased anywhere except on that carrier's own Internet site. See "Business--Online Travel Market" and "Business--Competition." Dependence on Continued Growth of Online Commerce and Internet Infrastructure. Our future revenues and profits depend, to a certain degree, upon the widespread acceptance and use of the Internet and online services as a medium for commerce by customers and sellers. Rapid growth in the use of the Internet and online services is a recent phenomenon. This growth may not continue. A sufficiently broad base of customers may not accept, or continue to use, the Internet as a medium of commerce. Demand for and market acceptance of recently introduced products and services over the Internet are subject to a high level of uncertainty. There are few proven products and services. For us to achieve significant growth, customers who have historically used traditional means of commerce will instead need to elect to purchase products and services online, and sellers of products and services will need to accept or expand use of the Internet as a channel of distribution. Our revenues and profits depend on customers visiting our website and actually purchasing tickets. Customers could potentially use the site for route information and choose to purchase tickets directly from the airlines or elsewhere. The Internet has experienced, and is expected to continue to experience, significant growth in the number of users and amount of traffic. Our success will depend upon the development and maintenance of the Internet's infrastructure to cope with this increased traffic. This will require a reliable network backbone with the necessary speed, data capacity and security, and the timely development of complementary products, such as high-speed modems, for providing reliable Internet access and services. Major online service providers and the Internet itself have experienced outages and other delays as a result of software and hardware failures and could face such outages and delays in the future. Outages and delays are likely to affect the level of Internet usage and the processing of transactions on the Cheap Tickets website. It is unlikely that we could make up for the level of orders lost in those circumstances by increased phone orders. In addition, the Internet could lose its viability by reason of delays in the development or adoption of new standards to handle increased levels of activity or of increased government regulation. The adoption of new standards or government regulation may require us to incur substantial compliance costs. See "-- Governmental Regulation and Legal Uncertainties" and "Business--Governmental Regulation and Legal Uncertainties." 10 Uncertain Acceptance of the Cheap Tickets Brand. We believe that we must maintain and enhance the Cheap Tickets brand to continue to attract and expand business. The success of the Cheap Tickets brand will depend to a certain extent on our ability to enhance our advertising programs. The number of Internet sites that offer competing services increase the importance of establishing and maintaining our brand name recognition. Many online sites already have well-established brands in online services or the travel industry generally. We may find it necessary to increase substantially our financial commitment to advertising and publicity. This could adversely affect our results of operations. Failure to maintain and enhance our brand could hurt our business. See "Business--Competition" and "Business--Cheap Tickets Growth Strategy." Management of Potential Growth We have rapidly and significantly expanded our operations and anticipate further significant expansion. We have also recently added a number of key managerial and technical employees, and we expect to add additional key personnel in the future. This expansion has placed, and we expect it will continue to place, a significant strain on our management, operational and financial resources. To manage the expected growth of our operations and personnel, we plan to: . improve and upgrade transaction-processing, operational, customer service and financial systems, procedures and controls; . maintain and expand our relationships with various travel service suppliers, Internet portals and other travel related website companies and other third parties necessary to our business; . expand our finance, administrative and operations staff; . continue to attract, train and manage our employee base; and . implement a disaster recovery program. Our current and planned personnel, systems, procedures and controls may be inadequate to support our planned growth, and our management may not be able successfully to identify, manage and exploit existing and potential market opportunities. Our inability to manage growth effectively could hurt our business. See "Business--Cheap Tickets Growth Strategy." Rapid Technological Change. The industry in which we compete is characterized by: . rapid technological change; . changes in user and customer requirements and preferences; . frequent new product and service introductions embodying new technologies; . the emergence of new industry standards and practices; and . the emerging importance of the Internet and the proliferation of companies offering Internet-based products and services. These developments could render our existing online sites and proprietary technology and systems quickly obsolete. As a result, we will be required to continually improve the performance, features and reliability of our services, particularly in response to competitive offerings. Our success will depend, in part, on our ability to enhance our existing services and develop new services in a cost-effective and timely manner. The development of proprietary technology entails significant technical and business risks and requires substantial expenditures and lead time. We may not be able to adapt successfully to customer requirements or emerging industry standards. In addition, the widespread adoption of new Internet, networking or telecommunications 11 technologies or other technologies could require us to incur substantial expenditures to modify or adapt our services or infrastructure. Our inability to do so in a timely manner or the expenses incurred in making such adaptations could hurt our business. See "--Competition," "Business--Products and Services" and""Business--Competition." Risk of System Failure; Lack of Redundancy and Business Interruption Insurance. Our ability to receive and fill orders through our call centers or online and provide high-quality customer service largely depends on the efficient and uninterrupted operation of our computer and communications hardware systems. Our online servers are located in San Jose, California, SABRE's computers are located in Tulsa, Oklahoma, our communication systems are located at four call centers, and our accounting systems' computers are located in Hawaii. These systems and operations are vulnerable to damage or interruption from power loss, telecommunications failure, break-ins, natural disasters and similar events. We currently do not have redundant systems and do not carry adequate business interruption insurance. In addition, although we back up data on a regular basis, we do not have a formal disaster recovery plan. Although we have adopted network security measures, our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. These kinds of events could lead to interruptions, delays, loss of data or the inability to accept and confirm customer reservations. The occurrence of any of the foregoing risks could hurt our business. See "--Online Commerce and Database Security Risks" and "--Reliance on Third-Party Systems." Reliance on Third-Party Systems. We rely on certain third-party computer systems and third-party service providers, including the computerized central reservation systems of the airline and hotel industries to make airline ticket and hotel room reservations. We also rely on third parties to print our airline tickets and arrange for their delivery. We rely on iXL Holdings to host our online system's infrastructure, web and database servers. We use an internally developed system for our website and substantially all aspects of transaction processing. We currently rely on The SABRE Group ("SABRE") for our general reservations system, including customer profiling, making reservations and credit card verification and confirmations. Currently, over 90% of our computing transactions are processed through the SABRE systems. Our technology relationship with SABRE for Internet operations will further increase our dependency. If we or SABRE ever elect to terminate the existing relationship, we would be forced to convert to another provider. This conversion could require a substantial commitment of time and resources and hurt our business. Any interruption in these third-party services or a deterioration in their performance could seriously disrupt our business. If our arrangement with any of these third parties is terminated, we may not find an alternative source of systems support on a timely basis or on commercially reasonable terms. See "-- Risk of System Failure; Lack of Redundancy and Business Interruption Insurance" and "--Risk of Capacity Constraints." Risk of Capacity Constraints. During traffic peaks, we have experienced capacity constraints at our call centers and we have not been able to answer all calls or service all inquiries adequately. Capacity constraints can cause unanticipated system disruptions, slower response times, poor customer service, impaired quality and speed of reservations and confirmations and delays in reporting accurate financial information. We intend to use part of the proceeds of this Offering to upgrade our systems and increase our processing capability, both online and through our call centers, to accommodate anticipated increases in customer ticket 12 sales. However, if we experience a substantial increase in our web traffic or in reservations beyond expected levels, we may need to expand and upgrade our technology, transaction-processing systems and network infrastructure. If we fail to expand and upgrade in a timely manner, our business could be hurt. We believe that our contemplated systems enhancements will be sufficient to handle increases in expected demand, but we may not be able to: . project accurately the rate or timing of such increases; . upgrade our systems and infrastructure to accommodate future traffic levels; . integrate successfully any newly developed or purchased technology with our existing systems; or . upgrade and expand our systems in a timely or efficient manner. Our inability to do so could hurt our business. See "Business--Cheap Tickets Growth Strategy" and "Business--Products and Services." Online Commerce and Database Security Risks. In our business, secured transmission of confidential information over public networks is essential to maintain consumer and supplier confidence. Concerns over the security of transactions conducted on the Internet and the potential compromise of customer privacy may inhibit the growth of commercial online services as a means of conducting commercial transactions. We have expended significant resources to protect against security breaches and to alleviate problems caused by such breaches, and we may need to make further expenditures for this purpose in the future. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to transmit securely confidential information, such as customer credit card numbers. In addition, we maintain an extensive confidential database of customer profiles and transaction information. Our current security measures may not be adequate and advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the methods we use to protect customer transaction and personal data. A party who can circumvent our security might be able to misappropriate proprietary information or cause interruptions in our operations. Security breaches could also expose us to a risk of loss or litigation and possible liability for failing to secure confidential customer information. If any such compromise of our security were to occur, it could hurt our business. See "--Dependence on Continued Growth of Online Commerce and Internet Infrastructure," "--Rapid Technological Change," "Risk of System Failure" and "Business--Products and Services." Dependence on Experience, Attraction and Retention of Key Employees. We depend substantially on the continued services and performance of our senior management, particularly Michael J. Hartley, the Chairman of the Board, Chief Executive Officer and President and certain other key personnel. The loss of the services of any of these executive officers or other key employees could hurt our business. We do not have employment agreements with any of our key personnel. In addition, most members of our senior management group have been recruited and hired over the past 18 months. These individuals may not be able to fulfill their responsibilities adequately and may not remain with us. Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer service personnel. Competition for such personnel is intense. The location of our headquarters in Hawaii may also make it more difficult to attract qualified personnel from the mainland. We may not able to attract, assimilate or retain sufficiently qualified personnel. In particular, we may encounter difficulties in attracting a sufficient number of qualified software developers for our online services and transaction-processing systems. The failure to retain and attract necessary technical, managerial, marketing and customer service personnel could hurt our business and impair our growth strategy. 13 Although none of our employees is represented by a labor union, our employees may join or form a labor union. See "Management" and "Business-- Employees." Risks Associated with Offering New Services. We plan to introduce new and expanded services. For example, we have started to offer hotel and auto rental reservations. We may not be able to offer such services in a cost-effective or timely manner and our efforts may not be successful. Further, any new service that is not favorably received by customers could damage our reputation or brand name. Expansion of our services could also require significant additional expenses and may strain our management, financial and operational resources. Our inability to generate revenues from such expanded services or products sufficient to offset their development or offering cost could hurt our business. See "--Management of Potential Growth" and "Business--Cheap Tickets Growth Strategy." Risks Associated with Potential Acquisitions. We may in the future broaden the scope and content of our business through the acquisition of existing complementary businesses. For instance, we may consider the acquisition of companies providing similar services in international markets or in other sectors of the travel industry. We are not currently contemplating any such acquisitions. Future acquisitions would expose us to increased risks. These include risks associated with: . the assimilation of new operations, sites and personnel; . the diversion of resources from our existing businesses, sites and technologies; . the inability to generate revenues from new sites or content sufficient to offset associated acquisition costs; . the maintenance of uniform standards, controls, procedures and policies; and . the impairment of relationships with employees and customers as a result of integration of new businesses. Acquisitions may also result in additional expenses associated with amortization of acquired intangible assets or potential businesses. We may not be successful in overcoming these risks or any other problems encountered in connection with such acquisitions, and our inability to manage these risks could hurt our business. See "Business--Cheap Tickets Growth Strategy." Risks Associated with International Expansion. One component of our growth strategy is to expand internationally. We may expend significant financial and management resources to establish local offices overseas, create localized user interfaces and comply with local customs and regulations. If the revenues generated by these international operations are insufficient to offset the expense of establishing and maintaining them, our business could be hurt. To date, we have no experience in developing localized versions of our online sites or offshore call centers and only limited experience in marketing and distributing our travel services internationally. We may not be able to expand our operations successfully in such markets. Conducting business on an international level also involves certain inherent risks, such as unexpected changes in regulatory requirements, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, political instability, currency rate fluctuations, seasonality in leisure travel in certain countries and potentially adverse tax consequences. One or more of the foregoing factors could hurt our future international operations and, consequently, our business generally. See "Business--Cheap Tickets Growth Strategy." 14 Future Capital Needs. Based on our current operating plan, we anticipate that the net proceeds of this Offering, together with our available funds and bank lines, will be sufficient to satisfy our anticipated needs for working capital, capital expenditures and business expansion for the foreseeable future. After that time, we may need additional capital. Alternatively, we may need to raise additional funds sooner in order to fund more rapid expansion, to develop new or enhanced services, or to respond to competitive pressures. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our stockholders will be diluted. Further, any new securities could have rights, preferences and privileges senior to those of the Common Stock. We currently do not have any commitments for additional financing. We cannot be certain that additional financing will be available in the future to the extent required or that, if available, it will be on acceptable terms. If adequate funds are not available on acceptable terms, we may not be able to fund our expansion, develop or enhance our products or services or respond to competitive pressures. See "Use of Proceeds," "Description of Capital Stock" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Year 2000 Risks. The risks posed by Year 2000 issues could hurt our business in a number of significant ways. Our information technology system could be substantially impaired or cease to operate due to Year 2000 problems. Additionally, we rely on information technology supplied by third parties, and our participating sellers are also heavily dependent on information technology systems and on their own third party vendors' systems. The main supplier of our reservations system is SABRE. Currently, over 90% of our transactions are processed through SABRE. Year 2000 problems experienced by us or any such third parties could hurt our business. Additionally, the Internet could face serious disruptions arising from the Year 2000 problem. We are evaluating our internal information technology systems and contacting our information technology suppliers and participating sellers to ascertain their Year 2000 status. However, our own systems may not be Year 2000 compliant in a timely manner, any of our participating sellers or other website vendors may not be Year 2000 compliant in a timely manner, and there may be significant interoperability problems among information technology systems. Consumers may not be able to visit our website without serious disruptions arising from the Year 2000 problem. Given the pervasive nature of the Year 2000 problem, disruptions in other industries and market segments may hurt our business. Moreover, the costs related to Year 2000 compliance could be significant. Finally, Year 2000 issues may impact other entities with which we do business, including, for example, those responsible for maintaining telephone and Internet communications. Accordingly, we cannot predict the effect of the Year 2000 problem on such entities. If these other entities fail to take preventive or corrective actions in a timely manner, the Year 2000 issue could hurt our business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Compliance." Uncertain Protection of Intellectual Property; Risks of Third Party Licenses. We regard our copyrights, service marks, trademarks, trade secrets and similar intellectual property as critical to our success. We rely on a combination of laws and contractual restrictions, including trademark and copyright law, trade secret protection and confidentiality and/or license agreements with our employees, customers, partners and others to establish and protect our proprietary rights. However, laws and contractual restrictions may not be sufficient to prevent misappropriation of our technology or deter others from developing similar technologies. We pursue the registration of certain of our key trademarks and service marks in the United States. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our products and services are made available. The steps we have taken to protect our proprietary rights may not be adequate, third parties may infringe or misappropriate our copyrights, trademarks, 15 trade dress and similar proprietary rights, and we may be required to incur significant expenses preserving our rights. In addition, other parties may assert infringement claims against us. We may be subject to legal proceedings and claims from time to time in the ordinary course of our business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties by us. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources. See "--Domain Names," "Business--Proprietary Rights" and "Business-- Cheap Tickets Business Strategy." Domain Names. We currently hold the Internet domain name "www.cheaptickets.com," as well as various other related names. Domain names generally are regulated by Internet regulatory bodies. The regulation of domain names in the United States and in foreign countries is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not acquire or maintain the "www.cheaptickets.com" domain name in all of the countries in which we conduct business. The relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we may be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our trademarks and other proprietary rights. See "--Uncertain Protection of Intellectual Property; Risks of Third Party Licenses," "--Governmental Regulation and Legal Uncertainties," "Business--Proprietary Rights" and "Business--Governmental Regulation and Legal Uncertainties." Governmental Regulation and Legal Uncertainties. Certain segments of the travel industry are heavily regulated by the United States and other governments. Accordingly certain services offered by us are affected by such regulations. For example, we are subject to federal regulations prohibiting unfair and deceptive practices. In addition, federal regulations concerning the display and presentation of information currently applicable to airline booking services could be extended to us in the future, as well as other laws and regulations aimed at protecting customers accessing online or other travel services. In California, Hawaii and certain other states, we are required to register as a seller of travel, comply with certain disclosure requirements and participate in the state's restitution fund. We are also subject to regulations applicable to businesses generally and laws or regulations applicable to online commerce. Currently, few laws and regulations directly apply to the Internet and commercial online services. However, it is possible that laws and regulations may be adopted with respect to the Internet or commercial online services covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust and characteristics and quality of products and services. Further, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws. Such laws would likely impose additional burdens on companies conducting business online. The adoption of any additional laws or regulations may decrease the growth of the Internet or commercial online services. In turn, this could decrease the demand for our products and services and increase our cost of doing business, or otherwise hurt our business. Moreover, in many states, there is currently great uncertainty whether or how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet and commercial online services. These issues may take years to resolve. For example, tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes. New legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and commercial online services could hurt our business. See "--Domain Names," "--Dependence on Continued Growth of Online Commerce and Internet Infrastructure" and "Business--Governmental Regulation and Legal Uncertainties." 16 Federal legislation imposing certain limitations on the ability of states to impose taxes on Internet-based sales was enacted in 1998. The Internet Tax Freedom Act, as this legislation is known, imposes a three-year moratorium on state and local taxes on electronic commerce (unless such taxes were in effect prior to October 1, 1998) but only where such taxes are discriminatory on Internet access. It is possible that the legislation could not be renewed when it terminates in October 2001. Failure to renew the legislation could allow state and local government to impose taxes on Internet-based sales, and such taxes could hurt our business. Broad Management Discretion over Allocation of Proceeds. The net proceeds of this Offering are estimated to be approximately $[ ] million (approximately $[ ] million, if the Underwriters' over-allotment option is exercised in full) at an assumed initial public offering price of $[ ] per share and after deducting the estimated underwriting discount and estimated offering expenses. Our management will retain broad discretion as to the allocation of approximately $ million of the proceeds of this Offering. See "Use of Proceeds." No Prior Market for Our Common Stock; Volatility of Stock Price. Prior to this Offering, you could not buy or sell our Common Stock publicly. An active market for our Common Stock may not develop or be sustained after this Offering. With the Underwriters, we will determine the offering price for our Common Stock. That price may bear no relationship to the price at which the Common Stock will trade after completion of this Offering. The market price of the Common Stock is likely to be volatile and could be subject to significant fluctuations in response to factors such as the following, some of which are beyond our control: . quarterly variations in our operating results; . operating results that vary from the expectations of securities analysts and investors; . changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors; . changes in market valuations of other travel, Internet or online service companies; . announcements of technological innovations or new services by us or our competitors; . announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; . loss of one or more major travel suppliers; . additions or departures of key personnel; . future sales of our Common Stock; and . stock market price and volume fluctuations. Domestic and international stock markets often experience extreme price and volume fluctuations. These fluctuations, as well as general political and economic conditions, such as a recession or interest rate or currency rate fluctuations, may adversely affect the market price of our Common Stock. The market prices for stocks of Internet-related and technology companies, particularly following an initial public offering, frequently reach levels that bear no relationship to the operating performance of these companies. These market prices generally are not sustainable and are subject to wide variations. If our Common Stock trades to such levels following this Offering, it likely will thereafter experience a material decline. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources. 17 Control by Current Stockholders. Upon consummation of this Offering, Michael J. Hartley, Chairman of the Board, Chief Executive Officer and President of the Company, and Sandra T. Hartley, Vice President, Employee Relations and Director and wife of Michael J. Hartley, together with their respective affiliates, will beneficially own approximately [ ] and [ ] percent, respectively ([ ] and [ ] percent, respectively, if the Underwriters' over-allotment option is exercised in full), of our outstanding Common Stock, subject to certain adjustments. As a result, if they act together, they will have the ability to control the outcome on all matters requiring stockholder approval (including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets) and to control our management and affairs. Such control could discourage others from initiating potential merger, takeover or other change of control transactions. As a result, the market price of our Common Stock could be adversely affected. See "Principal Stockholders." Effect of Preferred Stock on Common Stock; Anti-Takeover Effect of Certain Charter Provisions. Our Board of Directors has the authority to issue up to [5,000,000] shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. We have outstanding [425,000] shares of Mandatorily Redeemable Preferred Stock, all of which are required to be redeemed by us upon the closing of the Offering. We have no present plans to issue any additional shares of Preferred Stock, but we may do so. The rights of the holders of Common Stock may be subject to, and adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. Moreover, the issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change of control of the Company without further action by the stockholders and may adversely affect the voting and other rights of the holders of Common Stock. This could have an adverse impact on the market price of our Common Stock. Further, certain provisions of our charter documents, including provisions permitting stockholders to take action by written consent with a two-thirds vote and limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice, may have the effect of delaying or preventing changes in control or management of the Company. These governance provisions also could hurt the market price of our Common Stock. See "Description of Capital Stock." Shares Eligible for Future Sale. Sales of substantial amounts of our Common Stock in the public market after this Offering could adversely affect the prevailing market price of the Common Stock. Immediately upon the effectiveness of this Offering, [ ] shares will be freely tradable. Commencing 180 days following the date of this Offering, an additional [ ] shares will become freely tradable upon the expiration of agreements not to sell such shares, subject to compliance with Rule 144 promulgated under the Securities Act of 1933, as amended. The remaining [ ] shares will become freely tradable at various times thereafter. William Blair & Company, L.L.C. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to these agreements. Immediately after this Offering, we intend to register approximately [ ] shares of our Common Stock reserved for issuance under our stock option plan. Sales of Common Stock by stockholders upon expiration of the lock-up agreements may adversely affect the market price of the Common Stock. See "Underwriting." As of the effective date of the Registration Statement, holders of [212,104] shares of Common Stock will be entitled to registration rights with respect to their shares. Holders of such shares can require us to register the shares at any time following 180 days after the effective date, subject to certain conditions. See "Shares Eligible for Future Sale" and "Description of Capital Stock--Registration Rights." Dilution. The initial public offering price is expected to be substantially higher than book value per share of the outstanding Common Stock. Investors purchasing shares of Common Stock will incur immediate substantial dilution in the amount of $ per share. In addition, investors purchasing shares in the Offering will incur additional dilution to the extent outstanding options are exercised. See "Dilution." 18 FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this Prospectus constitute forward- looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, those listed under "Risk Factors" and elsewhere in this Prospectus. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "plans," "intends," " anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor anyone else assumes responsibility for the accuracy and completeness of such statements. We are under no duty to update any of the forward-looking statements after the date of this Prospectus. 19 USE OF PROCEEDS The net proceeds to the Company from the Offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, are estimated to be $ million ($ million if Underwriters exercise their over-allotment option in-full) at an assumed initial public offering price of $ per share. During 1999, the Company intends to use a significant amount of such proceeds for advertising and brand development expenditures and approximately $9 million for development of the Company's technological infrastructure in order to support growth. An additional use of proceeds will be the redemption of the existing Mandatorily Redeemable Preferred Stock for approximately $4.8 million, the substantial majority of which is held by Phillips-Smith Specialty Retail Group III, L.P. Two of the Company's directors are principals of that group. The balance of the proceeds will be used for general corporate purposes, including working capital, and to fund additional advertising and brand development expenditures and technological infrastructure. The Company may apply an undetermined amount of the proceeds toward the acquisition of complementary businesses. The Company has no agreements or understandings with respect to any such acquisition. Pending application, the net proceeds will be invested in short-term, investment grade, interest-bearing obligations. See "Risk Factors--Future Capital Needs." DIVIDEND POLICY The Company has never declared or paid dividends on its Common Stock and anticipates for the foreseeable future that all earnings will be retained for use in its business. The payment of any future dividends will be at the discretion of the Board of Directors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 20 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1998, and as adjusted to give effect to the sale of shares of Common Stock offered by the Company and the application of net proceeds therefrom. See "Use of Proceeds." The table should be read in conjunction with the financial statements and notes thereto included elsewhere in this Prospectus.
September 30, 1998 ---------------------- Actual As Adjusted(1) ------ -------------- (in thousands) Long-term debt, excluding current installments...... $ 638 $ 638 Capital lease obligations, excluding current installments....................................... 460 460 ------ ------ Total debt (2).................................... 1,098 1,098 ------ ------ Mandatorily Redeemable Preferred Stock, $1 par value (aggregate involuntary liquidation preference of $4,250,000 plus unpaid cumulative dividends), 425,000 shares issued and outstanding (actual); none issued or outstanding (as adjusted)(3)........ 4,007 -- ------ ------ Stockholders' equity: Preferred stock, $1 par value--authorized 5,000,000 shares; 425,000 shares of Mandatorily Redeemable Preferred Stock issued and outstanding (actual); none issued or outstanding (as adjusted)........................................ -- -- Common stock, $.01 par value; 5,000,000 shares authorized, 1,033,834 shares issued and outstanding (actual); [ ] shares issued and outstanding (as adjusted) (4).................... $ 10 Additional paid-in capital........................ 551 Unearned compensation............................. (25) Retained earnings................................. 1,361 ------ ------ Total stockholders' equity....................... 1,897 ------ ------ Total capitalization........................... $7,002 $ ====== ------
- -------- (1) As adjusted to reflect the receipt of the net proceeds of the Offering, the redemption of the Preferred Stock, the exercise of [212,104] warrants at [$.01] per share and the immediate recognition of unearned compensation related to certain stock options that fully vest upon the completion of this Offering. (2) Total debt excludes the Company's current installments of long-term debt of $191,000 and current installments of capital lease obligations of $171,000. See Notes 3 and 8 to Financial Statements. (3) The Mandatorily Redeemable Preferred Stock amount is presented net of unaccreted issuance costs and discount aggregating $667,505, and includes unpaid cumulative dividends, which are required to be paid at redemption of $425,000. Total redemption value, including dividends of $600,000 upon the closing of this Offering is expected to be $4,800,000. After redemption, the Company will continue to have [5,000,000] authorized shares of preferred stock, which may be issued with or without mandatory redemption features. (4) As of September 30, 1998, there were stock options outstanding to purchase an aggregate of [47,200] shares of Common Stock at an exercise price of [$2.50] per share and [94,250] shares were reserved for future issuance under the Company's employee stock plan. In addition, there were warrants outstanding to purchase an aggregate of [212,104] shares of Common Stock at an exercise price of [$.01] per share. See "Management--Employee Stock Plans." 21 DILUTION As of September 30, 1998, the Company had a historical and pro forma net tangible book value of approximately $ or $ per share of Common Stock, and $ or $ per share of Common Stock, respectively. Pro forma net tangible book value represents total tangible assets less total liabilities, including the effect of the redemption of Mandatorily Redeemable Preferred Stock and the exercise of certain warrants, divided by the number of shares of Common Stock outstanding at that date including shares of Common Stock to be issued upon the exercise of warrants. Without taking into account any other changes in the pro forma net tangible book value after September 30, 1998, other than to give effect to the receipt by the Company of the net proceeds from the sale of the shares of Common Stock offered by the Company hereby at the initial public offering price of $ per share, the pro forma net tangible book value at September 30, 1998 would have been approximately $ or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares of Common Stock in this Offering. The following table illustrates this per share dilution: Initial public offering price per share............................. $ Net tangible book value per common share as of September 30, 1998... Effect of pro forma adjustments:.................................... Redemption of Mandatorily Redeemable Preferred Stock.............. Exercise of warrants.............................................. --- Pro forma net tangible book value per share......................... Increase per share attributable to new investors.................... --- Pro forma net tangible book value per share after the Offering...... --- Dilution per share to new investors................................. $ ===
The following table summarizes, on a pro forma basis, as of September 30, 1998, the differences between the number of shares of Common Stock purchased from the Company, the aggregate consideration paid and the average price per share paid by existing stockholders and new investors purchasing shares of Common Stock in this Offering:
Shares Total Purchased Considerations Average -------------- -------------- Price Number Percent Amount Percent Per Share ------ ------- ------ ------- --------- Existing stockholders(1)........... % $ % $ New investors(1)................... --- ----- --- ----- Total............................ 100.0% $ 100.0% === ===== === =====
- -------- (1) The foregoing tables include an aggregate of [212,104] shares issuable upon exercise of warrants outstanding as of September 30, 1998 at an exercise price of [$.01] per share,all of which are expected to be exercised immediately prior to the closing of this Offering. Also includes the redemption of [425,000] shares of Preferred Stock outstanding as of September 30, 1998. Excludes (a) [47,200] shares issuable upon exercise of outstanding options at a weighted average exercise price of [$2.50] per share as of September 30, 1998, and (b) an aggregate of [94,203] shares available for future issuance under the Company's 1997 Stock Option Plan. See "Management--Employee Stock Plans" and Notes 5 and 12 to Financial Statements. 22 SELECTED FINANCIAL DATA (in thousands, except per share and operating data) The following selected financial data for the years ended December 31, 1995, 1996 and 1997 and as of December 31, 1996 and 1997 have been derived from the Company's Financial Statements included elsewhere in this Prospectus which have been audited by PricewaterhouseCoopers LLP, independent public accountants. The following selected financial data for the years ended December 31, 1993 and 1994 and as of December 31, 1993, 1994 and 1995 have been derived from the audited financial statements of the Company not included in this Prospectus. The operating data are derived from information compiled by the Company and are unaudited. The selected financial data for the nine months ended September 30, 1997 and 1998 and as of September 30, 1998 are derived from unaudited financial data of the Company included elsewhere in this Prospectus. Results of Operations for interim periods are not necessarily indicative of results to be expected for the entire year. The following information is qualified by reference to, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and related Notes thereto included elsewhere in the Prospectus.
Nine Months Ended September 30, Year Ended December 31, (unaudited) ------------------------------------------------ ------------------ 1993 1994 1995 1996 1997 1997 1998 ------- ------- ------- -------- -------- -------- -------- Gross bookings (unaudited)--(1)....... $36,597 $52,951 $91,994 $105,944 $153,674 $112,084 $199,115 ======= ======= ======= ======== ======== ======== ======== Results of Operations: Non-published fares..... $ -- (2) $ -- (2) $66,340 $ 58,982 $ 96,379 $ 73,714 $122,995 Commissions............. -- (2) -- (2) 2,738 5,614 6,470 4,674 8,053 ------- ------- ------- -------- -------- -------- -------- Net revenues(1)........ -- (2) -- (2) 69,078 64,596 102,849 78,388 131,048 Cost of sales........... -- (2) -- (2) 56,424 49,168 81,370 61,985 104,547 ------- ------- ------- -------- -------- -------- -------- Gross profit............ 5,230 8,128 12,654 15,428 21,479 16,403 26,501 Selling, general and administrative expenses............... 4,530 7,947 11,921 14,352 23,091 16,561 24,093(3) ------- ------- ------- -------- -------- -------- -------- Net operating income (loss)................. 700 181 733 1,076 (1,612) (158) 2,408 Other income (deductions)........... (36) 31 (709) 37 (3) (30) 89 ------- ------- ------- -------- -------- -------- -------- Earnings (loss) before income taxes........... 664 212 24 1,113 (1,615) (188) 2,497 Income taxes............ 247 60 7 439 (606) (77) 1,024 ------- ------- ------- -------- -------- -------- -------- Net earnings (loss)..... $ 417 $ 152 $ 17 $ 674 $ (1,009) $ (111) $ 1,473 ======= ======= ======= ======== ======== ======== ======== Basic earnings (loss) per share(4)........... $ [0.40 $ 0.14 $ 0.02 $ 0.63 $ (1.14) $ (0.22) $ 1.00] ======= ======= ======= ======== ======== ======== ======== Number of shares used in computing basic earnings (loss) per share(4)............... [1,054 1,054 1,054 1,065 1,108 1,108 1,090 Diluted earnings (loss) per share(4)........... $ [0.40 $ 0.14 $ 0.02 $ 0.63 $ (1.14) $ (0.22) $ 0.84] ======= ======= ======= ======== ======== ======== ======== Number of shares used in computing diluted earnings (loss) per share(4)............... [1,054 1,054 1,054 1,065 1,108 1,108 1,302 Operating Data: Airline tickets sold:... 124,847 180,656 313,863 357,551 554,403 393,936 682,239 Call centers........... 124,847 180,656 313,863 357,551 552,383 393,936 626,184 Internet............... -- -- -- -- 2,020 -- 56,055 Registered Internet users.................. -- -- -- -- 5,000 -- 250,218 Balance Sheet Data: Net working capital..... $ 407 $ 451 $ 182 $ 466 $ 2,356 $ 3,453 $ 4,247 Total assets............ 2,704 2,954 3,740 5,999 11,204 14,133 14,903 Long-term debt.......... 608 653 537 1,715 948 933 1,098 Mandatorily Redeemable Preferred Stock(5)..... -- -- -- -- 3,622 3,493 4,007 Stockholders' equity.... 697 849 866 1,544 812 1,832 1,897
- -------- (1) Gross bookings is a memorandum item and is not included in the Company's results of operations. It consists of the aggregate retail value of non- published fares and published fares that are sold on a commission basis. Net revenues consist of sales of non- 23 published fares and commissions. Commissions (including incentive overrides) are earned primarily on published fares sold and include certain other payments based on the volume of transactions. Gross bookings are not required by GAAP and should not be considered in isolation or as a substitute for other information prepared in accordance with GAAP. The Company believes that gross bookings provide a useful comparison between historical periods, and year-to-year changes in such information provide a useful measure of market acceptance of the Company's products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." (2) Net revenues for 1993 and 1994 were not separately identified from gross bookings and are not available. In addition, cost of sales for 1993 and 1994 were previously accounted for on a gross bookings basis and are not available on a GAAP basis. (3) In the second quarter of 1998, the Company issued stock options to employees to acquire [47,200] shares of the Company's Common Stock at [$2.50] per share. Total compensation associated with these options amounted to $26,600 of which $1,795 has been charged to operations for the nine months ended September 30, 1998. The remainder will be charged over the remaining five-year vesting period of the options, with the exception of $1,000, which will be charged at the closing of the Offering at which time [10,000] options vest by their terms. (4) See Notes 1 and 5 to the Financial Statements for the calculation of earnings per share, including an explanation of the number of shares used in computing the amount of basic and diluted earnings per share. [Further adjustment for pre-offering split.] (5) The Mandatorily Redeemable Preferred Stock is required to be redeemed upon the closing of this Offering. The redemption price upon the closing of this Offering will be approximately $4.8 million. See "Capitalization." The Preferred Stock was issued at a discount of $885,170. The Company is accreting the discount over a five-year period. At redemption, it is anticipated that the unaccreted discount will be $580,439. Upon redemption, the unaccreted discount will be charged directly to stockholders' equity, and have a dilutive effect on the calculation of earnings per share. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and notes thereto of the Company. In evaluating the risks of investing in this Company, prospective investors should also evaluate the other information set forth in this Prospectus, including the Risk Factors. Overview The Company is principally engaged in the sale of discount tickets for domestic leisure air travel. A majority of its gross bookings have historically come from the sale of non-published fares, which the Company acquires from airlines and resells to the public at a profit. The Company purchases non- published fares only when it resells them to customers, so that it carries no inventory. On these fares, the Company sets its resale prices to meet the demands of leisure travelers who are looking for the lowest price. The Company also sells published fares for which it receives commissions from the airlines. Sales of non-published fares generally carry higher margins as a percentage of gross bookings than commissions on published fare bookings. The Company's revenues have been generated by ticket sales through the Company's four call centers and, to a lesser extent, through 12 walk-in retail stores. In October 1997, the Company broadened its ticket distribution by offering online booking at "www.cheaptickets.com." Internet bookings have experienced significant month-to-month growth in 1998 and accounted for approximately 9% of total gross bookings in 1998 and approximately 15% in the last quarter of 1998. At December 31, 1998, the Company had over 430,000 registered online users, with 180,000 registering in the fourth quarter of 1998. The Company expects online gross bookings and net revenue to represent an increasing portion of gross bookings and net revenues in future periods. The Company discloses gross bookings as a memorandum item in selected financial data. It consists of the aggregate retail value of non-published fares and published fares that are sold on a commission basis. Gross bookings are not required by GAAP and should not be considered in isolation or as a substitute for other information prepared in accordance with GAAP. Management uses gross bookings for various management purposes, including as a measure of general business activity, success of promotional efforts, capacity to handle customer demand and efficiency of reservation agents. In addition, management believes that gross bookings provide a useful comparison between historical periods, and period-to-period changes in such information provide a useful measure of market acceptance of the Company's products. Net revenues consist of sales of non-published fares and commissions. Commissions (including incentive overrides) are earned primarily on published air fares sold and include certain other payments based on the volume of transactions. Substantially all of the Company's gross bookings represent sales of airline tickets. For the nine months ended September 30, 1998, approximately 98% of gross bookings arose from airline ticket sales. The remaining gross bookings arose from sales of cruise tickets, auto rentals, hotel reservations and other travel related products. The Company expects gross bookings from sources other than airline ticket sales to increase in future periods. The Company's cost of sales consists of the net fare cost paid to carriers to acquire non-published fares. The Company's selling, general and administrative expenses include all operating and corporate overhead. Major expense categories include compensation, advertising, communications, credit card bank fees, occupancy and delivery costs. Selling, general and administrative expenses also include compensation charges related to the issuance of stock options. Results of Operations The following table sets forth, for the years ended December 31, 1995, 1996 and 1997 and for the nine months ended September 30, 1997 and 1998, information derived from the statement of operations of the 25 Company expressed as a percentage of net revenues, and the percentage change in such items and in gross bookings for the years ended December 31, 1996 and 1997 and the nine months ended September 30, 1998 compared with the prior period. Any trends illustrated in the following table are not necessarily indicative of future results.
Percentage Increase As a Percentage of Net Revenues (Decrease) Over Prior Periods ----------------------------------- ------------------------------- Nine Months Nine Months Year Ended Ended Year Ended Ended December 31, September 30, December 31, September 30, ------------------- -------------- ---------------- ------------- 1995 to 1996 to 1995 1996 1997 1997 1998 1996 1997 1997 to 1998 ----- ----- ----- ------ ------ ------- ------- ------------- Gross bookings (unaudited)............ -- -- -- -- -- 15.2% 45.1% 77.6% ===== ====== ==== Results of Operations: Non-published fares..... 96.0% 91.3% 93.7% 94.0% 93.9% (11.1)% 63.4% 66.9% Commissions............. 4.0 8.7 6.3 6.0 6.1 105.0 15.2 72.3 ----- ----- ----- ------ ------ Net revenues.......... 100.0 100.0 100.0 100.0 100.0 (6.5) 59.2 67.2 Gross profit............ 18.3 23.9 20.9 20.9 20.2 21.9 39.2 61.6 Selling, general and administrative expense................ 17.2 22.2 22.5 21.1 18.4 20.4 60.9 45.5 ----- ----- ----- ------ ------ Earnings (loss) from operations........... 1.1 1.7 (1.6) (0.2) 1.8 46.7 (249.8) nm* Net earnings (loss)..... 0.0 1.0 (1.0) (0.1) 1.1 nm* (249.7) nm*
- -------- *nm--not meaningful Nine Months Ended September 30, 1998 and September 30, 1997 Gross Bookings. For the nine months ended September 30, 1998, gross bookings increased $87.0 million, or 77.6%, to $199.1 million. The increase in gross bookings benefited overall from industry-wide growth in the leisure travel market and improving recognition of the Cheap Tickets brand name from marketing and advertising efforts and word of mouth. Gross bookings at call centers also benefited from better productivity by call center reservation agents and the opening of a fourth call center in Colorado Springs in May of 1998. In addition, $13.5 million, or 15.5%, of the increase in gross bookings was attributable to sales generated over the Internet through the Company's website, which was launched in October 1997. For the nine months ended September 30, 1998, customers made approximately 92.8% of airline ticket bookings through call centers and approximately 7.2% over the Internet. For the comparable period in 1997, no Internet bookings were recorded. For the nine months ended September 30, 1998, sales of non-published fares accounted for 61.8% of gross bookings compared with 65.8% for the prior period; conversely, gross bookings of published fares accounted for 38.2% of gross bookings, compared with 34.2% in the prior period. Sales through the Internet for the nine months ended September 30, 1998 contributed to the increase in the percentage of gross bookings of published fares because published fare sales constituted a higher percentage of Internet sales than of sales made through the Company's call centers for that period. A fare war in the third quarter of 1998 also contributed to the lower percentage of gross bookings of non-published fares. Net Revenues. Net revenues for the nine months ended September 30, 1998 increased $52.7 million, or 67.2%, to $131.0 million. The increase was attributable to the same factors as those for the increase in gross bookings, explained above. By category of net revenue, non-published fare sales increased $49.3 million, or 66.9%, to $123.0 million, and commissions from published fares increased $3.4 million, or 72.3%, to $8.1 million. The higher growth rate in commissions reflected the higher percentage of gross bookings of published fares for the nine months ended September 30, 1998, partially offset by a decrease in commission rates. The Company's net revenues through call centers (including incentive bonuses) increased $45.4 million, or 57.9%, to $123.8 million. Net revenues through the Internet were $7.2 million compared with none for the comparable period in 1997. Net revenues through the Internet represented 5.5% of net revenues for the nine months ended September 30, 1998. Internet net revenues for the first three quarters of operations grew as follows: first quarter 1998, $1.0 million; second quarter 1998, $2.3 million; third quarter 1998, $3.9 million. 26 Gross Profit. Gross profit increased $10.1 million, or 61.6%, to $26.5 million, consistent with the rate of increase of gross bookings. As a percentage of net revenues, gross profit decreased from 20.9% to 20.2%. This decrease was primarily attributable to a decrease in gross margins of 0.9 percentage points on non-published fares. The decrease in non-published fare margins was primarily attributable to a contract renewal with one carrier at a less favorable rate. A decrease in gross margins on sales of published fares and a decline in the proportion of non-published fares sold, partially offset by increased volume bonuses, also contributed to the reduction in gross profit. Selling, General and Administrative Expenses. For the nine months ended September 30, 1998, selling, general and administrative expenses increased $7.5 million, or 45.5%, to $24.1 million, and decreased as a percentage of net revenues from 21.1% to 18.4%. The major components of these increases were compensation, credit card and bank fees, and advertising costs. The increase in advertising costs was primarily attributable to the Company's website launch in October 1997, including promotions on Yahoo, Travelocity and other websites. Internet marketing costs can be expected to increase significantly in future periods to promote Internet sales. Credit card fees increased as a result of volume and rate increases charged by the Company's charge card associations. The decrease in selling, general and administrative expenses as a percentage of net revenues was primarily attributable to the leverage from increased sales. In the second quarter of 1998, the Company issued stock options to employees to acquire [47,200] shares of the Company's Common Stock at [$2.50] per share. Total compensation associated with these options amounted to $26,600, of which $1,795 has been charged to operations for the nine months ended September 30, 1998. The remainder will be charged over the remaining five-year vesting period of the options, with the exception of $1,000, which will be charged at the closing of the Offering, at which time [10,000] options vest by their terms. Net Earnings (Loss). The Company had net earnings of $1.5 million for the nine months ended September 30, 1998, compared with the prior period's loss of $111,000. This increase was attributable to increased net revenues, with a proportionately lower increase in selling, general and administrative expenses, partially offset by lower gross profit percentages. Years Ended December 31, 1997 and December 31, 1996 Gross Bookings. For the year ended December 31, 1997, gross bookings increased $47.7 million, or 45.1%, to $153.7 million, primarily from continued industry-wide growth in the leisure travel industry and enhanced recognition of the Cheap Tickets brand name from marketing and advertising efforts. The increase was also associated with increases in capacity, including the expansion of existing call centers and higher reservation agent productivity. Net Revenues. Net revenues increased $38.3 million, or 59.2%, to $102.8 million. The increase in net revenues was attributable to the same factors as the increase in gross bookings. During 1997, the increase in net revenues reflected the growth of non-published fare sales by $37.4 million, or 63.4%, to $96.4 million. By contrast, net revenues from commissions increased only $856,000, or 15.2%, to $6.5 million. The slower growth of net revenues from commissions was attributable to slower growth in gross bookings of published fares and a decrease from 10% to 8% in commissions on published fares implemented by a number of air carriers during 1997. In 1997, nearly all of the Company's net revenues were generated through call centers, with the exception of approximately $176,000 from Internet sales following the launch of the Company's website in October 1997. Net revenues from non-published fare sales in 1997 represented 62.7% of gross bookings, compared with 55.7% in 1996. Gross Profit. Gross profit increased by $6.1 million, or 39.2%, to $21.5 million and decreased as a percentage of net revenues from 23.9% to 20.9%. The decrease of 3.0% as a percentage of net revenues was 27 primarily attributable to decreases in gross margins of 0.6 percentage points on non-published fare sales and of 2.4 percentage points on commissions and incentive bonuses, partially offset by an increase in the proportion of gross bookings of non-published fares. The decrease in non-published fare margins was partially attributable to the termination in 1997 of certain profitable routes and the imposition of various restrictions by a major carrier on non-published fares. The decrease in gross profit from commissions was primarily attributable to industry-wide decreases in commission rates on published fares from 10% to 8% during 1997. Selling, General and Administrative Expenses. The Company's selling, general and administrative expenses increased $8.7 million, or 60.9%, to $23.1 million and increased as a percentage of net revenues from 22.2% to 22.5%. These increases resulted primarily from increased employees and infrastructure to support higher levels of sales. The increase in compensation and employee benefits reflected the hiring of over 119 new employees, largely reservation agents and, to a lesser extent, support staff. Other major components of the increase were telephone expense, advertising costs, delivery expenses, and credit card and bank fees. Occupancy costs also rose, with the opening of three additional retail locations and the expansion of space in Honolulu and Los Angeles. Net Earnings (Loss). The Company incurred a net loss in 1997 of $1.0 million, compared with net earnings of $674,000 in 1996. The decrease in net earnings was primarily attributable to the decrease in gross profit as a percentage of net revenues. Years Ended December 31, 1996 and December 31, 1995 Gross Bookings. For the year ended December 31, 1996, gross bookings increased $14.0 million, or 15.2%, to $105.9 million. This reflected an increase in gross bookings of published fares, partially offset by a decrease in gross bookings of non-published fares. The increase in gross bookings was attributable to successful marketing and an increase in call center capacity, including the opening of a third call center in the first quarter of 1996. Net Revenues. Net revenues decreased $4.5 million, or 6.5%, to $64.6 million. The decrease corresponded to a reduction in sales of non-published fares of $7.4 million, or 11.1%, to $59.0 million. Net revenues from commissions increased by $2.9 million, or 105.0%, to $5.6 million. The reduction in non-published fare sales was primarily attributable to the termination of a contract provision with one carrier that had required the Company to sell non-published fares through certain travel agents at low margins, resulting in $10.5 million in net revenues from such sales in 1995, compared with $617,000 in 1996. The reduction in non-published fare sales was partially offset by increased sales of published fares and the commissions resulting therefrom. Gross Profit. Gross profit increased $2.8 million, or 21.9%, to $15.4 million and increased as a percentage of net revenues from 18.3% to 23.9%. This increase was primarily attributable to an increase in gross margins of 0.8 percentage points on non-published fares. This increase was primarily attributable to the procurement of a favorable contract with a major carrier and termination of a net fare contract with less favorable pricing. In addition, the margin on non-published fares increased after the first quarter of 1996 when the Company ceased selling certain low margin non-published fares to specified travel agents. An increase in gross margins on published fares and increased volume bonuses also contributed to the increase in gross profits as a percentage of net revenues, partially offset by a reduction in non-published fare sales. Selling, General and Administrative Expenses. The Company's selling, general and administrative expenses increased $2.4 million, or 20.4%, to $14.4 million and increased as a percentage of net revenues from 17.2% to 22.2%. The largest component of the increase was compensation expense, which was primarily attributable to the opening of the Lakeport call center in January 1996. Net Earnings (Loss). Net earnings increased from $17,000 to $674,000. Higher margins on both non-published and published fare sales contributed to the increase. In addition, there was non-recurring income of $37,000 in 1996, compared with non-recurring expense in 1995 of $709,000. 28 Seasonality and Quarterly Financial Information. The Company's business is seasonal due primarily to customers' leisure travel patterns and changes in the availability of non-published fares. As a result, the Company typically has higher sales and gross profit in the second and third quarters and lower sales and gross profit in the fourth quarter. During periods of high-volume air travel, such as occur in the fourth quarter of each year, the Company historically has had access to fewer non-published fares, and such fares on certain major routes may be blacked out or otherwise unavailable. Online gross bookings may also tend to be seasonal and may decline or grow less rapidly in the summer months. The seasonal sales cycle is fairly predictable, but the cycle may shift year-to-year, corresponding to changes in the economy or other factors affecting the market such as price wars. This could lead to unusual volatility in revenues and earnings. See "Risk Factors-- Unpredictability of Future Revenues; Fluctuations in Quarterly Results." The following table sets forth selected unaudited quarterly financial information for each of the eight quarters in the period ended September 30, 1998, as well as such data expressed as a percentage of the Company's net revenues for the periods presented. This information has been derived from unaudited statements of operations data that, in the opinion of management, are stated on a basis consistent with the audited financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such information in accordance with GAAP. The Company's results of operations for any quarter are not necessarily indicative of the results to be expected in any future period.
Quarter Ended (unaudited) --------------------------------------------------------------------- 1996 1997 1998 ------- ---------------------------------- ------------------------ Sept. Sept. Dec. 31 Mar. 31 June 30 30 Dec. 31 Mar. 31 June 30 30 ------- ------- ------- ------- ------- ------- ------- ------- Gross bookings ......... $25,394 $28,361 $40,764 $42,959 $41,590 $52,754 $70,431 $75,930 ======= ======= ======= ======= ======= ======= ======= ======= Results of operations Non-published fares..... $11,987 $17,798 $27,126 $28,789 $22,666 $30,449 $45,722 $46,823 Commissions............. 1,495 1,381 1,691 1,602 1,796 1,949 2,491 3,614 ------- ------- ------- ------- ------- ------- ------- ------- Net revenues.......... 13,482 19,179 28,817 30,391 24,462 32,398 48,213 50,437 Cost of sales........... 9,803 15,104 22,782 24,097 19,386 25,959 39,016 39,572 ------- ------- ------- ------- ------- ------- ------- ------- Gross profit............ 3,679 4,075 6,035 6,294 5,076 6,439 9,197 10,865 Selling, general and administrative expenses............... 3,522 4,389 5,735 6,439 6,530 6,430 8,128 9,535 ------- ------- ------- ------- ------- ------- ------- ------- Net operating income.... 157 (314) 300 (145) (1,454) 9 1,069 1,330 Other income (deductions)........... (17) 9 (47) 9 27 35 22 32 ------- ------- ------- ------- ------- ------- ------- ------- Earnings (loss) before income taxes........... 140 (305) 253 (136) (1,427) 44 1,091 1,362 Income taxes............ 40 (125) 104 (56) (529) 18 447 559 ------- ------- ------- ------- ------- ------- ------- ------- Net earnings (loss)..... $ 100 $ (180) $ 149 $ (80) $ (898) $ 26 $ 644 $ 803 ======= ======= ======= ======= ======= ======= ======= ======= Basic earnings (loss) per share.............. $ [0.09 $ (0.16) $ 0.13 $ (0.19) $ (0.92) $ (0.09) $ 0.48 $ 0.61] Diluted earnings (loss) per share.............. [0.09 (0.16) 0.13 (0.19) (0.92) (0.08) 0.40 0.52]
29
As a Percentage of Net Revenues Quarter Ended (unaudited) -------------------------------------------------------------------- 1996 1997 1998 ------- ---------------------------------- ------------------------ Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 ------- ------- ------- -------- ------- ------- ------- -------- Non-published fares..... 88.9% 92.8% 94.1% 94.7% 92.7% 94.0% 94.8% 92.8% Commissions............. 11.1 7.2 5.9 5.3 7.3 6.0 5.2 7.2 ----- ----- ----- ----- ----- ----- ----- ----- Net revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Cost of sales........... 72.7 78.8 79.1 79.2 79.3 80.1 80.9 78.5 ----- ----- ----- ----- ----- ----- ----- ----- Gross profit............ 27.3 21.2 20.9 20.8 20.7 19.9 19.1 21.5 Selling, general and administrative expenses............... 26.1 22.9 19.9 21.3 26.6 19.9 16.9 18.9 ----- ----- ----- ----- ----- ----- ----- ----- Net operating income.... 1.2 (1.7) 1.0 (0.5) (5.9) 0.0 2.2 2.6 Other income (deductions)........... (0.2) 0.1 (0.1) 0.1 0.1 0.1 0.1 0.1 ----- ----- ----- ----- ----- ----- ----- ----- Earnings (loss) before income taxes........... 1.0 (1.6) 0.9 (0.4) (5.8) 0.1 2.3 2.7 Income taxes............ 0.3 (0.7) 0.4 (0.1) (2.1) 0.0 1.0 1.1 ----- ----- ----- ----- ----- ----- ----- ----- Net earnings (loss)..... 0.7% (0.9)% 0.5% (0.3)% (3.7)% 0.1% 1.3% 1.6% ===== ===== ===== ===== ===== ===== ===== =====
Liquidity and Capital Resources For the nine months ended September 30, 1998, the Company generated cash from operating activities of $3.2 million, compared with $3.8 million for the nine months ended September 30, 1997. For the nine months ended September 30, 1998, cash generated from operating activities was comprised principally of net earnings plus depreciation of $1.9 million and net changes in working capital and other accounts. For the nine months ended September 30, 1997, cash generated from operating activities was comprised principally of an increase in accounts payable of $4.0 million adjusted by changes in other accounts. For that period, there was a net loss of $111,000, offset by depreciation of $251,000. For the year ended December 31, 1997, the Company generated $1.5 million in cash from operating activities. The Company generated this cash primarily from an increase in accounts payable of $2.5 million, partially offset by a net loss of $1.0 million. The primary account payable is the weekly settlement to the Airline Reporting Corporation ("ARC") for airline tickets purchased less commissions earned. This is generally a significant balance, and the timing of the current ARC payment relative to month-end can cause fluctuations in month- end balances. For 1996, the Company generated cash from operating activities of $411,000. This cash was generated primarily from net earnings plus depreciation of $878,000, partially offset by changes in operating accounts. For 1995, the Company generated cash from operating activities of $651,000. Cash was generated primarily from changes in working capital accounts. Net earnings plus depreciation were $128,000. For the nine months ended September 30, 1998, the Company generated cash from investing activities of $159,000, while in the prior period it used cash in investing activities of $135,000. Capital expenditures for the nine months ended September 30, 1998 and 1997 were $342,000 and $135,000, respectively. During the first nine months of 1998, the Company received $501,000 in proceeds from the sale of a condominium office formerly used as a company office. In 1997, the Company made $496,000 in capital expenditures and raised $3.9 million net of issuance expenses from a private placement of preferred stock. In 1996, the Company made $1.3 million in capital expenditures, primarily consisting of the furnishing and equipping of a new call center in Lakeport, California and the acquisition of additional equipment. In 1995, the Company made $367,000 in capital expenditures. At September 30, 1998, the Company maintained on hand cash and cash equivalents of $9.2 million, and the Company's net working capital was $4.2 million. The Company has available a $3.0 million credit facility with a bank expiring on December 5, 1999. This facility accrues interest at either (1) the bank's base rate or 30 (2) LIBOR plus an applicable margin, at the Company's option. There were no drawdowns against this facility at September 30, 1998. The Company had outstanding long-term debt net of current installments of $637,000 and capital lease obligations of $460,000. Long-term debt included $548,000 for a mortgage on the Lakeport, California call center. The Company believes that the net proceeds from this Offering, together with its current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet its anticipated cash needs for the required redemption of Preferred Stock, working capital, debt service and capital expenditures, at least for the foreseeable future. The Company has budgeted approximately $9 million for capital expenditures in 1999 from proceeds of this Offering, nearly all of which is intended to be used for technological improvements and upgrades. The Company currently is seeking an increase in its bank lines, which are currently undrawn. If cash generated from internal operations is not sufficient to satisfy the Company's liquidity requirements, the Company may seek to increase available bank lines or sell additional equity or debt securities. The sale of convertible debt or equity securities could result in additional dilution to the Company's shareholders. There is no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all. Recently Issued Accounting Standards In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 states that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 131 requires disclosures regarding segments of an enterprise and related information that reflects the different types of business activities in which the enterprise engages and the different economic environments in which it operates. The adoption of SFAS No. 130 in 1998 did not have an effect on the Company's financial statements since the Company does not have elements of comprehensive income other than net earnings. The effect of implementing SFAS No. 131, which is applicable to public companies, has not been determined since the Company is privately owned. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which standardized the disclosure requirements for pension and other postretirement benefits. The Company plans to implement SFAS No. 132 (which does not change existing measurement or recognition standards for the Company's defined contribution plan) in its financial statements for the year ending December 31, 1998. The adoption of this standard is not expected to have a material effect on the Company's financial statements. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires the recognition of all derivative instruments as either assets or liabilities in the statement of financial position and measurement of those derivative instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Currently, the Company does not hold derivative instruments or engage in hedging activities. The adoption of this standard is not expected to have a material effect on the Company's financial statements. In March 1998, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." These standards are effective for the Company's year ending December 31, 1999. The Company has not determined the impact of the implementation of these pronouncements. Year 2000 Compliance. The Company is taking steps to address potential Year 2000 problems. The Company has formed a project team from its systems and technology, finance, telecom and operations departments. The project team is 31 responsible for implementing the following four-phase process: (1) identifying the computer systems and products affected; (2) contacting vendors and suppliers; (3) determining the Year 2000 compliance status of each system and product; and (4) implementing any necessary changes. Although the Company does not currently expect the impact of the Year 2000 issue will be material to systems still under evaluation, the Company could discover (or fail to discover) Year 2000 issues in the course of its evaluation process that would have a material and adverse effect on the Company's business, results of operations or financial condition if not properly addressed. The Company has completed phases one and two and is currently in the process of completing phase three. In addition, the Company has already completed all four phases for several of its systems. Management anticipates that it will complete phase four for all of the Company's significant computer systems by the end of the second quarter of 1999. If the systems material to the Company's operations have not been made Year 2000 compliant upon completion of phases three and four, the Year 2000 issue could have a material and adverse effect on the Company's business, results of operations and financial condition. The Company currently has three types of computer systems or programs which may be affected. They include: (1) reservations database systems, (2) PC/LAN systems and (3) non-informational technology systems. The reservations database systems involve the computer programs and products responsible for airline, cruise, car and hotel reservations and other transactional systems. PC/LAN systems include the Company's personal computer network systems. Non- informational technology systems include systems or hardware containing embedded technology such as micro controllers. The main supplier of the Company's reservation database systems is SABRE. Currently, over 90% of the Company's computing transactions are processed through the SABRE systems. This includes transactions involving airline reservations, booking, ticketing, car and hotel rentals, cruises and accounting. SABRE has advised the Company that it has a Year 2000 implementation plan in place. Further, SABRE has advised the Company that it has already resolved Year 2000 issues for its main computer system--the airlines reservations system. The Company intends to implement all changes required by SABRE for the Company to be Year 2000 compliant by the end of the second quarter of 1999. There can be no assurances that SABRE will be Year 2000 compliant and that the impact of SABRE's non-compliance, if any, would not be material. The Company is currently in the process of replacing all of its PC/LAN computing systems with a completion date scheduled for the second quarter of 1999. All the new PC/LAN systems being installed, including hardware, software, applications and operating systems, have been represented by their vendors to be Year 2000 compliant. The Company believes that any systems that it has not yet replaced do not present any Year 2000 concerns because, to the Company's knowledge, these systems already are Year 2000 compliant or will have Year 2000 upgrades available beginning in the first quarter of 1999. In addition, the Company is currently requiring that any new systems it purchases meet Year 2000 compliance requirements. There can be no assurances that such PC/LAN computing systems will be Year 2000 compliant and that the impact of such non-compliance, if any, would not be material. The Company has not yet evaluated its non-informational technology systems. However, the Company is working with facilities management in each of its operational centers to seek to achieve Year 2000 compliance for these systems before the end of the second quarter of 1999. In addition, the Company has not yet developed a contingency plan in the event that any of its critical computer systems are not Year 2000 compliant by January 1, 2000. Based on the steps being taken and progress to date, management estimates that the expenses for ensuring Year 2000 compliance of its computer products and systems will not have a material adverse effect on operations or earnings, and can be financed out of cash flow from operations. Despite such plans and the Company's assessment of current hardware and software, the assessment of the Company's current state of compliance may not be fully accurate, and the Company's plans for achieving full compliance with Year 2000 issues may not in fact be fully successful. The Company is also in the process of attempting to verify that all of 32 the products supplied by third-party vendors have either resolved the Year 2000 issue or have a published plan to do so. In certain cases, such as with SABRE, the Company has relied in good faith on representations and warranties regarding Year 2000 compliance provided to it by third-party vendors of hardware and software, and on consultants. Such representations and warranties may not be accurate in all material respects and the advice or assessments of consultants may not be reliable. If third parties are not able to make their systems Year 2000 compliant in a timely manner, it could have a material and adverse effect on the Company's business, results of operations and financial condition. Finally, Year 2000 issues may impact other entities with which the Company does business, including, for example, those responsible for maintaining telephone and Internet communications. Accordingly, the Company cannot predict the effect of the Year 2000 problem on such entities. If these other entities fail to take preventive/or corrective actions in a timely manner, the Year 2000 issue could have a material and adverse effect on the Company's business, results of operations and financial condition. See "Risk Factors--Year 2000 Compliance." 33 BUSINESS The Company is a leading retail seller of discount tickets for domestic leisure air travel. In 1998, the Company sold approximately 963,000 airline tickets through call centers, retail stores and its Internet site at "www.cheaptickets.com." The Company is the leading seller of non-published fares for regularly scheduled domestic routes. Non-published fares are tickets that the Company buys from the airlines and resells to consumers at significant discounts off published fares. Sales of non-published fares accounted for approximately 59% of the Company's airline gross bookings in 1998. The Company has rights to buy these fares under contracts from over 25 airline carriers, including America West, American, Continental, TWA and US Airways. It purchases these fares only when it resells them to customers, so that it does not carry inventory. The Company also offers a full complement of regularly published fares, affording customers a breadth of choice in leisure travel tickets at attractive prices which management believes is unmatched in the industry. The Company also sells cruise tickets, auto rentals and hotel reservations. The Company began selling tickets over the Internet in October 1997. In 1998, the Company sold 97,000 tickets through its website, generating $25 million in gross bookings. Internet sales represented approximately 9% of our gross bookings in 1998 and 15% in the fourth quarter of 1998, reflecting the rapid increase in Internet sales as a percentage of gross bookings. At December 31, 1998, the Company had over 430,000 registered online users, with 180,000 registering in the fourth quarter of 1998. Since 1986, the Company has provided an efficient distribution channel for airlines to sell excess capacity without eroding their published fare structures. According to the Air Transport Association ("ATA"), domestic airlines had average excess system capacity of 32.5% from 1995 to 1997, and excess capacity is estimated to be 29.4% in 1998. The Company seeks to match excess capacity with consumer demand for the lowest price available. Currently, the Company offers approximately 375,000 non-published fares at any given time, covering most major domestic and international routes. The Company sets prices on these fares lower than those available on published fares to meet the demands of leisure travelers. These fares contain restrictions typically making them unattractive for full fare passengers, who seek the convenience of tickets that can be exchanged or canceled and do not have advance purchase or minimum stay requirements. Management believes its track record of selling excess capacity without compromising the airlines' fare structures provides a strong incentive for the airlines to continue to use the Company as the premier outlet for the sale of domestic non-published fares. The Company also offers to customers a full menu of regularly published fares in addition to non-published fares. In 1994, the Company became the first non-airline to file its non-published fares through the Airline Tariff Publishing Corporation. This allows the Company to integrate its non-published fares with published fares in a special area of the SABRE reservations system to which only the Company has access. This system automatically sorts through millions of fares, including our non-published fares, to identify the lowest fares available for the desired itinerary. These fares are then posted in ascending price order for use by the Company's reservation agents and Internet customers. Industry Background. Consumers in the United States spent $126 billion on travel through travel agencies in 1997, up from $101 billion in 1995, according to the Travel Weekly 1998 U.S. Travel Agency Survey. According to the same source, the leisure travel component of this market is also growing rapidly, as leisure travel accounted for $64.5 billion, or 51%, of total travel in 1997. Leisure travel bookings increased 30% from 1995 to 1997, the largest increase in recent years. Management believes that the growth in leisure travel has been driven by a number of factors, including an increase in disposable income levels in the United States, the aging of the population and the availability of affordable airfares. Airline travel (including business and leisure travel) continues to be the largest segment of the travel industry, with $70.5 billion, or 56%, of total travel booked through travel agencies in 1997. 34 Airline Ticket Sales. Published Fares. Historically, airlines have sold tickets directly or through travel agencies on a commission basis. The traditional travel agency channel of distribution is highly fragmented, with few nationally recognized brands. According to The American Society of Travel Agents, over 23,000 travel agencies operate in more than 33,000 locations in the United States, and the average travel agency generates approximately $3.8 million in annual gross bookings per location. Travel agents are compensated primarily through commissions paid by airlines on tickets sold. Some travel agencies also charge service fees to their customers. Travel agents generally receive commissions of 8% of total ticket price, although these commissions are frequently capped at $25 for a domestic U.S. one-way ticket and $50 for a domestic round trip ticket. Airlines also generally pay approximately 5% in commissions for online sales. In addition, travel agencies can earn performance-based incentive compensation ("override commissions"). Commissions are determined in the sole discretion of the airlines and are subject to frequent change. In recent years, airlines have reduced rates and capped per-ticket commissions generally payable to travel agencies. In addition, they have further reduced rates and capped commissions for online reservations. The downward pressure on commission rates may cause traditional travel agencies to charge service fees to their customers, shift their focus to higher margin, non-air travel services or reduce the level of customer service. Travel agencies typically book reservations through electronic global distribution services such as the SABRE system and Galileo International Partnership's Apollo system. Global distribution services provide real-time access for agents to extensive data on fares, availability, schedules and other travel information. This data is constantly changing, with as many as one million airfare changes made daily. Customers have historically had to rely on travel agents to access and interpret this rapidly changing information. See "Risk Factors--Reliance on Travel Suppliers; No Long-Term Contracts" and "-- Products and Services." Non-Published Fares. According to the ATA, airline excess capacity in the United States was 32.5% from 1995 to 1997, and excess capacity is estimated to be 29.4% in 1998. The airlines can predict excess capacity up to a year in advance for specific routes and times. Airlines are motivated to sell excess capacity at prices substantially lower than published tariffs because the marginal cost of filling excess seats is minimal. However, to succeed in this strategy, the airlines need assurance that sales of excess capacity at lower prices do not erode published fare structures. The ability to sell such seats without eroding published fare structures is a source of incremental profits for airlines. Management believes that it would be difficult for airlines to market their excess capacity directly to the public at discount prices because their discount fares would compete with their own regular published fares, and they would also risk drawing immediate price competition from other airlines. In fact, airlines generally have not sold excess capacity directly to the public, except in extremely limited situations, usually involving last-minute special offers and the use of frequent flier awards. Management believes that leisure travelers are particularly suited to the products offered by the Company, as they are highly price sensitive and willing to be flexible on carriers, routes and times of travel. Airlines generally have sold excess capacity indirectly through intermediaries in a manner designed not to erode their published fare structures while at the same time maximizing incremental excess revenues. They have accomplished this by selling excess capacity to independent third parties under net fare contracts. The tickets are then resold by these third parties to the public at prices set by them, generally at a substantial discount below regularly published fares. The prices of these tickets are not published (unless published directly by the reseller in the media or otherwise), and the fares are not available from the airlines directly. Hence, they are referred to as "non-published fares." The profit margins on non-published fare sales generally exceed the commissions payable for sales of tickets on an agented basis. Non-published fares are restricted to specific routes and times, cannot be canceled or refunded, and generally contain other restrictions which, while making them unattractive for full-fare travelers, are acceptable to price sensitive leisure travelers with flexible itineraries. 35 For international routes, management believes that the market for the sale of non-published fares is highly competitive, with numerous participants offering deeply discounted fares. For domestic routes, there are few sellers, and they generally have contracts with a small number of carriers for a limited number of routes. Among these, the Company is the leading seller of non- published fares for regularly scheduled domestic routes and has contracts with carriers covering most major domestic and international routes. See "Risk Factors--Dependence on the Travel Industry." The Growth of Internet Commerce, Products and Services. The enormous growth and acceptance of the Internet as a medium of communication and commerce presents significant opportunities for the Company. According to Dataquest, more than 43 million households in America currently have Internet access and that number is projected to grow to nearly 95 million households by 2001. The factors driving this growth include the increasing number and decreasing cost of personal computers in homes and offices, technological innovations providing easier, faster and cheaper access to the Internet, the proliferation of content and services being provided on the Internet and the increasing use of the Internet by business and consumers as a medium for conducting business. The Internet possesses a number of unique and commercially powerful characteristics that differentiate it from traditional media: users communicate or access information without geographic limitations; users access dynamic and interactive content on a real-time basis; and users communicate and interact instantaneously. The Internet has created a dynamic and particularly attractive medium for commerce, empowering customers to gather more comparative purchasing data than is feasible with traditional commerce systems, to shop in a more convenient manner and to interact with sellers in many new ways. Forrester Research estimates that online retail revenues will increase from approximately $4.8 billion in 1998 to approximately $17.4 billion by 2001. See "Risk Factors--Dependence on Continued Growth of Online Commerce and Internet Infrastructure." Online Travel Market. As a result of pressures on traditional travel distribution channels and the emergence of new "e-commerce" opportunities, the online travel industry has grown rapidly. The Internet provides a convenient and efficient medium for sales of airline tickets by affording customers direct access to up-to-the- minute travel information, including changing fares and routes, the ability to engage in competitive shopping, and the capacity to purchase tickets. According to Forrester Research, the online travel market is the second largest by dollar volume and fastest growing area of Internet commerce. Online airline travel bookings were $1.6 billion in 1998 and are expected to grow at a compounded annual growth rate of 46%, reaching $10.6 billion in 2003. In the online travel services market, the Company competes for published fares with other entities that contain similar commercial websites, such as Expedia (operated by Microsoft Corporation), Travelocity (operated by SABRE Group Holdings Inc., a majority-owned subsidiary of American Airlines), Preview Travel, Inc., and Priceline.com, Inc. Many airlines also have established commercial websites for their published fares. With limited exceptions (for example, Priceline.com, Inc.), to management's knowledge, non-published fares for regularly scheduled domestic routes are not currently offered by online travel companies. See "Risk Factors--Competition" and "--Competition." Cheap Tickets Business Strategy. The Company's objective is to provide travel products to leisure travelers at discount prices and to enhance its position as a leading provider of non- published and published fares for domestic leisure travel. The Company also seeks to benefit travel providers by selling airlines' otherwise unused excess capacity at high incremental margins without diluting their published fare structure. The principal elements of the Company's business strategy are: Broad Selection of Discounted Fares for Customers. The Company offers a broad selection of non-published and published fares for regularly scheduled domestic routes at discounted prices, which management 36 believes is unmatched in the industry. The Company has access to domestic and international non-published fares for regularly scheduled flights through contracts with over 25 carriers, including America West, American, Continental, TWA and US Airways. Customers may book these fares up to a year in advance. Currently, the Company offers approximately 375,000 non-published fares at any given time for most major domestic and international routes at discounts attractive for the leisure traveler. In addition, through the SABRE reservations system, the Company offers approximately 45 million published airfares, including those of all major domestic and international commercial airlines. The Company's non-published fares are integrated with these published fares on a special area of SABRE, to which only the Company has access, permitting the Company's reservation agents and its Internet customers to choose the least expensive itinerary. Established Direct Sale Business to Consumers. The Company has been selling airline tickets directly to the public since its inception in 1986 and has an established infrastructure to execute its direct sales strategy. It sells its tickets through call centers, retail stores and the Internet. The Company operates four call centers staffed by approximately 450 employees in Colorado Springs, Honolulu, Los Angeles and Lakeport, California, 12 retail stores and a customer service center in Honolulu. The call centers provide toll-free telephone support and reservation services seven days a week at "1-800-OK- CHEAP." Online customers can access the Company's easy-to-use website at "www.cheaptickets.com" at their convenience. Through its call centers, the Company assists online customers to ensure that they have the full benefit of its services. Tickets are shipped on a next-day basis, and the Company is planning to offer "E-tickets" by mid-1999. Established History of Yield Management for Airline Carriers. The Company has consistently provided an efficient distribution channel to assist carriers in selling excess capacity without eroding fare structures. The Company provides airlines with a yield management solution, enabling them to increase profits through incremental revenues accompanied by low marginal costs and, in some cases, to gain market share at the expense of competitors. The Company targets leisure travelers who are willing to travel on certain routes to fill flights which normally have a low load factor. Restrictions placed on non- published fares allow the Company to sell non-published fares aggressively to the public while leaving the airlines and travel and online agencies to service full fare customers who demand the convenience of tickets that can be exchanged or canceled and do not have advance purchase or minimum stay requirements. Demonstrated Ability to Match Excess Capacity to Consumer Demand. The Company has proven to airlines that it can efficiently match airlines' excess capacity to consumer demand for leisure travel by selling increasing volumes of non-published fares. From 1996 through 1998, the Company sold non-published fares of $60.0 million, $96.4 million, and $[153.1] million, respectively. Management believes that the Company's track record of selling excess capacity without compromising the airlines' fare structures provide a strong incentive for the airlines to continue to use the Company as the premier outlet for sale of domestic non-published fares. Cheap Tickets Growth Strategy. The Company seeks to become the leading provider of discount travel products and services to leisure travelers. The Company's growth strategy is to grow its customer base aggressively, expand strategic alliances, improve call center productivity, broaden its leisure travel offerings and consider possible selective acquisitions. The key elements of the Company's growth strategy are as follows: Rapidly Expand wInternet Bookings. The Company intends to capitalize on its position as the market leader in selling non-published fares to rapidly expand its Internet ticket sales. Management plans to accomplish this through increased marketing to heighten awareness of the Company's product offerings and the Cheap Tickets brand. The Company plans to broaden its online visibility and customer base through relationships with additional Internet content, commerce and service providers. Online access for the Company's products began in October 1997. By year-end 1998, 430,000 users had registered at the Company's website, 180,000 of them in the fourth quarter of 1998. Internet gross bookings grew rapidly during 1998, from $2.2 million in the first quarter to $10.6 million in the fourth quarter. Approximately 15% of the Company's gross bookings were made over the Internet in the fourth quarter. In 1998, the Company had approximately $25 37 million in gross bookings from 97,000 Internet ticket sales. Management believes that the Company's gross bookings from the Internet will continue to grow rapidly. Aggressively Build Brand Recognition Nationally and Internationally. The Company has promoted itself almost exclusively through print media, primarily in Los Angeles, New York, San Francisco and Honolulu. In addition, a recent customer survey commissioned by the Company determined that 54% of customers learned of Cheap Tickets by word of mouth. This has translated into relatively low customer acquisition costs. The same survey reported that approximately 60% of the Company's customers surveyed are from California, New York/New Jersey and Hawaii. With the Company having established strong brand recognition regionally, management believes that the demand for discounted air travel presents opportunities for it to expand nationally. Among other initiatives, the Company plans to broaden its news media advertising to other cities, including Chicago, Atlanta, Denver and St. Louis. In addition, the Company also intends to explore avenues for international expansion. The Company's strategy is to promote, advertise and broaden its brand recognition through a variety of marketing techniques. Enhance and Expand Strategic Relationships. The Company currently has contractual relationships with more than 25 airlines, including America West, American, Continental, TWA and US Airways. These relationships give the Company access to non-published fares, which has helped the Company to become the leading seller of non-published domestic fares to consumers. The Company intends to continue to build these relationships through increased sales of excess capacity and seeks new relationships with other airlines, travel suppliers, Internet portals and travel-related website companies. Through these existing and new strategic relationships, the Company seeks to broaden access to non-published fares and to reach additional customers. In addition, the Company intends to build on its relationship with SABRE to enable it to continue to provide ease of access to what management believes to be the broadest available menu of discounted fares for regularly scheduled domestic routes. Expand Call Center Capacity through Improved Productivity. The Company intends to continue to invest substantial resources in developing technological enhancements to its call centers. These will include a more automated front-end application for its reservation agents that will reduce errors and increase productivity; an intelligent call routing ("ICR") system to link the Company's four call centers and to direct calls to specific agents best able to service particular customer needs and prioritize calls to reduce hold times; and an interactive voice response ("IVR") system to reduce the need for agents to answer general questions, thereby increasing the number of calls the Company can service and the sales productivity of reservation agents. Management believes that such enhancements will increase sales and substantially improve operating efficiency. Broaden Existing Products and Services. The Company currently realizes 98% of its gross bookings through airline ticket sales. However, it recently began selling cruise tickets, auto rentals and hotel reservations. The Company intends to capitalize on its market leadership in non-published fares, brand recognition, Internet site, service infrastructure and customer base to promote these additional travel products. The Company's product expansion strategy will be to focus on complementary products that require minimal incremental resources to sell and distribute. Make Selective Acquisitions. The Company will consider the acquisition of companies which will add to its customer base, product lines, strategic relationships or distribution. The Company currently has no agreements or understandings with respect to any such acquisitions. See "Risk Factors--Risks Associated with Potential Acquisitions." Products and Services. Leisure Airline Tickets. The Company has the right to acquire non-published fares pursuant to contracts from carriers. The Company then resells these tickets at profit margins which exceed the typical commissions payable for the sale of tickets on an agented basis. The prices the Company offers to customers are generally at 38 a substantial discount to published fares. The Company purchases these fares only when it resells them to customers, so that it does not carry inventory. The Company's non-published fares are not available to consumers directly from the airlines and are not published (except as advertised by the Company). They represent excess capacity for which the Company serves as the leading seller of regularly scheduled domestic routes. The Company currently has contracts to acquire non-published fares from more than 25 carriers for domestic and international routes, including America West, American, Continental, TWA and US Airways. Availability of non-published fares varies from route to route based on availability from the airline carriers. The Company currently offers approximately 375,000 non-published fares at any given time, covering most major domestic and international routes. The Company sells these tickets with limitations and restrictions that make them unattractive for full fare travelers, who seek the convenience of tickets that can be exchanged or canceled and do not have advance purchase or minimum stay requirements. See "Risk Factors--Reliance on Travel Suppliers; No Long-Term Contracts." In 1998, approximately 59% of the Company's airline gross bookings were from non-published fares. For customers who are unable to find a non-published fare for a particular itinerary, the Company also offers a full menu of regularly published fares. In 1994, the Company became the first non-airline to file its non-published fares through the Airline Tariff Publishing Corporation. This allows the Company to integrate its non-published fares with published fares in a special area of the SABRE reservations system to which only the Company has access. This system automatically sorts through millions of fares, including Cheap Ticket's own non-published fares, to identify the lowest fares available for the desired itinerary. These fares are then posted in ascending price order for use by the Company's reservation agents and Internet customers. For published fares, the Company receives commissions on gross bookings. Airlines generally pay commissions of 8% of total ticket price, although these commissions are frequently capped at $25 for a domestic U.S. one-way ticket and $50 for a domestic round trip ticket. Airlines also generally pay approximately 5% in commissions for online sales. The Company receives commissions at least as favorable as those received by travel agents, and with many carriers the Company has negotiated more favorable commission rates. In addition, the Company frequently benefits from performance-based override commissions. 39 The following table demonstrates the breadth and availability of the Company's product and the cost advantages of its non-published fares. It compares the lowest roundtrip restricted fares for all domestic routes listed by The New York Times and The Wall Street Journal in their fare tables for the dates shown. The Company's fares were lower than or comparable to the lowest available prices reported by the above publications in all the routes, with an average discount of approximately $65.50 or 20.1%.
Cheap Lowest Tickets Cost Savings Availability Published Lowest --------------- Travel Segment Date(1) Source Fare(2) Fare(3) Dollars Percent - ------------------------------------------------------------------------------------------ New York--Burlington, Vt..................... 12/28/98 NY Times $150 $148 $ 2 1.3% New York--Chicago....... 12/28/98 NY Times 221 185 36 16.3 New York--Ft. Myers, Fla.................... 12/28/98 NY Times 190 178 12 6.3 New York--San Diego..... 12/28/98 NY Times 275 197 78 28.4 New York--Tucson........ 12/28/98 NY Times 398 228 170 42.7 Boston--Washington...... 12/28/98 NY Times 114 114 -- -- Denver--Las Vegas....... 12/28/98 NY Times 178 174 4 2.2 Houston--Orlando........ 12/28/98 NY Times 198 191 7 3.5 Los Angeles--Portland, Ore.................... 12/28/98 NY Times 198 169 29 14.6 San Francisco--Austin, Tx..................... 12/28/98 NY Times 324 173 151 46.6 New York--Los Angeles... 01/05/99 Wall St. Journal 286 218 68 23.8 Boston--San Francisco... 01/05/99 Wall St. Journal 315 268 47 14.9 Los Angeles--Dallas..... 01/05/99 Wall St. Journal 293 199 94 32.1 San Diego--Denver....... 01/05/99 Wall St. Journal 477 211 266 55.8 Boston--San Francisco... 01/05/99 Wall St. Journal 315 268 47 14.9 Atlanta--Boston......... 01/05/99 Wall St. Journal 298 140 158 53.0 Orlando--Detroit........ 01/05/99 Wall St. Journal 168 168 -- -- New York--Miami......... 01/05/99 Wall St. Journal 176 166 10 5.7
- -------- (1) Represents the date on which the fares listed were available for sale. (2) Represents the lowest roundtrip restricted fare available for the travel segment and on the date indicated, as reported in the January 3, 1999 edition of The New York Times and the January 8, 1999 edition of The Wall Street Journal, as applicable. The Wall Street Journal fares were stated to be the lowest available, but not all small carriers were included. Advance purchase, midweek departure, length of stay and other restrictions may apply. (3) The prices shown were those available on the Company's reservation database system for the dates and routes indicated. Other Travel Products and Services. The Company has contractual relationships to sell cruises on Carnival Cruises and Princess Cruises. In 1998, gross bookings from cruises were approximately $3.4 million. The Company also has contractual relationships with major auto rental companies to provide reservations. In 1998, gross bookings from auto rental reservations were approximately $1.4 million. The Company has recently entered into a number of contracts to sell hotel room reservations. In 1998, gross bookings from hotel reservations were negligible. The Company sees these other travel products and services as potential areas of future growth. See "--Growth Strategies--Broaden Existing Products and Services" and "Risk Factors--Risks Associated with Offering New Services." Call Center Operations. At December 31, 1998, the Company had approximately 450 reservation agents and other call center employees at its four call centers. Facilities are located in Honolulu, Colorado Springs, Los Angeles and Lakeport, California. Reservation agents at these call centers receive all in- bound calls to the Company's toll free number "800-OK-CHEAP." On average, the call centers receive approximately 120,000 calls per day. Reservation agents currently conduct fare searches for requested itineraries, sell airline tickets, explain rules and restrictions applicable to fares and ticket delivery details, identify retail ticket locations, and provide other assistance. The call centers also provide customer service for both call center customers and 40 Internet users. See "Risk Factors--Risk of Capacity Constraints; Reliance on Internally Developed Systems; System Development Risks." Management intends to implement ICR and IVR technology in the second quarter of 1999 to increase the productivity of agents by giving callers automated fare search capability and answers to common information requests. The Company compensates reservation agents on an incentive basis to maximize their productivity. Call centers are segmented into teams, which the Company awards for the highest productivity and operating effectiveness. Internet Operations. The Company's online reservations and ticketing service through its website at "www.cheaptickets.com" provides its customers access to information on schedules, availability and non-published and published fares and enables them to book their own travel arrangements at their convenience. The website is designed to provide customers with quick, efficient, and flexible service in a manner that facilitates comparison shopping. The Company's online service automates the processing of customer orders, interacts with the systems of third party travel suppliers, and allows the Company to gather, store and use customer and transaction information in a comprehensive and cost-efficient manner. The website allows customers to dispense with providing personal profile and payment information after their initial registration. The website has permitted the Company to expand its customer base through better service while reducing transactional costs. The website contains customized software applications that interface the website with the electronic booking system and database. The Company has contracted with SABRE for the development and hosting of the site, the development of the customized software applications, and access to the electronic booking system and database. The Company also has developed its own proprietary customized software applications that interfaces the website directly with the SABRE electronic booking system and database. The Company maintains a relational database containing information compiled from customer profiles, shopping patterns and sales data. The Company analyzes information in this database to develop targeted marketing programs and provide personalized and enhanced customer service. Its database is scaleable to permit large transaction volumes with no significant software changes. The Company's systems support automated e-mail communications with customers to facilitate confirmations of orders, provide customer support, obtain customer feedback and engage in targeted marketing programs. The Company uses a combination of proprietary and industry-standard encryption and authentication measures designed to protect a customer's information. The Company maintains an Internet firewall to protect its internal systems and all credit card and other customer information. See "Risk Factors-- Online Commerce and Database Security Risks," "Risk Factors--Rapid Technological Change," "Risk Factors--Risk of Capacity Constraints; Reliance on Internally Developed Systems; System Development Risks" and "--Cheap Tickets Growth Strategy." Strategic Relationships. Airline Relationships. The Company currently has contracts with more than 25 airlines, including America West, American, Continental, TWA and US Airways. The Company sells non-published fares purchased under these contracts, with minimum stay and advance purchase requirements, as non-refundable, non- endorsable and non-changeable tickets and without frequent flyer mileage or upgrades. Generally, the airline contracts range from one to one and a half years in length and can be cancelled on short notice. None of these carriers has any obligation to renew the contracts at their expiration, but the Company has consistently been successful in obtaining renewals. Management believes that the Company's track record of selling excess capacity without compromising the airlines' fare structures provides a strong incentive for the airlines to continue to use the Company as the premier outlet for the sale of domestic non- published fares. Management believes that the Company's success in matching excess capacity to consumer demand for low ticket prices comes from its strategy of directing its marketing efforts to leisure travelers and selling restricted tickets 41 directly to the public in high volumes through call centers and over the Internet. Although the Company has a consistent history of renewing its contracts, there are no assurances that any one or several of them will be renewed. See "Risk Factors--Reliance on Travel Suppliers; No Long-Term Contracts," "--Cheap Tickets Business Strategy" and "--Cheap Tickets Growth Strategy." SABRE Relationship. SABRE is a world leader in the electronic distribution of travel-related products and services and is a leading provider of information technology solutions for the travel and transportation industry. SABRE's electronic booking system and database contains flight schedules, availability, and published fare information for more than 400 airlines, 50 auto rental companies, 35,000 hotel properties, and dozens of railways, tour companies, passenger ferries, and cruise lines located throughout the world. Through the SABRE reservations system, the Company offers approximately 45 million published airfares, including those of all major domestic and international commercial airlines. In addition, SABRE's electronic booking system and database hosts the Company's non-published fare information through a unique arrangement that permits the Company to integrate its non-published fares with published fares on a special area of the SABRE reservations system to which only the Company has access. This system automatically sorts through millions of fares, including Cheap Ticket's own non-published fares, to identify the lowest fares available for the desired itinerary. These choices are then posted in ascending price order for use by the Company's reservation agents and Internet customers. [In January 1999, the Company negotiated a new five-year agreement with SABRE to continue use of SABRE's system.] See "Risk Factors--Reliance on Third-Party Systems." Marketing and Brand Awareness. The Company's marketing strategy is to aggressively build the Cheap Tickets' brand name, enhance customer awareness and add new customers, both through call centers and online. The Company has established Cheap Tickets as a leading discount travel services brand through limited marketing and promotion. In 1998, the Company spent $3.8 million for sales and marketing expenses. It has promoted itself almost exclusively through print media, primarily in Los Angeles, New York, San Francisco and Honolulu. The Company has advertised in The New York Times, The Washington Post, The Los Angeles Times, The Seattle Post Intelligencer, The San Diego Tribune, and The Orange County Register, among other publications. In addition, a recent customer survey commissioned by the Company determined that 54% of customers learned of Cheap Tickets by word of mouth. The Company's growth of Internet customers was primarily through media advertisements and limited online advertising. The Company has advertised on Yahoo, Excite, Lycos, HotBot, Snap, OnSale and Travelocity, among others. The Company has purchased various keywords and banners, typically under contracts of 30 to 90 days in duration. As limited funds were spent on Internet promotions, the Company has experienced relatively low customer acquisition costs. In the future, the Company's strategy is to promote, advertise and broaden its brand recognition through a variety of marketing techniques. In 1999, it plans to spend a significant amount of the proceeds from this Offering to increase advertising in news media and on leading websites. Additionally, the Company plans to broaden its news media advertising to Chicago, Atlanta, Denver and St. Louis. See "Risk Factors--Uncertain Acceptance of The Cheap Tickets Brand" and "Use of Proceeds." Competition. The Company competes in ticket sales against travel wholesalers, consolidators, online travel companies, airlines and travel agents, based on price and the quality of service. In the leisure travel market, the Company also competes against frequent flyer awards and against charter flights. Some of the Company's actual and potential competitors have longer histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than the Company does. The Company may enter into strategic or commercial relationships with larger, more established or well- financed companies. Certain of the Company's competitors may be able to secure services and products from travel suppliers on more favorable terms. They may also devote greater resources to marketing and promotional campaigns and substantially more 42 resources to website and systems development. In addition, new technologies and the expansion of existing technologies may increase competitive pressures on the Company. Increased competition may result in reduced operating margins, loss of market share and brand recognition. There can be no assurance that the Company will be able to compete successfully against current and future competitors. Competition for Non-Published Fares. Sellers of Non-Published Fares. The Company's existing direct competition for non-published fares comes largely from companies that specialize in the distribution of discounted fares in the form of regularly scheduled and chartered flights. Management believes that the market for the sale of non- published fares is highly fragmented. For international routes, it is highly competitive, with numerous participants offering deeply discounted fares. For domestic routes, there are few sellers, and they generally have net fare contracts with a small number of carriers for a limited number of routes. Among these, the Company is the leading seller of non-published fares for regularly scheduled domestic routes and has contracts with many carriers covering most major domestic and international routes. As the domestic airline industry continues to evolve, other competitors could increase their share of the market, or new ones could enter the market. See "Risk Factors--Dependence on the Travel Industry." Online Travel Companies. Online travel companies are rapidly increasing their shares of airline ticket sales, but, with limited exceptions (for example, Priceline.com, Inc.), to Management's knowledge, non-published fares for regularly scheduled domestic routes are not currently offered by online travel companies. If airlines were to make such fares generally available to online travel companies, presumably they would risk eroding published fare structures. However, there can be no assurance that one or more online companies, a number of which possess larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than the Company, will not succeed in accessing non-published fares. Airlines and Travel Agents. Airlines do not generally offer non-published fares directly or indirectly through affiliates or travel agents for regularly scheduled travel, presumably to prevent the erosion of their published fare structure. Some airlines do offer limited special discounted fares through their Internet sites that are not generally made available to travel agents. These fares are typically offered only on a last-minute, "special sale" basis. In addition, some airlines offer special promotional fares, combining low base prices and the use of frequent flyer awards. Airlines may expand their offering of special promotional fares, enter the non-published fare market or sell non- published tickets through travel agents. Certain Competitive Factors Affecting Non-Published Fares. Published fares also compete with the Company's non-published fares. They effectively establish price ceilings for the Company's non-published fares. From time to time, airlines also offer special fares, which may compete directly with the Company's discounted non-published fares. Direct competition also comes from the airlines when fare wars break out. Competition for Published Fares. In the sale of published fares, the Company currently competes with airlines, traditional travel agents, online travel services and travel industry reservation databases. The online travel services market is new, rapidly evolving and intensely competitive, and the Company expects such competition to intensify in the future. In the online travel services market, the Company competes for published fares with similar commercial websites of other companies, such as Expedia (operated by Microsoft Corporation), Travelocity (operated by SABRE Group Holdings Inc., a majority-owned subsidiary of American Airlines), Preview Travel, Inc., Cendant Corporation, TravelWeb (operated by Pegasus), Internet Travel Network, Biztravel.com and TheTrip.com, among others. Several traditional travel agencies, including larger travel agencies such as American Express Travel Related Services Co. Inc., Uniglobe Travel and Carlson Wagonlit Travel, have established, or may establish in the future, commercial websites offering online travel services. Several airlines 43 also have established commercial websites to sell their tickets and offer other online travel services. In January 1999, one major carrier announced that it would impose a surcharge ($1 one way, $2 roundtrip) on any domestic ticket purchased anywhere except on that carrier's own Internet site. See "Risk Factors--Competition" and "--Online Travel Market." Proprietary Rights. The Company regards its domain name, copyrights, service marks, trademarks, trade dress, trade secrets and similar intellectual property as critical to its success. The Company relies on a combination of laws and contractual restrictions, including trademark and copyright law, trade secret protection and confidentiality and/or license agreements with its employees, customers, partners and others to establish and protect its proprietary rights. The Company pursues the registration of certain of its key trademarks and service marks in the United States. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which its products and services are made available online. See "Risk Factors--Uncertain Protection of Intellectual Property; Risks of Third Party Licenses" and "Risk Factors--Domain Name." Governmental Regulation and Legal Uncertainties. Certain segments of the travel industry are heavily regulated by the United States and international governments, and accordingly certain services offered by the Company are affected by such regulations. For example, the Company is subject to United States Department of Transportation ("DOT") regulations prohibiting unfair and deceptive practices. In addition, DOT regulations concerning the display and presentation of information that are currently applicable to airline booking services could be extended to the Company in the future, as well as other laws and regulations aimed at protecting customers accessing online or other travel services. In California, Hawaii and certain other states, the Company is required to register as a seller of travel, comply with certain disclosure requirements and participate in the state's restitution fund. The Company is also subject to regulations applicable to businesses generally and laws or regulations applicable to online commerce. Currently, few laws and regulations directly apply to the Internet and commercial online services. However, it is possible that laws and regulations may be adopted with respect to the Internet or commercial online services covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust and characteristics and quality of products and services. Further, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws. Such laws may impose additional burdens on companies conducting business online. The adoption of any additional laws or regulations may decrease the growth of the Internet or commercial online services. In turn, this could decrease the demand for the Company's products and services and increase the Company's cost of doing business, or otherwise have a material and adverse effect on the Company's business, results of operations and financial condition. Moreover, in many states, there is currently great uncertainty whether or how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet and commercial online services. These issues may take years to resolve. For example, tax authorities in a number of states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject the Company to additional state sales and income taxes. Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to the Company's business, or the application of existing laws and regulations to the Internet and commercial online services could have a material and adverse effect on the Company's business, results of operations and financial condition. Federal legislation imposing certain limitations on the ability of states to impose taxes on Internet-based sales was enacted in 1998. This legislation, known as the Internet Tax Freedom Act, imposes a three-year moratorium on state and local taxes on electronic commerce (unless in effect prior to October 1, 1998) but only where such taxes are discriminatory on Internet access. It is possible that this legislation could not be renewed 44 when it terminates in October, 2001. Failure to renew the legislation would allow state and local governments to impose taxes on Internet-based sales, and such taxes could have a material and adverse effect on the Company's business, results of operation and financial condition. See "Risk Factors--Domain Names," "Risk Factors--Dependence on Continued Growth of Online Commerce and Internet Infrastructure" and "Risk Factors--Governmental Regulation and Legal Uncertainties." Employees. As of December 31, 1998, the Company had approximately 450 reservation agents and other call center employees, approximately 55 retail stores and cruise employees and approximately 155 corporate and administrative employees for a company-wide total of approximately 660 employees. The Company's ability to attract and retain highly qualified employees will be the principal determinant of its success. The Company has a policy of using performance-based and equity-based compensation programs to reward and motivate significant contributors among its employees. Competition for qualified personnel in the industry is intense. There can be no assurance that the Company's current and planned staffing will be adequate to support its future operations or that management will be able to hire, train, retain, motivate and manage required personnel. Although none of the Company's employees is represented by a labor union, there can be no assurance that its employees will not join or form a labor union. However, the Company has not experienced any work stoppages and considers its relations with its employees to be good. See "Risk Factors-- Dependence on Experience, Attraction and Retention of Key Employees." Facilities. The Company is headquartered in Honolulu, Hawaii where it leases an aggregate of approximately 16,100 square feet of space housing its corporate offices and a call center. The Company's leases for such space expire in November 2000 and December 2003, with an option to renew such leases covering approximately 13,300 square feet for an additional five years. The Company also leases an aggregate of approximately 5,400 square feet of retail or storage space in six other locations in Hawaii. In July 1994, the Company entered into a lease for approximately 9,600 square feet in Los Angeles, California, to serve as one call center. In March 1998, the Company entered into a lease for approximately 13,000 square feet in Colorado Springs, Colorado, to serve as another call center. Such leases expire in September 2004 and September 2003, respectively. The Company is currently in negotiations for a new lease in the Colorado Springs area, which it anticipates will result in improved cost and space efficiencies. The Company also leases an aggregate of approximately 8,800 square feet of retail and administrative space in five other locations in California, approximately 975 square feet of retail space in Seattle in one location, and approximately 1,650 square feet of retail and administrative space in New York in two locations. The Company owns a 20,000 square-foot facility in Lakeport, California, which serves as a fourth call center. The Company anticipates that it will require additional headquarters' space within the next 12 months. There can be no assurance that such additional space will be available on commercially reasonable terms, if at all. See "--Products and Services" and "--Cheap Tickets Business Strategy." Legal Proceedings. The Company is not currently subject to any material legal proceedings. The Company may from time to time become a party to various legal proceedings arising in the ordinary course of our business. Any such proceeding against the Company, even if not meritorious, could result in the expenditure of significant financial and managerial resources. 45 MANAGEMENT Directors and Executive Officers The names, ages and positions of the Company's directors and officers as of [January , 1999] are as follows:
Name Age Position ---- --- -------- Michael J. Hartley...... 49 Chairman of the Board, Chief Executive Officer and President F. Michael Bartholomew.. 51 Chief Operating Officer Dale K. Jorgenson....... 59 Chief Financial Officer and Vice President, Finance Tammy A. Ishibashi...... 31 Executive Vice President, Ticket Distribution Donald K. Klabunde...... 42 Vice President, Systems & Technology Ronald L. McElfresh..... 49 Vice President, Online Services Sandra T. Hartley....... 49 Vice President, Employee Relations and Director Lester R. Stiefel....... 47 Director, Human Resources LaMont C. Brewer........ 42 Director, Call Centers Ronald J. Tsolis, Jr. .. 30 Director, Pricing and Yield Management Giles H. Bateman........ 53 Director, Nominee Donald J. Phillips(1)(2)......... 59 Director Cece Smith(1)(2)........ 54 Director
- -------- (1) Member of the Audit Committee (2) Member of the Compensation Committee Michael J. Hartley, a co-founder of the Company, has served as Chief Executive Officer, President and Director of the Company since the Company's inception in August 1986, and has served as Chairman of the Board since February 1999. Mr. Hartley is the husband of Sandra T. Hartley, the Company's Vice President, Employee Relations and the uncle of Tammy A. Ishibashi, the Company's Executive Vice President, Ticket Distribution. Prior to founding the Company, Mr. Hartley founded and sold one charter airline and served as an organizer of two other airlines. F. Michael Bartholomew has served as Chief Operating Officer of the Company since January 1999. He joined the Company in December 1997 as Senior Vice President, Operations. From April 1994 to September 1997, Mr. Bartholomew was Vice President, Customer Management, at Providian Financial Corporation, a $10 billion public consumer financial services company. From May 1991 to April 1994, Mr. Bartholomew was President of Sierra Technology, a specialized management consulting company. Prior to that, Mr. Bartholomew was a Senior Advisor of the U.S. Special Forces, Navy Seals, U.S. Navy. Mr. Bartholomew holds a B.S. degree in Finance from St. Louis University. Dale K. Jorgenson joined the Company in May 1998 as Chief Financial Officer and Vice President, Finance. Prior to that, from 1988 to 1998, he was Chief Financial Officer and Vice President, Finance, of Interpacific Hawaii Retail Group and DFS, Ltd. Hawaii Region, both large retail chains in Hawaii. Prior to that, he held similar positions for 14 years with Castle & Cooke, Inc., now Dole Food Co. Mr. Jorgenson holds a B.A. degree in Business Administration from the University of Washington and an M.B.A. degree from Golden Gate University. He is a certified public accountant. Tammy A. Ishibashi has served as Executive Vice President, Ticket Distribution since February 1995 and is responsible for managing the retail stores and ticket distribution process, which includes fare filings with the Airline Tariff Publishing Corporation, ticket distribution, refunds and ARC reporting, and for overseeing the 46 five departments necessary to accomplish this process. She joined the Company as Treasurer in September 1990, a position she held until November 1993 when she was appointed to Second Vice President. Ms. Ishibashi served as a Director of the Company from September 1990 until February 1999. Ms. Ishibashi is the niece of Michael J. Hartley, the Company's Chairman of the Board, Chief Executive Officer and President, and Sandra T. Hartley, the Company's Vice President, Employee Relations. Donald K. Klabunde has served as Vice President, Systems & Technology since January 1999. He joined the Company in February 1998 as Director, Systems & Technology, to direct the day-to-day and strategic operation of the information and technology department in the planning, development, implementation, and support of technological/systems enhancements throughout the company. Prior to joining the Company, he worked for Deluxe Corporation, a financial services company, since 1980 in a variety of technical support and information and technology positions. Mr. Klabunde holds a B.A. degree from the University of Minnesota. Ronald L. McElfresh joined the Company in January 1998 as Vice President, Online Services, to design, develop, implement and maintain the Company's website. From 1996 to 1997, he worked at Digital Island, a global Internet service provider, as the Director, Marketing. From June 1995 to June 1996, he served as general manager at Hawaiian On-Line GTE, an Internet company. From October 1994 to June 1995, he worked at GTE, a telecommunications company, as an international services product manager, where he developed and managed telephony and worked on product development for GTE's original Internet services. From April 1989 to July 1993, Mr. McElfresh was the Director of Product Marketing of Brite Voice Systems, Inc., a telecommunications company. In October 1981, Mr. McElfresh co-founded INFOCOM, a multimedia development company, where he held various product development and marketing positions, most recently as General Manager, until October 1987. Mr. McElfresh holds a B.A. degree from Blackhawk College. Sandra T. Hartley, a co-founder of the Company, has served as Vice President, Employee Relations since January 1999. Her responsibilities include employee relations and benefits, corporate functions and public relations. She served as Chief Executive Officer of the Company from August 1986 until September 1998. From August 1986 until January 1999, she has served as Chairman of the Board of Directors. Ms. Hartley is the wife of Michael J. Hartley, the Company's Chairman of the Board, Chief Executive Officer and President, and the aunt of Tammy A. Ishibashi, the Company's Executive Vice President, Ticket Distribution. Lester R. Stiefel joined the Company in April 1998 as Director, Human Resources, to head the human resources function and to ensure that policies and practices comply with employment laws and regulations and company standards. Prior to joining the company he worked at Citibank, a financial institution, as Vice President, Senior Resources Manager from 1986 to 1998, and at The Bank of Nova Scotia, a financial institution, from 1984 to 1986. Mr. Stiefel holds a B.A. degree from Herbert Lehman College and a Masters degree from Yeshiva University. LaMont C. Brewer joined the Company in September 1998 as Call Center Manager for the Honolulu, Hawaii location. From February 1999, Mr. Brewer has served as Director, Call Centers. Prior to joining the Company, he worked at Michigan Bell/Ameritech, a telecommunications company, since 1985 in different positions including general manager of a 380 station call center, quality assurance manager and training supervisor. Mr. Brewer holds a B.A. degree from Wayne State University. Ronald J. Tsolis, Jr. joined the Company in May 1998 as Director, Pricing and Yield Management to maximize the profitability of retail fares offered by the Company. From July 1993 to May 1998, he held management positions in Pricing, Planning, and Sales at US Airways. Mr. Tsolis holds a B.S. degree in Business Logistics from Pennsylvania State University. Giles H. Bateman has been nominated to serve as a Director of the Company effective immediately upon the closing of this Offering. He has served as a director of CompUSA Inc. since December 1991 and as Chairman of the Board of Directors since December 1993. Since January 1992, Mr. Bateman has been an 47 investor in and director of other public and private companies, including Boatracs, Inc. and Beverages and More, Inc. In 1991, Mr. Bateman was a visiting professor at the University of San Diego Olin Hall School of Business Administration. Mr. Bateman was co-founder of The Price Company, the operator of The Price Club chain of warehouse club retail superstores. He served as a director and Chief Financial Officer of The Price Company from 1976 to 1991 and as Vice Chairman from 1986 to 1991. Since 1998, Mr. Bateman has volunteered as the Chairman of the Board of Trustees of The Hoffman Institute in Northern California. Mr. Bateman holds a B.A. degree from Oxford University and an M.B.A. degree from Harvard University. Donald J. Phillips has been a Director of the Company since June 1998. Since 1986, Mr. Phillips has been a general partner of Phillips-Smith Specialty Retail Group, a retail venture capital investment firm. Mr. Phillips serves as a director on the Board of Directors for several private companies, including Garden Escape, Inc. He previously served as a director of publicly-held retailers CompUSA, Inc., Petsmart, Inc. and A Pea in the Pod, Inc. Mr. Phillips holds a B.B.A. degree in Economics from Western Michigan University and an M.B.A. degree from Harvard University. Cece Smith has been a Director of the Company since July 1997. Since 1986, Ms. Smith has been a general partner of Phillips-Smith Specialty Retail Group, a retail venture capital investment firm. Ms. Smith serves as a director on the Board of Directors of Hot Topic, Inc., a public specialty retailer of music- related apparel and accessories for young men and women, and a number of private retail companies. She previously served as a director of publicly-held retailers Big Mart, Inc. and A Pea in the Pod, Inc. Ms. Smith holds a B.B.A. degree in Business Administration from the University of Michigan and an M.L.A. degree in Liberal Arts from Southern Methodist University. Ms. Smith served as a director from 1992 to 1997 and as Chairman from 1994 to 1996 of the Federal Reserve Bank of Dallas. Members of the Board of Directors are elected each year at the Company's annual meeting of stockholders and serve until the following annual meeting of the stockholders and until their respective successors have been elected and qualified. Prior to his founding of the Company in 1986, Mr. Hartley served from 1973 to 1978 as President and Chief Operating Officer of a commuter airline operating within Hawaii, which he subsequently sold. From 1974 to 1978, he also operated a Hawaii-based aviation center, which provided fuel and maintenance services and flight instruction. In 1977, Mr. Hartley pled guilty to the charge of conspiracy with the intent to distribute a controlled substance stemming from an event that occurred in 1975, when he was 25. He served a 90-day work release program and two and one half years' probation. From 1981 to 1986, Mr. Hartley was one of several founders of two start-up Hawaii-California airlines, Hawaii Express and Air-Hawaii. Eight months after Mr. Hartley had been dismissed as President by a dissident board, Hawaii Express failed in 1983. Mr. Hartley served as an outside consultant to Air Hawaii until its initial flight in November of 1985. Air Hawaii faced major fare wars from its competitors prior to filing for bankruptcy in the spring of 1986. Committees of the Board of Directors In January 1999, the Board established an Audit Committee and a Compensation Committee. The Audit Committee monitors the corporate financial reporting and the internal and external audits of the Company. The Audit Committee currently consists of Directors Phillips and Smith. The Compensation Committee makes recommendations regarding the Company's employee stock plans and makes decisions concerning salaries and incentive compensation for employees and consultants of the Company. The Compensation Committee currently consists of Directors Phillips and Smith. It is anticipated that Giles Bateman will become a member of both committees upon the closing of this Offering. Director Compensation [Nonemployee directors receive $2,500 for each Board meeting and $1,000 for each committee meeting attended in person as compensation for their services as directors. Further, directors are reimbursed for certain 48 reasonable expenses incurred in attending Board or committee meetings. Each non-employee director will receive upon joining the Company an option to acquire [ ] shares of Common Stock at an exercise price equal to the then fair market value. Each non-employee director will also receive automatic annual grants of options to acquire an additional [ ] shares of Common Stock at an exercise price equal to the then fair market value of the Common Stock at the date of grant. Such options will immediately vest and become fully exercisable on the grant date. See "Employee Stock Plans--1999 Stock Incentive Plan.] Compensation Committee Interlocks and Insider Participation No interlocking relationship exists between the Company's Board of Directors or Compensation Committee and any member of any other company's board of directors or compensation committee, nor has any such interlocking relationship existed in the past. Limitation of Liability and Indemnification Matters Pursuant to the provisions of the Delaware General Corporation Law, the Company's Certificate of Incorporation provides that directors of the Company shall not be personally liable for monetary damages to the Company or its stockholders for a breach of fiduciary duty as a director, except for liability as a result of (i) a breach of the director's duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) an act related to the unlawful stock repurchase or payment of a dividend under Section 174 of Delaware General Corporation Law, and (iv) transactions from which the director derived an improper personal benefit. Such limitation of liability does not affect the availability of equitable remedies such an injunctive relief or rescission. The Company's Certificate of Incorporation, as amended, also authorizes the Company to indemnify its officers, directors and other agents, by bylaws, agreements or otherwise, to the fullest extent permitted under Delaware law. The Company has entered into separate indemnification agreements with its directors and officers which may, in some cases, be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements may require the Company, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors' and officers' insurance if available on reasonable terms. The Company's Bylaws, as amended, require the Company to indemnify its directors and officers and permit the Company to indemnify its other employees to the fullest extent permitted by law. The Company believes that indemnification under its Bylaws, as amended, covers at least negligence and gross negligence on the part of the indemnified party. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. At present, there is no pending litigation or proceeding involving a director, officer, employee or agent of the Company where indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding which may result in a claim for such indemnification. 49 Executive Compensation--Summary Compensation Table The following table sets forth all compensation paid by the Company during fiscal 1998, 1997, 1996, and 1995 to (i) each of the individuals serving as the Company's principal executive officer during fiscal 1997, (ii) up to four other most highly compensated executive officers of the Company during fiscal 1997, and (iii) up to two additional individuals who would have been among the Company's four most highly compensated executive officers, but for the fact that they were not serving as executive officers of the Company at the end of fiscal 1997 (collectively referred to as the "Named Executive Officers").
Long-Term Compensation --------------- Annual Compensation ------------------------- Securities Name and Principal Underlying All Other Position Year Salary(1) Bonus Options/SARs(#) Compensation($) ------------------ ---- --------- ------- --------------- --------------- Michael J. Hartley...... 1998 $243,783(2) $50,000 $ -- $ -- Chairman of the Board, Chief Executive 1997 229,090 -- -- -- Officer and President(1) 1996 154,170 15,750 -- -- 1995 122,750 -- -- -- Sandra T. Hartley....... 1998 235,500(3) 12,500 -- -- Vice President, Employee Relations 1997 233,050 -- -- -- 1996 213,400 15,750 -- -- 1995 187,600 -- -- -- F. Michael Bartholomew.. 1998 165,000 41,250 -- -- Chief Operating Officer 1997 6,875(4) -- -- -- 1996 -- -- -- -- 1995 -- -- -- -- Dale K. Jorgenson(5).... 1998 78,366 21,875 -- -- Chief Financial Officer and 1997 -- -- -- -- Vice President, Finance 1996 -- -- -- -- 1995 -- -- -- -- Tammy A. Ishibashi...... 1998 100,008 25,000 -- -- Executive Vice President, 1997 73,110 -- -- -- Ticket Distribution 1996 56,600 5,000 -- -- 1995 55,200 5,000 -- -- Paul Ouyang(6).......... 1998 201,923 -- -- -- 1997 225,000 -- -- 59,854(7) 1996 28,125 -- -- 45,895(8) 1995 -- -- -- --
- -------- (1) Amounts shown are on a full-year basis and include cash and noncash compensation earned by the Named Executive Officers. (2) For fiscal year 1999, Mr. Hartley's annual salary will be $387,140. (3) For fiscal year 1999, Mrs. Hartley's annual salary will be $75,000. (4) Mr. Bartholomew's annual salary for 1997 would have been $165,000 if he had been with the Company for the entire year. He joined the Company in December 1997. For fiscal year 1999, Mr. Bartholomew's annual salary will be $190,000. (5) Mr. Jorgenson's annual salary and bonus for 1998 would have been $150,000 and $45,000, respectively, if he had been with the Company for the entire year. He joined the Company in May 1998. (6) Mr. Ouyang was the Chief Financial Officer of the Company until March 23, 1998, at which time he left the Company. (7) Includes reimbursement for legal fees and taxes. (8) Includes compensation in the form of stock issuances. Option Grants In Last Fiscal Year The Company did not grant any stock options or deferred stock units during 1997. 50 Employee Stock Plans 1997 Stock Option Plan The Company's 1997 Stock Option Plan (the "1997 Plan") provides for the granting to employees of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") and for the granting of nonstatutory stock options to employees, directors and consultants. The 1997 Plan was approved by the Board of Directors in February 1998 and by the Company's shareholders in April 1998. Unless terminated sooner, the 1997 Plan will terminate automatically in 2008. A total of [141,403] shares of Common Stock were reserved for issuance pursuant to the 1997 Plan. As of September 30, 1998, options to purchase [47,200] shares of Common Stock were outstanding under the 1997 Plan and [94,203] shares of Common Stock remained available under the 1997 Plan. The 1997 Plan may be administered by the Board of Directors or a committee of the Board (the "Committee"). Either the Board or the Committee (the "Administrator") has the power to determine the terms of the options granted, including the number of shares subject to each option, the exercisability thereof, and the form of consideration payable upon such exercise. Options granted under the 1997 Plan are not generally transferable by the optionee, and generally each option is exercisable during the lifetime of the optionee only by such optionee. Unless otherwise specified in the option agreement, options granted under the 1997 Plan must be exercised within three months of the end of the optionee's status as an employee or consultant of the Company, or within twelve months after such optionee's termination by death (by the Optionee's estate) or disability, but in no event later than the expiration of the option's term. The exercise price of all incentive stock options granted under the 1997 Plan must be at least equal to the fair market value of the Common Stock on the date of the grant. The exercise of nonstatutory stock options must be at least equal to 85% of the fair market value of the Common Stock on the date of the grant. With respect to any optionee who owns stock possessing more than 10% of the voting power of all classes of the stock of Company's outstanding capital stock, the exercise price of any incentive stock option or nonstatutory stock option granted must equal at least 110% of the fair market value of the Common Stock on the date of the grant and the term of any such incentive stock option held by such an optionee shall not exceed five years. The term of other options under the 1997 Plan shall not exceed ten years. The consideration to be paid for the shares of Common Stock upon exercise of an option will be determined by the Administrator and may include, cash, check, promissory note, shares of Common Stock, or the assignment of part of the proceeds from the sale of shares acquired upon exercise of the option. The 1997 Plan provides that in the event of a merger or a sale of all or substantially all of the Company's assets, the Administrator has the authority to provide for the full automatic vesting and exercisability of each option, including shares as to which the option would not otherwise be exercisable. If an option becomes exercisable in full in the event of a merger or sale of assets, the Administrator shall notify the optionee that the option shall be fully exercisable for a specified period from the date of such notice, and the option will terminate upon the expiration of such period. To the extent the option has not been previously exercised, each option will terminate immediately prior to the consummation of such merger or sale of assets. During 1998, the Company granted to F. Michael Bartholomew an option to acquire [10,000] shares of Common Stock at an exercise price of $[2.50] per share. Upon the completion of this Offering, the option will be fully vested and exercisable. See "Capitalization" and "Dilution." 1999 Stock Incentive Plan [The Company's 1999 Stock Incentive Plan (the "1999 Stock Incentive Plan"), which was adopted by the Board of Directors in 1999, is expected to be approved by the Company's stockholders prior to the Offering. From and after the Offering, all further option grants will be made solely under the 1999 Stock Incentive Plan. Initially, [ ] shares of Common Stock, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2000 equal to the lesser of (i) [ ] shares of Common Stock, 51 (ii) percent ( %) of the number of shares outstanding as of such date, or (iii) a lesser number of shares determined by the administration of the 1999 Stock Incentive Plan are reserved for issuance under the 1999 Stock Incentive Plan. With respect to 1999 Awards granted to directors or officers, the 1999 Stock Incentive Plan is administered by the Board of Directors or a committee designated by the Board of Directors constituted to permit such 1999 Awards to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3 thereunder. With respect to 1999 Awards granted to other participants, the 1999 Stock Incentive Plan is administered by the Board of Directors or a committee designated by the Board of Directors. In each case, the respective plan administrator shall determine the provisions, terms and conditions of each 1999 Awards, including, but not limited to, the 1999 Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, shares of Common Stock, or other consideration) upon settlement of the 1999 Award, payment contingencies and satisfaction of any performance criteria. The exercise price of Incentive Stock Options must be at least equal to the fair market value of the Common Stock on the date of grant, and the term of the option must not exceed ten years. The term of other 1999 Awards will be determined by the respective plan administrator. With respect to an employee who owns stock possessing more than 10% of the voting power of all classes of the Company's outstanding capital stock, the exercise price of any Incentive Stock Option must equal at least 110% of the fair market value of the Common Stock on the grant date and the term of the option must not exceed five years. The exercise price or purchase price, if any, of other 1999 Awards will be such price as determined based on current market prices for the Company's Common Stock by the respective plan administrator. The consideration to be paid for the shares of Common Stock upon exercise or purchase of a 1999 Award will be determined by the respective plan administrator and may include cash, check, promissory note, shares of Common Stock, or the assignment of part of the proceeds from the sale of shares acquired upon exercise or purchase of the 1999 Award. Pursuant to the 1999 Stock Incentive Plan, the Board of Directors has adopted the 1999 Non-Employee Director Option Program. Under the Non-Employee Director Option Program, each non-employee director serving on the Company's Board of Directors upon joining the Company will receive an option to acquire [ ] shares of Common Stock at an exercise price per share equal to the then fair market value of the Common Stock at the date of grant. These options will vest and become exercisable in [three] equal installments on each yearly anniversary of the grant date. Non-employee directors appointed to the Board of Directors following the Offering also will be granted annually at the time of election or appointment an option to acquire [ ] shares of Common Stock. Such options will immediately vest and become fully exercisable on the then grant date. Each automatic option grant will have a term of ten years and will be transferable to the extent provided in the agreement evidencing the option. 401(k) Plan The Company has a 401(k) plan (the "401(k) Plan"), pursuant to which eligible employees may elect to reduce their current salary by up to the statutorily prescribed annual limit and have the amount of such reduction contributed to the 401(k) Plan. Contributions to the 401(k) Plan by the Company are discretionary. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue Code so that contributions by participants to the 401(k) Plan, and income earned on plan contributions, are not taxed to participants until withdrawn from the 401(k) Plan. 52 Employment Agreements The Company does not have any employment agreements with any of its key personnel. The Company has severance agreements with Michael J. Hartley and Sandra T. Hartley. Each of the severance agreements requires the Company to pay the respective individual an amount equal to the lesser of (a) twice his or her respective annual salary or (b) $400,000 in the event that their employment is terminated either by the Company without cause or by them for good reason. CERTAIN TRANSACTIONS During the last fiscal year, the Company did not enter into any transaction required to be disclosed pursuant to Item 404 of Regulation S-K. 53 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to beneficial ownership of the Company's Common Stock as of September 30, 1998, and is adjusted to reflect the sale of the shares offered hereby by (i) each person (or group of affiliated persons) who is known by the Company to own beneficially more than 5% of the Company's Common Stock, (ii) each of the Company's directors, (iii) each of the Named Executive Officers, and (iv) all directors and executive officers as a group.
Percentage Beneficially Number of Owned(1)(2) Shares ----------------- Beneficially Before After Name of Beneficial Owner Owned(1) Offering Offering - ------------------------ ------------ -------- -------- Michael J. Hartley (3)......................... [956,788] 92.6% Sandra T. Hartley (4).......................... [956,788] 92.6 Donald J. Phillips (5)......................... [211,468] 17.0 Cece Smith (6)................................. [211,468] 17.0 Tammy A. Ishibashi (7)......................... [50,357] 4.9 Paul Ouyang (8)................................ [26,689] 2.6 F. Michael Bartholomew (9)..................... [2,000] 1.9 Dale K. Jorgenson.............................. -- * All directors and executive officers as a group (12 persons).................................. [1,229,249] 97.9
- -------- * Less than 1% (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options or warrants held by that person that are currently exercisable within 60 days of [September 30, 1998] are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of each other person. Except as indicated in the footnote to this table and pursuant to applicable community property laws, each stockholder named in the table has sole voting power and investment power with respect to the shares set forth opposite such stockholder's name. (2) Based on [1,033,834] shares of Common Stock outstanding prior to the Offering and [ ] outstanding upon the completion of the Offering and assumes no exercise of Underwriters' over-allotment option. (3) Includes [135,965] shares of Common Stock held by the Michael J. Hartley Living Trust, [342,429] shares of Common Stock held by the [Michael J. Hartley Investment Account] and [478,394] shares of Common Stock held by Sandra T. Hartley. Mr. Hartley is the husband of Sandra T. Hartley, the Company's Vice President, Employee Relations who owns [478,394] shares of Common Stock. Mr. Hartley's address is 1440 Kapiolani Boulevard, Honolulu, Hawaii 96814. See note (4). (4) Includes [135,965] shares of Common Stock held by the Sandra T. Hartley Living Trust, [342,429] shares of Common Stock held by the [Sandra T. Hartley Investment Account] and [478,394] shares of Common Stock held by Michael J. Hartley. Ms. Hartley is the wife of Michael J. Hartley, the Company's Chairman of the Board, Chief Executive Officer and President who owns [478,394] shares of Common Stock. Ms. Hartley's address is 1440 Kapiolani Boulevard, Honolulu, Hawaii 96814. See note (3). (5) Represents warrants held by Phillips-Smith Specialty Retail Group III, L.P. to purchase [211,468] shares of Common Stock exercisable at or within 60 days of September 30, 1998. Mr. Phillips is a co-founder and general partner of Phillips-Smith Specialty Retail Group III, L.P. Mr. Phillips' address is c/o Phillips-Smith Specialty Retail Group, 5080 Spectrum Drive, Suite 805, West Addison, Texas 75001. Phillips-Smith Specialty Retail Group III, L.P. is the holder of the majority of the [425,000] shares of Mandatorily Redeemable Preferred Stock. See note (6). (6) Represents warrants held by Phillips-Smith Specialty Retail Group III, L.P. to purchase [211,468] shares of Common Stock exercisable at or within 60 days of September 30, 1998. Ms. Smith is a co-founder and general partner of Phillips-Smith Specialty Retail Group III, L.P. Ms. Smith's address is c/o Phillips-Smith Specialty Retail Group, 5080 Spectrum Drive, Suite 805, West Addison, Texas 75001. Phillips-Smith Specialty Retail Group III, L.P. is the holder of the majority of the [425,000] shares of Mandatorily Redeemable Preferred Stock. See note (5). (7) Ms. Ishibashi is the niece of Michael J. Hartley, the Company's Chairman of the Board, Chief Executive Officer and President, and Sandra T. Hartley, the Company's Vice President, Employee Relations. See notes (3) and (4). (8) Represents [26,689] shares held in the name of Paul Ouyang and Deborah Ouyang, Trustees of the Ouyang 1990 Trust. (9) Represents stock options held by Mr. Bartholomew to purchase [2,000] shares of Common Stock exercisable at or within 60 days of September 30, 1998. 54 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of [5,000,000] shares of Common Stock, par value [$0.01] per share (the "Common Stock") and [5,000,000] shares of Preferred Stock par value [$1.00] per share, of which all issued and outstanding Preferred Stock prior to the initial public offering shall be redeemed upon the closing of this Offering. The following description of the Company's capital stock does not purport to be complete and is subject to and qualified in its entirety by the Company's Certificate of Incorporation and Bylaws and by the provisions of applicable Delaware law. The Certificate of Incorporation and Bylaws contain certain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and which may have the effect of delaying, deferring or preventing a future takeover or change in control of the Company unless such takeover or change in control is approved by the Board of Directors. Common Stock As of September 30, 1998, there were [1,033,834] shares of Common Stock outstanding held of record by four stockholders. Holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to preferences that may be applicable to any outstanding Preferred Stock, the holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior liquidation rights of Preferred Stock, if any, then outstanding. The holders of Common Stock have the preemptive right to purchase their pro rata portion of any additional shares of Common Stock whether then or thereafter authorized. The Common Stock has no conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and the shares of Common Stock to be outstanding after the Offering will be fully paid and non-assessable. See "Dividend Policy." Preferred Stock As of September 30, 1998, there were [425,000] shares of Mandatorily Redeemable Preferred Stock. Upon the closing of this Offering, [5,000,000] shares of Preferred Stock will be authorized without any shares being issued and outstanding. The Board of Directors has the authority, without further action by the stockholders, to issue the shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking and purchase fund provisions, and the number of shares constituting any series and the designations of such series. The issuance of Preferred Stock could adversely affect the voting power of holders of Common Stock and the likelihood that such holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control of the Company. The Company has no present plan to issue any additional shares of Preferred Stock. Options As of September 30, 1998, (i) options to purchase a total of [47,200] shares of Common Stock were outstanding; and (ii) up to [94,203] additional shares of Common Stock may be subject to options granted in the future under the 1997 Stock Option Plan. 55 Warrants As of September 30, 1998, the Company had warrants outstanding to purchase [212,104] shares of Common Stock at an exercise price of [$0.01] per share (subject to adjustment for stock splits, stock dividends and the like), which expire on July 15, 2002. The Company anticipates that the warrants will be exercised immediately prior to the closing of the Offering. Registration Rights As of the effective date of the Registration Statement, holders of [212,104] shares Common Stock will be entitled to registration rights with respect to their Shares. Holders of such shares can require the Company to register the shares at any time following 180 days after the Effective Date, subject to certain conditions. See "Risk Factors--Shares Eligible for Future Sale" and "Shares Eligible for Future Sale." Delaware Anti-Takeover Law and Certain Charter Provisions Delaware Anti-Takeover Law The Company is subject to Section 203 of the Delaware General Corporation Law ("Section 203"), an anti-takeover law that restricts certain transactions and business combinations between a corporation and an "Interested Stockholder" owning 15% or more of the corporation's outstanding voting stock, for a period of three years from the date the stockholder becomes an Interested Stockholder. Subject to certain exceptions, unless the transaction is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock of the corporation (excluding shares held by the Interested Stockholder), Section 203 prohibits significant business transactions such as a merger with, disposition of assets to, or receipt of disproportionate financial benefits by the Interested Stockholder, or any other transaction that would increase the Interested Stockholder's proportionate ownership of any class or series of the corporation's stock. The statutory ban does not apply if, upon consummation of the transaction in which any person becomes an Interested Stockholder, the Interested Stockholder owns at least 85% of the outstanding voting stock of the corporation (excluding shares held by persons who are both directors and officers or by certain employee stock plans). Limitation of Director and Officer Liability Pursuant to the provisions of the Delaware General Corporation Law, the Company's Certificate of Incorporation provides that directors and officers of the Company shall not be personally liable for monetary damages to the Company or its stockholders for a breach of fiduciary duty as a director and officer, except for liability as a result of (i) a breach of the director's duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) an act related to the unlawful stock repurchase or payment of a dividend under Section 174 of Delaware General Corporation Law, and (iv) transactions from which the director derived an improper personal benefit. Such limitation of liability does not affect the availability of equitable remedies such an injunctive relief or rescission. Action by Written Consent Upon completion of this Offering, the Company's Certificate of Incorporation will provide that the holders of two-thirds of the outstanding voting capital stock can take action by written consent or at a duly called annual or special meeting of stockholders. This provision may have the effect of deterring hostile takeovers or delaying changes in control or management of the Company. Transfer Agent and Registrar The Transfer Agent and Registrar for the Common Stock is [ ]. 56 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, the Company will have approximately [ ] shares of Common Stock outstanding assuming (i) no exercise of the Underwriters' over-allotment option, and (ii) no exercise of outstanding options. Effective upon the consummation of this Offering, assuming no exercise of outstanding options, the Company will have outstanding options to purchase approximately [ ] shares of Common Stock to purchase an aggregate of approximately [ ] shares of Common Stock. Of the Common Stock outstanding upon completion of this Offering, the [ ] shares of Common Stock sold in this Offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by "affiliates" of the Company, as that term is defined under the Securities Act and the Regulations promulgated thereunder (an "Affiliate"). The remaining [ ] shares of Common Stock held by officers, directors, employees, consultants and other stockholders of the Company were sold by the Company in reliance on exemptions from the registration requirements of the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act. Any shares of Common Stock issued upon the exercise of options or warrants held by any of such persons will constitute restricted securities. Approximately [ ] of the outstanding shares of Common Stock that are restricted securities will be eligible for sale in the public market as of the date of this Prospectus (the "Effective Date") in reliance on Rule 144(k) under the Securities Act. The remaining [ ] shares of Common Stock held by existing stockholders are subject to lock-up agreements with the Representatives. Of the shares of Common Stock subject to lock-up agreements, approximately [ ] shares may not be sold or transferred until 180 days after the Effective Date. None of the shares subject to such lock-up agreements may be sold or transferred during the applicable lock-up period without the consent of the underwriters except for transfers pursuant to gifts or certain partnership distributions and similar transfers in which the transferee enters into a substantially similar lock-up agreement. Upon the expiration of the lock-up agreements, all of such locked-up shares will become eligible for sale 180 days, respectively, after the Effective Date subject to the provisions of the Rules 144(k), 144 or 701. William Blair & Company, L.L.C. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to these lock-up agreements. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an Affiliate, who has beneficially owned restricted securities for a period of at least one year from the later of the date such restricted securities were acquired from the Company or the date they were acquired from an Affiliate, is entitled to sell, within any three- month period commencing 90 days after the Effective Date, a number of shares that does not exceed the greater of 1% of the then outstanding shares of Common Stock (approximately [ ] shares immediately after this Offering) or the average weekly trading volume in the Common Stock during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain provisions relating to the number and notice of sale and the availability of current public information about the Company. Further, under Rule 144(k), if a period of at least two years has elapsed between the later of the date restricted securities were acquired from the Company and the date they were acquired from an Affiliate of the Company, a holder of such restricted securities who is not an Affiliate at the time of the sale and has not been an Affiliate for at least three months prior to the sale would be entitled to sell the shares immediately after the Effective Date without regard to the volume and manner of sale limitations described above. Any employee, director or consultant to the Company who purchased his or her shares pursuant to a written compensation plan or contract is entitled to rely on the resale provisions of Rule 701, which permits non-Affiliates to sell their Rule 701 shares beginning 90 days after the Effective Date without having to comply with the volume limitations and other restrictions of Rule 144 holding period restrictions. As of [September 30, 1998], there were outstanding options to purchase approximately [ ] shares with under certain circumstances would be available for sale pursuant to Rule 701, of which approximately [ ] of the shares underlying such options are subject to lock-up agreements. Of the approximately [ ] total shares issuable upon exercise of outstanding options, approximately [ ] shares may not be sold or transferred until 180 days after the Effective Date. Options for approximately [ ] of the total [ ] shares were exercisable as of [September 30, 1998]. 57 Prior to this Offering, there has been no public market for the Common Stock of the Company, and any sale of substantial amounts of Common Stock in the open market, or the availability of shares for sale, may adversely affect the market price of the Common Stock and the ability of the Company to raise funds through equity offerings in the future. As of the effective date of the Registration Statement, holders of [212,104] shares of Common Stock will be entitled to registration rights with respect to their shares. Holders of such shares can require the Company to register the shares at any time following 180 days after the effective date, subject to certain conditions. See "Risk Factors--Shares Eligible for Future Sale" and "Description of Capital Stock--Registration Rights." 58 UNDERWRITING The several Underwriters named below (the "Underwriters"), for which William Blair & Company, L.L.C. and Dain Rauscher Wessels, a Division of Dain Rauscher Incorporated ("Dain Rauscher Wessels") (the "Representatives") are acting as representatives, have severally agreed, subject to the terms and conditions set forth in the Underwriting Agreement by and among the Company and the Underwriters (the "Underwriting Agreement"), to purchase from the Company, and the Company has agreed to sell to each of the Underwriters, the respective number of shares of Common Stock set forth opposite each Underwriters' name in the table below.
Number of Underwriter Shares ----------- --------- William Blair & Company, L.L.C. ................................... Dain Rauscher Wessels.............................................. --------- Total............................................................ =========
In the Underwriting Agreement, the Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the Common Stock being sold pursuant to the Underwriting Agreement if any of the Common Stock being sold pursuant to the Underwriting Agreement (excluding shares covered by the over-allotment option granted therein) is purchased. In the event of default by any Underwriter, the Underwriting Agreement provides that, in certain circumstances, the purchase commitments of the non-defaulting Underwriters shall be increased or the Underwriting Agreement may be terminated. The Representatives have advised the Company that the Underwriters propose to offer the Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and to selected dealers at such price less a concession of not more than $ per share. The Underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain other dealers. After commencement of the initial public offering, the public offering price, and other selling terms may be changed by the Representatives. The Company has granted to the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase up to an aggregate of [ ] additional shares of Common Stock to cover over-allotments, at the same price per share to be paid by the Underwriters for the other shares offered hereby. If the Underwriters purchase any such additional shares pursuant to this option, each of the Underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the table above. The Underwriters may exercise the option only for the purpose of covering over-allotments, if any, made in connection with the distribution of the shares of Common Stock offered hereby. All stockholders of the Company, who hold in the aggregate [ ] shares of Common Stock, and the Company have agreed that for a period of 180 days after the date of this Prospectus, without the prior written consent of William Blair & Company, L.L.C., they will not, directly or indirectly, offer, sell, assign, transfer, encumber, pledge, contract to sell, grant an option to purchase, or otherwise dispose of, other than by operation of law, any shares of Common Stock or securities convertible or exchangeable into, or exercisable for, Common Stock (except in the case of bona fide gifts to immediate family members of such persons who agree to be bound by such restrictions, or to limited partners or shareholders, who agree to be bound by such restrictions). In considering a request for its consent to a sale or transfer within the 180- day period, William Blair & Company, L.L.C. will take into account various factors, including, but not limited to, the number of shares requested to be sold, the anticipated manner and timing of sale, the potential impact of the sale on the market for the Common Stock, and market conditions generally. The Company may grant options and issue Common Stock under existing stock option or stock purchase plans and issue unregistered shares in connection with any outstanding convertible securities or options during the lock-up period. See "Risk Factors--No Prior Market for Our Common Stock; Volatility of Stock Price." 59 The Company has agreed to indemnify the Underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. The Representatives have informed the Company that the Underwriters will not confirm, without client authorization, sales to their client accounts as to which they have discretionary authority. Prior to this Offering, there was no public market for the Common Stock of the Company. Consequently, the initial public offering price for the Common Stock will be determined by negotiations among the Company and the Representatives. Among the factors which will be considered in such negotiations are the prevailing market conditions, the results of operations of the Company in recent periods, the market capitalizations and stages of development, and recent market prices of securities, of other companies which the Company and the Representatives believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development, the general condition of the securities markets at the time of this Offering, and other factors which are deemed relevant. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to this Offering at or above the initial public offering price. During and after this Offering, the Underwriters may purchase and sell the Common Stock in the open market in order to facilitate this Offering. Specifically, the Underwriters may over-allot or otherwise create a short position in the Common Stock for their own account by selling more shares of Common Stock than have been sold to them by the Company pursuant to the Underwriting Agreement. The Underwriters may elect to cover any such short position by purchasing shares of Common Stock in the open market or by exercising the over-allotment option granted to them by the Company. The Underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of shares of Common Stock sold in this Offering for their account may be reclaimed by the syndicate if such shares are repurchased by the syndicate in stabilizing or covering transactions. The activities described above may stabilize, maintain, or otherwise affect the market price of the Common Stock and make such price higher than it might otherwise be in the open market. The imposition of a penalty bid may also affect the price of the Common Stock to the extent that it discourages resales thereof. These activities, if commenced, may be discontinued at any time without notice and may be effected on the Nasdaq Stock Market or otherwise. Neither the Company nor any of the Underwriters makes any representation or prediction as to whether the Underwriters will engage in such transactions or choose to discontinue any transactions engaged in or the direction or magnitude of any effect that such transactions may have on the price of the Common Stock. 60 LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon by Morrison & Foerster LLP, Los Angeles, California. Certain matters in connection with this Offering will be passed upon for the Underwriters by Sonnenschein Nath & Rosenthal, Chicago, Illinois. EXPERTS The financial statements as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in accounting and auditing. In August 1998, the Company selected PricewaterhouseCoopers LLP as its principal independent auditors to replace KPMG LLP. The decision to retain PricewaterhouseCoopers LLP was recommended by the Board of Directors. In connection with the audit for the years ended December 31, 1996 and 1997, and the period through August 1998, there were no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of KPMG LLP, would have caused them to make reference to the matter in their report. The report of KPMG LLP on the financial statements of the Company for the years ended December 31, 1996 and 1997 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the shares of Common Stock offered hereby, reference is made to the Registration Statement. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. Copies of such materials may be examined without charge at, or obtained upon payment of prescribed fees from, the Public Reference Section of the Commission at Room 1024 Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor, New York New York 10048. The Commission maintains a World Wide Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. Reports, proxy statements and other information concerning the Company may also be inspected at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington D.C. 20006. 61 CHEAP TICKETS, INC. INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants.......................................... F-2 Balance Sheets............................................................. F-3 Statements of Operations................................................... F-4 Statements of Stockholders' Equity......................................... F-5 Statements of Cash Flows................................................... F-6 Notes to the Financial Statements.......................................... F-8
F-1 Report of Independent Accountants The Stockholders and Board of Directors Cheap Tickets, Inc. In our opinion, the accompanying balance sheets and the related statements of operations, changes in stockholders' equity and cash flows present fairly, in all material respects, the financial position of Cheap Tickets, Inc. at December 31, 1996 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP October 13, 1998, except for Notes 4 and 5, as to which the date is January 15, 1999 F-2 CHEAP TICKETS, INC. BALANCE SHEETS December 31, 1996 and 1997 and September 30, 1998
December 31, ----------------------- September 1996 1997 30, 1998 ---------- ----------- ----------- (Unaudited) Assets (Note 3) Current Assets: Cash and cash equivalents.............. $1,583,284 $ 6,254,406 $ 9,232,480 Trade accounts and other receivables... 1,066,168 663,969 1,793,229 Refundable income taxes................ -- 663,209 75,601 Ticket inventories..................... 262,769 119,771 399,012 Other current assets................... 142,062 259,719 514,424 ---------- ----------- ----------- Total current assets................. 3,054,283 7,961,074 12,014,746 Property and equipment, net (Note 2)..... 2,230,994 2,520,046 2,705,400 Property held for sale................... 550,000 550,000 -- Other assets............................. 163,395 172,470 182,994 ---------- ----------- ----------- $5,998,672 $11,203,590 $14,903,140 ========== =========== =========== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable....................... $1,869,108 $ 4,385,778 $ 6,133,254 Accrued expenses and other liabilities........................... 343,760 557,528 1,273,127 Current installments of long-term debt (Note 3).............................. 78,749 528,825 190,830 Current installments of capital lease obligations (Note 8).................. 95,950 132,722 170,707 Income taxes payable................... 200,336 -- -- ---------- ----------- ----------- Total current liabilities............ 2,587,903 5,604,853 7,767,918 Long-term debt, excluding current installments (Notes 3 and 10)........... 1,355,175 598,139 637,485 Capital lease obligations, excluding current installments (Note 8)........... 359,356 349,542 460,397 Other noncurrent liabilities............. 152,646 217,598 132,456 ---------- ----------- ----------- Total liabilities.................... 4,455,080 6,770,132 8,998,256 ---------- ----------- ----------- Commitments (Notes 7, 8 and 12) Mandatorily redeemable cumulative preferred stock, $1 par value (aggregate involuntary liquidation preference of $4,250,000, plus unpaid cumulative dividends). Issued and outstanding 425,000 shares at December 31, 1997 and September 30, 1998 (Note 4)............. -- 3,621,896 4,007,495 ---------- ----------- ----------- Stockholders' Equity (Notes 4, 5, 11 and 12): Preferred stock, $1 par value. Authorized 5,000,000 shares; issued and outstanding 425,000 shares of mandatorily redeemable cumulative preferred stock at December 31, 1997 and September 30, 1998................ -- -- -- Common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 1,060,523 shares at December 31, 1996 and 1997 and 1,033,834 shares at September 30, 1998.................................. 1,053 10,605 10,338 Additional paid-in capital............. 45,842 547,017 550,937 Unearned compensation.................. (42,071) (19,127) (24,805) Retained earnings...................... 1,538,768 273,067 1,360,919 ---------- ----------- ----------- Total stockholders' equity........... 1,543,592 811,562 1,897,389 ---------- ----------- ----------- $5,998,672 $11,203,590 $14,903,140 ========== =========== ===========
The accompanying notes are an integral part of the financial statements. F-3 CHEAP TICKETS, INC. STATEMENTS OF OPERATIONS Years Ended December 31, 1995, 1996 and 1997 and Nine Months Ended September 30, 1997 and 1998
Nine Months Ended Years Ended December 31, September 30, --------------------------------------- -------------------------- 1995 1996 1997 1997 1998 ----------- ------------ ------------ ------------ ------------ (Unaudited) Supplemental Information (unaudited) (Note 1): Gross bookings......... $91,994,257 $105,944,252 $153,673,826 $112,084,284 $199,114,820 =========== ============ ============ ============ ============ Results of Operations: Non-published fares..... $66,340,289 $ 58,981,893 $ 96,379,304 $ 73,713,379 $122,994,328 Published fare commissions and bonuses................ 2,737,891 5,613,761 6,470,082 4,674,229 8,053,344 ----------- ------------ ------------ ------------ ------------ Net revenues........... 69,078,180 64,595,654 102,849,386 78,387,608 131,047,672 Cost of sales........... 56,423,819 49,167,998 81,370,511 61,984,290 104,547,056 ----------- ------------ ------------ ------------ ------------ Gross profit............ 12,654,361 15,427,656 21,478,875 16,403,318 26,500,616 Selling, general and administrative expenses (Notes 10 and 11)...... 11,920,732 14,351,321 23,091,193 16,561,749 24,092,620 ----------- ------------ ------------ ------------ ------------ Net operating income (loss)................. 733,629 1,076,335 (1,612,318) (158,431) 2,407,996 Other income (deductions): Cost of abandoned financing (Note 9).... (622,156) -- -- -- -- Provision for decline in value of property held for sale......... (94,904) -- -- -- -- Gain (loss) on sale or disposal of property and equipment......... (64,693) 3,680 (2,164) (2,164) (48,786) Interest income........ 101,949 81,987 183,723 98,057 268,866 Interest expense....... (62,203) (91,488) (185,428) (139,997) (117,955) Other, net............. 32,172 42,185 994 14,446 (12,746) ----------- ------------ ------------ ------------ ------------ (709,835) 36,364 (2,875) (29,658) 89,379 ----------- ------------ ------------ ------------ ------------ Earnings (loss) before income taxes........... 23,794 1,112,699 (1,615,193) (188,089) 2,497,375 Income taxes (Note 6)... 6,584 438,997 (606,633) (77,116) 1,023,924 ----------- ------------ ------------ ------------ ------------ Net earnings (loss)..... $ 17,210 $ 673,702 $ (1,008,560) $ (110,973) $ 1,473,451 =========== ============ ============ ============ ============ Basic earnings (loss) per common share....... $ 0.02 $ 0.63 $ (1.14) $ (0.22) $ 1.00 =========== ============ ============ ============ ============ Average common shares outstanding............ 1,054,344 1,065,020 1,107,723 1,107,723 1,089,930 =========== ============ ============ ============ ============ Diluted earnings (loss) per common share....... $ 0.02 $ 0.63 $ (1.14) $ (0.22) $ 0.84 =========== ============ ============ ============ ============ Average diluted common shares outstanding..... 1,054,344 1,065,020 1,107,723 1,107,723 1,302,034 =========== ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements. F-4 CHEAP TICKETS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1995, 1996 and 1997 and Nine Months Ended September 30, 1998 (Unaudited)
Additional Total Common Paid-In Unearned Retained Stockholders' Stock Capital Compensation Earnings Equity ------- ---------- ------------ ---------- ------------- Balance at December 31, 1994................... $ 1,000 $ -- $ -- $ 847,856 $ 848,856 Net earnings.......... -- -- -- 17,210 17,210 ------- -------- -------- ---------- ---------- Balance at December 31, 1995................... 1,000 -- -- 865,066 866,066 Net earnings.......... -- -- -- 673,702 673,702 Issuance of common stock (Note 11)...... 53 45,842 (45,895) -- -- Amortization of unearned compensation (Note 11)............ -- -- 3,824 -- 3,824 ------- -------- -------- ---------- ---------- Balance at December 31, 1996................... 1,053 45,842 (42,071) 1,538,768 1,543,592 Net loss.............. -- -- -- (1,008,560) (1,008,560) Issuance of warrants (Note 4)............. -- 510,652 -- -- 510,652 Accretion to mandatorily redeemable cumulative preferred stock redemption price (Note 4)............. -- -- -- (87,066) (87,066) 1000-for-1 common stock split (Note 4)................... 9,477 (9,477) -- -- -- Stock dividend (Note 4)................... 75 -- -- (75) -- Accrual of dividends on mandatorily redeemable cumulative preferred stock (Note 4)................... -- -- -- (170,000) (170,000) Amortization of unearned compensation (Note 11)............ -- -- 22,944 -- 22,944 ------- -------- -------- ---------- ---------- Balance at December 31, 1997................... 10,605 547,017 (19,127) 273,067 811,562 Net earnings.......... -- -- -- 1,473,451 1,473,451 Accretion to mandatorily redeemable cumulative preferred stock redemption price (Note 4)............. -- -- -- (130,599) (130,599) Accrual of dividends on mandatorily redeemable preferred stock (Note 4)....... -- -- -- (255,000) (255,000) Reversal of amortization of unearned compensation (Note 11)............ -- -- (3,820) -- (3,820) Forfeiture of common stock (Note 11)...... (267) (22,680) 22,947 -- -- Stock option compensation (Note 12).................. -- 26,600 (26,600) -- -- Amortization of unearned stock option compensation......... -- -- 1,795 -- 1,795 ------- -------- -------- ---------- ---------- Balance at September 30, 1998 (unaudited)....... $10,338 $550,937 $(24,805) $1,360,919 $1,897,389 ======= ======== ======== ========== ==========
The accompanying notes are an integral part of the financial statements. F-5 CHEAP TICKETS, INC. STATEMENTS OF CASH FLOWS Years Ended December 31, 1995, 1996 and 1997 and Nine Months Ended September 30, 1997 and 1998
Nine Months Ended Years Ended December 31, September 30, ----------------------------------- ---------------------- 1995 1996 1997 1997 1998 ---------- ---------- ----------- ---------- ---------- (Unaudited) Cash flows from operating activities: Net earnings (loss)... $ 17,210 $ 673,702 $(1,008,560) $ (110,973) $1,473,451 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Deferred income taxes.............. (43,666) 11,263 (19,053) (2,422) 10,819 Depreciation and amortization....... 111,216 204,552 370,237 250,971 411,325 Stock option compensation....... -- -- -- -- 1,795 Stock compensation expense (benefit).. -- 3,824 22,944 17,200 (3,820) Loss (gain) on sale or disposal of property and equipment.......... 64,693 (3,680) 2,164 2,164 48,786 Provision for decline in value of property held for sale............... 94,904 -- -- -- -- Changes in - Trade accounts and other receivables...... (317,784) (632,912) 152,199 (377,613) (1,129,260) Refundable income taxes............ (39,004) 39,004 (663,209) (125,980) 587,608 Ticket inventories...... 65,906 (260,023) 142,998 231,939 (279,241) Other current assets........... 12,800 (42,540) (105,790) (258,666) (214,881) Other noncurrent assets........... (18,636) (67,924) (26,267) 39,822 (10,524) Accounts payable.. 498,797 384,344 2,516,670 4,000,634 1,747,476 Income taxes payable.......... -- 200,336 (200,336) (200,336) -- Accrued expenses and other liabilities...... 220,053 (137,830) 213,768 306,904 715,599 Other noncurrent liabilities...... (15,591) 38,440 64,952 (19,794) (135,785) ---------- ---------- ----------- ---------- ---------- Net cash provided by operating activities...... 650,898 410,556 1,462,717 3,753,850 3,223,348 ---------- ---------- ----------- ---------- ---------- Cash flows from investing activities: Capital expenditures.. (367,180) (1,295,832) (496,406) (135,319) (342,215) Proceeds from sale of property and equipment............ -- 36,349 10,075 -- 501,214 ---------- ---------- ----------- ---------- ---------- Net cash provided by (used in) investing activities........... (367,180) (1,259,483) (486,331) (135,319) 158,999 ---------- ---------- ----------- ---------- ---------- Cash flows from financing activities: Proceeds from issuance of mandatorily redeemable cumulative preferred stock and common stock warrants, net........ -- -- 3,875,482 3,875,482 -- Increase (decrease) in bank overdraft....... 233,777 (233,777) -- -- -- Proceeds from issuance of long-term debt.... -- 928,213 -- -- 307,200 Principal payments on long-term debt....... (130,103) (54,019) (56,960) (43,922) (605,849) Proceeds from issuance of other debt........ -- -- 500,000 500,000 -- Principal payments on other debt........... (37,678) -- (500,000) -- -- Principal payments on capital lease obligations.......... -- (46,117) (123,786) (91,787) (105,624) ---------- ---------- ----------- ---------- ---------- Net cash provided by (used in) financing activities......... 65,996 594,300 3,694,736 4,239,773 (404,273) ---------- ---------- ----------- ---------- ---------- Net increase (decrease) in cash and cash equivalents........ 349,714 (254,627) 4,671,122 7,858,304 2,978,074 Cash and cash equivalents at beginning of period... 1,488,197 1,837,911 1,583,284 1,583,284 6,254,406 ---------- ---------- ----------- ---------- ---------- Cash and cash equivalents at end of period................ $1,837,911 $1,583,284 $ 6,254,406 $9,441,588 $9,232,480 ========== ========== =========== ========== ==========
The accompanying notes are an integral part of the financial statements. F-6 CHEAP TICKETS, INC. STATEMENTS OF CASH FLOWS (Continued) Years Ended December 31, 1995, 1996 and 1997 and Nine Months Ended September 30, 1997 and 1998 Noncash investing and financing activities: In the nine months ended September 30, 1998, the Company recorded $26,600 as unearned compensation in connection with its stock option plan for options granted through June 1998 (see Note 12). In June 1997, the Company satisfied a debt obligation of $250,000 by offsetting such amount with an equal amount of incentive reimbursements receivable (see Note 10). Capital lease obligations of $501,423 and $150,744 were incurred in the years ended December 31, 1996 and 1997, respectively, when the Company entered into leases for new equipment. During the nine months ended September 30, 1997 and 1998, new capital lease obligations amounted to $150,744 and $254,464, respectively. In 1996, the Company recorded $45,895 as unearned compensation in connection with the issuance of 53 shares of common stock under a stock compensation arrangement (see Note 11). The Company accrued dividends of $170,000 on mandatorily redeemable preferred stock for the year ended December 31, 1997 and $75,000 and $255,000 for the nine months ended September 30, 1997 and 1998, respectively. Supplemental cash flow information: The Company paid interest of $62,203, $91,488 and $185,428 for the years ended December 31, 1995, 1996 and 1997, respectively, and $139,997 and $117,955 for the nine months ended September 30, 1997 and 1998, respectively. The Company paid income taxes, net of refunds received, of $70,139, $188,394 and $275,965 for the years ended December 31, 1995, 1996 and 1997, respectively, and $425,496 for the nine months ended September 30, 1998. No income taxes were paid during the nine months ended September 30, 1997. The accompanying notes are an integral part of the financial statements. F-7 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Business Cheap Tickets, Inc. (Company) was incorporated under the laws of the state of Hawaii on August 20, 1986, for the primary purpose of providing travel services, including airline tickets, cruise tickets, auto rentals, hotel reservations and other travel products. The Company operates in Hawaii, California, New York and Washington, with approximately 18%, 18% and 10% of sales activity to customers residing in the state of Hawaii for the years ended December 31, 1995, 1996 and 1997, respectively, and 12% and 9% for the nine months ended September 30, 1997 and 1998, respectively. The Company deals with over 100 airline carriers. Gross bookings through three of these airline carriers accounted for approximately 79%, 48% and 46% of the Company's sales activity for the years ended December 31, 1995, 1996 and 1997, respectively, and 48% and 39% for the nine months ended September 30, 1997 and 1998, respectively. Cash Equivalents The Company considers all highly liquid debt securities with original maturities of three months or less to be cash equivalents. There were no cash equivalents at December 31, 1996 and 1997 and September 30, 1998. Trade Accounts and Other Receivables Trade accounts and other receivables primarily consist of commissions and volume bonuses from travel service providers. There were no allowances for doubtful accounts receivable at December 31, 1996 and 1997 and September 30, 1998. Ticket Inventories Ticket inventories, consisting of prepaid Hawaii inter-island airline coupons, are stated at the lower of cost or market. The Company does not carry any other airline ticket inventories. Inventory cost is the acquisition price of the coupons or tickets. The specific identification method is used to determine the basis of inventory and cost of coupons or tickets removed from inventory. Property and Equipment Property and equipment are carried at cost. Equipment held under capital leases is stated at the lower of the present value of minimum lease payments or estimated fair value of the equipment at the inception of the lease. Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements and equipment held under capital leases are amortized on the straight-line method over the estimated useful life of the asset or the lease term, whichever is shorter. The estimated depreciable lives of major classes of property and equipment are as follows: Building and improvements................................... 40 years Leasehold improvements...................................... 5 to 40 years Furniture, fixtures and office equipment.................... 5 to 7 years Computer equipment.......................................... 3 to 5 years Vehicles.................................................... 5 years
Property Held for Sale In 1995, the Company moved its Hawaii operations to larger leased premises. The Company's commercial condominium office facility from which it moved, was held for sale at December 31, 1997. This property is F-8 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) stated at estimated fair value, less costs to sell. A write-down of $94,904 was recorded in 1995. The property was sold in August 1998 and a loss of $49,000 was recorded thereon. Revenue Recognition Revenues consist of non-published fares, commissions and overrides on published fares, and volume bonuses from a travel service network. Non- published fares are fares that are bought by the Company under negotiated net fare contracts from various airline carriers and other travel service providers and resold to consumers at fares determined by the Company generally at a significant discount off published fares. The Company also sells travel services at regular published fares and earns a commission on such sales. The Company recognizes revenues and commissions when earned, which is at the time the reservation is ticketed and payment is received. Such revenues are reported net of an allowance for cancellations and refunds. Due to the restrictive nature of the Company's sales, which are generally noncancelable and nonrefundable, cancellations and refunds are not significant. Volume bonus and override revenues are recognized at the end of each monthly or quarterly measurement period if the specified target has been achieved. Supplemental Information (Unaudited) Gross bookings represent the sum of the retail price of non-published fares sold and the retail price of published fares that are sold on a commission basis. This information does not affect the Company's operating results. Disclosure of gross bookings is not required by generally accepted accounting principles ("GAAP"). Gross bookings are not included in revenues or operating results, and should not be considered in isolation or as a substitute for other information prepared in accordance with generally accepted accounting principles. Management uses gross bookings for various management purposes, including as a measure of general business activity, success of promotional efforts, capacity to handle customer demand and efficiency of reservation agents. In addition, management believes that gross bookings provide a useful comparison between historical periods, and that period-to-period changes in such information are a useful measure of market acceptance of the Company's products. Advertising Advertising costs are expensed as incurred. Advertising expenses amounted to $1,311,752, $1,453,392 and $2,495,325 for the years ended December 31, 1995, 1996 and 1997, respectively, and $1,610,191 and $2,321,504 for the nine months ended September 30, 1997 and 1998, respectively. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F-9 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, effective January 1, 1997. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the estimated fair value of property held for sale, the valuation allowance for deferred tax assets and the allowance for doubtful receivables. Management believes that such provisions and allowances have been appropriately determined in accordance with generally accepted accounting principles. Fair Value of Financial Instruments The fair values of the Company's long-term debt approximates carrying values based on current financing for similar loans available to the Company. Accounting for Stock Based Compensation The Company accounts for employee stock based compensation in accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and related interpretations, as permitted by SFAS No. 123 "Accounting for Stock Based Compensation." Per Share Data In 1997 the Company adopted SFAS No. 128, "Earnings Per Share," which specifies the computation, presentation and disclosure requirements for earnings per share. Prior period earnings per share data has been presented in accordance with the provisions of SFAS No. 128. F-10 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) The following is a reconciliation of the numerator and denominators of the basic and diluted earnings (loss) per common share:
Income Shares Per Share Years ended December 31, (Numerator) (Denominator) Amount ------------------------ ----------- ------------- --------- 1995: Basic Income available to common shares... $ 17,210 1,054,344 $ 0.02 ====== Effect of dilutive securities......... -- -- ----------- --------- Diluted Net income and assumed conversions.. $ 17,210 1,054,344 $ 0.02 =========== ========= ====== Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- 1996: Basic Income available to common shares... $ 673,702 1,065,020 $ 0.63 ====== Effect of dilutive securities......... -- -- ----------- --------- Diluted Net income and assumed conversions.. $ 673,702 1,065,020 $ 0.63 =========== ========= ====== Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- 1997: Basic Net loss............................ $(1,008,560) Preferred dividends................. (170,000) Accretion of mandatorily redeemable cumulative preferred stock discount........................... (87,066) ----------- Loss available to common shares..... (1,265,626) 1,107,723 $(1.14) ====== Effect of dilutive securities......... -- -- ----------- --------- Diluted Net loss and assumed conversions.... $(1,265,626) 1,107,723 $(1.14) =========== ========= ======
F-11 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Income Shares Per Share Nine Months Ended September 30, (Numerator) (Denominator) Amount - ------------------------------- ----------- ------------- --------- 1997: Basic Net loss................................. $ (110,973) Preferred dividends...................... (85,000) Accretion of mandatorily redeemable cumulative preferred stock discount..... (43,533) ---------- Loss available to common shares.......... (239,506) 1,107,723 $(0.22) ====== Effect of dilutive securities.............. -- -- ---------- --------- Diluted Net loss and assumed conversions......... $ (239,506) 1,107,723 $(0.22) ========== ========= ====== Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- 1998: Basic Net income............................... $1,473,451 Preferred dividends...................... (255,000) Accretion of mandatorily redeemable cumulative preferred stock discount..... (130,599) ---------- Income available to common shares........ 1,087,852 1,089,930 $ 1.00 ====== Effect of dilutive securities: Common stock warrants.................... -- 212,104 ---------- --------- Diluted Net income and assumed conversions....... $1,087,852 1,302,034 $ 0.84 ========== ========= ======
Net earnings (loss) per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. Warrants to purchase 212,104 shares of common stock were outstanding in 1997 but were not included in the computation of diluted loss per share for the year ended December 31, 1997 and nine months ended September 30, 1997 since it would have had an antidilutive effect. Such warrants had a dilutive effect in the nine months ended September 30, 1998. The Company has computed common and common equivalent shares in determining the number of shares used in calculating net earnings (loss) per share for all periods presented pursuant to the Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83. SAB 83 requires the Company to include all common shares and common share equivalents issued during the twelve month period preceding the filing date of an initial public offering in its calculation of the number of shares used to determine net earnings (loss) per share as if the common share equivalents had been outstanding for all periods presented. Accordingly, 47,200 stock options issued in 1998 are reflected as if they had been outstanding since 1995. New Pronouncements In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 states that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. F-12 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) SFAS No. 131 requires disclosures regarding segments of an enterprise and related information that reflects the different types of business activities in which the enterprise engages and the different economic environments in which it operates. The adoption of SFAS No. 130 in 1998 did not have an effect on the Company's financial statements since the Company does not have elements of comprehensive income other than net earnings. The effect of implementing SFAS No. 131, which is applicable to public companies, has not been determined since the Company is privately owned. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which standardized the disclosure requirements for pension and other postretirement benefits. The Company plans to implement SFAS No. 132 (which does not change existing measurement or recognition standards for the Company's defined contribution plan) in its financial statements for the year ending December 31, 1998. The adoption of this standard is not expected to have a material effect on the Company's financial statements. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires the recognition of all derivative instruments as either assets or liabilities in the statement of financial position and measurement of those derivative instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Currently, the Company does not hold derivative instruments or engage in hedging activities. The adoption of this standard is not expected to have a material effect on the Company's financial statements. In March 1998, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." These standards are effective for the Company's year ending December 31, 1999. The Company has not determined the impact of the implementation of these pronouncements. Reclassifications Certain amounts in the 1995 and 1996 financial statements have been reclassified to conform with the 1997 presentation. These reclassifications had no effect on net earnings as previously reported. Unaudited Interim Financial Information The accompanying interim financial statements as of September 30, 1998, and for the nine months ended September 30, 1997 and 1998 together with the related notes are unaudited but include all adjustments consisting of only normal recurring adjustments, which the Company considers necessary to present fairly, in all material respects, its financial position, results of operations and cash flows for such periods. Results for the nine months ended September 30, 1997 and 1998 are not necessarily indicative of results for the entire year. Historically, the fourth quarter of the year generally reflects slower business activity due to the seasonality of the Company's business. F-13 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) 2. Property and Equipment A summary of property and equipment at December 31, 1996 and 1997 and September 30, 1998 is as follows:
December 31, --------------------- September 30, 1996 1997 1998 ---------- ---------- ------------- Land................................... $ 158,239 $ 158,239 $ 158,239 Building and improvements.............. 746,011 741,761 741,761 Leasehold improvements................. 283,451 339,807 341,626 Furniture, fixtures and office equipment (Note 8).................... 1,524,236 2,089,861 2,660,114 Vehicles............................... 120,903 122,916 122,916 ---------- ---------- ---------- 2,832,840 3,452,584 4,024,656 Less accumulated depreciation and amortization.......................... 601,846 932,538 1,319,256 ---------- ---------- ---------- $2,230,994 $2,520,046 $2,705,400 ========== ========== ==========
Depreciation and amortization amounted to $111,216, $204,552 and $370,237 for the years ended December 31, 1995, 1996 and 1997, respectively, and $250,971 and $411,325 for the nine months ended September 30, 1997 and 1998, respectively. F-14 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) 3. Debt Long-term debt at December 31, 1996 and 1997 and September 30, 1998 consists of the following:
December 31, --------------------- September 30, 1996 1997 1998 ---------- ---------- ------------- Bank Debt- 3.08% above an indexed rate (total rate of 9% at December 31, 1997 and September 30, 1998) note payable in monthly installments of $6,056 including interest, due April 1, 2012, collateralized by a first mortgage on land and building...................... $ 604,475 $ 585,816 $570,395 1.5% above bank's base rate (total rate of 10.5% at December 31, 1997) mortgage note, payable in monthly installments of $6,000 including interest, due December 1, 1998, collateralized by a commercial condominium with a carrying value of $550,000 (see Note 1)*.................................. 516,229 496,316 -- 10% note payable in monthly installments of $1,413 including interest, balance due January 26, 2001, collateralized by a vehicle................................... 56,571 44,832 35,172 1.75% above bank's preferred base rate note, paid in 1997........................ 6,649 -- -- Other- 8.25% note payable in monthly installments of $13,930 including interest, due February 28, 2000......................... -- -- 222,748 1% promissory note, satisfied in 1997 (see Note 10).................................. 250,000 -- -- ---------- ---------- -------- Total long-term debt..................... 1,433,924 1,126,964 828,315 Less current installments of long-term debt...................................... 78,749 528,825 190,830 ---------- ---------- -------- Long-term debt, excluding current installments.............................. $1,355,175 $ 598,139 $637,485 ========== ========== ========
- -------- * The 1.5% above the bank's base rate mortgage note payable is collateralized by property held for sale as of December 31, 1997. Upon sale of the property in August 1998, the unpaid balance of the mortgage note was repaid. The aggregate maturities of long-term debt for each of the five years subsequent to December 31, 1997, and thereafter, are as follows: Year ending December 31 1998............................................................ $ 528,825 1999............................................................ 36,975 2000............................................................ 40,639 2001............................................................ 28,794 2002............................................................ 29,622 Thereafter...................................................... 462,109 ---------- $1,126,964 ==========
F-15 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) The Company has available a $3,000,000 credit facility with a bank expiring on December 5, 1999. Borrowings under the credit facility accrue interest at either (1) the bank's base rate (8.5% at December 31, 1997 and 8.25% at September 30, 1998) or (2) LIBOR plus an applicable margin, as defined, at the Company's option. The credit facility is collateralized by deposit accounts with the bank, accounts receivable, inventory, furniture and equipment and intangible assets. The credit facility contains restrictive covenants which include requirements to maintain minimum tangible net worth and meet certain financial ratios. There were no outstanding borrowings under the credit facility at December 31, 1997 and September 30, 1998. 4. Mandatorily Redeemable Cumulative Preferred Stock In July 1997, the Company issued and sold 425,000 shares of mandatorily redeemable cumulative preferred stock, with detachable warrants to purchase an aggregate of 212,104 shares of common stock of the Company at $0.01 per share, in exchange for cash consideration of $4,250,000 (the "Equity Transaction"). The net proceeds of $3,875,482, after reflecting transaction costs of $374,518, were allocated between the warrants and the mandatorily redeemable cumulative preferred stock based on their relative fair values, resulting in an allocation of $510,652 and $3,364,830 to the warrants and preferred stock, respectively. The value attributable to the warrants was recorded as additional paid-in capital. The excess of the redemption value of the preferred stock of $4,250,000 over the initial carrying value of $3,364,830 is being accreted by periodic charges to retained earnings through July 25, 2002. The accretion amounted to $87,066 for the year ended December 31, 1997 and $43,533 and $130,599 for the nine months ended September 30, 1997 and 1998, respectively. In connection with the Equity Transaction, 141,403 shares of common stock were reserved for issuance under an incentive stock option plan (Plan) established in February 1998. The preferred stock has a par value of $1 per share, is nonvoting and accrues cumulative annual dividends of $.80 per share. The dividends are payable in quarterly installments commencing on July 25, 2002. Undeclared cumulative dividends amounted to $170,000 and $425,000 as of December 31, 1997 and September 30, 1998, respectively, and have been accrued as an addition to preferred stock in the accompanying balance sheet. The preferred stock has a liquidation preference such that in the event of any liquidation, dissolution or winding up of the Company, the preferred stockholders will be entitled to redeem each share for $10, plus all accrued and unpaid dividends thereon as of the liquidation date before any distribution to other stockholders. Accordingly, retained earnings may be restricted at the liquidation date if the amounts due to the preferred stockholders exceed the carrying value of the preferred stock. Mandatory quarterly redemption of the lesser of one-twelfth of the largest number of shares of preferred stock outstanding at any time prior to July 25, 2002, or the number of shares outstanding on such scheduled redemption date, commences on July 25, 2002, at $10 per share, plus accrued and unpaid dividends thereon. Upon the closing of an initial public offering of the Company's common stock, the sale of substantially all of the assets of the Company, or consolidation or merger involving the Company, the Company will be required to redeem all outstanding shares of the preferred stock, plus all accrued and unpaid dividends thereon. The Company also has the option to redeem all or part of the outstanding shares of preferred stock at any time for $10 per share, plus accrued and unpaid dividends thereon as of the date the Company decides to redeem such shares. All redemptions will be settled with cash. The Company does not have the option to settle redemptions with common stock. F-16 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) Redemption requirements, excluding accrued and unpaid dividends, subsequent to December 31, 1997 are as follows: 1998.............................................................. $ -- 1999.............................................................. -- 2000.............................................................. -- 2001.............................................................. -- 2002.............................................................. 354,167 Thereafter........................................................ 3,895,833 ---------- $4,250,000 ==========
5. Stockholders' Equity Common Stock Warrants The detachable common stock warrants issued in conjunction with the mandatorily redeemable cumulative preferred stock (see Note 4) are currently exercisable and provide the preferred stockholders the option to purchase an aggregate of 212,104 shares of common stock of the Company at $0.01 per share. The number of shares purchasable on the exercise of the warrants will be proportionately adjusted in the event of stock dividends, distributions, subdivisions, combinations, or other changes in common stock, warrants, issuance of convertible securities or other rights, as more fully described in the warrant agreement. Appropriate adjustments will also be made to the purchase price payable per share, but the aggregate purchase price payable of $2,121 shall remain the same. The warrants expire on July 15, 2002, except that the warrants terminate immediately upon the closing of an initial public offering of the Company's common stock, the sale of substantially all of the assets of the Company, or the consolidation or merger of the Company in which at least 50% of the voting power of the company is transferred. In addition to any adjustments made to the number of shares purchasable as previously described, if immediately prior to the first to occur of an initial public offering, a sale or an acquisition (each, a "Transfer") and if the value of the consideration to be received by the warrant holder for its shares (assuming exercise of the warrant) in connection with the Transfer plus all dividends received by the warrant holder on its preferred stock as of the date of the Transfer are less than the redemption value of the warrant holder's preferred stock multiplied by 1.25n, where n equals the number of years (rounded to the nearest one hundredth of a year) between the date of the Transfer and the issue date of the warrant, then the number of shares purchasable on the exercise of the warrant shall be increased to eliminate such deficiency. The increase necessary to eliminate such deficiency may not result in the warrant holders owning over 30% of the common stock on a fully diluted basis as of the date of the Transfer. In such case, all additional sums necessary to eliminate such deficiency shall be paid by the Company to the warrant holder in cash upon, and as a condition to the consummation of, the Transfer. Common Stock On June 24, 1997, the Company's Board of Directors approved an amendment to the Company's articles of incorporation wherein the authorized common stock of the Company was increased from 5,000 shares at $1 par value to 5,000,000 shares at $0.01 par value, and to effect a 1000-for-1 stock split. As a result of this action, 1,051,947 additional common stock shares were issued to shareholders. In connection with the stock split, $9,477 was transferred to common stock from additional paid-in capital, representing the adjustment to reflect the aggregate common stock par value subsequent to the aforementioned amendment. Subsequent to the stock split, a dividend amounting to 7,523 shares of common stock was declared and issued to the common stockholders on a pro rata basis so that the common stock warrants, if and when F-17 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) exercised, would reflect a 15% common equity interest, considering the shares of common stock outstanding and the 141,403 shares of common stock to be reserved for issuance under the proposed management incentive stock option plan. In these financial statements, all per share amounts and number of shares have been restated to reflect the stock split and stock dividend described above. As described in Note 11, 26,689 shares were forfeited by an officer upon his resignation in March 1998. In connection with an anticipated initial public offering of its common stock, the Company plans to reincorporate under the laws of the state of Delaware in 1999. This reincorporation is expected to impact the Company's par value per share but not the number of shares authorized, issued or outstanding. Restriction on Declaration and Payment of Dividends In connection with the Equity Transaction, written approval from a majority of the holders of preferred stock, common stock warrants, and common stock issued upon exercise of warrants, is required for the declaration or payment of dividends to common stockholders. 6. Income Taxes Income tax expense (benefit) for the years ended December 31, 1995, 1996 and 1997 and nine months ended September 30, 1997 and 1998 is as follows:
Federal State Total --------- --------- ---------- Years ended December 31: 1995: Current............................... $ 37,848 $ 12,402 $ 50,250 Deferred.............................. (34,787) (8,879) (43,666) --------- --------- ---------- $ 3,061 $ 3,523 $ 6,584 ========= ========= ========== 1996: Current............................... $ 340,761 $ 86,973 $ 427,734 Deferred.............................. 8,889 2,374 11,263 --------- --------- ---------- $ 349,650 $ 89,347 $ 438,997 ========= ========= ========== 1997: Current............................... $(468,136) $(119,444) $ (587,580) Deferred.............................. (15,465) (3,588) (19,053) --------- --------- ---------- $(483,601) $(123,032) $ (606,633) ========= ========= ========== Nine months ended September 30: 1997: Current............................... $ (59,510) $ (15,184) $ (74,694) Deferred.............................. (1,966) (456) (2,422) --------- --------- ---------- $ (61,476) $ (15,640) $ (77,116) ========= ========= ========== 1998: Current............................... $ 798,939 $ 214,166 $1,013,105 Deferred.............................. 8,406 2,413 10,819 --------- --------- ---------- $ 807,345 $ 216,579 $1,023,924 ========= ========= ==========
F-18 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) Deferred tax benefit for the year ended December 31, 1997 and the nine months ended September 30, 1997 includes the tax benefit of operating loss carryforwards of $36,247 and $4,204, respectively. The actual income tax expense (benefit) for the years ended December 31, 1995, 1996 and 1997 and nine months ended September 30, 1997 and 1998 differed from the expected income tax expense (benefit) computed by applying the U.S. federal income tax rate of 34% to earnings (loss) before income taxes due to the following:
Nine Months Years Ended December 31, Ended September 30, -------------------------- -------------------- 1995 1996 1997 1997 1998 ------ -------- --------- -------- ---------- Federal "expected" income tax expense (benefit)........... $8,090 $378,318 $(549,166) $(63,950) $ 849,108 State franchise and income taxes, net of federal income tax effect.................. 625 60,679 (81,201) (9,456) 147,345 Other........................ (2,131) -- 23,734 (3,710) 27,471 ------ -------- --------- -------- ---------- $6,584 $438,997 $(606,633) $(77,116) $1,023,924 ====== ======== ========= ======== ==========
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31, 1996 and 1997 and September 30, 1998 are presented below:
December 31, ------------------ September 30, 1996 1997 1998 -------- -------- ------------- Deferred tax assets: Allowance for decline in value of property held for sale, not deductible for tax purposes.................................. $ 38,121 $ 38,121 $ -- Accrued rent not deductible for tax purposes.................................. 35,531 27,203 23,246 Accrued vacation not deductible for tax purposes.................................. 19,344 31,211 105,403 Other...................................... -- -- 10,074 Net operating loss carryforwards........... -- 36,247 -- -------- -------- -------- Total gross deferred tax assets.......... 92,996 132,782 138,723 -------- -------- -------- Deferred tax liabilities: Plant and equipment, principally due to difference between accumulated accounting and tax depreciation and amortization..... (29,412) (59,662) (83,963) Unearned compensation, deductible for for tax purposes.............................. (17,058) (7,541) -- -------- -------- -------- Total gross deferred tax liabilities..... (46,470) (67,203) (83,963) -------- -------- -------- Net deferred tax asset................... $ 46,526 $ 65,579 $ 54,760 ======== ======== ======== Deferred tax assets and liabilities are presented in the accompanying balance sheets as follows: Other current assets....................... $ 19,344 $ 31,211 $105,403 Other noncurrent assets.................... 27,182 34,368 -- Other noncurrent liabilities............... -- -- (50,643) -------- -------- -------- $ 46,526 $ 65,579 $ 54,760 ======== ======== ========
There was no valuation allowance provided for deferred tax assets as of December 31, 1995, 1996 and 1997 and September 30, 1998. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The F-19 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. At December 31, 1997, the Company had tax net operating loss carryforwards for U.S. federal and California state income tax purposes of approximately $52,000 and $198,000, respectively. These tax net operating loss carryforwards were utilized in the nine months ended September 30, 1998. 7. Profit Sharing and 401(k) Plan The Company sponsors a defined contribution profit sharing plan covering all employees who have attained the age of 20 and completed one year of service. Vesting occurs at a rate of 20% per year commencing in the second year of participation. The Company may make contributions to the plan as determined at the discretion of the board of directors. The Company's contributions amounted to $50,000 in 1995. The Company made no contributions in 1996. Effective January 1, 1997, the Company converted the profit sharing plan into a qualified 401(k) defined contribution plan. The 401(k) defined contribution plan allows for voluntary participant contributions of up to 15% of eligible compensation. Employer contributions remain discretionary and fully vest to the employee upon the employee's completion of seven years of service. There were no employer contributions to the 401(k) defined contribution plan in 1997 and in the nine months ended September 30, 1998. 8. Lease Commitments The Company is obligated under capital leases for office equipment that expire at various dates through 2004. At December 31, 1996 and 1997 and September 30, 1998, the gross amounts of office equipment and related accumulated depreciation recorded under capital leases are as follows:
December 31, ----------------- September 30, 1996 1997 1998 -------- -------- ------------- Office equipment............................ $501,423 $652,167 $906,631 Less accumulated amortization (amortization expense charged to depreciation and amortization).............................. 54,815 144,570 321,314 -------- -------- -------- $446,608 $507,597 $585,317 ======== ======== ========
The Company has noncancelable operating leases, primarily for office space, that expire at various dates through 2005. These leases generally contain renewal options for periods ranging from one to five years. Rental expense incurred for all operating leases amounted to $473,323, $519,560 and $851,709 for the years ended December 31, 1995, 1996 and 1997, respectively, and $637,372 and $867,421 for the nine months ended September 30, 1997 and 1998, respectively. F-20 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) Future minimum lease payments under noncancelable operating leases and future minimum capital lease payments as of December 31, 1997 are as follows:
Capital Operating Leases Leases -------- ---------- Year ending December 31 1998................................................. $168,289 $ 658,700 1999................................................. 154,858 643,900 2000................................................. 141,382 569,700 2001................................................. 94,064 303,100 2002................................................. -- 228,700 Thereafter........................................... -- 425,400 -------- ---------- Total minimum lease payments....................... 558,593 $2,829,500 ========== Less amounts representing interest (at rates ranging from 8.05% to 14.05%)................................. 76,329 -------- Present value of net minimum capital lease payments.. 482,264 Less current installments of capital lease obligations........................................... 132,722 -------- Capital lease obligations, excluding current installments........................................ $349,542 ========
9. Abandoned Financing In 1995, the Company decided to terminate a $25,000,000 revolving bank line of credit. Accordingly, costs amounting to $622,000 associated with obtaining the revolving bank line of credit were charged to operations in 1995. 10. Incentive Reimbursements from Local Governments In 1996, the Company commenced operations of a new reservation center in Lakeport, California. As an incentive for the Company to operate at the location, the local government agreed to reimburse the Company for certain payroll costs related to training. Estimated reimbursements associated with payroll costs incurred of approximately $458,000 and $28,000 in 1996 and 1997, respectively, have been recorded by the Company as a reduction of selling, general and administrative expenses in the accompanying statements of operations. At December 31, 1996, $353,164 of these incentive reimbursements were to be collected from the local government. In 1997, $250,000 of the incentive reimbursements receivable was settled by offsetting the receivable with an outstanding debt obligation to the local government of $250,000, with the remaining receivable balance collected in full. No gain or loss was recognized on the offsetting of such amounts. At December 31, 1997, there were no incentive reimbursement receivable amounts outstanding. Additional incentives provided by the local government included the waiver of certain expenses, including lease rent and property taxes totaling approximately $99,000 and $12,000 in 1996 and 1997, respectively. The Company also received $95,400 associated with additional lease rent incentives in 1996 and had recorded this amount as a reduction of selling, general and administrative expenses in the accompanying 1996 statement of operations. 11. Stock Compensation Arrangement In November 1996, the Company entered into a Restricted Stock Grant and Shareholder Agreement (Agreement) whereby 53,378 shares of common stock, after giving effect to a 1000-for-1 stock split and a F-21 CHEAP TICKETS, INC. NOTES TO THE FINANCIAL STATEMENTS--(Continued) common stock dividend (see Note 5), were granted to an officer of the Company as compensation for his employment. There was a two year vesting period whereby the shares vested 50 percent after each year of service with the Company. The estimated fair value of the common stock shares on the date of grant of $45,895 was being amortized as compensation expense over the two year vesting period. Noncash compensation expense (benefit) of $3,824 and $22,944 for the years ended December 31, 1997 and 1998, respectively, and $17,200 and $(3,820) for the nine months ended September 30, 1997 and 1998, respectively, is included in selling, general and administrative expenses in the accompanying statement of operations. In March 1998, the officer resigned from the Company. In connection with the resignation, the officer forfeited his nonvested shares of common stock issued under the Agreement. Such forfeited common stock amounted to 26,689 shares after giving effect to a 1000-for-1 stock split and a common stock dividend (see Note 5). The officer's forfeiture of the common shares resulted in a benefit of $3,820 in 1998 for the recovery of compensation expense previously taken and decreases in common stock and additional paid-in capital of $267 and $22,680, respectively. 12. Stock Option Plans The Company established a stock option plan in April 1998 which provides for a maximum of 141,403 shares of common stock to be issued under the plan. Through June 1998, options for 47,200 shares of common stock were granted, with an exercise price of $2.50 per share. The estimated compensation cost for these options amounted to $26,600 at the grant dates. Stock option compensation expense, included in selling, general and administrative expenses, was $1,795 for the nine months ended September 30, 1998. The remaining unamortized compensation cost of $24,805 at September 30, 1998 will be amortized over the future vesting periods of the options. The granted options have a five year vesting period, however, options to purchase up to 10,000 shares will fully vest should the Company complete an initial public offering of its stock. The Company is establishing another stock option plan which is expected to be approved by the Company's stockholders prior to the Company's planned initial public offering of its common stock. F-22 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- You should rely only on the information contained in this Prospectus. We have not authorized anyone to provide you with information different from that which is set forth in this Prospectus. We are offering to sell shares of Common Stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this Prospectus is accurate only as of the date of this Prospectus, regardless of the time of delivery of the Prospectus or of any sale of Common Stock. TABLE OF CONTENTS
Page ---- PROSPECTUS SUMMARY....................................................... 3 SUMMARY FINANCIAL DATA................................................... 5 RISK FACTORS............................................................. 7 USE OF PROCEEDS.......................................................... 20 DIVIDEND POLICY.......................................................... 20 CAPITALIZATION........................................................... 21 DILUTION................................................................. 22 SELECTED FINANCIAL DATA.................................................. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................................... 25 BUSINESS................................................................. 34 MANAGEMENT............................................................... 46 CERTAIN TRANSACTIONS..................................................... 53 PRINCIPAL STOCKHOLDERS................................................... 54 DESCRIPTION OF CAPITAL STOCK............................................. 55 SHARES ELIGIBLE FOR FUTURE SALE.......................................... 57 UNDERWRITING............................................................. 59 LEGAL MATTERS............................................................ 61 EXPERTS.................................................................. 61 ADDITIONAL INFORMATION................................................... 61 INDEX TO FINANCIAL STATEMENTS............................................ F-1
Until , 1999 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Shares [LOGO OF CHEAP TICKETS, INC.] www.cheaptickets.com Common Stock ----------------- PROSPECTUS ----------------- , 1999 William Blair & Company Dain Rauscher Wessels a division of Dain Rauscher Incorporated - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following is an itemized list of the estimated expenses to be incurred in connection with the Offering of the securities being offered hereunder other than underwriting discounts and commissions.
Amount to be Paid ---------- Registration fee.................................................. $ 15,985 NASD filing fee................................................... 6,250 Nasdaq National Market listing fee................................ 60,000 Printing and Engraving expenses................................... 150,000 Legal fees and expenses........................................... 300,000 Blue Sky qualification fees and expenses.......................... 5,000 Accounting fees and expenses...................................... 100,000 Directors' and Officers' liability insurance...................... 100,000 Transfer Agent and registrar fees................................. 15,000 Miscellaneous..................................................... 47,765 -------- Total........................................................... $800,000 ========
Item 14. Indemnification of Directors and Officers Section 145 of the DGCL contains detailed provisions on indemnification of directors and officers against expenses, judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection with legal proceedings. Section 102(a)(7) of the DGCL permits a provision in the certificate of incorporation of each corporation organized thereunder, such as the Company, eliminating or limiting, with certain exceptions, the personal liability of a director of the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. The Certificate of Incorporation of the Company eliminates the liability of each of its directors to its stockholders or the Company for monetary damages for breach of fiduciary duty to the full extent provided by the Delaware General Corporation Law (the "DGCL"), as such law exists or may hereafter be amended. Indemnification applies to any threatened, pending or completed action, suit or proceeding, whether, civil, criminal, administrative or investigative. Indemnification may include all expenses (including attorneys' fees, judgments, fines, ERISA excise taxes and amounts paid in settlement) reasonably incurred by the indemnified person. Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
Exhibit Document Number -------- ------- Form of Underwriting Agreement...................................... 1.1 Certificate of Incorporation........................................ 3.1 Form of First Amended and Restated Certificate of Incorporation..... 3.2 Bylaws.............................................................. 3.3 Form of First Amended and Restated Bylaws........................... 3.4 Form of Indemnification Agreements.................................. 10.4
II-1 Item 15. Recent Sales of Unregistered Securities From January 1, 1996 through December 31, 1998, the Company has issued and sold the following securities: (i) the Company issued and sold [425,000] shares of 8% Mandatorily Redeemable Preferred Stock and warrants to purchase up to [212,104] shares of Common Stock to Phillips-Smith Specialty Retail Group III, L.P. and Craig Foley for an aggregate purchase price of $4,250,000; and (ii) the Company issued [26,689] shares of Common Stock to a former officer of the Company as compensation with an aggregate value of $22,948. The issuances described about were deemed exempt from registration under the Securities Act in reliance upon Sections 4(2) or 3(a) of the Securities Act. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates issued in such transactions. All recipients had adequate access, through their relationships with the Company, to information about the Company. Item 16. Exhibits and Financial Statements (a) Exhibits and Financial Statement Schedules
Exhibit Number Description ------- ----------- 1.1* Form of Underwriting Agreement. 3.1 Certificate of Incorporation. 3.2* Form of First Amended and Restated Certificate of Incorporation. 3.3 Bylaws. 3.4 Form of First Amended and Restated Bylaws. 4.1* Specimen Stock Certificate. 5.1* Form of Opinion of Morrison & Foerster LLP. 10.1 1997 Stock Option Plan. 10.2* 1999 Stock Option Plan. 10.3 Form of Severance Agreement for Michael J. Hartley and Sandra T. Hartley. 10.4 Form of Indemnification Agreement. 10.5 The Commerce Tower Office Lease dated July 2, 1995 between Tosei Shoji Co. and Cheap Tickets, Inc., as amended by the 1st Amendment to the Commerce Tower Office Lease dated June 14, 1996 and the 2nd Amendment to the Commerce Tower Office Lease dated October 9, 1997. 10.6 Sublease dated June 1, 1998 between Levi Straus & Co. and Cheap Tickets, Inc. 10.7 Lease Agreement dated January 19, 1994 between Airport Center Associates LP and Cheap Tickets, Inc., as amended by the 1st Amendment to Lease dated July 20, 1994 and the 2nd Amendment to Lease dated April 25, 1997. 10.8 Lease dated March 31, 1998 between Executive Tower of Colorado Springs, LLC and Cheap Tickets, Inc. 10.9+ 1994 Net Fare/Commission Agreement dated October 18, 1993 between Continental Airlines, Inc. and Cheap Tickets, Inc., as amended by Addendum dated November 12, 1998. 10.10+ 1999 Net Consolidator Agreement dated November 1, 1998 between Trans World Airlines, Inc. and Cheap Tickets, Inc. 10.11+ Consolidator Agreement dated December 14, 1998 between America West Airlines, Inc. and Cheap Tickets, Inc.
II-2
Exhibit Number Description ------- ----------- 10.12 Credit Agreement dated November 26, 1997 between Bank of Hawaii and Cheap Tickets, Inc., as amended by First Loan Modification Agreement dated as of June 15, 1998; and Security Agreement dated November 26, 1997 between Bank of Hawaii and Cheap Tickets, Inc. 10.13+ Subscriber Agreement dated December 31, 1998 between The SABRE Group, Inc. and Cheap Tickets, Inc., as amended by Amendment No. 1 to SABRE Subscriber Agreement dated December 31, 1998. 10.14+ Agreement for Negotiated Fares Maintenance dated July 15, 1994 between SABRE Travel Information Network and CTI Corporation. 23.1 Consent of PricewaterhouseCoopers LLP. 23.2* Consent of Morrison & Foerster LLP (included in the opinion filed herewith as Exhibit 5.1). 24.1 Power of attorney (included on the signature page). 27.1 Financial Data Schedule. 99.1 Consent of Giles H. Bateman dated as of January 19, 1999. 99.2 Consent Letter of KPMG LLP dated January 19, 1999.
- -------- * To be filed by amendment. + Portions have been omitted pursuant to a confidential treatment request. (b) Financial Statement Schedules No schedules are included because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. Item 17. Undertakings In accordance with Rule 430A of Regulation C under the Securities Act of 1933, as amended (the "Securities Act"), each of the undersigned registrants hereby undertakes: (a) That insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 15 above, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of either registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (b) That, for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (c) That, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Honolulu, County of Honolulu, State of Hawaii, as of January 20, 1999. CHEAP TICKETS, INC. /s/ Michael J. Hartley By: _________________________________ Chief Executive Officer and President POWER OF ATTORNEY The undersigned hereby constitutes and appoints Michael J. Hartley and Dale K. Jorgenson, and each of them, as his true and lawful attorneys-in-fact and agents, jointly and severally, with full power of substitution and resubstitution, for and in his stead, in any and all capacities, to sign on his behalf this Registration Statement on Form S-1 in connection with the offering of common stock by Cheap Tickets, Inc. and to execute any amendments thereto (including post-effective amendments), including a registration statement filed pursuant to Rule 462(b), or certificates that may be required in connection with this Registration Statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission and granting unto said attorneys-in-fact and agents, and each of them, jointly and severally, the full power and authority to do and perform each and every act and thing necessary or advisable to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, jointly or severally, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, each thereunto duly authorized, in the City of Honolulu, County of Honolulu, State of Hawaii, as of January 20, 1999.
Signature Title --------- ----- /s/ Michael J. Hartley Chief Executive Officer, ____________________________________ President and Chairman of Michael J. Hartley the Board of Directors /s/ Dale K. Jorgenson Vice President of Finance ____________________________________ and Chief Financial Officer Dale K. Jorgenson /s/ Tammy A. Ishibashi Executive Vice President ____________________________________ Tammy A. Ishibashi /s/ Sandra T. Hartley Director ____________________________________ Sandra T. Hartley /s/ Donald J. Phillips Director ____________________________________ Donald J. Phillips /s/ Cece Smith Director ____________________________________ Cece Smith
II-4 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 1.1* Form of Underwriting Agreement. 3.1 Certificate of Incorporation. 3.2* Form of First Amended and Restated Certificate of Incorporation. 3.3 Bylaws. 3.4 Form of First Amended and Restated Bylaws. 4.1* Specimen Stock Certificate. 5.1* Form of Opinion of Morrison & Foerster LLP. 10.1 1997 Stock Option Plan. 10.2* 1999 Stock Option Plan. 10.3 Form of Severance Agreement for Michael J. Hartley and Sandra T. Hartley. 10.4 Form of Indemnification Agreement. 10.5 The Commerce Tower Office Lease dated July 2, 1995 between Tosei Shoji Co. and Cheap Tickets, Inc., as amended by the 1st Amendment to the Commerce Tower Office Lease dated June 14, 1996 and the 2nd Amendment to the Commerce Tower Office Lease dated October 9, 1997. 10.6 Sublease dated June 1, 1998 between Levi Straus & Co. and Cheap Tickets, Inc. 10.7 Lease Agreement dated January 19, 1994 between Airport Center Associates LP and Cheap Tickets, Inc., as amended by the 1st Amendment to Lease dated July 20, 1994 and the 2nd Amendment to Lease dated April 25, 1997. 10.8 Lease dated March 31, 1998 between Executive Tower of Colorado Springs, LLC and Cheap Tickets, Inc. 10.9+ 1994 Net Fare/Commission Agreement dated October 18, 1993 between Continental Airlines, Inc. and Cheap Tickets, Inc., as amended by Addendum dated November 12, 1998. 10.10+ 1999 Net Consolidator Agreement dated November 1, 1998 between Trans World Airlines, Inc. and Cheap Tickets, Inc. 10.11+ Consolidator Agreement dated December 14, 1998 between America West Airlines, Inc. and Cheap Tickets, Inc. 10.12 Credit Agreement dated November 26, 1997 between Bank of Hawaii and Cheap Tickets, Inc., as amended by First Loan Modification Agreement dated as of June 15, 1998; and Security Agreement dated November 26, 1997 between Bank of Hawaii and Cheap Tickets, Inc. 10.13+ Subscriber Agreement dated December 31, 1998 between The SABRE Group, Inc. and Cheap Tickets, Inc., as amended by Amendment No. 1 to SABRE Subscriber Agreement dated December 31, 1998. 10.14+ Agreement for Negotiated Fares Maintenance dated July 15, 1994 between SABRE Travel Information Network and CTI Corporation. 23.1 Consent of PricewaterhouseCoopers LLP. Consent of Morrison & Foerster LLP (included in the opinion filed 23.2* herewith as Exhibit 5.1). 24.1 Power of attorney (included on the signature page). 27.1 Financial Data Schedule. 99.1 Consent of Giles H. Bateman dated as of January 19, 1999. 99.2 Consent Letter of KPMG LLP dated January 19, 1999.
- -------- * To be filed by amendment. + Portions have been omitted pursuant to a confidential treatment request. EX-3.1 2 CERTIFICATE OF INCORPORATION Exhibit 3.1 CERTIFICATE OF INCORPORATION OF CHEAP TICKETS, INC. I. Name The name of the Corporation is Cheap Tickets, Inc. (hereinafter sometimes referred to as the "Company"). II. Registered Office and Agent The address of its registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. III. Purpose The nature of the business of the Corporation and the objects or purposes to be transacted, promoted or carried on by it are as follows: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. IV. Shares The total number of shares of all classes of capital stock which the corporation shall have authority to issue is 10,000,000 shares, of which 5,000,000 shares shall be shares of Preferred Stock with a par value of $1.00 per share, of which 425,000 shares shall be designated 8% Redeemable Preferred Stock, and 5,000,000 shares shall be shares of Common Stock with a par value of $0.01 per share. A. Preferred Stock. Any of the shares of Preferred Stock authorized by --------------- this Certificate of Incorporation may be issued from time to time in one or more series. Subject to the limitations and restrictions in this Article IV set forth and the Certificate of Designation filed with the Secretary of State of Delaware, the Board of Directors by resolution or resolutions, is authorized to create or provide for any such series, and to fix the designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation, the authority to fix or alter the dividend rights, dividend rates, conversion rights, exchange rights, voting rights, rights and terms of redemption (including sinking and purchase fund provisions), the redemption price or prices, the dissolution preferences and the rights in respect to any distribution of assets of any wholly unissued series of Preferred Stock and the number of shares constituting any such series, and the designation thereof, or any of them and to increase or decrease the number of shares of any series so created, subsequent to the issue of that series but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. There shall be no limitation or restriction on any variation between any of the different series of Preferred Stock as to the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof; and the several series of Preferred Stock may, except as hereinafter otherwise expressly provided, vary in any and all respects as fixed and determined by the Board of Directors, providing for the issuance of the various series; provided, however, that all shares of any one series of Preferred Stock shall have the same designation, preferences and relative, participating, optional or other special rights and qualifications, limitations and restrictions. Except as otherwise required by law, or as otherwise fixed by resolution or resolutions of the Board of Directors with respect to one or more series of Preferred Stock, the entire voting power and all voting rights shall be vested exclusively in the Common Stock, and each stockholder of the Corporation who at the time possesses voting power for any purpose shall be entitled to one vote for each share of such stock standing in his name on the books of the Corporation. The Corporation shall exercise its power to issue Preferred Stock with the view of avoiding the issuance of fractional shares. No stockholder shall have the right to split the whole shares into fractions. B. Common Stock. ------------ The Corporation shall have the power from time to time to issue two or more classes of stock with the preferences, voting powers, restrictions and qualifications thereof fixed in the resolutions authorizing the issue thereof. The Board of Directors shall have the authority to divide any or all of the classes into a series and fix and determine the relative rights, preferences, voting powers, restrictions and qualifications of the shares of any series established. The corporation shall exercise its power to issue stock with the view of avoiding the issuance of fractional shares. No stockholder shall have the right to split whole shares into fractions or to split fractions. A stockholder shall have pre-emptive right to purchase his, her or its pro rata portion of any additional shares of stock of a class he, she or it owns, whether then or thereafter authorized. Set forth below is a statement of the preferences, limitations and relative rights of the Common Stock. 1. Dividends. The holders of shares of Common Stock shall be --------- entitled to receive such dividends as from time to time may be declared by the Board of Directors of the Corporation, subject to the provisions of Subdivision A of this Article IV with respect to rights of holders of the Preferred Stock. 2. Liquidation. Upon any liquidation, dissolution or winding up of ----------- the Corporation whether voluntary or involuntary, after payment in full of the amounts to be paid to holders of Preferred Stock pursuant to Subdivision A of this Article IV, the holders of Common Stock shall share ratably based upon the number of shares of Common Stock held by them in all of the remaining assets of the Corporation available for distribution to its stockholders. 3. Voting Rights. Except as otherwise required by law and subject to ------------- the provisions set forth in this Article IV, the holders of Common Stock issued and outstanding shall be entitled to one vote for each share thereof held. V. Incorporator The name and mailing address of the sole incorporator is as follows: Michael J. Hartley 1440 Kapiolani Boulevard, Suite 800 Honolulu, Hawaii 96814 VI. Board of Directors The Board of Directors is expressly authorized to make, alter, or repeal the Bylaws of the Corporation. VII. Election of Directors Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. The number of directors shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). VIII. Related Transactions No contract or other transaction between the Corporation and any other person, firm, corporation, association or other organization, and no act of the Corporation, shall in any way be affected or invalidated by the fact that any of the directors or officers of the Corporation are parties to such contract, transaction, or act or are pecuniarily or otherwise interested in the same or are directors or officers or members of any such other firm, Corporation, association or other organization, provided that the interest of such director or officer shall be disclosed or shall have been known to the Board of Directors authorizing or approving the same, or to a majority thereof. Any director of the Corporation who is a party to such transaction, contract, or act or who is pecuniarily or otherwise interested in the same or is a director or officer or member of such other firm, Corporation, association or other organization, may be counted in determining a quorum. of any meeting of the Board of Directors which shall authorize or approve any such contract, transaction or act, and may vote thereon with like force and effect as if he were in no way interested therein. Neither any director nor any officer of the Corporation, being so interested in such contract, transaction or act of the Corporation which shall be approved by the Board of Directors of the Corporation, nor any such other person, firm, Corporation, association or other organization in which such director or officer may be interested or of which such officer or director may be a director, officer or member, shall be liable or accountable to the Corporation, or to any stockholder thereof, for any loss incurred by the Corporation pursuant to or by reason of such contract, transaction or act, or for any gain received by any such other party pursuant thereto or by reason thereof. IX. Creditors Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. X. Stockholder Action Effective upon the closing of the Corporation's initial public offering of securities pursuant to a registration statement filed under the Securities Act of 1933, as amended, stockholders of the Corporation may not take action by written consent in lieu of a meeting but must take any such action at a duly called annual or special meeting. XI. Amendments The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. In addition to any affirmative vote of the holders of the capital stock required by law or this Certificate of Incorporation the affirmative vote of the holders of at least two-thirds (2/3) of the Combined Voting power of all of the then outstanding shares of the Corporation entitled to vote shall be entitled to alter, amend or repeal Articles X and XI or any provision thereof. XII. Director Liability To the fullest extent permitted by Delaware statutory or decisional law, as amended or interpreted, no director of this Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. This Article XII does not affect the availability of equitable remedies for breach of fiduciary duties. I, the undersigned, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and, accordingly, have hereunto set my hands this 3rd day of September, 1998. /s/ Michael J. Hartley ------------------------------------------- Michael J. Hartley, Sole Incorporator EX-3.3 3 BYLAWS Exhibit 3.3 BYLAWS OF CHEAP TICKETS, INC. a Delaware corporation TABLE OF CONTENTS ARTICLE I OFFICES.......................................................................... 1 Section 1.1 Registered Office........................................................... 1 Section 1.2 Other Offices............................................................... 1 ARTICLE II STOCKHOLDERS' MEETINGS.......................................................... 1 Section 2.1 Place of Meetings........................................................... 1 Section 2.2 Annual Meetings............................................................. 1 Section 2.3 Special Meetings............................................................ 2 Section 2.4 Notice of Meetings.......................................................... 2 Section 2.5 Quorum and Voting........................................................... 3 Section 2.6 Voting Rights............................................................... 3 Section 2.7 Auditor..................................................................... 4 Section 2.8 List of Stockholders........................................................ 5 Section 2.9 Stockholder Proposals at Annual Meetings.................................... 5 Section 2.10 Nominations of Persons for Election to the Board of Directors.............. 6 Section 2.11 Action Without Meeting..................................................... 7 ARTICLE III DIRECTORS...................................................................... 7 Section 3.1 Number and Term of Office................................................... 7 Section 3.2 Powers...................................................................... 7 Section 3.3 Vacancies................................................................... 7 Section 3.4 Resignations and Removals................................................... 8 Section 3.5 Meetings.................................................................... 8 Section 3.6 Quorum and Voting........................................................... 9 Section 3.7 Action Without Meeting...................................................... 9 Section 3.8 Fees and Compensation....................................................... 9 Section 3.9 Committees.................................................................. 9 ARTICLE IV OFFICERS........................................................................ 11 Section 4.1 Officers Designated......................................................... 11 Section 4.2 Tenure and Duties of Officers............................................... 11
i ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY THE CORPORATION........................................................ 12 Section 5.1 Execution of Corporate Instruments.......................................... 12 Section 5.2 Voting of Securities Owned by Corporation................................... 13 ARTICLE VI SHARES OF STOCK................................................................. 13 Section 6.1 Form and Execution of Certificates.......................................... 13 Section 6.2 Lost Certificates........................................................... 14 Section 6.3 Transfers................................................................... 14 Section 6.4 Transfer Agent.............................................................. 14 Section 6.5 Fixing Record Dates......................................................... 14 Section 6.6 Registered Stockholders..................................................... 15 ARTICLE VII NEW SHARES..................................................................... 16 Section 7.1 Pre-emptive Rights.......................................................... 16 Section 7.2 Terms and Fractional Shares................................................. 16 Section 7.3 Excess Shares............................................................... 16 ARTICLE VIII OTHER SECURITIES OF THE CORPORATION........................................... 16 ARTICLE IX CORPORATE SEAL.................................................................. 17 ARTICLE X INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS................................................................................. 17 Section 10.1 Right to Indemnification................................................... 17 Section 10.2 Authority to Advance Expenses.............................................. 18 Section 10.3 Right of Claimant to Bring Suit............................................ 18 Section 10.4 Provisions Nonexclusive.................................................... 18 Section 10.5 Authority to Insure........................................................ 19 Section 10.6 Survival of Rights......................................................... 19 Section 10.7 Settlement of Claims....................................................... 19 Section 10.8 Effect of Amendment........................................................ 19 Section 10.9 Subrogation................................................................ 19 Section 10.10 No Duplication of Payments................................................ 19
ii ARTICLE XI NOTICES......................................................................... 20 ARTICLE XII FISCAL YEAR.................................................................... 21 ARTICLE XIII AMENDMENTS.................................................................... 21
iii BYLAWS OF CHEAP TICKETS, INC. ARTICLE I Offices Section 1.1 Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. Section 1.2 Other Offices. The corporation may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II Stockholders' Meetings Section 2.1 Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof. Section 2.2 Annual Meetings. The annual meetings of the stockholders of the corporation, commencing with the year 1998, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time within ninety (90) days following the close of each fiscal year as may be designated from time to time by the Board of Directors, or, if not so designated, then, unless the Chairman of the Board or the President designates some other date, the annual meeting for that year shall be held on the fourth (4th) Thursday in the third month following the close of the fiscal year. Section 2.3 Special Meetings. Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by the Chairman of the Board or the President or any two directors at any time. Upon written request of any stockholder or stockholders holding in the aggregate one-fourth (25%) of the voting power of all stockholders delivered in person or sent by registered mail to the Chairman of the Board, President or Secretary of the Corporation. Upon request of such call or written request, the Secretary shall call a special meeting of stockholders to be held at the office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof at such time as the Secretary may fix. Section 2.4 Notice of Meetings. (a) Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders, specifying the place, date and hour, purpose or purposes and authority for the call of the meeting, shall be given not less than three (3) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote thereat. (b) If at any meeting action is proposed to be taken which, if taken, would entitle stockholders fulfilling the requirements of section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement of that purpose and to that effect and shall be accompanied by a copy of that statutory section. (c) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. Such adjournment may be to such time and to such place as shall be determined by a majority vote of the stockholders present. (d) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (e) Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given. Section 2.5 Quorum and Voting. (a) At all meetings of stockholders, except where otherwise provided by law, the Certificate of Incorporation, or these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business and the concurring vote of the holders of a majority of the shares of such stock constituting a quorum shall be valid and binding upon the corporation. Shares, the voting of which at said meeting have been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. (b) Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, when seventy-five percent (75%) of the stockholders entitled to vote at any meeting sign, by themselves or their proxies or other authorized representatives, a written consent or approval on the record of such meeting, however called or notified, the doings of such meeting shall be valid. (c) Where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative vote of the majority of shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. Section 2.6 Voting Rights. (a) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. A personal representative, guardian or trustee may vote the stock of the corporation held by him, in person or by proxy, at any meeting of the corporation, whether or not such stock shall have been transferred to his name on the books of the corporation. In case the stock shall not have been so transferred to his name on the books of the corporation, he shall satisfy the Secretary that he is the executor, administrator, guardian or trustee holding such stock in such capacity, and to this end, the Secretary may require him to file with the corporation a certified copy of his letters as such executor, administrator or guardian of his appointment or authority as trustee before he is permitted to vote in the manner described heretofore. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum. (b) Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after eleven (11) months from its date unless the proxy provides for a longer period. (c) Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (b) of this section, the following shall constitute a valid means by which a stockholder may grant such authority: (1) A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. (2) A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. (d) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (c) of this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Section 2.7 Auditor. (a) The stockholders may at any annual meeting, or at any special meeting called for that purpose, appoint some person, firm or corporation engaged in the business of auditing to act as the auditor of the corporation. (b) No director or officer shall be eligible to serve as auditor of the corporation. (c) The auditor shall, at least once in each fiscal year and more often if required by the stockholders, examine the books and papers of the corporation and compare the statements of the Chief Financial Officer with the books and vouchers of the corporation, and otherwise make a complete audit of the books of the corporation, and thereafter make appropriate reports to stockholders. Section 2.8 List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.9 Stockholder Proposals at Annual Meetings. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors or otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than thirty (30) days nor more than sixty (60) days prior to the meeting; provided, however, that in the event that less than forty (40) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting, (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.9, provided, however, that nothing in this Section 2.9 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.9, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 2.10 Nominations of Persons for Election to the Board of Directors. In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than thirty (30) days nor more than sixty (60) days prior to the meeting; provided, however, that in the event that less than forty (40) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, and (ii) the class and number of shares of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of preferred stock. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 2.11 Action Without Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are signed by all the holders of outstanding stock who would have been entitled to vote upon the action if such meeting were held. To be effective, a written consent must be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this Section to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation in accordance with this Section. ARTICLE III Directors Section 3.1 Number and Term of Office. The number of directors which shall constitute the whole of the Board of Directors shall be fixed from time to time by the Board of Directors. With the exception of the first Board of Directors, which shall be elected by the incorporators, and except as provided in the Certificate of Incorporation in Section 3.3 of this Article III, the directors shall be elected by a plurality vote of the shares represented in person or by proxy, at the stockholders annual meeting in each year and entitled to vote on the election of directors. Except as provided in the Certificate of Incorporation, elected directors shall hold office until the next annual meeting and until their successors shall be duly elected and qualified. Directors need not be stockholders. If, for any cause, the Board of Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. Section 3.2 Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors. Section 3.3 Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so elected shall hold office for the unexpired portion of the term of the director whose place shall be vacant, and until his successor shall have been duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Section in the case of the death, removal or resignation of any director, or if the stockholders fail at any meeting of stockholders at which directors are to be elected (including any meeting referred to in Section 3.4 below) to elect the number of directors then constituting the whole Board. Section 3.4 Resignations and Removals. (a) Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified. (b) Unless otherwise restricted by statute, by the Corporation's Certificate of Incorporation, as ameded or restated, or by these Bylaws, the stockholders may at any special meeting the notice of which shall state that it is called for that purpose, remove, with or without cause, any director and fill the vacancy. Section 3.5 Meetings. (a) The annual meeting of the Board of Directors shall be held immediately after the annual stockholders' meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in such places and at such times as the Board of Directors may from time to time by vote determine and when any such meeting or meetings shall be so determined, no further notice thereof shall be required. (c) Special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President, Chief Operating Officer, any Vice-President or by any two directors. Notice of a special meeting shall be given 24 hours prior to the holding of such special meeting. (d) Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat. Section 3.6 Quorum and Voting. (a) A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with Section 3.1 of Article III of these Bylaws, but not less than one; provided, however, at any meeting whether a quorum be present or otherwise, the presiding officer or a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors or when a quorum shall be present, without notice other than by announcement at the meeting. (b) At each meeting of the Board at which a quorum is present all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation, or these Bylaws. (c) Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (d) The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if all of the directors shall be present or shall waive notice of such meeting by a writing filed with the records of the Board of Directors, or after any such meeting shall express consent to the holding of the meeting and all actions taken thereat by a writing on or filed with the records of the Board of Directors. Non-receipt of any notice shall not invalidate any business done at any meeting at which a quorum is present. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 3.7 Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board or committee. Section 3.8 Fees and Compensation. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors. Section 3.9 Committees. (a) Committees: The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such committees as may be permitted by law. Such committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers to declare and pay dividends, fill vacancies in the Board of Directors or exercise those powers reserved to the Board of Directors by statute or otherwise. The Board of Directors may also appoint a general manager for the corporation and define his duties. (b) Term: Except as provided for in the Certificate of Incorporation, the members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board, subject to the provisions of subsections (a) of this Section 3.9, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (c) Meetings: Unless the Board of Directors shall otherwise provide, regular meetings of any committee appointed pursuant to this Section 3.9 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any committee may be held at the principal office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. ARTICLE IV Officers Section 4.1 Officers Designated. The officers of the corporation shall be a Chief Executive Officer, President, Chief Operating Officer, one or more Vice-Presidents, a Secretary, and a Chief Financial Officer. The Board of Directors or the President may also appoint a Chairman of the Board, assistant secretaries, assistant treasurers, and such other officers and agents with such powers and duties as it or he shall deem necessary. The order of the seniority of the Vice- Presidents shall be in the order of their nomination, unless otherwise determined by the Board of Directors. The Board of Directors may assign such additional titles to one or more of the officers as they shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. Section 4.2 Tenure and Duties of Officers. (a) General: All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the corporation. (b) Duties of the Chairman of the Board of Directors and Chief Executive Officer: The Chairman of the Board of Directors (if there be such an officer appointed) shall be the chief executive officer of the corporation and, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (c) Duties of President: The President shall be the chief executive officer of the corporation in the absence of the Chairman of the Board and Chief Executive Officer and shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors and Chief Executive Officer has been appointed and is present. The President shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (d) Duties of Chief Operating Officer: The Chief Operating Officer shall assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant. The Chief Operating Officer shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (e) Duties of Vice-Presidents: The Vice-Presidents, in the order of their seniority, may assume and perform the duties of the Chief Operating Officer in the absence or disability of the Chief Operating Officer or whenever the office of the Chief Operating Officer is vacant. The Vice-President shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (f) Duties of Secretary: The Secretary shall attend all meetings of the stockholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice, in conformity with these Bylaws, of all meetings of the stockholders, and of all meetings of the Board of Directors and any Committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (g) Duties of Chief Financial Officer: The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Assistant Treasurer shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. ARTICLE V Execution of Corporate Instruments, and Voting of Securities Owned by the Corporation Section 5.1 Execution of Corporate Instruments. (a) The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation. (b) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, formal contracts of the corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board (if there be such an officer appointed) or by the President; such documents may also be executed by any Vice-President and by the Secretary or Chief Financial Officer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. (c) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation, or in special accounts of the corporation, shall be signed by such person or persons as the Board of Directors shall authorize so to do. (d) The Board of Directors may provide for the execution of checks or dividend warrants by the printed, lithographed or engraved facsimile signature or signatures of the person or persons authorized to sign checks or dividend warrants. Section 5.2 Voting of Securities Owned by Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), or by the President, or by any Vice-President. ARTICLE VI Shares of Stock Section 6.1 Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President, Chief Operating Officer or any Vice-President and by the Chief Financial Officer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 6.2 Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the corporation in such manner as it shall require and/or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. Section 6.3 Transfers. Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed. The right of any stockholder to transfer any share of stock shall be subject to those provisions of the Certificate of Incorporation governing transfers. Section 6.4 Transfer Agent. Notwithstanding any of the provisions of these Bylaws, the Board of Directors may appoint a transfer agent and a registrar of transfers and may require all certificates of shares to bear the signature of such transfer agent and of such registrar of transfers. Section 6.5 Fixing Record Dates. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the date on which the meeting is held. A determination of stockholders of record entitled notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the Delaware General Corporation Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than thirty (30) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (d) By resolution, the Board of Directors may at any time close the books for the transfer of stock for a period not exceeding thirty (30) days. Section 6.6 Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII New Shares Section 7.1 Pre-emptive Rights. In case of any increase of the capital stock of the corporation and the issuance of new shares therefor, such new shares, unless otherwise ordered by the Certificate of Incorporation, shall be offered to the stockholders of the class of stock of the corporation being issued in proportion to the existing shares of such class then respectively held by them; and in the event that any of the stockholders shall fail to exercise the pre-emptive right to purchase new shares heretofore set forth, then such shares shall be offered to the remaining stockholders of the corporation of such class in proportion to the existing shares of such class then respectively held by them prior to being offered for sale to persons not stockholders in the corporation. Section 7.2 Terms and Fractional Shares. Such new shares shall be issued upon such terms and conditions, and with such rights and privileges annexed thereto, as the stockholders at the meeting sanctioning such issue shall direct, unless otherwise provided in the Certificate of Incorporation; provided, however, that if a proportionate distribution of the new issue of stock shall result in fractional shares, such fractions shall be sold by the Chief Financial Officer at auction and the net proceeds distributed pro rata among those entitled thereto. Section 7.3 Excess Shares. After the expiration of the time fixed for the exercise of the pre-emptive right as set forth in Section 7.1 hereof, or on earlier receipt of information from the stockholder to whom notice of such right is given that he does not elect to take the shares offered, the directors may dispose of such shares so declined or not accepted as they may deem most beneficial to the corporation. ARTICLE VIII Other Securities of the Corporation All bonds, debentures and other corporate securities of the corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice-President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Chief Financial Officer or an Assistant Treasurer of the corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who ceases to be an officer shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX Corporate Seal The corporate seal shall consist of a die bearing the name of the corporation and the state and date of its incorporation. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE X Indemnification of Officers, Directors, Employees and Agents Section 10.1 Right to Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent (hereafter an "Agent"), shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto) against all expenses, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article) reasonably incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereinafter "Expenses"); provided, however, that except as -------- ------- to actions to enforce indemnification rights pursuant to Section 10.3 of this Article, the corporation shall indemnify any Agent seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Article shall be a contract right. Section 10.2 Authority to Advance Expenses. Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding, provided, however, that if required by -------- ------- the Delaware General Corporation Law, as amended, such Expenses shall be advanced only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article or otherwise. Expenses incurred by other Agents of the corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the corporation for Expense advances shall be unsecured and no interest shall be charged thereon. Section 10.3 Right of Claimant to Bring Suit. If a claim under Section 10.1 or 10.2 of this Article is not paid in full by the corporation within 90 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. Section 10.4 Provisions Nonexclusive. The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Certificate, agreement, or vote of the stockholders or disinterested directors is inconsistent with these Bylaws, the provision, agreement, or vote shall take precedence. Section 10.5 Authority to Insure. The corporation may purchase and maintain insurance to protect itself and any Agent against any Expense, whether or not the corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article. Section 10.6 Survival of Rights. The rights provided by this Article shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. Section 10.7 Settlement of Claims. The corporation shall not be liable to indemnify any Agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action. Section 10.8 Effect of Amendment. Any amendment, repeal, or modification of this Article shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal, or modification. Section 10.9 Subrogation. In the event of payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights. Section 10.10 No Duplication of Payments. The corporation shall not be liable under this Article to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder. ARTICLE XI Notices Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given in any of the following ways: in writing, (i) timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent, (ii) left with the stockholder personally, (iii) left at the residence or usual place of business of the stockholder, or (iv) published in any newspaper of general circulation in the county in which the principal office of the corporation is located, such notice to be published not less than two (2) times, on successive days, the first publication thereof to be not less than three (3) days nor more than ten (10) days prior to the day assigned for the meeting. Any notice required to be given to any director may be given by any method hereinabove stated, or by telegram or other means of electronic transmission, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of facsimile telecommunication) facsimile telephone number as such director shall have filed in writing with the Secretary of the corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram or other means of electronic transmission shall be deemed to have been given as at the sending time recorded by the telegraph company or other electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. ARTICLE XII Fiscal Year The fiscal year of the corporation shall be such as may from time to time be established by the Board of Directors. ARTICLE XIII Amendments These Bylaws may be repealed, altered or amended or new Bylaws adopted by written consent of stockholders in the manner authorized by Section 2.11 of Article II, or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting, unless a larger vote is required by these Bylaws or the Certificate of Incorporation. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaws setting forth the number of directors who shall constitute the whole Board of Directors) by unanimous written consent or at any annual, regular, or special meeting by the affirmative vote of a majority of the whole number of directors, subject to the power of the stockholders to change or repeal such Bylaws and provided that the Board of Directors shall not make or alter any Bylaws fixing the qualifications, classifications, or term of office of directors. Notwithstanding any other provision of these Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of the capital stock required by law or by these Bylaws, the affirmative vote of at least two-thirds (2/3) of the combined voting power of all of the then outstanding shares of the Corporation entitled to vote shall be required to alter, amend or repeal Article II, Section 2.11 of the Bylaws or this Article XIII or any provision thereof, or to add or amend any other Bylaw in order to change or nullify the effect of such provisions, unless such amendment shall be approved by a majority of the directors of the Corporation, not affiliated or associated with any person or entity holding (or which has announced an intent to obtain) 10% or more of the voting power of the Corporation's outstanding capital stock. CERTIFICATE OF SECRETARY The undersigned, Secretary of Cheap Tickets, Inc., a Delaware corporation, hereby certifies that the foregoing is a full, true and correct copy of the Bylaws of said corporation, with all amendments to date of this Certificate. WITNESS the signature of the undersigned and the seal of the Corporation this 21st day of September, 1998. /s/ Sandra T. Hartley ----------------------------- SANDRA T. HARTLEY, Secretary EX-3.4 4 FORM OF FIRST AMENDED AND RESTATED BYLAWS Exhibit 3.4 FORM OF FIRST AMENDED AND RESTATED BYLAWS OF CHEAP TICKETS, INC. a Delaware corporation TABLE OF CONTENTS ARTICLE I OFFICES.......................................................... 1 Section 1.1 Registered Office............................................. 1 Section 1.2 Other Offices................................................. 1 ARTICLE II STOCKHOLDERS' MEETINGS.......................................... 1 Section 2.1 Place of Meetings............................................. 1 Section 2.2 Annual Meetings............................................... 1 Section 2.3 Special Meetings.............................................. 2 Section 2.4 Notice of Meetings............................................ 2 Section 2.5 Quorum and Voting............................................. 3 Section 2.6 Voting Rights................................................. 3 Section 2.7 Auditor....................................................... 4 Section 2.8 List of Stockholders.......................................... 5 Section 2.9 Stockholder Proposals at Annual Meetings...................... 5 Section 2.10 Nominations of Persons for Election to the Board of Directors. 6 Section 2.11 Action Without Meeting........................................ 7 ARTICLE III DIRECTORS...................................................... 7 Section 3.1 Number and Term of Office..................................... 7 Section 3.2 Powers........................................................ 7 Section 3.3 Vacancies..................................................... 7 Section 3.4 Resignations and Removals..................................... 8 Section 3.5 Meetings...................................................... 8 Section 3.6 Quorum and Voting............................................. 9 Section 3.7 Action Without Meeting........................................ 9 Section 3.8 Fees and Compensation......................................... 9 Section 3.9 Committees.................................................... 9 ARTICLE IV OFFICERS........................................................ 11 Section 4.1 Officers Designated........................................... 11 Section 4.2 Tenure and Duties of Officers................................. 11
i ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY THE CORPORATION........................................ 13 Section 5.1 Execution of Corporate Instruments............................ 13 Section 5.2 Voting of Securities Owned by Corporation..................... 14 ARTICLE VI SHARES OF STOCK................................................. 14 Section 6.1 Form and Execution of Certificates............................ 14 Section 6.2 Lost Certificates............................................. 15 Section 6.3 Transfers..................................................... 15 Section 6.4 Transfer Agent................................................ 15 Section 6.5 Fixing Record Dates........................................... 15 Section 6.6 Registered Stockholders....................................... 16 ARTICLE VII OTHER SECURITIES OF THE CORPORATION............................ 16 ARTICLE VIII CORPORATE SEAL................................................ 17 ARTICLE IX INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS................................................................. 17 Section 9.1 Right to Indemnification...................................... 17 Section 9.2 Authority to Advance Expenses................................. 18 Section 9.3 Right of Claimant to Bring Suit............................... 19 Section 9.4 Provisions Nonexclusive....................................... 19 Section 9.5 Authority to Insure........................................... 19 Section 9.6 Survival of Rights............................................ 19 Section 9.7 Settlement of Claims.......................................... 19 Section 9.8 Effect of Amendment........................................... 20 Section 9.9 Subrogation................................................... 20 Section 9.10 No Duplication of Payments.................................... 20 ARTICLE X NOTICES.......................................................... 20 ARTICLE XI FISCAL YEAR..................................................... 21 ARTICLE XII AMENDMENTS..................................................... 21
ii FORM OF FIRST AMENDED AND RESTATED BYLAWS OF CHEAP TICKETS, INC. ARTICLE I Offices Section 1.1 Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. Section 1.2 Other Offices. The corporation may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II Stockholders' Meetings Section 2.1 Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof. Section 2.2 Annual Meetings. The annual meetings of the stockholders of the corporation, commencing with the year 1999, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time within one hundred fifty (150) days following the close of each fiscal year as may be designated from time to time by the Board of Directors, or, if not so designated, then, unless the Chairman of the Board or the President designates some other date, the annual meeting for that year shall be held on the fourth (4th) Thursday in the fifth month following the close of the fiscal year. Section 2.3 Special Meetings. Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by the Chairman of the Board or the President or any two directors at any time. Upon written request of any stockholder or stockholders holding in the aggregate one-fourth (25%) of the voting power of all stockholders delivered in person or sent by registered mail to the Chairman of the Board, President or Secretary of the Corporation. Upon receipt of such call or written request, the Secretary shall call a special meeting of stockholders to be held at the office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof at such time as the Secretary may fix. Section 2.4 Notice of Meetings. (a) Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders, specifying the place, date and hour, purpose or purposes and authority for the call of the meeting, shall be given not less than three (3) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote thereat. (b) If at any meeting action is proposed to be taken which, if taken, would entitle stockholders fulfilling the requirements of Section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement of that purpose and to that effect and shall be accompanied by a copy of that statutory section. (c) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. Such adjournment may be to such time and to such place as shall be determined by a majority vote of the stockholders present. (d) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (e) Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given. Section 2.5 Quorum and Voting. (a) At all meetings of stockholders, except where otherwise provided by law, the Certificate of Incorporation, or these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business and the concurring vote of the holders of a majority of the shares of such stock constituting a quorum shall be valid and binding upon the corporation. Shares, the voting of which at said meeting have been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. (b) Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, when two-thirds (2/3) of the stockholders entitled to vote at any meeting sign, by themselves or their proxies or other authorized representatives, a written consent or approval on the record of such meeting, however called or notified, the doings of such meeting shall be valid. (c) Where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative vote of the majority of shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. Section 2.6 Voting Rights. (a) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. A personal representative, guardian or trustee may vote the stock of the corporation held by him, in person or by proxy, at any meeting of the corporation, whether or not such stock shall have been transferred to his name on the books of the corporation. In case the stock shall not have been so transferred to his name on the books of the corporation, he shall satisfy the Secretary that he is the executor, administrator, guardian or trustee holding such stock in such capacity, and to this end, the Secretary may require him to file with the corporation a certified copy of his letters as such executor, administrator or guardian of his appointment or authority as trustee before he is permitted to vote in the manner described heretofore. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum. (b) Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after eleven (11) months from its date unless the proxy provides for a longer period. (c) Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (b) of this section, the following shall constitute a valid means by which a stockholder may grant such authority: (1) A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. (2) A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. (d) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (c) of this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Section 2.7 Auditor. (a) The stockholders may at any annual meeting, or at any special meeting called for that purpose, appoint some person, firm or corporation engaged in the business of auditing to act as the auditor of the corporation. (b) No director or officer shall be eligible to serve as auditor of the corporation. (c) The auditor shall, at least once in each fiscal year and more often if required by the stockholders, examine the books and papers of the corporation and compare the statements of the Chief Financial Officer with the books and vouchers of the corporation, and otherwise make a complete audit of the books of the corporation, and thereafter make appropriate reports to stockholders. Section 2.8 List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.9 Stockholder Proposals at Annual Meetings. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors or otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than thirty (30) days nor more than sixty (60) days prior to the meeting; provided, however, that in the event that less than forty (40) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting, (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.9, provided, however, that nothing in this Section 2.9 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.9, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 2.10 Nominations of Persons for Election to the Board of Directors. In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than thirty (30) days nor more than sixty (60) days prior to the meeting; provided, however, that in the event that less than forty (40) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, and (ii) the class and number of shares of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of preferred stock. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 2.11 Action Without Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are signed by two-thirds (2/3) the holders of outstanding stock who would have been entitled to vote upon the action if such meeting were held. To be effective, a written consent must be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this Section to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation in accordance with this Section. ARTICLE III Directors Section 3.1 Number and Term of Office. The number of directors which shall constitute the whole of the Board of Directors shall be fixed from time to time by the Board of Directors. With the exception of the first Board of Directors, which shall be elected by the incorporators, and except as provided in the Certificate of Incorporation in Section 3.3 of this Article III, the directors shall be elected by a plurality vote of the shares represented in person or by proxy, at the stockholders annual meeting in each year and entitled to vote on the election of directors. Except as provided in the Certificate of Incorporation, elected directors shall hold office until the next annual meeting and until their successors shall be duly elected and qualified. Directors need not be stockholders. If, for any cause, the Board of Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. Section 3.2 Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors. Section 3.3 Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so elected shall hold office for the unexpired portion of the term of the director whose place shall be vacant, and until his successor shall have been duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Section in the case of the death, removal or resignation of any director, or if the stockholders fail at any meeting of stockholders at which directors are to be elected (including any meeting referred to in Section 3.4 below) to elect the number of directors then constituting the whole Board. Section 3.4 Resignations and Removals. (a) Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified. (b) Unless otherwise restricted by statue, by the Corporation's Certificate of Incorporation, as amended or restated, or by these Bylaws, the stockholders may at any special meeting the notice of which shall state that it is called for that purpose, remove, with or without cause, any director and fill the vacancy. Section 3.5 Meetings. (a) The annual meeting of the Board of Directors shall be held immediately after the annual stockholders' meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in such places and at such times as the Board of Directors may from time to time by vote determine and when any such meeting or meetings shall be so determined, no further notice thereof shall be required. (c) Special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President, Chief Operating Officer, any Vice-President or by any two directors. Notice of a special meeting shall be given 24 hours prior to the holding of such special meeting. (d) Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat. Section 3.6 Quorum and Voting. (a) A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with Section 3.1 of Article III of these Bylaws, but not less than one; provided, however, at any meeting whether a quorum be present or otherwise, the presiding officer or a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors or when a quorum shall be present, without notice other than by announcement at the meeting. (b) At each meeting of the Board at which a quorum is present all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation, or these Bylaws. (c) Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (d) The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if all of the directors shall be present or shall waive notice of such meeting by a writing filed with the records of the Board of Directors, or after any such meeting shall express consent to the holding of the meeting and all actions taken thereat by a writing on or filed with the records of the Board of Directors. Non-receipt of any notice shall not invalidate any business done at any meeting at which a quorum is present. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 3.7 Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board or committee. Section 3.8 Fees and Compensation. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors. Section 3.9 Committees. (a) Committees: The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such committees as may be permitted by law. Such committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers to declare and pay dividends, fill vacancies in the Board of Directors or exercise those powers reserved to the Board of Directors by statute or otherwise. The Board of Directors may also appoint a general manager for the corporation and define his duties. (b) Term: Except as provided for in the Certificate of Incorporation, the members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board, subject to the provisions of subsections (a) of this Section 3.9, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (c) Meetings: Unless the Board of Directors shall otherwise provide, regular meetings of any committee appointed pursuant to this Section 3.9 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any committee may be held at the principal office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. ARTICLE IV Officers Section 4.1 Officers Designated. The officers of the corporation may be a Chief Executive Officer, President, Chief Operating Officer, one or more Vice-Presidents, a Secretary, and a Chief Financial Officer. The Board of Directors or the President may also appoint a Chairman of the Board, assistant secretaries, assistant treasurers, and such other officers and agents with such powers and duties as it or he shall deem necessary. The Chairman of the Board shall not be deemed an officer of the corporation unless expressly and specifically designated by the Board of Directors. The Chairman of the Board shall perform such duties and have such powers as expressly designated by the Board of Directors. The order of the seniority of the Vice- Presidents shall be in the order of their nomination, unless otherwise determined by the Board of Directors. The Board of Directors may assign such additional titles to one or more of the officers as they shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. Section 4.2 Tenure and Duties of Officers. (a) General: All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the corporation. (b) Duties of the Chief Executive Officer: The chief executive officer of the corporation and, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chief Executive Officer shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (c) Duties of President: The President shall be the chief executive officer of the corporation in the absence of the Chief Executive Officer and shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors and Chief Executive Officer has been appointed and is present. The President shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (d) Duties of Chief Operating Officer: The Chief Operating Officer shall assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant. The Chief Operating Officer shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (e) Duties of Vice-Presidents: The Vice-Presidents, in the order of their seniority, may assume and perform the duties of the Chief Operating Officer in the absence or disability of the Chief Operating Officer or whenever the office of the Chief Operating Officer is vacant. The Vice-President shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (f) Duties of Secretary: The Secretary shall attend all meetings of the stockholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice, in conformity with these Bylaws, of all meetings of the stockholders, and of all meetings of the Board of Directors and any Committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (g) Duties of Chief Financial Officer: The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Assistant Treasurer shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. ARTICLE V Execution of Corporate Instruments, and Voting of Securities Owned by the Corporation Section 5.1 Execution of Corporate Instruments. (a) The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation. (b) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, formal contracts of the corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board (if there be such an officer appointed) or by the President; such documents may also be executed by any Vice-President or the Chief Financial Officer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. (c) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation, or in special accounts of the corporation, shall be signed by such person or persons as the Board of Directors shall authorize so to do. (d) The Board of Directors may provide for the execution of checks or dividend warrants by the printed, lithographed or engraved facsimile signature or signatures of the person or persons authorized to sign checks or dividend warrants. Section 5.2 Voting of Securities Owned by Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), or by the President, or by any Vice-President. ARTICLE VI Shares of Stock Section 6.1 Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President, Chief Operating Officer or any Vice-President and by the Chief Financial Officer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 6.2 Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the corporation in such manner as it shall require and/or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. Section 6.3 Transfers. Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed. The right of any stockholder to transfer any share of stock shall be subject to those provisions of the Certificate of Incorporation governing transfers. Section 6.4 Transfer Agent. Notwithstanding any of the provisions of these Bylaws, the Board of Directors may appoint a transfer agent and a registrar of transfers and may require all certificates of shares to bear the signature of such transfer agent and of such registrar of transfers. Section 6.5 Fixing Record Dates. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the date on which the meeting is held. A determination of stockholders of record entitled notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the Delaware General Corporation Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than thirty (30) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (d) By resolution, the Board of Directors may at any time close the books for the transfer of stock for a period not exceeding thirty (30) days. Section 6.6 Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII Other Securities of the Corporation All bonds, debentures and other corporate securities of the corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice-President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Chief Financial Officer or an Assistant Treasurer of the corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who ceases to be an officer shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE VIII Corporate Seal The corporate seal shall consist of a die bearing the name of the corporation and the state and date of its incorporation. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE IX Indemnification of Officers, Directors, Employees and Agents Section 9.1 Right to Indemnification. To the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto), the corporation shall indemnify and hold harmless each director or officer who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director or officer, or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the corporation against all expenses, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any director as a result of the actual or deemed receipt of any payments under this Article) reasonably incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereinafter "Expenses"); provided, however, that except as to actions to enforce indemnification rights pursuant to Section 9.3 of this Article, the corporation shall indemnify any director or officer seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Article shall be a contract right. The Corporation shall have the authority by contract or by resolution of the Board of Directors to indemnify and hold harmless to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto), each agent or employee who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed Proceeding, by reason of the fact that he, or a person of whom he is the legal representative, is or was an agent or employee of the corporation or is or was serving at the request of the corporation as an agent or employee of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as an agent or employee, or in any other capacity while serving as an agent or employee, may be indemnified and held harmless by the corporation against all Expenses; provided, however, that except as to actions to enforce indemnification rights pursuant to Section 9.3 of this Article, the corporation shall indemnify any agent or employee seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Article shall be a contract right. Section 9.2 Authority to Advance Expenses. Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding, provided, however, that if required by the Delaware General Corporation Law, as amended, such Expenses shall be advanced only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article or otherwise. Expenses incurred by other Agents of the corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the corporation for Expense advances shall be unsecured and no interest shall be charged thereon. Section 9.3 Right of Claimant to Bring Suit. If a claim under Section 9.1 or 9.2 of this Article is not paid in full by the corporation within 90 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. Section 9.4 Provisions Nonexclusive. The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Certificate, agreement, or vote of the stockholders or disinterested directors is inconsistent with these Bylaws, the provision, agreement, or vote shall take precedence. Section 9.5 Authority to Insure. The corporation may purchase and maintain insurance to protect itself and any Agent against any Expense, whether or not the corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article. Section 9.6 Survival of Rights. The rights provided by this Article shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. Section 9.7 Settlement of Claims. The corporation shall not be liable to indemnify any Agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action. Section 9.8 Effect of Amendment. Any amendment, repeal, or modification of this Article shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal, or modification. Section 9.9 Subrogation. In the event of payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights. Section 9.10 No Duplication of Payments. The corporation shall not be liable under this Article to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder. ARTICLE X Notices Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given in any of the following ways: in writing, (i) timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent, (ii) left with the stockholder personally, (iii) left at the residence or usual place of business of the stockholder, or (iv) published in any newspaper of general circulation in the county in which the principal office of the corporation is located, such notice to be published not less than two (2) times, on successive days, the first publication thereof to be not less than three (3) days nor more than ten (10) days prior to the day assigned for the meeting. Any notice required to be given to any director may be given by any method hereinabove stated, or by telegram or other means of electronic transmission, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of facsimile telecommunication) facsimile telephone number as such director shall have filed in writing with the Secretary of the corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram or other means of electronic transmission shall be deemed to have been given as at the sending time recorded by the telegraph company or other electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. ARTICLE XI Fiscal Year The fiscal year of the corporation shall be such as may from time to time be established by the Board of Directors. ARTICLE XII Amendments These Bylaws may be repealed, altered or amended or new Bylaws adopted by written consent of stockholders in the manner authorized by Section 2.11 of Article II, or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting, unless a larger vote is required by these Bylaws or the Certificate of Incorporation. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaws setting forth the number of directors who shall constitute the whole Board of Directors) by unanimous written consent or at any annual, regular, or special meeting by the affirmative vote of a majority of the whole number of directors, subject to the power of the stockholders to change or repeal such Bylaws and provided that the Board of Directors shall not make or alter any Bylaws fixing the qualifications, classifications, or term of office of directors. Notwithstanding any other provision of these Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of the capital stock required by law or by these Bylaws, the affirmative vote of at least two-thirds (2/3) of the combined voting power of all of the then outstanding shares of the Corporation entitled to vote shall be required to alter, amend or repeal Article II, Section 2.11 of the Bylaws or this Article XII or any provision thereof, or to add or amend any other Bylaw in order to change or nullify the effect of such provisions, unless such amendment shall be approved by a majority of the directors of the Corporation, not affiliated or associated with any person or entity holding (or which has announced an intent to obtain) 10% or more of the voting power of the Corporation's outstanding capital stock. CERTIFICATE OF SECRETARY The undersigned, Secretary of Cheap Tickets, Inc., a Delaware corporation, hereby certifies that the foregoing is a full, true and correct copy of the Bylaws of said corporation, with all amendments to date of this Certificate. WITNESS the signature of the undersigned and the seal of the Corporation this _____ day of ________________, 1999. ------------------------------------- [NAME], Secretary EX-10.1 5 1997 STOCK OPTION PLAN Exhibit 10.1 CHEAP TICKETS, INC. 1997 STOCK OPTION PLAN 1. Purposes of the Plan. The purposes of this Stock Option Plan are to -------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Non-Qualified Stock Options, as determined by the Administrator at the time of grant. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of the Committees appointed ------------- to administer the Plan. (b) "Applicable Laws" means the legal requirements relating to the --------------- administration of stock option plans, if any, under applicable provisions of federal securities laws, California, Delaware and Hawaii corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any foreign jurisdiction applicable to Options granted to residents therein. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means any committee appointed by the Board to --------- administer the Plan. (f) "Common Stock" means the common stock of the Company. ------------ (g) "Company" means Cheap Tickets, Inc, a Hawaii corporation. ------- (h) "Consultant" means any person who is engaged by the Company or any ---------- Related Entity to render consulting or advisory services as an independent contractor and is compensated for such services. (i) "Continuous Status as an Employee, Director or Consultant" means -------------------------------------------------------- that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant, is not interrupted or terminated. Continuous Status as an Employee, Director or Consultant shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers between locations of the Company or among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Option Agreement). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. (j) "Corporate Transaction" means any of the following shareholder- --------------------- approved transactions to which the Company is a party: (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company (including the capital stock of the Company's subsidiary corporations) in connection with the complete liquidation or dissolution of the Company; or (iii) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger. (k) "Director" means a member of the Board. -------- (l) "Employee" means any person, including an Officer or Director, who -------- is an employee of the Company or any Related Entity. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (m) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (n) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) Where there exists a public market for the Common Stock, the Fair Market Value shall be (A) the closing price for a Share for the last market trading day prior to the time of the determination (or, if no closing price was reported on that date, on the last trading date on which a closing price was reported) on the stock exchange determined by the Administrator to be the primary market for the Common Stock or the Nasdaq National Market, whichever is applicable or (B) if the Common Stock is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the day prior to the time of the determination (or, if no such prices were reported on that date, on the last date on which such prices were reported), in each case, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (ii) In the absence of an established market of the type described in (i), above, for the Common Stock, the Fair Market Value thereof shall be determined by the Administrator in good faith and in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations. (o) "Incentive Stock Option" means an Option intended to qualify as an ---------------------- incentive stock option within the meaning of Section 422 of the Code. (p) "Non-Qualified Stock Option" means an Option not intended to -------------------------- qualify as an Incentive Stock Option. (q) "Officer" means a person who is an officer of the Company within ------- the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (r) "Option" means a stock option granted pursuant to the Plan. ------ (s) "Option Agreement" means the written agreement evidencing the ---------------- grant of an Option executed by the Company and the Optionee, including any amendments thereto. (t) "Optioned Stock" means the Common Stock subject to an Option. -------------- (u) "Optionee" means an Employee, Director or Consultant who receives -------- an Option under the Plan. (v) "Parent" means a "parent corporation," whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (w) "Plan" means this 1997 Stock Option Plan. ---- (x) "Registration Date" means the closing of the first sale of Common ----------------- Stock to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended. (y) "Related Entity" means any Parent, Subsidiary and any business, -------------- corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds a significant ownership interest, directly or indirectly. (z) "Share" means a share of the Common Stock. ----- (aa) "Subsidiary" means a "subsidiary corporation", whether now or ---------- hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. ------------------------- (a) Subject to the provisions of Section 11(a), below, the maximum aggregate number of Shares which may be optioned and sold under the Plan is one hundred forty thousand four hundred (140,400) Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. (b) If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option exchange program, or if any unissued Shares are retained by the Company upon exercise of an Option in order to satisfy the exercise price for such Option or any withholding taxes due with respect to such Option, such unissued or retained Shares shall become available for future grant under the Plan (unless the Plan has terminated). Shares that actually have been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. -------------------------- (a) Plan Administrator. With respect to grants of Options to ------------------ Employees, Directors, Officers or Consultants, the Plan shall be administered by (A) the Board or (B) a Committee (or a subcommittee of the Committee) designated by the Board, which Committee shall be constituted in such a manner as to satisfy Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. (b) Multiple Administrative Bodies. The Plan may be administered by ------------------------------ different bodies with respect to Directors, Officers, Consultants and Employees who are neither Directors nor Officers. (c) Powers of the Administrator. Subject to Applicable Laws and the --------------------------- provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion: (i) to select the Employees, Directors and Consultants to whom Options may be granted from time to time hereunder; (ii) to determine whether and to what extent Options are granted hereunder; (iii) to determine the number of Shares to be covered by each Option granted hereunder; (iv) to approve forms of Option Agreement for use under the Plan; (v) to determine the terms and conditions of any Option granted hereunder; (vi) to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable foreign jurisdictions and to afford Optionees favorable treatment under such laws; provided, however, that no Option shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan; (vii) to amend the terms of any outstanding Option granted under the Plan, including a reduction in the exercise price of any Option to reflect a reduction in the Fair Market Value of the Common Stock since the grant date of the Option, provided that any amendment that would adversely affect the Optionee's rights under an outstanding Option shall not be made without the Optionee's written consent; (viii) to construe and interpret the terms of the Plan and Options granted pursuant to the Plan; and (ix) to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate. (d) Effect of Administrator's Decision. All decisions, determinations ---------------------------------- and interpretations of the Administrator shall be conclusive and binding on all persons. 5. Eligibility. Non-Qualified Stock Options may be granted to Employees, ----------- Directors and Consultants. Incentive Stock Options may be granted only to Employees of the Company, a Parent or a Subsidiary. An Employee, Director or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. Options may be granted to such Employees, Directors or Consultants who are residing in foreign jurisdictions as the Administrator may determine from time to time. 6. Terms and Conditions of Options. ------------------------------- (a) Designation of Options. Each Option shall be designated as either ---------------------- an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by an Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is granted. (b) Conditions of Option. Subject to the terms of the Plan, the -------------------- Administrator shall determine the provisions, terms, and conditions of each Option including, but not limited to, the Option vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, increase in share price, earnings per share, total shareholder return, return on equity, return on assets, return on investment, net operating income, cash flow, revenue, economic value added, personal management objectives, or other measure of performance selected by the Administrator. Partial achievement of the specified criteria may result in vesting corresponding to the degree of achievement as specified in the Option Agreement. (d) Term of Option. The term of each Option shall be the term stated -------------- in the Option Agreement, provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. (e) Non-Transferability of Options. Options may not be sold, pledged, ------------------------------ assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. (f) Time of Granting Options. The date of grant of an Option shall ------------------------ for all purposes, be the date on which the Administrator makes the determination to grant such Option, or such other date as is determined by the Administrator. Notice of the grant determination shall be given to each Employee, Director or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 7. Option Exercise Price, Consideration, Taxes and Reload Options. -------------------------------------------------------------- (a) Exercise Price. The exercise price for an Option shall be as -------------- follows: (i) In the case of an Incentive Stock Option: (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. (ii) In the case of a Non-Qualified Stock Option: (A) granted to a person who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. (B) granted to any person other than a person described in the preceding paragraph, the per Share exercise price shall be not less than eighty-five percent (85%) of the Fair Market Value per Share on the date of grant. (b) Consideration. Subject to Applicable Laws, the consideration to ------------- be paid for the Shares to be issued upon exercise of an Option including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following: (i) cash; (ii) check; (iii) delivery of Optionee's promissory note with such recourse, interest, security, and redemption provisions as the Administrator determines as appropriate; (iv) if the exercise occurs on or after the Registration Date, surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Option) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Option shall be exercised (but only to the extent that such exercise of the Option would not result in an accounting compensation charge with respect to the Shares used to pay the exercise price unless otherwise determined by the Administrator); (v) if the exercise occurs on or after the Registration Date, delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or (vi) any combination of the foregoing methods of payment. (c) Taxes. No Shares shall be delivered under the Plan to any ----- Optionee or other person until such Optionee or other person has made arrangements acceptable to the Administrator for the satisfaction of any foreign, federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of an Option the Company shall withhold or collect from Optionee an amount sufficient to satisfy such tax obligations. 8. Exercise of Option. ------------------ (a) Procedure for Exercise: Rights as a Shareholder. ----------------------------------------------- (i) Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Option Agreement but in no case at a rate of less than 20% per year over five (5) years from the date the Option is granted, subject to reasonable conditions such as continued employment. However, in the case of an Option granted to an Officer, Director or Consultant, the Option Agreement may provide that the Option may become fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established in the Option Agreement. (ii) An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to Optioned Stock, notwithstanding the exercise of an Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in the Option Agreement or Section 11(a), below. (b) Exercise of Option Following Termination of Employment, Director ---------------------------------------------------------------- or Consulting Relationship. In the event of termination of an Optionee's - -------------------------- Continuous Status as an Employee, Director or Consultant for any reason other than disability or death (but not in the event of an Optionee's change of status from Employee to Consultant or from Consultant to Employee), such Optionee may, but only within three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that the Optionee was entitled to exercise it at the date of such termination or to such other extent as may be determined by the Administrator. The Optionee's Option Agreement may provide that upon the event of termination of the Optionee's Continuous Status as an Employee, Director or Consultant for "Cause," the Optionee's right to exercise the Option shall terminate concurrently with the termination of Optionee's Continuous Status as an Employee, Director or Consultant. The term "Cause" shall be as defined in the Option Agreement. If the Optionee should die within three (3) months after the date of such termination, the Optionee's estate or the person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option to the extent that the Optionee was entitled to exercise it at the date of such termination within twelve (12) months of the Optionee's date of death, but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement. In the event of an Optionee's change of status from Employee to Consultant, an Employee's Incentive Stock Option shall convert automatically to a Non-Qualified Stock Option on the day three (3) months and one day following such change of status. To the extent that the Optionee is not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event of termination of an ---------------------- Optionee's Continuous Status as an Employee, Director or Consultant as a result of his or her disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Non-Qualified Stock Option on the day three (3) months and one day following such termination. To the extent that the Optionee is not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (d) Death of Optionee. In the event of the death of an Optionee, the ----------------- Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate. 9. Conditions Upon Issuance of Shares. ---------------------------------- (a) Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws. 10. Repurchase Rights. If the provisions of an Option Agreement grant to ----------------- the Company the right to repurchase Shares upon termination of the Optionee's Continuous Status as an Employee, Director or Consultant, the Option Agreement shall provide that the repurchase price will be either: (a) Not less than the Fair Market Value of the Shares to be repurchased on the date of termination of the Optionee's Continuous Status as an Employee, Director or Consultant, and the right to repurchase must be exercised for cash or cancellation of purchase money indebtedness for the Shares within ninety (90) days of the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or in the case of Shares issued upon exercise of Options after the date of termination of the Optionee's Continuous Status as an Employee, Director or Consultant, within ninety (90) days after the date of the Option exercise), and the right terminates when the Company's securities become publicly traded; or (b) The original purchase price, provided that the right to repurchase at the original purchase price lapses at the rate of at least twenty percent (20%) of the Shares subject to the Option per year over five (5) years from the date the Option is granted (without respect to the date the Option was exercised or became exercisable), and the right to repurchase must be exercised for cash or cancellation of purchase money indebtedness for the Shares within ninety (90) days of termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or in the case of Shares issued upon exercise of Options after the date of termination of the Optionee's Continuous Status as an Employee, Director or Consultant, within ninety (90) days after the date of the Option exercise). (c) In addition to the restrictions set forth in (a) and (b) above, the Shares held by an Officer, Director or Consultant may be subject to additional or greater restrictions. 11. Adjustments Upon Changes in Capitalization or Corporate Transaction. ------------------------------------------------------------------- (a) Adjustments Upon Changes in Capitalization. Subject to any ------------------------------------------ required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other similar event resulting in an increase or decrease in the number of issued shares of Common Stock. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Option. (b) Corporate Transaction. In the event of any Corporate Transaction, --------------------- each Award which is at the time outstanding under the Plan shall automatically become fully vested and exercisable and be released from any restrictions on transfer and repurchase or forfeiture rights, upon shareholder approval of such Corporate Transaction, for all of the Shares at the time represented by such Award. To the extent it has not been previously exercised, each Option under the Plan will terminate immediately prior to the consummation of such proposed Corporate Transaction, unless the Option is assumed or an equivalent Option is substituted by the successor corporation or a Parent or Subsidiary of such successor corporation. For the purposes of this subsection, the Option shall be considered assumed or substituted for an equivalent Option if, following the Corporate Transaction, the Option confers the right to purchase with substantially equivalent provisions as the original Option, for each Share subject to the Option immediately prior to the Corporate Transaction, the consideration (whether stock, cash, or other securities or property) received in the Corporate Transaction by holders of Common Stock for each Share subject to the Option held on the effective date of the Corporate Transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Corporate Transaction was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise or exchange of the Option for each Share subject to the Option to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Corporate Transaction. 12. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board or its approval by the shareholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated. 13. Amendment, Suspension or Termination of the Plan. ------------------------------------------------ (a) The Board may at any time amend, suspend or terminate the Plan. To the extent necessary to comply with Applicable Laws, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) No Option may be granted during any suspension of the Plan or after termination of the Plan. (c) Any amendment, suspension or termination of the Plan (including termination of the Plan under Section 12, above) shall not affect Options already granted, and such Options shall remain in full force and effect as if the Plan had not been amended, suspended or terminated, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. 14. Reservation of Shares. --------------------- (a) The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. (b) The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 15. No Effect on Terms of Employment/Consulting Relationship. The Plan -------------------------------------------------------- shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate his or her employment or consulting relationship at any time, with or without cause. 16. Shareholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws. Any Option exercised before shareholder approval is obtained shall be rescinded if shareholder approval is not obtained within the time prescribed, and Shares issued on the exercise of any such Option shall not be counted in determining whether shareholder approval is obtained. 17. Information to Optionees. The Company shall provide to each Optionee, ------------------------ during the period for which such Optionee has one or more Options outstanding, copies of financial statements at least annually. EX-10.3 6 FORM OF SEVERANCE AGREEMENT Exhibit 10.3 FORM OF SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT ("Agreement"), dated as of __________, 199_, is entered into by and between CHEAP TICKETS, INC., a Hawaii corporation (the "Company"), and ______________ ("Executive"), with reference to the following facts: A. Executive is a founder and long-time employee of the Company and currently serves as the Company's _________________________________________ _______. B. In order to assure the continued employment of Executive, the Company and Executive desire to enter into a severance arrangement in the event Executive's employment with the Company is terminated, subject to the terms and conditions set forth herein. IN CONSIDERATION OF the foregoing facts, the parties hereby agree as follows: 1. Definitions. Capitalized terms not otherwise defined herein shall have ----------- the respective meanings ascribed to them below: "Cause" means Executive during the course of employment with the Company after the date hereof: (a) shall have acted or failed to act in a manner constituting gross negligence or willful misconduct and shall have failed to cure such act or omission within thirty (30) days after receiving notice thereof by the Company, such notice specifying in reasonable detail the nature of the act or omission in question; or (b) shall have been convicted of a felony crime or a crime involving moral turpitude, and such conviction shall not be subject of an appeal. "Disability" means either (a) a mutually-agreed physician shall have certified that Executive has a physical or mental disability making it impossible for Executive to perform Executive's employment obligations on behalf of the Company or (b) Executive shall have been prevented from properly performing Executive's employment obligations on behalf of the Company by reason of any physical or mental incapacity, in either case for a period of more than ninety (90) consecutive days or one hundred twenty (120) days in the aggregate in any twelve-month (12-month) period. "Good Reason" means the occurrence of any of the following events, provided any such event is not reasonably consented to by Executive: (a) there shall have been an assignment to Executive of any duties materially inconsistent with or which constitute a material change in Executive's position, duties, responsibilities, or status with the Company, or a material change in Executive's reporting responsibilities, title, or offices, or removal of Executive from or failure to re-elect Executive to any of such positions, except in connection with the termination of Executive for Cause or due to death or Disability; (b) there shall have been a reduction by the Company in Executive's annual salary then in effect; or (c) the Company shall have acted in any way that would adversely affect Executive's participation in or materially reduce Executive's benefit under any benefit plan of the Company in which Executive is participating or would deprive Executive of any material fringe benefit enjoyed by Executive, except those changes generally affecting similarly situated senior executive officers of the Company. 2. Severance. In the event Executive's employment with the Company is --------- terminated either by the Company without Cause or by Executive for Good Reason, the Company shall pay and provide to Executive severance in an amount equal to the lesser of (a) twice the annual salary and benefits to which Executive received during the twelve-month (12-month) period preceding the effective date of such termination and (b) four hundred thousand dollars ($400,000), provided that such four hundred thousand dollar ($400,000) limitation shall not apply in the event the Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. Such severance shall be payable and provided for the period of twenty-four (24) months from the effective date of any such termination, the monetary portion of which shall be payable in forty-eight (48) equal semi-monthly installments. In the event Executive's employment with the Company is terminated for any other reason, the Company shall not be required to pay to Executive any severance hereunder. 3. Notices. All notices or other communications required or permitted ------- hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand or facsimile or mailed, postage prepaid, by certified or registered mail, return receipt requested, and addressed as set forth below: to the Company at: Cheap Tickets, Inc. 1440 Kapiolani Boulevard, Suite 800 Honolulu, Hawaii 96814 Attn: Chief Executive Officer Fax: 808-945-7439 or to Executive at: [Name] [Address] [Fax No.] Notice of change of address shall be effective only when done in accordance with this Section. 4. Entire Agreement. The terms of this Agreement is intended by the ---------------- parties to be the final expression of their agreement with respect to the employment of Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement shall constitute the complete and exclusive statement of terms relating to the subject matter hereof and thereof and that no extrinsic evidence whatsoever may be introduced in any arbitration, judicial, administrative or other legal proceeding involving this Agreement. 5. Amendments; Waivers. This Agreement may not be modified, amended, or ------------------- terminated except by an instrument in writing, signed by Executive and by a duly authorized representative of the Company other than Executive. By an instrument in writing similarly executed, either party may waive compliance by the other party with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity. 6. Severability; Enforcement. If any provision of this Agreement, or the ------------------------- application thereof to any person, place, or circumstance, shall be held by an arbitrator or a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement and such provisions as applied to other persons, places, and circumstances shall remain in full force and effect. 7. Governing Law; Conciliation and Arbitration. ------------------------------------------- 7.1 Governing Law. The validity, interpretation, ------------- enforceability, and performance of this Agreement shall be governed by and construed in accordance with the law of the State of Hawaii, without giving effect to its conflict of laws rules. 7.2 Arbitration. ----------- (a) In the event of any dispute, controversy or claim arising out of or relating in any manner to the employment or termination of Executive, or any provision of this Agreement, or the interpretation, enforceability, performance, breach, termination or validity hereof or thereof, including, without limitation, this Section 7.2 (a "Dispute"), the parties shall attempt, in good faith, to amicably resolve the Dispute. Either party may give the other party written notice of any Dispute not resolved in the normal course of business. (b) Except as specifically stated in Sections 7.2(a), all Disputes shall be resolved by arbitration. Disputes shall include, but are not limited to, contract (express or implied) and tort claims of all kinds, as well as all claims based on any federal, state, or local law, statute, or regulation, excepting only claims under applicable workers' compensation law and unemployment insurance claims. By way of example and not in limitation of the foregoing, Disputes shall include any claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, as well as any claims asserting wrongful termination, breach of contract, breach of the covenant of good faith and fair dealing, negligent or intentional infliction of emotional distress, negligent or intentional misrepresentation, negligent or intentional interference with contract or prospective economic advantage, defamation, invasion of privacy, and claims related to disability. Arbitration shall be final and binding upon the parties and shall be the exclusive remedy for all Disputes. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ANY DISPUTE. (c) Arbitration of Disputes shall be in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association ("AAA Employment Rules"), except as provided otherwise in this Agreement. Arbitration shall be initiated by providing written notice to the other party with a statement of the claim(s) asserted, the facts upon which the claim(s) are based, and the remedy sought. The burden of proof in any arbitration shall be allocated as provided by applicable law, unless otherwise specified in this Agreement. Either party may bring an action in court to compel arbitration under this Agreement and to enforce an arbitration award. Otherwise, neither party shall initiate or prosecute any lawsuit or administrative action in any way related to any Dispute. All arbitration hearings under this Agreement shall be conducted in Honolulu, Hawaii. The Federal Arbitration Act shall govern the interpretation and enforcement of this Section 7.2. (d) All Disputes shall be decided by a single arbitrator. The arbitrator shall be selected by mutual agreement of the parties within thirty (30) days of the effective date of the notice initiating the arbitration. If the parties cannot agree on an arbitrator, then the complaining party shall notify the AAA and request selection of an arbitrator in accordance with the AAA Employment Rules. The arbitrator shall have only such authority to award equitable relief, damages, costs, and fees as a court would have for the particular claim(s) asserted. The fees and expenses of any arbitration (including the fees and expenses of the arbitrator, attorneys and expert witnesses) shall be paid by the losing party, as identified by the arbitrator. The arbitrator shall have exclusive authority to resolve all Disputes, including, but not limited to, any claim or allegation that all or any part of this Agreement is void or unenforceable. (e) All proceedings and all documents prepared in connection with any Dispute shall be confidential and, unless otherwise required by law, the subject matter thereof shall not be disclosed to any person other than the parties to the proceedings, their counsel, witnesses and experts, the arbitrator, and, if involved, the court and court staff. All documents filed with the arbitrator or with a court shall be filed under seal. The parties shall stipulate to all arbitration and court orders necessary to effectuate fully the provisions of this subsection concerning confidentiality. 7.3 Counterparts. This Agreement may be signed in multiple ------------ counterparts, each of which shall be deemed an original but all of which together shall be deemed one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Severance Agreement as of the date first written above. CHEAP TICKETS, INC., a Hawaii corporation By ------------------------- Title ------------------------- --------------------------------- [NAME OF EXECUTIVE] EX-10.4 7 FORM OF INDEMNIFICATION AGREEMENT Exhibit 10.4 FORM OF INDEMNIFICATION AGREEMENT THIS AGREEMENT by and between Cheap Tickets, Inc., a Delaware corporation (the "Company"), and ____________________ (the "Indemnitee") is entered into effective as of January ___, 1999. WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available; WHEREAS, Indemnitee is a director/officer of the Company; WHEREAS, the Certificate of Incorporation, as amended, and the Bylaws, as amended, of the Company require the Company to indemnify and advance expenses to its directors to the fullest extent permitted by law and authorize the Company to indemnify and advance expenses to its officers to the fullest extent permitted by law; WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner and Indemnitee's reliance on the aforesaid Certificate of Incorporation and Bylaws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by such Certificate of Incorporation and Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such Certificate of Incorporation and Bylaws or any change in the composition of the Company's Board of Directors or acquisition transaction relating to the Company), and in order to induce Indemnitee to continue to provide services to the Company as a director or officer thereof, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies. NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Certain Definitions: (a) Change in Control: shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 20% or more of the total voting power represented by the Company's then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company's assets. (b) Expense: include attorneys' fees and all other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any Proceeding relating to any Indemnifiable Event. (c) Indemnifiable Event: any event or occurrence that takes place either prior to or after the execution of this Agreement, related to the fact that Indemnitee is or was a director or an officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity. (d) Potential Change in Control: shall be deemed to have occurred if (i) the Company enters into an agreement or arrangement, the consummation of which would result in the occurrence of Change in Control; (ii) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute Change in Control; (iii) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the company acting in such capacity or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding Voting Securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person on the date hereof; or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (e) Proceeding: any threatened, pending or completed action, suit or proceeding, or any inquiry, hearing or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. (f) Reviewing Party: any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board (including the special, independent counsel referred to in Section 3) who is not a party to the particular Proceeding with respect to which Indemnitee is seeking Indemnification. (g) Voting Securities: any securities of the Company which vote generally in the election of directors. 2. Agreement to Indemnify. (a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Proceeding by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law, as soon as practicable, but in any event no later than thirty days after written demand is presented to the Company, against any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Proceeding and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement (including the creation of the Trust). Notwithstanding anything in this Agreement to the contrary and except as provided in Section 5, prior to a Change in Control Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Proceeding initiated by Indemnitee against the Company or any director or officer of the Company unless the Company has joined in or consented to the initiation of such Proceeding. If so requested by Indemnitee, the Company shall advance (within ten business days of such request) any and all Expenses to Indemnitee (an "Expense Advance"); provided, however, that such Expenses shall be advanced only upon delivery to the Company of an undertaking by or on behalf of the Indemnitee to repay such amount if it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. (b) Notwithstanding the foregoing, (i) the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the special, independent counsel referred to in Section 3 hereof is involved) that Indemnitee would not be permitted to be so indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance pursuant to Section 2(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnittee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the special, independent counsel referred to in Section 3 hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the States of California or Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. Expenses shall be advanced, however, only upon delivery to the Company of an undertaking by or on behalf of the Indemnitee to repay such amount if it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. 3. Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or under applicable law or the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events, the Company shall seek legal advice only from special, independent counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company or the Indemnitee (other than in connection with such matters) within the last five years. Such independent counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the special, independent counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or the engagement of special, independent counsel pursuant hereto. 4. Establishment of Trust. In the event of a Potential Change in Control, the Company shall, upon written request by Indemnitee, create a Trust for the benefit of the Indemnitee and from time to time upon written request of Indemnitee shall fund such Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for and defending any Proceeding relating to an indemnifiable event and any and all judgments, fines, penalties and settlement amounts of any and all Proceedings relating to an Indemnifiable Event from time to time actually paid or claimed, reasonably anticipated or proposed to be paid. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by the Reviewing Party, in any case in which this special, independent counsel referred to above is involved. The terms of the Trust shall provide that upon a Change in Control (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee, (ii) the Trustee shall advance, within ten business days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances under which the Indemnitee would be required to reimburse the Company under Section 2(b) of this agreement), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in such Trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be chosen by the Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its obligations under this Agreement. All income earned on the assets held in the Trust shall be reported as income by the Company for federal, state, local and foreign tax purposes. 5. Indemnification for Expenses Incurred In Enforcing this Agreement. The Company shall indemnify Indemnitee against any and all-expenses (including attorneys' fees), and, if requested by Indemnitee, shall (within ten business days of such request) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any claim asserted against or action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or under applicable law or the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events and/or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. 6. Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Proceeding but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Proceedings relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 7. Defense to Indemnification, Burden of Proof and Presumptions. It shall be a defense to any action brought by the Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Company) that the Indemnitee has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the Company to indemnify the Indemnitee for the amount claimed. In connection with any determination by the Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, the burden of proving such a defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action by the Indemnitee that indemnification of the claimant is proper under the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Company (including its Board of Directors, independent legal counsel, or its stockholders) that the Indemnitee had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 8. Non-exclusivity. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company's Certificate of Incorporation or Bylaws or the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company's Certificate of Incorporation and Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. 9. Liability Insurance. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer. 10. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, or such longer period as may be required by state law under the circumstances, and any claim or cause of action of the Company or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 11. Amendment of this Agreement. No supplement modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 12. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 13. No Duplication of Payment. The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 14. Settlement of Claims. The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without the Company's written consent. The Company shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent. Neither the Company nor the Indemnitee will unreasonably withhold their consent to any proposed settlement. The Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial award if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action. 15. Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to the Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director or officer of the Company or of any other enterprise at the Company's request. 16. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 17. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such State without giving effect to the principles of conflicts of laws. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the _____ day of January, 1999. COMPANY: By: ___________________________________________ Name:__________________________________________ Title:_________________________________________ INDEMNITEE: _______________________________________________ [NAME OF INDEMNITEE] EX-10.5 8 THE COMMERCE TOWER OFFICE LEASE Exhibit 10.5 THE COMMERCE TOWER OFFICE LEASE by and between TOSEI SHOJI CO., LTD., a Japan corporation and CHEAP TICKETS, INC., a Hawaii corporation THE COMMERCE TOWER OFFICE LEASE THIS LEASE made this 2nd day of July, 1995, by and between TOSEI SHOJI CO., LTD., a Japan corporation, whose principal place of business and post office address in the State of Hawaii is at 1440 Kapiolani Boulevard, Suite 1000, Honolulu, Hawaii 96814 (the "Landlord"), and CHEAP TICKETS, INC., a Hawaii corporation, whose principal place of business and post office address is at _____________________________________________________________________________ ______________________________________(the "Tenant"); W I T N E S S E T H: - - - - - - - - - - That Landlord, in consideration of the rent herein reserved and of the covenants herein contained and on the part of Tenant to be observed and performed and upon and subject to the terms and conditions hereinafter set forth, does hereby lease unto Tenant, and Tenant does hereby lease from Landlord, that certain office space (the "Premises") located in the building known as The Commerce Tower (the "Building") located at 1440 Kapiolani Boulevard, Honolulu, Hawaii. The Building shall include such other structures as may now exist on the land on which the Building is located and the common areas, improvements and facilities thereon or which may in the future be constructed thereon (the "Property"). I. Specific Conditions of the Lease. -------------------------------- The following subparagraphs constitute all of the specific conditions of this Lease as referred to elsewhere in this Lease: (A) Suite No. 800, consisting of approximately ten thousand one hundred fifty-eight (10,158) rentable square feet of floor area on the eighth floor as indicated on the floor plan attached hereto as Exhibit "A" and made a part hereof for all purposes. (B) (1) Tenant's Pro Rata Share of Operating Expenses (hereinafter defined), subject to modification as provided in paragraph 9 of Section III of this Lease: Eight and two thousand three hundred eighty-two ten thousandths percent (8.2382%). (2) Tenant's Proportionate Share of Common Office Expenses (hereinafter defined) of the Building, subject to modification as provided in paragraph 9 of Section III of this Lease: Eight and nine thousand nine hundred seventy- three ten-thousandths percent (8.9973%). (C) The term of this Lease shall be five (5) years and three (3) months (the "Term"), commencing on the date on which Tenant's improvements are completed (the "Commencement Date"), and ending on midnight of the last day of the sixty-third (63rd) month (the "Termination Date") following such Commencement Date, unless sooner terminated as herein provided. (D) Monthly Base Rent shall be as shown below: Period Monthly Base Rent ------ ----------------- (1) For the period commencing $9,751.68 on the Commencement Date and ending on Termination Date. Paragraphs (D)(2) through (D)(5) of Section I of this Lease, and all references in this Lease to said paragraphs, are hereby deleted. Landlord and Tenant agree that the Monthly Base Rent for the Premises is conclusively established in the amounts set forth above, irrespective of the actual number of square feet of floor area of the Premises. (E) (1) Tenant's share of initial estimated monthly Operating Expenses as provided in paragraph 9 of Section III of this Lease: $6,224.04. (2) Tenant's share of initial estimated Common Office Expenses as provided in paragraph 9 of Section III of this Lease: $2,668.49. (F) Amount of Security Deposit: $19,421.11 (G) Uses to be made of Premises: Travel related and general administrative office. (H) Tenant's address for notice if other than the Premises: ________________________________________________________________ (I) Number of parking stalls for automobiles to be rented to Tenant: Three (3) reserved and seventeen (17) unreserved stalls for a total of twenty (20) parking stalls at prevailing rates. Two (2) of the three (3) reserved parking stalls shall be free for the original term of this Lease. Landlord shall make additional parking stalls available for rental by Tenant at the Landlord's prevailing rates if additional parking stalls are required by Tenant. (J) Additional Terms and Conditions: Notwithstanding the provisions set forth elsewhere in this Lease, Landlord and Tenant agree as follows: (1) Landlord's Improvements. Landlord, at Landlord's expense shall provide building standard "turn-key" improvements according to Exhibit "A". In addition, Landlord shall provide: (a) Basic quality millwork in the workroom, lunchroom and computer room; (b) Raised flooring in the supervisor's office; (c) Wood flooring in the reception area and two executive offices; (d) Three (3)-ton auxiliary air conditioning unit in the computer room; and (e) Four (4) additional VAV boxes for better air conditioning capacity. The final construction costs shall be approved by Landlord. (2) Option to Renew. Tenant shall have and is hereby given the option to extend the term of this Lease for an additional five (5) year period upon all the same terms and conditions as herein contained by serving notice thereof upon Landlord at least six (6) months before the expiration of the original Term. Upon the service of said notice, this Lease shall be extended upon all its terms and conditions for such additional five (5) year period without the necessity of the execution of any further instrument or documents; provided, however, that if at either the date of expiration of the original Term of this Lease or the date upon which Tenant exercises such option, Tenant is in default beyond any grace period herein provided in the performance of any of the terms or provisions of this Lease, any such exercise of Tenant's option to so extend the term of this Lease shall be and become null and void. If Tenant exercises the option to extend the term of this Lease as hereinabove provided, the Monthly Base Rent for the five (5) year extension period shall be ninety-five (95%) percent of the fair market rental charged for premises similar to the Premises in the Kapiolani Business District; provided, however, that the Monthly Base Rent shall in no event be lower than the Monthly Base Rent established for the last month of the period immediately preceding the extended term. (3) First Opportunity to Lease. If at any time during the term of this Lease, any of the remaining spaces on the eighth floor of the Building become available for lease, Landlord shall notify Tenant of the availability of such space for lease and the terms and conditions upon which Landlord wishes to lease such space; provided, however, that the expiration of the term for the demise of such space shall be concurrent with the then remaining term of this Lease, the monthly base rent per square foot for such space shall be the same as the Monthly Base Rent then being charged under this Lease, and Landlord shall provide building standard "turn-key" improvements for such space equivalent to Landlord's Improvements under this Lease; provided, further, that notwithstanding anything contained herein to the contrary, such space shall be occupied and used only by Tenant, and Tenant shall not, for a period of six (6) months from the commencement of the term of this Lease for such additional space, sublease, assign or allow any other person to occupy or use such space, or any portion thereof. Tenant shall have the right within thirty (30) days after receipt of Landlord's written notification to lease such space on the terms and conditions set forth in Landlord's written notification. If Tenant shall not so elect within said thirty (30) day period, Landlord may then lease the premises to any other person, on terms and conditions established by Landlord in its sole discretion. Said terms and conditions shall not necessarily be limited to the terms and conditions set forth in Landlord's written notification. (4) Tenant Moving Allowance. Landlord shall, on execution of this Lease by Landlord and Tenant, provide Tenant with a Tenant Moving Allowance of TWENTY-EIGHT THOUSAND AND NO/100 DOLLARS ($28,000.00) for moving to and establishing Tenant's operations in the Premises and such Tenant Moving Allowance shall be credited to Tenant's Monthly Base Rent due and payable on the seventh (7th) consecutive month following the Commencement Date and thereafter. (5) Rent Abatement. Notwithstanding anything herein to the contrary Landlord specifically agrees as follows: (A) For the period commencing on the Commencement Date and ending at midnight of the third (3rd) consecutive month thereafter, the payment of Monthly Base Rent, Common Office Expenses and Operating Expenses shall be abated. (B) For the period commencing on the fourth (4th) consecutive month following the Commencement Date and ending on the sixth (6th) consecutive month thereafter, Monthly Base Rent shall be abated; Tenant shall, however, be required to pay Tenant's Proportionate Share of Common Office Expenses and Tenant's Pro Rata Share of Common Operating Expenses. (6) Confidentiality. Tenant acknowledges that the economic terms of this Lease, which include, but are not limited to rent, tenant improvement allowances, Tenant's moving allowance and improvements provided by the Landlord, constitute information (collectively, the "Information") which is either non-public, confidential or proprietary, or a combination thereof. Tenant agrees that the Information will be kept confidential and will not, without Landlord's prior written consent, be disclosed by Tenant, in any manner whatsoever, in whole or in part. Tenant agrees to transmit the Information only to its insurance agents, attorneys, employees and lenders who need to know the Information for the purpose of evaluating this Lease and who are informed by Tenant of the confidential nature of the Information. Tenant will be responsible for any breach of this confidentiality provision by its insurance agents, attorneys, employees or lenders and will save, indemnify, defend and hold Landlord harmless from and against any loss or liability suffered by Landlord by reason of Tenant's breach of this confidentiality provision. (7) Paragraph 31 of Section III. of the Lease is hereby amended to read as follows: 31. Nonliability of Landlord. Landlord shall not be liable ------------------------ for any damage either to person or property sustained by Tenant or by other persons due to the Building, or any part thereof, or any appurtenances thereof, becoming out of repair, or due to any act or neglect of any tenant or occupant of said Building, or of any other person, except where such damage is caused by the grossly negligent or willful actions of Landlord. This provision shall apply especially (but not exclusively) to damage caused by water, steam, sewage, illuminating gas, sewer gas, utilities shortages or stoppages, odors or termites or the negligent accumulation of combustible materials, accessories and supplies, and shall apply equally whether such damage is caused by the act or neglect of other tenants, occupants or janitors of said Building, or of any other persons, and whether such damage is caused or occasioned by anything or circumstances above-mentioned or referred to, or by any other thing or circumstance, whether of a like or of a wholly different nature; provided, however, that this provision shall not apply to any damage caused by the grossly negligent or willful actions of Landlord. If any such damage shall be caused by any act or neglect of Tenant, Landlord may, at its option, repair such damage, whether caused to the Building, or to tenants thereof, and Tenant shall thereupon reimburse Landlord for the total cost of such damage both to the Building and/or to the tenants thereof. Tenant further agrees that all personal property upon the Premises shall be at the sole risk of Tenant and that Landlord shall not be liable for any loss, injury or damage thereto or theft thereof. (8) Paragraphs 58 and 60 of Section III. of the Lease are hereby deleted in their entirety. (9) Notwithstanding the provisions of Exhibit "C" of the Lease, Tenant shall have access to the Premises on a twenty-four hour per day, seven-day per week basis. In the event of any conflict between the provisions of this paragraph (J) and any other provisions in Section I. (Specific Conditions), Section II. (Exhibits) or Section III. (General Conditions), the provisions of this paragraph (J) shall prevail. II. Exhibits. -------- The following exhibits, which are attached hereto, are hereby made a part of this Lease: (A) Exhibit "A": Floor Plan. (B) Exhibit "B": Tenant's Construction Obligations. (C) Exhibit "C": Rules and Regulations. (D) Exhibit "D": Intentionally Omitted. The General Conditions of Lease attached hereto as Section III of this Lease, together with all exhibits, are made a part hereof for all purposes. As provided in paragraph 53 of Section III of this Lease, this Lease constitutes the entire agreement between Landlord and Tenant and, without limiting the generality of the foregoing, specifically supersedes any prior Offer to Lease between Landlord and Tenant. (J) (10) In the event Tenant notifies Landlord that Tenant needs the remaining space or spaces on the eighth floor for purposes of expansion, Landlord shall relocate the remaining tenant or tenants on the eighth floor at the Landlord's expense within six months of said notification. Provided, Landlord shall relocate the remaining tenants on the eighth floor only if Landlord is able to relocate the remaining tenants to suitable office space in the Premises. (J) (11) In the event Tenant exercises its right to take the remaining space or spaces on the eighth floor for purposes of expansion during the first thirty (30) months of the Lease, Landlord shall provide building standard turn- key improvements, monthly base rent shall be as specified in 1(D) (1) in the Lease and the lease for the expansion space shall be co-terminus with the Lease. In the event Tenant exercises its right to take the remaining space or spaces on the eighth floor for purposes of expansion during the last thirty-three (33) months of the Lease, Landlord shall provide building standard turn-key improvements, monthly base rent shall be at fair market value and the lease for the expansion space shall be co- terminus with the Lease. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written. TOSEI SHOJI CO., LTD., a Japan corporation By /s/ Shigeo Hone -------------------------------------- Shigeo Hone Its Attorney-In-Fact Landlord CHEAP TICKETS, INC., a Hawaii corporation By /s/ Michael J. Hartley -------------------------------------- Its Tenant III. GENERAL CONDITIONS OF OFFICE LEASE 1. Standard Services. Landlord shall furnish Tenant with electric ----------------- current for lighting and normal use during normal business hours, common restroom facilities and supplies, air conditioning during normal business hours, janitorial service and refuse collection for Tenant's Premises five (5) days per week, insurance for common areas, elevator service, reasonable window washing for the exterior of the Building and lighting equipment replacement, guard service for the Building, and common area maintenance. If any extraordinary or additional property or services other than those required to be provided by Landlord to Tenant under this Lease shall be provided by Landlord to Tenant at the request of Tenant or for the benefit of Tenant, Tenant shall pay Landlord for such extraordinary or additional property or services. Without limiting the generality of the foregoing, if Tenant wishes to install nonstandard fixtures, Tenant is responsible for providing replacement lamps. 2. Common Area Maintenance. Landlord will use reasonable efforts to ----------------------- maintain the public and common areas of the Building, such as stairs, lobbies, corridors and restrooms, in good order and condition except for any damage occasioned by the act or omission of Tenant or Tenant's employees or agents and except as is otherwise provided herein. 3. Monthly Base Rent. For the period commencing on the Commencement ----------------- Date to and including the Termination Date provided for in paragraph (C) of Section I of this Lease, Tenant shall pay to Landlord, in lawful United States currency, the Monthly Base Rent in the amounts set forth in paragraph (D) of Section I of this Lease. Monthly Base Rent for the period, if applicable, set forth in paragraphs (D)(4) and (5) of Section I of this Lease, shall be subject to adjustment as provided in paragraph 4 of this Section III. Should the Term commence or terminate on a day other than the first (1st) day of a calendar month, then the Monthly Base Rent for that fractional month shall be calculated by dividing the Monthly Base Rent by thirty (30) and multiplying that result by the number of days remaining in said fractional month or multiplying that result by the number of days from the beginning of the month up to and including the date of termination, whichever the case may be. All payments of rent after the first payment shall be paid at the office of Landlord, or such other place as shall be designated in writing by Landlord, without notice on or before the first (1st) day of each and every month during the Term or any extension thereof. 4. Adjustment of Monthly Base Rent. The Monthly Base Rent for each ------------------------------- of the periods, if any, indicated in paragraphs (D)(4) and (5) of Section I of this Lease, shall be negotiated and determined by written agreement of Landlord and Tenant; provided, however, that in the event that Landlord and Tenant shall be unable to agree on such Monthly Base Rent for any such period at least three (3) months prior to the date of commencement of such period, such Monthly Base Rent shall be determined by a single appraiser in the event that the parties agree upon the appointment of such an appraiser, otherwise by three (3) impartial appraisers selected as follows: Landlord and Tenant shall each select an appraiser and give written notice promptly thereof to the other party, and if either party shall fail to do so within twenty (20) days after written notice has been given to such party by the other of such selection, the party who has named an appraiser shall have the right to apply to any judge of the Circuit Court of the First Judicial Circuit of the State of Hawaii for the selection and appointment of an appraiser for the party so failing to appoint an appraiser. The two (2) appraisers thus appointed (in either manner) shall select and appoint a third appraiser within fifteen (15) days after the second appraiser shall have been appointed. In the event that said two (2) appraisers fail or neglect to appoint the third of them, either party may, upon the expiration of ten (10) days after the mailing of written notice to the other party, have the third appraiser appointed by any judge of said court. All of said appraisers shall be neutral and recognized real estate appraisers and shall also be members of the American Institute of Real Estate Appraisers (MAI) or the American Society of Appraisers (SRPA or SREA) or any successor organization. The single appraiser or three (3) appraisers so appointed shall thereupon proceed to determine said rental, based on the then fair monthly rental value for the Premises, exclusive of any fixtures, alterations, additions or improvements installed or made by Tenant. The decision of said single appraiser or, if there shall be three (3) appraisers the decision of the majority of them, shall be final, conclusive and binding upon the parties. In the event the appraiser or appraisers shall render their decision after the commencement of the year for which rent is being determined, rent shall be payable at the rate in effect for the previous year until their decision is rendered, but the new rent established by such appraisal shall become effective retroactively to the commencement of said year for which rent is being determined and shall be payable immediately on the determination of such rent, together with interest thereon at the rate of twelve percent (12%) per annum from the date such payments would have been due until actually paid in full. Notwithstanding anything to the contrary herein, the negotiated or arbitrated rentals for any such period shall in no event be less than the rent for the period immediately preceding. If Landlord and Tenant are unable to agree on rent and if such rent shall be fixed by appraisal, Tenant shall pay all costs of such appraisal, including, without limitation, the appraisers' fees and the reasonable attorneys' fees of Landlord. 5. Quiet Enjoyment. Landlord agrees that upon payment of the rent --------------- herein provided for, and upon the observance and performance by Tenant of the covenants hereinafter contained and on the part of Tenant to be observed and performed, subject to the provisions of this Lease, and any underlying mortgage on Landlord's estate, Tenant shall peaceably hold and enjoy the Premises for the Term. 6. Conveyance Tax; General Excise Tax. Tenant shall pay any ---------------------------------- conveyance tax imposed by the State of Hawaii and execute, at Landlord's request, such affidavits and other documentation as may be necessary or proper in connection therewith. Tenant shall also pay to Landlord as additional rent, together with each payment of rental, real property taxes and other charges payable by Tenant hereunder, which are subject to the State of Hawaii general excise tax on gross income, as the same may be amended, and all other similar taxes imposed upon Landlord with respect to rental or other payments in the nature of a gross receipts tax, sales tax, privilege tax or the like, excluding federal or state net income taxes, whether imposed by the United States, State of Hawaii or City and County of Honolulu, an amount (presently 4.167% of each such payment) which when added to such rental or other payment shall yield to Landlord after deduction of all such tax payable by Landlord with respect to all such payments a net amount which Landlord would have realized from such payment had no such tax been imposed. 7. Tenant's Pro Rata and Proportionate Shares. ------------------------------------------ (a) As used in this Lease, Tenant's "Pro Rata Share" of Operating Expenses shall mean the percentage set forth in paragraph (B)(1) of Section I of this Lease. Tenant's initial Pro Rata Share has been computed by Landlord based on Landlord's estimate of the ratio, which the Rentable Area of Tenant's Premises bears to the total Rentable Area of the Building. Tenant hereby agrees to be bound by such computation notwithstanding errors in measurement (provided that such errors shall not cause Tenant's Pro Rata Share to be five percent (5%) more or less than Tenant's Pro Rata Share after taking such errors into account). "Rentable Area" of a floor shall be computed by measuring to the inside finished surface of the dominant portion of the permanent outer Building walls where it intersects the finished floor, excluding any major vertical penetrations of the floor. No deductions shall be made for columns and projections necessary to the Building. The Rentable Area of the Premises shall be computed by multiplying the Usable Area of the Premises by the quotient of the division of the Rentable Area of the floor by the Usable Area of the floor. "Usable Area" of a premises shall mean that area of the premises computed by measuring to the finished surface of the office side of corridor and other permanent walls of the premises, to the center of partitions that separate the premises from adjoining Usable Areas not leased by Tenant, and to the inside finished surface of the dominant portion of the permanent outer Building walls. No deductions shall be made for columns and projections necessary to the Building. Parking areas shall be excluded. For purposes of this Lease, the Rentable Area and Usable Area shall be computed in accordance with the American National Standard Method for Measuring Floor Area in Office Buildings, ANSI Z65.1-1980. The Rentable Area and Usable Area are subject to adjustment from time to time to correct errors in measurement (which errors result in Tenant's Pro Rata Share being more than five percent (5%) more or less than Tenant's Pro Rata Share after taking such errors into account) or if changes are made to the Building, and Tenant's Pro Rata Share shall be adjusted accordingly. (b) As used in this Lease, Tenant's "Proportionate Share" of janitorial services, refuse collection and electricity furnished to the Office Areas of the Building (collectively, the "Common Office Expenses") shall mean the percentage set forth in paragraph (B)(2) of Section I of this Lease. Tenant's Proportionate Share has been computed by Landlord based on the ratio which the Rentable Area of Tenant's Premises bears to the total Rentable Area of all premises other than those being leased to tenants on the ground floor of the Building. Tenant agrees to be bound by Landlord's computations of Tenant's Proportionate Share notwithstanding errors in measurement (provided that such errors shall not cause Tenant's Proportionate Share to be five percent (5%) more or less than Tenant's Proportionate Share after taking such errors into account). For purposes of this Lease, the "Office Areas" of the Building shall mean and include all areas of the Building other than the premises being leased to tenants on the ground floor of the Building and other than the ground floor lobby area and ground floor restrooms. 8. Parking; Utilities. Landlord shall make available to Tenant for ------------------ rental in the Building's parking facility the number of unreserved parking stalls set forth in paragraph (I) of Section I of this Lease. Tenant shall rent such stalls pursuant to the terms and conditions of a separate parking agreement to be entered into by Tenant and Landlord or by such parking lot operator as Landlord may designate in Landlord's sole discretion, and the fee charged for Tenant's use of such parking stalls shall be established by Landlord or the parking lot operator from time to time in accordance with the prevailing market rate. Tenant agrees to comply with such rules and regulations as shall be adopted by Landlord or the parking lot operator from time to time. Tenant shall have the right to rent a lesser number of parking stalls than the number set forth in paragraph (I) of Section I by notifying Landlord or the parking lot operator in writing; however, if Tenant rents such lesser number and subsequently requires the stalls previously relinquished, Tenant agrees that Tenant's right to rent the relinquished stalls shall be subject to availability. Tenant will make all arrangements for and pay for all telephone service and other utilities and services used by Tenant on or with respect to the Premises which are not provided under Landlord's standard services and Tenant shall pay for such charges prior to such charges becoming delinquent. 9. Operating Expenses and Common Office Expenses. Tenant will pay to --------------------------------------------- Landlord in advance on the first (1st) day of each month throughout the Term, in accordance with monthly billings rendered to Tenant by Landlord, but subject to annual adjustment as hereinafter set forth, Tenant's Pro Rata Share of the Operating Expenses and Tenant's Proportionate Share of Common Office Expenses for the Building and real property of which the Premises are a part. It is understood and agreed that the monthly billings referred to in this Lease shall be on an estimated basis. If the aggregate payments made by Tenant for Operating Expenses and Common Office Expenses for any Lease Year (hereinafter defined) exceed Tenant's Pro Rata Share of Operating Expenses and Tenant's Proportionate Share of Common Office Expenses for such Lease Year, such excess shall, at Landlord's option, be applied as a credit against future payments to be made by Tenant for Operating Expenses and Common Office Expenses. Landlord shall notify Tenant in writing as soon as practicable after the end of such Lease Year of such credit and the amount so credited or refund such amount to Tenant. If the aggregate payments made by Tenant for the Operating Expenses and Common Office Expenses with respect to any such Lease Year are less than the sum of Tenant's Pro Rata Share of Operating Expenses and Tenant's Proportionate Share of Common Office Expenses Tenant shall pay the amount of such deficiency to Landlord within ten (10) days after written demand by Landlord. In the event that this Lease is terminated prior to the end of a Lease Year, the adjustment above will be made to apply as of the date of termination of this Lease and any excess paid by Tenant shall be refunded by Landlord to Tenant within thirty (30) days after the determination thereof at the end of the Lease Year. Any deficiency owed by Tenant shall be paid as set forth in this Lease. For the purpose of determining increases in Operating Expenses and in Common Office Expenses payable by Tenant, the calculation shall be based on a full Lease Year and Tenant's Pro Rata Share of Operating Expenses or Proportionate Share of Common Office Expenses, as the case might be, computed as herein set forth shall be deemed to have accrued uniformly during such Lease Year; provided, that Landlord shall have the right to allocate between or among as many Lease Years as it determines to be reasonable, in its sole judgment, the costs incurred in making extraordinary repairs. If any part of the Building is not fully occupied and used during any Lease Year, then for the purpose of the calculations to be made under this paragraph 9, the Operating Expenses and Common Office Expenses, both estimated and actual for such Lease Year, as the case might be, shall be adjusted by adding amounts and items of Operating Expenses and Common Office Expenses which would normally have been incurred if the Building had been fully occupied and used during such Lease Year, as the case might be, as estimated by Landlord. Tenant's Pro Rata Share of the Operating Expenses and Tenant's Proportionate Share of Common Office Expenses shall be based on an assumed full occupancy. For purposes of this paragraph 9, the term "Operating Expenses" means any and all expenses which shall be incurred or paid on account of the operation, cleaning, maintenance, repair, safety, management and security of the Building or the Property. Operating Expenses shall also include, without limiting the generality of the foregoing, real property taxes and any assessments or charges made under any betterment or improvement law or otherwise attributable to the Building, the costs of utilities, automated control systems, heating, elevators, air conditioning, trash disposal, repair and maintenance, replacement, landscaping, janitorial services for the ground floor lobby area, line painting, fees for permits and licenses, maintenance and repair of lighting fixtures and equipment (including the replacement of bulbs and tubes), guard service, the cost of management contracts or the cost of equivalent management services, supplies, wages and salaries of employees used in maintenance and general operations (as distinguished from the cost of management contracts or equivalent management services aforesaid), and payroll taxes (and similar governmental charges) with respect thereto, the acquisition cost (rental fees and/or purchase price, or in lieu of a purchase price, the annual depreciation allocable thereto) of all supplies, tools, machines and equipment used in operation and maintenance, audit and bookkeeping expenses, legal fees and expenses, financing expenses relating to operation and management, insurance (including fire and extended coverage, vandalism and malicious mischief, difference in conditions coverage, public liability and property damage and worker's compensation insurance customarily carried by owners of first class office buildings), taxes upon or measured by Landlord's gross income to the extent that such taxes have not already been recovered in paragraph 6 of this Section III (but excluding taxes upon or measured by Landlord's net income), the costs and expenses of any contest by appropriate legal proceedings of the amount or validity of any such taxes, charges or other assessments, personal property taxes, if any, and the cost of alterations, additions and capital improvements required by any laws, codes, regulations or ordinances now or hereafter in effect or made by Landlord to reduce energy requirements or which would have the effect of reducing the expenses which would otherwise be included in Operating Expenses (amortized over their reasonable life with interest at the rate usually charged Landlord for borrowing on the amount of such cost, or, if Landlord is prohibited by law from charging interest at such rate, at the rate of one percent (1%) per month). The Operating Expenses shall not include capital expenditures (except the costs of certain capital improvements as above mentioned), depreciation on real property or financing expenses related to the construction of the Building. For purposes of this paragraph 9, "Lease Year" shall be a period of twelve (12) consecutive calendar months, with the initial Lease Year commencing on the first (1st) day of such month as shall be established by Landlord, in Landlord's sole discretion, and each succeeding Lease Year commencing on the anniversary thereof. 10. Other Taxes and Fees. In addition to the rental provided -------------------- hereunder, Tenant agrees to pay all license fees and all taxes and assessments and increases in taxes and assessments levied and assessed by any government body by virtue of (a) any special improvements or assessments, (b) Tenant using and conducting its business or operation on the Premises, (c) the employment of agents, employees or other third parties, or (d) the bringing onto, or keeping of personal property or chattels of whatsoever nature on the Premises. The foregoing is intended to bind Tenant to pay, and to promptly discharge, all taxes, assessments and/or levies, together with related interest and penalties, whether assessed by federal or state authority or any political subdivision thereof, directly or indirectly related to its business, improvements, functioning, employment, assets, existence, sales, entertainment or the like. Tenant specifically agrees to reimburse Landlord for any increase in ad valorem taxes resulting from use of fixtures or improvements by Tenant which Landlord becomes obligated to pay. 11. Laws and Ordinances; Indemnity. Tenant shall, during the whole ------------------------------ of said Term, keep the Premises in a strictly safe, clean and sanitary condition and observe and perform all laws and ordinances applicable to the Building and improvements now or hereafter erected on the Premises, all laws, ordinances, rules and regulations relating to health and sanitation for the time being applicable to the Premises and will indemnify, defend and hold harmless Landlord, its partners, employees, agents, successors and assigns from and against all claims, actions, suits, damages, costs and expenses, including attorneys' fees by whomsoever brought or made by reason of the nonobservance or nonperformance of said laws, ordinances, rules, regulations and requirements or of this covenant and will reimburse Landlord for attorneys' fees and for all other costs which Landlord may incur in connection with the defense of any such claims. Tenant's obligations hereunder and under the provisions of paragraph 17 of this Section III shall expressly include, without limitation, compliance with the provisions of the Americans with Disabilities Act, 42 U.S.C. Section 12101 et seq., applicable to Tenant. - ------ 12. Hazardous Materials; Indemnity. Tenant will keep and maintain ------------------------------ the Premises in compliance with, and shall not cause or permit the Premises or the Building to be in violation of, any Hazardous Materials Laws (hereinafter defined), and shall not use, generate, manufacture, treat, handle, refine, produce, process, store, discharge, release, dispose of or allow any Hazardous Materials (hereinafter defined) in, on or under the Premises or the Building in violation of any Hazardous Materials Laws. Tenant shall indemnify, defend and hold harmless Landlord, its partners, employees, agents, successors and assigns from and against any loss, damage, cost, expense or liability, direct or indirect, arising out of or attributable to the violation of any Hazardous Materials Laws or the unlawful use, generation, manufacture, treatment, handling, refining, production, processing, storage, release, threatened release, discharge, disposal or presence of Hazardous Materials in, on or under the Premises or the Building, including, without limitation, all foreseeable and unforeseeable consequential damages, the costs of any required or necessary repair, clean up or detoxification of the Premises or of the Building, and the preparation and implementation of any closure, remedial or other required plans. In addition to the foregoing, Tenant shall immediately advise Landlord, in writing, if Tenant at any time becomes aware of any violation of any Hazardous Materials Laws or of any claim made pursuant to any Hazardous Materials Laws in respect of the Premises or the Building. For purposes of this Lease, the term "Hazardous Materials Laws" means and includes all federal, state or local laws, ordinances or regulations, now or hereafter in effect, relating to environmental conditions, industrial hygiene or Hazardous Materials on, within, under or about the Premises or the Building, including, without limitation, Chapter 342J of the Hawaii Revised Statutes, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1251, et seq., the Clear Air Act, 42 U.S.C. Section 7401, et seq., the Toxic Substances Control Act, 15 U.S.C. Sections 2601 through 2629, the Safe Drinking Water Act, 42 U.S.C. Section 300f through 300j, and any similar federal, state or local laws or ordinances and the regulations now or hereafter adopted, published and/or promulgated pursuant thereto. As used in this Lease, the term "Hazardous Materials" means and includes any and all radioactive materials, asbestos, organic compounds known as polychlorinated biphenyls, chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances, and any and all other substances or materials defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials" or "toxic substances" under, or for the purposes of, the Hazardous Materials Laws. 13. Interruption or Curtailment of Services. The interruption or --------------------------------------- curtailment of services or utilities to be furnished by Landlord hereunder, if the same results from causes beyond Landlord's reasonable control, shall not constitute constructive eviction and shall not entitle Tenant to the abatement of rent or to any other claims against Landlord; but in the case of such interruption or curtailment, Landlord shall take all reasonable steps to restore the interrupted or curtailed utilities or services. 14. Use. Tenant will use the Premises only for the purposes set --- forth in paragraph (G) of Section I of this Lease and for no other purposes, except as consented to in writing by Landlord, which consent shall be in Landlord's sole discretion. In addition, Tenant shall not use or occupy said Premises for the purpose of storing junk, scrap or other offensive materials; and will not make or suffer any strip or waste or unlawful, improper or offensive use of said Premises; nor shall Tenant use or permit said Premises or any part thereof to be used in any manner or for any purpose which will increase the then existing rate of insurance upon the Building of which the Premises are a part, or cause a cancellation of any insurance policy covering said Building, or any part thereof, nor shall Tenant sell, store or permit to be kept, used or sold in or about said Premises any article which may be prohibited by any policy or policies of fire insurance applicable to the Premises and to the activities therein permitted. Tenant shall use and occupy said Premises in a careful, safe and proper manner. Any increase in premiums or surcharges or damages resulting from any such prohibited use shall be paid by Tenant to Landlord; provided, however, that the foregoing shall not apply to increases in premiums or purchases which are attributable to inflation or other price increases unrelated to the activities of Tenant. Tenant shall, at Tenant's sole cost and expense, comply with all requirements of all county, municipal, state and federal authorities now in force, or which may hereafter be in force, pertaining to the Premises, and shall faithfully observe in the use of the Premises all municipal ordinances and state and federal statutes now in force or which may hereafter be in force. 15. Inspection; Access. Tenant will permit Landlord and its ------------------ employees and agents, at all reasonable times during said Term, to enter the Premises and examine the state of repair and condition thereof, and Tenant will repair and make good (within thirty (30) days of receipt of written notice by Tenant) all defects which Tenant is obligated to do under the terms of this Lease and of which notice shall be given by Landlord, as set forth in paragraph 18 of this Section III. Without in any manner obligating Landlord to do so, Tenant will also permit Landlord and Landlord's agents to have access to the Premises at all reasonable times for the purpose of making repairs, posting such notices as it may deem necessary for Landlord's protection or for the protection of the Premises, for the purpose of repossessing the Premises as herein provided and/or for the purpose of showing the Premises to prospective tenants, purchasers, mortgagees and/or others, and Landlord shall not be liable for damages resulting to Tenant from such exercise of the right of entry, and the rent stipulated hereunder shall not abate during the period of such entry, nor shall Tenant be entitled to maintain a setoff or counterclaim for damages against Landlord by reason of loss or interruption of business of Tenant because of the prosecution of any such repairs. During the last ninety (90) days of the Term, Landlord shall have the right to place and maintain in or upon the Premises in one (1) or more conspicuous places "For Rent", "For Lease" and/or "For Sale" signs. Landlord, Tenant and all other tenants in the Building of which the Premises are a part, and their respective guests, invitees and employees, shall have ingress to and egress from all common public areas of said Building; provided, however, that Landlord shall have the right to regulate and control such guests, invitees and employees with respect to such access and the days and hours of access, and all common areas and facilities not within the Premises, which Tenant may be permitted to use and occupy, are to be used and occupied under a revocable license, and if the amount of such areas shall be diminished, Landlord shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such diminution of such areas be deemed constructive or actual eviction. Landlord shall not be liable to Tenant for any inconvenience, interferences, annoyance, loss or damage resulting from work done in or upon the Premises or any portion of the Premises or adjacent grounds. Tenant agrees that if Landlord during the Term hereby demised shall be required by the City and County of Honolulu, the State of Hawaii, by any other governmental authority to repair, alter, remove, reconstruct or improve any part of the Premises or of said Building then such repair, alteration, removal, reconstruction or improvement may be made by and at the expense of Landlord and shall not in any way affect the obligations or covenants of Tenant herein contained, and Tenant hereby waives all claims for damages or abatement of rent because of such work. 16. Tenant's Construction and Bond. Tenant shall, at its cost, in ------------------------------ accordance with plans and specifications therefor first approved in writing by Landlord, construct and install such improvements and fixtures and provide such equipment and do all other things required to complete the Premises in a finished condition ready for the conduct of Tenant's business at the Premises. In performing such initial construction and installation and any further construction or installation, Tenant shall strictly comply with the requirements of Exhibit "B", and Tenant will, before commencing any such construction, obtain Landlord's approval of Tenant's contractor and show evidence satisfactory to Landlord that Tenant has sufficient current funds to pay for the entire cost of construction and post with Landlord a contract performance and labor and material payment bond or bonds with corporate surety satisfactory to Landlord in the penal sum equal to one hundred percent (100%) of the cost of construction, guaranteeing the completion thereof free from any mechanics' or materialmen's lien. Tenant agrees that Tenant's contractor shall be a union contractor and must possess good labor relations. Tenant's initial construction and any further construction or alterations shall strictly comply with all applicable laws, ordinances, codes and regulations and Tenant shall furnish to Landlord a true copy of Tenant's building permit for such construction or alterations prior to the commencement of such work. All fixtures installed by Tenant will be new or completely reconditioned. Any violation of the foregoing provisions shall be considered a material default of this Lease. 17. Indemnity. Tenant will indemnify, defend and hold harmless --------- Landlord, its partners, employees, agents, successors and assigns from and against all claims and demands for loss or damage, including property damage, personal injury and wrongful death, arising out of or in connection with the use or occupancy of said Premises by Tenant or any other person claiming by, through or under Tenant, or any accident or fire on said Premises or any adjacent sidewalk or any nuisance made or suffered thereon caused by Tenant's negligence, or any failure by Tenant to keep said Premises or sidewalk in a safe condition, or any failure by Tenant to comply and conform with all laws, statutes, ordinances and regulations of the United States, (including, without limitation, the Americans with Disabilities Act) the State of Hawaii and the City and County of Honolulu now or hereafter in force, or arising from any default by Tenant in the performance of any of the covenants, conditions or provisions of this Lease, will resist and defend at Tenant's expense any such claim by counsel satisfactory to Landlord, and will reimburse Landlord for all of Landlord's costs and expenses, including reasonable attorneys' fees with respect to any attachment, judgment, suit, lien, charge or encumbrance whatsoever against said Premises made or suffered by Tenant. 18. Acceptance and Maintenance of Premises. -------------------------------------- (a) Tenant, by Tenant's execution of this Lease, shall be conclusively deemed to have accepted the Premises as being in good, safe, tenantable and sanitary order, condition and repair. (b) Tenant shall, at Tenant's sole cost and expense, keep the Premises and every part thereof in good condition and repair, excepting only ordinary wear and tear and unavoidable damage not required to be insured against, and excepting structural repairs which shall be the responsibility of Landlord. Tenant hereby waives all rights to make repairs at the expense of Landlord as provided by any law, statute or ordinance now or hereafter in effect. Damage to all glass of the Premises (other than glass which is part of the exterior of the Building) shall be at the risk of Tenant; any such glass broken during the Term shall be promptly replaced by Tenant at the expense of Tenant. Tenant will not damage or deface the walls, floors or ceilings, nor damage or obstruct hallways or other common areas, nor commit any act which may damage the structural parts of the Building. Tenant shall not add, disturb or in any way change any plumbing or wiring without first obtaining the written consent of Landlord. All damage or injury done to the Premises by Tenant, or by any persons who may be in or upon the Premises with the consent of Tenant, shall be paid for by Tenant and Tenant shall pay for all damage to the Building caused by Tenant's misuse of the Premises or the appurtenances thereto. All repairs to the Premises necessary to maintain the Premises in a tenantable and good condition shall be done by or under the direction of Landlord and at Tenant's expense, except as is otherwise specifically provided herein. Tenant shall pay for the replacement of doors of the Premises which are cracked or broken. Landlord may make any alterations or improvements which Landlord may deem necessary for the preservation, safety or improvement of the Premises or the Building. It is specifically understood and agreed that Landlord has made no promises to alter, remodel, improve, repair, decorate or paint the Premises, or any part thereof, and that no representations respecting the condition of the Premises or the Building of which the Premises are a part have been made by Landlord to Tenant. Notwithstanding anything herein to the contrary, any diminution or shutting off of light or air by any structure which may be erected adjacent to the Building of which the Premises are a part, whether by Landlord or others, and any dust, noise, vibration or other similar disturbance caused by the construction of other tenant improvements during the initial lease-up period of the Building and during any change in tenancy of any premises within the Building, shall not affect this Lease or impose any liability on Landlord or be construed as a constructive eviction or grounds for-the reduction of rent. 19. Liability Insurance. Tenant will procure at its own expense and ------------------- keep in force during the entire Term: (a) a policy of comprehensive general liability insurance (Owners', Landlords' and Tenants' Public Liability Insurance) with minimum limits of not less than ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) arising out of each occurrence with a TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) general aggregate limit. Said policy or policies shall be with an insurance company or companies authorized to do business in the State of Hawaii, shall name Landlord, Landlord's mortgagee or Tenant's mortgagee and the manager of the Building as additional assureds, and shall cover the entire Premises and the areas appurtenant thereto, including the sidewalks upon which the Premises abut; and a current certificate of said policy or policies shall be deposited with Landlord, together with evidence of payment of the premium thereon. The limits of said policies shall be increased in accordance with such limits as Landlord may establish from time to time with due regard to prevailing prudent business practices and as reasonably adequate for Landlord's protection. Said insurance shall contain a provision that it will not be cancelled or substantially modified without giving Landlord thirty (30) days' written notice prior to the effective date of the proposed cancellation or modification. 20. Insurance on Fixtures and Equipment. Tenant shall procure at its ----------------------------------- own expense and, during the entire Term, keep in full force and effect insurance on Tenant's fixtures and equipment in the Premises, in the full insurable value thereof, against fire and extended coverage risks including protection against vandalism, malicious mischief and ceiling sprinkler leakage protection, and in time of war, against war damage to the extent such governmental insurance is obtainable at reasonable cost, in an amount as near as practicable to the full replacement cost of such improvements, in the joint names of Landlord, Tenant, any mortgagee of Landlord's and/or Tenant's interest hereunder and such other parties as Landlord may specify as their interests may appear. Tenant shall deposit a current certificate of said insurance with Landlord, and said insurance shall contain a provision that it will not be cancelled or substantially modified without giving Landlord thirty (30) days' written notice prior to the effective date of the proposed cancellation or modification. 21. Waiver of Subrogation. The parties release each other, and their --------------------- respective authorized representatives, from any claims for damage to any person or to the Premises and to the fixtures, personal property, Tenant's improvements, and alterations of either Landlord or Tenant in or on the Premises that are caused by or result from risks insured against under any insurance policies carried by the parties and in force at the time of any such damage. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any such policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this Lease. If any insurance policy cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurance companies issuing policies without waiver of subrogation, the party undertaking to obtain the insurance shall notify the other party of this fact. The other party shall have a period of ten (10) days after receiving the notice either to place the insurance with a company that is reasonably satisfactory to the other party and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium if such a policy is obtainable at additional cost. If the insurance cannot be obtained or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium charged, the other party shall be relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved. 22. Risk of Loss. The storage and/or presence of all goods, wares, ------------ merchandise or other property of Tenant or anyone claiming by, through or under Tenant on the Premises shall be at Tenant's or such other owner's sole risk, and Landlord shall not be responsible for any loss or damage from fire, smoke or water damage, from bursting, overflowing or leaking of water, gas, sewer or steam pipes, from radio interference, electrical surges, outages or spikes, from the kind or character of electricity or utilities furnished to the Premises, from any interruption or curtailment of utilities or services, or from any fixtures, appliances or devices to the same, or from electric wires, fixtures, appliances or devices or from odors or from any cause whatsoever. 23. Waste and Nuisance. Tenant will keep the Premises in a strictly ------------------ clean, safe, neat and sanitary condition and will not commit or suffer to be committed any waste upon or of the Premises, or any nuisance or other act or omission which disturbs the quiet enjoyment of any other tenant in the Building of which the Premises are a part, and Tenant will not use any apparatus, machinery or device which causes substantial noise or vibration or which overloads the floor of the Premises. Tenant will immediately abate any nuisance or said other act or omission upon demand of Landlord. Tenant shall not waste or permit the waste of water drawn through fixtures on or about the Premises. 24. Signs. Tenant shall not erect, install, paint or inscribe on any ----- exterior door, wall or window, or on any marquee or roof, or affix to the exterior surface of the Building or the Premises, any signs, lettering or placards or advertising media without the prior written consent of Landlord. In the event that the written consent of Landlord is secured, Tenant shall pay all permit and license fees which may be required to be paid for the erection and maintenance of any and all such signs, and provided that such signs shall be legally permitted to be installed. Tenant shall indemnify and save Landlord harmless from and against any and all losses, damages, claims, suits or actions for any damage or injury to persons or property caused by the erection and maintenance of such signs or parts thereof, and insurance coverage for any such sign shall be included in the public liability policy which Tenant is required to keep in force pursuant to paragraph l9 of this Section III. 25. Attorneys' Expenses. Tenant will pay to Landlord on demand all ------------------- costs and expenses, including reasonable attorneys' fees, incurred by Landlord in enforcing any of the covenants herein contained, in remedying any breach thereof by Tenant, in recovering possession of the Premises, in collecting any delinquent rent, taxes or other charges hereunder payable by Tenant, or in connection with any litigation commenced by or against Tenant (other than condemnation proceedings) to which Landlord without any fault on its part shall be made a party. In case Landlord, without any fault of Landlord, is made a party to any litigation commenced by or against Tenant, then Tenant shall pay all costs and expenses, including reasonable attorneys' fees, incurred or imposed on Landlord by or in connection with such litigation. 26. Assigning and Subletting. ------------------------ (a) Tenant shall not, without complying with the provisions of subparagraph (b) below and without obtaining the prior written consent of Landlord pursuant to subparagraph (c) below and paragraph 48 of this Section III, assign, mortgage, pledge or otherwise encumber this Lease or any interest herein, or sublet the Premises or any part thereof. The term "sublet" shall include, without limitation, any use of the Premises by any party other than Tenant and the term "assign" shall include, without limitation, any sale of all or part of the Premises, by agreement of sale or otherwise. Any of the foregoing acts without complying with subparagraph (b) below and without obtaining such consent shall be void and constitute a default under this Lease. Any change in ownership of the majority of shares of the stock of Tenant (if Tenant if a corporation), as such majority ownership existed as of the date of this Lease, or any change in the identity of a majority of the general partners of Tenant (if Tenant is a partnership), as the identity of such majority existed as of the date of this Lease, shall be deemed to be an assignment or transfer of this Lease within the meaning of this paragraph. No assignment, mortgage, pledge, encumbrance or subletting shall be permitted to be made by Tenant if there is any default by Tenant under this Lease. (b) Tenant shall, in connection with any assignment of all or part of Tenant's interest in the Lease or sublease of all or part of the Premises, pay to Landlord the following: (l) Fifty percent (50%) of the amount of any premiums, sums or other consideration payable to Tenant as a result of any assignment of this Lease. (2) Fifty percent (50%) of any premiums, and fifty percent (50%) of the amount by which any rent or other amounts payable to Tenant as a result of any sublease exceed the rent and other sums payable by Tenant hereunder with respect to the space to be subleased. (c) Tenant shall obtain the prior written consent of Landlord to any assignment, mortgage, pledge or encumbrance of this Lease or any interest herein, or to any sublease of all or part of the Premises. The agreement by Tenant to pay the amounts required under subparagraph (b) above shall be a condition precedent to obtaining Landlord's consent; however, payment of such amounts shall not entitle Tenant to demand such consent, the granting or withholding of which shall be governed by the provisions of paragraph 48 of this Section III. 27. Continuing Liability. No permitted assignment, mortgage, pledge, -------------------- encumbrance or sublease of Tenant's interest in the Premises shall in any way release Tenant from any liability or responsibility assumed by Tenant under this Lease. 28. Subordination of Lease; Estoppel Certificates. In the event any --------------------------------------------- mortgagee shall elect to have this Lease prior to or subordinate to its mortgage, then and in such event, upon such mortgagee notifying Tenant to that effect, this Lease shall have priority over or be subordinate to the lien of such mortgage. Tenant covenants and agrees, in the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under, any mortgage heretofore or hereafter made by Landlord covering the Premises (and which may or may not also cover other premises), whether or not this Lease is terminated by such foreclosure or sale, that Tenant will, upon request by the purchaser, attorn to the purchaser upon any foreclosure or sale and recognize such purchaser as the landlord under this Lease, it being the intent hereof that if this Lease should be terminated by such foreclosure or sale, this Lease shall, upon request by the purchaser, be reinstated as a lease between the purchaser and Tenant, it being nevertheless understood that such purchaser shall not be liable for any act or omission of a prior landlord nor be subject to any offsets or defenses which Tenant may have against any prior landlord. Tenant, upon request of any party in interest, shall execute such instrument or instruments as shall be requested to carry out the requirements of this paragraph within thirty (30) days after receipt by Tenant of written request therefor; provided, however, that Tenant shall not be required to effectuate such subordination, nor shall Landlord be authorized to effect such subordination on behalf of Tenant, unless the mortgagee named in such mortgage shall first agree in writing, for the benefit of Tenant, that so long as Tenant is not in default under any of the provisions, covenants or conditions of this Lease on the part of Tenant to be kept and performed, that neither this Lease nor any of the rights of Tenant hereunder shall be terminated or modified or be subject to termination or modification, nor shall Tenant's possession of the Premises be disturbed or interfered with, by an action or proceeding to foreclose said mortgage. In the event that Tenant fails to respond to such written request within thirty (30) days, Landlord shall have the right to execute such instruments on behalf of Tenant. Tenant hereby constitutes Landlord as Tenant's true and lawful attorney-in-fact, coupled with an interest, for purposes of the execution of the foregoing instruments. Within fifteen (15) days of presentation, Tenant shall execute, acknowledge and deliver to Landlord (a) any subordination or non-disturbance agreement or other instrument that Landlord may require to carry out the provisions of this paragraph, (b) any agreement for attornment to a purchaser upon foreclosure, and (c) any estoppel certificate requested by Landlord from time to time in the standard form of any mortgagee or purchaser certifying in writing, if such is the case, that Tenant is in occupancy, that this Lease is unmodified and in full force and effect or that if there have been modifications that the same is in full force and effect as modified and stating the modifications, and the dates to which the rent and other charges shall have been paid, that there shall be no rental offsets or claims and certifying such matters as such mortgagee or purchaser may reasonably require. 29. Plumbing Facilities. Tenant will not use or permit to be used ------------------- the plumbing facilities in the Premises, or such facilities located within the demised area or such other area as may be assigned for use by Tenant or its employees, for any purpose other than that for which they are constructed nor throw or place, or permit to be thrown or placed, any foreign substance of any kind therein, and the expense of breakage, stoppage or damage resulting from Tenant's failure to keep this covenant shall be borne by Tenant. 30. Eminent Domain. If the whole or any substantial part of the -------------- Premises shall be required, taken or condemned for any public use by any authority having the power of eminent domain, this Lease shall at once terminate and Landlord shall be entitled to receive and retain all compensation for the taking thereof. Tenant shall, however, have the right to claim and recover from the condemning authority only, and not from Landlord, such compensation as may be separately awarded or recovered by Tenant in its own right for or on account of any and all damage to Tenant's business or to its improvements or fixtures, stock in trade or equipment, or expense caused to Tenant by the necessity of removing the foregoing items from the Premises, but in no event shall Tenant's compensation reduce the amount of compensation payable to Landlord. 31. Nonliability of Landlord. Landlord shall not be liable for any ------------------------ damage either to person or property sustained by Tenant or by other persons due to the Building, or any part thereof, or any appurtenances thereof, becoming out of repair, or due to any act or neglect of any tenant or occupant of said Building, or of any other person. This provision shall apply especially (but not exclusively) to damage caused by water, steam, sewage, illuminating gas, sewer gas, utilities shortages or stoppages, odors or termites or the negligent accumulation of combustible materials, accessories and supplies, and shall apply equally whether such damage is caused by the act or neglect of other tenants, occupants or janitors of said Building, or of any other persons, and whether such damage is caused or occasioned by anything or circumstances above-mentioned or referred to, or by any other thing or circumstance, whether of a like or of a wholly different nature. If any such damage shall be caused by any act or neglect of Tenant, Landlord may, at its option, repair such damage, whether caused to the Building, or to tenants thereof; and Tenant shall thereupon reimburse Landlord for the total cost of such damage both to the Building and/or to the tenants thereof. Tenant further agrees that all personal property upon the Premises shall be at the sole risk of Tenant and that Landlord shall not be liable for any loss, injury or damage thereto or theft thereof. 32. Disposition of Fixtures on Surrender. On the last day of the ------------------------------------ Term hereby demised or on sooner termination thereof as provided in this Lease, Tenant will peaceably and quietly leave and surrender and deliver up to Landlord possession of the Premises together with all other improvements upon or belonging to the same, by whomsoever made, in good repair, order and condition except as otherwise expressly provided herein and Tenant shall surrender all keys for the Premises to Landlord at the place then fixed for the payment of rent, and shall inform Landlord of all combinations on locks, safes and vaults, if any, in the Premises; provided, however, that if there is no default on the part of Tenant at the termination of this Lease, Tenant may remove all trade fixtures and equipment installed by Tenant on the express condition that Tenant replaces and repairs all damage to said Premises caused by or resulting from the removal of said trade fixtures and equipment. If Tenant shall fail to remove all effects from said Premises upon termination of this Lease for any cause whatsoever, Landlord may, at its option, remove the same in any manner that Landlord shall choose, and store said effects without liability to Tenant for loss thereof, and Tenant agrees to pay Landlord on demand any and all expenses incurred in such removal, including court costs and attorneys' fees and storage charges on such effects for any length of time the same shall be in Landlord's possession, or Landlord may, at its option, without notice, sell said effects, or any of the same, at private sale and without legal process, for such price as Landlord may obtain and apply the proceeds of such sale to payment of any amounts due under this Lease from Tenant to Landlord and for the expense incident to the removal and sale of said effects. 33. Liquidated Damages. If Tenant shall, at the expiration or other ------------------ termination of this Lease, fail to yield up possession to Landlord, Landlord shall have the option to require Tenant to pay, and Tenant shall pay as liquidated damages for each day possession is withheld, an amount equal to double the amount of the daily rent computed on the thirty-day-month basis. 34. Holding Over. Any holding over after the expiration of said ------------ Term, with the consent of Landlord, shall be construed to be a tenancy from month to month at the then current fair market rental for the Premises and shall otherwise be on the terms and conditions herein specified, so far as applicable. 35. Destruction of Premises. In the event of a partial or total ----------------------- destruction of the Premises from any cause whatsoever, Landlord shall promptly cause the same to be rebuilt or repaired unless, in Landlord's sole discretion, Landlord determines that it would be uneconomical or impossible to rebuild or repair the same, in which event this Lease shall terminate as of the date of such destruction upon written notice given by Landlord to Tenant of its intention not to rebuild or repair, such notice to be given within sixty (60) days from the date of such destruction. In the event of such termination, Tenant shall forthwith surrender the Premises and shall be relieved of all liability accruing after the date of termination, and Landlord shall have no further liability or obligation hereunder. If such destruction occurs and this Lease is not so terminated by Landlord, this Lease shall remain in full force and effect and Landlord and Tenant waive the provisions of any law to the contrary. Landlord's obligations under this paragraph 35 shall in no event exceed the scope of the original construction of the Building of which the Premises are a part. Tenant agrees that during any period of reconstruction or repair of the Premises and/or said Building, Tenant shall continue the operation of Tenant's business in the Premises to the extent reasonably practicable from the standpoint of good business. 36. Abatement of Rent. The monthly rent payable hereunder shall be ----------------- abated proportionately during any period in which, by reason of any damage or destruction of the Premises, there is substantial interference with the operation of the business of Tenant in the Premises, having regard to the extent to which Tenant may be required to discontinue its business in the Premises; provided, however, that the foregoing abatement shall not apply to any interference caused by dust, noise, vibration or other similar disturbance caused by the construction of other tenant improvements during the initial lease-up period of the Building and during any change in tenancy of any premises within the Building, nor to any stoppage or shortage of utilities or services. Such abatement shall continue for the period commencing with such destruction or damage and ending with the completion by Landlord of such work or repair and/or reconstruction as Landlord is obligated to do. 37. Security Deposit. Tenant, contemporaneously with the execution ---------------- of this Lease, has deposited with Landlord the sum set forth in paragraph (F) of Section I of this Lease, the receipt of which is hereby acknowledged by Landlord. Said deposit shall be held by Landlord, without liability for interest, as security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease by said Tenant to be kept and performed during the Term hereof. Said deposit may be commingled with other funds of Landlord. In the event of the failure of Tenant to keep and perform any of the terms, covenants and conditions of this Lease to be kept and performed by Tenant, then at the option of Landlord, Landlord may appropriate and apply said entire deposit, or so much thereof as may be necessary, to compensate Landlord for all loss or damage sustained or suffered by Landlord due to such breach on the part of Tenant. Should the entire deposit, or any portion thereof, be so appropriated or so applied by Landlord for the payment of overdue rent or other sum due and payable by Tenant hereunder, then Tenant shall, upon the written demand of Landlord, forthwith remit to Landlord a sufficient amount in cash to restore said security to the original sum deposited, and Tenant's failure to do so within five (5) days after receipt of such demand shall constitute a breach of this Lease. Should Tenant comply with all of the terms, covenants and conditions and promptly pay all of the rental herein provided for as it falls due, and all other sums payable by Tenant hereunder, said deposit shall be returned in full to Tenant at the end of the Term, or upon the earlier termination of this Lease. Landlord may deliver the funds deposited hereunder by Tenant to the purchaser of Landlord's interest in the Premises in the event that such interest is sold, and thereupon Landlord shall be discharged from any further liability with respect to such deposit; provided, however, that the purchaser shall agree to assume Landlord's obligations hereunder with respect to said deposit. 38. Nonwaiver. The acceptance of rent by Landlord shall not be --------- deemed a waiver by Landlord of any breach by Tenant of any term, covenant or condition herein contained, nor of Landlord's right to declare and enforce a forfeiture for any such breach, and failure of Landlord to insist upon strict performance of any term, covenant or condition herein shall not be construed as a waiver of any subsequent breach of the same nor of any other term, covenant or condition. The waiver by Landlord of any default or breach of any of the provisions, covenants or conditions hereof on the part of Tenant to be kept and performed shall not be a waiver of any preceding or subsequent breach of the same or any other provision, covenant or condition contained herein. 39. Default and Rights of Landlord on Default. This Lease is made ----------------------------------------- upon the condition that, (a) if Tenant shall fail to pay said rent or any part thereof or any other charges hereunder when due, whether the same shall or shall not have been legally demanded, or (b) if Tenant shall fail to observe or perform any of the other covenants herein contained and on Tenant's part to be observed and performed, and such default shall continue for ten (10) days after written notice thereof has been given to Tenant, or (c) if Tenant shall become bankrupt or make an assignment for the benefit of creditors or abandon the Premises, or (d) if any mechanics' or materialmen's lien shall attach to the Premises or Landlord's or Tenant's estate or interest therein or (e) if this Lease or any estate or interest of Tenant hereunder shall be sold under any attachment or execution, Landlord may in any such event at once re-enter the Premises or any part thereof in the name of the whole and, upon or without such entry, at its option either continue this Lease in force or terminate this Lease. Landlord may expel and remove from the Premises Tenant and any persons claiming by, through or under Tenant and their effects without being deemed guilty of any trespass or becoming liable for any loss or damage occasioned thereby, all without service of notice or legal process and without prejudice to any other remedy or right of action, including summary possession, which Landlord may have for arrears of rent or for the same or any preceding or other breach of contract. No act by Landlord shall terminate this Lease other than a written notice that Landlord has elected to terminate this Lease. During the period Tenant is in default, Landlord may enter the Premises and relet them or any part of them to third parties for Tenant's account. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises, including, without limitation, brokers' commissions, expenses of remodeling the Premises required by the reletting, attorneys' fees and like costs, and Tenant shall remain liable for any deficiency between the rents received by reason of such reletting and the rents due hereunder, which deficiency Tenant shall pay monthly as the same may accrue. If Landlord elects to cancel the Lease, Landlord shall have the right to recover from Tenant unpaid rent when due plus all damages resulting from Tenant's default, including all costs and attorneys' fees plus the worth of the rental of the balance of the Term over the reasonable rental value of the Premises for the remainder of the Term, which sum shall be immediately payable to Landlord by Tenant. Following any default, if Landlord shall bring an action for summary possession, then Tenant hereby agrees to submit irrevocably to the jurisdiction of the District Court of the First Circuit of the State of Hawaii and said District Court shall have the exclusive jurisdiction to decide Landlord's action for summary possession. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. Any property removed by Landlord may be stored in any public warehouse or elsewhere at the cost and for the account of Tenant, and Landlord shall not be responsible for the care or safekeeping thereof, and Tenant hereby waives any and all claims for loss, destruction, damage or injury which may be occasioned by any of the aforesaid acts. Upon the occurrence of a default under this Lease, if the Premises or any part thereof are then sublet under a sublease to which Landlord has consented, Landlord, in addition to any other remedies provided in this Lease or provided by law, may at its option collect directly from such sublessee all rents becoming due to Tenant under such sublease and apply such rent against any sums due to Landlord from Tenant under this Lease, and no such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant's obligations under this Lease. 40. Right to Issue a New Lease to a Third Party. Should Landlord ------------------------------------------- elect to re-enter and take possession of the Premises, as hereinbefore provided, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided for by law, Landlord may either terminate this Lease, or Landlord may from time to time without terminating this Lease make such alterations and repairs as may be necessary to grant another lease to a third party for the use of said Premises or any part thereof for such term or terms (which may be for a term extending beyond the Term of this Lease) and at such rent and upon such other terms and conditions as Landlord in its sole discretion may deem advisable; upon each such granting of a new lease all rent received by Landlord from said third party shall be applied, first, to the payment of any indebtedness other than rent due and unpaid hereunder from Tenant to Landlord; second, to the payment of any costs and expenses incurred in issuing a new lease, including brokerage fees, attorneys' fees and costs of such alterations and repairs; third, to the payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same may become due and payable hereunder. If such rent received from said third party during any month is less than that required to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord before the end of such month. No such re-entry or taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction. Notwithstanding the issuance of a new lease to a third party without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. Should Landlord at any time terminate this Lease for any breach, in addition to any other remedies it may have, Landlord may recover from Tenant all damages Landlord may incur by reason of such breach, including the cost of recovering the Premises, reasonable attorneys' fees, and including the worth at the time of such termination of the excess, if any, of the amount of rent and charges equivalent to rent reserved in this Lease for the remainder of the stated Term over the then reasonable rental value of the Premises for the remainder of the stated Term, all of which amounts shall be immediately due and payable from Tenant to Landlord. In determining the rent which would be payable by Tenant hereunder, subsequent to default, the rent for the unexpired Term shall be computed prorata upon the basis of the average aggregate rent paid or payable for the rental period of this Lease in which the default occurred. 41. Interest on Past Due Amounts. Any amounts owing by Tenant to ---------------------------- Landlord under the terms of this Lease shall carry interest from the date the same become due until paid at the rate of one percent (1%) per month and said interest shall be considered as a part of the rental payable hereunder; provided, however, that nothing contained herein shall be construed as authorizing Tenant to make payments of all sums required hereunder in other than a timely fashion. 42. Late Charge. Tenant acknowledges that late payment by Tenant to ----------- Landlord of rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to fix. Such costs include, without limitation, processing accounting charges and late charges that may be imposed on Landlord by the terms of any note secured by any mortgage covering the Premises. Therefore, if any installment of rent due from Tenant is not received by Landlord when due, Tenant shall pay to Landlord an additional sum of five percent (5%) of the overdue rent as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, or prevent Landlord from exercising any of the rights and remedies available to Landlord. 43. Notice. In every case where under the provisions of this Lease ------ it shall be necessary or desirable for Landlord to give to or serve upon Tenant any notice or demand, it shall be sufficient either (i) to deliver or cause to be delivered to Tenant a written or printed copy of such notice or demand; or (ii) to send a written or printed copy of said notice or demand by mail, postage prepaid addressed to Tenant at the Premises; or (iii) to leave a written or printed copy of said notice or demand at the Premises, or to post the same upon the door leading into said Premises. All notices to be given to Landlord under this Lease shall be in writing and delivered in person or sent by registered or certified mail to Landlord at its offices at the address specified on the first page hereof, or to such other address as Landlord may designate in writing. 44. Waiver of Jury Trial and Counterclaims. The parties hereto shall -------------------------------------- and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, and/or any claim of injury or damage. In the event Landlord commences any proceedings for nonpayment of rent or other charges payable by Tenant hereunder, Tenant will not interpose any counterclaim of whatever nature or description in any such proceedings. This shall not, however, be construed as a waiver of Tenant's right to assert such claims in any separate action or actions brought by Tenant. 45. Definitions. As used herein the terms "Landlord" and "Tenant" ----------- shall include the respective parties and their heirs, legal and personal representatives, successors and assigns; the liability of Tenant, if more than one (1), shall be joint and several; pronouns wherever used herein should be construed to include the plural or singular or both; the use of any gender shall include all genders as the context may reasonably require; and each of the terms "or" and "and" has the meaning of the other or both where the subject matter, sense and connection require such construction. 46. Applicable Law. This Lease shall be governed and construed in -------------- accordance with the laws of the State of Hawaii. 47. Binding Effect. This Lease shall be binding upon and inure to -------------- the benefit of the parties hereto and their respective successors and permitted assigns. 48. Landlord's Consent. Whenever consent or approval of Landlord is ------------------ required by the terms of this Lease, requests for consent or approval must be made in writing. Tenant will reimburse Landlord for reasonable architect's, engineer's and attorney's fees and other expenses actually incurred by Landlord in connection with the giving of each and every consent or approval required under this Lease; provided, however, that Landlord may without further reason withhold approval of any alterations, additions and improvements if the plans and specifications therefor are not acceptable to the architect or engineer (if any) retained by Landlord to review the same; and provided, further, Landlord may, as a condition of giving any consent to an assignment of this Lease or any interest herein or to a sublease of all or part of the Premises, require, in addition to the payment required under subparagraph 26(b) of this Section III, personal and complete financial information, personal guaranties, or other information relevant to the transaction for which consent is being sought. The remedy for any claim based upon unreasonable or unlawful withholding of consent or approval shall be limited to appropriate injunctive or declaratory relief. Neither party shall be liable for damages resulting from unreasonable or unlawful withholding of consent or approval but the prevailing party in any lawsuit seeking such declaratory or injunctive relief shall be entitled to an award of reasonable attorneys' fees and court costs. 49. Excuse of Landlord's Performance. Anything in this Lease to the -------------------------------- contrary notwithstanding, providing such cause is not due to the willful act or gross neglect of Landlord, Landlord shall not be deemed in default with respect to the performance of any of the terms, covenants and conditions of this Lease if the same shall be due to any strike, lockout, civil commotion, war-like operation, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material, service or financing, through act of God or other cause beyond the control of Landlord. 50. Recordation. Tenant agrees that neither this Lease nor any ----------- memorandum hereof shall be recorded. 51. Time of Essence. Time and performance hereof are of the essence --------------- of this Lease. 52. Renewal. Landlord shall have no obligation to extend or renew ------- this Lease upon termination or to enter into another lease of the Premises with Tenant upon termination of this Lease. Upon termination of this Lease, Landlord may lease the Premises to whoever Landlord chooses for the operation therein of a business that is the same as or different from that operated by Tenant in the Premises. 53. Entire Agreement. The provisions of this Lease constitute, and ---------------- are intended to constitute, the entire agreement between Landlord and Tenant. No terms, conditions, warranties, promises or undertakings of any nature whatever, express or implied, exist between Landlord and Tenant except as herein expressly set forth. 54. Sale By Landlord. In the event of a sale or conveyance by ---------------- Landlord of the Building and the land of which the Premises are a part, the same shall operate to release Landlord from any future liability upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant, and in such event Tenant agrees to look solely to the successor in interest of Landlord in and to this Lease, and the successor in interest of Landlord shall have the right, in its sole discretion, to change the name of the Building at any time. Except as is otherwise provided in this paragraph 54, this Lease shall not be affected by any such sale, and Tenant agrees to attorn to the purchaser or assignee. 55. Joint and Several Obligations. In any case where this Lease is ----------------------------- signed by more than one (1) person, the obligations hereunder shall be joint and several. 56. Accord and Satisfaction. No payments by Tenant or receipt by ----------------------- Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided for in this Lease. 57. Rules and Regulations. Tenant shall comply with the rules and --------------------- regulations attached hereto as Exhibit "C" and made a part hereof for all purposes and with such other and further reasonable rules and regulations as Landlord may prescribe which, in Landlord's sole judgment, are required for the reputation, safety, care or cleanliness of the building or the Premises, or the operations and maintenance thereof and the equipment therein, or for the comfort of Tenant and other tenants of the Building. On delivery of a copy of such amendments and additional rules and regulations to Tenant, Tenant shall thereafter comply with said rules and regulations, and a violation of any of said rules and regulations shall constitute a default by Tenant under this Lease. All such rules and regulations are of the essence hereof without which this Lease would not have been entered into by Landlord. 58. Landlord's Right to Relocate. Landlord reserves the right to ---------------------------- relocate Tenant to a substantially equivalent area in the Building. In such event, the provisions of this Lease shall apply to the substitute premises to the same effect as if originally described in this Lease. For purposes of this paragraph 58, the term "substantially equivalent area" shall mean an area which is not more than ten percent (10%) larger or smaller than the floor area of the original Premises. Upon Landlord's request, Tenant shall immediately execute an appropriate amendment reflecting any such substitution. 59. Location of Common Areas; Changes to Common Areas; Additional ------------------------------------------------------------- Facilities. Landlord shall have the right to make changes in the common areas - ---------- and any part thereof including, without limitation, changes in the location and relocation of driveways, entrances, exits, vehicular parking spaces, the direction of flow of traffic, the setting apart of prohibited areas, the exclusion of employee parking therefrom as Landlord may deem necessary and advisable for the proper and efficient operation and maintenance of the common areas, and in particular, the vehicular parking areas for the convenience of the suppliers, business invitees and customers of all tenants of the Building and removing areas from the common areas and improving the same for particular tenants. Notwithstanding the above, the foregoing is not intended to entitle Landlord to effect changes in the location of common areas which materially and adversely affect access to or visibility of the Premises, except temporarily during periods of construction. Landlord at all times during the Term shall have sole and exclusive jurisdiction and control of the common areas and each and every part thereof and may, at its option, at any time and from time to time exclude and restrain any person or persons from the use or occupancy thereof, excepting Tenant, its subtenants, licensees, concessionaires, suppliers, business invitees and customers. Nothing herein contained shall affect the right of Landlord at any time or from time to time to remove any unauthorized person or persons from said common areas or to restrain the use of any of said common areas by any unauthorized person or persons. Without limiting the generality of the foregoing, Landlord shall have the right to add additional parking, Office and retail areas (the "Facilities") to the Building by constructing such Facilities on adjacent property owned by Landlord. In the event that such additional Facilities are added to the Building, Tenant's Pro Rata Share of Operating Expenses and Tenant's Proportionate Share of Common Office Expenses shall be adjusted to take into account the additional Rentable Area of the Building, and the Operating Expenses and Common Office Expenses shall also take into account the addition of the Facilities to the Building; provided, however, that the cost of construction of such Facilities, the depreciation of such Facilities, and financing expenses related to the construction of such Facilities shall not be considered Operating Expenses or Common Office Expenses. Tenant agrees to accept the inconvenience of noise, dust and other disturbances from the construction of such Facilities; provided, however, that Landlord shall use reasonable efforts to minimize such inconvenience. 60. Guaranty. If Tenant is a corporation, partnership or other -------- business entity, it is understood and acknowledged that Landlord would not have entered into this Lease, but for the delivery to Landlord of a guaranty of this Lease in the form attached hereto as Exhibit "D" and made a part hereof for all purposes, which is hereby incorporated by reference into and made a part of this Lease. 61. No Party Deemed Drafter. The parties agree that neither party ----------------------- shall be deemed to be the drafter of this Lease and in the event this Lease is ever construed by a court of law, such court shall not construe this Lease or any provision hereof against either party as the drafter of this Lease. END OF GENERAL CONDITIONS EXHIBIT "A" [Diagram Description: The floor plan of the 8th floor of The Commerce Tower at 1440 Kapiolani Boulevard, Honolulu, Hawaii.] EXHIBIT "B" TENANT'S CONSTRUCTION OBLIGATIONS Construction and Improvements By Tenant --------------------------------------- A. General Obligations of Tenant: Tenant shall construct Tenant's ----------------------------- improvements in the Premises in compliance with paragraph 16 of Section III of the Lease and Section B of this Exhibit. Tenant shall also submit to Landlord a true copy of the construction contract(s) with Tenant's contractor(s) prior to the start of construction. B. Interior Finishes: ----------------- 1. Floor Coverings. Standard floor covering shall be commercial --------------- quality carpet, and shall not be affixed to the floor in any manner except by a tack strip, paste or other materials which may be easily removed with water. The use of cement or other similar adhesive materials is expressly prohibited. The method of affixing the floor covering to the floor shall be specified in the plans and specifications submitted to Landlord for Landlord's written approval. The expense of repairing any damage or removing any floor covering affixed to the Premises in violation of this provision, shall be borne by the Tenant. Requests for non-standard floor coverings shall be submitted to the Landlord for Landlord's written approval. 2. Base. A base material (e.g., vinyl, wood) shall be used on ---- all walls and partitions. 3. Interior Partitions. Partitions shall be constructed of ------------------- metal stud and drywall or other similar forms of construction material in accordance with the Uniform Building Code. Non-rated partitions are allowed within the Premises and shall be installed by Tenant in accordance with building standards established by Landlord. Request for non-standard interior partitions shall be submitted to Landlord for Landlord's written approval. Partitions meeting the interior face of the glazed external Building wall or column shall terminate only at the centerline of window mullions or columns. Tenant shall install, to the extent the same have not already been installed, the studs for all demising walls separating Tenant's premises from other premises on multi- tenant floors. Tenant will be responsible for one-half (1/2) of the cost of installing the studs for Tenant's demising walls or, if Tenant is only required to install the studs for one (1) demising wall, Tenant shall be responsible for the entire cost of installation of such studs. 4. Interior Doors. Interior doors and frames within the -------------- Premises shall be specified by Landlord, and purchased and installed by Tenant. 5. Finish Hardware. Butt hinges, lock sets, latch sets and knob --------------- sets for interior doors within the Premises shall be specified by Landlord, and purchased and installed by Tenant. 6. Lighting Pattern. Lighting pattern shall conform to the task ---------------- lighting orientation and design as established by Landlord. 7. Office/Store Furniture and Fixtures. All furniture and ----------------------------------- fixtures exposed to public view must be new or fully reconditioned and suitable for use within a building of the location and character of the Building. Design of furniture, fixtures, equipment and interiors to allow for acceptable view through Tenant entries/storefronts shall be reviewed and approved by Landlord. 8. Concrete Floors. Holes for electrical and telephone services --------------- or chases may be cut through concrete floor slabs only with the prior written approval of and under the direction of Landlord and Landlord's consultants. All floor penetrations shall be by core drilling only, and not by jack hammering. All floor penetrations shall be grouted with an expanding concrete grout to assure a water tight seal. Tenant shall be liable for any damage caused by the floor penetration to all space below during and after construction. 9. Concrete Walls. Chases and holes shall not be cut in any -------------- concrete wall or column without the prior written approval of and under the direction of Landlord and Landlord's consultants. EXHIBIT "C" RULES AND REGULATIONS RULES AND REGULATIONS: These rules and regulations have been adopted for --------------------- the purpose of insuring order and safety on the Property and to maintain the rights of Tenant and Landlord. Landlord reserves the right to modify, supplement or rescind any of these rules for the safety, care and cleanliness of the Property and for the preservation of good order therein. Landlord may waive any one (1) or more of these rules and regulations for the benefit of any particular Tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such rules and regulations in favor of any other Tenant or tenants, nor prevent Landlord from thereafter enforcing any such rules and regulations against any or all of the tenants of the Property. Each tenant shall be liable for injury or damage caused by the infraction of any of these rules by it, its employees, agents or invitees, and Landlord may repair such damage, charging the cost of the same to such tenant, which amount shall be added to rent due for the ensuing month. These rules and regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, these terms, covenants, agreements and conditions of any lease of premises on the Property. Access: Office areas will be open from 7:00 a.m. to 6:00 p.m. weekdays and ------ 8:00 a.m. to 1:00 p.m. Saturdays. On Sundays, holidays and after regular open hours, access to the office areas without proper and acceptable identification may be refused. Closing Premises: Each Tenant shall see that his demised Premises are ---------------- securely locked and will exercise caution to insure that all water faucets and powered equipment are shut off before Tenant or Tenant's employees leave the Property, so as to prevent waste or damage. Common Rooms: Rooms used in common by Tenant and Landlord, if any, shall ------------ be subject to regulations adopted by Landlord. Dedication - Prevention Of: Landlord reserves the right to close off any -------------------------- and all of the plazas, promenades and sidewalks of the Property for twenty-four (24) hours once every five (5) years to prevent dedication. Deliveries and Service Area: Only hand trucks equipped with rubber tires --------------------------- and sideguards will be permitted on the Property. All deliveries shall only be brought through the service entrance of the Property. All deliveries requiring exclusive use of an elevator shall be scheduled through the Management Office and in any event such use will not be permitted without the use of elevator protective padding and such use will not be permitted between the hours of 7:30 a.m. 8:30 a.m., 11:30 a.m.-1:30 p.m. and 3:30-5:00 p.m. Heavy Items: All carrying in or out of freight, packages or bulky matter ----------- of any description must take place only during hours selected by Landlord and then only with prior notice to and approval by Landlord. No object beyond the rated capacity of elevators shall be brought on the Property. Landlord shall have the right to prescribe the location of heavy objects and if considered necessary, the means to distribute the weight thereof (to no more than fifty (50) pounds per square foot unless written approval is granted by the Landlord). All costs incurred will be charged to Tenant. Any damage to the Property caused by any such Tenant or its contractor, delivery or moving service, will be repaired at such Tenant's expense. Directories: The Tenant directories are provided for displaying the name ----------- and location of each Tenant. A charge will be made for the initial listing and for each name added to or other change to Tenant's name. The initial listing and all such additions or changes will require Landlord's approval. Tenant shall provide Landlord with a written request for any additions or changes to the directory. Electrical Air-Conditioning Systems: No Tenant shall alter the standard ----------------------------------- building lighting or air-conditioning system or install any special wiring or abnormal power consuming equipment without written approval of Landlord. If air-conditioning and/or power is used out of normal operating hours or there is abnormal consumption thereof, the tenant involved shall pay on demand a reasonable charge. The air-conditioning system will operate without additional charge to Tenant during regular open hours. After Hours Services: Air conditioning service is available for Tenant -------------------- after normal open hours. Landlord shall make an extraordinary charge for the after-hours services which shall be based on the rate schedule or energy agreement in effect for such services or on the actual premium cost of providing such services, including the cost of labor and fringe benefits for required operating personnel, electricity at the per kilowatt hour rate applicable to the Property, water and sewerage at the posted rate, supplies and materials, if any, and any other direct premium costs associated with providing such services in situations where no rate schedule has been set or energy agreement has been entered into. Janitorial Service: No one other than those approved in writing by ------------------ Landlord shall be permitted to perform any janitorial service on the Property. Janitorial service, if supplied by Landlord, shall not include shampooing or spotcleaning of carpets, cleaning of mini blinds, nor movement of furniture. Landlord shall not be responsible for any loss of or damage to any Tenant's property by the janitor, its employees or any other person performing janitorial services. Keys and Locks: No locks other than those provided by Landlord shall be -------------- placed on any doors without the written consent of the Landlord. Two (2) keys per lock will be furnished to Tenant by Landlord. Lock cylinders and keys shall be changed by Landlord at Tenant's expense upon receipt of written request from Tenant. All keys will be surrendered upon termination of Lease. Janitors and contract cleaners will be provided with a passkey to Tenant's premises unless Tenant declines in writing and thereby understands that Landlord will not be responsible for providing janitorial services and emergency access to that demised area. All requests for duplication of keys will be submitted to the building manager. Obstruction of Common Area: All common areas will be used only for ingress -------------------------- and egress to the demised premises. Landlord retains the right to control and prevent access onto the property by any and all persons other than those persons having a legal right to ingress and egress from the demised premises. Only persons authorized by Landlord will be permitted in areas housing mechanical, electrical or equipment of any kind, or the roof. Animals: No animals or pets are allowed on the Property or in the demised ------- premises at any time, except for Seeing Eye dogs. Bicycles, Mopeds and Motorcycles: Bicycles, mopeds and motorcycles are to -------------------------------- be parked only in those areas so designated within the parking garage structure. Removal of Property: Each Tenant shall deliver a list of any fixtures or ------------------- improvements in the premises which the Tenant desires to remove from the Property, and the list must be approved in writing by the Landlord before any such fixture or improvements is removed. Repairs/Alterations/Additions to Premises: Prior to commencement of ----------------------------------------- construction for any repair, alterations or additions to the Premises, Tenant shall submit to Landlord in writing for Landlord's written approval the following: 1) Work Description; 2) Work Schedule; 3) Names of Architect, General Contractor and any Sub-Contractors; 4) Working Drawings and Specifications; 5) Copy of Performance Bond and Insurance Certificate (by Contractor); and 7) Copy of Completion Bond (by Tenant). Tenant shall also provide Landlord with lien releases upon request. Only contractors approved by Landlord shall be permitted to carry out any repairs, alterations or additions within the Premises and/or on the Property. Maintenance Requests: The requirements of a Tenant will be attended to -------------------- only upon application by such Tenant to Landlord. Landlord's employees will not perform any work outside of regular duties unless under special instructions from the Landlord or its authorized agent. Window Displays: Tenant will not use any method or type of display or --------------- window advertising without Landlord's prior written approval which shall only be given if the proposals are considered by Landlord to be consistent with the character of the Property. Signs, Screens and Awnings: No notice or advertisement visible from the -------------------------- exterior of the Property or premises will be permitted without prior written approval of Landlord. All graphics, curtains, blinds, shades or screens visible from the exterior of the Property or any premises demised, where permitted, shall conform to the standards as specified by Landlord from time to time. In the event of the violation of this rule by any Tenant, Landlord may remove same without any liability, and may charge the expense incurred thereby to the Tenant involved. Holidays: The following holidays shall be observed by the Property. The -------- Property will be secured, a security officer will be on duty, and air conditioning and other services will not be provided on such days. New Year's Day Memorial Day Independence Day Labor Day Thanksgiving Day Christmas Day The above listed holidays may be changed from time to time and the designated holidays shall be based on the predominant practice in the business community as determined by Landlord. Solicitors: Landlord reserves the right to eject from the Property, any ---------- solicitors, canvassers or peddlers and any other class of persons who, in the judgment of Landlord, are annoying or interfering with any of Tenant's or Landlord's operations or who are otherwise undesirable. Canvassing, peddling, soliciting and distribution of any written materials on the Property are prohibited and each Tenant shall cooperate to prevent the same. Trash: Each Tenant shall store all its trash and garbage for removal by ----- janitors within the interior of its demised premises. No material, rubbish or debris shall be placed in trash boxes or receptacles if such materials are of such nature as to emit an offensive odor or be in violation of any law or ordinance governing disposal of same. All Tenant construction debris shall be removed from Premises and the Property by Tenant, its contractors or its employees. Use: Except with prior written consent of Landlord, no Tenant shall --- conduct any business other than that specifically provided for in its lease. No Tenant shall permit its demised premises to be used in a manner offensive or objectionable to the other Tenants or Landlord. No cooking shall be done or permitted in the Premises nor shall Tenant cause or permit any unusual or objectionable odors to be produced upon or permeate from its Premises. No Tenant shall at any time bring, allow or keep upon the Premises any flammable, combustible or explosive fluid, chemical or substance in such quantities as may endanger or imperil the demised premises or any other premises or the property or lives of other persons. No Tenant shall make or permit to be made any unreasonable vibration, unseemly noise or disturb or interfere with occupants of this or adjoining buildings or premises or those having business with them whether by the use of any business machines and other equipment, musical instruments, radio or television sets, phonographs, signing or the making of any disturbing sounds. The Premises shall not be used for lodging or sleeping. Violations: Landlord shall not be responsible to any Tenant for the non- ---------- observance or violation of any rules and regulations by any other Tenant or other person. Tenant shall be deemed to have read these rules and regulations and to have agreed to abide by them as a condition to its occupancy of the space leased. Washrooms: The lavatory facilities and other water apparatus shall not be --------- used for any purpose other than that for which they were constructed. The expense to repair any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant whose employees or visitors shall have caused the expense. Water: Water will be supplied by the Landlord for drinking and toilet ----- purposes only. Windows and Doors: No windows, glass doors or any other light sources that ----------------- reflect into the lobbies or other places of the Property shall be obstructed or covered except in a manner approved in writing by Landlord. END OF RULES AND REGULATIONS EXHIBIT "D" [Intentionally Omitted] AMENDMENT OF COMMERCE TOWER OFFICE LEASE (CHEAP TICKETS, INC.) This AMENDMENT OF COMMERCE TOWER OFFICE LEASE is made this 14th day of June, 1996 by and between TOSEI PROPERTIES, INC., a Hawaii corporation, whose principal place of business and post office address is at 1440 Kapiolani Boulevard, Suite 1000, Honolulu, Hawaii 96813 ("Landlord") and CHEAP TICKETS, INC., a Hawaii corporation, whose principal place of business and post office address is at 1440 Kapiolani Boulevard, Suite 800, Honolulu, Hawaii 96813 ("Tenant"); W I T N E S S E T H: - - - - - - - - - - WHEREAS, Tenant and Landlord herein entered into an unrecorded Commerce Tower Office Lease dated July 2, 1995 (the "Lease"), covering office space identified as Suite No. 800 consisting of approximately ten thousand one hundred fifty-eight (10,158) rentable square feet of floor area (the "Original Premises") located on the eighth floor of the building known as The Commerce Tower (the "Building"); WHEREAS, Landlord and Tenant are desirous of providing for the rental to Tenant of additional premises in the spaces identified as Suite Nos. 810, 825 and 828 and consisting of approximately one thousand sixty-eight (1,068) rentable square feet (the "810 Additional Premises"), eight hundred sixty-five (865) rentable square feet (the "825 Additional Premises") and one thousand two hundred two (1,202) rentable square feet (the "828 Additional Premises" and, collectively with the "810 Additional Premises" and the "828 Additional Premises," the "Additional Premises"); NOW, THEREFORE, in consideration of the premises, and in consideration of the covenants and conditions contained herein, Landlord and Tenant hereby agree as follows: 1. Definitions. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Lease. 2. Additional Premises. (a) For the period commencing from and after the Effective Date hereinafter defined and ending on the Termination Date provided for in the Lease, Landlord does hereby demise and lease the Additional Premises unto Tenant, and Tenant does hereby lease and hire the Additional Premises from Landlord. For purposes of this Amendment, the Effective Date shall be the date on which Landlord relocates the existing tenants from the 825 Additional Premises and the 828 Additional Premises and completes building standard "turn-key" improvements for all of the Additional Premises built to the same standard as Tenant's existing premises. Subject to subparagraph 2(b) below, the Additional Premises shall, from and after the Effective Date, be added to the Premises demised under the Lease, shall be leased by Landlord to Tenant for a term commencing on the Effective Date and ending on the Termination Date, and shall be subject to all of the terms, covenants and provisions of the Lease, except as is expressly provided for herein. (b) Anything herein to the contrary notwithstanding, Landlord and Tenant agree as follows with respect to the lease of the Additional Premises: (1) The lease by Landlord to Tenant of the Additional Premises is expressly made contingent on Landlord reaching an agreement satisfactory to Landlord for the relocation of the existing tenants from the 825 Additional Premises and the 828 Additional Premises to comparable premises in the Building. (2) If, on or before the expiration of sixty (60) days from the execution of this Amendment by Landlord and Tenant, Landlord fails to agree with the existing tenants on the terms and conditions for relocation of such tenants from the 825 Additional Premises and the 828 Additional Premises, neither Landlord nor Tenant shall have any obligation with respect to the lease of the Additional Premises hereunder. (3) Landlord shall make reasonable efforts to reach satisfactory agreements with the existing tenants of the 825 Additional Premises and the 828 Additional Premises. 3. Monthly Rent for Additional Premises. Monthly Base Rent for the Additional Premises from and after the Effective Date shall be $3,009.60 per month. 4. Operating Expenses and Common Office Expenses. Tenant's Pro Rata Share of Operating Expenses and Tenant's Proportionate Share of Common Office Expenses with respect to the Additional Premises shall be 2.5425% and 2.7768%, respectively. On the Effective Date, Tenant's Pro Rata Share of Operating Expenses and Tenant's Proportionate Share of Common Office Expenses under the Lease shall be increased by the applicable percentages set forth above. 5. Conveyance Tax; General Excise Tax. Tenant shall, pursuant to paragraph 6 of Section III. of the Lease, be responsible for the payment of any conveyance tax imposed by the State of Hawaii with respect to the Additional Premises provided for herein and shall also be responsible for the Hawaii general excise tax and all other similar gross receipts taxes payable under said paragraph 6. 6. Security Deposit. Tenant shall deposit, on each applicable Effective Date, $6,014.85 as a security deposit for the Additional Premises. 7. Option to Renew; First Opportunity to Lease. The provisions of (J)(2) ("Option to Renew") of Section I. of the Lease shall, on the demise of each Additional Premises to Tenant, also be applicable to such Additional Premises. The provisions of (J)(3) ("First Opportunity to Lease") of Section I. of the Lease shall, on the demise of the Additional Premises, be deleted from the Lease. 8. Parking Stalls. For the period commencing from and after the Effective Date herein defined and ending on the Termination Date provided for in the Lease, Landlord and Tenant hereby agree that Paragraph (I) of Section I. of the Lease is hereby amended in its entirety to read as follows: (I) Number of parking stalls for automobiles to be rented to Tenant: Three (3) reserved and twenty-three (23) unreserved stalls for a total of twenty-six (26) parking stalls at prevailing rates. Two (2) of the three (3) reserved parking stalls shall be free for the original term of this Lease. Landlord shall make additional parking stalls available for rental by Tenant at the Landlord's prevailing rates if additional parking stalls are required by Tenant. 9. Ratification of Lease. Except as further modified hereunder, said Lease is hereby ratified, confirmed and approved and shall remain in full force and effect. 10. Counterparts. This Amendment of Commerce Tower Office Lease may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. In addition, this Amendment of Commerce Tower Office Lease may contain more than one counterpart of the signature page and this Amendment of Commerce Tower Office Lease may be executed by the affixing of the signatures of each of the parties to one of such counterpart signature pages; and all of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. IN WITNESS WHEREOF, the parties hereto have executed this Amendment of Commerce Tower Office Lease (Cheap Tickets, Inc.) on the day and year first above written. TOSEI PROPERTIES, INC., a Hawaii corporation By /s/ Shigeo Hone ----------------------------------- Name: Shigeo Hone ----------------------------------- Title: Attorney-in-Fact ----------------------------------- Landlord CHEAP TICKETS, INC., a Hawaii corporation By /s/ Tammy Ishibashi ----------------------------------- Name: Tammy Ishibashi ----------------------------------- Title: Treasurer ----------------------------------- Tenant SECOND AMENDMENT OF COMMERCE TOWER OFFICE LEASE (CHEAP TICKETS, INC.) This SECOND AMENDMENT OF LEASE is made this 9th day of October, 1997, by and between TOSEI PROPERTIES, INC., a Hawaii corporation, whose principal place of business and post office address is at 1440 Kapiolani Boulevard, Suite 1000, Honolulu, Hawaii 96814 ("Landlord") and CHEAP TICKETS, INC., a Hawaii corporation, whose principal place of business and post office address is at 1440 Kapiolani Boulevard, Suite 800, Honolulu, Hawaii 96814 ("Tenant"); W I T N E S S E T H: - - - - - - - - - - WHEREAS, Tenant and Landlord herein entered into an unrecorded Commerce Tower Office Lease, dated July 02, 1995 (the "Lease"), as amended by Amendment Of Lease dated June 14, 1996, covering certain premises (the "Original Premises" and "Additional Premises), located in the building known as The Commerce Tower (the "Building"); and WHEREAS, the parties hereto are desirous of further amending the Lease for the rental to Tenant of additional premises more particularly described herein; NOW, THEREFORE, in consideration of the premises, and in consideration of the covenants contained herein, Landlord and Tenant hereby agree as follows: 1. Definitions. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Lease. 2. 1225 Additional Premises. Suite 1225. For the period commencing from and after the date on which this Second Amendment of Commerce Tower Office Lease is fully executed (hereinafter referred to as the "Suite 1225 Commencement Date") and ending on the Termination Date provided for in the Lease, Landlord does hereby demise and lease unto Tenant, and Tenant does hereby lease and hire from Landlord, Suite 1225, consisting of approximately three thousand eighty-eight (3,088) rentable square feet of floor area on the twelfth (12th) floor, as indicated on the floor plan attached hereto as Exhibit "A", and made a part hereof for all purposes (hereinafter referred to as the " 1225 Additional Premises"). The 1225 Additional Premises shall, from and after the Suite 1225 Commencement Date, be added to the premises demised under the Lease and shall be subject to all of the terms, covenants and provisions of the Lease, except as is expressly provided for herein. 3. Monthly Base Rent for Additional Premises. For the period commencing from and after the Suite 1225 Commencement Date and up to and including the Termination Date, Tenant agrees to pay to Landlord, as Monthly Base Rent for 1225 Additional Premises, the sum of THREE THOUSAND ONE HUNDRED EIGHTEEN AND 88/100 DOLLARS ($3,118.88). 4. Operating Expenses and Common Office Expenses. A. Tenant's Pro Rata Share of Operating Expenses (as that term is defined in the Lease) with respect to the 1225 Additional Premises, subject to modification as provided in Paragraph 9 of Section III of the Lease, is two and five thousand twenty-six ten thousandths percent (2.5026%). Tenant shall pay with respect to the 1225 Additional Premises, Tenant's share of estimated monthly Operating Expenses in the sum of ONE THOUSAND NINE HUNDRED SEVENTY-TWO AND 97/100 DOLLARS ($1,972.97) for the building fiscal year ending April 30, 1998. B. Tenant's Pro Rata Share of Common Office Expenses (as that term is defined in the Lease) with respect to the 1225 Additional Premises, subject to modification in Paragraph 9 of Section III of the Lease, is two and seven thousand three hundred thirty- eight ten thousandths percent (2.7338%). Tenant shall also pay, with respect to the 1225 Additional Premises, Tenant's share of estimated monthly Common Office Expenses in the sum of EIGHT HUNDRED SIXTY-TWO AND 30/100 DOLLARS ($862.30) for the building fiscal year ending April 30, 1998. 5. Rent Abatement. For the period from the Suite 1225 Commencement Date through February 28, 1998, the payment of Monthly Base Rent, Operating Expenses and Common Office Expenses due in connection to 1225 Additional Premises shall be abated. 6. Security Deposit. Tenant shall deposit $6,202.20 as a security deposit for the 1225 Additional Premises. 7. General Excise Tax. Tenant shall also pay to Landlord as additional rent, together with each payment of rental, real property taxes and other charges payable by Tenant under the Lease with respect to the 1225 Additional Premises, all amounts payable with respect to general excise taxes, as provided in Paragraph 6 of Section III of the Lease. 8. Option to Renew; First Opportunity to Lease. The provisions of (J)(2) ("Option to Renew") of Section I. of the Lease shall also be applicable to the 1225 Additional Premises. If at any time during the term of this Lease, any of the remaining spaces on the twelfth (12') floor of the Building become available for lease, Landlord shall give written notice to Tenant of the availability of such space for lease and Tenant will have five (5) business days to submit a written proposal to Landlord to lease said premises. 9. Tenant Improvements. 1225 Additional Premises shall be leased in "as- is" condition and all the improvements to be made to 1225 Additional Premises shall be the sole responsibility of Tenant subject to Landlord's approval of the plans and specifications of the improvements. 10. Temporary Space. If deemed necessary, the Landlord shall permit Tenant to occupy suite 1120 until suite 1225 is reasonably ready for occupancy or November 30, 1997, whichever shall occur first. Tenant shall pay no gross rent for suite 1120 during this temporary occupancy of said suite. Tenant may occupy suite 1120 upon the full signature of the Second Amendment of Commerce Tower Office Lease and Landlord's receipt of the Security Deposit and Certificate of Insurance required under the Lease. Landlord reserves the right to show suite 1120 to prospective tenants during Tenant's temporary occupancy. 11. Parking Stalls. For the period commencing from and after the Suite 1225 Commencement Date herein defined and ending on the Termination Date provided for in the Lease, Landlord and Tenant hereby agree that Paragraph (I) of Section I. of the Lease is hereby amended in its entirety to read as follows: (I) Number of parking stalls for automobiles to be rented to Tenant: Three (3) reserved and twenty-nine (29) unreserved stalls for a total of thirty-two (32) parking stalls at prevailing rates. Two (2) of the three (3) reserved parking stalls shall be free for the original term of this Lease. Landlord shall make additional parking stalls available for rental by Tenant at the Landlord's prevailing rates if additional parking stalls are required by Tenant. 12. Ratification of Lease. Except as set forth herein, the Lease shall continue in full force and effect in accordance with its terms with respect to the remaining property under the Lease. IN WITNESS WHEREOF, the parties hereto have executed these presents on the day and year first above written. TOSEI PROPERTIES, INC. a Hawaii corporation By: /s/ Shigeo Hone ------------------------------------------ Shigeo Hone "Landlord" CHEAP TICKETS, INC. a Hawaii corporation By: /s/ Michael J. Hartley ----------------------------------------- Its "Tenant" EXHIBIT "A" ----------- FLOOR PLAN [Diagram Description: The floor plan of the 12th floor of The Commerce Tower at 1440 Kapiolani Boulevard, Honolulu, Hawaii.] EX-10.6 9 SUBLEASE DATED JUNE 1, 1998 Exhibit 10.6 1440 Kapiolani Boulevard Honolulu, Hawaii SUBLEASE by and between LEVI STRAUSS & CO., a Delaware corporation, as "Sublandlord" and CHEAP TICKETS INC., a Hawaii corporation as "Subtenant" dated as of June 1, 1998 SUMMARY OF TERMS Parties/Date: This Sublease, by and between LEVI STRAUSS & CO., a Delaware corporation ("Sublandlord"), and CHEAP TICKETS INC., a Hawaii corporation ("Subtenant"), is dated, for reference purposes only, the 1st day of June, 1998. This Sublease is subject to the Office Lease by and between Tosei Properties, Inc., a Hawaii corporation (as successor-in-interest to Tosei Shoji Co., Ltd., a Japan corporation), as Landlord, and Levi Strauss & Co., as Tenant, dated November 9, 1995 (the "Master Lease"), a copy of which is attached as Exhibit A. Premises: The space designated as Suite 920 at 1440 Kapiolani Boulevard, Honolulu, Hawaii, consisting of approximately 2,854 rentable square feet. Commencement Date: June 1, 1998. Term: Twenty-Nine (29) months and fourteen (14) days, terminating on November 14, 2000. Base Rent: $ 4,709.10 per month, subject to adjustment in accordance with Paragraph 3 of the Sublease. Use: General office and otherwise as provided in the Master Lease. OFFICE BUILDING SUBLEASE (Honolulu, HI) THIS IS A SUBLEASE ("Sublease") dated as of June 1, 1998 made by and between LEVI STRAUSS & CO., a Delaware corporation ("Sublandlord"), and CHEAP TICKETS INC., a Hawaii corporation ("Subtenant"). Recitals A. Sublandlord is the tenant under that certain Office Lease dated November 9, 1995 (the "Master Lease"), pursuant to which Tosei Properties, Inc., a Hawaii corporation (as successor-in-interest to Tosei Shoji Co., Ltd., a Japan corporation) ("Master Landlord"), leased to Sublandlord premises in the City of Honolulu, Hawaii, in an office building commonly known as 1440 Kapiolani Boulevard, more particularly described in the Master Lease (the "Premises"). B. A copy of the Master Lease is attached hereto as Exhibit A and by this reference incorporated herein. Any capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Master Lease. C. Subtenant desires to sublease from Sublandlord the Premises, subject to the terms of the Master Lease and this Sublease. D. For and in consideration of the covenants and agreements of the parties hereinafter set forth, Sublandlord agrees to sublease to Subtenant, and Subtenant agrees to sublease from Sublandlord, the Premises (as hereinafter defined) upon all of the terms and conditions set forth herein. 1. PREMISES Sublandlord subleases to Subtenant on the terms and conditions of this Sublease, the Premises, designated as Suite 920 in the Building and comprised of approximately 2,854 rentable square feet. Subtenant shall also have the right to lease parking spaces in the Building's parking facility at market rental rates, as provided in Section III.7 of the Master Lease. 2. TERM 2.1 Sublease Term. The term of this Sublease (the "Sublease Term") shall ------------- commence as of June 1, 1998 (the "Commencement Date"), and shall end on November 14, 2000, the date that the Term of the Master Lease expires or is otherwise terminated (the "Termination Date"), unless terminated sooner in accordance with the provisions of this Sublease. 2.2 Holding Over. Subtenant shall have no right to retain possession of ------------ the Premises or any portion thereof beyond the expiration or earlier termination of this Sublease. In the event that Subtenant holds possession of the Premises after the expiration or termination of the Sublease Term, then, at Sublandlord's election, in addition to all other rights and remedies available as a result of any such holding over, Tenant shall become a month-to-month tenant upon all of the terms specified in this Sublease, except that Base Rent shall be paid in an amount equal to two hundred percent (200%) of the Base Rent payable for the period immediately preceding such holdover. 3. RENT 3.1 Minimum Base Rent. Subtenant shall pay to Sublandlord as minimum ----------------- monthly rent ("Base Rent"), without deduction, setoff, notice, or demand, at the address of Sublandlord set forth in Section 17 below, or at any other place Sublandlord designates by notice to Subtenant, the sum of Four Thousand Seven Hundred Nine and 10/l00ths Dollars ($4,709.10) per month, in advance on the first day of each month of the Sublease Term. If the Sublease Term begins or ends on a day other than the first or last day of a month, the rent for any partial months shall be prorated on a per diem basis. 3.2 Additional Rent. In addition to Base Rent, Subtenant shall pay to --------------- Sublandlord (i) any increases in Common Office Expenses and Operating Expenses (each as defined in the Master Lease) allocable to the Premises over the amount of such Common Office Expenses and Operating Expenses charged by Master Landlord with respect to the Premises as of the date of this Sublease and (ii) as provided in Section III.5 of the Master Lease, the State of Hawaii general excise tax on gross income with respect to payments made by Subtenant hereunder, which excise tax is presently equal to 4.166%) (collectively, "Additional Rent"). Additional Rent shall be paid by Subtenant to Sublandlord within ten (10) days after receipt of Sublandlord's invoice therefor. 3.3 Definition of Rent. As used herein, the term "Rent" shall mean, ------------------ collectively, Base Rent and Additional Rent. All payments of Rent required under this Sublease shall be in lawful money of the United States or by check drawn on a commercial banking institution chartered in the United States, with immediately available funds made payable to Sublandlord or such other payee as Sublandlord shall designate in writing to Subtenant. 4. LATE CHARGE AND INTEREST 4.1 Damage to Sublandlord for Late Payment. The late payment of any -------------------------------------- Rent will cause Sublandlord to incur additional costs, including the cost to maintain in full force the Master Lease, administration and collection costs, and processing and accounting expenses. The parties have agreed that Sublandlord should be reimbursed for such additional costs incurred on account of any late payment by Subtenant, notwithstanding that the damage Sublandlord will suffer in such event is difficult to ascertain in advance. Accordingly, the parties have agreed that the late charge and interest payments described in Sections 4.2 and 4.3 below constitute a reasonable estimate of the damage that Sublandlord will suffer in the event of Subtenant's failure to pay the Rent in a timely fashion. 4.2 Late Charge. If Sublandlord has not received any installment of Rent ----------- within five (5) days after that amount is due, Subtenant shall pay to Sublandlord five percent (5%) of the delinquent amount. If a late charge becomes payable hereunder for any three (3) installments of Rent within any twelve (12) month period, the Rent shall automatically become payable quarterly in advance. 4.3 Interest. In addition to the payment of a late charge pursuant to -------- Section 4.2 above, all delinquent amounts of Rent shall bear interest from the date the amount was due until paid in full at an interest rate (the "Applicable Interest Rate") equal to one percent (1%) per month; provided, however, in no event shall the Applicable Interest Rate exceed the maximum interest rate permitted by law that may be charged under these circumstances. 5. SECURITY DEPOSIT Subtenant has deposited with Sublandlord the sum of Four Thousand Seven Hundred Three and 10/l00ths Dollars ($4,703.10) as security for Subtenant's faithful performance of Subtenant's obligations under this Sublease (the "Security Deposit"). If Subtenant fails to pay Rent or other charges when due under this Sublease, or fails to perform any obligations under this Sublease, Sublandlord may use any portion of the Security Deposit for the payment of any such Rent or other amount then due and unpaid, for the payment of any other sum for which Sublandlord may become obligated because of Subtenant's default or breach, or for any loss sustained by Sublandlord as a result of Subtenant's default or breach. If Sublandlord uses any portion of the Security Deposit, Subtenant will, within ten (10) days after written demand by Sublandlord, restore the Security Deposit to the full amount originally deposited. Subtenant's failure to do so shall constitute a default under this Sublease. Sublandlord shall not be required to keep the Security Deposit separate from its general accounts, and shall have no obligation or liability for payment of interest on the Security Deposit. If Sublandlord assigns its interest in this Sublease, Sublandlord shall deliver to its assignee as much of the Security Deposit as Sublandlord then holds. Within thirty (30) days after the Sublease Term has expired or Subtenant has vacated the Premises, whichever occurs last, and provided that Subtenant is not then in default under this Sublease, the Security Deposit, or as much as remains that has not been applied by Sublandlord, shall be returned to Subtenant or to the last assignee, if any, of Subtenant's interest under this Sublease. 6. USE OF PREMISES 6.1 Permitted Use. The Premises shall be used and occupied only for ------------- general office purposes and for any other lawful use that is also expressly permitted by the Master Lease. 6.2 Acceptance: Prohibited Uses. Subtenant accepts the Premises in its --------------------------- existing, "as is" condition, by its occupancy and subject to all applicable laws, ordinances, rules, regulations, orders, restrictions of record, and requirements ("Applicable Laws"), with which Subtenant shall comply at its sole cost as they relate to Subtenant's use or occupancy of the Premises or to improvements, alterations or installations made to the Premises by or for Subtenant (as approved pursuant to Section 13 below), or to the operation of Subtenant's business. Subtenant acknowledges that Sublandlord shall have no obligation whatsoever to provide any improvements or repairs to the Premises. Subtenant shall keep and maintain the Premises and every part and component thereof in good repair and in a good and safe condition throughout the term of this Sublease. Subtenant shall not commit, or suffer to be committed, any waste upon the Premises, or any nuisance or other act or thing which may disturb the quiet enjoyment of Sublandlord or any other tenant or occupant in or around the Master Premises. Subtenant shall not place any loads upon the floor, walls, or ceiling which endanger the structure of the Premises or the Master Premises. Subtenant shall not use or permit the Premises to be used in violation of any Applicable Laws, including, without limitation, any laws regarding the use, transport, handling, generation or storage of Hazardous Materials (as hereinafter defined). Subtenant agrees that it shall not use, generate, store or dispose of any Hazardous Material on, under, about or within the Premises in violation of any Applicable Laws. Subtenant agrees to protect, defend, indemnify and hold Sublandlord and its officers, directors, affiliates, agents, stockholders, employees, successors and assigns harmless against any and all losses, liabilities, claims and/or costs (including, without limitation, reasonable attorneys' fees and costs) arising from any breach of the covenants contained in this Section 6.2. If Subtenant causes or permits the release of any Hazardous Materials on or about the Premises, then Subtenant shall immediately report such release to Sublandlord, and shall immediately remove, cleanup, abate and dispose of such Hazardous Materials in accordance with all Applicable Laws pertaining thereto. As used herein, the term "Hazardous Material" shall mean any hazardous or toxic substance, material or waste, including without limitation any material or substance which is (i) dangerous or injurious to health, whether alone or in combination with other materials or substances, (ii) regulated, designated or defined as a hazardous or toxic waste, substance or material under any federal, state, or local law, rule, order or regulation, (iii) asbestos or asbestos containing materials, (iv) explosive or radioactive substances or materials or (v) petroleum or petroleum byproducts. The covenants and obligations of this Section 6.2 shall survive the expiration or earlier termination of this Sublease. 6.3 Acts Affecting Insurance Coverage. Subtenant shall not commit any --------------------------------- acts on the Premises, nor use or permit the Premises to be used in any manner that will increase the existing rates for or cause the cancellation of any fire, liability, or other insurance policy insuring the Premises or the Master Premises. 7. INCORPORATION OF MASTER LEASE TERMS All applicable terms and conditions of the Master Lease are incorporated into and made a part of this Sublease as if Sublandlord were the landlord, Subtenant the tenant, and the Premises the Master Premises, except for the following, which shall not be included herein and shall be superseded by the terms of this Sublease: Sections I.(C), I.(D), I.(E), I.(F), I.(H), I.(J)(l), I.(J)(3), I.(J)(4), and I.(J)(5); and Sections III.3, III.5, III.8 and III.30. Subtenant assumes and agrees to perform the tenant's obligations under the Master Lease during the Sublease Term to the extent that these obligations are applicable to the Premises. As between Sublandlord and Subtenant, in the event of damage to or condemnation of the Premises, all insurance or condemnation proceeds or awards received by Sublandlord under the Master Lease shall be deemed the property of Sublandlord, and Sublandlord shall have no obligation to rebuild or restore the Premises. Subtenant shall not commit or suffer any act or omission that will violate any of the provisions of the Master Lease. 8. SUBTENANT'S INSURANCE Subtenant shall procure at its expense and keep in force during the term of this Sublease a Comprehensive General Liability policy of insurance providing single limit coverage in an amount not less than two million dollars ($2,000,000) arising out of each occurrence. Subtenant shall maintain workers' compensation insurance for Subtenant's employees as required by the laws of the State of Hawaii. Subtenant shall either by separate policy or by endorsement to a policy already carried, maintain insurance coverage on all of Subtenant's furniture, fixtures and personal property in, on, or about the Premises for its full insurable value against fire and extended coverage risks, including protection against vandalism, malicious mischief and ceiling sprinkler leakage protection. All insurance to be carried by Subtenant shall be primary to and not contributory with any similar insurance carried by Sublandlord, and shall name Sublandlord and Master Landlord (and Master Landlord's mortgagee -- provided that Master Landlord notifies Subtenant of the identity of its mortgagee) and the manager of the Building as additional insureds. Insurance required hereunder shall be in financially capable and sound companies duly licensed to transact business in the State of Hawaii and which carry a minimum rating of "A" by A.M. Best. Prior to entering the Premises, Subtenant shall cause to be delivered to Sublandlord and to Master Landlord certified copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with the insureds clauses as required by this Sublease. No such policy shall be cancelable or subject to modification except after thirty (30) days' prior written notice to Sublandlord and Master Landlord. 9. SUBTENANT'S PERSONAL PROPERTY Subtenant shall be responsible, at its sole cost and expense, for insuring its trade fixtures, equipment, furniture, furnishings and other personal property located on or about the Premises (collectively, "Subtenant's Personal Property") and for paying all taxes charged or assessed against Subtenant's Personal Property. Sublandlord shall have no liability for, and Subtenant shall indemnify and defend Sublandlord from and against, any damage to Subtenant's Personal Property, and/or for any lien, claim, loss cost or expense that arises out of or is related to Subtenant's Personal Property. 10. TRANSFERS Subtenant shall not assign this Sublease or further sublet or otherwise transfer, encumber, mortgage or hypothecate all or any part of the Premises or any interest in the Premises or this Sublease without the prior written consent of Sublandlord, which Sublandlord may withhold in its sole and absolute discretion. 11. INDEMNITY Subtenant shall protect, defend, indemnify and hold Sublandlord and its officers, directors, affiliates, agents, stockholders, employees, successors and assigns harmless from and against any and all damages, losses, claims, liabilities and costs (including reasonable attorneys' fees) arising out of, from or in connection with (i) Subtenant's use or occupancy of the Premises, (ii) any injury to persons or damage to property occurring in, on or about the Premises during the Sublease Term, or (iii) any act or omission of Subtenant or its agents, contractors, employees, or invitees, (iv) any breach or default by Subtenant under this Sublease, including the failure of Subtenant to pay or perform any liability or obligation of Sublandlord under the Master Lease which has been incorporated herein as a liability or obligation required to be performed by Subtenant. The obligations of Subtenant hereunder shall survive the expiration or earlier termination of this Sublease. Notwithstanding Sublandlord's negligence or breach of this Sublease, Sublandlord shall under no circumstances be liable for injury to Subtenant's business or for any loss of income or profit therefrom. 12. MASTER LANDLORD OBLIGATIONS Subtenant recognizes that Sublandlord is not in a position to render any of the services or to perform any of the obligations required of Master Landlord under the Master Lease. Accordingly, despite anything to the contrary set forth herein, Subtenant agrees that performance by Sublandlord of its obligations hereunder is conditioned upon performance by Master Landlord of its corresponding obligations under the Master Lease, and that Sublandlord will not be liable to Subtenant for any failure or default of Master Landlord under the Master Lease. Notwithstanding anything to the contrary contained in this Sublease, Sublandlord shall not be required to (A) provide any of the services or construction to the Premises or the Master Premises that Master Landlord has agreed to provide pursuant to the Master Lease (or as required by law), (B) provide any utilities (including electricity) to the Premises or the Master Premises that Master Landlord has agreed to furnish pursuant to the Master Lease (or as required by law), (C) make any of the repairs that Master Landlord has agreed to make pursuant to the Master Lease (or as required by law), or (D) take any other action relating to the operation, maintenance, repair, alteration or servicing of the Premises or the Master Premises that Master Landlord has agreed to provide, furnish, make, comply with, or take, or cause to be provided, furnished, made, complied with or taken under the Master Lease; and Sublandlord shall not be deemed to have made to Subtenant, and shall have no liability or obligations respecting, any representations or warranties of Master Landlord under the Master Lease. In the event of a default by Master Landlord under the Master Lease, then, following the receipt of the written request of Subtenant specifying Master Landlord's default, Sublandlord shall exercise reasonable diligence in attempting to cause Master Landlord to perform its obligations under the Master Lease for the benefit of Subtenant; provided, however, that in the event Master Landlord's default shall continue for ten (10) days after the written request is received by Sublandlord, then such default by Master Landlord shall be deemed to be a breach by Sublandlord under this Sublease unless ------ Sublandlord continues to exercise reasonable diligence in attempting to cause Master Landlord to cure such default under the Master Lease. Notwithstanding anything to the contrary set forth herein, Sublandlord's liability to Subtenant shall not under any circumstances exceed the aggregate amount paid by Subtenant to Sublandlord hereunder during the twelve (12) month period prior to the date any claimed breach arises. Further, in no event shall Sublandlord be liable for any incidental, indirect or consequential damages, including loss of profit or revenues, of Subtenant. 13. ALTERATIONS Subtenant shall not make any alteration, improvement or installation in or to the Premises without in each instance obtaining the prior written consent of Master Landlord and Sublandlord and otherwise complying with the applicable terms and provisions of the Master Lease. 14. REMEDIES FOR DEFAULT If Subtenant defaults in the performance of its obligations hereunder (including, without limitation, any obligation under the Master Lease which is incorporated herein), and any such default continues beyond the notice and cure periods applicable to such default, as specified in Section 34 of the Master Lease, then, in addition to any other remedies that Sublandlord may have pursuant to the terms of the Master Lease (as incorporated herein) and this Sublease, Sublandlord may pursue any other remedy now or hereafter available to Sublandlord under the laws and/or judicial decisions of the State of Hawaii. 15. ATTORNEYS' FEES If either party commences an action against the other arising out of or in connection with this Sublease (including any proceeding for declaratory relief), the prevailing party shall be entitled to recover from the losing party reasonable attorneys' fees, costs of suit, investigation costs and discovery costs, including costs of appeal. 16. BROKERS Sublandlord and Subtenant each warrant that they have not dealt with any real estate broker, agent, finder or other person who may claim a brokerage fee or other similar compensation in connection with this sublease transaction other than CB Commercial Real Estate Group, Inc. ("CB"), which has represented Sublandlord and whose brokerage fee shall be paid entirely by Sublandlord pursuant to a separate written agreement between Sublandlord and CB. Sublandlord and Subtenant each agree to indemnify, defend, and hold the other harmless against any damages incurred as a result of the breach of the warranty contained in this Section 16. 17. NOTICES Any and all notices required or desired to be delivered hereunder shall be in writing and shall be delivered by personal delivery, registered or certified mail, return receipt requested, by overnight delivery via a recognized courier service, or by telecopy or facsimile, and shall be deemed delivered (A) upon receipt if personally delivered, (B) three (3) days after mailing if mailed, or (C) upon receipt if sent by overnight delivery, telecopy or facsimile, and in each case if addressed: To Sublandlord: Levi Strauss & Co. Global Real Estate 1155 Battery Street, IH1/2 San Francisco, CA 94111 Attn: Real Estate Manager FAX: (415) 501-3960 To Subtenant: Cheap Tickets Inc. 1440 Kapiolani Boulevard #800 Honolulu, HI 96819 Attn: Mr. Michael Bartholomew FAX: (808) 945-0610 Either party may by written notice to the other specify a different or additional address for notice purposes. 18. MISCELLANEOUS 18.1 Entire Agreement. This Sublease sets forth all the agreements ---------------- between Sublandlord and Subtenant concerning the Premises, and there are no representations, warranties or agreements either oral or written other than as set forth in this Sublease. This Sublease may be modified, amended or supplemented only in writing and only if signed by each of the parties hereto. Upon execution of this Sublease by Sublandlord, Subtenant and Master Landlord, that certain letter agreement between Sublandlord and Subtenant, dated April 13, 1998 and captioned "Temporary license to use space," shall terminate and be of no further force or effect. 18.2 Severability: Survival. A determination by a court of competent ---------------------- jurisdiction that any provision of this Sublease or any part thereof is illegal or unenforceable shall not cancel or invalidate the remainder of such provision or of this Sublease, which shall remain in full force and effect. 18.3 Time Of Essence. Time is of the essence in this Sublease. --------------- 18.4 Counterparts. This Sublease may be executed in counterparts and, ------------ when all counterparts are executed, the same shall constitute a single binding instrument. This Sublease shall not be binding upon either party until executed and delivered by both parties. 18.5 Successors and Assigns. Subject to the terms of Section 10 above, ---------------------- this Sublease shall be binding on and inure to the benefit of the parties to it, their heirs, executors, administrators, successors in interest, and assigns. 18.6 Entry. Sublandlord reserves the right to enter the Premises at any ----- reasonable time to inspect the Premises or the performance by Subtenant of the terms and conditions of this Sublease, or to undertake such work of repair or improvement as Sublandlord may need to perform. Notwithstanding the foregoing, except in the case of emergency, Sublandlord agrees not to exercise such rights of entry as respects the office portion of the Premises without reasonable advance notice. 18.7 Submission of Agreement. Submission of this Sublease for Subtenant's ----------------------- examination shall in no way be construed as a valid Sublease arrangement, nor as giving Subtenant any occupancy or option rights to the Premises hereunder, and this Sublease shall not be valid and binding unless and until it has been duly executed and delivered by all parties hereto. 18.8 Authority. Subtenant hereby represents and warrants to Sublandlord --------- that it has the proper authority and is empowered to execute and perform each of its obligations under this Sublease, and that upon Subtenant's execution and delivery of this Sublease, Subtenant shall be bound by this Sublease in accordance with the terms hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 18.9 Consent of Master Landlord. This Sublease is conditioned upon the -------------------------- receipt of the consent of the Master Landlord, as provided in the signature block below. IN WITNESS WHEREOF, the parties have executed this Sublease as of the date first above written. SUBTENANT: Cheap Tickets Inc. a Hawaii corporation By: /s/ Michael J. Hartley ---------------------------------------- Name: -------------------------------------- Its: --------------------------------------- SUBLANDLORD: Levi Strauss & Co., a Delaware corporation By: /s/ Susan Shipley ---------------------------------------- Name: Susan Shipley -------------------------------------- Its: Vice President, Real Estate --------------------------------------- CONSENT OF MASTER LANDLORD -------------------------- The undersigned, the Master Landlord under the Master Lease, as defined in the foregoing Sublease, hereby consents to the foregoing Sublease upon its terms and conditions, provided that Master Landlord's consent to the Sublease shall not constitute its consent or waiver of consent to any subsequent sublease or sub-sublease of the Premises. Tosei Properties, Inc., a Hawaii corporation By: /s/ Shigeo Hone ---------------------------------------- Name: -------------------------------------- Its: --------------------------------------- EXHIBIT A --------- MASTER LEASE THE COMMERCE TOWER OFFICE LEASE by and between TOSEI SHOJI CO., LTD., a Japan corporation and LEVI STRAUSS & CO., a Delaware corporation THE COMMERCE TOWER OFFICE LEASE ------------ THIS LEASE made this 9th day of November, 1995, by and between TOSEI SHOJI CO., LTD., a Japan corporation, whose principal place of business and post office address in the State of Hawaii is at 1440 Kapiolani Boulevard, Suite 1000, Honolulu, Hawaii 96814 (the "Landlord"), and LEVI STRAUSS & CO., a Delaware corporation, whose principal place of business and post office address is at 1155 Battery Street, San Francisco, California (the "Tenant"); W I T N E S S E T H: - - - - - - - - - - That Landlord, in consideration of the rent herein reserved and of the covenants herein contained, does hereby lease unto Tenant, and Tenant does hereby lease from Landlord, that certain office space (the "Premises") located in the building known as The Commerce Tower (the "Building") located at 1440 Kapiolani Boulevard, Honolulu, Hawaii. The Building shall include such other structures as may now exist on the land on which the Building is located and the common areas, improvements and facilities thereon or which may in the future be constructed thereon (the "Property"). I. Specific Conditions of the Lease. -------------------------------- The following subparagraphs constitute all of the specific conditions of this Lease as referred to elsewhere in this Lease: (A) Suite No. 920, consisting of approximately two thousand five hundred seventeen (2,517) usable square feet or two thousand eight hundred fifty-four (2,854) rentable square feet of floor area on the ninth (9th) floor as indicated on the floor plan attached hereto as Exhibit "A" and made a part hereof for all purposes. (B) (l) Tenant's initial Pro Rata Share of Operating Expenses (hereinafter defined), subject to modification as provided in paragraph 8 of Section III of this Lease: Two and three thousand one hundred forty-six ten-thousandths percent (2.3146%). Landlord confirms that the square footage of rentable area in the Building used in all leases is 123,304 square feet. (2) Tenant's Proportionate Share of Common Office Expenses (hereinafter defined) of the Building, subject to modification as provided in paragraph 8 of Section III of this Lease: Two and five thousand two hundred seventy-nine ten-thousandths percent (2.5279%). Landlord confirms that the total square footage of rentable area of all premises other than those being leased to tenants on the ground floor of the Building used in all leases is 112,901 square feet. (C) The term of this Lease shall be five (5) years (the "Term"), commencing on the earlier of: (i) the 15th day of November, 1995, or (ii) upon Tenant's possession of the Premises (the "Commencement Date"), and ending at midnight on the fifth (5th) anniversary (the "Termination Date") following such Commencement Date, unless sooner terminated as herein provided. (D) Monthly Base Rent shall be as shown below: Period Monthly Base Rent ------ ----------------- (1) For the period commencing $3,139.40 on the Commencement Date and ending on the Termination Date. Paragraphs (D)(2) through (D)(5) of Section I of this Lease, and all references in this Lease to said paragraphs, are hereby deleted. Landlord and Tenant agree that the Monthly Base Rent for the Premises is conclusively established in the amounts set forth above, irrespective of the actual number of square feet of floor area of the Premises. Notwithstanding the preceding, Tenant shall be entitled to a free rent period of two and one half months, beginning on the Commencement Date and continuing thereto, during which Tenant shall not be required to pay to Landlord the Monthly Base Rent. (E) (l) Tenant's share of initial estimated monthly Operating Expenses as provided in paragraph 8 of Section III of this Lease: ONE THOUSAND SEVEN HUNDRED FORTY-EIGHT AND 70/100 DOLLARS ($1,748.70). (2) Tenant's share of initial estimated monthly Common Office Expenses as provided in paragraph 8 of Section III of this Lease: SEVEN HUNDRED FORTY-NINE AND 74/l00 DOLLARS ($749.74). (F) Amount of Security Deposit: none. (G) Uses to be made of Premises: general office lease, including the sale of samples of Tenant's products to Tenant's employees whose principal office is located at the Premises. (H) Tenant's address for notice in addition to the Premises: None. With Copies to: Levi Strauss & Co. and Kane, Russell, Coleman & Logan, P.C. 1155 Battery Street 3700 Thanksgiving Tower San Francisco, CA 94111 1601 Elm Street Attn: Director of Real Estate Dallas, TX 75201 -7207 Attn: Gordon B. Russell, Esq. (I) Tenant shall have the right, but not the obligation to rent one (1) parking stall per 500 square feet of leased space at the then prevailing rates. (J) Additional Terms and Conditions: Notwithstanding the provisions set forth elsewhere in this Lease, Landlord and Tenant agree as follows: (1) Option to Extend. Tenant shall have and is hereby given the option to extend the term of this Lease for an additional five (5) year period upon all the same terms and conditions as herein contained by serving notice thereof upon Landlord at least six (6) months before the expiration of the original Term. Upon the service of said notice, this Lease shall be extended upon all its terms and conditions for such additional five (5) year period (other than Monthly Base Rent, which will be established in the manner provided below) without the necessity of the execution of any further instrument or documents; provided, however, that if at either the date of expiration of the original Term of this Lease or the date upon which Tenant exercises such option, Tenant is in default beyond any grace period herein provided in the performance of any of the terms or provisions of this Lease, any such exercise of Tenant's option to so extend the term of this Lease shall be and become null and void. If Tenant exercises the option to extend the term of this Lease as hereinabove provided, the Monthly Base Rent for the five (5) year extension period shall not exceed ninety-five (95%) percent of the rental charged for premises similar to the Premises in the Kapiolani Business District; provided, however, that the Monthly Base Rent shall in no event be lower than the Monthly Base Rent established for the last month of the period immediately preceding the extended term. Landlord shall provide Tenant with Landlord's estimate of the Monthly Base Rent for the Premises at least seven (7) months before the expiration of the original Term. If Landlord and Tenant are unable to agree on such rental charged for similar premises at least three (3) months prior to the date of commencement of such period, such Monthly Base Rent shall be determined by a single appraiser in the event that the parties agree upon the appointment of such an appraiser, otherwise by three (3) impartial appraisers selected as follows: Landlord and Tenant shall each select an appraiser and give written notice promptly thereof to the other party, and if either party shall fail to do so within twenty (20) days after written notice has been given to such party by the other of such selection, the party who has named an appraiser shall have the right to apply to any judge of the Circuit Court of the First Judicial Circuit of the State of Hawaii for the selection and appointment of an appraiser for the party so failing to appoint an appraiser. The two (2) appraisers thus appointed (in either manner) shall select and appoint a third appraiser within fifteen (15) days after the second appraiser shall have been appointed. In the event that said two (2) appraisers fail or neglect to appoint the third of them, either party may, upon the expiration of ten (10) days after the mailing of written notice to the other party, have the third appraiser appointed by any judge of said court. All of said appraisers shall be neutral and recognized real estate appraisers and shall also be members of the Appraisal Institute or any successor organization. The single appraiser or three (3) appraisers so appointed shall thereupon proceed to determine said rental, based on the then fair monthly rental value for the Premises, exclusive of any fixtures, alterations, additions or improvements installed or made by Tenant. The decision of said single appraiser or, if there shall be three (3) appraisers the decision of the majority of them, shall be final, conclusive and binding upon the parties. In the event the appraiser or appraisers shall render their decision after the commencement of the year for which rent is being determined, rent shall be payable at the rate in effect for the previous year until their decision is rendered, but the new rent established by such appraisal shall become effective retroactively to the commencement of said year for which rent is being determined and shall be payable immediately on the determination of such rent, together with interest thereon at the rate of twelve percent (12%) per annum from the date such payments would have been due until actually paid in full. If Landlord and Tenant are unable to agree on rent and if such rent shall be fixed by appraisal, Tenant and Landlord shall each pay one-half (1/2) of all costs of such appraisal, including, without limitation, the appraisers' fees. The foregoing option shall run only in favor of Levi Strauss & Co. and any assignee which is a wholly-owned subsidiary, parent corporation, or corporation the shares of which are owned by a parent company of Tenant (an "Affiliate"), and is not otherwise assignable in whole or in part. Said option shall terminate on any assignment of this Lease by Tenant to a party other than an Affiliate, whether in whole or in part. (2) Nondisturbance Agreement. This Lease is conditioned on Landlord obtaining an agreement from Landlord's mortgagee to the effect that, so long as Tenant is not in default under any of the provisions, covenants or conditions of this Lease on the part of Tenant to be kept and performed, that the Lease shall be recognized by Landlord's mortgagee, that neither this Lease nor any of the rights of Tenant hereunder shall be terminated or modified or be subject to termination or modification, but shall remain in full force and effect, nor shall Tenant's possession of the Premises be disturbed or interfered with, by an action or proceeding to foreclose said mortgage. If Landlord fails to obtain such agreement within thirty (30) days of date of execution of this Lease, Tenant shall have the right, at Tenant's option, to cancel this Lease by written notice to Landlord delivered within forty- five (45) days of the date of execution of this Lease. If this Lease is not so canceled, Landlord also agrees that Landlord shall use reasonable efforts to obtain such agreement from the present mortgagee as well as from future mortgagees of the Building. (3) Landlord's Work. Landlord, at Landlord's expense, shall provide building standard "turn-key" improvements, specified in the space planning attached hereto as Exhibit "A-1" and made a part hereof for all purposes. (4) Subleasing or Assignment. Paragraph 23 of Section III of the Lease is hereby amended to read as follows: (a) Tenant shall not, without obtaining the prior written consent of Landlord not to be unreasonably withheld or delayed, assign, mortgage, pledge or otherwise encumber this Lease or any interest herein, or sublet the Premises or any part thereof. Any of the foregoing acts without obtaining such consent shall be void and constitute a default under this Lease. Any change in ownership of the majority of shares of the stock of Tenant (if Tenant if a corporation), as such majority ownership existed as of the date of this Lease, or any change in the identity of a majority of the general partners of Tenant (if Tenant is a partnership), as the identity of such majority existed as of the date of this Lease, shall be deemed to be an assignment or transfer of this Lease within the meaning of this paragraph. The preceding sentence shall not apply, however, if at the time of the execution of the Lease, the outstanding voting shares of capital stock of Tenant are listed on a recognized security exchange or over-the-counter market. No assignment, mortgage, pledge, encumbrance or subletting shall be permitted to be made by Tenant if there is any default by Tenant under this Lease. (b) Tenant shall, in connection with any assignment of all or part of Tenant's interest in the Lease or sublease of all or part of the Premises, pay to Landlord the following: (1) Fifty percent (50%) of the amount by which any premiums, sums or other consideration payable to Tenant as a result of any assignment of this Lease exceeds the sum of any reasonable brokerage commissions, reasonable escrow fees, recording fees, conveyance taxes, and other costs reasonably incurred in connection with any such assignment. (2) Fifty percent (50%) of the amount by which the sum of any premiums and any rent or other amounts payable to Tenant as a result of any sublease exceeds the sum of rent and other sums payable by Tenant hereunder with respect to the space to be subleased and any reasonable brokerage commissions, reasonable escrow fees, recording fees, conveyance taxes, remodeling costs, rent concessions, and other costs reasonably incurred in connection with any such sublease. (c) Tenant shall obtain the prior written consent of Landlord to any assignment, mortgage, pledge or encumbrance of this Lease or any interest herein, or to any sublease of all or part of the Premises. The agreement by Tenant to pay the amounts required under subparagraph (b) above shall be a condition precedent to obtaining Landlord's consent; however, payment of such amounts shall not entitle Tenant to demand such consent, the granting or withholding of which shall be governed by the provisions of paragraph 42 of this Section III. It is understood and agreed that, notwithstanding anything contained herein, Tenant will have the absolute right to assign this Lease or sublet its interest in all or a portion of the Premises to any wholly-owned subsidiary, parent corporation or corporation, the shares of which are owned by a parent company of Tenant without Landlord's consent; provided, however, that any such assignment or subletting shall not relieve Tenant from any obligation or liability to Landlord under this Lease. (5) Holdover. Tenant shall have the right to holdover beyond the initial Lease term for a period of up to three (3) months at the Monthly Base Rent, Operating Expenses Rent and Common Office Expenses Rent for the period immediately preceding such holdover period. Thereafter, Tenant will have the right to holdover for up to an additional six (6) months at one hundred twenty-five percent (125%) of the sum of such Monthly Base Rent, Operating Expenses Rent and Common Office Expenses Rent. (6) Confidentiality. Landlord, Tenant and their respective agents agree to use reasonable efforts to keep the economic terms and conditions of this Lease confidential; provided, however, that each party shall have the right to transmit said terms and conditions to its respective insurance agents, attorneys, employees and lenders who need to have such information for the purpose of evaluating or otherwise dealing with this Lease or advising such party in connection with this Lease. In no event shall Tenant's liability hereunder exceed the lesser of: (i) Landlord's actual damages or (ii) the remaining unpaid rent payable under this Lease. In the event of any conflict between the provisions of this paragraph (J) and any other provisions in Section I. (Specific Conditions), Section II. (Exhibits) or Section III. (General Conditions), the provisions of this paragraph (J) shall prevail. II. Exhibits. -------- The following exhibits which are attached hereto are hereby made a part of this Lease: (A) Exhibit "A": Floor Plan. (B) Exhibit "A-1": Turn-key Improvements (C) Exhibit "B": Tenant's Construction Obligations. (D) Exhibit "C": Rules and Regulations. (E) Exhibit "D": Non Disturbance and Attornment Agreement. (F) Exhibit "E": Parking Registration Card. The General Conditions of Lease attached hereto as Section III of this Lease, together with all exhibits, are made a part hereof for all purposes. As provided in paragraph 47 of Section III of this Lease, this Lease constitutes the entire agreement between Landlord and Tenant and, without limiting the generality of the foregoing, specifically supersedes any prior offer to lease between Landlord and Tenant. The submission of this document for examination by Tenant or other party does not constitute an offer to lease. This document shall become effective only upon execution hereof by both Tenant and Landlord. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written. TOSEI SHOJI CO., LTD., a Japan corporation By /s/ Shigeo Hone -------------------------------------------- Shigeo Hone Its Attorney-In-Fact Landlord LEVI STRAUSS & CO., a Delaware corporation By /s/ David Garrett -------------------------------------------- Its Director of Global Real Estate Tenant III. GENERAL CONDITIONS OF OFFICE LEASE 1. Standard Services. Landlord shall furnish Tenant with water for ----------------- general use of tenancy, electric current for lighting and normal use during normal business hours in a manner and to the extent deemed to be standard for comparable first class office space in Honolulu, Hawaii, common restroom facilities and supplies, air conditioning during normal business hours at such temperatures and in such amounts as are considered to be standard for comparable first class office space in Honolulu, Hawaii, air conditioning at least from 7:00 o'clock a.m. to 6:00 o'clock p.m., Monday through Friday and 8:00 o'clock a.m. to 1:00 o'clock p.m. on Saturday, janitorial service and refuse collection for Tenant's Premises five (5) days per week, insurance for common areas, elevator service, reasonable window washing for the exterior of the Building and lighting equipment replacement, guard service for the Building, and common area maintenance. If any extraordinary or additional property or services other than those required to be provided by Landlord to Tenant under this Lease shall be provided by Landlord to Tenant at the request of Tenant or for the benefit of Tenant, Tenant shall pay Landlord for such extraordinary or additional property or services. Without limiting the generality of the foregoing, if Tenant wishes to install nonstandard fixtures, Tenant is responsible for providing replacement lamps. In no event shall computing equipment not customarily used in raised floor space be subject to any such charges. Tenant will make all arrangements for and pay for all services specially required by Tenant on or with respect to the Premises which are not provided under Landlord's standard services and Tenant shall pay for such services prior to such charges becoming delinquent. 2. Common Area Maintenance. Landlord will use reasonable efforts to ----------------------- maintain the public and common areas of the Building, such as stairs, lobbies, corridors and restrooms, roof, foundation, HVAC system, elevators, sprinkler system and structural soundness of the exterior walls of the Building. Tenant shall give immediate written notice to Landlord of the need for repairs, and Landlord shall proceed to make same in good repair and condition except for any damage occasioned by the act or omission of Tenant or Tenant's employees or agents and except as is otherwise provided herein. 3. Monthly Base Rent. For the period commencing on the Commencement Date ----------------- to and including the Termination Date provided for in paragraph (C) of Section I of this Lease, Tenant shall pay to Landlord, in lawful United States currency, the Monthly Base Rent in the amounts set forth in paragraph (D) of Section I of this Lease. Notwithstanding the preceding sentence, Tenant shall be entitled to a two and one-half (2-1/2) month period of free rent to which Tenant shall not be required to pay to Landlord the Monthly Base Rent. Should the Term commence or terminate on a day other than the first (1st) day of a calendar month, then the Monthly Base Rent for that fractional month shall be calculated by dividing the Monthly Base Rent by thirty (30) and multiplying that result by the number of days remaining in said fractional month or multiplying that result by the number of days from the beginning of the month up to and including the date of termination, whichever the case may be. All payments of rent after the first payment shall be paid at the office of Landlord, or such other place as shall be designated in writing by Landlord, without notice on or before the first (1st) day of each and every month during the Term or any extension thereof. 4. Ouiet Enjoyment. Landlord agrees that upon payment of the rent herein --------------- provided for, and upon the observance and performance by Tenant of the covenants hereinafter contained and on the part of Tenant to be observed and performed, subject to the provisions of this Lease, and any underlying mortgage on Landlord's estate, Tenant shall peaceably and quietly hold and enjoy the Premises for the Term of this Lease and any extension or renewal hereof. 5. Conveyance Tax; General Excise Tax. Tenant shall pay any conveyance ---------------------------------- tax imposed by the State of Hawaii and execute, at Landlord's request, such affidavits and other documentation as may be necessary or proper in connection therewith. Tenant shall also pay to Landlord as additional rent, together with each payment of rental, real property taxes and other charges payable by Tenant hereunder, which are subject to the State of Hawaii general excise tax on gross income, as the same may be amended, and all other similar taxes imposed upon Landlord with respect to rental or other payments made by Tenant under this Lease if such tax is in the nature of a gross receipts tax, sales tax, privilege tax or the like, excluding federal or state net income taxes, whether imposed by the United States, State of Hawaii or City and County of Honolulu, an amount (presently 4.167% of each such payment) which when added to such rental or other payment shall yield to Landlord after deduction of all such tax payable by Landlord with respect to all such payments a net amount which Landlord would have realized from such payment had no such tax been imposed. 6. Tenant's Pro Rata and Proportionate Shares. ------------------------------------------ (a) As used in this Lease, Tenant's "Pro Rata Share" of Operating Expenses shall mean the percentage set forth in paragraph (B)(1) of Section I of this Lease. Tenant's initial Pro Rata Share has been computed by Landlord based on the ratio which the Rentable Area of Tenant's Premises bears to the total Rentable Area of the Building. "Rentable Area" of a floor shall be computed by measuring to the inside finished surface of the dominant portion of the permanent outer Building walls where it intersects the finished floor, excluding any major vertical penetrations of the floor. No deductions shall be made for columns and projections necessary to the Building. The Rentable Area of the Premises shall be computed by multiplying the Usable Area of the Premises by the quotient of the division of the Rentable Area of the floor by the Usable Area of the floor. "Usable Area" of a premises shall mean that area of the premises computed by measuring to the finished surface of the office side of corridor and other permanent walls of the premises, to the center of partitions that separate the premises from adjoining Usable Areas not leased by Tenant, and to the inside finished surface of the dominant portion of the permanent outer Building walls. No deductions shall be made for columns and projections necessary to the Building. Parking areas shall be excluded. For purposes of this Lease, the Rentable Area and Usable Area shall be computed in accordance with the American National Standard Method for Measuring Floor Area in Office Buildings, ANSI Z65.1-1980. The Rentable Area and Usable Area are subject to adjustment from time to time to correct errors in measurement (which errors result. in Tenant's Pro Rata Share being more than five percent (5%) more or less than Tenant's Pro Rata Share after taking such errors into account) or if changes are made to the Building, and Tenant's Pro Rata Share shall be adjusted accordingly. (b) As used in this Lease, Tenant's "Proportionate Share" of janitorial services, refuse collection and electricity furnished to the Office Areas of the Building (collectively, the "Common Office Expenses") shall mean the percentage set forth in paragraph (B)(2) of Section I of this Lease. Tenant's Proportionate Share has been computed by Landlord based on the ratio which the Rentable Area of Tenant's Premises bears to the total Rentable Area of all premises other than those being leased to tenants on the ground floor of the Building. For purposes of this Lease, the "Office Areas" of the Building shall mean and include all areas of the Building other than the premises being leased to tenants on the ground floor of the Building and other than the ground floor lobby area and ground floor restrooms. 7. Parking; Utilities. Landlord shall make available to Tenant for ------------------ rental in the Building's parking facility the number of unreserved parking stalls set forth in paragraph (I) of Section I of this Lease. Tenant shall rent such stalls pursuant to the terms and conditions of a separate parking agreement to be entered into by Tenant and Landlord or by such parking lot operator as Landlord may designate in Landlord's sole discretion, and the fee charged for Tenant's use of such parking stalls shall be established by the parking lot operator on a uniform basis for all tenants of the Building from time to time in accordance with the prevailing market rate. Tenant agrees to comply with such rules and regulations as shall be adopted by Landlord or the parking lot operator from time to time. Tenant shall have the right to rent a lesser number of parking stalls than the number set forth in paragraph (I) of Section I by notifying Landlord or the parking lot operator in writing; however, if Tenant rents such lesser number and subsequently requires the stalls previously relinquished, Tenant agrees that Tenant's right to rent the relinquished stalls shall be subject to availability. The form of Parking Registration Card is attached hereto as Exhibit "E". Tenant will make all arrangements for and pay for all telephone service and other utilities specially required by Tenant on or with respect to the Premises which are not provided under Landlord's standard services and Tenant shall pay for such charges prior to such charges becoming delinquent. 8. Operating Expenses and Common Office Expenses. Tenant will pay to --------------------------------------------- Landlord in advance on the first (1st) day of each month throughout the Term, in accordance with monthly billings rendered to Tenant by Landlord, but subject to annual adjustment as hereinafter set forth, Tenants Pro Rata Share of the Operating Expenses and Tenant's Proportionate Share of Common Office Expenses for the Building and real property of which the Premises are a part. It is understood and agreed that the monthly billings referred to in this Lease shall be on an estimated basis. If the aggregate payments made by Tenant for Operating Expenses and Common Office Expenses for any Lease Year (hereinafter defined) exceed Tenant's Pro Rata Share of Operating Expenses and Tenant's Proportionate Share of Common Office Expenses for such Lease Year, such excess shall, be applied as a credit against future payments to be made by Tenant for Operating Expenses and Common Office Expenses. Landlord shall notify Tenant in writing within one hundred twenty (120) days after the end of such Lease Year of such credit and the amount so credited or refund such amount to Tenant. If the aggregate payments made by Tenant for the Operating Expenses and Common Office Expenses with respect to any such Lease Year are less than the sum of Tenant's Pro Rata Share of Operating Expenses and Tenant's Proportionate Share of Common Office Expenses Tenant shall pay the amount of such deficiency to Landlord within thirty (30) days after written demand by Landlord and upon receipt of reasonable detail of the amount of such deficiency indicating Tenant's proportional share thereof. In the event that this Lease is terminated prior to the end of a Lease Year, the adjustment above will be made to apply as of the date of termination of this Lease and any excess paid by Tenant shall be refunded by Landlord to Tenant within thirty (30) days after the determination thereof at the end of the Lease Year. Any deficiency owed by Tenant shall be paid as set forth in this Lease. For the purpose of determining increases in Operating Expenses and in Common Office Expenses payable by Tenant, the calculation shall be based on a full Lease Year and Tenant's Pro Rata Share of Operating Expenses or Proportionate Share of Common Office Expenses, as the case might be, computed as herein set forth shall be deemed to have accrued uniformly during such Lease Year. Extraordinary repairs shall be paid by Tenant who incurred or benefitted from such repairs. If any part of the Building is not fully occupied and used during any Lease Year, then for the purpose of the calculations to be made under this paragraph 8, the Operating Expenses and Common Office Expenses, both estimated and actual for such Lease Year, as the case might be, shall be adjusted by adding amounts and items of Operating Expenses and Common Office Expenses which would normally have been incurred if the Building had been ninety-five percent (95%) occupied and used during such Lease Year, as the case might be, as estimated by Landlord. Tenant's Pro Rata Share of the Operating Expenses and Tenant's Proportionate Share of Common Office Expenses shall be based on an assumed ninety-five percent (95%) occupancy. For purposes of this paragraph 8, the term "Operating Expenses" means any and all expenses which shall be incurred or paid on account of the operation, cleaning, maintenance, repair, safety, management and security of the Building or the Property. Operating Expenses shall also include, without limiting the generality of the foregoing, the following, provided that they are reasonably incurred in connection with the operation, cleaning, maintenance, repair, safety, management and security of the Building or the Property (excluding, however, any expenses incurred in keeping the corporate books or records of the Landlord): real property taxes and any assessments or charges made under any betterment or improvement law or otherwise attributable to the Building, the costs of utilities, automated control systems, elevators, air conditioning, trash disposal, repair and maintenance, replacement, landscaping, janitorial services for the ground floor lobby area, line painting, fees for permits and licenses, maintenance and repair of lighting fixtures and equipment (including the replacement of bulbs and tubes), guard service, the cost of management contracts or the cost of equivalent management services, supplies, wages and salaries of employees used in maintenance and general operations (as distinguished from the cost of management contracts or equivalent management services aforesaid), and payroll taxes (and similar governmental charges) with respect thereto, the acquisition cost (rental fees and/or purchase price, or in lieu of a purchase price, the annual depreciation allocable thereto) of all supplies, tools, machines and equipment used in operation and maintenance, audit and bookkeeping expenses, legal fees and expenses, financing expenses relating to operation and management, insurance (including fire and extended coverage, vandalism and malicious mischief, difference in conditions coverage, public liability and property damage and worker's compensation insurance customarily carried by owners of first class office buildings), taxes described in paragraph 5 of this Section III to the extent that such taxes have not already been recovered in said paragraph 5 (but excluding taxes upon or measured by Landlord's net income), the costs and expenses of any contest by appropriate legal proceedings of the amount or validity of any such taxes, charges or other assessments, personal property taxes, if any, and the cost of alterations, additions and capital improvements required by any laws, codes, regulations or ordinances now or hereafter in effect or made by Landlord to reduce energy requirements or which would have the effect of reducing the expenses which would otherwise be included in Operating Expenses (amortized over their reasonable life with interest at the rate usually charged Landlord for borrowing on the amount of such cost, or, if Landlord is prohibited by law from charging interest at such rate, at the rate of one percent (1%) per month). The Operating Expenses shall not include capital expenditures (except the costs of certain capital improvements as above mentioned), depreciation on real property or financing expenses related to the construction of the Building. For purposes of this paragraph 8, "Lease Year" shall be a period of twelve (12) consecutive calendar months, with the initial Lease Year commencing on the first (1st) day of such month as shall be established by Landlord, in Landlord's sole discretion, and each succeeding Lease Year commencing on the anniversary thereof. 9. Other Taxes and Fees. In addition to the rental provided hereunder, -------------------- Tenant agrees to pay all license fees and all taxes and assessments and increases in taxes and assessments levied and assessed by any government body by virtue of (a) any special improvements or assessments (provided that said improvements or assessments may be payable in installments, Tenant shall be obligated only to pay its Pro Rata Share of such installments which would become due during the Term), (b) Tenant using and conducting its business or operation on the Premises, (c) the employment of agents, employees or other third parties by Tenant, or (d) the bringing onto, or keeping of personal property or chattels of whatsoever nature on the Premises by Tenant. The foregoing is intended to bind Tenant to pay, and to promptly discharge, all taxes, assessments and/or levies, together with related interest and penalties, whether assessed by federal or state authority or any political subdivision thereof, directly or indirectly related to its business, improvements, functioning, employment, assets, existence, sales, entertainment or the like. Tenant specifically agrees to reimburse Landlord for any increase in ad valorem taxes resulting from use of fixtures or improvements by Tenant which Landlord becomes obligated to pay. 10. Laws and Ordinances; Indemnity. Tenant shall, during the whole of ------------------------------ said Term, keep the Premises in a strictly safe, clean and healthful condition and observe and perform all laws and ordinances applicable to the Building and improvements now or hereafter erected on the Premises, all laws, ordinances, rules and regulations applicable to the Premises. Without limiting the generality of the foregoing, Tenant shall also comply with all obligations imposed by applicable law and regulations on the generation and storage by Tenant on the Premises or disposal by Tenant of any substances or materials defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials" or "toxic substances" under, or for the purposes of, any federal, state or local laws or ordinances and regulations now or hereafter adopted, published and/or promulgated pursuant thereto. Landlord shall be responsible for and shall cause the Building to comply with all laws, statutes, ordinances, and rules including the provisions of the Americans with Disabilities Act, 42 U.S.C. Section 12101 et seq., as amended. 11. Interruption or Curtailment of Services. The interruption or --------------------------------------- curtailment of services or utilities to be furnished by Landlord hereunder, if the same results from causes beyond Landlord's reasonable control, shall not constitute constructive eviction and shall not entitle Tenant to the abatement of rent or to any other claims against Landlord; but in the case of such interruption or curtailment, Landlord shall take all reasonable steps to restore the interrupted or curtailed utilities or services. 12. Use. Tenant will use the Premises only for the purposes set forth in --- paragraph (G) of Section I of this Lease and for no other purposes, except as consented to in writing by Landlord, which consent shall not be unreasonably withheld. In addition, Tenant shall not use or occupy said Premises for the purpose of storing junk, scrap or other offensive materials; and will not make or suffer any strip or waste or unlawful, improper or offensive use of said Premises; nor shall Tenant use or permit said Premises or any part thereof to be used in any manner or for any purpose which will increase the then existing rate of insurance upon the Building of which the Premises are a part, or cause a cancellation of any insurance policy covering said Building, or any part thereof, nor shall Tenant sell, store or permit to be kept, used or sold in or about said Premises any article which may be prohibited by any policy or policies of fire insurance applicable to the Premises and to the activities therein permitted. Tenant shall use and occupy said Premises in a careful, safe and proper manner. Any increase in premiums or surcharges or damages resulting from any such prohibited use shall be paid by Tenant to Landlord; provided, however, that the foregoing shall not apply to increases in premiums or purchases which are attributable to inflation or other price increases unrelated to the activities of Tenant. Tenant shall, at Tenant's sole cost and expense, comply with all requirements of all county, municipal, state and federal authorities now in force, or which may hereafter be in force, pertaining to the Premises, and shall faithfully observe in the use of the Premises all municipal ordinances and state and federal statutes now in force or which may hereafter be in force. 13. Inspection; Access. Tenant will permit Landlord and its employees and ------------------ agents, at all reasonable times during said Term, to enter the Premises and examine the state of repair and condition thereof. Each party will repair and make good (within thirty (30) days of receipt of written notice by the other party) all defects which such party is obligated to do under the terms of this Lease and of which notice shall be given by the other party. Without in any manner obligating Landlord to do so, Tenant will also permit Landlord and Landlord's agents to have access to the Premises at all reasonable times for the purpose of making repairs, posting such notices as it may deem necessary for Landlord's protection or for the protection of the Premises, for the purpose of repossessing the Premises as herein provided and/or for the purpose of showing the Premises to prospective tenants, purchasers, mortgagees and/or others, and, provided that the exercise of such right of entry does not unreasonably interfere with the operation of Tenant's business on the Premises, Landlord shall not be liable for damages resulting to Tenant from such exercise of the right of entry, and the rent stipulated hereunder shall not abate during the period of such entry, nor shall Tenant be entitled to maintain a setoff or counterclaim for damages against Landlord by reason of loss or interruption of business of Tenant because of the prosecution of any such repairs. Landlord covenants and agrees that it will limit the interference with Tenant's business as much as practicable. Landlord agrees to give Tenant not less than forty- eight (48) hours' notice of the exercise of such right of entry, except in the case of an emergency. During the last ninety (90) days of the Term, Landlord shall have the right to place and maintain in or upon the Premises in one (1) or more conspicuous places "For Rent", "For Lease" and/or "For Sale" signs. Landlord, Tenant and all other tenants in the Building of which the Premises are a part, and their respective guests, invitees and employees, shall have ingress to and egress from all common public areas of said Building; provided, however, that Landlord shall have the right to regulate and control such guests, invitees and employees with respect to such access and the days and hours of access, and all common areas and facilities not within the Premises, which Tenant may be permitted to use and occupy, are to be used and occupied under a revocable license, and if the amount of such areas shall be diminished, Landlord shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such diminution of such areas be deemed constructive or actual eviction. Landlord shall not be liable to Tenant for any inconvenience, interferences, annoyance, loss or damage resulting from work done in or upon the Premises or any portion of the Premises or adjacent grounds unless the same causes unreasonable interference to the operation of Tenant's business in the Premises. Tenant agrees that if Landlord during the Term hereby demised shall be required by the City and County of Honolulu, the State of Hawaii, or by any other governmental authority to repair, alter, remove, reconstruct or improve any part of the Premises or of said Building then such repair, alteration, removal, reconstruction or improvement may be made by and at the expense of Landlord and shall not in any way affect the obligations or covenants of Tenant herein contained, and Tenant hereby waives all claims for damages or abatement of rent because of such work. 14. Tenant's Construction and Bond. In the event that Tenant does any ------------------------------ construction at the Premises, then Tenant shall, at Tenant's cost, in accordance with plans and specifications therefor first approved in writing by Landlord, construct and install such additional improvements and fixtures (over and above Landlord's "turn-key" improvements) and provide such equipment and do all other things required to complete the Premises in a finished condition ready for the conduct of Tenant's business at the Premises. In performing such initial construction and installation and any further construction or installation, Tenant shall strictly comply with the requirements of Exhibit "B", and Tenant will, before commencing any such construction, obtain Landlord's approval of Tenant's contractor and show evidence satisfactory to Landlord that Tenant has sufficient current funds to pay for the entire cost of construction. Tenant's initial construction and any further construction or alterations shall strictly comply with all applicable laws, ordinances, codes and regulations and Tenant shall furnish to Landlord a true copy of Tenant's building permit for such construction or alterations prior to the commencement of such work. All fixtures installed by Tenant will be new or completely reconditioned. Tenant shall save, indemnify, defend and hold Landlord harmless from any claim for mechanic's or materialmen's liens attaching to the Premises or Landlord's or Tenant's estate or interest therein by reason of Tenant's construction (excluding Landlord's "turn-key" improvements). 15. Indemnity. Tenant will indemnify, defend and hold harmless Landlord, --------- its partners, employees, agents, successors and assigns from and against all claims and demands for loss or damage, including property damage, personal injury and wrongful death, arising out of or in connection with the use or occupancy of said Premises by Tenant or any other person claiming by, through or under Tenant, or any accident or fire on said Premises or any nuisance made or suffered thereon caused by Tenant's negligence, or any failure by Tenant to keep said Premises, or any failure by Tenant to comply and conform with all laws, statutes, ordinances and regulations of the United States, (including, without limitation, the Americans with Disabilities Act) the State of Hawaii and the City and County of Honolulu now or hereafter in force, or arising from any default by Tenant in the performance of any of the covenants, conditions or provisions of this Lease, will resist and defend at Tenant's expense any such claim by counsel satisfactory to Landlord, and will reimburse Landlord for all of Landlord's costs and expenses, including reasonable attorneys' fees with respect to any attachment, judgment, suit, lien, charge or encumbrance whatsoever against said Premises made or suffered by Tenant. 16. Acceptance and Maintenance of Premises. -------------------------------------- (a) Tenant, by Tenant's execution of this Lease, shall be conclusively deemed to have accepted the Premises in "As-Is" condition. (b) Tenant shall, at Tenant's sole cost and expense, keep the Premises and every part thereof in good condition and repair, excepting only ordinary wear and tear and unavoidable damage not required to be insured against, and excepting structural repairs which shall be the responsibility of Landlord. Tenant hereby waives all rights to make repairs at the expense of Landlord as provided by any law, statute or ordinance now or hereafter in effect. Damage to all glass of the Premises (other than glass which is part of the exterior of the Building) shall be at the risk of Tenant and any such glass broken during the Term shall be promptly replaced by Tenant at the expense of Tenant. Tenant will not damage or deface the walls, floors or ceilings, nor damage or obstruct hallways or other common areas, nor commit any act which may damage the structural parts of the Building. Tenant shall not add, disturb or in any way change any plumbing or wiring without first obtaining the written consent of Landlord. All damage or injury done to the Premises by Tenant, or by any persons who may be in or upon the Premises with the consent of Tenant, shall be paid for by Tenant, and Tenant shall also pay for all damages to the Building caused by Tenant's misuse of the Premises or the appurtenances thereto. All repairs to the Premises necessary to maintain the Premises in a tenantable and good condition shall be done by or under the direction of Landlord and at Tenant's expense, except as is otherwise specifically provided herein. Tenant shall pay for the replacement of doors of the Premises which are cracked or broken. Landlord may make any alterations or improvements which Landlord may deem necessary for the preservation, safety or improvement of the Premises or the Building. Except as is set forth in Exhibit "A-1" or as is set forth herein, it is specifically understood and agreed that Landlord has made no promises to alter, remodel, improve, repair, decorate or paint the Premises, or any part thereof, and that no representations respecting the condition of the Premises or the Building of which the Premises are a part have been made by Landlord to Tenant. Notwithstanding anything herein to the contrary, any diminution or shutting off of light or air by any structure which may be erected adjacent to the Building of which the Premises are a part, whether by Landlord or others, and any dust, noise, vibration or other similar disturbance caused by the construction of other tenant improvements during the initial lease-up period of the Building and during any change in tenancy of any premises within the Building, shall not affect this Lease or impose any liability on Landlord or be construed as a constructive eviction or grounds for the reduction of rent. 17. Liability Insurance. Tenant will procure at its own expense and keep ------------------- in force during the entire Term: a policy of comprehensive general liability insurance with minimum limits of not less than TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) arising out of each occurrence. Said policy or policies shall be with an insurance company or companies authorized to do business in the State of Hawaii, shall name Landlord, Landlord's mortgagee or Tenant's mortgagee and (provided that Landlord notifies Tenant of the identity of the same) the manager of the Building as additional assureds, and shall cover the entire Premises and a current certificate of said policy or policies shall be deposited with Landlord. Said insurance shall contain a provision that it will not be cancelled or substantially modified without giving Landlord thirty (30) days' written notice prior to the effective date of the proposed cancellation or modification. 18. Insurance on Fixtures and Equipment. Tenant shall procure at its own ----------------------------------- expense and, during the entire Term, keep in full force and effect insurance on Tenant's fixtures and equipment in the Premises, in the full insurable value thereof, against fire and extended coverage risks including protection against vandalism, malicious mischief and ceiling sprinkler leakage protection, in the joint names of Landlord, Tenant, any mortgagee of Landlord's and/or Tenant's interest hereunder and such other parties as Landlord may specify as their interests may appear. Tenant shall deposit a current certificate of said insurance with Landlord, and said insurance shall contain a provision that it will not be cancelled or substantially modified without giving Landlord thirty (30) days' written notice prior to the effective date of the proposed cancellation or modification. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any such policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this Lease. 19. Waste and Nuisance. Tenant will keep the Premises in a strictly ------------------ clean, safe, neat and sanitary condition and will not commit or suffer to be committed any waste upon or of the Premises, or any nuisance or other act or omission which disturbs the quiet enjoyment of any other tenant in the Building of which the Premises are a part, and Tenant will not use any apparatus, machinery or device which causes substantial vibration or which overloads the floor of the Premises. Tenant will immediately abate any nuisance or said other act or omission upon demand of Landlord. 20. Risk of Loss. The storage and/or presence of all goods, wares, ------------ merchandise or other property of Tenant or anyone claiming by, through or under Tenant on the Premises shall be at Tenant's or such other owner's sole risk, and Landlord shall not be responsible for any loss or damage from fire, smoke or water damage, from bursting, overflowing or leaking of water, gas, sewer or steam pipes, from radio interference, electrical surges, outages or spikes, from the kind or character of electricity or utilities furnished to the Premises, from any interruption or curtailment of utilities or services, or from any fixtures, appliances or devices to the same, or from electric wires, fixtures, appliances or devices or from odors or from any cause whatsoever, except where such loss or damage is caused by the negligent or willful actions of Landlord. 21. Signs. Tenant shall not erect, install, paint or inscribe on any ----- exterior door, wall or window, or on any marquee or roof, or affix to the exterior surface of the Building or the Premises, any signs, lettering or placards or advertising media without the prior written consent of Landlord. In the event that the written consent of Landlord is secured, Tenant shall pay all permit and license fees which may be required to be paid for the erection and maintenance of any and all such signs, provided that such signs shall be legally permitted to be installed. Tenant shall indemnify and save Landlord harmless from and against any and all losses, damages, claims, suits or actions for any damage or injury to persons or property caused by the erection and maintenance of such signs or parts thereof, and insurance coverage for any such sign shall be included in the public liability policy which Tenant is required to keep in force pursuant to paragraph 17 of this Section III. 22. Attorneys' Expenses. Landlord and Tenant agree that in the event of ------------------- litigation, the prevailing party will pay to the other party on demand all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party in enforcing any of the covenants herein contained, in remedying any breach thereof by Tenant, in recovering possession of the Premises, in collecting any delinquent rent, taxes or other charges hereunder payable by Tenant, or in connection with any litigation. In case Landlord, without any fault of Landlord, is made a party to any litigation commenced by or against Tenant, then Tenant shall pay all costs and expenses, including reasonable attorneys' fees, incurred or imposed on Landlord by or in connection with such litigation. 23. Assigning and Subletting. ------------------------ (a) Tenant shall not, without obtaining the prior written consent of Landlord, assign, mortgage, pledge or otherwise encumber this Lease or any interest herein, or sublet the Premises or any part thereof. The term "sublet" shall include, without limitation, any use of the Premises by any party other than Tenant and the term "assign" shall include, without limitation, any sale of all or part of the Premises, by agreement of sale or otherwise. Any of the foregoing acts without obtaining such consent, shall be void and constitute a default under this Lease. Any change in ownership of the majority of shares of the stock of Tenant (if Tenant if a corporation), as such majority ownership existed as of the date of this Lease, or any change in the identity of a majority of the general partners of Tenant (if Tenant is a partnership), as the identity of such majority existed as of the date of this Lease, shall be deemed to be an assignment or transfer of this Lease within the meaning of this paragraph. The preceding sentence shall not apply, however, if at the time of the execution of the Lease, the outstanding voting shares of capital stock of Tenant are listed on a recognized security exchange as over-the-counter market. No assignment, mortgage, pledge, encumbrance or subletting shall be permitted to be made by Tenant if there is any default by Tenant under this Lease. (b) Tenant shall, in connection with any assignment of all or part of Tenant's interest in the Lease or sublease of all or part of the Premises, pay to Landlord the following: (1) Fifty percent (50%) of the amount by which any premiums, sums or other consideration payable to Tenant as a result of any assignment of this Lease exceeds the sum of any the reasonable brokerage commissions, reasonable escrow fees, recording fees, conveyance taxes, and other costs reasonably incurred in connection with any such assignment. (2) Fifty percent (50%) of the amount by which the sum of any premiums and any rent or other amounts payable to Tenant as a result of any sublease exceeds the sum of rent and other sums payable by Tenant hereunder with respect to the space to be subleased and any reasonable brokerage commissions, reasonable escrow fees, recording fees, conveyance taxes, and other costs reasonably incurred in connection with any such sublease. (c) Tenant shall obtain the prior written consent of Landlord to any assignment, mortgage, pledge or encumbrance of this Lease or any interest herein, or to any sublease of all or part of the Premises. The agreement by Tenant to pay the amounts required under subparagraph (b) above shall be a condition precedent to obtaining Landlord's consent; however, payment of such amounts shall not entitle Tenant to demand such consent, the granting or withholding of which shall be governed by the provisions of paragraph 42 of this Section III. It is understood and agreed that, notwithstanding anything contained herein, Tenant will have the absolute right to assign the Lease or sublet its interest in all or a portion of the Premises to any wholly-owned subsidiary, parent corporation or corporation, the shares of which are owned by a parent company of Tenant without Landlord's consent; provided, however, that any such assignment or subletting shall not relieve Tenant from any obligation or liability to Landlord under the Lease. 24. Continuing Liability. No permitted assignment, mortgage, pledge, -------------------- encumbrance or sublease of Tenant's interest in the Premises shall in any way release Tenant from any liability or responsibility assumed by Tenant under this Lease; provided, however, that this Lease shall not constitute an assumption of any of Landlord's obligations under any assignment, mortgage, pledge, encumbrance or sublease of Tenant's interest in the Premises. 25. Subordination of Lease; Estoppel Certificates. In the event any --------------------------------------------- mortgagee shall elect to have this Lease prior to or subordinate to its mortgage, then and in such event, upon such mortgagee notifying Tenant to that effect, this Lease shall have priority over or be subordinate to the lien of such mortgage. Tenant, upon request of any party in interest, shall execute such instrument or instruments as shall be requested to carry out the requirements of this paragraph within thirty (30) days after receipt by Tenant of written request therefor; provided, however, that Tenant shall not be required to effectuate such subordination, nor shall Landlord be authorized to effect such subordination on behalf of Tenant, unless the mortgagee named in such mortgage shall first agree in writing, for the benefit of Tenant, that so long as Tenant is not in default under any of the provisions, covenants or conditions of this Lease on the part of Tenant to be kept and performed, that neither this Lease nor any of the rights of Tenant hereunder shall be terminated or modified or be subject to termination or modification, nor shall Tenant's possession of the Premises be disturbed or interfered with, by an action or proceeding to foreclose said mortgage. In the event that Tenant fails to respond to such written request within thirty (30) days, Landlord shall have the right to execute such instruments on behalf of Tenant. Tenant hereby constitutes Landlord as Tenant's true and lawful attorney-in-fact, coupled with an interest, for purposes of the execution of the foregoing instruments. Within fifteen (15) days of presentation, Tenant shall execute, acknowledge and deliver to Landlord (a) any subordination or non-disturbance agreement or other instrument that Landlord may require to carry out the provisions of this paragraph, (b) any agreement for attornment to a purchaser upon foreclosure, and (c) any estoppel certificate requested by Landlord from time to time in the standard form of any mortgagee or purchaser certifying in writing, if such is the case, that Tenant is in occupancy, that this Lease is unmodified and in full force and effect or that if there have been modifications that the same is in full force and effect as modified and stating the modifications, and the dates to which the rent and other charges shall have been paid, that there shall be no rental offsets or claims and certifying such matters as such mortgagee or purchaser may reasonably require. 26. Plumbing Facilities. Tenant will not damage or overload the plumbing ------------------- facilities in the Premises. 27. Eminent Domain. If the whole or any substantial part of the Premises -------------- shall be required, taken or condemned for any public use by any authority having the power of eminent domain, this Lease shall at once terminate and Landlord shall be entitled to receive and retain all compensation for the taking thereof. Tenant shall, however, have the right to claim and recover from the condemning authority only, and not from Landlord, such compensation as may be separately awarded or recovered by Tenant in its own right for or on account of any and all damage to Tenant's business or to its improvements or fixtures, stock in trade or equipment, or expense caused to Tenant by the necessity of removing the foregoing items from the Premises, but in no event shall Tenant's compensation reduce the amount of compensation payable to Landlord. 28. Nonliability of Landlord. Landlord shall not be liable for any damage ------------------------ either to person or property sustained by Tenant or by other persons due to the Building, or any part thereof, or any appurtenances thereof, becoming out of repair, or due to any act or neglect of any tenant or occupant of said Building, or of any other person, except where the same is caused by the willful or negligent actions of Landlord. This provision shall apply especially (but not exclusively) to damage caused by water, steam, sewage, illuminating gas, sewer gas, utilities shortages or stoppages, odors or termites or the negligent accumulation of combustible materials, accessories and supplies, and shall apply equally whether such damage is caused by the act or neglect of other tenants, occupants or janitors of said Building, or of any other persons, and whether such damage is caused or occasioned by anything or circumstances above-mentioned or referred to, or by any other thing or circumstance, whether of a like or of a wholly different nature, except where the same is caused by the willful or negligent actions of Landlord. If any such damage shall be caused by any act or neglect of Tenant, Landlord may, at its option, repair such damage, whether caused to the Building, or to tenants thereof, and Tenant shall thereupon reimburse Landlord for the total cost of such damage both to the Building and/or to the tenants thereof. Tenant further agrees that all personal property upon the Premises shall be at the sole risk of Tenant and that Landlord shall not be liable for any loss, injury or damage thereto or theft thereof. 29. Disposition of Fixtures on Surrender. On the last day of the Term ------------------------------------ hereby demised or on sooner termination thereof as provided in this Lease, Tenant will peaceably and quietly leave and surrender and deliver up to Landlord possession of the Premises together with all other improvements upon or belonging to the same, by whomsoever made, in good repair, order and condition except as otherwise expressly provided herein and Tenant shall surrender all keys for the Premises to Landlord at the place then fixed for the payment of rent, and shall inform Landlord of all combinations on locks, safes and vaults, if any, in the Premises; provided, however, that if there is no default on the part of Tenant at the termination of this Lease, Tenant may remove all trade fixtures and equipment installed by Tenant on the express condition that Tenant replaces and repairs all damage to said Premises caused by or resulting from the removal of said trade fixtures and equipment. If Tenant shall fail to remove all effects from said Premises upon termination of this Lease for any cause whatsoever, Landlord may, at its option, remove the same in any manner that Landlord shall choose, and store said effects without liability to Tenant for loss thereof, and Tenant agrees to pay Landlord on demand any and all expenses incurred in such removal, including court costs and attorney's fees and storage charges on such effects for any length of time the same shall be in Landlord's possession, or Landlord may, at its option, without notice, sell said effects, or any of the same, at private sale and without legal process, for such price as Landlord may obtain and apply the proceeds of such sale to payment of any amounts due under this Lease from Tenant to Landlord and for the expense incident to the removal and sale of said effects. 30. Holding Over. Except as is otherwise provided in paragraph (J)(5) of ------------ Section I. of this Lease, if Tenant holds over without the consent of Landlord, Landlord shall have the option to require Tenant to pay, for each day possession is withheld, an amount equal to double the amount of the daily rent computed on the thirty-day-month basis. Any holding over after the expiration of said Term, with the consent of Landlord, shall be construed to be a tenancy from month to month at the then current fair market rental for the Premises and shall otherwise be on the terms and conditions herein specified, so far as applicable. 31. Destruction of Premises. In the event of a partial or total ----------------------- destruction of the Premises from any cause whatsoever, Landlord shall promptly cause the same to be rebuilt or repaired unless, in Landlord's sole discretion, Landlord determines that it would be uneconomical or impossible to rebuild or repair the same, in which event this Lease shall terminate as of the date of such destruction upon written notice given by Landlord to Tenant of its intention not to rebuild or repair, such notice to be given within sixty (60) days from the date of such destruction. In the event of such termination, Tenant shall forthwith surrender the Premises and shall be relieved of all liability accruing after the date of termination, and Landlord shall have no further liability or obligation hereunder. If such destruction occurs and this Lease is not so terminated by Landlord, this Lease shall remain in full force and effect and Landlord and Tenant waive the provisions of any law to the contrary. Landlord's obligations under this paragraph 31 shall in no event exceed the condition of the Building on the date hereof. Tenant agrees that during any period of reconstruction or repair of the Premises and/or said Building, Tenant shall continue the operation of Tenant's business in the Premises to the extent reasonably practicable from the standpoint of good business. 32. Abatement of Rent. The monthly rent payable hereunder shall be abated ----------------- proportionately during any period in which, by reason of any damage or destruction of the Premises, there is substantial interference with the operation of the business of Tenant in the Premises, having regard to the extent to which Tenant may be required to discontinue its business in the Premises; provided, however, that the foregoing abatement shall not apply to any interference caused by dust, noise, vibration or other similar disturbance caused by the construction of other tenant improvements during the initial lease-up period of the Building and during any change in tenancy of any premises within the Building, nor to any stoppage or shortage of utilities or services. Such abatement shall continue for the period commencing with such destruction or damage and ending with the completion by Landlord of such work or repair and/or reconstruction as Landlord is obligated to do. 33. Nonwaiver. The acceptance of rent by Landlord shall not be deemed a --------- waiver by Landlord of any breach by Tenant of any term, covenant or condition herein contained, nor of Landlord's right to declare and enforce a forfeiture for any such breach, and failure of Landlord to insist upon strict performance of any term, covenant or condition herein shall not be construed as a waiver of any subsequent breach of the same nor of any other term, covenant or condition. The waiver by Landlord of any default or breach of any of the provisions, covenants or conditions hereof on the part of Tenant to be kept and performed shall not be a waiver of any preceding or subsequent breach of the same or any other provision, covenant or condition contained herein. 34. Default and Rights of Landlord on Default. This Lease is made upon ----------------------------------------- the condition that, (a) if Tenant shall fail to pay said rent or any part thereof or any other charges hereunder when due, whether the same shall or shall not have been legally demanded, or (b) if Tenant shall fail to observe or perform any of the other covenants herein contained and on Tenant's part to be observed and performed, and such default shall continue for twenty (20) days after written notice thereof has been given to Tenant, or (c) if Tenant shall become bankrupt or make an assignment for the benefit of creditors or abandon the Premises, or (d) if any mechanics' or materialmen's lien shall attach to the Premises or Landlord's or Tenant's estate or interest therein and such lien is not stayed or removed within fifteen (15) days after the same has attached, or (e) if this Lease or any estate or interest of Tenant hereunder shall be sold under any attachment or execution, Landlord may in any such event at once re- enter the Premises or any part thereof in the name of the whole and, upon or without such entry, at its option either continue this Lease in force or terminate this Lease. Landlord may expel and remove from the Premises Tenant and any persons claiming by, through or under Tenant and their effects without being deemed guilty of any trespass or becoming liable for any loss or damage occasioned thereby, all without service of notice or legal process and without prejudice to any other remedy or right of action, including summary possession, which Landlord may have for arrears of rent or for the same or any preceding or other breach of contract. No act by Landlord shall terminate this Lease other than a written notice that Landlord has elected to terminate this Lease. During the period Tenant is in default, Landlord may enter the Premises and relet them or any part of them to third parties for Tenant's account. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises, including, without limitation, brokers' commissions, attorneys' fees and like costs, and Tenant shall remain liable for any deficiency between the rents received by reason of such reletting and the rents due hereunder, which deficiency Tenant shall pay monthly as the same may accrue. If Landlord elects to cancel the Lease, Landlord shall have the right to recover from Tenant unpaid rent when due plus all damages resulting from Tenant's default, which damages shall include costs and attomeys' fees plus the amount by which the present worth of the rental for the balance of the Term exceeds the reasonable rental value of the Premises for the remainder of the Term, which sum shall be immediately payable to Landlord by Tenant. Following any default, if Landlord shall bring an action for summary possession, then Tenant hereby agrees to submit irrevocably to the jurisdiction of the District Court of the First Circuit of the State of Hawaii and said District Court shall have the exclusive jurisdiction to decide Landlord's action for summary possession. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. Any property removed by Landlord may be stored in any public warehouse or elsewhere at the cost and for the account of Tenant, and Landlord shall not be responsible for the care or safekeeping thereof, and Tenant hereby waives any and all claims for loss, destruction, damage or injury which may be occasioned by any of the aforesaid acts. Upon the occurrence of a default under this Lease, if the Premises or any part thereof are then sublet under a sublease to which Landlord has consented, Landlord, in addition to any other remedies provided in this Lease or provided by law, may at its option collect directly from such sublessee all rents becoming due to Tenant under such sublease and apply such rent against any sums due to Landlord from Tenant under this Lease, and no such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant's obligations under this Lease. 35. Interest on Past Due Amounts. Any amounts owing by Tenant to Landlord ---------------------------- under the terms of this Lease shall carry interest from the date the same become due until paid at the rate of one percent (1%) per month and said interest shall be considered as a part of the rental payable hereunder; provided, however, that nothing contained herein shall be construed as authorizing Tenant to make payments of all sums required hereunder in other than a timely fashion. 36. Late Charge. If any installment of rent due from Tenant is not ----------- received by Landlord when due, Tenant shall pay to Landlord an additional sum of five percent (5%) of the overdue rent as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, or prevent Landlord from exercising any of the rights and remedies available to Landlord. 37. Notice. In every case where under the provisions of this Lease it ------ shall be necessary or desirable for Landlord to give to or serve upon Tenant any notice or demand, it shall be sufficient either (i) to deliver or cause to be delivered to Tenant a written or printed copy of such notice or demand; or (ii) to send a written or printed copy of said notice or demand by mail, postage prepaid addressed to Tenant at the Premises; or (iii) to leave a written or printed copy of said notice or demand at the Premises, or to post the same upon the door leading into said Premises. All notices to be given to Landlord under this Lease shall be in writing and delivered in person or sent by registered or certified mail to Landlord at its offices at the address specified on the first page hereof, or to such other address as Landlord may designate in writing. 38. Waiver of Jury Trial. The parties hereto shall and they hereby do -------------------- waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, and/or any claim of injury or damage. 39. Definitions. As used herein the terms "Landlord" and "Tenant" shall ----------- include the respective parties and their heirs, legal and personal representatives, successors and assigns; the liability of Tenant, if more than one (1), shall be joint and several; pronouns wherever used herein should be construed to include the plural or singular or both; the use of any gender shall include all genders as the context may reasonably require; and each of the terms "or" and "and" has the meaning of the other or both where the subject matter, sense and connection require such construction. 40. Applicable Law. This Lease shall be governed and construed in -------------- accordance with the laws of the State of Hawaii. 41. Binding Effect. This Lease shall be binding upon and inure to the -------------- benefit of the parties hereto and their respective successors and permitted assigns. 42. Landlord's Consent. Whenever consent or approval of Landlord is ------------------ required by the terms of this Lease, requests for consent or approval must be made in writing. Tenant will reimburse Landlord for reasonable architects', engineers' and attorneys' fees and other expenses actually incurred by Landlord in connection with the giving of each and every consent or approval required under this Lease; provided, however, that Landlord may without further reason withhold approval of any alterations, additions and improvements if the plans and specifications therefor are not acceptable to the architect or engineer (if any) retained by Landlord to review the same; and provided, further, Landlord may, as a condition of giving any consent to an assignment of this Lease or any interest herein or to a sublease of all or part of the Premises, require, in addition to the payment required under subparagraph 23(b) of this Section III, personal and complete financial information, personal guaranties, or other information relevant to the transaction for which consent is being sought. The remedy for any claim based upon unreasonable or unlawful withholding of consent or approval shall be limited to appropriate injunctive or declaratory relief. Neither party shall be liable for damages resulting from unreasonable or unlawful withholding of consent or approval but the prevailing party in any lawsuit seeking such declaratory or injunctive relief shall be entitled to an award of reasonable attorneys' fees and court costs. 43. Excuse of Landlord's Performance. Anything in this Lease to the -------------------------------- contrary notwithstanding, providing such cause is not due to the willful act or gross neglect of Landlord, Landlord shall not be deemed in default with respect to the performance of any of the terms, covenants and conditions of this Lease if the same shall be due to any strike, lockout, civil commotion, war-like operation, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material, service or financing, through act of God or other cause beyond the control of Landlord. 44. Recordation. Tenant agrees that neither this Lease nor any memorandum ----------- hereof shall be recorded. 45. Time of Essence. Time and performance hereof are of the essence of --------------- this Lease. 46. Renewal. Landlord shall have no obligation to extend or renew this ------- Lease upon termination or to enter into another lease of the Premises with Tenant upon termination of this Lease. Upon termination of this Lease, Landlord may lease the Premises to whoever Landlord chooses for the operation therein of a business that is the same as or different from that operated by Tenant in the Premises. 47. Entire Agreement. The provisions of this Lease constitute, and are ---------------- intended to constitute, the entire agreement between Landlord and Tenant. No terms, conditions, warranties, promises or undertakings of any nature whatsoever, express or implied, exist between Landlord and Tenant except as herein expressly set forth. 48. Sale By Landlord. In the event of a sale or conveyance by Landlord ---------------- of the Building and the land of which the Premises are a part, the same shall operate to release Landlord from any future liability upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant, and in such event Tenant agrees to look solely to the successor in interest of Landlord in and to this Lease, and the successor in interest of Landlord shall have the right, in its sole discretion, to change the name of the Building at any time. Except as is otherwise provided in this paragraph 48, this Lease shall not be affected by any such sale, and Tenant agrees to attorn to the purchaser or assignee. 49. Joint and Several Obligations. In any case where this Lease is signed ----------------------------- by more than one (1) person, the obligations hereunder shall be joint and several. 50. Accord and Satisfaction. No payments by Tenant or receipt by Landlord ----------------------- of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided for in this Lease. 51. Rules and Regulations. Tenant shall comply with the rules and --------------------- regulations attached hereto as Exhibit "C" and made a part hereof for all purposes and with such other and further reasonable rules and regulations as Landlord may prescribe which, in Landlord's sole judgment, are required for the reputation, safety, care or cleanliness of the Building or the Premises, or the operations and maintenance thereof and the equipment therein, or for the comfort of Tenant and other tenants of the Building. On delivery of a copy of such amendments and additional rules and regulations to Tenant, Tenant shall thereafter comply with said rules and regulations, and a violation of any of said rules and regulations shall constitute a default by Tenant under this Lease. All such rules and regulations are of the essence hereof without which this Lease would not have been entered into by Landlord. 52. Location of Common Areas; Changes to Common Areas; Additional ------------------------------------------------------------- Facilities. Landlord shall have the right to make changes in the common areas - ---------- and any part thereof including, without limitation, changes in the location and relocation of driveways, entrances, exits, vehicular parking spaces, the direction of flow of traffic, the setting apart of prohibited areas, the exclusion of employee parking therefrom as Landlord may deem necessary and advisable for the proper and efficient operation and maintenance of the common areas, and in particular, the vehicular parking areas for the convenience of the suppliers, business invitees and customers of all tenants of the Building and removing areas from the common areas and improving the same for particular tenants. Notwithstanding the above, the foregoing is not intended to entitle Landlord to effect changes in the location of common areas which materially and adversely affect access to or visibility of the Premises, except temporarily during periods of construction. Landlord at all times during the Term shall have sole and exclusive jurisdiction and control of the common areas and each and every part thereof and may, at its option, at any time and from time to time exclude and restrain any person or persons from the use or occupancy thereof, excepting Tenant, its subtenants, licensees, concessionaires, suppliers, business invitees and customers. Nothing herein contained shall affect the right of Landlord at any time or from time to time to remove any unauthorized person or persons from said common areas or to restrain the use of any of said common areas by any unauthorized person or persons. Without limiting the generality of the foregoing, Landlord shall have the right to add additional parking, office and retail areas (the "Facilities") to the Building by constructing such Facilities on adjacent property owned by Landlord. Tenant agrees to accept the inconvenience of noise, dust and other disturbances from the construction of such Facilities; provided, however, that Landlord shall use reasonable efforts to minimize such inconvenience. 53. No Party Deemed Drafter. The parties agree that neither party shall ----------------------- be deemed to be the drafter of this Lease and in the event this Lease is ever construed by a court of law, such court shall not construe this Lease or any provision hereof against either party as the drafter of this Lease. END OF GENERAL CONDITIONS EXHIBIT "A" [Diagram Description: The office plan of Suite 920 of the 9th floor of The Commerce Tower at 1440 Kapiolani Boulevard, Honolulu, Hawaii.] EXHIBIT "A-1" [Diagram Description: Specifications to 2-Station Door-Answering Intercom.] EXHIBIT "B" TENANT'S CONSTRUCTION OBLIGATIONS Construction and Improvements by Tenant. This is a turn-key lease. --------------------------------------- However, in the event that Tenant should do any construction hereunder: A. General Obligations of Tenant: Tenant shall construct Tenant's ----------------------------- improvements in the Premises in compliance with paragraph 14 of Section III of the Lease and Section B of this Exhibit. Tenant shall also submit to Landlord a true copy of the construction contract(s) with Tenant's contractor(s) prior to the start of construction. B. General Provisions: Tenant shall secure Landlord's written approval of ------------------ all designs, plans, materials, methods of installation, specifications and contracts ("Plans") for any additional work to be performed by Tenant. Landlord shall approve or disapprove the Plans within five (5) days following its receipt thereof. Landlord shall not unreasonably withhold, delay or condition its approval of the Plans. Tenant's finish work and any additional work shall be subject to Landlord's approval and acceptance, and shall be approved and accepted if built substantially in accordance with plans or specifications therefor previously approved by Landlord. EXHIBIT "C" RULES AND REGULATIONS RULES AND REGULATIONS: These rules and regulations have been adopted for --------------------- the purpose of insuring order and safety on the Property and to maintain the rights of Tenant and Landlord. Landlord reserves the right to modify, supplement or rescind any of these rules for the safety, care and cleanliness of the Property and for the preservation of good order therein. Landlord may waive any one (1) or more of these rules and regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such rules and regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such rules and regulations against any or all of the tenants of the Property. Each tenant shall be liable for injury or damage caused by the infraction of any of these rules by it, its employees, agents or invitees, and Landlord may repair such damage, charging the cost of the same to such tenant, which amount shall be added to rent due for the ensuing month. These rules and regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, these terms, covenants, agreements and conditions of any lease of premises on the Property. In the event of any conflict between any term or provision of the Lease, the rules and regulations set forth below shall control. Access: Office areas will be open to the public from 7:00 a.m. to 6:00 ------ p.m. weekdays and 8:00 a.m. to 1:00 p.m. Saturdays. On Sundays, holidays and after regular open hours, access to the office areas without proper and acceptable identification may be refused. Closing Premises: Each tenant shall see that his demised Premises are ---------------- securely locked and will exercise caution to insure that all water faucets and powered equipment are shut off before tenant or tenant's employees leave the Property, so as to prevent waste or damage. Common Rooms: Rooms used in common by Tenant and Landlord, if any, shall ------------ be subject to regulations adopted by Landlord. Dedication - Prevention Of: Landlord reserves the right to close off any -------------------------- and all of the plazas, promenades and sidewalks of the Property for twenty-four (24) hours once every five (5) years to prevent dedication. Deliveries and Service Area: Only hand trucks equipped with rubber tires --------------------------- and sideguards will be permitted on the Property. All deliveries shall only be brought through the service entrance of the Property. All deliveries requiring exclusive use of an elevator shall be scheduled through the Management Office and in any event such use will not be permitted without the use of elevator protective padding and such use will not be permitted between the hours of 7:30 a.m.-8:30 a.m., 11:30 a.m.-1:30 p.m. and 3:30-5:00 p.m. Heavy Items: All carrying in or out of freight, packages or bulky matter ----------- of any description must take place only during hours selected by Landlord and then only with prior notice to and approval by Landlord. No object beyond the rated capacity of elevators shall be brought on the Property. Landlord shall have the right to prescribe the location of heavy objects and if considered necessary, the means to distribute the weight thereof (to no more than fifty (50) pounds per square foot unless written approval is granted by the Landlord). All costs incurred will be charged to Tenant. Any damage to the Property caused by any such tenant or its contractor, delivery or moving service, will be repaired at such tenant's expense. Any delivery made by UPS, Federal Express or any other similar overnight delivery service shall not be deemed to be delivery of a heavy item. Directories: The tenant directories are provided for displaying the name ----------- and location of each tenant. A charge will be made for the initial listing and for each name added to or other change to Tenant's name; provided, however, that such charge for the initial listing and for any change to Tenant's name shall not exceed $100 or $100 in any one occurrence. The initial listing and all such additions or changes will require Landlord's approval. Tenant shall provide Landlord with a written request for any additions or changes to the directory. Electrical Air-Conditioning Systems: No tenant shall alter the standard ----------------------------------- building lighting or air-conditioning system or install any special wiring or abnormal power consuming equipment without written approval of Landlord. If air- conditioning and/or power is used out of normal operating hours or there is abnormal consumption thereof, the tenant involved shall pay on demand a reasonable charge. The air-conditioning system will operate without additional charge to Tenant during regular open hours. After Hours Services: Air conditioning service is available for Tenant -------------------- after normal open hours. Landlord shall make an extraordinary charge for the after-hours services which shall be based on the rate schedule or energy agreement in effect for such services or on the actual premium cost of providing such services, including the cost of labor and fringe benefits for required operating personnel, electricity at the per kilowatt hour rate applicable to the Property, water and sewerage at the posted rate, supplies and materials, if any, and any other direct premium costs associated with providing such services in situations where no rate schedule has been set or energy agreement has been entered into. Janitorial Service: No one other than those approved in writing by ------------------ Landlord shall be permitted to perform any janitorial service on the Property. Janitorial service, if supplied by Landlord, shall not include shampooing or spotcleaning of carpets, cleaning of mini blinds, nor movement of furniture. Except in the event of Landlord's gross negligence, Landlord shall not be responsible for any loss of or damage to any tenant's property by the janitor, its employees or any other person performing janitorial services. Keys and Locks: No locks other than those provided by Landlord shall be -------------- placed on any doors without the written consent of the Landlord. Two (2) keys per lock will be furnished to Tenant by Landlord. Lock cylinders and keys shall be changed by Landlord at Tenant's expense upon receipt of written request from Tenant. All keys will be surrendered upon termination of Lease. Janitors and contract cleaners will be provided with a passkey to Tenant's premises unless Tenant declines in writing and thereby understands that Landlord will not be responsible for providing janitorial services and emergency access to that demised area. All requests for duplication of keys will be submitted to the building manager. Obstruction of Common Area: All common areas will be used only for ingress -------------------------- and egress to the demised premises. Landlord retains the right to control and prevent access onto the property by any and all persons other than those persons having a legal right to ingress and egress from the demised premises. Only persons authorized by Landlord will be permitted in areas housing mechanical, electrical or equipment of any kind, or the roof. Animals: No animals or pets are allowed on the Property or in the demised ------- premises at any time, except for Seeing Eye dogs. Bicycles, Mopeds and Motorcycles: Bicycles, mopeds and motorcycles are to -------------------------------- be parked only in those areas so designated within the parking garage structure. Removal of Property: Each tenant shall deliver a list of any fixtures or ------------------- improvements in the premises which the tenant desires to remove from the Property, and the list must be approved in writing by the Landlord before any such fixture or improvements is removed. Repairs/Alterations/Additions to Premises: Only contractors approved by ----------------------------------------- Landlord shall be permitted to carry out any repairs, alterations or additions within the Premises and/or on the Property. Maintenance Requests: The requirements of a tenant will be attended to -------------------- only upon application by such tenant to Landlord. Landlord's employees will not perform any work outside of regular duties unless under special instructions from the Landlord or its authorized agent. Window Displays: Tenant will not use any method or type of display or --------------- window advertising without Landlord's prior written approval which shall only be given if the proposals are considered by Landlord to be consistent with the character of the Property. Signs, Screens and Awnings: No notice or advertisement visible from the -------------------------- exterior of the Property or premises will be permitted without prior written approval of Landlord. All graphics, curtains, blinds, shades or screens visible from the exterior of the Property or any premises demised, where permitted, shall conform to the standards as specified by Landlord from time to time. In the event of the violation of this rule by any tenant, Landlord may remove same without any liability, and may charge the expense incurred thereby to the tenant involved. Holidays: The following holidays shall be observed by the Property. The -------- Property will be secured, a security officer will be on duty, and air conditioning and other services will not be provided on such days. New Year's Day Memorial Day Independence Day Labor Day Thanksgiving Day Christmas Day The above listed holidays may be changed from time to time and the designated holidays shall be based on the predominant practice in the business community as determined by Landlord. Solicitors: Landlord reserves the right to eject from the Property, any ---------- solicitors, canvassers or peddlers and any other class of persons who, in the judgment of Landlord, are annoying or interfering with any of Tenant's or Landlord's operations or who are otherwise undesirable. Canvassing, peddling, soliciting and distribution of any written materials on the Property are prohibited and each tenant shall cooperate to prevent the same. Trash: Each tenant shall store all its trash and garbage for removal by ----- janitors within the interior of its demised premises. No material, rubbish or debris shall be placed in trash boxes or receptacles if such materials are of such nature as to emit an offensive odor or be in violation of any law or ordinance governing disposal of same. All Tenant construction debris shall be removed from Premises and the Property by Tenant, its contractors or its employees. Use: No tenant shall at any time bring, allow or keep upon the Premises --- any flammable, combustible or explosive fluid, chemical or substance in such quantities as may endanger or imperil the demised premises or any other premises or the property or lives of other persons. Violations: Landlord shall not be responsible to any tenant for the non- ---------- observance or violation of any rules and regulations by any other tenant or other person. Tenant shall be deemed to have read these rules and regulations and to have agreed to abide by them as a condition to its occupancy of the space leased. Washrooms: The lavatory facilities and other water apparatus shall not be --------- used for any purpose other than that for which they were constructed. Water: Water will be supplied by the Landlord for drinking and toilet ----- purposes only Windows and Doors: No windows, glass doors or any other light sources that ----------------- reflect into the lobbies or other places of the Property shall be obstructed or covered except in a manner approved in writing by Landlord. END OF RULES AND REGULATIONS EXHIBIT "D" NONDISTURBANCE AND ATTORNMENT AGREEMENT --------------------------------------- THIS AGREEMENT made this 18th day of December, 1995, by and between THE BANK OF TOKYO, LTD., a Japan corporation, through its Ningyocho office, whose Honolulu agency address is at Suite 2110, Davies Pacific Center, 841 Bishop Street, Honolulu, Hawaii 96813 ("Mortgagee"), and TOSEI SHOZI CO., LTD., also known as TOSEI SHOJI CO., LTD., a Japan corporation, whose mailing address in the State of Hawaii is at 1440 Kapiolani Boulevard, Suite 1000, Honolulu, Hawaii 96814 ("Landlord"), and LEVI STRAUSS & CO., a Delaware corporation, whose principal place of business and post office address is at 1155 Battery Street, San Francisco, CA ("Tenant"); W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Mortgagee is the holder of (i) that certain Real Property First Mortgage, Security Agreement and Financing Statement, dated October 31, 1991, made by and between the Landlord, as mortgagor, in favor of the Mortgagee, as mortgagee, recorded in the Office of the Assistant Registrar of the Land Court of the State of Hawaii as Land Court Document No. 1889508, as amended by that certain Amendment to Real Property First Mortgage, Security Agreement and Financing Statement, dated September 16, 1994, made by and between the Landlord, as mortgagor, in favor of the Mortgagee, as mortgagee, recorded in said Office as Land Court Document No. 2211466, (ii) that certain Real Property Second Mortgage, Security Agreement and Financing Statement, dated October 21, 1992, made by and between the Landlord, as mortgagor, in favor of the Mortgagee, as mortgagee, recorded in said Office as Land Court Document No. 1965633, (iii) that certain Third Mortgage, Security Agreement and Financing Statement, dated April 4, 1995, made by and between the Landlord, as mortgagor, in favor of the Mortgagee, as mortgagee, recorded in said Office as Land Court Document No. 2229647, all of which mortgages, as amended, cover the property described in Exhibit "A" attached thereto, and all of which mortgages, as amended (collectively, the "Mortgage"), are noted oh Transfer Certificate of Title No. 276,853 (the "Property"); and WHEREAS, the landlord and the Tenant entered into an unrecorded office lease dated November 9, 1995 (the "Lease"), covering certain space within the Commerce Tower Building located on the Property; and WHEREAS, the Mortgagee and the Tenant have requested of and granted to each other the agreements hereinafter stated and desire to evidence said agreements in writing; NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto agree as follows: A. Nondisturbance and Attornment Agreement. So long as the Tenant is not --------------------------------------- in default under the Lease in the payment of rent or in the observance or performance of any of the terms, covenants or conditions of the Lease on the Tenant's part to be observed and performed: 1. The Tenant's possession of the leased premises and the Tenant's rights and privileges under the Lease, or any extensions or renewals thereof which may be effected in accordance with any option therefor in the Lease, shall not be diminished or interfered with by the Mortgagee, and the Tenant's occupancy of such premises shall not be disturbed by the Mortgagee for any reason whatsoever during the term of the Lease or any such extensions or renewals thereof; 2. The Mortgagee will not join the Tenant as a party defendant in any action or proceeding for the purpose of terminating the Landlord's interest and estate under the Lease because of any default under the Mortgage; 3. In the event of foreclosure of the Mortgage or conveyance of the mortgaged property in lieu of foreclosure, the mortgaged property shall be conveyed subject to the Lease and this Agreement, and the Tenant shall attorn to the purchaser of the mortgaged property at the foreclosure sale or to the transferee of the mortgaged property in lieu of foreclosure, as the case might be, whether such purchaser be the Mortgagee or a third party and the Tenant shall be obligated to such purchaser to perform all of the Tenant's obligations under the Lease, and the Tenant shall have no right to terminate the Lease by reason of the foreclosure of the Mortgage or conveyance in lieu of foreclosure, so long as the Tenant's peaceable and quiet use and possession of the leased premises shall not be disturbed by reason thereof. Such purchaser or transferee shall be bound to the Tenant under all of the terms, covenants and conditions of the Lease, and the Tenant shall, from and after such purchaser's or transferee's succession to the interest of the Landlord under the Lease, have the same remedies against such purchaser or transferee for the breach of any agreement contained in the Lease that the Tenant might have had under the Lease against the Landlord if such purchaser or transferee had not succeeded to the interest of the Landlord; PROVIDED, HOWEVER, that such purchaser or transferee shall not be (i) liable for any act or omission prior thereto of the Landlord or the Landlord's successors and assigns; (ii) subject to any offsets or defenses which the Tenant might have had against any prior landlord (including the Landlord); (iii) bound by any rental which the Tenant might have paid to the Landlord more than thirty (30) days in advance of its due date, except any prepayment in the nature of security for the performance by the Tenant of its obligations under the Lease; or (iv) bound by any amendment or modification of the Lease made without the Mortgagee's consent; 4. The Tenant will not, without the prior written consent of the Mortgagee, pay to the Landlord any rental under the Lease more than thirty (30) days in advance of its due date; 5. To the extent that the Lease or any law or regulation shall entitle the Tenant to notice of any mortgage, this Agreement shall constitute such notice to the Tenant with respect to the Mortgage and any and all other mortgages which may hereafter be affected by this Agreement; 6. The obligations of the Mortgagee under this Agreement will not extend to any subsequent modification of the Lease made without the prior written consent of the Mortgagee; 7. In the event of the termination of the Lease on account of the bankruptcy of the Landlord or other cause, then the Lease shall remain in full force and effect as a direct lease between the Mortgagee or such nominee and the Tenant; and the rights and obligations between the Mortgagee or such nominee and the Tenant shall otherwise be the same as if the Mortgagee or such nominee were the purchaser of the mortgaged property upon foreclosure sale in accordance with the preceding paragraph 3. The Tenant shall execute such further instruments as may be reasonably requested to ratify, reconfirm or otherwise evidence the continuance in effect of the Lease as a direct lease from the holder of the Lease. B. Amendment. This Agreement constitutes the full and complete --------- understanding between the parties with respect to the subject matter hereof and may be amended only by a writing signed by each of the parties hereto. C. Successors and Assigns. The agreements herein contained shall bind and ---------------------- inure to the benefit of the successors in interest and assigns of the parties hereto and, without limiting such, the agreement of the Mortgagee shall specifically be binding upon any purchaser of said property at a sale foreclosing the Mortgage. IN WITNESS WHEREOF, the parties hereto have caused the execution hereof as of the day and date first above written. LEVY STRAUSS & CO., a Delaware corporation By /s/ David Garrett ------------------------------------------ Its Director of Global Real Estate By ------------------------------------------ Its Tenant THE BANK OF TOKYO, LTD., a Japan corporation NINGYO CHO OFFICE By /s/ Nagao Yamashita ------------------------------------------ Its General Manager, Nagao Yamashita By ------------------------------------------ Its Mortgagee EXHIBIT "E" NAME:_____________________________ PHONE Business:____________________________ Home:____________________________ COMPANY NAME:_____________________ VEHICLE INFO-Make:_________________________ GATECARD INFO-Card #:_____________ Color:________________________ Deposit Amt:_____________ Lic #:________________________ MONTHLY CHARGE: $_________________ - ------------------------------------------------------------------------------- MONTH AMT PASS INITIALS MONTH AMT PASS INITIALS DATE PAID NO.___ DATE PAID NO.___ =============================================================================== - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EX-10.7 10 LEASE AGREEMENT DATED JANUARY 19, 1994 Exhibit 10.7 LEASE AGREEMENT BETWEEN AIRPORT CENTER ASSOCIATES LIMITED PARTNERSHIP, A CONNECTICUT LIMITED PARTNERSHIP, AS LESSOR, AND CHEAP TICKETS, INC., A HAWAII CORPORATION, AS LESSEE 6151 West Century Boulevard Suite 1200 Los Angeles, California 90045 LEASE AGREEMENT THIS LEASE AGREEMENT is made and entered into as of this 19th day of January, 1994, which date is for reference purposes only, by and between Lessor and Lessee hereinafter named. SUMMARY OF BASIC LEASE PROVISIONS - --------------------------------- The following is a summary of certain terms contained in this Lease, which terms are more fully set forth in subsequent Articles hereof. A. Lessor: Airport Center Associates Limited Partnership, a Connecticut Limited Partnership B. Lessee: Cheap Tickets, Inc., a Hawaii corporation C. Lease Term: One Hundred Twenty-Three (123) months D. Security Deposit: $8,972.30 E. Permitted Use: General Office F. Basic Rental: $8,972.30 per month G. CPI Adjustment: N/A H. Option to Re-Lease: One five (5) year option to re-lease I. Lessee Improvement and Moving Allowance: $250,900 J. Parking Spaces: Seventy-seven (77) unreserved and three (3) reserved parking spaces. DEFINITIONS - ----------- The following definitions and basic provisions shall be construed in conjunction with and limited by the references thereto in other provisions of this Lease: (a) "Office Premises": Suite No. 1200 in the building located at 6151 West Century Boulevard, Los Angeles, California 90045 (the "Building"), containing approximately 9,545 rentable square feet, such premises being shown and outlined on the plan attached hereto as Exhibit "A". The land upon which the Building is located (the "Property"), together with the Building and related facilities and appurtenances, shall hereinafter be collectively referred to as the "Project." "Storage Premises": That certain storage premises located in the basement of the Building containing approximately 1,000 square feet, the exact location of which shall be determined by Lessor. The Office Premises and Storage Premises are hereinafter collectively referred to as the "Demised Premises". (b) "Lease Term": A period of one hundred twenty-three (123) months commencing on the date which is two (2) months after the substantial completion of the Work (as defined in the Work Letter Agreement [the "Work Letter"] attached hereto as Exhibit "D") (the "Commencement Date"), as the same may thereafter be extended pursuant to the terms of this Lease. Upon the request of Lessor, Lessee agrees to (i) execute a certificate confirming the Commencement Date in the form of that attached hereto as Exhibit "D" and (ii) deliver same to Lessor within ten (10) days after Lessor's request. (c) "Basic Rental": A total monthly amount equal to the sum of (i) $100 for the Storage Premises), plus (ii) $8,972.30 (for the Office Premises) shall be payable to Lessor at the office of Leasor (or at such other place as Lessor may from time to time designate in writing), each such payment to be made in advance on the firat (1st) day of each month during the Lease Term. All rental payments shall be paid to the order of Lessor without notice, offset, reduction or abatement, subject to adjustment as set forth in this Lease. If the Lease Term shall commence upon a day other than the first day of a calendar month, the first (1st) month of the Lease Term shall be a fractional calendar month and the succeeding months of the Lease Term shall begin on the first (1st) day of each calendar month thereafter. In such event, Lessee shall pay, upon the Commencement Date, the fixed monthly rent described in the foregoing clause (c). At the commencement of the next month of the Lease Term in which Lessee is obligated to pay Basic Rental hereunder, Lessee shall pay the fixed monthly rent described in the aforementioned clause (c) prorated on a per diem basis with respect to the first fractional calendar month of the Lease Term. All rental payments thereafter will be for a full calendar month and will be in the amount as specified in clause (c) above. (d) Intentionally Omitted. (e) "Security Deposit": $3,959.20, which amount is currently being held by Lessor as a security deposit for Lessee's lease of that certain office space commonly known as "Suite 830", located at the 9841 Building (as defined in Article 36 below) pursuant to the terms of that certain Lease Agreement dated September, 1992, by and between Lessor and Lessee, shall continue to be retained. In addition, $5,013.10 shall be paid by Lessee to Lessor concurrently with Lessee's execution of this Lease as additional security for the faithful performance and observance by Lessee of all of the terms, covenants, conditions, provisions and agreements of this Lease. (f) "Parking Rights": Lessee shall be permitted, upon payment by Lessee of the then prevailing per car Parking Rental Rate (as the same may be fixed from time to time) within the parking structure of the Building, or upon the payment of such other rate as may be provided herein, to park in designated standard size passenger automobiles in seventy-seven (77) unreserved parking spaces and three (3) reserved parking spaces in the parking structure of the Building. (g) "Parking Rental Rate": A total monthly charge, applicable to all tenants in the Building having parking rights in the parking structure of the Building, equal to the per car parking rates established by Lessor for the particular type of parking space provided to Lessee within the parking structure. Lessor reserves the right to alter such Building "Parking Rental Rate" at its sole discretion, and in such event the "Parking Rental Rate", for purposes of this Lease, shall be such altered rate. Notwithstanding the foregoing, the per-car parking rates established for the first seventy-seven (77) unreaerved parking spaces and three (3) reserved parking spaces leased hereunder during the initial Lease Term shall be as follows: (i) $22 per unreserved parking space per month, and (ii) $70 per reserved parking space per month; provided, however, that all of the foregoing parking spaces shall be free of charge during the first five (5) months of the Lease Term. (h) "Common Areas": The term "common areas" as used in this Lease shall mean all areas and facilities around the Demised Premises and within the exterior boundaries of the Property which are provided and designated from time to time by Lessor for the general use and convenience of Lessee and other tenants of the Building and their respective employees and invitees. Common areas include, without limitation, the lobby area, walkways, parking facilities, landscaped areas, sidewalks, service quarters, hallways, restrooms (if not part of the Demised Premises), stairways, elevators (except elevators which may be reserved for the exclusive use of one or more tenants), walls, fire stairs, telephone and electric closets, aisles, truck docks, service areas, lobbies and all other common and service areas of the Property and Building or any other area of the Project intended for such use. Floors wholly occupied by Lessee shall not have any facilities which would be used in common with other tenants, except for fire stairs, shafts and similar installations. Lessee, its employees and invitees shall have the nonexclusive right to use the common areas along with others entitled to use same, subject to Lessor's rights and duties as hereinafter set forth. Without Lessee's consent and without liability to Lessee, Lessor shall have the right to do the following: (i) Establish and enforce reasonable rules and regulations concerning the maintenance, management, use and operation of the common areas; (ii) Temporarily close any of the common areas for maintenance, alteration or improvement purposes; (iii) Select, appoint and/or contract with any person for the purpose of operating and maintaining the common areas; and (iv) Change the size, use, shape or nature of any of the common areas Lessor shall use reasonable efforts to minimize any interference with Lessee's use of the Demised Premises and Lessor shall not materially restrain Lessee's access to the Demised Premises and the parking facilities resulting from Lessor's exercise of such rights. (i) "Option to Re-Lease": Provided at the time of the exercise of the option and at the time the option period is to commence no uncured default exists under this Lease, Lessee shall have the option to re-lease the Demised Premises for an additional sixty (60) months (the "Extended Lease Term") upon the same terms and conditions as are set forth in this Lease (other than the amount of Basic Rental) by giving Lessor written notice of such intention at least six (6) months prior to the expiration of the Lease Term. In the event Lessee exercises its option to re-lease the Demised Premises pursuant to this provision, Basic Rental for the Demised Premises during the Extended Lease Term shall be set annually, as of the beginning of the Extended Lease Term and on each anniversary thereof, at a rate equivalent to ninety-five percent (95%) of the Prevailing Rate, as defined below. Notwithstanding the foregoing, in no event shall Basic Rental payable in any year during the Extended Lease Term be less than the Basic Rental payable in the immediately preceding year. (j) "Prevailing Rate": The term "Prevailing Rate" shall mean the annual amount per square foot that a willing, comparable tenant would pay and a willing, comparable landlord of a substantially comparable first-class office building in the LAX Airport/Century Boulevard Office Market area would accept for a sixty (60) month lease term, at arm's length, considering any tenant concessions then being offered on comparable space to prospective new tenants. (i) Within thirty (30) days ("Outside Agreement Date") following the date exercises the Option to Re-Lease, Lessee and Lessor shall use their reasonable best efforts in good faith and with due diligence to agree upon the Prevailing Rate. If Lessor and Lessee are unable to so agree upon the Prevailing Rate by the Outside Agreement Date, then either party may elect to have the matter submitted to binding arbitration. Not later than fifteen (15) business days after either party has elected to proceed with arbitration, each party shall appoint an arbitrator, notify the other party of such appointment and the identity of the appointee. Each appointee shall have been active over the five (5) year period ending on the date of such appointment in the appraisals of first-class office buildings in Southern California. The decision of the arbitrators shall be limited solely to the issue of whether Lessor's or Lessee's submitted Prevailing Rate is closest to the actual Prevailing Rate determined by the arbitrators, taking into account the requirements provided above. (ii) Not later than fifteen (15) business days after each party has selected an arbitrator, the two selected arbitrators shall select a third arbitrator with the qualifications and restrictions stated in clause (i) above. If no arbitrator is selected within such (15) day period, either party may petition the Superior Court with appropriate jurisdiction to appoint such third arbitrator, with the qualifications and restrictions set forth in clause (i) above. The arbitration shall be conducted in Los Angeles, California, under the provisions of the commercial arbitration rules of the American Arbitration Association and Title 9 of Part 3 of the California Code of Civil Procedure, including, without limiting the generality of the foregoing, C.C.P. Section 1283.5, which is expressly made applicable to any arbitration hereunder. The judgment rendered on the award by the arbitrator(s) may be entered in any court having jurisdiction thereof. (iii) The three (3) selected arbitrators, after reviewing such relevant submissions as each of the parties hereto may make, shall within thirty (30) days of the appointment of the third arbitrator determine whether Lessor's or Lessee's estimate of the Prevailing Rate is closer to the Prevailing Rate determined by the arbitrators. The decision of the majority of the three arbitrators shall be binding upon Lessor and Lessee. If either Lessor or Lessee fails to appoint an arbitrator within fifteen (15) days after the Outside Agreement Date, the arbitrator timely appointed by one of them shall reach a decision, notify Lessor and Lessee thereof, and such decision shall be binding upon Lessor and Lessee. Each party shall be responsible for the costs, charges and fees of its respective appointee, and the parties shall share equally in the costs, charges and fees of the third arbitrator. GRANTING CLAUSE; STORAGE PREMISES - --------------------------------- (a) In consideration of the obligation of Lessee to pay rent as herein provided and in consideration of the other terms, covenants and conditions hereof, Lessor hereby demises and leases to Lessee, and Lessee hereby takes from Lessor, the Demised Premises to have and to hold the same for the Lease Term specified herein, all upon the terms and conditions set forth in this Lease. (b) Subject to any other terms and conditions of this Lease which relate to the Demised Premises and expressly conflict with this section, the following shall govern the use of the Storage Premises by Lessee and set forth Lessor's and Lessee's rights with respect thereto: (i) Lessee represents that it has inspected the Storage Premises or expressly waives its right to inspect and hereby accepts the Storage Premises "as is and with all faults". (ii) Lessor is to provide no services, including water, heat or air-conditioning, whatsoever with respect to the Storage Premises, except that Lessor shall provide lighting in the Storage Premises and the use of the freight elevator service. (iii) Lessee agrees that Lessee has sole knowledge of the items to be stored in the Storage Premises and agrees that Lessor has no responsibility for such items. Accordingly, Lessee agrees that Lessor shall not be responsible for keeping any records or inventory of the property stored in the Storage Premises and agrees that Lessee shall purchase and be responsible for payment of all insurance necessary to protect against risk of destruction or loss of the items stored in the Storage Premises. In addition Lessee agrees that it shall be solely responsible for and shall relieve and hereby holds Lessor harmless from all liability by reason of any damage or loss to person or property arising out of, related to or in connection with the Storage Premises, from any cause whatsoever except the negligence or willful misconduct of Lessor. Lessee shall be solely responsible for securing the Storage Premises by any reasonable means and Lessee shall provide a key to allow Lessor access in an emergency. SERVICES BY LESSOR - ------------------ Lessor agrees to furnish Lessee while occupying the Demised Premises the following services: (a) Hot and cold water at those points of supply provided for general use of tenantry. (b) Air conditioning, heat and electric current (for lighting and fractional horsepower machines only) during reasonable hours of generally recognized business days, as determined by Lessor in such quantity and of such quality as Lessor determines in its sole judgment is reasonably necessary for Lessee's comfortable use and enjoyment of the Office Premises. Lessee shall keep and cause to be kept closed all window coverings when necessary because of the sun's position, and Lessee shall also at all times cooperate fully with Lessor and abide by all regulations and requirements which Lessor may prescribe for the proper functioning and protection of the heating, ventilation and air conditioning systems. If any heat generating machine, excess lighting or equipment used in the Office Premises affects the temperature otherwise maintained by the air conditioning system, Lessor may install supplementary air conditioning units in the Office Premises, and the cost thereof (including, but not limited to, the cost of installation, separate utility metering, operation and maintenance thereof) shall be paid by Lessee to Lessor upon demand by Lessor. Notwithstanding the foregoing, (i) HVAC for the Office Premises will be provided during the following hours: (A) with the exception of generally recognized State and Federal holidays, from 8:00 a.m. to 6:00 p.m., Monday through Friday, and 9:00 a.m. to 1:00 p.m. on Saturday ("Business Hours"), and (B) on an after Business Hours basis upon request by Lessee; provided that Lessee shall be responsible for all costs incurred by Lessor in connection with providing HVAC to the Office Premises after Business Hours (without any administrative fee or profit increment to Lessor); and (ii) Lessee shall be responsible for all utility costs incurred in connection with the HVAC Unit (as defined in the Work Letter). (c) Elevator service in common with other tenants for ingress to and egress from the Demised Premises (provided that such service shall specifically include the use of one (1) passenger elevator). (d) Reasonable janitorial and cleaning services as may in the judgment of Lessor be reasonably required. (e) Electrical lighting for public areas and special service areas of the Building in the manner and to the extent deemed by Lessor to be standard. Failure to any extent to furnish, or any stoppage of, these defined services, resulting from causes beyond control of Lessor or from any cause, shall not render Lessor liable in any respect for damages to either person or property, nor be construed as an eviction of Lessee or work an abatement of rent, nor relieve Lessee from fulfillment of any covenant or agreement hereof. Should any equipment or machinery break down or for any cause cease to function properly, Lessor shall use reasonable diligence to repair same promptly, but Lessee shall have no claim for rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. This Lease is conditioned upon faithful performance by Lessee of the following agreements, covenants, rules and regulations, herein set out and agreed to by Lessee. PAYMENTS - -------- 1. Lessee shall pay all rents and sums provided to be paid by Lessee hereunder at the times and in the manner herein provided. The obligation of Lessee to pay Basic Rental is an independent covenant, and no act or circumstance, whether constituting a breach of covenant by Lessor or not, shall release Lessee of the obligation to pay rent. REPAIRS BY LESSEE - ----------------- 2. Lessee will, at Lessee's own cost and expense, keep the Demised Premises and all other improvements to the extent covered by this Lease in sound condition and good repair, and shall repair or replace any damage or injury done to the Building or any part thereof by Lessee or Lessee's agents, employees, invitees and visitors, and if Lessee fails to make such repair or replacements promptly, or within 15 days of occurrence, and to the satisfaction of Lessor, Lessor may at its option make such repair or replacement, and Lessee shall repay the cost thereof to Lessor on demand. Lessee waives all right to make repairs at the expense of Lessor, or to deduct the cost thereof from the rent. Lessee also waives any and all rights and benefits of Sections 1941 and 1942 of the Civil Code of California and any similar law, statute or ordinance now or hereafter in effect. It is hereby understood and agreed that Lessor has no obligation to alter, remodel, improve, repair, decorate or paint the Demised Premises or any part thereof, except as specified in Articles 9, 16 and 42 below, and that no representations relating to the condition of the Demised Premises or the Building have been made by Lessor (or any employee or agent thereof) to Lessee except as may be specifically set forth in this Lease. Lessee will not commit or allow any waste or damage to be committed on any portion of the Demised Premises, and shall at the termination of this Lease by lapse of time or otherwise, deliver up said premises to Lessor in as good condition as at date of possession, ordinary wear and tear excepted, and upon such termination of this Lease Lessor shall have the right to re-enter and resume possession of the Demised Premises. ASSIGNMENT OR SUBLETTING - ------------------------ 3. Lessee will not sell, mortgage, transfer, or assign this Lease, or allow same to be assigned by operation of law or otherwise, or sublet the Demised Premises, or any part thereof, or use or permit same to be used for any other purpose than stated in the use clause hereof without the written consent of Lessor, which such consent will not be unreasonably withheld. Notwithstanding the foregoing, in the event Lessee desires to assign or sublet the Demised Premises, Lessee shall provide Lessor with not less than one hundred twenty (120) days written notice of Lessee's request, specifying in detail any and all terms of such assignment or sublease. Lessee shall submit the following information with a written request for Lessor's consent to any assignment, sublease or other transfer: (i) all transfer and related documents, (ii) financial statements, (iii) business, credit and personal references and history, and (iv) such other information as Lessor may reasonably request relating to the proposed transfer and the parties involved therein. In determining whether to grant such consent, Lessor may consider various factors including, but not limited to, the following: (a) business criteria relating to the proposed transferee's background, experience, reputation, general operating ability and ability to perform Lease obligations, and potential for succeeding in its business, (b) financial criteria relating to the proposed transferee's financial responsibility, credit rating and capitalization, (c) the identity and personal characteristics of the proposed transferee and its invitees and guests, (d) the nature of the proposed use and business of the proposed transferee, including its consistency with Lessee's use of the Demised Premises hereunder, and (e) whether the proposed transferee or its business is subject to compliance with additional requirements of the law (including regulations) commonly known as the "Americans with Disabilities Act" beyond those requirements which are applicable to Lessee. Without limiting the generality of the foregoing, Lessor hereby reserves the right to condition any such consent upon Lessor's determination that (i) the proposed transferee is at least as financially and morally responsible as Lessee then is, or was upon the execution hereof, whichever is greater, and (ii) the proposed transferee shall use the Demised Premises in compliance with the terms of this Lease. Notwithstanding any provision in this Lease to the contrary, Lessee shall not enter into any proposed assignment, sublease or other transfer of any interest herein or in the Demised Premises which would result in (a) detraction from the character or image of the Building or diminution in the value thereof, (b) the Demised Premises being occupied by more than two (2) tenants, or (c) a breach by Lessor of any then-existing exclusive right in favor of any other tenant of the Building, any loan obligation or agreement, any covenants, conditions and restrictions of record, or any insurance policy. The discovery of the fact that any financial statement relied upon by Lessor in giving its consent to a sale, mortgage, transfer, assignment or subletting was materially false shall, at Lessor's election, render Lessor's said consent null and void. Lessor reserves the right to cancel and terminate this Lease within thirty (30) days upon receipt of the above notice from Lessee of its request to assign or sublet the Demised Premises (unless Lessee proposes a sublease of a portion of the Demised Premises, in which event Lessor may terminate this Lease as to such portion). Such termination shall be effective as of the proposed effective date of the proposed assignment or sublease. In the event Lessor consents to an assignment or sublease of the Demised Premises, which assignment or sublease results in rental payments in excess of the monthly payments due and owing under the terms of this Lease Agreement, such excess rental payments shall be deemed to be rental payments due and owing Lessor. Any sale, hypothecation, transfer, assignment or subletting which is not in compliance with the provisions of this Article shall be voidable by Lessor and shall, at the option of Lessor, constitute a default under this Lease. Lessor's acceptance of rent directly from any subtenant, assignee or other transferee shall not be construed as Lessor's approval or consent thereto nor Lessor's agreement to accept the attornment of any subtenant in the event of any termination of this Lease. In no event shall Lessor's consent to an assignment or subletting be construed as (i) relieving Lessee from the obligation to obtain Lessor's express written consent to any further assignment or subletting or (ii) releasing Lessee from any liability or obligation hereunder whether or not then accrued, and Lessee shall continue to be fully, jointly and severally liable hereunder. As a further condition to Lessor's consent to any subleasing, assignment or other transfer of part or all of Lessee's interest in the Demised Premises (i) Lessee shall be required to pay to Lessor as additional rent Lessor's costs incurred in connection with its review and/or execution thereof, including Lessor's reasonable attorney's fees and a minimum processing fee of Two Hundred Fifty Dollars ($250.00), (ii) any sublessee of part or all of Lessee's interest in the Demised Premises shall agree that in the event Lessor gives such sublessee notice that Lessee is in default under this Lease, such sublessee shall thereafter make all sublease or other payments directly to Lessor, which payments will be received by Lessor without any liability whether to honor the sublease or otherwise (except to credit such payments against sums due under this Lease), and such sublessee shall agree to attorn to Lessor, or its successors and assigns, at its request should this Lease be terminated for any reason, except that in no event shall Lessor or its successors or assigns be obligated to accept such attornment; and (iii) Lessor may require that Lessee not then be in default under this Lease in any respect. In the event that Lessee files any type of petition in bankruptcy or has same filed against it and Lessor does not elect to terminate this Lease or is deemed to have waived its right to terminate this Lease, and in the event that the trustee or receiver appointed by the bankruptcy court attempts to assume this Lease and thereupon assign it to a third party, the Lessor shall have the right to terminate this Lease within thirty (30) days upon gaining knowledge of such attempted assumption and assignment, or upon being given written notice of same by Lessee, whichever is later. In the event Lessor does not elect to terminate this Lease, all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Lessor, shall be and remain the exclusive property of Lessor and shall not constitute property of Lessee or of the estate of Lessee within the meaning of the Bankruptcy Code, 11 U.S.C. 101 et seq. (the "Bankruptcy Code"). Any and all monies or other consideration constituting Lessor's property under the preceding sentence not paid or delivered to Lessor shall be held in trust for the benefit of Lessor and shall be promptly paid to or turned over to Lessor. If Lessee proposes to assign this Lease pursuant to the provisions of the Bankruptcy Code to any person or entity who shall have made a bona fide offer to accept an assignment of this Lease on terms acceptable to Lessee, then notice of such proposed assignment setting forth (i) the name and address of such person, (ii) all of the terms and conditions of such offer, and (iii) the adequate assurance to be provided by Lessee to assure such person's future performance under the Lease including, without limitation, the assurance referred to in Section 365 of the Bankruptcy Code, or any such successor or substitute legislation or rule thereto, shall be given to Lessor by Lessee no later than twenty (20) days after receipt by Lessee, but in any event no later than ten (10) days prior to the date that Lessee shall make application to a court of competent jurisdiction for authority and approval to enter into such assignment and assumption. Lessor shall thereupon have the prior right and option, to be exercised by notice to Lessee given at any time prior to the effective date of such proposed assignment, to accept an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person, less any brokerage commissions which may be payable out of the consideration to be paid by such person for the assignment of this Lease. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall upon demand execute and deliver to Lessor an instrument confirming such assumption. If Lessee is a corporation, an unincorporated association or a partnership, any cumulative transfer, assignment or hypothecation of any stock or interest in such corporation, association or partnership greater than twenty- five percent (25%) thereof, or any cumulative transfer, assignment or hypothecation (other than in the ordinary course of business) of any assets of such corporation, association or partnership greater than twentyfive percent (25%) thereof, shall be deemed an assignment within the meaning and provisions of this Section and shall be subject to the provisions hereof; provided, however, that the foregoing shall not apply to corporations, fifty percent (50%) or more of the stock of which is traded through a national or regional exchange or over-the-counter. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS - ---------------------------------------- 4. Lessee will not make or allow to be made any alterations, additions, or improvements in or to the Demised Premises without the written consent of Lessor before performance; such consent will not be unreasonably withheld, but Lessor may impose, as a condition of such consent, such requirements as Lessor may deem reasonable, including, without limiting the generality of the foregoing, requirements as to the manner in which the time or times at which, and the contractor by whom such work shall be done. Such alterations, additions, or improvements when made to the Demised Premises by Lessee shall be surrendered to Lessor and become the property of Lessor upon termination in any manner of this Lease, but this clause shall not apply to movable non-attached fixtures or furniture of Lessee, provided, however, if prior to termination of this Lease, or within fifteen (15) days thereafter, Lessor so directs by written notice to Lessee, Lessee shall promptly remove such alterations, additions, or improvements, which were placed in or on the Demised Premises by Lessee and which are designated in such notice and shall repair any damage occasioned by such removal and in default thereof Lessor may effect said removals and repairs at Lessee's expense. All work with respect to alterations, additions, and improvements must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the improvements on the Demised Premises shall at all times be a complete unit except during the period of work. Any alterations, additions, or improvements desired by Lessee shall be in accordance with plans and specifications approved in advance by Lessor. Furthermore, any such alterations, additions, and improvements shall be performed and done strictly in accordance with the laws, regulations, codes ordinances and other governmental requirements relating thereto, and with the requirements of all carriers of insurance on the Demised Premises and the Board of Underwriters, Fire Rating Bureau, or similar organization. Lessee shall obtain at its sole cost and expense all required licenses and permits. In performing the work of any such alterations, additions or improvements, Lessee shall have the work performed in such a manner so as not to obstruct the access to the Building or any other tenant. Before commencing any such work or construction in or about the Demised Premises, Lessee shall notify Lessor in writing of the expected date of commencement thereof. Lessor shall have the right at any time and from time to time to post and maintain on the Demised Premises such notices as Lessor deems necessary to protect the Demised Premises and Lessor from the liens of mechanics, laborers, materialmen, suppliers or vendors. If any mechanic lien is filed against the Demised Premises or the real estate of which the Demised Premises form a part, which lien concerns the Lessee and/or the Demised Premises, Lessee shall cause same to be discharged within ten (10) days after the lien is filed by Lessee paying or bonding over said lien. Notwithstanding the foregoing, Lessor's approval of the plans, specifications and/or working drawings for Lessee's alterations, additions and/or improvements shall create no responsibility or liability on the part of Lessor for their completeness, design sufficiency or compliance with all laws, rules and regulations of governmental agencies or authorities. LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE; HAZARDOUS MATERIALS - ------------------------------------------------------------------- 5. (a) Violations of Insurance Coverage. Lessee will not occupy or use, nor permit any portion of the Demised Premises to be occupied or used for any business or purpose which is unlawful in part or in whole or deemed to be disreputable in any manner, or extra hazardous on account of fire, nor permit anything to be done which will in any way increase the rate of fire insurance on the Building or contents, and in the event that, by reason of acts of Lessee, there shall be any increase in rate of insurance on the Building or contents created by Lessee's acts or conduct of business, then Lessee hereby agrees to pay such increase. Lessee will not commit or suffer the commission of any waste in or about the Demised Premises. Nor will Lessee use or occupy the Demised Premises or permit the same to be used for any purpose whatsoever other than the Permitted Use defined herein. (b) Hazardous Materials. Lessee hereby represents, warrants and covenants that Lessee's business operations in the Demised Premises do not and will not involve the use, storage or generation of "Hazardous Materials" (as defined below). Lessee shall not cause or permit any Hazardous Material to be brought upon, stored, manufactured, generated, blended, handled, recycled, disposed of, used or released on, in, under or about the Demised Premises and/or Project by Lessee or its agents, employees, contractors, subcontractors, subtenants, assigns or invitees (collectively, "Lessee's Parties") and Lessee shall keep, operate and maintain the Demised Premises in compliance with all, and shall not permit the Demised Premises to be in violation of any, federal (including, but not limited to, the Comprehensive Environmental Response Claim and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq.), state or local environmental, health and/or safety related law, decision of any court of law, ordinance, rule, regulation, code, order, directive, guideline, permit or permit condition currently existing and as amended, enacted, issued or adopted in the future which is applicable to the Demised Premises (collectively, "Environmental Laws"). Without limiting in any way Lessee's obligations under any other provision of this Lease, Lessee and its successors and assigns shall indemnify, protect, defend and hold Lessor, its partners, officers, directors, shareholders, employees, agents, lenders, contractors and each of their respective successors and assigns (collectively, the "Indemnified Parties") harmless from any and all claims, judgments, damages, penalties, enforcement actions, taxes, fines, remedial actions, liabilities, losses, costs and expenses (including, without limitation, actual attorneys' fees, litigation, arbitration and administrative proceeding costs, expert and consultant fees and laboratory costs) including, without limitation, diminution in the value of the Project or any portion thereof, damages for the loss of the Project, damages arising from any adverse impact on the marketing of space in the Project, and sums paid in settlement of claims, which arise during or after the Lease Term in whole or in part as a result of the presence or suspected presence of any Hazardous Material, in, on, under or about the Demised Premises or the Project and/or other properties due to Lessee's or Lessee's Parties' activities, or failure to act, on or about the Project. Without limiting the foregoing, if any Hazardous Material is found in, on, under or about the Demised Premises or the Project at any time during or after the Lease Term, the presence of which was caused by Lessee and/or Lessee's Parties, Lessee shall, at its sole cost and expense, promptly take all actions as are necessary to return the Project to the condition existing prior to the introduction or release of such Hazardous Material in accordance with applicable Environmental Laws and Lessor's prior written approval. For purposes of this Lease, the term "Hazardous Material" means any chemical, substance, material, controlled substance, object, condition, waste or combination thereof which is or may be hazardous to human health or safety or to the environment due to its radioactivity, ignitability, corrosiveness, reactivity, explosiveness, toxicity, carcinogenicity, infectiousness or other harmful or potentially harmful properties or effects, including, without limitation, petroleum and petroleum products, asbestos, radon, polychlorinated biphenyls (PCBs) and all of those chemicals, substances, materials, controlled substances, objects, conditions, wastes or combinations thereof which are now or become in the future listed, defined or regulated in any manner by any Environmental Law based upon, directly or indirectly, such properties or effects. LAWS AND REGULATIONS - -------------------- 6. Lessee will maintain the Demised Premises in a clean and healthful condition and, at Lessee's expense, comply with all laws, ordinances, orders, directions, requirements, rules, and regulations (state, federal, county, municipal, and other agencies or bodies having any jurisdiction thereof) with reference to use, conditions, or occupancy of the Demised Premises. INDEMNITY, LIABILITY AND LOSS OR DAMAGE AND EXCULPATION - ------------------------------------------------------- 7. By moving into the Demised Premises or taking possession thereof, Lessee accepts the Demised Premises as suitable for the purposes for which the same are leased and accepts the Building and each and every appurtenance thereof, and Lessee by said acts waives any and all defects therein. Lessor shall not be liable to Lessee or Lessee's Parties for any injury to person, loss or damage to property, or for loss or damage to Lessee's business, occasioned by or through the acts or omissions of Lessor or any other person, or by any other cause whatsoever except Lessor's gross negligence or willful wrong to the extent Lessor is not prevented by law from contracting against such liability. Lessee and its successors and assigns shall indemnify Lessor and save it harmless from all suits, actions, damages, liability and expense in connection with loss of life, bodily or personal injury or property damage arising from or out of any occurrence in, upon, at or from the Demised Premises or the occupancy or use by Lessee of the Demised Premises or any part thereof, if occasioned wholly or in part by any action or omission of Lessee and/or Lessee's Parties. If Lessor shall without fault on its part, be made a party to any action commenced by or against Lessee, Lessee shall protect and hold Lessor harmless and shall pay all costs, expenses, and reasonable attorney's fees. The provisions of this Section shall survive the expiration or termination of this Lease with respect to any claims or liability arising from events occurring prior to such expiration or termination. If Lessor shall be an individual, joint venture, tenancy in common, co-partnership, limited partnership, unincorporated association, or other unincorporated aggregate of individuals and/or entities or a corporation, Lessee shall look only to such Lessor's estate and property in the Building (or the proceeds thereof) and, where expressly so provided in the Lease, to offset against the rents payable under the Lease, for the satisfaction of Lessee's remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Lessor in the event of any default by Lessor under the Lease, and no other property or assets of such Lessor or any partner, member, officer or director thereof, disclosed or undisclosed shall be subject to levy, execution or other enforcement procedure for the satisfaction of Lessee's remedies under or with respect to the Lease, the relationship of Lessor and Lessee hereunder or Lessee's use or occupancy of the Demised Premises. BUILDING RULES AND REGULATIONS - ------------------------------ 8. Lessee and Lessee's agents, employees, and invitees will comply fully with all requirements of the Building Rules and Regulations which are attached as Exhibit "B" and made a part hereof as though fully set out herein. Lessor shall at all times have the right to change such Rules and Regulations or to amend them in such reasonable manner as may be deemed advisable for safety, care and cleanliness of the Demised Premises and for the preservation of good order therein, all of which Rules and Regulations, changes and amendments, will be forwarded to Lessee in writing and shall be carried out and observed by Lessee. Lessor shall not be responsible for the nonobservance of, or noncompliance with, any of said rules and regulations by any other lessee or occupant of the Building. ENTRY FOR REPAIRS AND INSPECTION - -------------------------------- 9. Lessee will permit Lessor or owner, or their officers, agents, and representatives, the right to enter into and upon all parts of the Demised Premises, at all reasonable hours to post notices of non-responsibility, to inspect same or clean or make repairs or alterations or additions as Lessor may deem necessary, and Lessee shall not be entitled to any abatement or reduction of rent by reason thereof. In the event of an emergency, Lessee hereby grants to Lessor the right to enter the Demised Premises at any time. In addition, Lessee shall permit Lessor or Lessor's agent and any other person authorized by the same to enter the Demised Premises during the last six months of the Lease Term for the purpose of exhibiting the Demised Premises to prospective lessees. Lessee hereby waives any claim for damages for any injury or inconvenience to or interference with Lessee's business, any loss of occupancy or quiet enjoyment of the Demised Premises, and any other loss occasioned thereby, except to the extent arising from the gross negligence or willful misconduct of Lessor. Lessor shall also have the right at any time, without same constituting an actual or constructive eviction and without incurring any liability to Lessee therefor, to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets or other public parts of the Building, provided that Lessor shall use reasonable efforts to minimize any interference with Lessee's use of and access to the Demised Premises resulting from the foregoing. NUISANCE - -------- 10. Lessee will conduct its business, and control its agents, employees, invitees and visitors in such a manner as not to create any nuisance, interfere with, annoy, or disturb other tenants or Lessor in the management of the Building. EMINENT DOMAIN AND FORCE MAJEURE - -------------------------------- 11. (a) If the whole of the Demised Premises, or so much thereof as to render the balance thereof unusable by Lessee for the conduct of Lessee's business, is taken under power of eminent domain, or sold, transferred or conveyed in lieu thereof, this Lease shall automatically terminate as of the date of such condemnation, or as of the date possession is taken by the condemning authority, whichever is later. If any substantial part of the Building excluding the Demised Premises shall be taken or appropriated under the power of eminent domain or sold, transferred or conveyed in lieu thereof, Lessor may, by serving written notice upon Lessee within thirty (30) days thereafter, immediately terminate this Lease. No award for any partial or entire taking shall be apportioned and Lessee hereby releases any claim to and assigns to Lessor any award which may be made in such taking or condemnation, together with any and all rights of Lessee now or hereafter arising in or to the same or any part thereof, provided, however, that nothing contained herein shall be deemed to give Lessor any interest in, or to require Lessee to assign to Lessor, any award made to Lessee for Lessee's leasehold estate or for the taking of personal property and fixtures belonging to Lessee and removable by Lessee at the expiration of the term hereof as provided hereunder or for the interruption of, or damage to Lessee's business. In the event of a partial taking, or a sale, transfer or conveyance in lieu thereof, which does not result in an automatic termination of this Lease, pursuant to the foregoing, the rent shall be apportioned according to the ratio that the part of the Demised Premises remaining usable by Lessee bears to the total area of the Demised Premises. Notwithstanding anything to the contrary contained in this Article, if the temporary use or occupancy of any part of the Demised Premises shall be taken or appropriated under the power of eminent domain or sold, transferred or conveyed in lieu thereof during the term of this Lease, this Lease shall be and remain unaffected by such taking, appropriation or conveyance and Lessee shall continue to pay in full all rent payable hereunder by Lessee during the term of this Lease; in the event of any such temporary taking, appropriation or conveyance, Lessee shall be entitled to receive that portion of any award which represents compensation for loss of the use or occupancy of the Demised Premises during the term of this Lease, and Lessor shall be entitled to receive the balance of such award. To the extent that it is inconsistent with the above, each party hereto hereby waives the provisions of Section 1265.130 of the California Code of Civil Procedure allowing either party to petition a court to terminate this Lease in the event of a partial taking of the Demised Premises. (b) Lessor shall not be liable or responsible for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition or order of a government body or authority, or other matter beyond the control of Lessor or for any damage or inconvenience which may arise through repair or alteration of any part of the Building or failure to make any such repairs, or from any cause whatever, unless caused solely by Lessor's gross negligence. LIEN FOR RENT - ------------- 12. In consideration of mutual benefits arising by virtue of this Lease, Lessee does hereby mortgage unto Lessor all property of Lessee now or hereinafter placed in or upon the Demised Premises (except such part of Lessee's property or merchandise as may be exchanged, replaced or sold from time to time in the ordinary course of operations or trade, including airline tickets and the proceeds received by Lessee from the sale of such tickets), and such property is hereby subjected to a lien in favor or Lessor and shall be and remain subject to such lien of Lessor for payment of all rents and other sums agreed to be paid by Lessee herein. Said lien shall be in addition to and cumulative of the Lessor's lien provided by law. As additional security for Lessee's performance and satisfaction of each and every one of its duties and obligations under this Lease, Lessee does hereby assign and grant to Lessor a security interest under the California Commercial Code in and to Lessee's right, power and authority during the continuance of this Lease, to receive the rents, issues, profits or other payments received under any sublease or other transfer of part or all of Lessee's interest in the Demised Premises, reserving unto Lessee the right prior to any default hereunder to collect and retain said rents, issues and profits as they become due and payable, except that nothing contained herein shall be construed to alter the provisions of Article 3 above. Upon any such default, Lessor shall have the right at any time thereafter, without notice (except as may be provided for herein), either in person, by agent or receiver to be appointed by a court, to enter and take possession of the Demised Premises and collect such rents, issues, profits or other payments, including without limitation those past due and unpaid, and apply same, less costs and expenses of collection, including without limitation reasonable attorneys' fees upon any indebtedness secured hereby and in such order as Lessor may determine. ABANDONMENT - ----------- 13. If the Demised Premises are abandoned or vacated by Lessee, Lessor shall have the right, but not the obligation, to: (a) relet same for the remainder of the period covered hereby; and if the rent received through such reletting is not at least equal to the rent provided hereunder, Lessee shall pay and satisfy any deficiencies between the amount of rent called for and that received through reletting and all expenses incurred by any such reletting, including but not limited to the cost of renovating, altering and decorating for a new occupant, and/or (b) provide for the storage of any personal property remaining in the Demised Premises without liability of any kind or nature for the cost of storage or the return of the personal property to Lessee or take title to the abandoned personal property which title shall pass to Lessor under this lease as a Bill of Sale without additional payment or credit from Lessor to Lessee. Notwithstanding the foregoing, during the last ninety (90) days of the term of this Lease if Lessee removes a substantial portion of Lessee's property or Lessee has been in physical absence for ten (10) days it shall constitute a vacation and Lessor may enter the Demised Premises for purposes of renovating, altering and decorating the Demised Premises for occupancy at the end of the term by a new tenant without in any way affecting Lessee's obligation to pay rent and comply with all other terms and conditions of this Lease. HOLDING OVER - ------------ 14. In case of holding over by Lessee after expiration or termination of this Lease, Lessee will pay as monthly rental consideration for the entire holdover period two (2) times the Basic Rental payable in the last month of the Lease Term, and will pay all attorney's fees and expenses incurred by Lessor in enforcing its rights hereunder. No holding over by Lessee after the terms of this Lease, either with or without the consent and acquiescence of Lessor, shall operate to extend this Lease for a longer period than one month; and holding over with the consent of Lessor in writing shall thereafter constitute this contract a Lease from month to month. Furthermore, holding over shall cause any and all options and rights of first refusal or other preferential rights of Lessor to lapse and to be of no further force or effect. The foregoing provisions of this Article 14 are in addition to and do not affect Lessor's right of re-entry or any other rights of Lessor hereunder or as otherwise provided by law. ATTORNEY'S FEES - --------------- 15. In the event Lessee defaults in the performance of any of the terms, covenants, agreements or conditions contained in this Lease and Lessor places the enforcement of this Lease or any part hereof, or the collection of any rent due or to become due hereunder, or recovery of the possession of the Demised Premises, in the hands of an attorney, or files suit upon the same, Lessee agrees to pay Lessor reasonable attorney's fees, and payment of the same shall be secured in like manner as is herein provided as to all remedies which may be invoked by Lessor to secure payment of rent. DAMAGE OR DESTRUCTION - --------------------- 16. (a) In the event the Demised Premises or the Building are damaged by any peril, the following terms and conditions shall govern: (i) In the event of total destruction of the Building, this Lease shall automatically be terminated as of the date of such casualty. (ii) In the event of partial destruction of the Building, or of total or partial destruction of the Demised Premises, Lessor shall be responsible for repairing such damage and restoring the Building or the Demised Premises, to the extent of the insurance proceeds available therefor and except in the circumstances hereinafter provided, and this Lease shall not be affected but shall continue in full force and effect. If the Demised Premises or the Building are damaged and (a) the repair or restoration thereof, in Lessor's opinion, cannot be completed within one hundred twenty (120) days of commencement of repair or restoration (without payment of overtime or other premiums) using standard working methods and procedures; or (b) the repair or restoration is not covered by insurance, or the estimated cost thereof exceeds the insurance proceeds available for repair or restoration plus any amount which Lessee is obligated or elects to pay for such repair or restoration; or (c) the estimated cost of repair or restoration of the Demised Premises or Building exceeds fifty percent (50%) of the full replacement cost of the Building; or (d) the Building cannot be restored except in a substantially different structural or architectural form than existed before the damage and destruction; or (e) Lessor cannot obtain all of the necessary governmental approvals and permits to perform such repair and/or restoration at a reasonable cost and on reasonable conditions, Lessor shall have the option to either terminate this Lease or to repair or restore the Demised Premises or the Building. In the event that Lessor elects to terminate this Lease, Lessor shall give notice to Lessee within sixty (60) days after the occurrence of such damage, terminating this Lease as of the date of the damage. In the event such notice is given, this Lease shall expire and all interest of Lessee in the Demised Premises shall terminate on the date specified in the notice, and the rent shall be paid up to the date of termination. Lessor shall refund to Lessee the rent theretofore paid for any period of time subsequent to such date. If Lessor elects to continue the Lease and restore the Demised Premises, Lessor shall, within a reasonable time after the conclusion of said sixty (60) days after the occurrence of such damage, enter and make repairs to restore the Demised Premises to substantially the condition as existed prior to the date of such occurrence. (b) Upon any termination of this Lease under any of the provisions of this Article 16, the parties shall be released thereby, without further obligation to the other, from the date possession of the Demised Premises is surrendered to Lessor, except for items which have theretofore accrued and are then unpaid. (c) Unless the damage or destruction is caused by the negligence of Lessee, or its employees, agents, invitees or visitors, in the event Lessor repairs or restores as herein provided, the rental to be paid under this Lease shall be abated proportionately in the ratio which the Lessee's use of said Demised Premises has been impaired from the date of such partial destruction of the Building or of the Demised Premises until such portion of the Demised Premises is again usable. (d) In the event of partial destruction of the Demised Premises or the Building due to any cause other than a peril covered by available insurance, if Lessee is not obligated to, or does not elect to, pay for repair and restoration of same, Lessor may elect to terminate this Lease. (e) It is hereby acknowledged that if Lessor is obligated to, or elects to repair or restore as herein provided, Lessor shall be obligated to make repairs or restoration only to the structural portions of said Building and said Demised Premises and the repair and restoration of items such as paneling, decoration, railings, floor coverings, alterations, additions, fixtures or improvements installed on the Demised Premises by or at the request of Lessee shall be the obligation of Lessee. Lessee understands that Lessor will not carry insurance of any kind on Lessee's furniture, furnishings, fixtures, equipment or other personal property, that Lessor shall not be obligated to repair any damage thereto or replace the same, that Lessor shall not be required to repair any injury or damage by any cause, or to make any repairs or replacement of any property insured in the Demised Premises by Lessee, and that in the event of damage to the same the rental obligations of Lessee shall continue without abatement or reduction. (f) Notwithstanding anything to the contrary contained in this Article 16, Lessor shall not have any obligation whatsoever to repair or restore the Demised Premises when the damage resulting from any casualty covered under this Article 16 occurs during the last twelve (12) months of the term of this Lease; provided, however, that Lessor shall give Lessee notice of such intent within thirty (30) days of the occurrence of such casualty, whereupon this Lease shall terminate effective as of the date of such casualty and Lessor shall refund to Lessee the rent theretofore paid for any period of time subsequent to such date. (g) Following damage or destruction, the party responsible for repair and replacement of the damaged property shall forthwith repair and rebuild the damaged or destroyed property and shall diligently pursue such repair and rebuilding to completion. The completion of the repair of all such damages is subject to reasonable delays resulting from survey of such damage, obtaining plans and letting contracts for repairs, adjustment or insurance loss, strikes, labor difficulties, unavailability of material, or other causes beyond the control of the party obligated to make such repairs. (h) Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Demised Premises requires that the insurance proceeds from insurance held by Lessor be applied to such indebtedness, then Lessor shall have the right to deliver written notice to Lessee terminating this Lease. (i) The provisions contained in this Lease shall supersede any contrary laws now or hereafter in effect relating to damage or destruction, including California Civil Code Sections 1932 and 1933. (j) In the event Lessor elects to repair or restore the Demised Premises and/or the Building, and Lessee is unable to occupy the Demised Premises during the period of such repair or restoration work (the "Repair Period"), Lessor shall use its best efforts, at no cost to Lessor, to locate temporary premises within the general vicinity of the Building for Lessee to occupy during the Repair Period. INSURANCE - --------- 17. (a) Lessee's Insurance. From and after Tenant's occupancy of the Demised Premises, Lessee shall carry and maintain, at its own expense, the following types, amounts and forms of insurance: (1) Lessee agrees to carry a broad form comprehensive policy of public liability insurance covering the Demised Premises in an amount of not less than $2,000,000 combined single limit personal injury, broad form property damage, and contractual liability insurance with companies satisfactory to Lessor in the name of Lessee (with Lessor and, if requested by Lessor, any mortgagee, trust deed holder, ground Lessor or secured party with an interest in this Lease and/or the Building named as additional insureds in the policy or by endorsement). The amounts of such insurance required hereunder shall be subject to adjustment from time to time as requested by Lessor based upon Lessor's determination as to the amounts of such insurance generally required at such time for comparable tenants, premises and buildings in the general geographical location of the Building or as requested by any ground Lessor or lender with an interest in the Building or property on which the Building is situated. (2) Lessee shall carry and maintain a policy or policies of property insurance in the name of Lessee (with Lessor and, if requested by Lessor, any mortgagee, trust deed holder, ground Lessor or secured party with an interest in this Lease and/or the Building named as loss payee) covering Lessee's leasehold improvements and any property of Lessee at the Demised Premises and providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, special extended peril (all risk) and sprinkler leakage, in an amount equal to at least one hundred percent (100%) of the replacement cost thereof from time to time (including, without limitation, cost of debris removal) with an agreed amount endorsement. Any proceeds from such insurance shall be used for the repair or replacement of the property damaged or destroyed, unless this Lease is terminated pursuant to the provisions hereof. If the Demised Premises are not repaired or restored following damage or destruction, Lessor shall receive and retain any proceeds from such insurance allocable to Lessee's leasehold improvements. (3) Lessee shall carry and maintain a policy or policies of workers' compensation and employers' liability insurance in compliance with all applicable laws. (4) Lessee shall carry and maintain such other policies of insurance (including, without limitation, business interruption or rental income insurance) in connection with the Demised Premises as Lessor may from time to time require. All of the policies required to be obtained by Lessee pursuant to the provisions of this Article 17 shall be issued by companies (licensed to do business in California), and shall be in form and content, acceptable to Lessor. Without limiting the generality of the foregoing, any deductible amounts under said policies shall be subject to Lessor's approval. Each policy shall designate Lessor as an additional insured or loss payee, subject to the foregoing, and shall provide full coverage in the amounts set forth herein. Although named as an additional insured, Lessor shall be entitled to recover under said policies for any loss occasioned to it, its servants, agents and employees, by reason of the negligence of Lessee. Lessee shall, prior to delivery of the Demised Premises by Lessor to Lessee, provide Lessor with copies of and certificates for all insurance policies. All insurance policies shall provide that they may not be modified or cancelled until after thirty (30) days' written notice to Lessor and to any other additional insureds thereunder. Lessee shall, at least thirty (30) days prior to the expiration of any of such policies, furnish Lessor with a renewal or binder therefor. Lessee may carry insurance under a so-called "blanket" policy, provided that such policy provides that the amount of insurance required hereunder shall not be prejudiced by other losses covered thereby. All insurance policies carried by Lessee shall be primary with respect to, and non-contributory with, any other insurance available to Lessor. If Lessee fails to carry any insurance policy required hereunder or to furnish copies thereof and certificates therefor pursuant hereto, Lessor may, upon notice (unless such policy has lapsed), obtain such insurance, and Lessee shall reimburse Lessor for the costs thereof with the next monthly rental payments due hereunder. Lessee shall pay any increases in insurance premiums relating to the Building to the extent that any such increase is specified by the insurance carrier as being caused by Lessee's acts or omissions or use or occupancy of the Demised Premises. (b) Lessor's Insurance. Throughout the Lease Term, Lessor shall maintain insurance covering the Project and Lessor's ownership and operation thereof in such types and amounts as it deems necessary or desirable in its sole discretion, which may include, without limitation, liability, property damage and/or loss of rental income coverage. Such insurance shall be for the sole benefit of Lessor and under its sole control. TRANSFER OF LESSOR'S RIGHTS - --------------------------- 18. Lessor shall have the right to transfer and assign, in whole or in part, all and every feature of its rights and obligations hereunder and in the Building and property referred to herein. Such transfers or assignments may be either to a corporation, trust company, individual, or group of individuals, and howsoever made are to be in all ways respected and recognized by Lessee. If Lessor sells or transfers all or any portion of the Building including the Demised Premises, Lessor shall, upon consummation of such sale or transfer, be released from any liability relating to obligations or covenants thereafter to be performed or observed under this Lease, and in such event Lessee agrees to look solely to Lessor's successor-in-interest with respect to such liability. Lessor may transfer or credit any security deposit or prepaid rent to Lessor's successor-in-interest, and upon such transfer Lessor shall be discharged from any further liability therefor. DEFAULT CLAUSE - -------------- 19. In the event: (a) Lessee fails to pay any amount when and as same becomes payable in accordance with the provisions of this Lease; (b) Lessee fails to comply with any other term, provision, condition, or covenant of this Lease or any of the Rules and Regulations now or hereafter established for the government of the Building; (c) any petition is filed by or against Lessee under any section or chapter of the Bankruptcy Reform Act of 1978, as amended, or under any similar law or statute of the United States or of any state thereof; (d) Lessee becomes insolvent, admits in writing the inability to pay its debts as they become due or makes a transfer in fraud of creditors; (e) Lessee makes an assignment for benefit of creditors; (f) a receiver or trustee is appointed for Lessee or any of the assets of Lessee; or (g) Lessee fails to deliver to Lessor (i) any subordination agreement required pursuant to the terms of paragraph 32 below, or (ii) any estoppel certificate required pursuant to the terms of paragraph 29 below; (h) Lessee vacates all or a substantial portion of the Demised Premises; (i) Lessor discovers that any financial statement given to Lessor by any assignee of Lessee, or any successor in interest of Lessee, was materially false, then in any of such events Lessor shall have the option to terminate this Lease and/or do any one or more of the following without any notice or demand, in addition to and not in limitation of any other remedy permitted by law or by this Lease: (1) Take immediate possession of the Demised Premises, but if Lessee shall fail to vacate the Demised Premises, Lessor may, without notice and without prejudice to any other remedy Lessor may have, enter upon and take possession of the Demised Premises and expel or remove Lessee and its effects, without being liable to prosecution or any claim for damages therefor, and Lessee agrees to indemnify Lessor for all loss, damage, and expense, including reasonable attorney's fees, which Lessor may suffer by reason thereof. (2) Recover from Lessee the worth at the time of award of the sum of the following aggregate amounts: (a) the unpaid rent and charges equivalent to rent earned as of the date of termination of this Lease, (b) the amount by which the unpaid rent and charges equivalent to rent which would have been earned after the date of termination of this Lease until the time of the award exceeds the amount of such rental loss that Lessee proves could have been reasonably avoided, (c) the amount by which the unpaid rent for the balance of the term hereof after the time of the award exceeds the amount of such rental loss that Lessee proves could have been reasonably avoided, (d) all costs incurred by Lessor in retaking possession of the Demised Premises and restoring them to good order and condition, (e) all costs, including without limitation brokerage commissions, advertising costs, and restoration and remodeling costs, incurred by Lessor in reletting the Demised Premises, and (f) any other amount, including without limitation attorneys' fees, necessary to compensate Lessor for the detriment proximately caused by Lessee's failure to perform its obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom. The "time of award" as used herein shall be the date upon which the judgment in any action brought by Lessor against Lessee by reason of such default is entered or such earlier date as the court may determine. The "worth at the time of award" of the amounts referred to in subparagraphs (2)(a) and (2)(b) of this Article 19 shall be computed by allowing interest at the Interest Rate (as defined in Article 40 herein), but not less than the legal rate. The "worth at the time of award" of the amount referred to in subparagraph (2)(c) of this Article 19 shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%) per annum. Lessee agrees that such charges shall be recoverable by Lessor under California Code of Civil Procedure Section 1174(b) or any similar, successor or related provision of law. Lessee waives the provisions of California Code of Civil Procedure Section 1174(c) and California Civil Code Section 1951.7 or any similar, successor, or related provision of law providing for Lessee's right to satisfy any judgment in order to prevent a forfeiture of this Lease or requiring Lessor to deliver written notice to Lessee of any reletting of the Demised Premises. (3) To remove, at Lessee's sole risk, any and all personal property in the Demised Premises and place such in a public or private warehouse or elsewhere at the sole cost and expense and in the name of Lessee. Any such warehouser shall have all of the rights and remedies provided by law against Lessee as owner of such property. If Lessee shall not pay the cost of such storage within thirty (30) days following Lessor's demand, Lessor may, subject to the provisions of applicable law, sell any or all such property at a public or private sale in such manner and at such times and places as Lessor deems proper, without notice to or demand upon Lessee. Lessee waives all claims for damages caused by Lessor's removal, storage or sale of the property and shall indemnify and hold Lessor free and harmless from and against any and all loss, cost and damage, including without limitation court costs and attorneys' fees. Lessee hereby irrevocably appoints Lessor as Lessee's attorney-in-fact, coupled with an interest, with all rights and powers necessary to effectuate the provisions of this subparagraph. (4) Maintain Lessee's right to possession and bring an action or actions from time to time against Lessee, in any court of competent jurisdiction, for all rental and other sums due or becoming due under this Lease, including all damages and costs proximately caused thereby, notwithstanding Lessee's abandonment or vacation of the Demised Premises or other acts of Lessee, as permitted by Section 1951.4 of the California Civil Code or any successor, related or similar provision of law. Such remedy may be exercised by Lessor without prejudice to its right thereafter to terminate this Lease in accordance with the other provisions contained in this Article 19. (5) Cause a receiver to be appointed in any action against Lessee and to cause such receiver to take possession of the Demised Premises and to collect the rents derived therefrom. The foregoing shall not constitute an election by Lessor to terminate this Lease unless specific notice of such intent is given. (6) Relet the Demised Premises and receive the rent therefor, and in such event, Lessee shall pay Lessor the cost of renovating, repairing and altering the Demised Premises for a new tenant or tenants and any deficiency that may arise by reason of such reletting, on demand, at the address of Lessor specified herein or hereunder, provided, however, the failure or refusal of Lessor to relet the Demised Premises shall not release or affect Lessee's liability for rent or for damages and such rent and damages shall be paid by Lessee on the dates specified herein. (7) Lessor may, as agent of Lessee, do whatever Lessee is obligated to do by the provisions of this Lease and may enter the Demised Premises, by force if necessary, without being liable to prosecution or any claim for damages therefor, in order to accomplish this purpose. Lessee agrees to reimburse Lessor immediately upon demand for any expenses which Lessor may incur in thus effecting compliance with this Lease on behalf of Lessee, and Lessee further agrees that Lessor shall not be liable for any damages resulting to Lessee from such action, whether caused by the negligence of Lessor or otherwise. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided at law or in equity. To the extent permitted by law, Lessee waives all provisions of, and protection under, any decisions, statutes, rules, regulations and other laws of the State of California to the extent same are inconsistent and in conflict with specific terms and provisions hereof. CROSS-DEFAULTS - -------------- 20. In the event Lessee or Lessee's subsidiary or affiliate, shall have other leases for other premises in the Building, any default by Lessee under such other leases shall be deemed to be a default herein and Lessor shall be entitled to enforce all rights and remedies as provided for a default herein. BINDING EFFECT - -------------- 21. This Lease shall inure to the benefit of the successors and assigns of Lessor, and with the written consent of Lessor first had and obtained, but not otherwise, to the benefit of the heirs, executors and/or administrators, successors and assigns of Lessee. REMEDIES - -------- 22. No act or thing done by Lessor or its agents during the term hereof shall be deemed an acceptance of a surrender of the Demised Premises, and no agreement to accept a surrender of the Demised Premises shall be valid unless made in writing and signed by Lessor. The mention in this Lease of any particular remedy shall not preclude Lessor from any other remedy Lessor might have, either in law or in equity, nor shall the waiver of or redress for any violation of any covenant or condition in this Lease contained or any of the Rules and Regulations attached hereto or hereafter adopted by Lessor, prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Lessor of rent with knowledge of the breach of any covenant in this Lease contained shall not be deemed a waiver of such breach. The failure of Lessor to enforce any of the Rules and Regulations attached hereto, or hereafter adopted, against Lessee and/or any other tenant in the Building shall not be deemed a waiver. Waiver of said Rules of Regulations by Lessor shall be in writing and signed by Lessor. LEASE EFFECTIVE UPON EXECUTION - ------------------------------ 23. Delivery of this Lease, duly executed by Lessee, constitutes an offer to lease the Demised Premises as herein set forth, and under no circumstances shall such delivery be deemed to create an option or reservation to lease the Demised Premises for the benefit of Lessee. This Lease shall only become effective and binding upon execution hereof by Lessor and delivery of a signed copy to Lessee. QUIET POSSESSION - ---------------- 24. Lessor hereby covenants that Lessee, upon paying rent as herein reserved and performing all covenants and agreements herein contained on part of Lessee, shall and may peacefully and quietly have, hold and enjoy the Demised Premises. IMPROVEMENTS - ------------ 25. If any improvements are made with respect to the Demised Premises at the Lessee's expense or under any agreement with the Lessee whereby the Lessee is given an allowance or rent reduction in exchange for Lessor's agreement to install or allow to be installed lease improvements such as by way of example but not limitation, wall coverings, floor coverings or carpet, paneling, doors and hardware, any and all of such improvements shall become the property of the Lessor and shall in no event be removed by Lessee. 26. Intentionally Omitted. CONDITION OF PREMISES - --------------------- 27. Lessee acknowledges that neither Lessor nor any agent of Lessor have made any representation or warranty with respect to the Demised Premises or the Building or with respect to the suitability of either for the conduct of Lessee's business or profession. SURRENDER OF DEMISED PREMISES - ----------------------------- 28. Lessee shall, upon the expiration or sooner termination of the term hereof, surrender to Lessor the Demised Premises, and all repairs, changes, alterations, additions and improvements thereto, in good order, condition and repair, ordinary wear and tear excepted, clean and free of debris; provided, however, that Lessor may, upon the installation or performance of any of such changes, alterations, additions and improvements, require that Lessee remove same upon such expiration or termination, in which event Lessee shall so remove same at its sole cost and expense. Lessee shall, upon the expiration or sooner termination of the term hereof, and at Lessee's sole cost and expense, remove all movable furniture, equipment, signs and other personal property belonging to Lessee placed in the Demised Premises solely at Lessee's expense. Lessee shall immediately, at its sole cost and expense, repair any damage caused by the removal of any property. ESTOPPEL CERTIFICATE - -------------------- 29. Lessee shall at any time and from time to time, within ten (10) days after written notice from Lessor, execute, acknowledge and deliver to Lessor a statement in writing substantially in the form attached hereto as Exhibit "C" and hereby made a part hereof, certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect), the dates to which the rental and other charges, if any, are paid in advance and the amount of Lessee's security deposit, if any, and acknowledging that there are not, to Lessee's knowledge, any uncured defaults, on the part of Lessor hereunder, and that there are no events or conditions then in existence which, with the passage of time or notice or both, would constitute a default on the part of Lessor hereunder, or specifying such defaults, events or conditions, if any are claimed. It is expressly understood and agreed that any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the Building or the Project. Lessee's failure to deliver such statement within such time shall, at the option of Lessor, constitute a default under this Lease and, in any event, shall be conclusive upon Lessee that this Lease is in full force and effect without modification except as may be represented by Lessor in any such certificate prepared by Lessor and delivered to Lessee for execution. SIGNS - ----- 30. (a) Lessee will not place or suffer to be placed or maintained on any exterior door, wall or window of the Demised Premises any sign, awning or canopy, or advertising matter or other thing of any kind, and will not place or maintain any decoration, lettering or advertising matter on the glass of any window or door of the Demised Premises without first obtaining Lessor's prior written approval and consent in each instance. Lessee further agrees to maintain any such sign, awning, canopy, decoration, lettering, advertising matter or other thing as may be approved, in good condition at all times. (b) Subject to the written approval of Lessor and all governmental or regulatory agencies which may have jurisdiction over the Demised Premises, Lessee is hereby granted the right to illuminated eyebrow signage to be located on the first level parapet on the exterior of the easterly side of the southern corner of the Building, said signage to be approximately one and one-half (1-1/2) feet in height and six (6) feet in length (the exact dimensions to be further subject to the approval of Lessor's Building administrator). Lessor shall be solely responsible for all costs incurred in connection with the initial installation of said signage, provided that Lessee shall be solely responsible for all costs associated with maintaining, operating, lighting and otherwise repairing said signage. At the expiration or earlier termination of this Lease, Lessee shall remove said signage, at its sole cost and expense, and repair any damage to the Building or otherwise caused by said removal. All costs incurred by Lessor in connection with the installation of said signage shall reduce the remaining Allowance (as defined in the Work Letter). PERSONAL PROPERTY TAXES - ----------------------- 31. With respect to Lessee's fixtures, furnishings, equipment and all other personal property located in the Demised Premises, Lessee shall pay prior to delinquency all taxes, license fees and other charges assessed against or levied upon such property and when possible shall cause the same to be assessed and billed separately from the property of Lessor, but if same shall be assessed and taxed with the property of Lessor, Lessee shall pay to Lessor its share of such taxes within ten (10) days after Lessor's delivery to Lessee of a statement in writing setting forth the amount of such taxes applicable to Lessee's property. In addition Lessee shall pay promptly when due all taxes imposed upon Lessee's rents, gross receipts, charges and business operations. SUBORDINATION - ------------- 32. Lessee hereby subordinates this Lease and all rights of Lessee hereunder to any mortgage or mortgages, ground lease or vendor's lien, or similar instruments which now are or which may from time to time be placed upon the Demised Premises covered by this Lease, and such mortgage or mortgages, ground lease or liens or other instruments shall be superior to and prior to this Lease. Notwithstanding the foregoing, Lessor shall have the right to subordinate or cause to be subordinated any such mortgage or mortgages, ground lease or vendor's lien to this Lease. Lessee further covenants and agrees that if the mortgagee or other lien holder acquired the Demised Premises as a purchaser at any such foreclosure sale (any such mortgagee or other lienholder or purchaser at the foreclosure sale being each hereinafter referred to as the "Purchaser at Foreclosure"), Lessee shall thereafter, but only at the option of the Purchaser at Foreclosure, as evidenced by the written notice of its election given to Lessee within a reasonable time thereafter, remain bound by novation or otherwise to the same effect as if a new and identical Lease between the Purchaser at Foreclosure, as Lessor, and Lessee, as tenant, had been entered into for the remainder of the term of the Lease in effect at the institution of the foreclosure proceedings. Lessee agrees to execute any instrument or instruments which may be deemed necessary or desirable further to effect the subordination of this Lease to each such mortgage, lien or instrument or to confirm any election to continue the Lease in effect in the event of foreclosure, as above provided. Lessee hereby irrevocably appoints Lessor as its special attorney-in-fact to execute and deliver any document or documents provided for herein for and in the name of Lessee. Such power, being coupled with an interest, is irrevocable. If, in connection with the obtainment of financing for the Building, the lender requests reasonable modifications hereto as a condition to the furnishing of such financing, Lessee shall not unreasonably withhold or delay its consent thereto, provided that such modifications do not materially increase the obligations of Lessee hereunder or materially adversely affect Lessee's rights hereunder. SEVERABILITY CLAUSE - ------------------- 33. If any clause or provision of this Lease is illegal, invalid, or unenforceable under present or future laws effective during the term of this Lease, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision that is illegal, invalid or unenforceable, there be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable; provided, however, that if in Lessor's reasonable judgment the invalidation or voiding of any such provision or provisions would materially frustrate the reasonable expectations of the parties hereto in entering into this Lease, then Lessor may terminate this Lease and release Lessee from prospective liability hereunder upon sixty (60) days' advance written notice. The caption of each paragraph hereof is added as a matter of convenience only and shall be considered to be of no effect in the construction of any provision or provisions of this Lease. SECURITY DEPOSIT - ---------------- 34. The Security Deposit shall be increased proportionally (a) upon determination of the rentable area of the Demised Premises, to correspond to any resultant increase in the initial Basic Rental amount, and (b) from time to time thereafter to correspond to any increases in Basic Rental. Upon the occurrence of any event of default by Lessee, Lessor may, from time to time, without prejudice to any other remedy use the Security Deposit paid to Lessor by Lessee as herein provided to the extent necessary to make good any arrears of rent and any other damage, injury, expense or liability caused to Lessor by such event of default. If any portion of said deposit is so used or applied, Lessee shall, within five (5) days after written demand therefor, deposit cash with Lessor in an amount sufficient to restore the Security Deposit to its original amount. Lessor shall not be required to keep the Security Deposit separate from its general funds and Lessee shall not be entitled to interest on the Security Deposit. Lessee shall not grant anyone a security interest of any kind in such Security Deposit and no such security agreement shall be binding on Lessor. If Lessee shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit, or any balance thereof remaining, shall be returned to Lessee at the expiration of the Lease Term and upon Lessee's vacation of the Demised Premises. Such Security Deposit shall not be considered an advance payment of rental or a measure of Lessor's damage in case of default by Lessee. In the event Lessor should have good cause to doubt the full and faithful performance of every provision of this Lease by Lessee, Lessor shall have the right to demand that Lessee post an additional Security Deposit in an amount to be reasonably determined by Lessor. Upon the showing by Lessee that this full and faithful performance is no longer in doubt, the additional Security Deposit shall be returned to Lessee. WAIVER OF SUBROGATION - --------------------- 35. Lessee hereby waives all right of subrogation by any insurance company issuing policies carried by Lessee with respect to the Demised Premises, Lessee's fixtures, personal property, or leasehold improvements, or Lessee's business. ADJUSTMENT OF RENTAL - -------------------- 36. (a) Operating Expenses: (1) The term "Operating Expenses" shall mean all costs of management, operation, security and maintenance of the Project, all accrued and based on a calendar year period, as determined by generally accepted accounting principles, including by way of illustration but not limitation, the following costs and expenses: (A) All costs and expenses of utilities furnished to the Building and/or the Project including, without limitation, all costs and expenses attributable to supply of electrical service, water and sewage service, natural gas, cable television or other electronic or microwave signal reception, telephone service or other communication, steam, heat, cooling, or any other service which is now or in the future considered a utility furnished to the Building and/or the Project; (B) All costs and expenses for insurance obtained by Lessor, labor and supplies, license, permit and inspection fees, all assessments and special assessments due to deed restrictions, declarations and/or owners associations which accrue against the Project, the cost of compensation (including contributions and premiums towards fringe benefits, unemployment, disability and worker's compensation insurance, as well as employment taxes and similar governmental charges) with respect to all persons who perform duties in connection with management, landscaping (including, without limitation, irrigating, trimming, mowing, fertilizing, seeding and replacing plants), janitorial, painting, window washing and general cleaning services, garbage and refuse removal, security services, and any other services related to the operation, maintenance or repair of the Project (as well as the cost of all personal property equipment used in conjunction therewith), costs of clean-up and removal of Hazardous Materials and any fines and penalties imposed by reason of the existence of Hazardous Materials on, in or about the Project, the fair market rental value of the Project management office, management fees, legal services and accounting expenses; and (C) All costs and expenses for (i) audit fees and accounting services incurred in the preparation of statements referred to in this Lease and financial statements, and in the computation of the rents and charges payable by tenants of the Project, and (ii) the improvements, repairs or replacements to the Project or the equipment or machinery used in connection with the Project; including, but not limited to, all costs and expenses, and a reasonable allowance for depreciation (or amortization), related to (x) items intended to result in costs savings, (y) common area interior floor and wall coverings and resurfacing and common area window treatments, and (z) Required Alterations (as defined below). For purposes of the immediately preceding sentence, "Required Alterations" shall mean any changes, alterations or improvements to the common or the Building or any other portion of the Project (including, but not limited to, electrical, mechanical or other systems or components) which Lessor is required to make pursuant to any applicable rule, regulation or law. Notwithstanding the foregoing, (I) any such capital costs which are properly charged to a capital account shall not be included in Operating Expenses in a single year but shall instead be amortized over their useful lives, as determined by Lessor (in its reasonable discretion), and only the annual amortization amount shall be included in the Operating Expenses for a particular year, and (II) any costs related to Required Alterations shall be fully included in Operating Costs in the year in which such charges accrue, or in such year as Lessor pays such charges, as Lessor shall elect. (2) It is agreed that the Basic Rental provided for herein includes Lessee's share of Operating Expenses. If the amount of such Operating Expenses for the Project exceed, in any calendar year after 1994, the amount of Operating Expenses for the Calendar Year 1994 ("Base Year Operating Expenses"), Lessee shall pay its share of the excess in the same manner and with the same intent as stated throughout Article 36. It is further agreed that if the actual Operating Expenses for the Project for any calendar year after 1994 exceed the estimated Operating Expenses for the Project for such year, as set forth in Article 36(a)(4) below, Lessee shall pay Lessor without reduction or setoff, within ten (10) days of billing, Lessee's share of such excess as additional rental. (3) If the amount of actual Operating Expenses for the Project for the immediately preceding year is less than the estimated Operating Expenses for such year, Lessor shall credit Lessee with Lessee's share of such amount and shall reimburse Lessee by deducting, monthly, from its estimated payments for the current year, one-twelfth (1/12) of such share. (4) It is further agreed and understood that approximately January 1st of each calendar year or as soon thereafter as the information can be obtained, Lessor shall estimate the Operating Expenses for the current calendar year. Lessor shall notify Lessee of such calculations and effective each January 1st, during the Lease Term and on the first (1st) day of each of the succeeding eleven (11) months of each calendar year, Lessee shall pay Lessor one-twelfth (1/12) of its share of the estimated Operating Expenses for the current year. (b) Taxes: It is agreed that the Basic Rental provided for herein includes the Lessee's share of all "Real Property Taxes". "Real Property Taxes." "Real Property Taxes" shall include (i) any form of tax or assessment, license fee, license tax, tax or excise on rent or any other levy, charge, expense or imposition made or required by any federal, state, county, city, district or other political subdivision on any interest of Lessor and/or Lessee in the Demised Premises, the Building, or the remainder of the Project, including without limitation, the underlying real property and appurtenances and any tax, fee or assessment charged in lieu thereof; (ii) any fee for services charged by any governmental agency or quasigovernmental agency for any services such as fire protection, street, sidewalk and road maintenance, refuse collection, school systems or other services provided or formerly provided to property owners and residents within the general area of the Project at no cost or minimal cost; (iii) any governmental impositions allocable to or measured by the area of the Demised Premises or the amount of any rent payable under this Lease, including, without limitation, any tax on gross receipts or any excise tax or other charges levied by any federal, state, county, city, district or other governmental agency or political subdivision with respect to rent or upon or with respect to the possession, leasing, operation, maintenance, alteration, repair, use or occupancy of the Demised Premises or any portion thereof; (iv) any impositions by any governmental agency on this Lease transaction or charge with respect to any document to which Lessee is a party creating or transferring an interest or an estate in the Demised Premises; and (v) any increase in any of the foregoing based upon construction of improvements on the Project or changes in ownership (as defined in the California Revenue and Taxation Code) of the Property. Real Property Taxes shall not include taxes on Lessor's net income including state franchise taxes or any inheritance, estate or gift taxes. If the amount of Real Property Taxes exceed, in any calendar year after 1994, the amount of Real Property Taxes for the calendar year 1994 ("Base Year Tax Costs"), Lessee shall pay its share of the excess in the same manner and with the same intent as stated throughout Article 36. (c) Lessee's share of the Operating Expenses and Real Property Taxes ("Lessee's Proportionate Share") is 4.223%, which percentage is a reasonable approximation of the percentage that the rentable square footage of the Demised Premises bears to the total rentable square footage in the Building. Operating Expenses and Taxes shall be computed separately. (d) If the average occupancy of the Building in any calendar year is less than ninety percent (90%), then the Operating Expenses and Taxes for such year, including the base year, shall be adjusted to reflect the amounts which would have been payable if the occupancy of the Building had been at an average of ninety percent (90%). (e) It is further agreed that the provisions of Article 36 shall survive the termination of this Lease and be applicable to such portion of the calendar year as this Lease was in effect. (f) In no event shall any provision of this Article 36 result in any reduction in the Basic Rental. NET WORTH - --------- 37. Lessee shall maintain at all times a net worth in excess of that at the signing of this Lease. If at any time Lessee's net worth should not exceed that amount, Lessee shall notify Lessor of this fact in writing. DEFAULTS BY LESSEE ON THIRD PARTY AGREEMENT - ------------------------------------------- 38. Lessee shall not default on any of its covenants under any loan agreements, with any lending, mortgage or financial institution. Nor shall Lessee default on any loan or financial agreements with any third party wherein there is an outstanding balance owed by Lessee. Lessee immediately shall advise Lessor in writing if any such default by Lessee should occur. SALE OF ASSETS - -------------- 39. Lessee shall not transfer any portion of his assets outside the ordinary course of his business so that the effect causes Lessee to default under Article 37 of this Lease. INTEREST AND LATE CHARGES AND IMPOUNDS - -------------------------------------- 40. Any amount not paid by Lessee to Lessor when due hereunder shall bear interest at a rate (the "Interest Rate") equal to the lesser of (a) the rate per annum announced from time to time by Citicorp, N.A. as its prime rate (or, if such bank fails to announce such a rate, then the prime rate announced by The Chase Manhattan Bank, N.A.) plus four (4) percentage points, or (b) the maximum rate permitted by law, from the due date until paid, unless otherwise specifically provided herein, but the payment of such interest shall not excuse or cure any such failure by Lessee under this Lease. In addition to such interest, if any amount is not paid within five (5) days after same is due, a late charge equal to ten percent (10%) of such amount shall be assessed, which late charge Lessee hereby agrees is a reasonable estimate of the damages Lessor shall suffer as a result of Lessee's late payment, which damages include Lessor's additional administrative and other costs associated with such late payment. The parties agree that it would be impracticable and extremely difficult to fix Lessor's actual damages in such event. Such interest and late charges are separate and cumulative and are in addition to and shall not diminish or represent a substitute for any or all of Lessor's rights or remedies under any other provision of this Lease. If a late charge is payable hereunder, whether or not collected, for any three (3) installments of Basic Rental during any twelve (12) month period or any other monthly obligation of Lessee, then Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the monthly rent, as estimated by Lessor, for real property tax and insurance expenses on the Demised Premises which are payable by Lessee under the terms of this Lease. The fund above shall be established to insure payment when due, before delinquency, of any or all such real property taxes and insurance premiums. If the amounts paid to Lessor by Lessee under the provisions of this paragraph are insufficient to discharge the obligations of Lessee to pay such real property taxes and insurance premiums as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of the Lessor, be applied to the payment of real property tax and insurance premiums. RELOCATION OF LESSEE - -------------------- 41. In the event Lessor reasonably determines it is necessary in order to accommodate a tenant in the Building occupying at least 30,000 rentable square feet, Lessor shall have sole right, at Lessor's expense, to relocate Lessee to comparable, reasonably similar space in the Building (provided in no event shall such space be on a floor lower than the eighth (8th) floor of the Building) upon giving Lessee ninety (90) days prior written notice, and this Lease shall be deemed modified so as to eliminate the Demised Premises hereby leased and to substitute therefor such other premises (and the rentable and usable areas thereof). In such event, in all other respects, this Lease shall remain in full force and effect according to its terms. In connection with the foregoing, Lessor shall pay for all reasonable expenses incurred by Lessee in connection with Lessee's relocation to other office space in the Building. LESSEE IMPROVEMENTS - ------------------- 42. (a) Lessor shall cause the performance of the Work in the Office Premises pursuant to the terms of the Work Letter. (b) Lessor and Lessee shall mutually agree upon the general contractor and subcontractors to perform the Work, provided that in the event of a good faith disagreement as to the selection of said contractor and subcontractors (which cannot be resolved within ten (10) days after either party notifies the other of its disagreement with the other party's proposed selection(s)), Lessor's selection shall be final and conclusive. INABILITY TO PERFORM - -------------------- 43. This Lease and the obligations of Lessee hereunder shall not be affected or impaired because Lessor is unable to fulfill any of its obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of strike or other labor troubles, or act of God, or any other cause beyond the control of Lessor. PARKING - ------- 44. Subject to applicable rules and regulations, Lessee shall have parking rights hereunder with respect to such number of its employees' automobiles in the parking facilities of the Building, and at such rental rate(s) and upon auch other terms, as may be specified in subparagraphs (f) and (g) of the Definitions Section. All of such parking rights shall be exercised by Lessee throughout the entire term hereof. Said parking rights are for the exclusive use of Lessee's officers and employees and Lessee may not sell, assign, sublease or transfer any of its parking righta hereunder. Except as may otherwise be specifically provided in said subparagraph (f) of the Definitions Section or elsewhere in this Lease, Leasee shall not be entitled to any designated, reaerved, assigned or valet parking hereunder. In addition to such rights, Lessee and its invitees shall have the right to use in common with other tenants of the Building and their invitees and the general public any portions of the parking facilities of the Building designated for public use, subject to the rates, rules and regulations, and any other charges, fees and taxes to be collected by Lessor, for such parking facility use. Lessor reserves the right to establish and alter, from time to time, all such rates, rules and regulations. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS - --------------------------------------------- 45. This Lease contains all of the agreements of the parties hereto with reapect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. Any written addenda to this Lease, when signed or initialed by the contracting parties, shall be deemed a part of this Lease to the same full extent as if incorporated herein. AUTHORITY - --------- 46. If Lessee is a corporation, trust or partnership, each individual executing this Lease on behalf of Leasee represents and warrants that he or she is duly authorized to so execute and deliver this Lease. If Lessee is a corporation, trust or partnership, it shall, within ten (l0) days after execution of this Lease, deliver to Lessor satisfactory evidence of such authority. If Lessee is a corporation, it shall, upon demand by Lessor, also deliver to Lessor satisfactory evidence of (a) good standing in Lessee's state of incorporation, and (b) qualification to do business in California. BASIC RENTAL CREDIT - ------------------- 47. Provided Lessee is not in default under any of the terms, covenants and conditions of the Lease, beyond any applicable cure periods, Lessee shall be credited with the payment of Basic Rental with respect to the Demised Premises in the amount $9,072.30 for months one (l) through three (3), inclusive, of the Lease Term (collectively, the "Rent Credits"). No such Basic Rental credit shall reduce the amount of additional rent which is otherwise payable by Lessee under this Lease. Lessee understands and agrees that the foregoing rental credit is conditioned upon Lessee's not having wrongfully terminated this Lease or Lessor not having terminated this Lease by reason of Lessee's material default hereunder (each such termination, a "Trigger Event"). Accordingly, (a) upon the occurrence of any Trigger Event during any portion of the rental credit period, the foregoing rental credit shall be null and void, and all of the Basic Rental which, in the absence of such rental credit, would have been payable during such period up to the date of the Trigger Event shall become immediately due and payable by Lessee and Lessee shall pay Basic Rental during the remainder of such rental credit period as such Basic Rental would have become due and payable in the absence of such rental credit provision, and (b) upon the occurrence of any Trigger Event after the rental credit period, all Basic Rental which would have been payable during such rental credit period in the absence of such rental credit shall become immediately due and payable by Lessee. LESSEE'S RIGHT TO CANCEL - ------------------------ 48. Lessee shall have a one-time right to terminate this Lease effective on the last day of the sixtieth (60th) month of the Lease Term (the "Cancellation Date"), provided (i) Lessee notifies Lessor in writing (the "Cancellation Notice") of its exercise of its termination right no later than the last day of the fifty-fourth (54th) month of the Lease Term, and (ii) Lessee is not in material default under any of the terms and conditions of this Lease as of either the date Lessor receives the Cancellation Notice or as of the Cancellation Date. The Cancellation Notice must be sent to Lessor via certified mail, return receipt requested, postage pre-paid or via recognized overnight courier. If Lessee exercises the foregoing termination right, Lessee shall pay to Lessor, on or before thirty (30) days prior to the Cancellation Date, an amount equal to $145,000, which amount is hereby stipulated by the parties to equal the unamortized fees and costs incurred by lessor in connection with procuring Lessee with respect to the Demised Premises and preparing the Demised Premises for Lessee's occupancy. GENDER - ------ 49. Throughout this Lease the masculine gender shall be deemed to include the feminine and the neuter, the singular shall be deemed to include the plural, and vice versa. ACCORD AND SATISFACTION - ----------------------- 50. No payment by Lessee or receipt by Lessor of a lesser amount than that stipulated herein for rent, additional rent or any other charge shall be deemed to be other than on account of the earliest stipulated rent, additional rent or other charge then due, nor shall any endorsement or statement on a check or letter accompanying any check or payment be deemed an accord and satisfaction and Lessor may accept such check or payment without prejudice to Lessor's rights to recover the balance of such rent, additional rent or other charges or pursue any other remedy in this Lease, at law or in equity. TIME OF ESSENCE - --------------- 51. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. TIMING RE EXECUTION BY LESSEE - ----------------------------- 52. This Lease shall not be effective unless Lessee signs this Lease within twenty-one (21) days from the date hereof. NON-DISCRIMINATION - ------------------ 53. Lessee covenants by and for itself, its successors and assigns, and all persons claiming under or through them, and this Lease is made and accepted upon and subject to the following conditions: That there shall be no discrimination against or segregation of any person or group of persons, on account of sex, marital status, age, race, color, religion, creed, national origin or ancestry, in the leasing, subleasing, renting, transferring, use, occupancy, tenure or enjoyment of the Demised Premises herein leased, nor shall Lessee itself, or any person claiming under or through it, establish or permit such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lesseee, sublessees, sub-tenants or vendees in the Demised Premises. BROKERS - ------- 54. Lessor and Lessee each warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of thia Lease, excepting only Cushman & Wakefield of California, Inc. ("Lessor's Broker"), and that he knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Lease. Lessor shall pay any commissions or fees that are payable to Lessor's Broker with respect to this Lease in accordance with the provisions of a separate commission contract. Lessor shall have no further or separate obligation for payment of commissions or fees to any other real estate broker, finder or intermediary. Subject to the foregoing, each party hereto shall indemnify and hold harmless the other party hereto from and against any and all losses, damages, liabilities, costs and expenses (including, but not limited to, reasonable attorneys' fees and related costs) resulting from any claims that may be asserted against such other party by any real estate broker, finder or intermediary arising from any act of the indemnifying party in connection with this Lease. CONSENT TO JURISDICTION - ----------------------- 55. This Lease ahall be governed by and interpreted, construed and enforced in accordance with the laws of the State of California and the United States of America (without regard to the conflicts of law rules of such state). No conflicts of law rules of any state or country (including, without limitation, California conflicts of law rules) shall be applied to result in the application of any substantive or procedural laws of any state or country other than California. All controversies, claims, actions or causes of action arising between the parties hereto and/or their respective successors and assigns, shall be brought, heard and adjudicated by the courts of the State of California, with venue in the County of Loa Angeles. Each of the parties hereto hereby consents to personal jurisdiction by the courts of the State of California in connection with any auch controversy, claim, action or cause of action, and each of the parties hereto consents to service of process by any means authorized by California law and consents to the enforcement of any Judgment so obtained in the courts of the State of California on the same terms and conditions as if such controversy, claims, action or cause of action had been originally heard and adjudicated to a final Judgment in such courts. Each of the parties hereto further acknowledges that the laws and courts of California were freely and voluntarily chosen to govern this Lease and to adjudicate any claims or disputes hereunder. AGENT POR SERVICE OF PROCESS - ---------------------------- 56. Lessee represents and warrants to Leasor that it presently has an agent for service of process designated in Los Angeles at the following address: 6151 West Century Boulevard, Suite 1200, Los Angeles, California 90045. Lessee shall continue to maintain an agent for service of process in Los Angeles during the Lease Term, as same may be extended or renewed, and Lessee shall promptly notify Lessor of any change in the designation and/or address of the agent for service of process. NOTICES - ------- 57. Any notice required or permitted to be given hereunder by one party to the other shall be deemed to be given when (i) personally served, or (ii) deposited in the United States Mail, with sufficient postage prepaid, addressed to the respective party to whom notice is intended to be given at the following address of such party: If to Lessor: Realty Holdings of America Attn: Mr. Jack Genede/Mr. Richard Ader 1370 Avenue of the Americas, Suite 3300 New York, New York 10019 cc: Cushman & Wakefield of California, Inc. 9841 Airport Boulevard, Suite 1510 Los Angeles, California 90045 If to Lessee: Cheap Tickets, Inc. 738 Kaheka Street, Suite 301 Honolulu, Hawaii 96814 Attn: Mr. Mike Hartley cc: Cheap Tickets, Inc. 6151 West Century Boulevard Suite 1200 Los Angeles, California 90045 Either party hereto shall have the right to change the address or addresses to which notices shall thereafter be sent by giving notice to the other party as aforesaid. CONFIDENTIALITY - --------------- 58. This Lease and the covenants, obligations, conditions and other terms contained herein, as well as all related documents and information provided pursuant to the terms herein (collectively, the "Lease Documents and Information") are confidential information. Lessee agrees to keep the Lease Documents and Information strictly confidential and not to disclose such matters to any other landlord, tenant, prospective tenant, broker or any other person, except that Lessee may disclose such confidential information to Lessee's financial, legal and space planning consultants. Without limiting the generality of the foregoing, Lessee shall require such consultants, to similarly maintain the Lease Documents and Information in strict confidence and shall prohibit such consultants from making any public or private statements regarding same. FIRST RIGHT OF OFFER - -------------------- 59. Lessee shall have the right, at any time during the Lease Term, to notify Lessor in writing ("Lessee's Origination Notice") of Lessee's desire to receive Lessor's Availability Notice(s) (defined below) in accordance with the terms of this Article 59 for the immediately succeeding six (6) month period commencing on the date of Lessee's Origination Notice. At the expiration of any applicable six (6) month period, Lessee ahall have the right to deliver a new Lessee's Origination Notice to Lessor for the ensuing six (6) month period. If during any particular six (6) month period after Lessor has received Lessee's Origination Notice Lessor receives an acceptable and bonafide (as determined in Lessor's sole discretion) written offer from a third party to lease any portion of the eleventh (llth) floor of the Building (together and individually, the "Expansion Space"), then prior to accepting such offer, Lessor shall notify Leasee in writing of the availability of the offered Expanaion Space ("Lessor's Availability Notice"); provided that Lessee's rights to such Expansion Space are expressly subject and inferior to any right relating to the Expansion Space previously granted to any other person or entity. Within five (5) business days following Lessor's delivery of Lessor's Availability Notice to Lessee, Lessee must deliver to Lessor its unmodified written acceptance of the Expansion Space on the same terms and conditions as are contained in the Lease with respect to the Demised Premises (including a rental rate equal to $.940 per rentable square foot and a lease term which is co-terminus with the Lease Term for the Demised Premises), except that (i) the tenant improvement allowance (including any moving allowance which is a part thereof) and free rent with respect to the Expansion Space shall respectively equal the Allowance and Rent Credits provided by Lessor with respect to the Demised Premises, each multiplied by a fraction, the numerator of which is the number of months remaining in the Lease Term as of the commencement of the lease term with respect to the Expansion Space, and the denominator of which is one hundred twenty (120); (ii) the number of unreserved parking spaces provided to Lessee under this Lease shall be increased by the product of (A) the number of rentable square feet contained in the Expansion Space, multiplied by (B) .008 (and such spaces shall be at the rate set forth in Paragraph (g) of the Definitions Section of this Lease during the remainder of the initial Lease Term); (iii) Lessee's Proportionate Share shall be proportionately increased based upon the additional square footage contained in the Expansion Space; and (iv) the lease term with respect to the Expansion Space shall commence on the earlier of the date Lessee first occupies the Expansion Space or the substantial completion of the tenant improvement work to be performed in the Expansion Space (which tenant improvement work shall be mutually agreed upon by Lessor and Lessee and, except as otherwise set forth in this Article 59, performed in accordance with the terms of the Work Letter). Lessee's failure to timely deliver such unmodified written acceptance to Lessor shall be deemed Lessee's disapproval of such offer. If Lessee disapproves such offer, then (i) Lessor may (but is not obligated to) lease the offered Expansion Space to such third party or to any other party upon any terms, and (ii) this right of first refusal shall terminate and be of no further force and effect as to the offered Expansion Space. COMMON AREA IMPROVEMENTS. - ------------------------ 60. Lessor, at its sole cost and expense, agrees to perform the following improvement work to the common areas on the twelfth (12th) floor of the Building in accordance with Building standards and procedures: (i) install Lessor's Building standard new carpeting in the area in front of the elevators and in the hallway leading to the Demised Premises; and (ii) paint the interior walls with one (1) coat of new paint, in a color to be selected by Lessor. Lessor shall commence the foregoing improvement work after the date which is thirty (30) days after the Commencement Date. IN WITNESS WHEREOF this Lease is entered into by the parties hereto on the date and year first set forth above.
LESSOR: LESSEE: Airport Center Associates Limited Partnership, CHEAP TICKETS, INC., a Connecticut Limited Partnership, a Hawaii corporation By: DRAHCIR REALTY CORP. By: /s/ Michael J. Hartley ---------------------------- By /s/ Its: Vice President ---------------------------- Vice President By: /s/ Sandra T. Hartley ---------------------------- Dated: 3/31/94 Its: President ---------------------- Dated: 3-9-94 --------------------------
ADDENDUM TO LEASE ----------------- This Addendum to Lease ("Addendum") is dated as of January 19, 1994, by and between Airport Center Associates Limited Partnership, a Connecticut limited partnership ("Lessor"), and Cheap Tickets, Inc., a Hawaii corporation ("Lessee"). In the event of any inconsistencies between the terms of this Addendum and the terms of that certain Lease Agreement (the "Lease") of even date herewith between Lessor and Lessee to which this Addendum is attached, the terms of this Addendum shall govern and control. Pursuant to this Addendum, the Lease is amended, modified and supplemented as follows: 1. Article 61 is hereby added to the Lease to read as follows in its entirety: "61. Early Occupancy. Lessee shall have the right to occupy the --------------- Demised Premises for the period commencing on the substantial completion of the Work and ending on the date which is the Commencement Date (such period to be hereinafter referred to as the "Early Occupancy Period"), in order to conduct its business operations thereon. Lessee shall not be responsible for the payment of basic rent or other additional rent during the Early Occupancy Period, but shall be subject to all of the other terms and conditions of this Lease, including but not limited to, those set forth in Articles 7, 17, 19 and 36." EXHIBIT "A" [Diagram Description: The office plan of Suite No. 1200 of the building at 6151 West Century Boulevard, Los Angeles, California.] EXHIBIT "B" BUILDING RULES AND AGREED REGULATIONS ------------------------------------- 1. Lessee agrees to make a deposit, in an amount fixed by Lessor from time to time, for each key issued by Lessor to Lessee for its offices, and upon termination of this Lease to return all keys to Lessor. 2. Directories will be placed by Lessor, at its own expense, in conspicuous places in the Building. No other directories shall be permitted unless previously consented to by Lessor in writing. 3. Lessee will refer all contractors, contractor's representatives and installation technicians, rendering any service to Lessee, to Lessor for Lessor's supervision, approval, and control before performance of any contractual service. This provision shall apply to all work performed in the Building including installations of telephones, telegraph equipment, electrical devices and attachments, and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of the Building. 4. Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by Lessee of any merchandise or materials which require use of elevators or stairways, or movement through Building entrances or lobby shall be restricted to hours designated by Lessor. All such movement shall be under supervision of Lessor and in the manner agreed between Lessee and Lessor by prearrangement before performance. Such prearrangement initiated by Lessee will include determination by Lessor and subject to its decision and control, as to the time, method, and routing of movement and as to limitations imposed for safety or other concerns which may prohibit any article, equipment or any other item from being brought into the Building. Lessee is to assume all risk as to damage to articles moved and injury to persons or public engaged or not engaged in such movement, including equipment, property, and personnel or Lessor, if damaged or injured as a result of acts in connection with carrying out this service for Lessee, from time of entering property to completion of work, and Lessor shall not be liable for acts of any person engaged in, or any damage or loss to any of said property or persons resulting from any act in connection with such service performed for Lessee. 5. No signs, advertisements or notices shall be painted or affixed on or to any windows or doors, or other parts of the Building, except of color, size and style and in such places, as shall be first approved in writing by Lessor. No nails, hooks or screws shall be driven or inserted in any part of the Building, except by the Building maintenance personnel, nor shall any part be defaced by Lessee. All signs will be contracted for by Lessor at the rate fixed by Lessor from time to time, and Lessee will be billed and pay for such service accordingly. 6. No portion of Lessee's area or any other part of the Building shall at any time be used or occupied as sleeping or lodging quarters. 7. Lessee shall not place, install or operate in the Demised Premises or in any part of the Building, any engine or machinery, or maintain, use or keep any inflammable, explosive, or hazardous material without consent of Lessor. 8. Lessor will not be responsible for lost or stolen personal property, equipment, money, or jewelry from Lessee's area or public rooms regardless of whether such loss occurs when the area is locked against entry or not. 9. No birds or animals shall be brought into or kept in or about the Building. 10. Employees of Lessor shall not receive or carry messages for or to Lessee or other person, nor contract with or render free or paid services to Lessee's agents, employees, or invitees. 11. Lessor will not permit entrance to Lessee's offices by use of pass keys controlled by Lessor to any person at any time without written permission by Lessee, except employees, contractors, or service personnel directly supervised by Lessor. 12. The entries, passages, doors, elevators, elevator doors, hallways or stairways shall not be blocked or obstructed; no rubbish, litter, trash, or material of any nature shall be placed, emptied or thrown into these areas; and such areas shall not be used at any time except for ingress or egress by Lessee, Lessee's agents, employees, invitees or visitors to or from the Demised Premises. 13. Plumbing fixtures and appliances shall be used only for purposes for which constructed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or placed therein. Damage resulting to any such fixtures or appliances from misuse by Lessee shall be repaired and replaced at Lessee's sole cost and expense, and Lessor shall not in any case be responsible therefor. 14. Lessee shall not do, or permit anything to be done in or about the Building, or bring or keep anything therein, that will in any way increase the rate of fire or other insurance on the Building, or on property kept therein, or obstruct or interfere with the rights of, or otherwise injure or annoy, other tenants, or do anything in conflict with the valid pertinent laws, rules or regulations of any governmental authority. 15. Lessor desires to maintain the highest standards of environmental comfort and convenience for the tenantry. It will be appreciated if any undesirable conditions or lacks of courtesy or attention are reported directly to the management. 16. The work of the janitor or cleaning personnel shall not be hindered by Lessee after 5:30 p.m. and such work may be done at any time when the offices are vacant; the windows doors, and fixtures may be cleaned at any time. Lessee shall provide adequate waste and rubbish receptacles, cabinets, book cases, map cases, etc., necessary to prevent unreasonable hardship to Lessor in discharging its obligation regarding cleaning service. 17. Lessor shall have the right to determine and prescribe the weight and proper position of any unusually heavy equipment including safes, large files, etc., that are to be placed in the Building, and only those which in the opinion of Lessor might not with reasonable probability do damage to the floors, structure and/or freight elevator, may be moved into said Building. Any damage occasioned in connection with the moving or installing of such aforementioned articles in said Building or the existence of same in said Building shall be paid for by Lessee, unless otherwise covered by insurance. 18. Lessor shall have the right to prohibit the use of the name of the Building or any other publicity by Lessee, which, in Lessor's opinion, tends to impair the reputation of the Building or its desirability for the executive offices of Lessor or of other lessees, and, upon written notice from Lessor, Lessee will refrain from or discontinue such publicity. 19. The Demised Premises shall not be used for lodging, sleeping, or for any immoral or illegal purpose or for any purpose that will damage the Demised Premises or the reputation thereof, or for any purpose other than that specified in the Lease covering the Demised Premises. 20. The Demised Premises shall not contain a stove, hot plate or similar heating appliance. Notwithstanding the foregoing, a microwave, coffee maker and toaster oven shall be allowed in the Demised Premises so long as the same are separately electrically circuited. 21. The foregoing rules and regulations will be reasonably and not arbitrarily enforced by Lessor. EXHIBIT "C" GENERAL ELECTRIC CAPITAL CORPORATION ------------------------------------ TENANT'S ESTOPPEL CERTIFICATE ----------------------------- PREMISES: 6151 West Century Boulevard, Suite 1200 Los Angeles, California 90045 LESSOR: Airport Center Associates Limited Partnership, a Connecticut Limited Partnership LEASE DATED: As of January 19, 1994 ("LEASE") DATE: The undersigned, Lessee, hereby certifies to General Electric Capital Corporation ("GECC") that: 1. Lessee has accepted possession of the premises pursuant to the Lease. A true and accurate copy of the Lease is attached hereto as Exhibit A. The Lease term commenced on________, and the termination date of the Lease is the date which is one (1) day immediately preceding the date which is the commencement of the one hundred twenty-fourth (124th) month of the Lease Term, excluding renewals and extensions. 2. Any improvements required by the terms of the Lease to be made by Lessor have been completed to the satisfaction of Lessee in all respects, and Lessor has fulfilled all of its duties under the Lease. 3. The Lease has not been assigned, modified, supplemented or amended in any way. The Lease constitutes the entire agreement between the parties and there are no other agreements between Lessor and Lessee concerning the Premises. The undersigned does not have any option or preferential right to purchase all or any part of the Premises or the Building of which the premises are a part or any right, title or interest with respect to the Premises or such Building other than as Lessee under the Lease. 4. The Lease is valid and in full force and effect, and, to the best of Lessee's knowledge, neither Lessor nor Lessee is in default thereunder. Lessee has no defense, setoff or counterclaim against Lessor arising out of the Lease or in any way relating thereto, or arising out of any other transaction between Lessee and Lessor, and no event has occurred and no condition exists, which with the giving of notice or the passage of time, or both, will constitute a default under the Lease. 5. No rent or other sum payable under the Lease has been paid more than one month in advance. 6. Subject to the terms of Article 47 of the Lease, the minimum monthly rent presently payable under the Lease is $9,072.30. 7. Lessee acknowledges that Lessee has received notice that the Lease will be assigned to GECC, and Lessee has received no notice of a prior assignment, hypothecation or pledge of the Lease or the rents, under the provisions of the assignment, the Lease cannot be terminated (either directly or by the exercise of any option which could lead to termination) or modified in any of its terms, or consent be given to the release of any party having liability thereunder, without the prior written consent of GECC, that without such consent, no rent may be collected or accepted more than one month in advance and that the interest of the Lessor in the Lease has been assigned to GECC solely as security for the purposes specified in the assignment and GECC assumes no duty, liability or obligations whatever under the Lease or any extension or renewal thereof. 8. Lessee hereby acknowledges and agrees that if GECC shall succeed to the interest of Lessor under the Lease, GECC shall assume (only while owner of and in possession or control of the building of which the Premises are a part) and perform all of the Lessor's obligations under the Lease, but shall not be liable for any act or omission of any prior landlord (including the present landlord), liable for the return of any security deposit, subject to any offset or defense which Lessee may have against any such prior landlord, bound by any rent or additional rent Lessee may have paid for more than the current month to any such prior landlord or bound by any assignment, surrender, termination, cancellation, waiver, release, amendment or modification of the Lease made without its express written consent. 9. Lessee shall give GECC prompt written notice of any default of Lessor under the Lease, if such default entitles Lessee, under law or otherwise, to terminate the Lease, reduce rent or credit or offset any amount against future rents and shall give GECC reasonable time (but in no event less than 90 days after receipt of such notice) to cure or commence during such default prior to exercising (and as a condition precedent to its right to exercise) any right Lessee may have to terminate the Lease, reduce rent or credit or offset any amounts against the rent. Lessee shall given written notice to any successor in interest of GECC, transferee who acquired the property by deed in lieu of foreclosure or any successor or assign thereof (collectively, the "Mortgagee"). 10. Lessee shall not look to the Mortgagee, as mortgagee, mortgagee in possession, or successor in title to the Mortgaged Property, in connection with the return of or accountability with respect to any security deposit required by Lessor, unless said sums have actually been received by Mortgagee as security for Lessee's performance under the Lease. 11. Lessee shall neither suffer nor itself manufacture, store, handle, transport, dispose of, spill, leak or dump any toxic or hazardous waste, waste product or substance (as they may be defined in any federal or state statute, rule or regulation pertaining to or governing such waste products or substances) on the Mortgaged Property at any time during the term, or extended term, of the Lease. 12. All notices and other communications from Lessee to GECC shall be in writing and shall be delivered or mailed by registered mail, postage paid, return receipt requested, addressed to GECC at: General Electric Capital Corporation 7700 Irvine Center Drive, Suite 500 Irvine, California 92718 Attention: Investment Manager Or at such other address as GECC, a successor, purchaser or transferee shall furnish to Lessee in writing. LESSEE: Cheap Tickets, Inc., a Hawaii corporation By: _______________________________________ Its: __________________________________ By: _______________________________________ Its:___________________________________ EXHIBIT "D" WORK LETTER AGREEMENT --------------------- [Lessor Performs Work] [Allowance] This Work Letter Agreement ("Work Letter") is executed simultaneously with that certain Lease Agreement (the "Lease") between Cheap Tickets, Inc., a Hawaii corporation, as "Lessee", and Airport Center Associates Limited Partnership, a Connecticut limited partnership, as "Lessor", relating to demised premises (the "Demised Premises") at the building commonly known as 6151 West Century Boulevard, Suite 1200, Los Angeles, California (the "Building"), which Demised Premises are more fully identified in the Lease. Capitalized terms used herein, unless otherwise defined in this Work Letter, shall have the respective meanings ascribed to them in the Lease. For and in consideration of the agreement to lease the Demised Premises and the mutual covenants contained herein and in the Lease, Lessor and Lessee hereby agree as follows: 1. Lessee's Initial Plans: the Work. Lessee desires Lessor to perform -------------------------------- certain leasehold improvement work in the Office Premises (as defined in the Lease) in substantial accordance with a plan or plans (collectively, the "Plans") to be mutually agreed upon by Lessor and Lessee. Such work, as shown in the Plans and as more fully detailed in the Working Drawings (as defined and described in Paragraph 2 below), shall be hereinafter referred to as the "Work". The Work shall include, but not be limited to, the installation of a separate HVAC unit (the "HVAC Unit") in the office within the Office Premises in which Lessee's computerized phone system will be located. As soon as reasonably practicable, Lessee shall furnish to Lessor such additional plans, drawings, specifications and finish details as Lessor may reasonably request to enable Lessor's architect, and Lessor's engineers to prepare mechanical, electrical and plumbing plans and to prepare the Working Drawings, including a final telephone layout and special electrical connection requirements, if any. All plans, drawings, specifications and other details describing the Work which have been or are hereafter furnished by or on behalf of Lessee shall be subject to Lessor's approval, which Lessor agrees shall not be unreasonably withheld. Lessor shall not be deemed to have acted unreasonably if it withholds its approval of any plans, specifications, drawings or other details or of any Additional Work (as defined in Paragraph 7 below) because, in Lessor's reasonable opinion, the Work, as described in any such item, or the Additional Work, as the case may be: (a) is likely to adversely affect Building systems, the structure of the Building or the safety of the Building and/or its occupants; (b) might impair Lessor's ability to furnish services to Lessee or other tenants in the Building; (c) would increase the cost of operating the Building; (d) would violate any governmental laws, rules or ordinances (or interpretations thereof); (e) contains or uses hazardous or toxic materials or substances; (f) would adversely affect the appearance of the Building; (g) might adversely affect another tenant's premises; (h) is prohibited by any ground lease affecting the Building or any mortgage, trust deed or other instrument encumbering the Building; or (i) is likely to be substantially delayed because of unavailability or shortage of labor or materials necessary to perform such work or the difficulties or unusual nature of such work. The foregoing reasons, however, shall not be the only reasons for which Lessor may withhold its approval, whether or not such other reasons are similar or dissimilar to the foregoing. Neither the approval by Lessor of the Work or the Plans or any other plans, drawings, specifications or other items associated with the Work nor Lessor's performance, supervision or monitoring of the Work shall constitute any warranty by Lessor to Lessee of the adequacy of the design for Lessee's intended use of the Office Premises. 2. Working Drawings. If necessary for the performance of the Work, ---------------- Lessor shall prepare or cause to be prepared final working drawings and specifications for the Work (the "Working Drawings") based on and consistent with the Plans and the other plans, drawings, specifications, finish details and other information furnished by Lessee to Lessor and approved by Lessor pursuant to Paragraph 1 above. So long as the Working Drawings are consistent with the Plans, Lessee shall approve the Working Drawings within three (3) days after receipt of same from Lessor by initialing and returning to Lessor each sheet of the Working Drawings or by executing Lessor's approval form then in use, whichever method of approval Lessor may designate. 3. Performance of the Work; Allowance. Except as hereinafter ---------------------------------- provided to the contrary, and subject to the review and approval of all applicable governmental authorities having jurisdiction for compliance with building, fire, safety and zoning codes, Lessor shall cause the performance of the Work using (except as may be stated or shown otherwise in the Working Drawings) building standard materials, quantities and procedures then in use by Lessor ("Building Standards"). Lessor shall pay for a portion of the "Cost of the Work" (as defined below) in an amount not to exceed the Allowance (as defined below), and Lessee shall pay for the entire Cost of the Work, if any, in excess of the Allowance. In the event that the amount of the Allowance exceeds the Cost of the Work, Lessee shall not be entitled to such excess or to a credit against future rent due and owing under the Lease in the amount of such excess, but rather said excess funds shall belong to and be the sole property of Lessor. For purposes of this Agreement, the term "Cost of the Work" shall mean and include any and all costs and expenses of the Work, including, without limitation, (i) the cost of the Working Drawings, (ii) design fees for the preparation of the Working Drawings, (iii) the mechanical, engineering and space planning costs with respect to the Work, and (iv) the cost of all labor (including overtime) and materials constituting the Work, including permit or other governmental fees, overhead and contractor profit included in the fabrication, acquisition, construction and installation of the Work. Notwithstanding anything to the contrary contained in this Work Letter, for purposes of this Work Letter, the term "Allowance" shall mean an amount equal to Two Hundred Fifty Thousand Nine Hundred Dollars ($250,900), as such amount may be reduced pursuant to Section 30(b) of the Lease, the immediately succeeding sentence and the terms of Paragraph 9 of this Work Letter. Notwithstanding anything to the contrary contained in this Work Letter, the Allowance shall be reduced by the sum of all costs incurred by Lessee in connection with its physical move into the Demised Premises, but only to the extent Lessor reimburses Lessee therefor pursuant to the terms of Paragraph 9 of this Work Letter. 4. Payment. Prior to commencing the Work, Lessor shall submit to ------- Lessee a written statement of the total Cost of the Work (which shall include the amount of any overtime projected as necessary to substantially complete the Work by May 1, 1994), as then known by Lessor, and such statement shall indicate the amount, if any, by which the total Cost of the Work exceeds the Allowance (the "Excess Costs"). Lessee agrees, within three (3) days after submission to it of such statement, to execute and deliver to Lessor, in the form then in use by Lessor, an authorization to proceed with the Work, and Lessee shall also then pay to Lessor an amount equal to the Excess Costs. No Work shall be commenced until Lessee has fully complied with the preceding provisions of this Paragraph 4. In the event, and each time, that any change order by Lessee, unknown field condition, delay caused by acts beyond Lessor's control or other event or circumstance causes the Cost of the Work to be increased after the time that Lessor delivers to Lessee the aforesaid initial statement of the Cost of the Work, Lessor shall deliver to Lessee a revised statement of the total Cost of the Work, indicating the revised calculation of the Excess Costs, if any. Within three (3) days after submission to Lessee of any such revised statement, Lessee shall pay to Lessor an amount equal to the Excess Costs, as shown in such revised statement, less the amounts previously paid by Lessee to Lessor on account of the Excess Costs, and Lessor shall not be required to proceed further with the Work until Lessee has paid such amount. Delays in the performance of the Work resulting from the failure of Lessee to comply with the provisions of this Paragraph 4 shall be deemed to be delays caused by Lessee. 5. Substantial Completion. Lessor shall use its reasonable efforts ---------------------- to cause the Work to be "substantially completed" on or before May 1, 1994, subject to delays caused by strikes, lockouts, boycotts or other labor problems, casualties, discontinuance of any utility or other service required for performance of the Work, unavailability or shortages of materials or other problems in obtaining materials necessary for performance of the Work or any other matter beyond the control of Lessor (or beyond the control of Lessor's contractors or subcontractors performing the Work) and also subject to "Lessee Delays" (as defined and described in Paragraph 6 of this Work Letter). The Work shall be deemed to be "substantially completed" for all purposes under this Work Letter and the Lease upon the earlier of the date Lessee first takes occupancy of the Demised Premises, or Lessor's architect issues a written certificate to Lessor and Lessee, certifying that the Work has been substantially completed (i.e., completed except for "punchlist" items listed in such architect's certificate) in substantial compliance with the Working Drawings such that Lessee can legally occupy the Demised Premises and utilize same for the purposes intended under the Lease. If the Work is not deemed to be substantially completed on or before May 1, 1994, (a) Lessor agrees to use reasonable efforts to complete the Work as soon as practicable thereafter, (b) the Lease shall remain in full force and effect, except that, subject to the succeeding sentence, the Commencement Date (as defined in the Lease) shall not occur until the substantial completion of the Work, and (c) Lessor shall not be deemed to be in breach or default of the Lease or this Work Letter as a result thereof and Lessor shall have no liability to Lessee as a result of any delay in occupancy (whether for damages, abatement of Rent or otherwise). Notwithstanding the foregoing, in the event the Work is not substantially complete by May 1, 1994, as a result of a Lessee Delay (defined below), the Work shall be deemed to be substantially complete on the date that construction of the Work would have been substantially complete, but for Lessee's Delay (as reasonably determined by Lessor). Lessor agrees to use reasonable diligence to complete all punchlist work listed in the aforesaid architect's certificate promptly after substantial completion. 6. Lessee Delays. The following shall constitute "Lessee Delays": ------------- (i) the failure of Lessee to timely furnish all or any plans, drawings, specifications, finish details or the other information required under Paragraph 1 above; (ii) the failure of Lessee to grant approval of the Working Drawings within the time required under Paragraph 2 above; (iii) the failure of Lessee to comply with the requirements of Paragraph 4 above; (iv) Lessee's requirements for special work or materials, finishes, or installations other than the Building Standards or Lessee's requirements for special construction staging or phasing; (v) the performance of any Additional Work (as defined in Paragraph 7 below) requested by Lessee or the performance of any work in the Demised Premises by any person, firm or corporation employed by or on behalf of Lessee, or any failure to complete or delay in completion of such work; (vi) any act attributable to Lessee's architect or any employees, representatives or agents of Lessee's architect; or (vii) any other act or omission of Lessee. 7. Additional Work. Upon Lessee's request and submission by Lessee --------------- (at Lessee's sole cost and expense) of the necessary information and/or plans and specifications for work other than the Work described in the Working Drawings ("Additional Work") and the approval by Lessor of such Additional Work, which approval Lessor agrees shall not be unreasonably withheld, Lessor shall perform such Additional Work, at Lessee's sole cost and expense, subject, however, to the following provisions of this Paragraph 7. Prior to commencing any Additional Work requested by Lessee, Lessor shall submit to Lessee a written statement of the cost of such Additional Work, which cost shall include a fee payable to Lessor in the amount of 10% of the total cost of such Additional Work as compensation to Lessor for monitoring the Additional Work, including administration, overhead and field supervision associated with the Additional Work (such fee being hereinafter referred to collectively as "Lessor's Additional Compensation"), and, concurrently with such statement of cost, Lessor shall also submit to Lessee a proposed tenant extra order (the "TEO") for the Additional Work in the standard form then in use by Lessor. Lessee shall execute and deliver to Lessor such TEO and shall pay to Lessor the entire cost of the Additional Work, including Lessor's Additional Compensation (as reflected in Lessor's statement of such cost), within five (5) days after Lessor's submission of such statement and TEO to Lessee. If Lessee fails to execute or deliver such TEO or pay the entire cost of such Additional Work within such 5-day period, then Lessor shall not be obligated to do any of the Additional Work and may proceed to do only the Work, as specified in the Working Drawings. 8. Lessee Access. Lessor will grant to Lessee a license to have ------------- access to the Demised Premises prior to the substantial completion of the Work to allow Lessee to do other work required by Lessee to make the Demised Premises ready for Lessee's use and occupancy (the "Lessee's Pre-Occupancy Work"). It shall be a condition to the grant by Lessor and continued effectiveness of such license that: (a) Lessee shall give to Lessor accompanied by each of the following items, all in form and substance reasonably acceptable to Lessor: (i) a detailed description of and schedule for Lessee's Pre-Occupancy Work; (ii) the names and addresses of all contractors, subcontractors and material suppliers and all other representatives of Lessee who or which will be entering the Demised Premises on behalf of Lessee to perform Lessee's Pre-Occupancy Work or will be supplying materials for such work, and the approximate number of individuals, itemized by trade, who will be present in the Demised Premises; (iii) copies of all contracts, subcontracts and material purchase orders pertaining to Lessee's Pre-Occupancy Work; (iv) copies of all plans and specifications pertaining to Lessee's Pre-Occupancy Work; (v) copies of all licenses and permits required in connection with the performance of Lessee's Pre-Occupancy Work; (vi) certificates of insurance (in amounts satisfactory to Lessor and with the parties identified in, or required by, the Lease named as additional insureds) and instruments of indemnification against all claims, costs, expenses, damages and liabilities which may arise in connection with Lessee's Pre-Occupancy Work; and (vii) assurances of the ability of Lessee to pay for all of Lessee's Pre-Occupancy Work and/or a letter of credit or other security deemed appropriate by Lessor securing Lessee's lien-free completion of Lessee's Pre-Occupancy Work. (b) Lessee's employees, agents, contractors, workmen, mechanics, suppliers and invitees shall work in harmony and not interfere with Lessor or Lessor's agents in performing the Work and any Additional Work in the Office Premises, Lessor's work in other premises and in common areas of the Building, or the general operation of the Building. If at any time any such person representing Lessee shall cause or threaten to cause such disharmony or interference, including labor disharmony, and Lessee fails to immediately institute and maintain such corrective actions as directed by Lessor, then Lessor may withdraw such license upon twenty-four (24) hours' prior written notice to Lessee. (c) Any such entry into and occupancy of the Demised Premises by Lessee or any person or entity working for or on behalf of Lessee shall be deemed to be subject to all of the terms, covenants, conditions and provisions of the Lease, specifically including the provisions of Section 6 thereof (regarding Lessee's improvements and alterations to the Demised Premises), and excluding only the covenant to pay Rent. Lessor shall not be liable for any injury, loss or damage which may occur to any of Lessee's Pre-Occupancy Work made in or about the Demised Premises or to property placed therein prior to the commencement of the term of the Lease, the same being at Lessee's sole risk and liability. Lessee shall be liable to Lessor for any damage to the Demised Premises or to any portion of the Work or Additional Work caused by Lessee or any of Lessee's employees, agents, contractors, workmen or suppliers. In the event that the performance of Lessee's Pre-Occupancy Work causes extra costs to Lessor. 9. Moving Allowance; Telephone, Furniture, Fixtures and Equipment -------------------------------------------------------------- Allowance. Lessor shall pay Lessee up to $60,000 to compensate Lessee for - --------- Lessee's actual out-of-pocket costs paid to third party contractors and directly associated with (i) Lessee's physical move into the Office Premises, (ii) the installation of Lessee's telephone communication system in the Office Premises, and (iii) the acquisition and/or installation of furniture, fixtures and/or equipment in the Office Premises to be used in connection with the operation of Lessee's business operations therefrom. Provided that Lessee has performed all of its obligations under this Lease up to and including the date of the proposed payment, and provided further that Lessee has delivered to Lessor invoices from said third party contractors covering items included in Lessee's request for payment, Lessor shall use reasonable efforts to make such payment to Lessee within thirty (30) days after Lessee has moved into and taken occupancy of the Demised Premises. In no event, however, shall Lessor be obligated to make such payment prior to the date which is thirty (30) days after the first draw request following Lessee's occupancy of the Demised Premises is funded by Lessor's lender on the Project. Notwithstanding anything to the contrary contained in the immediately preceding paragraph, only the actual reimbursement payment made by Lessor pursuant to this Paragraph 9 (which may be less than $60,000) shall be directly applied against the Allowance and thereby reduce the remaining Allowance. In this regard, to the extent an amount less than $60,000 is reimbursed by Lessor to Lessee pursuant to this Paragraph 9, the Allowance shall not be reduced by said difference; however, Lessee shall not otherwise be entitled to receive or obtain a credit for any excess funds available hereunder to the extent Lessee's actual out-of-pocket costs are less than $60,000, but rather, said excess funds shall belong to and be the sole property of Lessor. 10. Lease Provisions. The terms and provisions of the Lease, insofar ---------------- as they are applicable to this Work Letter, are hereby incorporated herein by reference. All amounts payable by Lessee to Lessor hereunder shall be deemed to be additional Rent under the Lease and, upon any default in the payment of same, Lessor shall have all of the rights and remedies provided for in the Lease. 11. Miscellaneous. ------------- (a) This Work Letter shall be governed by the laws of the state in which the Demised Premises are located. (b) This Work Letter may not be amended except by a written instrument signed by the party or parties to be bound thereby. (c) Any person signing this Work Letter on behalf of Lessee warrants and represents he/she has authority to sign and deliver this Work Letter and bind Lessee. (d) Notices under this Work Letter shall be given in the same manner as under the Lease. (e) The headings set forth herein are for convenience only. (f) This Work Letter and Section 42 of the Lease set forth the entire agreement of Lessee and Lessor regarding the Work. (g) In the event that the final working drawings and epecifications are included as part of the Plans, or in the event Lessor performs the Work without the necessity of preparing working drawings and specifications, then whenever the term "Working Drawings" is used in this Agreement, such term shall be deemed to refer to the Plans and all supplemental plans and specifications approved by Lessor. (h) Unless otherwise defined, all capitalized terms used in this Work Letter shall have the meanings ascribed to them in the Lease. 12. Exculpation of Lessor. Notwithstanding anything to the contrary --------------------- contained in this Work Letter, it is expressly understood and agreed by and between the parties hereto that: (a) The recourse of Lessee or its successors or assigns against Lessor with respect to the alleged breach by or on the part of Lessor of any representation, warranty, covenant, undertaking or agreement contained in this Work Letter (collectively, "Lessor's Work Letter Undertakings") shall extend only to Lessor's interest in the real estate of which the Demised Premises demised under the Lease are a part (hereinafter, "Lessor's Real Estate.) and not to any other assets of Lessor or its constituent partners; and (b) Except to the extent of Lessor's interest in Lessor's Real Estate, no personal liability or personal responsibility of any sort with respect to any of Lessor's Work Letter Undertakings or any alleged breach thereof is assumed by, or shall at any time be asserted or enforceable against, Lessor, its constituent partners, or against any of their respective directors, officers, employees, agents, constituent partners, beneficiaries, trustees or representatives. IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the 9th Day of March, 1994.
LESSOR: LESSEE: Airport Center Associates Limited Partnership, CHEAP TICKETS, INC., a Connecticut Limited Partnership a Hawaii corporation By: DRAHCIR REALTY CORP. By: /s/ Michael J. Hartley ----------------------------------- By: /s/ Its: Vice President ------------------------------------- Vice President By: /s/ Sandra T. Hartley ----------------------------------- Its: President
FIRST AMENDMENT TO LEASE ------------------------ This First Amendment to Lease ("Amendment") is entered into as of this 20th day of July, 1994, by and between Airport Center Associates Limited Partnership, a Connecticut limited partnership ("Lessor"), and Cheap Tickets, Inc., a Hawaii corporation ("Lessee"). RECITALS -------- A. Pursuant to that certain Lease Agreement (the "Lease") dated as of January 19, 1994, by and between Lessor and Lessee, Lessor leased unto Lessee certain office space commonly known as Suite 1200 (the "Demised Premises"), located in the building (the "Building") situated at 6151 West Century Boulevard, Los Angeles, California 90045, as more particularly described in the Lease. B. Lessor and Lessee mutually desire to amend the Lease in accordance with the terms set forth below. NOW, THEREFORE, for and in consideration of the foregoing the further consideration and mutual benefits provided below, the parties agree as follows: 1. Signage. Section 30(b) of the Lease is hereby amended by deleting the ------- reference to "six (6) feet" and replacing same with "twelve (12) feet." 2. Defaults. The first paragraph of Section 19 of the Lease is hereby -------- amended by the addition of the following subparagraph: "(j) any default by Lessee under the terms of that certain Lease Agreement dated as of July 20, 1994, by and between Lessor and Lessee with respect to Lessee's lease of Suite 100 in the Building." 3. Basic Rental Credit. Article 47 is hereby amended by deleting the ------------------- reference to the figure "$9,072.30" and replacing same with the figure $8,972.40". 4. Brokers. Lessor and Lessee each warrants that it has had no dealings ------- with any real estate broker or agent in connection with the negotiation of this Amendment, excepting only Cushman & Wakefield of California, Inc., and that each knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Amendment. Lessor shall pay any commissions or fees that are payable to Cushman & Wakefield of California, Inc. with respect to this Amendment in accordance with the provisions of a separate commission contract. Lessor shall have no further or separate obligation for payment of commissions or fees to any other real estate broker, finder or intermediary. Subject to the foregoing, each party hereto shall indemnify and hold harmless the other party hereto from and against any and all losses, damages, liabilities, costs and expenses (including, but not limited to, reasonable attorneys' fees and related costs) resulting from any claims that may be asserted against such other party by any real estate broker, finder or intermediary arising from any act of the indemnifying party in connection with this Amendment. 5. Attorneys' Fees. Should any party initiate a legal proceeding against --------------- any other party, including an arbitration, then the prevailing party shall be entitled to receive a reasonable attorneys' fees and costs incurred in connection with such legal proceeding. 6. Counterparts. This Amendment may be executed in any number of ------------ counterparts, each of which shall be an original, but all of which shall constitute the one and the same instrument. 7. Definitions. As used herein, all capitalized terms shall have the same ----------- meanings as defined in the Lease, unless otherwise defined herein. 8. Facsimile. Each party hereto, and their respective successors and --------- assigns, shall be authorized to rely upon the signatures of all of the parties hereto on this Amendment which are delivered by facsimile as constituting a duly authorized, irrevocable, actual, current delivery of this Amendment with original ink signatures of each person and entity; provided, however, that each party hereto that delivers such facsimile signatures to another party hereto, covenants and agrees that it shall deliver an executed original of the same to the party(s) so receiving the previous facsimile signatures within five (5) days after the delivery of such facsimile signatures. 9. No Other Amendments. Except as modified by this Amendment, the ------------------- provisions of the Lease shall remain unaffected and in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of date and year first written above.
"LESSOR" "LESSEE" AIRPORT CENTER ASSOCIATES CHEAP TICKETS, INC., a Hawaii UNITED PARTNERSHIP, a Connecticut limited corporation partnership By: DRAHCIR REALTY CORP. By: /s/ Michael J. Hartley --------------------------------------- By: /s/ Its: VP & GM ---------------------------------- -------------------------------------- Its: Vice President ---------------------------------- Dated: , 1994 Dated: August 16 , 1994 ------------------------ ----------
SECOND AMENDMENT TO LEASE This Second Amendment to Lease ("Second Amendment") is entered into as of this 25th day of April, 1997, by and between GENERAL ELECTRIC CREDIT EQUITIES, INC., a Delaware corporation ("Lessor"), and CHEAP TICKETS, INC., a Hawaii corporation ("Lessee"). Recitals A. Pursuant to that certain Lease Agreement, dated as of January 19, 1994 (the "Original Lease"), Airport Center Associates Limited Partnership, a Connecticut limited partnership ("Original Lessor"), leased to Lessee certain premises identified as Suite No. 1200 (the "Premises") located in the building situated at 6151 West Century Boulevard, Los Angeles, California 90045 (the "Building"). B. Original Lessor and Lessee amended the Original Lease by entering into that certain First Amendment to Lease dated as of July 20, 1994 (the "First Amendment"). The Original Lease, as amended and modified by the First Amendment, shall be referred to hereinafter as the "Lease." C. Lessor thereafter succeeded to the interests of Original Lessor under the Lease. D. Lessee now desires to expand the size of the Premises to include certain additional space located on the eleventh floor of the Building, and Lessor desires to lease such additional space to Lessee, all in accordance with the terms and conditions set forth below. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as follows: 1. Expansion of Premises. Lessor hereby agrees to lease to Lessee --------------------- and Lessee hereby agrees to lease from Lessor the following additional premises: that certain premises (the "Expansion Premises") containing approximately 5,249 rentable square feet located on the eleventh floor of the Building, as further depicted on Exhibit A attached hereto and incorporated herein. 2. Annual Basic Rent. In addition to its obligations under the ----------------- Lease with respect to the Premises for Basic Rental and for all other sums due and owing to Lessor thereunder, Lessee shall be responsible for the payment to Lessor of Basic Rental for the Expansion Premises from and after the Expansion Premises Commencement Date (defined below) until September 30, 2004 in accordance with the schedule and in the amount set forth below: (a) From the Expansion Premises Commencement Date through the end of the twenty-fourth (24th) calendar month after the Expansion Premises Commencement Date: $4,934.06 per month ($.94 per rentable square foot per month); (b) From the first day of the twenty-fifth (25th) calendar month after the Expansion Premises Commencement Date through the end of the forty-eighth (48th) calendar month after the Expansion Premises Commencement Date: $5,249.00 per month ($1.00 per rentable square foot per month); (c) From the first day of the forty-ninth (49th) calendar month after the Expansion Premises Commencement Date through September 30, 2004: $5,616.43 per month ($1.07 per rentable square foot per month). 3. Security Deposit. Upon the execution hereof, Lessee shall pay ---------------- to Lessor the amount of $4,934.06 as an additional Security Deposit (the "Additional Security Deposit"). On the first day of the twenty-fifth (25th) calendar month after the Expansion Premises Commencement Date, Lessee shall pay to Lessor the amount necessary to increase the Additional Security Deposit to $5,249.00. On the first day of the forty-ninth (49th) calendar month after the Expansion Premises Commencement Date, Lessee shall pay to Lessor the amount necessary to increase the Additional Security Deposit to $5,616.43. 4. Expansion Premises Commencement Date. The term "Expansion ------------------------------------ Premises Commencement Date" shall mean the later of (i) May 1, 1997 or (ii) upon substantial completion of the lessee improvement work to be performed by Lessor pursuant to the Work Letter (defined below). 5. Condition of Expansion Premises. Subject to the performance ------------------------------- of Lessor's obligations under the Work Letter Agreement attached to this Second Amendment as Exhibit B (the "Work Letter"), Lessee hereby agrees that the Expansion Premises shall be taken "AS IS", "WITH ALL FAULTS", "WITHOUT ANY REPRESENTATIONS OR WARRANTIES", and Lessee hereby agrees and warrants that it has investigated and inspected the condition of the Expansion Premises and the suitability of same for Lessee's purposes, and Lessee does hereby waive and disclaim any objection to, cause of action based upon, or claim that its obligations hereunder should be reduced or limited because of the condition of the Expansion Premises or the suitability of same for Lessee's purposes. Lessee acknowledges that neither Lessor nor any agent nor any employee of Lessor has made any representations or warranty with respect to the Expansion Premises or with respect to its suitability for the conduct of Lessee's business and Lessee expressly warrants and represents that Lessee has relied solely on its own investigation and inspection of the Expansion Premises in its decision to enter into this Second Amendment and let the Expansion Premises in an "As Is" condition (subject to the performance by Lessor of its obligations under the Work Letter). The taking of possession of the Expansion Premises by Lessee shall conclusively establish that the Expansion Premises was at such time in satisfactory condition. 6. Operating Expenses. In addition to its obligations with ------------------ respect to payment of Operating Expenses and Taxes for the Premises under Article 36 of the Lease, Lessee shall be responsible for Lessee's pro rata share (also referred to as "Lessee's Proportionate Share") of Operating Expenses and Taxes with respect to the Expansion Premises in accordance with the terms of Article 36 of the Lease (except as modified herein). With respect to the Expansion Premises only: (i) the term "Lessee's pro rata share" or "Lessee's Proportionate Share" shall mean 2.32%; (ii) Lessee's Base Year shall be 1997; and (iii) if the average occupancy of the Building in any calendar year is less than ninety-five percent (95%), then the Operating Expenses and Taxes for such year, including the Base Year, shall be adjusted to reflect the amounts which would have been payable if the occupancy of the Building had been at an average of ninety-five percent (95%). 7. Term. The term of Lessee's lease of the Expansion Premises ---- shall commence on the Expansion Premises Commencement Date and terminate on September 30, 2004 (the "Expansion Premises Term"). 8. Option to Re-Lease. Lessee shall have an option to re-lease the ------------------ Expansion Premises in accordance with the terms and conditions set forth in the Lease, with references to the Demised Premises meaning the Expansion Premises. 9. Option to Terminate. So long as Lessee is not in default under ------------------- the Lease, as amended by this Second Amendment, Lessee shall have a one-time option to terminate its lease of the Expansion Premises, in accordance with the terms and conditions set forth in Article 48 of the Lease, except that, as the fee due and payable to Lessor on account of Lessee terminating its lease of the Expansion Premises, Lessee shall pay to Lessor, no later than thirty (30) days before the Cancellation Date (as defined in the Lease), an amount equal to the sum of: (a) the unamortized Excess Amount (as defined in the Work Letter attached hereto); and (b) three months' Basic Rental for the Expansion Premises at the then-prevailing rate in accordance with the rent schedule set forth in Paragraph 2 of this Second Amendment. 10. First Right of Offer. Lessee shall have a right of first offer -------------------- with respect to space on the 11th Floor of the Building, as set forth more particularly in Paragraph 59 of the Lease. 11. Signage. ------- (a) Subject to Lessor's prior written consent, which may be withheld or delayed in Lessor's sole and absolute discretion, Lessee, at its sole cost and expense, may replace its existing sign on the side of the Building and may illuminate the new sign, if any. (b) Without the prior written consent of Lessor, which may be withheld or delayed in Lessor's sole and absolute discretion, Lessee shall not contact any other tenant of the Building with respect to that tenant's signs on the Building or other signage rights. By its execution of this Second Amendment, Lessee acknowledges that its violation of this covenant shall constitute a material breach of the Lease, as amended by this Second Amendment. (c) If each and every one of the following conditions are satisfied, Lessee shall have a right of first offer, as hereinafter described (the "Signage Right of First Offer"), with respect to the signage rights (the "Signage Rights") possessed as of the date hereof by Park Avenue, a tenant in the Building: (i) Lessee shall not be in default under the Lease, as amended by this Second Amendment and any subsequent amendments of the Lease; (ii) Lessee shall be occupying over fifty percent (50%) of the rentable square footage of the Building (space assigned or sublet by Lessee to another party shall not be included in making this determination); (iii) Park Avenue's lease(s) for any and all space in the Building shall have been terminated (assignments, transfers and subleases of space shall not be deemed a termination); (iv) Lessor shall have secured possession of the Signage Rights; and (v) Lessor shall not have granted rights to the Signage Rights to any other party or person prior to the date hereof. The Signage Right of First Offer shall mean the right to lease or rent the Signage Rights on commercially reasonable terms before the Signage Rights are offered to any other party. If the conditions precedent to the Signage Right of First Offer are satisfied, Lessor shall give to Lessee a notice advising Lessee of the availability of the Signage Rights and of the rental price and other terms and conditions, as reasonably determined by Lessor, for the grant of the Signage Rights to Lessee (the "Signage Availability Notice). Within ten (10) business days of the Signage Availability Notice, Lessee shall notify Lessor in writing (the "Signage Rights Exercise Notice") that it has elected to exercise the Signage Right of First Offer and to obtain the Signage Rights at the rental price and on the other terms set forth in the Signage Availability Notice. If Lessor does not receive the Signage Rights Exercise Notice in the ten (10) business day time period set forth above, Lessee shall be deemed to have elected not to exercise the Signage Right of First Offer and Lessee shall have no further rights or interest with respect to the Signage Rights. At Lessor's option, Lessee and Lessor shall enter into a written agreement memorializing Lessee's rental of the Signage Rights. 12. Parking. During the Expansion Premises Term, Lessee shall have ------- the use of fifteen (15) additional unreserved parking spaces, at the prevailing monthly rate in effect from time to time. 13. Storage Space. In addition to the Storage Space rented to ------------- Lessee under the Lease, during the Expansion Premises Term, Lessee shall have the right to rent storage space from Lessor, to the extent available as determined by Lessor in its sole and absolute discretion, at the cost of sixty cents ($.60) per rentable square foot, subject to a five percent (5%) annual increase. 14. Lessor's Address for Notices. From and after the date hereof, ---------------------------- Lessor's address for notices under the Lease and this Second Amendment shall be the following: General Electric Credit Equities, Inc. c/o R&B Commercial Real Estate Services, Inc. 9841 Airport Boulevard, Suite 1510 Los Angeles, California 90045 Attn: General Manager with a copy to: General Electric Credit Equities, Inc. 18300 Von Karman Avenue, Suite 700 Irvine, California 92612 Attn: Real Estate Portfolio Manager 15. Attorney's Fees. In the event either party commences an action --------------- to enforce any provision of this Second Amendment, the prevailing party in such action shall be entitled to receive from the other party, in addition to damages, equitable or other relief, and all costs and expenses incurred, including reasonable attorneys fees and court costs and the fees and costs of expert witnesses, and fees incurred to enforce any judgment obtained. 16. Severability. The provision with respect to attorneys fees ------------ incurred to enforce a judgment shall be severable from all other provisions of this Second Amendment, shall survive any judgment, and shall not be deemed merged into the judgment. 17. Capitalized Terms. All terms capitalized but not defined in ----------------- this Second Amendment shall have the meanings given them in the Lease. 18. Authority. Lessee has full power and authority to enter into --------- this Second Amendment and the person signing on behalf of Lessee has been fully authorized to do so by all necessary corporate or partnership action on the part of Lessee. 19. Lease in Full Force. Except as modified by this Second ------------------- Amendment, the terms, covenants and conditions of the Lease shall remain unaffected and in full force and effect. In addition, except to the extent inconsistent with the terms of this Second Amendment, all references to the term "Premises" in the Lease shall also include the Expansion Premises. 20. Brokers. Lessee represents that it has not dealt with any ------- broker with respect to this Second Amendment. If Lessee has dealt with any broker or person, Lessee shall be solely responsible for the payment of any fees due said person or firm and Lessee shall protect, indemnify, hold harmless and defend Lessor from any liability in respect thereto. 21. Facsimile. Each party hereto, and their respective successors --------- and assigns shall be authorized to rely upon the signatures of all of the parties hereto on this Second Amendment which are delivered by facsimile as constituting a duly authorized, irrevocable, actual, current delivery of this Second Amendment with original ink signatures of each person and entity; provided, however, that each party hereto that delivers such facsimile signatures to another party hereto, covenants and agrees that it shall deliver an executed original of the same to the party(s) so receiving the previous facsimile signatures within ten (10) days after the delivery of such facsimile signatures. 22. Estoppel. Lessee warrants, represents and certifies to Lessor -------- that as of the date of this Second Amendment: (a) Lessor is not in default under the Lease, and (b) Lessee does not have any defenses or offsets to payment of rent and performance of its obligations under the Lease, as and when the same becomes due. 23. Counterparts. This Second Amendment may be executed in ------------ counterparts, each of which will be deemed an original part and all of which together will constitute a single agreement. IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the date first written above.
LESSOR: LESSEE: GENERAL ELECTRIC CREDIT EQUITIES, CHEAP TICKETS, INC., INC., a Delaware corporation a Hawaii corporation By: /s/ J. Michael Malloy By: /s/ Paul L.H. Ouyang -------------------------------- ------------------------------------ J. Michael Malloy Name: Paul L.H. Ouyang Senior Portfolio Manager ----------------------------- Position: Chief Financial Officer -------------------------
EXHIBIT A [TO BE ATTACHED] EXHIBIT B WORK LETTER AGREEMENT [Lessor Performs Work] [Allowance] This Work Letter Agreement ("Work Letter") is executed simultaneously with that certain Second Amendment to Lease (the "Second Amendment") between Cheap Tickets, Inc., a Hawaii corporation, as "Lessee", and General Electric Credit Equities, Inc., a Delaware corporation, as "Lessor", relating to certain premises (the "Expansion Premises") located at 6151 West Century Boulevard, Los Angeles, California (the "Building"); the Expansion Premises are more fully identified in the Second Amendment. Capitalized terms used herein, unless otherwise defined in this Work Letter, shall have the respective meanings ascribed to them in the Second Amendment. For and in consideration of the agreement to lease the Expansion Premises and the mutual covenants contained herein and in the Second Amendment, Lessor and Lessee hereby agree as follows: 1. Lessee's Initial Plans; the Work. Lessee desires Lessor to perform -------------------------------- certain leasehold improvement work in the Expansion Premises in substantial accordance with a plan or plans to be mutually agreed upon by Lessor and Lessee (collectively, the "Initial Plan"). Such work, as shown in the Initial Plan and as more fully detailed in the Working Drawings (as defined and described in Paragraph 2 below), shall be hereinafter referred to as the "Work". As soon as reasonably practicable, Lessee shall furnish to Lessor such additional plans, drawings, specifications and finish details as Lessor may reasonably request to enable Lessor's architects and engineers to prepare mechanical, electrical and plumbing plans and to prepare the Working Drawings, including a final telephone layout and special electrical connection requirements, if any. All plans, drawings, specifications and other details describing the Work which have been or are hereafter furnished by or on behalf of Lessee shall be subject to Lessor's approval, which Lessor agrees shall not be unreasonably withheld. Lessor shall not be deemed to have acted unreasonably if it withholds its approval of any plans, specifications, drawings or other details or of any Additional Work (as defined in Paragraph 8 below) because, in Lessor's reasonable opinion, the work, as described in any such item, or the Additional Work, as the case may be: (a) is likely to adversely affect Building systems, the structure of the Building or the safety of the Building and/or its occupants; (b) might impair Lessor's ability to furnish services to Lessee or other lessees in the Building; (c) would increase the cost of operating the Building; (d) would violate any governmental laws, rules or ordinances (or interpretations thereof); (e) contains or uses hazardous or toxic materials or substances; (f) would adversely affect the appearance of the Building; (g) might adversely affect another lessee's premises; (h) is prohibited by any ground lease affecting the Building or any mortgage, trust deed or other instrument encumbering the Building; or (i) is likely to be substantially delayed because of unavailability or shortage of labor or materials necessary to perform such work or the difficulties or unusual nature of such work. The foregoing reasons, however, shall not be the only reasons for which Lessor may withhold its approval, whether or not such other reasons are similar or dissimilar to the foregoing. Neither the approval by Lessor of the Work or the Initial Plan or any other plans, drawings, specifications or other items associated with the Work nor Lessor's performance, supervision or monitoring of the Work shall constitute any warranty by Lessor to Lessee of the adequacy of the design for Lessee's intended use of the Expansion Premises. 2. Working Drawings. If necessary for the performance of the Work and ---------------- not included as part of the Initial Plan attached hereto, Lessor shall prepare or cause to be prepared final working drawings and specifications for the Work (the "Working Drawings") based on and consistent with the Initial Plan and the other plans, drawings, specifications, finish details and other information furnished by Lessee to Lessor and approved by Lessor pursuant to Paragraph 1 above. So long as the Working Drawings are consistent with the Initial Plan, Lessee shall approve the Working Drawings within three (3) days after receipt of same from Lessor by initialing and returning to Lessor each sheet of the Working Drawings or by executing Lessor's approval form then in use, whichever method of approval Lessor may designate. 3. Performance of the Work; Allowance. Except as hereinafter provided ---------------------------------- to the contrary, Lessor shall cause the performance of the Work using (except as may be stated or shown otherwise in the Working Drawings) building standard materials, quantities and procedures then in use by Lessor ("Building Standards"). Lessor shall pay for a portion of the "Cost of the Work" (as defined below) in an amount not to exceed $46,657.78 (such amount being $10.00 per usable square foot of the Expansion Premises which is to be improved, as described in the Working Drawings) (the "Allowance"). Lessee shall not be entitled to any credit, abatement or payment from Lessor in the event that the amount of the Allowance specified above exceeds the Cost of the Work. For purposes of this Agreement, the term "Cost of the Work" shall mean and include any and all costs and expenses of the Work, including, without limitation, the cost of the Initial Plan and the Working Drawings and all other fees of Lessor's architect and engineers, all plan check, permit and license fees, the cost of any changes in the base building or the floor(s) of the Building on which the Expansion Premises are located, when such charges are required by the Working Drawings or to comply with applicable governmental regulations or building codes (collectively, the "Code"), the cost of any changes to the Working Drawings or the Work required by Code, sales and use taxes and Title 24 fees, an administrative fee to Lessor for the supervision by Lessor of the general contractor (which fee shall equal 5% of the total amount paid to such general contractor), and of all labor (including overtime) and materials constituting the Work. Notwithstanding the foregoing, the cost of (i) the initial space study obtained by Lessor prior to the date hereof and (ii) the first revision of that space study, completed prior to the date hereof, shall be paid by Landlord and shall not be deducted from or considered a part of the Allowance; the foregoing costs specified as items (i) and (ii) represent all costs incurred by Lessor prior to February 25, 1997 in connection with this Second Amendment. 4. Repayment of Excess Funds Expended by Lessor. At Lessee's request, -------------------------------------------- Lessor shall expend an additional amount up to $46,657.78 (such amount being an additional $10.00 per usable square foot of the Expansion Premises which is to be improved, as described in the Working Drawings) over and above the Allowance for additional work to the Expansion Premises (the "Excess Amount"). Lessee shall reimburse Lessor for the Excess Amount as follows: concurrently with its payments to Lessor of monthly Basic Rental, Lessee shall pay to Lessor an amount equal to the Monthly Amortized Excess Amount (defined below). The term "Monthly Amortized Excess Amount" shall mean the Excess Amount, amortized over the period from the Expansion Premises Commencement Date through April 30, 1999 on a monthly, straight line basis, with interest accruing on the unamortized Excess Amount at ten percent (10%) per annum. If the Lease, as amended by this Second Amendment, is canceled or terminated for any reason prior to April 30, 1999, the unamortized Excess Amount shall become immediately due and payable to Lessor. Lessee shall pay for the entire Cost of the Work in excess of the Allowance and the Excess Amount, without contribution of any nature from Lessor. 5. Payment. Prior to commencing the Work or as soon as reasonably ------- practicable thereafter, Lessor shall submit to Lessee a written statement of the total Cost of the Work (which shall include the amount of any overtime projected as necessary to substantially complete the Work by May 1, 1997 or as soon thereafter as reasonably practicable), as then known by Lessor, and such statement shall indicate the amount, if any, by which the total Cost of the Work exceeds the Allowance and the Excess Amount (the "Excess Costs"). Lessee agrees, within ten (10) days after submission to it of such statement, to execute and deliver to Lessor, in the form then in use by Lessor, an authorization to proceed with the Work, and Lessee shall also then pay to Lessor an amount equal to the Excess Costs. To the extent the total Cost of the Work exceeds the Allowance, Lessee's delivery of the authorization to proceed with the Work shall be deemed a request by Lessee for Lessor to expend the Excess Amount, in accordance with Paragraph 4 above. At Lessor's option, no Work shall be commenced until Lessee has fully complied with the preceding provisions of this Paragraph 5. In the event, and each time, that any change order by Lessee, unknown field condition, delay caused by acts beyond Lessor's control or other event or circumstance causes the Cost of the Work to be increased after the time that Lessor delivers to Lessee the aforesaid initial statement of the Cost of the Work, Lessor shall deliver to Lessee a revised statement of the total Cost of the Work, indicating the revised calculation of the Excess Costs, if any. Within ten (10) days after submission to Lessee of any such revised statement, Lessee shall pay to Lessor an amount equal to the Excess Costs, as shown in such revised statement, less the amounts previously paid by Lessee to Lessor on account of the Excess Costs, and Lessor shall not be required to proceed further with the Work until Lessee has paid such amount. Delays in the performance of the Work resulting from the failure of Lessee to comply with the provisions of this Paragraph 5 shall be deemed to be delays caused by Lessee. Notwithstanding the ten (10) day period provided in this Paragraph 5 for Lessee to execute and deliver authorizations to proceed with the Work or to pay the Excess Costs, as applicable, any delays in the performance of the Work resulting from the failure of Lessee to comply with its obligation to execute and deliver authorizations to proceed with the Work or to pay the Excess Costs, as applicable, within three (3) days after Lessor submits to Lessee the applicable statement, shall be deemed to be delays caused by Lessee. 6. Substantial Completion. Lessor shall endeavor to cause the Work to ---------------------- be "substantially completed" on or before May 1, 1997, subject to delays caused by strikes, lockouts, boycotts or other labor problems, casualties, discontinuance of any utility or other service required for performance of the Work, unavailability or shortages of materials or other problems in obtaining materials necessary for performance of the Work or any other matter beyond the control of Lessor (or beyond the control of Lessor's contractors or subcontractors performing the Work) and also subject to "Lessee Delays" (as defined and described in Paragraph 7 of this Work Letter). The Work shall be deemed to be "substantially completed" for all purposes under this Work Letter and the Second Amendment if and when Lessor's architect issues a written certificate to Lessor and Lessee, certifying that the Work has been substantially completed (i.e., completed except for "punchlist" items listed in such architect's certificate) in substantial compliance with the Working Drawings, or when Lessee first takes occupancy of the Expansion Premises, whichever first occurs. If the Work is not deemed to be substantially completed on or before May 1, 1997, (a) Lessor agrees to use reasonable efforts to complete the Work as soon as practicable thereafter, (b) the Second Amendment shall remain in full force and effect, and (c) Lessor shall not be deemed to be in breach or default of the Second Amendment or this Work Letter as a result thereof and Lessor shall have no liability to Lessee as a result of any delay in occupancy (whether for damages, abatement of Rent or otherwise). In the event the substantial completion of the Work is delayed as a result of any Lessee Delay, the substantial completion of the Work shall be deemed to be the date that the Work would have been substantially complete, but for the Lessee Delay. Lessor agrees to use reasonable diligence to complete all punchlist work listed in the aforesaid architect's certificate promptly after substantial completion. 7. Lessee Delays. The term "Lessee Delays" shall include the ------------- following: (i) the failure of Lessee to furnish all or any plans, drawings, specifications, finish details or the other information required under Paragraph 1 above on or before the date stated in Paragraph 1; (ii) the failure of Lessee to grant approval of the Working Drawings within the time required under Paragraph 2 above; (iii) the failure of Lessee to comply with the requirements of Paragraph 5 above; (iv) Lessee's requirements for special work or materials, finishes, or installations other than the Building Standards or Lessee's requirements for special construction staging or phasing; (v) the performance of any Additional Work (as defined in Paragraph 8 below) requested by Lessee or the performance of any work in the Expansion Premises by any person, firm or corporation employed by or on behalf of Lessee, or any failure to complete or delay in completion of such work; or (vi) any other act or omission of Lessee. 8. Additional Work. Upon Lessee's request and submission by Lessee --------------- (at Lessee's sole cost and expense) of the necessary information and/or plans and specifications for work other than the Work described in the Working Drawings ("Additional Work") and the approval by Lessor of such Additional Work, which approval Lessor agrees shall not be unreasonably withheld, Lessor shall perform such Additional Work, at Lessee's sole cost and expense, subject, however, to the following provisions of this Paragraph 8. Prior to commencing any Additional Work requested by Lessee, Lessor shall submit to Lessee a written statement of the cost of such Additional Work, which cost shall include a fee payable to Lessor in the amount of 10% of the total cost of such Additional Work as compensation to Lessor for monitoring the Additional Work and for administration, overhead and field supervision associated with the Additional Work and an additional charge payable to Lessor in the amount of 5 % of the total Cost of the Work as compensation for Lessor's general conditions (such fee and additional charge being hereinafter referred to collectively as "Lessor's Additional Compensation"), and, concurrently with such statement of cost, Lessor shall also submit to Lessee a proposed tenant extra order (the "TEO") for the Additional Work in the standard form then in use by Lessor. Lessee shall execute and deliver to Lessor such TEO and shall pay to Lessor the entire cost of the Additional Work, including Lessor's Additional Compensation (as reflected in Lessor's statement of such cost), within five (5) days after Lessor's submission of such statement and TEO to Lessee. If Lessee fails to execute or deliver such TEO or pay the entire cost of such Additional Work within such 5-day period, then Lessor shall not be obligated to do any of the Additional Work and may proceed to do only the Work, as specified in the Working Drawings. 9. Lessee Access. Lessor, in Lessor's reasonable discretion and upon ------------- request by Lessee, may grant to Lessee a license to have access to the Expansion Premises prior to the date designated in the Second Amendment for the commencement of the term of the Second Amendment to allow Lessee to do other work required by Lessee to make the Expansion Premises ready for Lessee's use and occupancy (the "Lessee's Pre-Occupancy Work"). It shall be a condition to the grant by Lessor and continued effectiveness of such license that: (a) Lessee shall give to Lessor a written request to have such access to the Expansion Premises not less than five (5) days prior to the date on which such access will commence, which written request shall contain or shall be accompanied by each of the following items, all in form and substance reasonably acceptable to Lessor: (i) a detailed description of and schedule for Lessee's Pre-Occupancy Work; (ii) the names and addresses of all contractors, subcontractors and material suppliers and all other representatives of Lessee who or which will be entering the Expansion Premises on behalf of Lessee to perform Lessee's Pre-Occupancy Work or will be supplying materials for such work, and the approximate number of individuals, itemized by trade, who will be present in the Expansion Premises; (iii) copies of all contracts, subcontracts and material purchase orders pertaining to Lessee's Pre-Occupancy Work; (iv) copies of all plans and specifications pertaining to Lessee's Pre-Occupancy Work; (v) copies of all licenses and permits required in connection with the performance of Lessee's Pre-Occupancy Work; (vi) certificates of insurance (in amounts satisfactory to Lessor and with the parties identified in, or required by, the Second Amendment named as additional insureds) and instruments of indemnification against all claims, costs, expenses, damages and liabilities which may arise in connection with Lessee's Pre-Occupancy Work; and (vii) assurances of the ability of Lessee to pay for aU of Lessee's Pre-Occupancy Work and/or a letter of credit or other security deemed appropriate by Lessor securing Lessee's lien-free completion of Lessee's Pre-Occupancy Work. (b) Such pre-term access by Lessee and its representatives shall be subject to scheduling by Lessor. (c) Lessee's employees, agents, contractors, workmen, mechanics, suppliers and invitees shall work in harmony and not interfere with Lessor or Lessor's agents in performing the Work and any Additional Work in the Expansion Premises, Lessor's work in other premises and in common areas of the Building, or the general operation of the Building. If at any time any such person representing Lessee shall cause or threaten to cause such disharmony or interference, including labor disharmony, and Lessee fails to immediately institute and maintain such corrective actions as directed by Lessor, then Lessor may withdraw such license upon twenty-four (24) hours' prior written notice to Lessee. (d) Any such entry into and occupancy of the Expansion Premises by Lessee or any person or entity working for or on behalf of Lessee shall be deemed to be subject to all of the terms, covenants, conditions and provisions of the Second Amendment, excluding only the covenant to pay Rent. Lessor shall not be liable for any injury, loss or damage which may occur to any of Lessee's Pre-Occupancy Work made in or about the Expansion Premises or to property placed therein prior to the commencement of the term of the Second Amendment, the same being at Lessee's sole risk and liability. Lessee shall be liable to Lessor for any damage to the Expansion Premises or to any portion of the Work or Additional Work caused by Lessee or any of Lessee's employees, agents, contractors, workmen or suppliers. In the event that the performance of Lessee's Pre-Occupancy Work causes extra costs to Lessor, Lessee shall reimburse Lessor for such extra cost at Lessor's standard rates then in effect. 10. Second Amendment Provisions. The terms and provisions of the --------------------------- Second Amendment, insofar as they are applicable to this Work Letter, are hereby incorporated herein by reference. All amounts payable by Lessee to Lessor hereunder shall be deemed to be additional Rent under the Second Amendment and, upon any default in the payment of same, Lessor shall have all of the rights and remedies provided for in the Second Amendment. 11. No Moving Allowance. Lessee shall bear the complete cost and ------------------- expense of moving its furnishings and other personal property into the Expansion Premises. Lessor shall not be required to provide any moving allowance to Lessee. 12. Miscellaneous. ------------- (a) This Work Letter shall be governed by the laws of the state in which the Expansion Premises are located. (b) This Work Letter may not be amended except by a written instrument signed by the party or parties to be bound thereby. (c) Any person signing this Work Letter on behalf of Lessee warrants and represents he/she has authority to sign and deliver this Work Letter and bind Lessee. (d) Notices under this Work Letter shall be given in the same manner as under the Second Amendment. (e) The headings set forth herein are for convenience only. (f) This Work Letter sets forth the entire agreement of Lessee and Lessor regarding the Work. (g) In the event that the final working drawings and specifications are included as part of the Initial Plan attached hereto, or in the event Lessor performs the Work without the necessity of preparing working drawings and specifications, then whenever the term "Working Drawings" is used in this Agreement, such term shall be deemed to refer to the Initial Plan and all supplemental plans and specifications approved by Lessor. 13. Exculpation of Lessor. Notwithstanding anything to the contrary --------------------- contained in this Work Letter, it is expressly understood and agreed by and between the parties hereto that: (a) The recourse of Lessee or its successors or assigns against Lessor with respect to the alleged breach by or on the part of Lessor of any representation, warranty, covenant, undertaking or agreement contained in this Work Letter (collectively, "Lessor's Work Letter Undertakings") shall extend only to Lessor's interest in the real estate of which the Expansion Premises demised under the Second Amendment are a part (hereinafter, "Lessor's Real Estate") and not to any other assets of Lessor or its officers, directors or shareholders; and (b) Except to the extent of Lessor's interest in Lessor's Real Estate, no personal liability or personal responsibility of any sort with respect to any of Lessor's Work Letter Undertakings or any alleged breach thereof is assumed by, or shall at any time be asserted or enforceable against, Lessor, or against any of its respective directors, officers, employees, agents, constituent partners, beneficiaries, trustees or representatives. IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the date of the Second Amendment.
LESSOR: LESSEE: GENERAL ELECTRIC CREDIT EQUITIES, CHEAP TICKETS, INC., INC., a Delaware corporation a Hawaii corporation By: /s/ J. Michael Malloy By: /s/ Paul L.H. Ouyang -------------------------------- ---------------------------------- J. Michael Malloy Name: Paul L.H. Ouyang Senior Portfolio Manager --------------------------- Position: Chief Financial Officer -----------------------
TENANT'S ESTOPPEL CERTIFICATE PREMISES: 6151 West Century Boulevard, Suites ll20 and 1200 LANDLORD: GENERAL ELECTRIC CREDIT EQUITIES, INC., SUCCESSOR IN INTEREST TO AIRPORT CENTER TENANT: CHEAP TICKETS, INC., A HAWAII CORPORATION LEASE DATED: January 19, 1994 DATE: September 05, 1997 The undersigned, Tenant, hereby certifies to Landlord that: 1. Tenant has accepted possession of the Premises pursuant to the Lease. A true and accurate copy of the lease, together with all amendments and modifications thereof (collectively the "Lease"), is attached hereto as Exhibit A. The Lease term commenced on July 01, 1994. The termination date of the Lease term, excluding renewals and extensions, is September 30, 2004. Tenant does not have any options to extend or renew the term of the Lease, except as follows (if none, so state): One five (5) year option to renew. Tenant has the right to cancel the Lease pursuant to Paragraph 48 of the Suite 1200 Lease. 2. Any improvements required by the terms of the Lease to be made by Landlord have been completed to the satisfaction of Tenant in all respects, and Landlord has fulfilled all of its duties under the Lease. 3. The Lease has not been assigned, modified, supplemented or amended in any way, except as set forth on Exhibit A. The Lease constitutes the entire agreement between the parties and there are no other agreements between Landlord and Tenant concerning the Premises. Tenant does not have any option or preferential right to purchase all of any part of the Premises or the Building of which the Premises are a part or any right, title or interest with respect to the Premises or such Building other than as tenant under the Lease. 4. The Lease is valid and in full force and effect, and, to the best of Tenant's knowledge, neither Landlord nor Tenant is in default thereunder. Tenant has no defense, setoff or counterclaim against Landlord arising out of the Lease or in any way relating thereto, or arising out of any other transaction between Tenant and Landlord, and no event has occurred and no condition exists, which with the giving of notice or the passage of time, or both, would constitute a default under the Lease. 5. No rent or other sum payable under the Lease has been paid more than one month in advance. 6. The current monthly base rent payable under thc Lease (Ste.#1120) is $4,934.06. The monthly base rent increases to $5,249.00 per month on August 01, 1999 and increases to $5,616.43 per month on August 01, 2001. 7A. The current monthly base rent payable under the Lease (Ste.#1200) is $8,972.30. The monthly base rent increases to $_________ per month on _______________ and increases to $_______________ per month on _______________. 8. The base year for pass throughs of operating expenses and taxes is 1997, with a base amount for operating expenses of $2,181,749 and a base amount - ---- for taxes of . Tenant's pro rata share under the Lease is 2.3200%. 9. Except for the sublease or subleases attached hereto as Exhibit B, Tenant is not a party to any sublease with respect to all or any portion of the Premises, and Tenant has not assigned its interest in the Lease, or any rights therein, to any person or entity. 10. A security deposit in the amount of $13,906.36 has been deposited by Tenant with Landlord. No portion of the security deposit has been applied by Landlord to cure any default by Tenant under the Lease. 11. To the best of Tenant's knowledge, there are no rent, lease or similar commissions payable with respect to the Lease. 12. Tenant is not entitled to any concession or rebate of rent or other charges from time to time due and payable under the Lease. Tenant acknowledges that Landlord is in the process of selling its interest in 6151 West Century Boulevard, Los Angeles, California (the "Property"). Tenant agrees that Landlord and thc Purchaser of the Property and their respective successors and assigns may rely on the foregoing statements and Tenant certifies that all of the foregoing statements are true and correct. IN WITNESS WHEREOF, Tenant has executed and delivered this Estoppel Certificate on the date first above written. CHEAP TICKETS, INC., a Hawaii corporation By: /s/ Michael J. Hartley ----------------------- Its: President ---------- TERMINATION AGREEMENT --------------------- THIS TERMINATION AGREEMENT ("Agreement") is made and entered into as of this 19th day of January, 1994, by and among Airport Center Associates Limited Partnership, a Connecticut limited partnership ("Lessor") and Cheap Tickets, Inc., a Hawaii corporation ("Lessee"). RECITALS: -------- A. Pursuant to the terms and provisions of that certain Lease Agreement dated as of September, 1992, (the "Lease"), Lessor leased to Lessee certain premises commonly known as Suite No. 830 (the "Premises") in the building located at 9841 Airport Boulevard, Los Angeles, California (the "Building"). B. Lessee now desires to surrender to Lessor all of Lessee's right, title and interest under the Lease, and Lessor desires to accept said surrender, all on the terms and conditions of this Agreement. AGREEMENT: --------- NOW, THEREFORE, in consideration of the mutual covenants and upon the conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee agree as follows: 1. Condition Precedent to Effectiveness of Agreement. This Agreement ------------------------------------------------- is expressly conditioned upon and shall have no force or effect until such time as that certain Lease Agreement (the "New Lease") dated as of January 19, 1994, is mutually executed and delivered by and between Lessee and Lessor with respect to Lessee's lease of certain premises commonly known as Suite 1200 (the "New Premises") in the building located at 6151 W. Century Boulevard, Los Angeles, California. This Agreement is further conditioned upon Lessee's compliance with all of its obligations and duties under the Lease up to the Termination Date (defined below). 2. Surrender of Lease. Effective on the day immediately preceding ------------------ the substantial completion of the Work (as defined in the New Lease) (the "Termination Date"), Lessee hereby surrenders to Lessor and Lessor hereby accepts the surrender from Lessee, of all of Lessee's right, title and interest under the Lease, subject to the rights, duties and limitations set forth in this Agreement. From and after the Termination Date, except as expressly set forth herein, Lessor and Lessee shall have no further duties or obligations to one another under the Lease, except that Lessee shall be entitled to continue to occupy the Premises, free of rent, during the Early Occupancy Period (as defined in the New Lease) in order to more easily facilitate Lessee's move into the New Premises. 3. Release by Lessor. Subject to Lessee's full and timely compliance ----------------- with all of the terms and conditions of this Agreement, including, without limitation, the truthfulness and accuracy of Lessee's representations hereunder, Lessee's timely performance of all of Lessee's obligations under the Lease, and except for such obligations, rights or claims as may be created by or arise out of the terms and conditions of this Agreement, effective on the Termination Date, Lessor, on behalf of itself and its predecessors, successors, affiliates and assigns, and all other persons, firms and corporations claiming through Lessor and each of them (collectively, the "Releasing Parties"), do hereby release Lessee and its predecessors, successors, affiliates and assigns, and their respective partners, officers, shareholders, agents, contractors, representatives, employees and attorneys (collectively, the "Lessee Released Parties"), of and from any and all claims, demands, disputes, damages, liabilities, obligations, controversies, debts, costs, expenses, lawsuits, actions, causes of action and other rights to relief, both legal and equitable, of every kind and nature, whether now known or unknown, suspected or unsuspected, past or present, contingent or fixed (collectively, the "Claims"), which the Releasing Parties, or any of them, now have, had, or at any time hereafter may have, against the Lessee Released Parties, or any of them, arising out of or in connection with the payment of rental under the Lease. 4. Release by Lessee. Except for such obligations, rights or claims ----------------- as may be created by or arise out of the terms and conditions of this Agreement, effective on the Termination Date, Lessee, on behalf of itself and its predecessors, successors, affiliates and assigns, and all other persons, firms and corporations claiming through Lessee, and each of them (collectively, the "Lessee Releasing Parties"), does hereby release Lessor and its predecessors, successors, affiliates and assigns, and its respective partners, officers, shareholders, agents, contractors, representatives, employees and attorneys (collectively, the "Released Parties"), of and from any and all Claims which the Lessee Releasing Parties, or any of them, now have, had, or at any time hereafter may have, against the Released Parties, or any of them, arising out of or in connection with the Lease, the Premises, or any dealings between the Released Parties, or any of them, on the one hand, and the Lessee Releasing Parties, or any of them, on the other hand, with respect to the Lease, the Premises, or the property of which the Premises are a part. 5. California Civil Code Section 1542. Lessor and Lessee hereby ---------------------------------- expressly waive all rights which they have, or may hereafter claim to have, that any claim, demand, obligation and/or cause of action has, through ignorance, oversight or error, been omitted from the terms of this Agreement, and hereby expressly waive all rights they may have, or claim to have, under the provisions of California Civil Code Section 1542, or equivalent law of any jurisdiction, which provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. 6. Representations and Warranties of Lessee. Lessee hereby makes the ---------------------------------------- following representations and warranties to Lessor (all of which representations and warranties, together with all other representations and warranties made by Lessee in this Agreement, shall survive the Termination Date): a. Lessee shall have the full power, authority and legal right to enter into and to perform and observe the provisions of this Agreement without the authorization and consent of any other party or entity; this Agreement has been duly and validly authorized and approved by all necessary corporate action on the part of Lessee and will not violate the terms and provisions of Lessee's bylaws or other organizational documents; and this Agreement has been duly and validly executed and delivered by Lessee and constitutes a valid, binding and enforceable obligation of Lessee. All authorizations and consents required from any other person or entity to enable Lessee to enter into this Agreement and surrender the Lease have been obtained. b. Lessee has not assigned, sublet, transferred or conveyed, and agrees not to assign, sublet, transfer or convey, its interest in any claims or potential claims it may have against Lessor. c. Neither Lessee nor any of Lessee's agents, representatives, employees, subtenants or assignees have stored, released, discharged or otherwise handled or will store, release, discharge or otherwise handle any Hazardous Materials (as defined in the New Lease) upon, about, above or beneath the Premises or any portion of the Building, except for normal quantities of those Hazardous Materials customarily used in the conduct of general administrative and executive office activities (e.g., copier fluids and cleaning supplies), which were used or will be used in compliance with all applicable Environmental Laws (as defined in the New Lease). 7. Indemnification. Lessee hereby agrees to indemnify, defend (by --------------- counsel reasonably satisfactory to Lessor) and hold Lessor harmless from and against any claims, actions, causes of action, losses, liabilities, damages, costs and expenses (including, without limitation, attorneys' fees and costs) suffered or incurred by Lessor as a result of any breach of or inaccuracy in Lessee's representations and warranties contained in this Agreement. 8. Time of the Essence. Lessor and Lessee hereby acknowledge and ------------------- agree that time is of the essence. 9. Invalidity of Provisions. If any provision of this Agreement is ------------------------ found to be invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of any such provision shall not affect the validity and enforceability of the remaining provisions hereof. 10. Attorneys' Fees. If either party hereto commences an action --------------- against the other to enforce any of the terms hereof, or to obtain damages for any alleged breach of any of the terms hereof, or for a declaration of rights hereunder, the losing party shall pay to the prevailing party the prevailing party's reasonable attorneys' fees and costs incurred in connection with the prosecution of such action, whether or not such action proceeds to trial or appeal. 11. Governing Law. This Agreement shall be governed by and construed ------------- and enforced in accordance with the laws of the State of California. 12. Further Assurances. Each of the parties hereto agrees to execute ------------------ and deliver all such further documents and to take all such further actions as may be reasonably requested by any other party to effectuate fully the terms and provisions of this Agreement, provided such documents or actions do not materially limit, reduce or impair the rights of the party upon whom such request is made. 13. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 14. Facsimile. Each party hereto, and their respective successors --------- and assigns shall be authorized to rely upon the signatures of all of the parties hereto on this Agreement which are delivered by facsimile as constituting a duly authorized, irrevocable, actual, current delivery of this Agreement with original ink signatures of each person and entity; provided, however, that each party hereto that delivers such facsimile signatures to another party hereto, covenants and agrees that it shall deliver an executed original of the same to the party(s) so receiving the previous facsimile signatures within five (5) days after the delivery of such facsimile signatures. 15. Binding Agreement. This Agreement shall be binding upon and ----------------- inure to the benefit of the heirs, successors and assigns of the parties hereto. 16. Transfer of Security Deposit. Lessee hereby acknowledges and ---------------------------- agrees that the entire Security Deposit currently being held by Lessor pursuant to the terms of the Lease ($3,959.20) shall, at Lessor's election, continue to be held by Lessor (i) as security for the performance of Lessee's obligations under the Lease, and/or (ii) after the Termination Date, as partial security for the faithful performance and observance by Lessee of all of Lessee's duties, obligations, covenants and conditions under the New Lease. IN WITNESS WHEREOF, Lessor and Lessee have entered into this Agreement as of the date first above written.
"LESSOR" "LESSEE" AIRPORT CENTER ASSOCIATES Cheap Tickets, Inc., a Hawaii corporation LIMITED PARTNERSHIP, a Connecticut limited partnership By: /s/ Michael J. Hartley ------------------------------------- By: DRAHCHIR REALTY CORP. Its: General Manager By: /s/ By: ---------------------------- -------------------------------------- Its Vice President Its:
EX-10.8 11 LEASE DATED MARCH 31, 1998 Exhibit 10.8 LEASE ----- This Lease is made and entered into this 31st day of March, 1998, by and between Executive Tower of Colorado Springs, LLC ("Landlord"), and Cheap Tickets, Inc. ("Tenant"). Premises 1.1 Landlord leases to Tenant approximately 12,226 square feet of rentable (10,540 net usable) floor space at 2864 South Circle Drive, Colorado Springs, Colorado 80906 (the "Building"), to be known as Suite 700 (the "Premises") as marked on Exhibit "A" attached hereto and by reference incorporated herein, to be used as General Office Space and for no other purposes, on the terms and conditions set forth herein. Term 2.1 The term of this Lease shall be for Five (5) years and Six (6) months commencing April 1, 1998, or such other date set forth in Article 8 herein, and shall end September 30, 2003, unless sooner terminated pursuant to any of the provisions of this Lease. Base Rent and Common Area Facilities 3.1 Tenant agrees to pay to Landlord at the principal office of Landlord, or to such other place or party as may be designated from time to time by Landlord, as Base Rent for the Premises, without setoff, abatement or deduction, and without demand, the total sum of $663,255.00 payable as follows: 04/01/98 - 09/30/98 $51,960.00 in equal monthly installments of $8,660.00; 10/01/98 - 09/30/99 $110,034.00 in equal monthly installments of $9,169.50; 10/01/99 - 09/30/00 $116,148.00 in equal monthly installments of $9,679.00; 10/01/00 - 09/30/01 $122,256.00 in equal monthly installments of $10,188.00; 10/01/01 - 09/30/02 $128,373.00 in equal monthly installments of $10,697.75; 10/01/02 - 09/30/03 $134,484.00 in equal monthly installments of $11,207.00.
The first payment shall be due and payable upon full execution of Lease and shall be applied to the rent due for April 1, 1998, with successive payments due on the first day of each month thereafter. Years are the successive twelve month periods following the Commencement Date. The obligation of Tenant for the payment of Base Rent shall survive the termination of this Lease. 3.2 This Lease is made on a triple net basis, and Base Rent is not intended to cover property taxes, building insurance and other common operating expenses allocable to the Premises. The term "Common Area" means all areas and facilities furnished, maintained, and managed by Landlord in, upon or in connection with the Demised Premises and designated for the general use, in common, of Tenant and other occupants of the building, including, but not limited to, parking areas (including re-striping), streets, sidewalks, roadways, walks, curbs, loading platforms/areas, the building signs, roofs, elevators, washrooms, toilets, shelters, storage areas, ramps, landscaped areas, the storm drainage system and utility lines, and other similar facilities (except for those items of maintenance and repairs specifically set forth in this Lease which shall be the sole obligation of Tenant). The areas and facilities comprising the Common Area may be expanded, contracted, improved or changed by Landlord from time to time as deemed desirable, and shall at all times be subject to the exclusive control and management of Landlord, who agrees to operate and maintain the same pursuant to the terms and provisions of this Lease. Furthermore, Landlord shall have the right from time to time to make rules and regulations pertaining to and necessary for the proper operation and maintenance of the Common Areas. 3.3 For the purpose of this Article 3, Landlord's operating costs for the Common Area Maintenance ("CAM") is defined as including all costs and expenses deemed necessary or appropriate by Landlord incurred in operating and maintaining the Common Area, including, without limitation, wages and salaries of all employees engaged in the operation, maintenance or security of the Building, including taxes, insurance, and benefits related thereto; all supplies and materials used in operation and maintenance of the Building; cost of all utilities for the Building, including but not limited to the cost of water, power, heating, lighting, air conditioning, ventilating, sewer and trash disposal; cost of all maintenance (except for those items of maintenance and repairs specifically set forth in the Lease which shall be the sole obligation of Tenant), Building management and service agreements for the Building and the equipment therein, including alarm service, janitorial service for the Building's common areas (however, no janitorial service to the Premises is provided), window cleaning, security service, elevator maintenance, and ground maintenance, including but not limited to parking lot maintenance; cost of all insurance relating the Building, including the cost of causality and liability insurance applicable to the Building and Landlord's personal property used in connection therewith; cost of repairs and general maintenance (excluding repairs and general maintenance paid by proceeds of insurance applicable to the Building and Landlord's personal property used in connection therewith); cost of repairs and general maintenance (excluding repairs and general maintenance paid by proceeds of insurance, by Tenant or by other third parties, and alterations attributable solely to tenants of the Building); amortized cost of installation of capital investment items, however not to include any Tenant finish, but does include the parking lot, common areas, and/or roof, and any items required by government order; any reasonable management fee for general operation and management of the Building, which is calculated as a percentage of gross rentals plus a base fee; and all real estate taxes and assessments and special assessments imposed upon the Building by any governmental bodies or authorities, and all charges specifically imposed in lieu of such taxes. The term "taxes" as used in Article 3.2 shall not include state, local or federal personal and corporate income taxes measured by the income of Landlord, estate and inheritance taxes, franchise, succession and transfer taxes; interest on taxes and penalties resulting from failure to pay real estate taxes; and ad valorem taxes on Landlord's personal furniture and furnishings, and on Landlord's leasehold improvements to the extent that same exceed standard building allowance. 3.4 Tenant shall pay to Landlord monthly, as Additional Rent, its proportionate share of CAM. Tenant's proportionate share of the CAM shall be an amount determined by multiplying the total of the Common Area Costs by a fraction, the numerator of which shall be the number of square feet of rentable space in the Premises (as established in Article 1.1), and the denominator of which shall be the total of the gross leasable square feet in the Building. The first year estimate of CAM expenses shall be $4.30 per square-foot and said CAM payment shall commence April 1, 1998. 3.5 Landlord shall estimate the cost for operating and maintaining the Common Areas annually, shall notify Tenant of such estimate, and Tenant shall pay its proportionate share of such estimate in equal monthly installments commencing on the first day monthly installments of Base Rent are due following such notification. Within a reasonable time following the end of each Lease Year, Landlord shall notify Tenant in writing of the actual CAM for the preceding year. In the event that Tenant has paid more than its proportionate share of the CAM during the preceding year, such excess shall be credited by Landlord against Tenant's obligation to pay its proportionate share of CAM in the following year. In the event Tenant has paid less than its proportionate share of the CAM, Tenant shall pay such deficiency to Landlord within ten (10) days of receipt of the statement for such deficiency. Failure by Landlord to notify Tenant of the actual CAM for the preceding year within a reasonable time shall not be deemed a waiver by Landlord of its right to adjust such costs and collect any deficiency from Tenant. Additional Rent 4.1 Tenant shall pay Landlord as Additional Rent those charges in respect to Common Area Costs and such other sums as are required to be paid by Tenant under this Lease, herein called "Additional Rent". Any such charges or sums shall be deemed to be rent and shall be payable in the manner provided and recoverable as rent, and Landlord shall have all rights specified in this Lease against Tenant for default in payment thereof as in the case of arrears of rent. Late Charges 5.1 If Tenant fails to make any installments of Base Rent, Additional Rent or any other sum due Landlord hereunder within ten (10) days after such amount is due, then such late payments shall bear a late charge equal to eighteen percent (18%) of the delinquent payment due. Failure or delay of Landlord in connection with this paragraph shall not constitute a waiver or renunciation of its rights therein. Security for Performance of Lease 6.1 On the date of the execution of this Lease, Tenant shall deposit with Landlord the sum of $8,500.00 as security for the full and faithful performance by Tenant of the terms of this Lease. Landlord may use, apply, or retain the whole or any part of said security to the extent required for the payment of any rent as to which Tenant is in default, or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect to any of the terms of this Lease. Any sums so used or applied by Landlord from said security deposit shall immediately be repaid by Tenant to Landlord after notice. Upon termination of this Lease, Landlord shall return to Tenant within 60 (sixty) days the security deposit herein above provided for, less any sums used or applied upon any default and not reimbursed. In the event of a bona fide sale subject to this Lease, Landlord shall have the right to transfer the security deposit to the purchaser, and upon such transfer Landlord shall be released by Tenant from all liability for the return of such security. Purchaser shall be required to comply with the terms and conditions of this Lease. Improvements and Finish 7.1 Landlord shall provide Tenant with the construction and finish of the interior of the Premises pursuant to plans and specifications which shall be mutually approved in writing by Landlord and Tenant and which shall be based upon a scaled floor plan design and those specifications attached hereto as Exhibit "C". Possession 8.1 Tenant may take possession of the Premises upon full execution of the Lease. 8.2 Possession of the Premises shall be deemed delivered when tendered for occupancy, and the tenant improvements agreed to between Landlord and Tenant have been substantially completed. Tenant agrees to take possession upon substantial completion. If only minor or insubstantial details or construction, decoration, or mechanical adjustments remain to be completed on the Premises then the payment of rent under the Lease will commence on the commencement date set forth in the Lease regardless of any contrary provisions of the Lease. If a delay in substantial completion shall be due to special work, changes, alterations, or additions to the Premises required by or made by Tenant; or if such delay is due to Tenant's delay or default in submitting plans, supplying information, approving plans or specifications, or authorizing changes or otherwise; or if such delay is caused by any other delay or default of Tenant, the Premises shall be deemed substantially complete and ready for occupancy on the commencement date. Acceptance of Premises 9.1 By occupying the Premises, Tenant accepts the same and acknowledges that the Premises are in the condition called for hereunder, unless Tenant furnishes Landlord with a notice in writing specifying any defect in the Premises within ten (10) days after taking possession thereof. Use 10.1 Tenant will occupy the Premises for General Office Space and for no other purpose. Tenant will not use or permit in the Premises anything that will increase the rate of fire insurance thereon or which would prevent Landlord from obtaining reduced rates for long term insurance policies, or maintain anything that may be dangerous to life or limb, or in any manner, deface, injure, or commit waste in, on, or about said Building or any portion thereof, or overload the floors or permit any objectionable noise or odor to escape or be emitted from said Premises, or permit anything to be done upon the Premises in any way tending to create a nuisance or to disturb any other tenants of the Building, or to injure the reputation of the Building or to use or permit the use of the Premises for lodging or sleeping purposes, or for any immoral or illegal purposes. Tenant will comply, at Tenant's own cost and expense, with all orders, notices, regulations, or requirements of any municipality, state or other governmental authority respecting the use of the Premises unless such cost or expense is due to Landlord's failure to construct the building in accordance with such governmental requirements. Services 11.1 Landlord shall furnish adequate common area services during normal business hours as set forth in the rules and regulations attached hereto as Exhibit "B". The business hours may be changed to other reasonable hours as solely determined by Landlord, or such shorter periods as may be prescribed by any applicable policies or regulations adopted by any utility or governmental agency. Landlord shall not be liable for the stoppage or interruption of any said services or for the utilities, caused by riots, strikes, labor disputes, accidents, necessary repairs or any conditions beyond Landlord's control. Landlord shall be the sole judge as to the amount and kind of services and utilities to be provided under the provisions hereof, and any additional services or utilities required by Tenant shall be at Tenant's sole cost and expense. Tenant agrees not to connect to or alter any utilities or equipment provided by Landlord without obtaining Landlord's prior written consent. 11.2 If, upon the request of Tenant, Landlord furnishes Tenant with any additional services not described hereinabove as services normally furnished by Landlord, Tenant shall pay Landlord for such additional services at the prevailing wage and material rates in Colorado Springs, Colorado, plus 15% at the time said services are performed. Charges for such additional services shall be deemed to be Additional Rent, and may be collected by Landlord as provided in Article 4 above. Security 12.1 Landlord shall provide only such security for the Building as Landlord deems necessary, which shall not include any special measures because of the presence of Tenant or Tenant's business. Landlord shall have no responsibility to prevent and shall not be liable to Tenant for losses due to theft, burglary or vandalism, or for damages done by unauthorized persons gaining access to the Premises. In the event Landlord contracts with an unaffiliated security service to provide security for the Building, the provisions of this article shall not preclude Tenant from seeking any claims, damages, or other reimbursement from said security service caused as a result of a breach of any obligation of said service to perform its assigned tasks. Use of Electricity 13.1 Tenant's use of electricity in the Premises shall be for the operation of the building standard lighting, electrical fixtures, typewriters, personal computers and other small office machines and lamps and any other equipment incidental to the Tenant's business and shall not at any time exceed the capacity of any of the electrical conductors and equipment in or serving the Premises. 13.2 In order to ensure that such capacity is not exceeded and to avert possible adverse effect on the Building's electrical service, Tenant shall not, without Landlord's prior written consent in each instance, connect any additional fixtures, appliance or equipment (other than normal office electrical fixtures and copying machinery, lamps, typewriter, and similar small office machines) to the Building's electrical distribution system or make any alteration or addition to the electric system of the Premises existing at the commencement of the term hereof. If Landlord grants such consent, the cost of all additional risers and other equipment required therefor shall be paid as Additional Rent by Tenant to Landlord upon demand. Alterations 14.1 Tenant will make no alterations in or additions to the Premises without obtaining the prior written consent of Landlord which will not be unreasonably withheld and will be deemed approved if the request by Tenant is not objected to in writing by Landlord or its agent within twenty (20) days of receipt. Landlord may impose such conditions on its consent as Landlord deems appropriate. Tenant Repairs 15.1 If any of the elevators or other apparatus or elements of the Building used for the purpose of climate control or operation of the elevators or if the water pipes, drainage pipes, electric lighting or the room or outside walls of the Building or parking facilities of Landlord become damaged or destroyed through the negligence, carelessness or misuse of Tenant, its agents, employees or anyone permitted by Tenant to be in the Building, then the cost of the necessary repairs, replacements or alterations shall be borne by Tenant, who shall pay the same on demand to Landlord as Additional Rent. 15.2 Tenant shall keep the Premises in as good order, condition and repair as when they were entered upon, loss by fire (unless caused by the negligence of Tenant, its agents, employees or invitees) or accident, ordinary wear and tear excepted. If Tenant fails to keep the Premises in such good order, condition and repair as required hereunder to the reasonable satisfaction of Landlord, as soon as reasonably possible after written demand, Landlord may restore the Premises to such good order and condition and make such repairs without liability to Landlord and upon completion thereof, Tenant shall pay to Landlord, as Additional Rent, upon demand, the cost of restoring the Premises to such good order and condition and of the making of such repairs. Landlord Repairs 16.1 Unless otherwise expressly stipulated herein, Landlord shall not be required to make any improvements to or repairs of any kind or character on the Premises during the term of this Lease, except such repairs as may be deemed necessary by Landlord for normal maintenance operations of the Building. The obligation of Landlord so to maintain and repair the Premises shall be limited to building standard items. Special leasehold improvements will, at Tenant's written request, be maintained by Landlord, and Tenant shall pay to Landlord for such maintenance as Additional Rent hereunder an amount equal to Landlord's actual costs, plus 15% of said costs to cover Landlord's overhead. Trade and Other Fixtures 17.1 Any and all installations, alterations, changes, additions, partitions, fixtures or improvements to the Premises, other than Tenant's trade fixtures, including, but not limiting the generality of the foregoing, wall coverings, tile, linoleum, and power wiring shall be the property of the Landlord upon any termination of this Lease. Notwithstanding anything herein contained, Landlord shall be under no obligation to repair, maintain, or insure such installation, changes, alterations, additions, partitions, fixtures, or improvements made or installed by, or on behalf of Tenant. Lien Protection 18.1 Tenant agrees that at no time during the term of this Lease will Tenant permit a lien or encumbrance of any kind or nature to come into existence against the Premises or the Building. If at any time a lien or encumbrance is filed against the Premises, Tenant agrees it will deposit with Landlord in cash an amount equal to one hundred fifty percent (150%) of the amount of the lien and shall leave the same on deposit with Landlord until said lien is discharged. Landlord shall have the option, but not the responsibility, to satisfy any such lien or encumbrance, and if Landlord pays any such lien or encumbrance, Tenant shall pay to Landlord as Additional Rent, the amount of such payment on the next following day when monthly installments of rent are due hereunder. If Landlord satisfies any such lien or encumbrance, it may make such payment without inquiry into the accuracy of the amount of such lien or encumbrance or the validity of the lien or encumbrance. Insurance 19.1 Tenant shall pay all premiums due in connection with the insurance Tenant is required to carry under the terms of this Lease and shall furnish Landlord with copies of paid receipts evidencing the payment thereof. All such policies shall be written with companies satisfactory to Landlord and authorized to do business in the State of Colorado. Landlord shall not unreasonably withhold its consent to the placement of insurance with companies proposed by Tenant, so long as the proposed companies have a rating of at least B XIII in the "Best's Key Rating Guide". 19.2 During the term of this Lease, Tenant shall keep the Premises insured for the protection of Landlord with coverage that is normal to Tenant's business and Landlord's assignees who shall be so named as additional insured in any such policies, by maintaining bodily injury and property damage insurance including blanket contractual liability, broad form property damage, personal injury, completed operations products liability and fire damage legal liability insurance on a commercial general liability form. Such insurance shall be written on a combined single limit basis in an amount of not less than One Million Dollars ($1,000,000.00) and such higher limits as the Landlord may reasonably require from time to time. Tenant shall maintain, at his sole cost and expense, any other form or forms of insurance in amounts and for such risks as Landlord may reasonably require from time to time including, but not limited to, insurance for the full replacement cost of Tenant's personal property and fixtures located on the Premises on an open perils basis insurance against "all risks of direct physical loss". Worker's Compensation Insurance as required by statute including employer's liability insurance shall be in the limits of $100,000/$500,000/$100,000. All policies of insurance required shall name Landlord and Tenant as insured and provide that the proceeds of such insurance shall be payable to Landlord and Tenant, as their interests may appear. Tenant shall deliver to Landlord not more than thirty (30) days after execution of this Lease and thereafter at least thirty (30) days prior to expiration of such policy, Certificates of Insurance evidencing the above coverage which shall expressly provide that at least thirty (30) days prior written notice shall be given to Landlord in the event of a material alteration or cancellation of the coverage. 19.3 If Tenant shall at any time fail, neglect, or refuse to provide and maintain such insurance, Landlord shall have the option, but shall not be required, to pay for such insurance and any amounts paid therefore by Landlord shall be deemed Additional Rent due Landlord and shall be paid by Tenant to Landlord at the next rental payment date after any such payment, with interest thereon at the rate of eighteen percent (18%) per annum at the time that such insurance is obtained. 19.4 Tenant agrees to pay any increase in premiums of insurance carried by Landlord if, in the reasonable determination of Landlord, such increase is directly related or caused by Tenant's use of the Premises. Waiver of Subrogation 20.1 The parties shall obtain from their respective property insurance carriers Waivers of Subrogation against the other party agents, employees, and as to Tenant invitees. Neither party shall be liable to the other for any loss or damage caused by fire or any of the risks enumerated in the standard fire insurance policy with an extended coverage endorsement if such insurance was obtainable at the time of such loss or damage. Casualty Damage 21.1 In the event of fire or other casualty, against which Landlord is insured, and which is not caused by the negligence of Tenant, Base Rent shall abate in the proportion that the unusable portion of the Premises as reasonably determined by Landlord is to the total area of the Premises until the Premises are rebuilt, and upon receipt by Landlord of such insurance proceeds, Landlord agrees that it will with reasonable diligence repair the Premises, unless this Lease is terminated as provided, subject to the provisions of this article. 21.2 If the Premises are damaged or destroyed by any cause whatsoever, and if, in the reasonable opinion of Landlord, the Premises cannot be rebuilt or made fit for the purposes of Tenant within one hundred twenty (120) days of the damage or destruction, Landlord, instead of rebuilding or making the Premises fit for Tenant, may at its option terminate this Lease by giving Tenant within sixty (60) days after such damage and destruction, notice of termination, and thereupon rent and any other payments for which Tenant is obligated shall terminate as of the date of such damage and Tenant shall immediately deliver up possession of the Premises to Landlord provided, however, that those provisions of this Lease which are designated to cover matters of termination and thereafter, shall survive the termination hereof. In the event Landlord elects to terminate this Lease pursuant to this clause Landlord shall reimburse Tenant, within 30 days of receipt of the Landlord's insurance proceeds, the unamortized portion of the Tenant Improvements. Eminent Domain 22.1 If the Premises or a substantial part thereof, shall be taken in eminent domain, or conveyed under threat of condemnation proceedings, then this Lease shall forthwith terminate and end upon the taking hereof as if the original term provided in said Lease expired at the time of such taking. If only such part or portion of the Premises is taken which would not substantially and materially interfere with or adversely affect the business of the Tenant conducted at the Premises, then Landlord, at Landlord's option to be exercised in writing within thirty (30) days after the taking thereof, may repair, rebuild or restore the Premises, and this Lease shall continue in effect. If, however, because of such taking, the Premises should be rendered untenantable or partially untenantable, then the rent, or a portion thereof, shall abate until the Premises shall have been restored. 22.2 In the event that an award is made for taking of such property and parcels of the Premises or the Building in condemnation proceedings, Landlord shall be entitled to receive and retain the amounts awarded or paid for such taking or conveyance; provided, however, that Tenant shall be entitled to receive and retain such amounts as are specifically awarded to it in such proceedings because of the taking of its furniture, or fixtures, and its leasehold improvements which have not become a part of the realty. It is understood and agreed that any amounts specifically awarded in any such taking for the damage to the business of Tenant, done on the Premises and awarded to it as a result of interference with the access to the Premises or for any other damage to said business and trade done at the Premises shall be the property of Tenant, provided said award does not reduce the award to Landlord. 22.3 It is understood and agreed that in the event of the termination of this Lease as provided under this paragraph, Tenant shall have no claim against Landlord for other value of any unexpired term of this Lease and no right or claim to any part of the award made on account thereof. Indemnification and Waiver of Certain Claims 23.1 Tenant hereby agrees to indemnify and hold harmless Landlord, its subsidiaries, directors, officers, agents, attorneys and employees from and against any and all damage, loss, liability, or expense including, but not limited to, attorney's fees and legal costs suffered by same directly or by reason of any claim, suit or judgment brought by or in favor of any person or persons for damage, loss or expense due to, but not limited to, bodily injury, including death resulting any time therefrom, and property damage sustained by such person or persons which arises out of, is occasioned by, or is in any way attributable to the use of occupancy of the Premises and adjacent areas by Tenant, the acts or omissions of Tenant, its agents, employees or any contractors brought onto the Premises by Tenant, except that caused by the sole negligence of Landlord or its employees and agents. Such loss or damage shall include, but not be limited to, any injury or damage to Landlord's personnel (including death resulting anytime therefrom) or real or personal property. Tenant agrees that the obligations assumed herein shall survive this Lease. 23.2 Landlord shall indemnify, protect, defend and hold Tenant harmless from and against any and all claims, losses, costs (including without limitation attorneys' fees) or damages and from liability to any person on account of any damage to person or property to the extent caused by the negligence or willful misconduct of Landlord, its employees, directors, officers or agents or the failure of Landlord to perform its obligations under this Lease. 23.3 Landlord shall not be liable for any damage or injury including business interruption, either proximate or remote, occurring through or caused by the carelessness, negligence or improper conduct on the part of any Tenant or anyone other than Landlord, or for any damage to person or property resulting from any condition of the Premises or other cause including, but not limited to, damage occasioned by defective electric wiring, breaking or stoppage of plumbing or sewer, whether said breakage or stoppage resulted from freezing or otherwise, not resulting from the negligence of Landlord. Tenant shall give Landlord prompt notice of any defects in the Premises. Right of Entry 24.1 Landlord may, upon reasonable prior notice to Tenant, exhibit the Premises to prospective tenants during the last twelve (12) months of the term, and to any prospective purchaser, mortgagee, or assignee of any mortgage on the property and to others having a legitimate interest at any time in the event of an emergency, and otherwise at reasonable times, to take any and all measures, including inspections, repairs, alterations, additions and improvements to the Premises or the Building, as may be necessary or desirable for the safety, protection, or the preservation of the Premises or the Building of the Landlord's possessive interest therein, or as may be necessary or desirable in the operation or improvement of the Building or in order to comply with all laws, orders, and requirements of governmental or other authority. Tenant, pursuant to this Article 24, hereby waives any claim for damages for any injury to, inconvenience to or interference with Tenant's business, occupancy or quiet enjoyment of the Premises. Surrender of Premises 25.1 Tenant agrees to deliver, at the expiration of the term hereof, or earlier termination, the Premises in good repair and in a state of broom cleanliness, subject to ordinary wear and tear. Default by Tenant 26.1 The occurrence of any one or more of the following events shall constitute a breach of the Lease and default by Tenant: 26.1.1 Failure by Tenant to pay when due any payment of rent or any other sum required to be paid by Tenant hereunder and such failure to pay continues for a period of ten (10) days from the date that such sum became due and payable; 26.1.2 Failure of Tenant to perform any one or more of its covenants and agreements under this Lease within twenty (20) days after written notice to Tenant specifying the duties or covenants Tenant has failed to perform; 26.1.3 If Tenant or any guarantor of Tenant's obligations under this Lease shall file a voluntary petition in bankruptcy or shall be adjudicated bankrupt or insolvent; or shall take the benefit of any relevant legislation that may be enforced for bankrupt or insolvent debtors; or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future federal, state, or other statute, law, or regulation; or if any proceeding shall be taken by Tenant or any Guarantor hereof under any relevant bankruptcy act in force in any jurisdiction available to Tenant or any Guarantor; or if any Guarantor hereof shall seek, consent, or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or any Guarantor of all or any substantial part of his properties or of the Premises, or shall make any general assignment for the benefit of creditors; or if petition shall be filed against Tenant or any Guarantor seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal, state or other statute, law or regulation and shall remain undismissed for an aggregate of sixty (60) days; or if any trustee, receiver, or liquidator of Tenant or any Guarantor hereof or of all or any substantial part of its properties or of the Premises shall be appointed without the consent of acquiescence of Tenant or any Guarantor and such appointment shall remain unvacated for an aggregate of sixty (60) days. Remedies of Landlord 27.1 All rights and remedies of Landlord enumerated herein shall be cumulative, and none shall exclude any other right or remedy allowed by law. In addition to other remedies in this Lease provided, the Landlord shall be entitled to the restraint by injunction of the violation or attempted violation of any of the covenants, agreements, or conditions of this Lease. 27.2 Landlord shall have the right, at its election, in the event of a default by Tenant and upon giving prior written notice if required in Article 26 herein, to: 27.2.1 Institute suit against Tenant to collect each installment of rent or other sum as it becomes due or to enforce any obligation under this Lease; 27.2.2 Re-enter and take possession of the Premises and all personal property therein and remove Tenant and Tenant's agents and employees therefrom, and either (i) terminate this Lease and sue Tenant for damages or breach and default under the Lease; or (ii) without terminating the Lease, relet, assign, or sublet the Premises and personal property as the agent and for the account of Tenant in the name of Tenant or otherwise on such terms and conditions and for such rent as Landlord may deem best, and collect (a) the rent therefrom, provided Landlord shall, in no way, be responsible or liable for any failure to collect any rent due upon any such re-letting, and (b) an amount equal to the then present value of the Base Rent and Additional Rent provided in this Lease for the remainder of the Lease term, less the present rental value of the Premises for the remainder of the term. In so acting, Landlord shall not be deemed to have trespassed in any manner, nor shall Landlord's actions be construed to be a waiver or relinquishment of any of Landlord's right or remedies. In this event, the rents received on any such reletting shall be applied first to the expenses of reletting and collecting including, without limitation, all repossession costs, attorney's fees, court costs, unamortized broker's commissions, alteration costs, and expenses of preparing the Premises for re-letting, and thereafter for payment of the rent and any other amounts payable to Tenant to Landlord. If the sum realized shall not be sufficient to pay such rent and other charges, Tenant agrees to pay Landlord within five (5) days after demand any such deficiency as it accrues. Landlord shall use its best efforts to mitigate its damages. 27.3 In the event Landlord elects to re-enter or take possession of the Premises, Tenant agrees to quit and peaceably surrender the Premises to Landlord, and Landlord may enter upon and re-enter the Premises and possess and repossess itself thereof, by force, summary proceedings, ejectment or otherwise, and may dispossess and remove Tenant and may have, hold, and enjoy the Premises and the right to receive all rental income of and from the same. No such re- entry and taking possession by Landlord shall be construed as an election on Landlord's part to terminate or surrender this Lease unless Landlord gives notice to Tenant specifically terminating the Lease, unless a written notice of such intention is served on Tenant, notwithstanding the service of Demand for the Payment of Rent and Possession, and Landlord and Tenant expressly agree that the service of posting of such demand will not constitute an election on the part of the Landlord to terminate this Lease. 27.4 If Landlord elects to terminate this Lease in accordance with the provisions herein, Landlord shall be entitled to recover as damages attorney's fees and costs, the cost of removing Tenant, all costs of refurbishing and repairing the Premises for reletting, all sums due Landlord by Tenant. Landlord's Right to Cure Tenant's Default 28.1 If Tenant shall default in the performance of any covenant or provision of this Lease to be performed on Tenant's part, Landlord may, after fifteen (15) days written notice to Tenant, or without notice if in Landlord's opinion an emergency exists, perform the same for the account and at the expense of Tenant. If Landlord shall incur any expense, including reasonable attorneys' fees, in instituting, prosecuting, or defending any action of Tenant, Tenant shall reimburse Landlord for the amount of such expense with interest at the rate of eighteen percent (18%) per annum from the date of Landlord's advance or advances therefore. Should Tenant, pursuant to this Lease, become obligated to reimburse or otherwise pay Landlord one or more sums of money pursuant to this Article 28, the amount thereof shall be paid by Tenant to Landlord within five (5) days of Landlord's written demand therefore, and if Tenant fails to make such payment, such failure shall be deemed an event as set forth in Article 26 hereof. The provisions hereof shall neither impose a duty on Landlord nor excuse any failure on Tenant's part to perform or observe any covenant or condition in this Lease contained on Tenant's part to be performed or observed. Assignment and Sublease 29.1 Tenant shall not voluntarily or by operation of law assign, license, transfer, mortgage or otherwise transfer or encumber all or any part of Tenant's interest in this Lease or in the Premises and shall not sublet or license all or any part of the Premises, without the prior written consent of Landlord in each instance, and any attempted assignment, sale, transfer, mortgage, encumbrance or subletting without such consent, which shall not be unreasonably withheld, shall be wholly void. The Tenant's rights, duties and obligations under this Lease may not be assigned or delegated, nor may the Leased Premises be sublet during the term of this Lease without the prior written consent of the Landlord to such assignment, delegation or subletting; provided, however, that such consent shall not be unreasonably withheld by the Landlord if such assignment, delegation or subletting shall be to a financially responsible assignee, delegatee or sublessee with proven business expertise and of a profession substantially similar to that of existing tenants. If Landlord shall consent to a subletting, the difference, if any, between the Base Rent and Additional Rent as stated herein and the rent paid by the person subletting the Premises shall be split between the Tenant and Landlord with the Landlord receiving one-half, in advance, monthly during the remaining term or options of the Lease. Notwithstanding the above, Landlord consents to assignment of the lease to a corporation or other entity in which Tenant holds at least a fifty-one percent (51%) ownership interest. 29.2 No subletting or assignment, even with the consent of Landlord, shall relieve Tenant of its obligation to pay the Base Rent and Additional Rent and to perform all of the other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any subletting, assignment, or other transfer. Consent to one assignment, subletting or other transfer shall not be deemed to constitute consent to any subsequent assignment, subletting or other transfer. Subordination, Estoppel Letter and Attornment 30.1 This Lease is subject and subordinate to all first mortgages or first deeds of trust which now or hereafter may affect the Premises or the Building, and Tenant shall execute and deliver upon demand of Landlord any and all instruments subordinating this Lease, in the manner requested by Landlord, to any new or existing mortgage or deed of trust. In the event that Tenant's interest is subordinated, said mortgagee shall agree that it shall not disturb Tenant's possession, provided that Tenant is not in default under the terms and conditions of this Lease. Further, Tenant shall at any time and from time to time, upon not less than ten (10) days prior written notice from Landlord, execute, acknowledge, and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified, is in full force and effect) and the dates to which rent and other charges are paid in advance, if any, and acknowledging that there are not, to the Tenant's knowledge, any uncured defaults on the part of the Landlord hereunder, or specifying such defaults, if any are claimed, or acknowledging to any mortgagee that Tenant will not modify or amend this Lease without consent of such mortgagee, and certifying as to such other matters Landlord may reasonably request. 30.2 In the event that Landlord or its principal sells, conveys, transfers or grants the Building or the Premises to any person, firm, corporation, company, or entity during the term hereby demised, Tenant agrees to attorn to such new owner and Landlord and its principal shall be released from performance hereunder. Quiet Enjoyment 31.1 So long as the Tenant shall observe and perform those covenants and agreements binding on it hereunder, the Tenant shall, at all times during the term herein granted, peacefully and quietly have and enjoy possession of the Premises without any encumbrance or hindrance by, from, or through Landlord. Holding Over 32.1 Unless otherwise agreed to in writing by Landlord and Tenant, if Tenant retains possession of the Premises or any part thereof after the termination of the term, such holding over shall be deemed to be tenancy from month-to-month at a monthly rental equal to one hundred and twenty percent (120%) of the monthly installment of base rent due under the terms of the Lease from the month next preceding the commencement of the holdover period, and Tenant shall remain liable for all other payments provided for hereunder, and such holding over shall be subject to all of the other terms and conditions of the Lease. In addition to rent, Tenant agrees to pay the Landlord for all damages, consequential as well as direct, sustained by Landlord resulting or arising from Tenant's possession. No such holding over shall be deemed to constitute a renewal or extension of the term of the Lease. Notices 33.1 Any notice required or permitted hereunder or which any party elects to give shall be in writing and delivered either personally to the other party or the other party's authorized agent set forth below (or as changed by written notice), or by depositing such notice in the United States Certified Mail, Return Receipt Requested, postage fully prepaid, to the person at the address set forth below, or to such other address as either party may later designate in writing: Landlord: Executive Tower of Colorado Springs, LLC c/o The Equity Group 90 South Cascade Avenue, Suite 1500 Colorado Springs, CO 80903 Tenant: Cheap Tickets, Inc. 1440 Kapiolani Boulevard, Suite 800 Honolulu, Hawaii 96814 Definition of Landlord 34.1 The term "Landlord" as used in this Lease, so far as covenants or agreements on the part of the Landlord are concerned, shall be limited to mean and include only the owner or owners of the Landlord's interest in this Lease at the time in question, and in the event of any transfer or transfers of such interest, the Landlord herein named (and in case of any subsequent transfer, then transferor) shall be automatically freed and relieved from and after the date of such transfer of all liability as respects the performance of any convenants or agreements on the part of the Landlord contained in this Lease thereafter to be performed and provided Landlord is not in default hereunder, and provided transferee assumes in writing Landlord's obligations under this Lease. Waiver 35.1 No waiver or any breach of any one of the agreements, terms, conditions, or convenants of this Lease by Landlord or Tenant shall be deemed to imply or constitute a waiver of any other agreement, term, condition, or covenant of this Lease. The failure of either party to insist on strict performance of any agreement, term, condition, or covenant, herein set forth, shall not constitute or be construed as a waiver of the rights of either or of the other thereafter to enforce any other default of such agreement, term, condition, or covenant; neither shall such failure to insist upon strict performance be deemed sufficient grounds to enable either party hereto to forego or subvert or otherwise disregard any other agreement, term, condition, or covenant of the Lease. Successor 36.1 All of the agreements, terms, conditions, and covenants set forth in this Lease shall inure to the benefit of and be binding upon the heirs, legal representatives, successors, executors, and assigns of the parties, except that no assignment or subletting by Tenant in violation of the provisions of this Lease shall vest any rights in the assignee or in the sublessee. Corporate Resolution 37.1 If a corporation executes this Lease as a Tenant, Tenant shall promptly provide Landlord with certified corporate resolutions attesting to the authority of the of ficers to execute this Lease on behalf of such corporation. Enforcement of Lease - Attorney's Fees 38.1 In the event that either Landlord or Tenant commences any action for the enforcement of or arising out of a breach of the terms or this Lease, then the party who is awarded judgment in such action shall be awarded, in addition to any other award made thereof, an amount to be fixed by the Court for court costs and reasonable attorney's fees. Invalidity of Particular Provisions 39.1 If any clause or provision of this Lease is or becomes illegal, invalid, or unenforceable because of present or future laws or any rule, decision, or regulation of any governmental body or entity, the intention of the parties hereto is that the remaining parts or provisions of this Lease shall not be affected thereby. Article Headings 40.1 The article headings throughout this Lease are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction, or meanings of the provisions of this Lease. Governing Law 41.1 This Lease shall be deemed to have been made and shall be construed in accordance with the laws of the State of Colorado. Time 42.1 Time is of the essence hereof, and each party shall perform its obligations and conditions hereunder within the time hereby required. Recording of Lease 43.1 This Lease shall not be recorded by either Landlord or Tenant without prior written consent of the other. First Right of Refusal 44.1 Tenant shall have the first right of refusal to expand into any space on the eighth floor of the Building which becomes available during the term of this Lease. 44.2 Tenant shall have use of the eighth floor computer room at no charge for as long as Western Pacific Airlines leases said space. Upon Western Pacific Airlines' vacating the eighth floor, Landlord and Tenant shall execute an addendum to this Lease whereby Tenant shall pay Landlord for all areas used directly or indirectly on said eighth floor at a rental rate equivalent to the rate per square foot Tenant is paying for lease of the seventh floor. Landlord at Landlord's expense shall make the computer room accessible from the common area. Early Termination 45.1 Tenant shall have a one time option to terminate the Lease after six (6) months. Within the first six (6) months of the lease Tenant shall give Landlord at least thirty (30) days written notice of Tenant's intent to terminate this Lease as provided for herein and Tenant shall deliver up possession of the Premises to Landlord in accordance with such notice of termination. In event Tenant fails to provide Landlord with said written notice within the first six months of the Lease, this early termination option shall no longer apply and Tenant shall be obligated for the remaining term of the Lease. Training Space 46.1 Landlord shall provide, subject to availability, Tenant with adequate training space within the Building at a rental rate equivalent to Tenant's existing rental rate on the Demised Premises. All furniture, fixtures and equipment incidental to and required in said training space shall be provided by Tenant. Exculpation 47.1 Notwithstanding anything to the contrary contained herein, Landlord's liability under this Lease shall be limited strictly to its interest in the Building. Rules and Regulations 48.1 Tenant agrees that Tenant, Tenant's employees and agents or any others permitted by Tenant to occupy or enter the Premises shall abide by the rules and regulations attached hereto as Exhibit "B" and made a part hereof. Landlord shall have the right to amend, modify, or change in any way the rules and regulations provided that said amendments are not inconsistent with the terms of this Lease, and Tenant agrees to comply with all such rules and regulations upon notice from Landlord thereof. A breach of any of such rules or regulations shall be deemed a default under the Lease and Landlord shall have all remedies as set forth in Article 27. Parking 49.1 Tenant and its employees and invitees shall have the non-exclusive privilege to use non-reserved parking spaces in common with other tenants of Landlord. Tenant agrees not to overburden the parking facilities and agrees to cooperate with Landlord and other tenants in the use of parking facilities. Landlord reserves the right in its discretion to determine whether parking facilities are becoming crowded and, in such event, to allocate specific parking spaces among Tenant and other tenants of the Building and to take any other steps necessary to correct such condition. Signs 50.1 Tenant shall not install any signs, window lettering or other advertisement in, upon or around the Premises without the prior written approval of Landlord which shall not be unreasonably withheld. Landlord shall have absolute discretion in approving or disapproving any proposed sign. 50.2 Landlord shall provide and install, at Tenant's cost, all letters or numerals on doors in the Premises; all such letters and numerals shall be in the Building's standard graphics, and no other shall be used or permitted on the Premises without Landlord's express written approval. 50.3 Tenant at Tenant's expense shall be listed on the building lobby directory. Tenant shall also be permitted to install, at Tenant's expense, a building standard sign outside Tenant's entry door. 50.4 No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed, printed or affixed on or to any part of the outside or inside of the Building without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. Tenant shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the Premises; provided, however, that Landlord may furnish and install a Building standard window covering at all exterior windows. Tenant shall not without prior written consent of Landlord cover or otherwise sunscreen any window. Said consents shall not be unreasonably withheld. 50.5 All signage shall be subject to City sign ordinances. Brokers 51.1 Tenant represents and warrants that it has only dealt with Equity Realty & Investment Company, Inc. as broker/agent in connection with this transaction and that no broker, agent or other person brought this transaction other than Equity Realty & Investment Company, Inc. and Tenant agrees to indemnify and hold Landlord harmless from and against any claims by any broker, agent, or other person claiming a commission or other form of compensation by virtue of having dealt with Tenant with regard to this Leasing transaction. Equity Realty & Investment Company, Inc. represents the Landlord in this transaction. The provisions of this Article shall survive the termination of the Lease. Entire Agreement 52.1 This Lease constitutes the entire agreement of the parties hereto. No representations, promises, terms, conditions, obligations or warranties whatsoever referring to the subject matters hereof, other than those expressly set forth herein, shall be of any binding legal force or effect whatsoever. No modification, change, or alteration of this Lease shall have legal force or effect whatsoever unless in writing, signed by all parties hereto. Attachments Exhibit A - Floor Plan Exhibit B - Rules and Regulations Exhibit C - Tenant Finish Specifications IN WITNESS WHEREOF, the Parties hereto execute this Lease the day and year first above written. LANDLORD: Executive Tower of Colorado Springs, LLC By: /s/ Danny Mientka ----------------------------------------------- Danny Mientka Agent for Landlord TENANT: Cheap Tickets, Inc. By: /s/ Michael J. Hartley ----------------------------------------------- Michael J. Hartley Title: President & Chief Operating Officer ------------------------------------------- EXHIBIT "A" FLOOR PLAN Lease Dated March 31st, 1998 LANDLORD: Executive Tower of Colorado Springs, LLC TENANT: Cheap Tickets, Inc. LANDLORD'S ADDRESS: c/o The Equity Group 90 South Cascade Avenue, Suite 1500 Colorado Springs, CO 80903 TENANT'S ADDRESS: 2864 South Circle Drive, Suite 700 Colorado Springs, CO 80906 [Diagram Description: The floor plan of the 7th floor of Executive Tower at 2864 South Circle Drive, Colorado Springs, Colorado] EXHIBIT "B" RULES AND REGULATIONS Lease Dated March 31st, 1998 LANDLORD: Executive Tower of Colorado Springs, LLC TENANT: Cheap Tickets, Inc. The rules and regulations set forth in this Exhibit shall be and hereby are made a part of the Lease to which they are attached. Whenever the term "Tenant" is used in these rules and regulations, it shall be deemed to include Tenant, its employees or agents, and any other persons permitted by Tenant to occupy or enter the Building. The following rules and regulations may from time to time be modified by Landlord in the manner set forth in Article 46 of the Lease. 1. OBSTRUCTION. The sidewalks, entries, passages, corridors, halls, lobbies, stairways, elevators and other common facilities of the Building shall be controlled by Landlord and shall not be obstructed by Tenant or used for any purpose other than ingress or egress to and from the Premises. Tenant shall not place any item in any of such locations, whether or not any such item constitutes an obstruction, without the prior written consent of Landlord. Landlord shall have the right to remove any obstruction or any such item without notice to Tenant and at the expense of Tenant. 2. ORDINARY BUSINESS HOURS. The ordinary business hours of the Building shall be from 8:00 A.M. to 5:00 P.M., Monday through Friday of each week, excluding the legal holidays of New Year's Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Tenant shall have access to the Building 24 hours per day, 365 days per year. 3. DELIVERIES. Tenant shall insure that all deliveries of supplies to the Premises shall be made only upon the elevator designated by Landlord for deliveries and only during the ordinary business hours of the Building. If any person delivering supplies to Tenant damages the elevator or any other part of the Building, Tenant shall pay to Landlord upon demand the amount required to repair such damage. 4. MOVING. Furniture and equipment shall be moved in or out of the Building only upon prior notice to and with the written approval of Landlord and only upon the elevator designated by Landlord for deliveries and then only during such hours and in such manner as may be prescribed by Landlord. Landlord shall have the right to approve or disapprove the movers or moving company employed by Tenant (said approval shall not be unreasonably withheld) and Tenant shall cause such movers to use only the loading facilities and elevator designated by Landlord. If Tenant's movers damage the elevator or any other part of the Building, Tenant shall pay to Landlord upon demand the amount required to repair such damage. 5. HEAVY ARTICLES. No safe or article, the weight of which may, in the reasonable opinion of Landlord, constitute a hazard or damage to the Building or its equipment, shall be moved into the Premises. Safes and other heavy equipment, the weight of which will not constitute a hazard or damage the Building or its equipment shall be moved into, from or about the Building only upon prior notice to and with the written approval of Landlord and only during such hours and in such manner as shall be prescribed by Landlord, and Landlord shall have the right to designate the location of such articles in the Premises. 6. NUISANCE. Tenant shall not do or permit anything to be done on the Premises or in the Building or bring or keep anything therein which would in anyway constitute a nuisance or waste, or obstruct or interfere with the rights of other tenants of the Building, or in anyway injure or annoy them, or conflict with the laws relating to fire, or with any regulations of the fire department, or with any insurance policy upon the Building or any part thereof, or conflict with any of the laws, codes, rules or ordinances of any governmental authority having jurisdiction over the Building. 7. BUILDING SECURITY. Landlord may restrict access to and from the Premises and the Building outside the ordinary business hours of the Building for reasons of building security. Landlord may require identification of persons entering and leaving the Building and, for this purpose, may issue building passes to tenants of the Building. 8. PASS KEY. The Building Manager may at all times keep a pass key to the Premises, and he and other agents of the Landlord shall at all times be allowed admittance to the Premises. 9. LOCKS AND KEYS FOR PREMISES. No additional lock or locks shall be placed by Tenant on any door in the Building and no existing lock shall be changed unless written consent of Landlord shall first have been obtained. A reasonable number of keys to the Premises, the Building, and the toilet rooms locked by Landlord will be furnished by Landlord, and Tenant shall not have any duplicate keys made. At the termination of this tenancy Tenant shall promptly return to Landlord all keys to offices, Building and toilet rooms. 10. USE OF WATER FIXTURES. Water closets and other water fixtures shall not be used for any purpose other than that for which the same are intended, and any damage resulting to the same from misuse on the part of the Tenant or its guests or employees shall be paid for by Tenant. No person shall waste water in any manner. 11. NO ANIMALS; EXCESSIVE NOISE. With the exception of seeing eye dogs for the blind, no animals shall be allowed in the offices, halls, corridors and elevators of the Building. No person shall disturb the occupants of this or adjoining buildings or space by the use of any radio or musical instrument or by the making of loud or improper noises. 12. BICYCLES. Bicycles or other vehicles shall not be permitted anywhere inside or on the sidewalks outside of the Building, except in those areas designated by Landlord for bicycle parking. 13. TRASH. Tenant shall not allow anything to be placed on the outside of the Building, nor shall anything be thrown by Tenant out of the windows or doors, or down the corridors, elevator shafts, or ventilating ducts or shafts of the Building. All trash shall be placed in receptacles provided by Tenant on the Premises or in any receptacles provided by Landlord for the Building. 14. WINDOWS. No window shades, blinds, screens or draperies will be attached or detached by Tenant and no awnings shall be placed over the windows without Landlord's prior written consent. Tenant agrees to abide by Landlord's rules with respect to maintaining uniform curtains, draperies and linings at all windows and hallways so that the Building will present a uniform exterior appearance. Tenant will use its best efforts to have all curtains, draperies and blinds closed at the end of each day in order to help conserve energy. Except in case of fire or other emergency, Tenant shall not open any outside window because the opening of windows interferes with the proper function of the Building heating and air conditioning systems. 15. HAZARDOUS OPERATIONS AND ITEMS. Tenant shall not install or operate any steam or gas engine or boiler, or carry on any mechanical business in the Premises without Landlord's prior written consent, which consent may be withheld in Landlord's absolute discretion. The use of oil, gasoline, noxious gas, inflammable or combustible liquids or material for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Building. Tenant shall not use any method of heating, cooling, or air conditioning of the Premises other than that supplied by Landlord. 16. HOURS FOR REPAIRS, MAINTENANCE AND ALTERATIONS. Any repairs, maintenance and alterations required or permitted to be done by Tenant under the Lease shall be done only during the ordinary business hours of the Building unless Landlord shall have first consented in writing to such work being done outside of such times. If Tenant desires to have such work done by Landlord's employees on Saturday, Sundays, holidays or weekdays outside of ordinary business hours, Tenant shall pay the extra cost of such labor. 17. NO DEFACING OF PREMISES. Except as permitted by Landlord, Tenant shall not mark upon, paint signs upon, cut, drill, drive nails or screws into, or in any way deface the walls, ceilings, partitions or floors of the Premises of the Building, and defacement, damage or injury caused by Tenant shall be paid for by Tenant. 18. CHAIR PADS. During the entire term of the Lease, Tenant shall, at its expense, install and maintain under all chairs a chair pad or carpet casters to protect the carpeting. 19. SOLICITATION, FOOD AND BEVERAGES. Landlord reserves the right to restrict, control or prohibit canvassing, soliciting and peddling within the Building. Tenant shall not grant any concession, licenses or permission for the sale or taking of orders for food, beverages, services or merchandise in the Building, nor install nor permit the installation or use of any machine or equipment for dispensing food, beverages, services or merchandise, nor permit the preparation, serving, distribution or delivery of food, beverages, services or merchandise without the written approval of Landlord and in compliance with arrangements prescribed by Landlord. No cooking shall be done or permitted by any tenant in the Building. 20. UNDESIRABLE OCCUPANTS. Landlord reserves the right to exclude or expel from the Building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Building. 21. ELECTRICIANS. Landlord will direct electricians as to where and how telephone and telegraph wires are to be introduced. No boring or cutting for wires will be allowed without the written consent of the Landlord. The location of telephones, call boxes and other office equipment affixed to the Premises shall be subject to the written approval of Landlord (said approval shall not be unreasonably withheld). 22. LANDLORD CONTROL OF PUBLIC AREAS. Landlord shall have the right to control and operate the public portions of the Building, and the public facilities, and heating and air conditioning, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. 23. AFFIXED OBJECTS. Landlord shall approve in writing the method of attachment of any objects affixed to walls, ceilings, or doors. 24. SMOKING. No smoking is permitted in any portion of the Building, including, but not limited to restrooms, hallways, elevators, break rooms, tenants space, lobby and corridors. Smoking is only permitted outside the north rear door of the Building. 25. ALTERATIONS AND/OR ADDITIONS. All contractors hired by Tenant to perform alterations, additions, or repairs to the Premises must be licensed and insured and a copy of the Insurance Certificates must be provided to the Landlord before any work commences. The following copies are required for all contractors and sub-contractors: a. License of each trade. b. Liability Insurance c. Lien Waivers d. Workmen's Compensation e. Building permit from proper authorities f. All other information and or copies required by Landlord. Landlord has the sole responsibility of approving all alterations, additions, and/or repairs and the selection of carpet (including quality and color), paint (including quality and color), doors, door hardware, light fixtures and any other changes to Landlord's property. END OF EXHIBIT "B" EXHIBIT "C" TENANT FINISH SPECIFICATIONS Lease Dated March 31st, 1998 LANDLORD: Executive Tower of Colorado Springs, LLC TENANT: Cheap Tickets, Inc. I. Landlord shall provide Tenant Improvements based upon a scaled floor plan design which shall be mutually agreed upon between Landlord and Tenant. Tenant Finish Specifications are to be as follows: A. Patch and repair walls as needed for paint; B. Paint 100% of the Demised Premises; C. Change all light shields; D. Relamp all light bulbs; E. Replace all windows with broken seals; F. Clean 100% of carpeted areas; G. Rekey the Premises; H. General cleaning of kitchen to include striping and waxing of all VCT flooring. II. Tenant, at Tenant's expense, shall provide all other Tenant Improvements and required labor and materials. ADDENDUM TO LEASE Addendum to Lease dated this 31st day of March, 1998, by and between Executive Tower of Colorado Springs, LLC ("Landlord"), and Cheap Tickets, Inc. ("Tenant"). WHEREAS, Landlord and Tenant have entered into a Lease of even date; WHEREAS, the parties wish to add paragraph 11.3 to said Lease. NOW, THEREFORE, based on good and valuable consideration and the mutual covenants contained in this Addendum to Lease, the parties agree as follows: 1. The Lease shall be amended to add paragraph 11.3 to read as follows: "11.3. Landlord acknowledges Tenant operates seven (7) days a week with hours which exceed the ordinary business hours of the Building. Tenant shall not be accessed additional energy or service charges because of its days and hours of operation." 2. All other provisions of the Lease shall remain in full force and effect. LANDLORD: Executive Tower of Colorado Springs, LLC By: /s/ Danny Mientka ------------------------------------------ Danny Mientka Agent for Landlord TENANT: Cheap Tickets, Inc. By: /s/ Michael J. Hartley --------------------------------------------- Michael J. Hartley TITLE: President & Chief Operating Officer ------------------------------------------ ADDENDUM -------- This Agreement dated this 29th day of May, 1998, by and between Executive Tower of Colorado Springs, LLC (the "Landlord") and Cheap Tickets, Inc. (the "Tenant"); WHEREAS, the parties hereto did enter into a certain Lease Agreement under the date of March 31, 1998 (the "Lease"), relating to certain office space known as 2864 South Circle Drive, Suite 700, Colorado Springs, Colorado 80906; and WHEREAS, Tenant desires to lease additional space within the Building for purpose of Storage; NOW THEREFORE, the parties hereby agree to modify the Lease as follows: 1. Commencing May 1, 1998, and continuing on a month to month basis for an indefinite period of time hereafter, Tenant shall lease approximately 725 rentable square feet (630 usable square feet) of space known as Suite 430 for Storage. 2. Either party may terminate Tenant's lease of said space by delivery to the other party of thirty (30) days written notice of intent to terminate at which time Tenant shall deliver up possession of the Premises to Landlord in accordance with such notice of termination. 3. In consideration for the aforementioned additional space, Tenant shall pay to Landlord, commencing May 1, 1998, Monthly Base Rent of $120.83. 4. In addition to Base Rent, Tenant shall pay monthly estimates of Common Area Costs based upon the current estimated rate of $4.30 per square foot. 5. All other terms and conditions of said Lease shall continue in full force and effect. LANDLORD: TENANT: Executive Tower of Cheap Tickets, Inc. Colorado Springs, LLC By: /s/ Danny Mientka By: /s/ Joan W. Gillett ----------------------------- ------------------------------- Danny Mientka Agent for Lanlord Title: Reservations Manager ------------------------------ EX-10.9 12 NET FARE/COMMISSION AGREEMENT DATED NOVEMBER 1, 1993 Exhibit 10.9 Note: Portions of this exhibit indicated by "[*]" are subject to a confidential treatment request, and have been omitted from this exhibit. Complete, unredacted copies of this exhibit have been filed with the Securities and Exchange Commission as part of this Company's confidential treatment request. 1994 NET FARE/COMMISSION AGREEMENT WHOLESALER: C.T.I. dba CHEAP TICKET 738 Kaheka Street, #301 Honolulu, HI 96814 ARC #: 12-601676 CONTRACT #: C094 4026 --------- The following agreement is hereby entered into between Continental Airlines, Inc. ("Continental"), and the Wholesaler/Consolidator ("Agent") identified above: Continental and the Agent agree as follows: 1. Continental will provide the Agent with a net airfare program and/or a commission program to the applicable origin and destination points listed as "unpublished tariffs" in Attachment A hereto. The Agent agrees to comply with the special terms and conditions of each individual unpublished tariff as listed in Attachment A1 hereto. 2. Upon receipt of this signed agreement, Continental will assign the Agent special fare basis codes and/or authorization codes, which must be marked on all tickets issued by the Agent. Tickets must be issued in accordance with the ticketing procedures as stated on Attachment B hereto. 3. This agreement shall be valid upon execution by a duly authorized Continental Airlines representative, and shall be effective until further written notice. 4. This agreement is subject to cancellation by either party at any time without penalty, upon a thirty (30) day written notice. 5. Tickets issued in conjunction with this agreement may be issued only at the ARC number(s) noted above and all branch locations of that home office locations as reported to Continental by the Airline Reporting Corporation (ARC). Unauthorized ticketing at other ARC locations will result in debit memos at the lowest applicable retail fare on the date ticket was issued in the class of service booked and the termination of this agreement. Full payment will be made for all tickets in accordance with and through standard ARC reporting procedures. Tickets will be limited to confirmed seating. Open tickets will not be allowed. Tickets must be issued on standard ARC stock and must be validated on Continental. 6. Tickets issued in conjunction with this agreement must be sold as part of a bona fide tour program, unless otherwise specified in the applicable attachments. Tour programs must include a prepaid land portion consisting of a two night minimum hotel stay. The minimum retail price for inclusive tours must be greater than Continental's lowest published airfare in applicable markets. Net airfares and/or commission levels may not be sold, advertised or promoted in any way as "air only", unless otherwise specified in the applicable attachments. Failure to comply with this provision shall result, upon notice, in immediate cancellation of this agreement. 7. In the event of flight delays, cancellations or passenger rerouting, the same amenities will be provided by Continental to passengers hereunder as are customarily provided by Continental under involuntary re-route procedures to regular economy fare passengers on scheduled service. 8. If Continental's service in any market covered by this agreement is (1) terminated, (2) canceled or (3) suspended, this agreement will be terminated with respect to such market. 9. If the Agent or Continental uses the other's name or trademarks in advertising or promotion, the material must clearly state the Agents ticketing and refund responsibility as well as Continental's limitation of liability and conditions of carriage. 10. All advertising and promotional material relating to the services of either party must be approved in writing by the other party prior to its use, including but not limited to the use of logos, trademarks, trade names or service marks. 11. Agent agrees to indemnify Continental against any expense, loss, damage, claim or suit (including reasonable attorney's fees) arising hereunder, made or brought against Continental by reason of Agent's default or failure to perform hereunder or claims based on the tour programs, except such matters as arise out of the air transportation provided by Continental. 12. Continental has the right to terminate, suspend or modify this agreement in the event of an assignment, sale, transfer or change in the Agent ownership during the term of this agreement. Agent may not assign any right or delegate any duty hereunder without the express written consent of Continental. 13. Increases and/or reductions in net fare programs and/or commission programs will be effective twenty-one (21) days from the date of notice from Continental to the Agent. Continental reserves the right to increase net airfares and/or reduce commission levels on five (5) days notice if fuel prices rise more than 10% in any given period of time. Passengers booked and ticketed prior to the effective ticketing date of a net airfare increase and/or reduction of commission may travel using previous fare/commission levels. Passengers booked and not ticketed prior to the effective ticketing date of a net airfare increase and/or reduction of commission must be ticketed at the new levels. 14. Increase/reductions to or additions of tax, fees and or surcharge amounts will be effective immediately for all passengers not ticketed and it will be the responsibility of the Agent to collect all such taxes, fees and surcharges at the time of ticketing. 15. Agent will advise passengers in writing that OnePass and or any other type of upgrade/discount certificates are not permitted in conjunction with the net airfares provided herein. OnePass mileage accrual is permitted, unless otherwise stated herein. 16. The net airfares and/or commission levels on Attachment "A" do not automatically apply to groups of 10 or more. All groups must be requested and booked through the preferred accounts department at 1-800-243-4366 and are subject to approval by Continental Airlines. Agents with commission programs may not use commission levels on negotiated group rates. Tour Conductor tickets are not applicable to nets/commissions on Attachment "A", unless otherwise specified. 17. Both Continental and Agent shall be considered as independent contractors, and nothing contained herein shall be construed so as to create an agency relationship, partnership or joint venture, and each party shall be responsible for their respective actions. 18. Continental shall have no responsibility or liability to Agent for any loss, damage, delay or prevention of the completion of any flight subject to this agreement, resulting from any occurrences or acts beyond the control of Continental. 19. The terms and conditions of this agreement are strictly confidential. Any breach of confidentiality, duplication, use or disclosure of this agreement in whole or in part shall immediately render this agreement null and void at the option of the non-breaching party. 20. This agreement shall be governed by the laws of the State of Texas. Agreement with, and acceptance of, the above conditions is indicated by the signatures below.
C.T.I. dba CHEAP TICKET CONTINENTAL AIRLINES, INC. /s/ Michael J. Hartley /s/ Richard L. Ensign - ------------------------------ ---------------------------------- Name Richard L. Ensign Sr. Director-Leisure Sales General Manager - ------------------------------ Title Date: 10/21/93 Date: 10/25/93 ------------------------- -----------------------
[LETTERHEAD OF CONTINENTAL AIRLINES, INC.] ADDENDUM NOVEMBER 12, 1998 MR. MICHAEL HARTLEY C.T.I.-CHEAP TICKETS 1440 KAPIOLANI BLVD #800 HONOLULU, HI 96814 REF: NET FARES CONTRACT #: CO944026 ARC: 12601676 DEAR MR. HARTLEY: This letter and the enclosed Attachment A(s) will serve as an addendum to the above mentioned contract and is subject to the terms, conditions, rules, and regulations of that contract. The enclosed Attachment A(s) include: SEE ATTACHMENT Your agreement to this addendum is indicated by the signature below. Please sign both originals of this addendum and return both copies, including all attachments to the address below. Failure to sign and return this addendum within five(5) days will void the above mentioned contract: Continental Airlines ATTN: JIM COMPTON 2929 ALLEN PARKWAY, SUITE 1227 Houston, TX 77019 Thank you for your cooperation and support. C.T.I. CONTINENTAL AIRLINES, INC. CHEAP TICKETS /s/ Michael Hartley /s/ Jim Compton - ---------------------- ---------------------- NAME JIM COMPTON STAFF V.P. PRICING President & CEO - ---------------------- Title 11/17/98 11/24/98 - ---------------------- ---------------------- Date Date ATTACHMENT A [*] [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. CONTINENTAL AIRLINES ATTACHMENT A1.1//ORIGINAL 1997 DOMESTIC WHOLESALE RULES AND GUIDELINES (All other terms and conditions of the net fare agreement apply) COMBINABILITY: Net fare levels are not combinable with published fares, - ------------- other net fare programs, group/convention discounts, coupon/certificate offers, override commission programs or any other type of discount/negotiated fare. Net fare levels are combinable with other net fare levels within the same program. RESERVATIONS: Names are due at the time of booking. Reservations must be - ------------ booked in the class of service indicated by the alpha net airfare indicator. EXAMPLE: [*] net fares must be booked in [*] class of service and [*] net fares must be booked in [*] class of service. GROUPS: FOR GROUP PROCEDURES SEE ATTACHMENT "A1.2" - ------ PREPAIDS: NOT PERMITTED. NO EXCEPTIONS. - -------- UPGRADES: NOT PERMITTED: NO EXCEPTIONS - -------- CHILDREN'S FARES: NOT PERMITTED, unless otherwise specified on Attachment "A" - ---------------- fare sheet. TICKETING PROCEDURES: SEE ATTACHMENT "B". - ---------- NAME CHANGES: Once a PNR has been booked, name changes will not be allowed. - ------------ Clerical changes (ie. spellings) are permitted. AIRPORT/FUEL SURCHARGES: Surcharges must appear on all flight coupons and must be - ---------- remitted through ARC. PASSENGER FACILITY CHARGES (PFC'S): PFC charges apply to all net tickets when an approved PFC - --------------- city is included in the itinerary. PFC's ARE-NOT-ABSORBED IN CONNECTING MARKETS. ILLNESS EXTENSION OF VALIDITY: NOT ALLOWED. - ----------- REFUNDS: Totally unused tickets are refundable with a fifty dollar - ------- ($50) cancellation penalty unless otherwise specified on Attachment "A". Passengers may incur penalties from the tour operator. LOST TICKETS: Standard lost ticket application procedures-will-apply. - ------------ Service charge may apply. VERBAL CHANGES TO THE CONTRACT, FARES OR RULES AND GUIDELINES WILL-NOT-BE HONORED. ALL CHANGES ARE VALID ONLY WHEN RECEIVED IN WRITING FROM CONTINENTAL LEISURE MARKETING. [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. CONTINENTAL AIRLINES ATTACHMENT A1.2// ORIGINAL 1997 DOMESTIC AND INTERNATIONAL WHOLESALE GROUP PROCEDURES (All other terms and conditions of the net fare agreement apply) GROUPS: The net airfares and/or commission levels on Attachment "A" - ------ do-not-automatically apply to groups of 10 or more. All groups must be requested and booked through the Preferred Accounts Desk at 1-800-243-4366, and are subject to approval by CO. The appropriate class of service, as stated on Attachment "A", must be available and booked on all flights for the net/published fare used. ------------------------------------------------------------ Agents with commission programs may not use override commission levels on negotiated group rates. Tour conductor tickets are -not-applicable, unless otherwise specified on Attachment "A". ----------------------------------------------------------- THE FOLLOWING PROCEDURES WILL APPLY TO ALL FUTURE GROUP BOOKINGS ASSOCIATED WITH THE NET AIRFARES LISTED ON ATTACHMENT "A". "AGENT" AGREES TO PAY APPLICABLE PENALTIES PER EACH SEAT NOT UTILIZED. DEPOSITS: GROUPS BOOKED 91 OR MORE DAYS PRIOR TO DEPARTURE: - -------- - A $25.00 per person refundable deposit is required. - Deposit is due fourteen (14) days after booking -OR- 90 days prior to departure, whichever is first. - Deposit must be remitted in the form of an MCO. The MCO should be sent to the following address: CONTINENTAL AIRLINES ATTN: Preferred Accounts Desk Supervisor P.O. Box 60455 Houston, TX 77205-0455 - Deposit will be returned to the "Agent" at least 21 days prior to departure for ticket issuance. GROUPS BOOKED WITHIN 91 DAYS OF DEPARTURE: - Deposit -not- required. *NOTE: Deposit guarantees seats only. Fare is subject to change (see Net Fare Agreement - paragraph #13) DUE DATE FOR NAMES: GROUPS BOOKED 21 OR MORE DAYS PRIOR TO DEPARTURE: - --------- - All names are due 21 days prior to departure. GROUPS BOOKED 20-7 DAYS PRIOR TO DEPARTURE: - All names are due within 72 hours of booking -OR- seven (7) days prior to departure, whichever is first. GROUPS BOOKED WITHIN 7 DAYS OF DEPARTURE: - All names are due at the time of booking. UTILIZATION: GROUPS BOOKED 45 OR MORE DAYS PRIOR TO DEPARTURE: - ----------- - 80% utilization is required of space held at 45 days. If group drops below 80% between 45 days and the departure date, "Agent" will be debited for $40.00 per each seat not utilized. GROUPS BOOKED WITHIN 45 DAYS OF DEPARTURE: - 80% utilization is required of space held at the time of booking. If group drops below 80% between the time of booking and the departure date, "Agent" will be debited for $40.00 per each seat not utilized. CONTINENTAL AIRLINES ATTACHMENT B// ORIGINAL "BULK" TICKETING PROCEDURES // REVISED TICKETS MUST BE PLATED ON CONTINENTAL (005), REPORTED THROUGH ARC AND MUST CLEARLY INDICATE THE FOLLOWING: - ------------------------------ - ------------------------------------------------------------------------------- FARE BASIS BOX: (Corresponding fare code/by segment/as shown on Attachment "A" - ------------------------------------------------------------------------------- CLASS OF SERVICE BOX: (Fare class which corresponds with the net fare used) - ------------------------------------------------------------------------------- NOT VALID BEFORE: (Date of departure) - ------------------------------------------------------------------------------- NOT VALID AFTER: (Appl. max. stay from date of departure, per Attachment "A") - ------------------------------------------------------------------------------- FARE/TAX/TOTAL: FARE/TAX/TOTAL must appear on AGENTS/AUDITORS coupons ONLY. "BULK" must appear on all passenger coupons. - ------------------------------------------------------------------------------- SURCHARGES/PFC'S: (Must appear on -ALL- coupons) - ------------------------------------------------------------------------------- COMMISSION BOX: "0" (Zero) - ------------------------------------------------------------------------------- TOUR CODE BOX: (Blank) - ------------------------------------------------------------------------------- *ENDORSEMENT BOX: Valid CO/COEX only/NONEND/NONTRANS/NOCHGS/APPL PNLTY - ------------------------------------------------------------------------------- FORM OF PAYMENT: (Form of Payment) / REFUNDABLE BY TOUR OPERATOR ONLY - ------------------------------------------------------------------------------- *NOTE: Endorsement Box must include applicable restrictions as listed on Attachment "A". The above listed restrictions are to be used as an example. TICKETS ISSUED AT THE AIRFARE LEVELS LISTED ON ATTACHMENT "A" THAT DO NOT CORRESPOND WITH THE CLASS OF SERVICE BOOKED WILL BE DEBITED AT THE LOWEST UNRESTRICTED COACH CLASS FARE FOR THE ENTIRE ITINERARY. - ------------------------------------------------------------------------------- PFC PROCEDURES: PFC's must appear in the "TAX" BOX of all tickets coupons as "XF". If other fees are collected in addition to the PFC's, "XT" and the TOTAL AMOUNT must appear in the "TAX" BOX of all ticket coupons. --------------------------------------------------- SHOWING PFC'S ON A MANUAL TICKET: -------------------------------- Show the "XF" in the "FROM/TO" BOX, leave the "CARIRER" BOX blank. In the "FARE CALCULATION" BOX list, in itinerary order, the AIRPORT CODE followed by the AMOUNT INDICATOR for the PFC amount collected. --------------------------------------------------- SHOWING PFC'S ON AN AUTOMATED TICKET: At the end of the fare calculation enter "XF", the AIRPORT CODE and AMOUNT INDICATOR for each airport to which the PFC applies. - ------------------------------------------------------------------------------- EX-10.10 13 1999 NET CONSOLIDATION AGREEMENT DATED NOVEMBER 1, 1998 Exhibit 10.10 Note: Portions of this exhibit indicated by "[*]" are subject to a confidential treatment request, and have been omitted from this exhibit. Complete, unredacted copies of this exhibit have been filed with the Securities and Exchange Commission as part of the Company's confidential treatment request. -------------------------- 1999 NET CONSOLIDATOR PROGRAM ================================================================================ YOUR FIRM: CTI Proposal Date: January 19, 1998 1440 Kapiolani Blvd. Your Firm ARC: 1260167/05-51326 8th Floor Effective Date: November 1, 1998 Honolulu, HI 96814 Termination Date: October 31, 1999 (hereinafter "Your Firm") DISTRICT: LAX AGREEMENT NO: CON99005
This Agreement, when accepted shall constitute the entire Agreement between Your Firm and Trans World Airlines, Inc. ("TWA") with respect to net fares applicable to the markets identified herein, for air travel on TWA or Trans World Express ("TWE") commencing with the above Effective Date and continuing through the above Termination Date, and is subject to the General Terms and Conditions set forth on the following pages. This Agreement supersedes and replaces all previous understandings and agreements, whether oral or written with respect to the subject matter hereof. The net fares offered to Your Firm are predicated on the following: 1. All travel must originate in the USA, with no westbound origination, and must be round-trip, open-jaw, circle trip, or one-way. One way transatlantic travel permitted at 60% of the applicable round-trip fare. 2. All travel must be sold consisting of a [*] minimum, [*] day maximum stay. 3. All fares are quoted in U.S. dollars and are payable in U.S. dollars (regardless of the currency rate of exchange). Payment must be made in cash only; payment by credit card or MCO is not acceptable. 4. Net fares, surcharges and applicable fees are not subject to commission. 5. Net fares are exclusive of fuel, departure, passenger facility, airport, terminal and/or security taxes or surcharges, which when applicable must be added to the fare collected from the passenger, and shown on the ticket(s) when issued. Outbound date determines round trip seasonal fares only. Surcharges, fees, sell-up differentials are applicable based on actual differentials are applicable based on actual date of travel and must be added to the fares regardless of departure date and/or season. Any passenger routing must be the same as the routing of any TWA published fare for that city pair. 6. Travel may not be combined with or ticketed in conjunction with any other fare on TWA/TWE (except for fares listed in this Agreement) or any other carrier or airline fare. 7. Net fares must be ticketed within [*] days of booking a reservation; however, for bookings made within [*] days of departure ticketing must occur within [*] hours. 8. No block space is permitted; group bookings (10 or more passengers) require specific authorization from TWA's Group Desk, and are subject to the terms and conditions applicable to TWA Group Desk sales procedures. 9. Net fares are subject to change upon fifteen (15) days prior written notice. 10. All sales are subject to audit by TWA. Booking or ticketing violations will subject Your Firm to debit memo, cancellation of booking and/or immediate termination of this Agreement, at the sole discretion of TWA. 11. During the term of this Agreement, Your Firm agrees to ticket an average of [*] net flown (based on true origin and destination) passengers per month. 12. No tour conductor, student, infant, senior, site, agency discounts are permitted. 13. All tickets must be issued on standard stock with TWA (015) validation. No manual ticketing is permitted. 14. In the event of departure date weather conditions or TWA encounters operational difficulties which result in flight cancellation, delay or misconnection, TWA will provide transportation on its next available flight in the same class of service as originally ticketed, at no additional cost to passenger. TWA does not guarantee reprotection of passengers on another airline. 15. No name changes allowed on ticketed reservations (PNR). [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. 1999 NET CONSOLIDATOR PROGRAM ================================================================================
MARKETS: USA to: All TWA International destinations except TLV/CAI/RUH - ------- SURCHARGE DATES: See attached schedule - --------------- BOOKING CLASS: [*] Coach Transatlantic and Domestic SELLUP: [*] Coach Transatlantic and Domestic - ------------- FARES: See attached schedule - ----- FARE BASIS CODE: [*] SELLUP: [*] - --------------- TICKET DESIGNATOR/ NF99 SELLUP: NF99 - ------------------ DISCOUNTS: None - --------- CHANGES: Reticketing (including the reissuance of lost tickets) is the responsibility of the Your Firm. All - ------- changes/cancellations must be made at least 24 hours prior to the flight on which the passenger has reservations. Once ticketed, all changes will be subject to a $100.00 fee provided origin and destination do not change, minimum/maximum stay requirements are met, and space in appropriate booking class is available. CANCELLATION: A $150.00 service charge applies refunded tickets provided the reservation was cancelled prior to - ------------ departure. Refund does not apply to NOSHOW reservations or partially used tickets. Refund request must be submitted to TWA Passenger Refunds within 60 days of original travel date. In the event of death or the hospitalization of the passenger, there will be no penalty provided valid documentation is provided. TICKETING All tickets must be issued on standard stock with TWA (015) validation. All tickets must be booked - --------- from direct access availability with ticket numbers appearing in PNR. For Non-Worldspan users, ticket PROCEDURES: numbers must be transmitted via GFAXX (OSI) Field. - ---------- Remarks (Endorsement Box) - Valid only on TWA/$100.00 change fee apply/$150.00 Cancellation ------------------------- penalty. Fare Basis Box/ -------------- Ticket Designator Box - Assigned fare basis code/ticket designator code extended ----------------------- to all flight coupons. No dollar should appear on flight coupon or passenger receipt. Total Box (Flight coupon) - "Bulk Fare" and Government fees and taxes should appear ------------------------ on flight coupon. Prepaid Ticketing and MCO's are not permitted. FARE BASIS/BOOKING CLASSS TICKET DESIGNATOR AVIATOR MILES ------------------------- ----------------- ------------- (See seasonal fare page) [*] NF99 NONE (See seasonal fare page) [*] NF99 NONE
AGREED TO AND ACCEPTED BY: Trans World Airlines, Inc. NAME: /s/ Michael J. Hartley /s/ Richard G. McBee ------------------------ TITLE: President & CEO Richard G. McBee ------------------------ DATE: 9-24-98 Staff Vice President - Sales Programs ------------------------ [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. 1999 NET CONSOLIDATOR PROGRAM ================================================================================ GENERAL TERMS AND CONDITIONS 1. This agreement shall become effective as of the date indicated above provided one (1) copy, signed by Your Firm is returned to TWA within thirty day of the date TWA signed this Agreement. In the event this Agreement is not so returned, it shall be construed as an offer only and shall be deemed automatically revoked. Any alterations, deletions or additions to the Terms and Conditions of this Agreement will not be effective without the express written approval of TWA. 2. Either party may cancel this Agreement at anytime, with or without cause, upon 30 days prior written notice to the other. 3. Your Firm can not promote TWA in conjunction with this program in any way including, but not limited to, written advertisement or print through newspapers, magazines, and/or facsimile solicitations. 4. Transportation shall be used in accordance with applicable tariffs and the conditions of carriage and rules and regulations of TWA. Tickets may not be used in conjunction with any special marketing programs conducted by TWA from time to time and shall not qualify for TWA Aviator Program mileage credit. 5. Tickets may not be endorsed over to other airlines for carriage, refund or exchange. Individual passengers shall be responsible for payment of excess baggage charges, upgrades and other charges incurred after issuance of tickets. 6. Your Firm agrees to notify TWA promptly, in writing in the event there are changes in the ownership, operation or control of Your Firm. 7. Your Firm agrees to take all reasonable and appropriate measures to keep this Agreement confidential, with the exception of those details necessary for the normal conduct of Your Firm's business. 8. Neither TWA nor Your Firm will in any manner or by any device, either directly or indirectly, act in violation of any applicable law, governmental order or regulation including the provisions of TWA's tariffs and Your Firm's appointment or provision for the conduct of business as established by ARC. 9. Tickets must be issued only at Your Firm's home office set forth on the preceding page hereof and Your Firm's branch office locations filed as such with the Airline Reporting Corporation ("ARC"). 10. In the event TWA terminates your firms Your Firm Sales Agreement, this Agreement shall also terminate as of the same date. 11. This Agreement is governed by the laws of the State of Missouri. Consolidator Winter Season Roundtrip Net Fares [*] [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. Consolidator Shoulder Season Roundtrip Net Fares [*] [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. IMPORTANT! Please Retain and Refer To At Time of Ticketing BULK/NET TICKETING INSTRUCTIONS TWA's Bulk/Net Fare Agreements with net fares to TWA destinations: Please refer to the contract for the applicable markets, fares, fare basis codes, and ticket designators. To issue tickets correctly please follow the instructions below. 1. Always use the APPLICABLE FARE BASIS CODE followed by the ASSIGNED TICKET DESIGNATOR. IT IS EXTREMELY IMPORTANT THAT THIS COMPLETE CODE BE USED IN THE FARE BASIS/TICKET DESIGNATOR BOX. Note: a slash is required between the fare basis code and the ticket designator. 2. Booking Class: Applicable booking class of the Bulk/Net fare specified in your contract. 3. The following information must be printed on the ticket:
Remarks/Endorsement Box---------------------------VALID ON TWA ONLY/$$$$ CHANGE FEE/ NON-REFUNDABLE (Replace $$$$ with applicable change fee amount as stated in contract). Fare Basis Box/Ticket Designator------------------ASSIGNED FARE BASIS CODE/TICKET DESIGNATOR extended to ALL coupons and travel segments. Equivalent Fare Paid Box (Auditors Coupon)--------ALLOCATE BASE FARE, TAX, PASSENGER FACILITY CHARGES AND OTHER APPLICABLE GOVERNMENT FEES AND TAXES. Total all amounts Total Box (Flight Coupon)-------------------------"BULK FARE", plus government fees and taxes. Fare amount must not be written on Passenger Coupon or Flight Coupon.
TICKETS ISSUED INCORRECTLY ARE SUBJECT TO DEBIT MEMOS ----------------------------------------------------- EX-10.11 14 CONSOLIDATED AGREEMENT DATED DECEMBER 14, 1998 Exhibit 10.11 Note: Portions of this exhibit indicated by "[*]" are subject to a confidential treatment request, and have been omitted from this exhibit. Complete, unredacted copies of this exhibit have been filed with the Securities and Exchange Commission as part of the Company's confidential treatment request. AMERICA WEST AIRLINES CONSOLIDATOR AGREEMENT This Agreement is made on this 14th day of December, 1998, between America West Airlines, Inc., a Delaware corporation, at 4000 East Sky Harbor Boulevard, Phoenix, Arizona 85034 (herein "America West") and Cheap Tickets, Inc., a Hawaii corporation, at 1440 Kapiolani Blvd., Suite 800, Honolulu, Hawaii 96814 (herein "Customer"). The parties agree on the following mutual covenants: 1. Fares: a. Seats sold will be at specific fare levels in markets specified by America West and under the conditions stated in Attachments A and B herein. b. The net fares herein shall be applicable for travel wholly over the services of America West and America West Express, all other codeshare flights are not applicable. Net fares are as shown on Net Fare Sheets under Attachment A, herein. c. Net fares are subject to change at the sole and complete discretion of America West. Written notice shall be provided to Customer not less than five (5) business days prior to the effective ticketing date of any net fare change, or two (2) business days for electronic filing of fares. Customer agrees that it will pay the changed fare amounts for all tickets issued as of the effective date of such net fare change. By signing and returning the confirmation page of all Bulk Program Advisories, Customer acknowledges receipt of said advisories. Failure to sign and return confirmation does not release customer from adherence to any revisions made on such advisories. d. The [*] Fare [*] allows Customer to take applicable commission levels on published fares. Restrictions and commission are as stated in Attachment B, herein. e. Fares do not include the following: US Transportation or International Taxes; Fuel Surcharges; Passenger Facility Charges; and/or other city/governmental surcharges. 2. Payment/Reporting: Customer agrees to issue tickets on standard industry ticket stock. In accordance with ARC policies and procedures, tickets will be reported and funds due for tickets will be remitted through ARC each week. Invoices for other than ticket sales shall be due and payable within fifteen (15) days from the date of invoice, and shall not be subject to any offset or deduction for any purposes. 3. Advertising: Customer agrees that it will not use the America West trade name or service marks in any advertising, promotional material, brochures, printed matter or signs or internet web sites without the prior review and written approval of such material by America West. [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. 4. Internet: If customer utilizes an Internet website to facilitate the sale of America West seats, customer agrees to the following: a) A complete list of all Internet website addresses connected to the sale of the America West seats will be provided to America West within ten (10) business days of submission of this signed Agreement. Any additions, deletions or corrections to this list must be communicated to America West within ten (10) business days of said additions, deletions or corrections. b) If a website contains restricted pages that are used to facilitate business, customer agrees to provide passwords necessary to gain access to restricted pages. 5. Contract Non-Compliance: a. America West is entitled to receive compensation for the full value of the coach fare in the event that inventory sold is not ticketed in accordance with Attachment A and B. b. Compensation due America West will be invoiced to Customer due and payable (15) business days after notification. c. Revenue Accounting will continue to advise Customer through issuance of debit memos or invoices of compensation due America West when reservations are found booked and/or ticketed in the wrong class of service, or for other booking or ticketing irregularities including but not limited to individual CRS bookings that qualify as a group, and booking published fares without ticketing in accordance with tariff rules. America West will recover CRS fees as well as full ticket value of any booking irregularity. 6. Default: In the event Customer fails to make payment as required by this Agreement, America West shall provide written notice to customer to cure such default within five (5) working days from the date of such notice. In the event such non-payment is not cured within said five (5) days, this Agreement shall be terminated immediately. If Customer fails to perform any other terms of this Agreement and is in default thereof, this Agreement may be terminated after thirty (30) days written notice of those matters in default being given and the failure of Customer to cure such default. America West shall be free to pursue all legal and equitable remedies available for any default. 7. Terms and Termination: a. The term of this Agreement is from January 1, 1999 through December 31, 1999, with all travel completed by January 31, 2000, and either party may terminate this Agreement without cause by giving not less than thirty (30) days prior written notice of their intention to do so. Such termination shall not relieve either party from payment of amounts currently due and owing, and neither party may terminate this Agreement if that party is in default in the performance of this Agreement. b. Should Customer fail to perform it's duties as outlined in this Agreement and such default shall continue after thirty (30) days written notice to correct such default, then America West may terminate this Agreement. 8. Lost Tickets: When a passenger loses his/her America West ticket, the passenger may purchase a replacement ticket for the portion lost, and will be refunded the price of the replacement ticket, provided the itinerary (flight number, travel date, city) of the replacement ticket is exactly the same as the lost ticket. If a replacement ticket is not purchased for the exact itinerary, no refund will be made. 9. Confidentiality: The terms and conditions of this Agreement are strictly confidential. Any breach of Confidentiality, duplication of the Agreement and/or its Attachments, use or disclosure of this Agreement in whole or in part for any purpose shall immediately render this Agreement null and void and subject to immediate cancellation at the option of America West. 10. Entire Agreement: This Agreement represents the entire understanding between the parties. No waiver, alteration, or modification of any of the provisions herein shall be binding unless in writing and signed by and authorized agent or representative of the parties. 11. Assignment and Binding Effect: The provisions of this Agreement shall be binding upon any successor to either of the parties, but shall not be assignable by Customer. 12. Attorney's Fees: In the event that an action is necessary to enforce the terms of this Agreement, the prevailing party in such action shall be entitled to recover its reasonably attorney's fees and costs. 13. Applicable Law: The laws of the State of Arizona shall govern this Agreement. 14. ARC Numbers: A current and complete list of ARC numbers included under this Agreement must be provived to America West within ten (10) business days of submission of this signed Agreement. This information should be either mailed or e-mailed to: Laura Loveland America West Airlines 4000 E. Sky Harbor Blvd. HY-SPO Phoenix, Arizona 85034 E-mail address: llovlnd@goodnet.com ------------------- If the number of ARC locations exceeds ten (10), Customer agrees to provide ARC numbers on a 3 1/2" IBM compatible diskette in MS Excel format. The file will also include the address and phone number for each 8-digit ARC number. Any additions, deletions or corrections to this ARC list must be submitted to America West within ten (10) business days of said additions, deletions or corrections. CHEAP TICKETS, INC. AMERICA WEST AIRLINES, INC. By: /s/ Michael J. Hartley By: ----------------------------- ---------------------------- Michael J. Hartley Ron L. Cole President & CEO Vice President, Sales Date: 12-18-98 Date: --------------------------- ----------------------- Attachment A [*] [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. Attachment B [*] [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. EX-10.12 15 CREDIT AGREEMENT DATED NOVEMBER 26, 1997 EXHIBIT 10.12 CREDIT AGREEMENT Intending to be legally bound by this Credit Agreement ("Agreement"), dated November 26, 1997, BANK OF HAWAII, a Hawaii corporation, whose address is 130 Merchant Street, Honolulu, Hawaii 96813 (the "Bank") and CHEAP TICKETS, INC., a Hawaii corporation, whose mailing address is 1440 Kapioiani Boulevard, Suite 800, Honolulu, Hawaii 96814 (the "Borrower") agree as follows: I. REVOLVING CREDIT AND TERM LOAN OPTION 1.1 In General. Subject to the terms of this Agreement, the Bank hereby establishes a credit facility in favor of the Borrower (the "Credit Facility") under which the Bank will extend credit to the Borrower, from time to time until December 5, 1999 (the "Credit Termination Date"), by way of (i) Loans pursuant to Section 1.2 hereof and (ii) issuance of standby letters of credit for the account of the Borrower pursuant to Section 1.2 hereof. Each extension of credit shall be in such amount as the Borrower may request, but the aggregate principal amount of all extensions of credit at any one time outstanding shall not exceed $3,000,000.00 (the "Commitment"). The Borrower may obtain credit, repay without penalty and obtain further credit as provided for under this Agreement, from the date hereof until the Credit Termination Date, in either the full amount of the Commitment or any lesser sum. Upon the Borrower's execution of this Agreement, the Borrower's existing credit facilities under the Revolving Line of Credit Agreement and Term Loan Agreement, both dated April 8, 1997, shall be terminated. 1.2 Drawings. The Borrower may draw on the Commitment in the following manner(s): (A) By obtaining a cash advance (each such cash advance herein referred to as a "Loan"). (B) By obtaining the issuance of standby letters of credit. 1.3 Purpose. The proceeds of the Loans, other extensions of credit under this Credit Facility and the Term Loan shall be used exclusively for short-term working capital and to finance various fixed asset acquisitions and investments. 1.4 Security. The Credit Facility, Loans and Term Loan shall be secured by liens on or security interests in the following collateral ("Collateral"), which liens or security interests shall be of first priority unless otherwise approved by the Bank: all of Borrower's right, title and interest in and to Borrower's Bank of Hawaii deposit accounts, accounts receivable, inventory, furniture, fixtures and equipment, general intangibles, trade names, licenses and proceeds of the foregoing. 1.5 Guarantors. Repayment of all Loans, the Term Loan and other extensions of credit under this Agreement shall be jointly, severally, unconditionally and absolutely guaranteed by the following persons and/or entities: None. 1.6 Requests for Loans or Credit. Subject to the provisions of Articles II and III, Section 7.2 and other terms and conditions of this Agreement, the Borrower shall have the option on any Business Day to obtain new Loans by delivering to the Bank a written and completed "Notice of Loan/Conversion" in the form of Exhibit A attached hereto. A Notice of Loan/Conversion must arrive no later than noon (Hawaii Standard Time) on the date either one or three Business Days prior to the proposed disbursement date in the case of a Base Rate Loan or a LIBOR Loan, respectively. If the Borrower fails to timely notify the Bank of the Borrower's selection of a new Interest Period prior to the expiration of any current Interest Period, such Loan will automatically be converted to a Base Rate Loan upon expiration of the current Interest Period. Unless otherwise directed in writing by the Borrower, all proceeds of Loans shall be credited to the Borrower's Deposit Account No. 01-042327, maintained with the Bank. 1.7 Limitation on Loans. LIBOR Loan amounts shall be in minimums of $100,000 and in multiples of $50,000, with at most six (6) LIBOR Loans outstanding at any one time. 1.8 Conversions of Base Rate Loans to LIBOR Loans. Subject to the provisions of Article II and other terms and conditions in this Agreement, the Borrower shall have the option on any Business Day (the "Conversion Date") to convert all of the outstanding principal amount of one or more Base Rate Loans to a LIBOR Loan by giving the Bank a Notice of Loan/Conversion at the Payment Office no later than noon (Hawaii Standard Time) on the date three (3) Business Days prior to the proposed Conversion Date; provided that if an Event of Default is then in existence or if the Pricing Ratio is greater than 3.00, the Borrower may not convert a Base Rate Loan to a LIBOR Loan. Although no repayment shall actually be required upon any conversion, the proceeds thereof shall, for bookkeeping purposes, be deemed to be applied directly to repay the outstanding principal amount of the Base Rate Loans being converted. 1.9 Interest; Repayment of Loans and Credit. (A) Interest Rate. The Borrower agrees to pay interest on the outstanding principal balance of the Loans pursuant to the following interest rate options that the Borrower may select in accordance with the provisions of this Agreement: (1) a floating rate equal to the Base Rate in effect from time to time; or (2) LIBOR plus the Applicable Margin determined as follows: The Applicable Margin shall be determined quarterly in advance and shall apply to each LIBOR Loan, based on the most recent quarterly financial statement available, on the basis of the following pricing grid:
- ----------------------------------------------------------------------- If the Pricing Ratio is Applicable Margin - ----------------------------------------------------------------------- greater than 2.25% or equal to 2.00 but is not more than 3.00 - ----------------------------------------------------------------------- greater than 2.00% or equal to 1.00 but is not more than 1.99 - ----------------------------------------------------------------------- less than or equal to 0.99 1.25% - -----------------------------------------------------------------------
The Borrower may not select the LIBOR interest rate option if the Pricing Ratio is greater than 3.00 or if an Event of Default is in existence. The Base Rate will increase or decrease during the term of this Agreement if there is an increase or decrease in such rate. If the Base Rate or the LIBOR Rate is no longer available, the Bank will choose a new rate that is based on comparable information. Interest hereunder shall be computed, but not compounded, daily on the basis of the rate of interest then in effect. A change in the Base Rate shall take effect on the date upon which a change in the Base Rate is announced and made effective by the Bank, with or without notice to the Borrower. With respect to any LIBOR Loan, interest will be calculated at a fixed rate for the applicable Interest Period. Interest hereunder shall be computed on the basis of the actual number of days elapsed between payments and a 365-day year (or a 366- day year in leap years) in respect of any Base Rate Loan or a 360-day year in respect of any LIBOR Loan. In no event shall the Borrower be obligated to pay any amount under this Agreement that exceeds the maximum amount allowable by law. If any sum is collected in excess of the applicable maximum amount allowable by law, the excess collected shall, at the Bank's discretion, be applied to reduce the principal balance of the Loans, the Term Loan or returned to the Borrower. (B) Repayment of Loans. (1) Payment Schedule. (a) The Borrower agrees to make monthly payments to the Bank of all accrued interest on the outstanding principal balance of each Base Rate Loan on the first day of each month until all amounts owing under the Credit Facility and the Term Loan are paid in full. (b) The Borrower agrees to pay interest on the unpaid principal amount of each LIBOR Loan on the earliest of (i) the last day of the Interest Period, (ii) the last day of each three month interval occurring during the Interest Period, or (iii) prepayment of the LIBOR Loan. (c) All principal and accrued interest then outstanding under the Credit Facility shall be due and payable on the Credit Termination Date, provided, however, that subject to the conditions set forth in Subsection 1.9(B)(1)(d) below, the Borrower shall have the option (the "Term Loan Option") to convert the aggregate outstanding principal balance of the Loans on the Credit Termination Date into a term loan (the "Term Loan") payable as follows: (i) Interest on the principal amount shall be payable as set forth in Subsections 1.9(B)(1)(a) and 1.9(B)(1)(b). (ii) Principal payments shall be payable quarterly beginning ninety (90) days following the Credit Termination Date. The amount of the principal payments shall be determined on the Credit Termination Date and shall be calculated as the amount sufficient to fully amortize the aggregate outstanding principal balance of the Term Loan on the Credit Termination Date in equal principal payments over a period of three years. (iii) From time to time the Borrower may convert all or a portion of the outstanding principal balance under the Term Loan then subject to the Base Rate to a LIBOR Loan, as provided and subject to the terms and conditions of Section 1.8, and may continue LIBOR Loans at the end of the Interest Period relating thereto. (d) The Borrower's Term Loan Option is expressly conditioned upon the following: (i) no Event of Default shall have occurred and be continuing; (ii) no earlier than thirty (30) days and no later than ten (10) days prior to the Credit Termination Date, the Borrower shall provide to the Bank written notice of the Borrower's election to exercise the Term Loan Option. Such notice shall set forth the Borrower's interest rate selection(s) pursuant to Section 1.9(A) and shall include a pro forma compliance certificate, signed by the Borrower's chief financial officer, in the form attached hereto as Schedule 1.9 and made a part hereof. Such pro forma compliance certificate shall be calculated using the financial results from the most recent compliance certificate submitted to the Bank and shall certify to the Bank that the Borrower's financial condition at that time meets the following standards, in each case determined in accordance with GAAP: Pro Forma Current Ratio of not less than 1.50 to one; Tangible Net Worth of not less than the amount equal to: $4,800,000, plus 100% of net proceeds of all Equity Offerings after the date hereof, plus 50% of Borrower's consolidated net earnings, excluding losses, for each quarter commencing January 1, 1997, to and including the fiscal quarter immediately preceding the date of determination; Pro Forma Debt Service Coverage Ratio of not less than 1.50 to one; and Pro Forma Funded Debt to Cash Flow Ratio of not more than 3.00 to one. If no interest rate option is set forth in the notice of exercise, the Base Rate shall apply; and (iii) satisfaction of the conditions for subsequent extensions of credit as set forth in Section 3.2. (e) The Borrower agrees to pay in full on or before the Maturity Date all principal and accrued interest then outstanding under the Credit Facility or the Term Loan, as applicable. (2) Currency, Place and Dates of Payments. Payments shall be made in United States money at the Bank's address stated above, or at such other place as the Bank shall have designated by written notice to the Borrower. Any payment due on a day that is not a Business Day shall be made on the next succeeding Business Day and the extension of time shall be included in the computation of interest. (3) Evidence of Making and Repayment of Loans. The Bank's records evidencing the date of disbursement and principal amount of each Loan and the Term Loan and the amounts of all repayments of principal and payments of interest on each Loan and the Term Loan shall constitute prima facie evidence of the making and repayment of such Loans and the Term Loan and of the payment of such interest. However, the Bank's making of erroneous notations in its records shall not affect the Borrower's obligation to repay the outstanding balance of principal under a Loan or the Term Loan, and accrued interest thereon, as provided in this Agreement. (4) Late Charges. If any payment under this Agreement is not made within five (5) days after notice that payment is due, the Borrower will pay to the Bank a late charge in respect of that payment, in the amount of 5% of the overdue payment. (5) Application of Payments. Payments under this Agreement may be applied by the Bank to the indebtedness evidenced by this Agreement in any manner the Bank deems appropriate; provided, however, that if no Event of Default exists, payments applied to the principal amount of the Loans or the Term Loan outstanding shall be applied first to Base Rate Loans and next to LIBOR Loans to minimize funding losses payable pursuant to Section 2.1, as determined by the Bank. The priority of application elected by the Bank on any one occasion shall not determine any such election in the future. (C) Repayment of Drawings on Letter of Credit. If the Bank pays a draft pursuant to a letter of credit issued under the Credit Facility, the Borrower will automatically repay such draft by way of a Loan made under the Credit Facility. 1.10 Evidence of Indebtedness; Loan Documents. The Credit Facility and the Term Loan are or are to be evidenced and/or secured by this Agreement, a Master Note in the form attached hereto as Exhibit B and all such other documents as the Bank may reasonably require from time to time to effectuate the intent of this Agreement, together with all renewals, extensions and modifications thereto (collectively the "Loan Documents"). 1.11 The Borrower's Obligations. The Borrower's obligations to pay, observe and perform all indebtedness, liabilities, covenants and other obligations on the part of the Borrower to be paid, observed and performed under this Agreement and the remainder of the Loan Documents are herein collectively called the "Obligations". 1.12 Fees. In respect to the Credit Facility and the Term Loan, the Borrower shall pay: (A) a facility fee of $7,500.00, of which the Bank acknowledges receipt of payment in full; (B) an annual administration fee of $1,200 during the term of the revolving loan, payable in arrears on the first anniversary of the Closing Date and on the Credit Termination Date; (C) the Bank's standard issuance and documentation fees for letters of credit; (D) in quarterly installments in arrears, a 1.25% per annum fee on the amount of each outstanding standby letter of credit issued pursuant to this Agreement; and (E) if the Borrower exercises the Term Loan Option, a fee equal to the greater of (i) $2,500 or (ii) 0.25% of the indebtedness under the Term Loan. Such fee shall be paid by the Borrower upon the Bank's receipt and acceptance of the Borrower's request to exercise the Term Loan Option pursuant to Subsection 1.9(B)(1)(d). II. FUNDING LOSS AND YIELD PROTECTION PROVISIONS 2.1 Funding Loss Indemnification. If the Borrower shall (a) pay or convert any LIBOR Loan on any day other than the last day of the applicable Interest Period (whether on account of a scheduled payment, an optional prepayment or conversion, a mandatory prepayment or conversion, a payment upon acceleration or otherwise, but excluding any such payment or conversion made by the Borrower pursuant to Section 2.4; or (b) fail to borrow any LIBOR Loan after giving due notice thereof to the Bank; or (c) fail to convert any Base Rate Loan into a LIBOR Loan after giving due notice thereof to the Bank, the Borrower shall reimburse the Bank and hold the Bank harmless for all costs, net losses or administrative overhead incurred as a result of such repayment, prepayment or failure, except those resulting from the willful misconduct or gross negligence of the Bank. The Bank may use any reasonable method in calculating such actual loss, costs and overhead under this Section, which calculation shall be binding and conclusive on the Borrower absent manifest error. 2.2 Lack of Availability or Profitability of Eurodollar Deposits. With respect to any LIBOR Loan or conversion requested, if the Bank shall have determined (a) that dollar deposits in the principal amount of the respective LIBOR Loan are not generally available in the interbank market; (b) that reasonable means do not exist for ascertaining LIBOR; or (c) that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the Bank's cost of making or maintaining such LIBOR Loan, the Bank shall, as soon as practicable thereafter, give written or telecopy notice of such determination to the Borrower. In that event, such Notice of Loan/Conversion shall be of no force and effect. The Borrower may submit a new Notice of Loan/Conversion electing a different option. Each determination by the Bank hereunder shall be conclusive absent manifest error. 2.3 Change in Legality; Additional Costs to the Bank. If after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to the Bank or the principal or interest on any Loans under this Credit Facility or the Term Loan; impose, modify or hold applicable any fees, reserve requirements, special deposits or any costs to the Bank in respect of any Loans; or cause a reduction in the amount of any sum received or receivable by the Bank hereunder; the Borrower will promptly pay to the Bank such additional amounts as will compensate the Bank on an after-tax basis for such cost or reduction incurred. The Bank may use any reasonable method in calculating its additional costs under this Section, which calculation shall be conclusive absent manifest error. The Bank shall have no right to recover any compensation pursuant to this Section 2.3 with respect to amounts incurred or accrued more than 180 days prior to the giving of notice to the Borrower by the Bank thereof. 2.4 Illegality. Notwithstanding anything to the contrary contained in this Agreement, if any change in any present or future applicable law, rule or regulation, or in the interpretation or administration thereof by any governmental authority charged with the administration thereof, or compliance with any request, guideline, policy or directive (whether or not having the force of law) of any such governmental authority; shall make it unlawful or impracticable in the sole judgment of the Bank to make, fund or maintain any LIBOR Loan, or any part of its commitment hereunder, then by notice to the Borrower the obligation of the Bank to permit interest to be calculated on the basis of LIBOR or to convert any other types of Loans to LIBOR Loans shall forthwith be suspended until such time as the Bank shall notify the Borrower that the circumstances causing such suspension no longer exist. Interest on any such LIBOR Loans shall automatically convert to an interest rate calculated the basis of the Base Rate in accordance with the terms governing Base Rate Loans. 2.5 Capital Requirements. If the Bank determines that the introduction of or change to any law, regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) will result in an increase in the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank, and that such increase is based upon the existence of the Bank's Commitment hereunder and other commitments of this type, then upon demand the Borrower shall pay the Bank compensation. A certificate as to the amount of compensation, submitted to the Borrower by the Bank, shall be conclusive and binding for all purposes absent manifest error. The Bank shall have no right to recover any compensation pursuant to this Section 2.5 with respect to amounts incurred or accrued more than 180 days prior to the giving of notice to the Borrower by the Bank thereof. III. CONDITIONS PRECEDENT 3.1 First Loan or Other Extension of Credit. The obligation of the Bank to make the first Loan or other extension of credit under this Agreement is subject to the satisfaction of all of the following conditions on or before December 1, 1997: (A) Documents Required for Closing. The Bank shall have received, in each case in form and substance satisfactory to the Bank, such fully executed originals or certified copies as the Bank may have requested of each of the following, in each case as amended through the Closing Date: (1) Loan Documents. All of the Loan Documents. (2) Consents. Evidence that all parties to the Loan Documents (except the Bank) have obtained all necessary and appropriate authority, approvals and consents to execute and deliver the Loan Documents. (3) Organizational Documents. If any party to the Loan Documents (except the Bank) is a corporation, partnership, trust, association or other recognized legal entity other than a natural person (a "Legal Entity"), all instruments pursuant to which such Legal Entity and each Legal Entity comprising such Legal Entity was organized and by which its internal affairs are governed and, if requested by the Bank, a Certificate of Good Standing, evidencing such Legal Entity's good standing and authority to conduct its business in the jurisdiction(s) in which it conducts its business. (4) Opinion(s) of Counsel. An opinion or opinions of counsel for the Borrower, addressed to the Bank, covering to the Bank's satisfaction (i) the due authorization, execution and delivery of the Loan Documents, (ii) the existence of any litigation affecting the Borrower or the Collateral, (iii) any required consents or approvals, (iv) no conflicts with any agreement or laws, and (v) such other matters as the Bank may require. (5) Evidence of Priority. Evidence acceptable to the Bank that the Bank's liens on and/or security interests in the Collateral have the priority required by the Bank. (6) Insurance. Evidence of the Borrower's compliance with the provisions stated below in Section 5.6. (B) Certain Other Events. On the Closing Date: (1) The Borrower shall have paid to the Bank all fees and other charges required to have been paid in accordance with the terms of the Loan Documents, including, without limitation, any fees then payable pursuant to Section 1.12 above. (2) The representations and warranties contained in Section IV shall be true. (3) To event shall have occurred and be continuing that (i) constitutes an Event of Default, or (ii) with the giving of notice or passage of time, or both, would constitute an Event of Default. (4) No material adverse change shall have occurred in the financial condition of the Borrower since the date of the most recent of the Borrower's financial statements submitted to the Bank. (5) No material adverse change shall have occurred in the physical condition of the Borrower's assets since the date of this Agreement. (6) All legal matters incidental to the Closing shall be satisfactory to legal counsel for the Bank. 3.2 Subsequent Loans or Extensions of Credit. The obligation of the Bank to make the second or any subsequent Loan or other extension of credit is subject to (i) the prior satisfaction of all conditions stated above in Section 3.1(A), and (ii) the satisfaction as of the date of such subsequent Loan or other extension of credit of the conditions stated above in Sections 3.1(B) of this Agreement, and (iii) the delivery to the Bank of such additional Loan Documents as may have been reasonably requested by the Bank with respect to such subsequent Loan or other extension of credit . IV. REPRESENTATIONS AND WARRANTIES To induce the Bank to make the Commitment available to the Borrower, the Borrower makes the following representations and warranties to the Bank, which representations and warranties shall survive the execution of this Agreement and continue so long as the Borrower is indebted to the Bank under the Loan Documents, and until payment in full of the Credit Facility and the Term Loan: 4.1 Organization. The Borrower, if it is a Legal Entity, as well as each Legal Entity comprising the Borrower, is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and has the lawful power to own its properties and to engage in the business it conducts. 4.2 No Breach. The execution and performance of the Loan Documents will not immediately, or with the passage of time or the giving of notice, or both: (A) Violate any law or result in a default under any contract, agreement, or instrument to which the Borrower is a party or by which the Borrower or its property is bound; or (B) Result in the creation or imposition of any security interest in, or lien or encumbrance on, any of the assets of the Borrower, except in favor of the Bank. 4.3 Authorization. The Borrower has the power and authority to incur and perform the Obligations, and, if the Borrower is a Legal Entity, the Borrower has taken all corporate, partnership, or other action necessary to authorize the execution and delivery of the Loan Documents and its incurring of the Obligations. 4.4 Validity. This Agreement is, and the remainder of the Loan Documents when delivered will be, legal, valid, binding, and enforceable in accordance with their respective terms, except as enforcement may be limited by insolvency, liquidation, reorganization, moratorium, or other laws affecting the enforcement of creditors' rights in general. 4.5 Financial Statements. All financial statements heretofore given by the Borrower to the Bank in connection with this Agreement, including any schedules and notes pertaining thereto, were prepared in accordance with generally accepted accounting principles, consistently applied ("GAAP"), and fully and fairly present the financial condition of the Borrower at the dates thereof and the results of operations for the periods covered thereby, and as of the date of this Agreement there have been no material adverse changes in the financial condition or business of the Borrower from the date of the most recent financial statements given to the Bank. 4.6 Taxes. Except as otherwise permitted by this Agreement, the Borrower has filed all tax returns it was required by law to have filed prior to the date of this Agreement, has paid or caused to be paid all taxes, assessments, and other governmental charges that were due and payable prior to the date of this Agreement, except those contested in good faith by appropriate action diligently pursued and for which Borrower has set aside on its books (segregated to the extent required by sound accounting principles) adequate reserves with respect thereto, and has made adequate provision for the payment of such taxes, assessments, or other charges accruing but not yet payable, and the Borrower has no knowledge of any deficiency or additional assessment in a materially important amount in connection with any taxes, assessments, or charges not provided for on its books. 4.7 Compliance With Law. Except to the extent that the failure to comply would not materially interfere with the conduct of the business of the Borrower, the Borrower has complied with all applicable laws in respect of: (1) restrictions, specifications, or other requirements pertaining to products that the Borrower sells or to the services it performs; (2) the conduct of its business; and (3) the use, maintenance, and operation of its properties. 4.8 Statements and Omissions. No representation or warranty by the Borrower contained in this Agreement or in any certificate or other document furnished by the Borrower pursuant to this Agreement contains any untrue statement of material fact or omits to state a material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made. 4.9 No Pending Actions. There is no pending or threatened litigation affecting the Borrower or any Collateral that is reasonably expected to have a material adverse effect on the business of the Borrower or the Collateral. 4.10 Equity Offerings. All Equity Offerings were and will continue to be conducted in full compliance in all material respects with all applicable federal and state securities laws, rules and regulations. V. AFFIRMATIVE COVENANTS For so long as the Commitment or any of the Obligations remains outstanding, the Borrower will, unless otherwise permitted by the Bank in writing: 5.1 Payments. Punctually pay when due all sums which may be due under the Loan Documents. 5.2 Accounting Records. Maintain accurate and proper accounting records and books in accordance with GAAP, and provide the Bank with access to such books and accounting records at the Bank's request during the Bank's normal business hours. 5.3 Financial Reporting. Furnish the Bank with financial reports, certified as true and correct by the Borrower's chief financial officer, in reasonable detail and form approved by the Bank, as follows: (A) Not later than 120 days after and as of the end of each fiscal year a financial statement of the Borrower, audited by a firm of independent certified public accountants acceptable to the Bank, which financial statements shall include a balance sheet and statements of income and cash flow for such year, all prepared in accordance with GAAP; (B) Not later than 60 days after and as of the end of each quarter a financial statement prepared by the Borrower and satisfactory to the Bank, including a balance sheet and income statement; (C) The financial statements required pursuant to clauses (a) and (b) shall be accompanied by a compliance certificate signed by the Borrower's chief financial officer in the form attached as Schedule 5.3 certifying (i) the financial ratios and other requirements referred to in Section 5.10, (ii) the representations and warranties set forth in Article IV as being true and correct on and as of such date except as otherwise disclosed, and (iii) that no Event of Default has occurred or is continuing; and (D) From time to time such other information as the Bank may reasonably request. 5.4 Existence. If the Borrower is a Legal Entity, preserve and maintain the Borrower's legal existence and timely file all necessary and appropriate documents and exhibits and pay all appropriate fees and charges in connection therewith. 5.5 Observance of Laws. Conduct the Borrower's business activities in an orderly, efficient and regular manner and comply with all requirements of all applicable state, federal and local laws, rules and regulations. 5.6 Insurance. Maintain and keep in force insurance of the types and in such amounts as are satisfactory to the Bank, and in no event less than amounts customarily carried in lines of business similar to the Borrower's, including but not limited to, property and casualty, commercial general liability and workers' compensation insurance, and provide the Bank with a schedule or schedules or certificates of insurance from time to time setting forth all insurance then in effect along with copies of all such policies. If real or personal properties are given to secure the Obligations or any guaranty given in support of the Obligations, such properties shall be covered by property and casualty insurance acceptable to the Bank, and such policies shall contain a mortgagee's clause and/or lender's loss payable endorsements and shall require 30 days' prior written notice to the Bank of any cancellation or material change in coverage. If an "insurance binder" is issued as temporary evidence of insurance coverage, the Borrower must provide to the Bank the original insurance policy at the earlier of (i) the expiration of the binder, or (ii) thirty (30) days from the date the insurance binder is issued. 5.7 Facilities. Keep all of the Borrower's property and business premises in a good state of repair and condition, make all necessary repairs, renewals and replacements thereto from time to time so that such property and business premises shall be fully and efficiently preserved and maintained, keep such property and business premises free and clear of all liens, charges or encumbrances except those consented to by the Bank in writing and permit the Bank's authorized representatives to make reasonable inspections of the Borrower's property and business premises. 5.8 Taxes and Other Liabilities. Pay and discharge when due all of the Borrower's indebtedness, obligations, assessments and taxes, except such as the Borrower may in good faith contest or as to which a bona fide dispute may exist, provided that the Borrower has provided evidence satisfactory to the Bank regarding the Borrower's ability to pay the disputed items in the event they are determined to be justly due. 5.9 Notice to the Bank. Promptly give notice to the Bank of (a) the occurrence of any Event of Default, (b) any change in the name or organizational structure of the Borrower, (c) any uninsured loss through fire, theft, liability or property damage exceeding $100,000.00, (d) any pending or threatened litigation affecting the Borrower or any of the Collateral involving an amount exceeding $100,000.00, (e) any event which is reasonably expected to have a material adverse effect on the ability of the Borrower to continue its business operations in the ordinary course, (f) any change in the Borrower's principal place of business, and (g) any change in the location of any of the Collateral. 5.10 Financial Condition. Maintain the Borrower's financial condition according to the following standards, in each such case determined in accordance with GAAP as of the end of each fiscal quarter: (A) Current Ratio of not less than 1.15 to one, and increasing to 1.50 to one commencing with the Borrower's financial reporting period ending September 30, 1997; (B) Tangible Net Worth of not less than the amount equal to: $4,800,000, plus 100% of net proceeds of all Equity Offerings after the date hereof, plus 50% of Borrower's consolidated net earnings, excluding losses, for each quarter commencing January 1, 1997, to and including the fiscal quarter immediately preceding the date of determination; (C) Debt Service Coverage Ratio of not less than 1.25 to one commencing with the financial reporting period ending March 31, 1998, and increasing to 1.50 to one commencing with the financial reporting period ending December 31, 1998; and (D) Funded Debt to Cash Flow Ratio of not more than 3.00 to one. 5.11 Hazardous Materials. Abide at all times by all applicable hazardous material laws, rules and regulations and immediately notify the Bank of any claim or threatened claim affecting any property owned, leased or occupied by the Borrower. VI. NEGATIVE COVENANTS For so long as the Commitment or any Obligation remains outstanding, the Borrower will not, without the prior written consent of the Bank: 6.1 Use of Funds. Use any of the proceeds of the Commitment for any purpose except as set forth in Section 1.3 of this Agreement. 6.2 Merger, Consolidation, Pledge of Stock, Sale of Assets. Merge into or consolidate with any Legal Entity, acquire or establish any operating subsidiaries or acquire all or substantially all of the capital stock or assets of any other legal entity; or sell, assign, transfer, pledge, mortgage, or otherwise dispose of all or substantially all of the major assets of the Borrower, except in the ordinary course of its business. 6.3 Business. Materially change the character of the Borrower's current business, or engage in any type of business other than the Borrower's current business. VII. THE BANK'S RIGHTS UPON DEFAULT 7.1 Events of Default. Each of the following events is an "Event of Default" under this Agreement: (A) The Borrower's failure to pay within three (3) Business Days after it is due any sum payable to the Bank under the Loan Documents or under any other agreement or note between the Bank and the Borrower, whether now existing or hereafter executed; (B) The dissolution or insolvency of the Borrower; (C) The commencement of any proceeding or the taking of any act by or against the Borrower for any relief under bankruptcy, insolvency or similar laws for the protection of debtors, or for the appointment of a receiver of the business or assets of the Borrower or the Borrower's inability (or admission of inability) to pay its debts as they become due; provided that any such proceeding or action for relief filed or instigated without the consent of the Borrower has not been dismissed or undischarged within sixty (60) days; (D) Any governmental authority having jurisdiction over the Borrower revokes any authorization or permit materially affecting the Borrower's ability to do business; (E) The Borrower defaults in the payment of any indebtedness for borrowed money owed by the Borrower in an amount in excess of $300,000 to any person or entity other than the Bank, if such failure results in the acceleration of such debt; (F) Any representation, warranty, or other information made or furnished by the Borrower in respect of the Credit Facility or the Term Loan is or shall be untrue in any material respect or materially misleading; (G) The Bank reasonably believes that there has been a material impairment of or decrease in either the Borrower's ability to pay or perform the Obligations or the value of the Collateral or any guaranty given to secure payment of the Obligations, and Borrower has not remedied such impairment or decrease to the reasonable satisfaction of Bank within 30 days after notice by Bank; (H) A final judgment (which alone or with other outstanding final judgments, but excluding amounts covered by insurance) is rendered against the Borrower in an aggregate amount of $300,000 or more, and each such judgment is not discharged or stayed pending appeal within 60 days after entry of such judgment or is not discharged within 60 days after the expiration of any such stay; (I) Any third party obtains a court order enjoining or prohibiting the Borrower, or the Bank from performing any of its respective obligations under the Loan Documents and such order is not discharged within 60 days after its issuance; (J) The Borrower fails to pay when due (or prior to delinquency) any amount relating to any plan governed by the Employee Retirement Income Security Act of 1974, as amended; (K) Borrower shall default in its obligations under Sections 5.4, 5.9, 6.1 through 6.3 hereof; or (L) Borrower shall fail to perform or observe any other term, covenant, agreement or obligation under this Agreement or any of the other Loan Documents on the part of the Borrower to be performed or observed, and such failure does not constitute an Event of Default under Section 7.1 (A) through (K), above, and any such failure shall remain unremedied after any applicable grace period provided therefor in this Agreement or in the other Loan Documents, or if no such grace period is provided, for a period of thirty (30) days after the earlier of (i) the date written notice thereof shall have been given by the Bank to the Borrower, or (ii) the date the Borrower should have delivered to the Bank a written notice of such default or Event of Default pursuant to Section 5.9 hereof. 7.2 The Bank's Rights. If an Event of Default shall occur, the Bank shall have, in addition to any and all other rights and remedies, legal or equitable, available to the Bank under any and all of the Loan Documents or at law, the following additional rights and remedies: (A) The absolute right to deny to the Borrower any further Loan or extension of credit (the Bank's obligation to extend any further credit to the Borrower shall immediately terminate); (B) The right, at the option of the Bank, to declare, without notice, the entire principal amount and accrued interest for any Loan, the Term Loan or extension of credit outstanding under this Agreement, plus any fees and charges reasonably incurred by the Bank under any of the Loan Documents, immediately due and payable; (C) The right, at the option of the Bank, to charge interest on any principal amount outstanding under this Agreement at the rate equal to the greater of (i) Base Rate plus 3% or (ii) three percentage points above the otherwise applicable interest rate; and (D) The right to the ex parte appointment without bond of a receiver, without regard to the value of any Collateral or solvency of any party liable for payment, observance or performance of the Obligations and regardless of whether the Bank has an adequate remedy at law. VIII. MISCELLANEOUS 8.1 Further Assurance. From time to time within five Business Days after the Bank's demand, the Borrower will execute and deliver such additional documents and provide such additional information as may be reasonably requested by the Bank to carry out the intent of this Agreement. 8.2 Enforcement and Waiver by the Bank. The Bank shall have the right at all times to enforce the provisions of the Loan Documents, as they may be amended from time to time, in strict accordance with their terms, notwithstanding any conduct or custom on the part of the Bank in refraining from so doing at any time or times. The failure of the Bank at any time or times to enforce its rights under such provisions, strictly in accordance with the same, shall not be construed as having created a custom in any way or manner contrary to specific provisions of the Loan Documents or as having in any way or manner modified or waived the same. All rights and remedies of the Bank are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. 8.3 Expenses of the Bank. The Borrower will, on demand, reimburse to the Bank all reasonable expenses, including reasonable attorneys' fees (including allocated costs of the Bank's in-house counsel), incurred by the Bank in connection with the amendment, modification, workout, or enforcement of the Loan Documents and the collection or attempted collection of the indebtedness evidenced by the Loan Documents, whether or not legal proceedings are commenced. 8.4 Notices. Any notices or consents required or permitted by this Agreement or the remainder of the Loan Documents shall be in writing and shall be deemed delivered if delivered in person or if sent by certified mail, postage prepaid, return receipt requested, or by FAX, at the following addresses or FAX numbers, unless such address or FAX number is changed by written notice hereunder: BORROWER BANK Paul Ouyang, Peter S. Ho, Vice President Executive Vice President and BANK OF HAWAII Chief Financial Officer Corporate Hawaii Division CHEAP TICKETS, INC. P.O. Box 2900 6151 West Century Boulevard Honolulu, Hawaii 96846 Suite 1200 PHONE: (808) 537-8870 Los Angeles, California 90045 FAX: (808) 537-8943 PHONE: (310) 641-1262 FAX: (310) 342-9995 8.5 Waiver and Release by the Borrower. To the maximum extent permitted by applicable law, the Borrower (and each of them, if more than one): (A) Waives notice and opportunity to be heard, after acceleration of the indebtedness evidenced by the Loan Documents, before exercise by the Bank of the remedy of setoff or of any other remedy or procedure permitted by any applicable law or by any prior agreement with the Borrower, and, except where specifically required by this Agreement or by any applicable law, notice of any other action taken by the Bank; (B) Waives presentment, demand for payment, notice of dishonor, and any and all other notices or demands in connection with the delivery, acceptance, performance, or enforcement of this Agreement, and consents to any extension of time (and even multiple extensions of time for longer than the original term), renewals, releases of any person or organization liable for the payment of the Obligations under this Agreement, and waivers or modifications or other indulgences that may be granted or consented to by the Bank in respect of the Loans, the Term Loan and other extensions of credit evidenced by this Agreement; and (C) Releases the Bank and its officers, agents, and employees from all claims for loss or damage caused by any act or omission on the part of any of them except gross negligence or willful misconduct. 8.6 Sales and Participations. The Borrower consents to the Bank's negotiation, offer, and sale to third parties ("Participants") of the Credit Facility or the Term Loan or participating interests in the Credit Facility or the Term Loan, to any and all discussions and agreements heretofore or hereafter made between the Bank and any Participant or prospective Participant regarding the interest rate, fees, and other terms and provisions applicable to the Credit Facility or the Term Loan (as between any such Participant and the Bank). The Bank shall obtain the Borrower's written consent, which consent shall not be unreasonably withheld prior to the Bank's disclosure to any Participant or prospective Participant other than any competitor of the Borrower, from time to time, of such financial and other information pertaining to the Borrower, the Credit Facility and the Term Loan as the Bank and such Participant or prospective Participant may deem appropriate (whether public or non-public, confidential or non-confidential, and including information relating to any insurance required to be carried by the Borrower and any financial or other information bearing on the Borrower's creditworthiness and the value of any Collateral). The Borrower acknowledges that the Bank's disclosure of such information to any Participant or prospective Participant constitutes an ordinary and necessary part of the process of effectuating and servicing the Credit Facility and the Term Loan. No Participant shall have any right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document except to the extent such amendment, consent or waiver would: (A) increase or extend the Commitment of the Bank, (B) postpone or delay any date fixed for any payment of principal specified herein, (C) reduce the principal of, or the rate of interest specified herein (other than interest payable after a default), under the Credit Facility or the Term Loan or (D) release a substantial portion of the Collateral. 8.7 Applicable Law. The substantive laws of the State of Hawaii shall govern the construction of this Agreement and the rights and remedies of the parties hereto. 8.8 Binding Effect. This Agreement shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns, and shall be binding on the parties hereto and their respective heirs, personal representatives, successors and assigns. 8.9 Merger. This Agreement and the remainder of the Loan Documents constitute the full and complete agreement between the Bank and the Borrower with respect to the Credit Facility and the Term Loan, and all prior oral and written agreements, commitments, and undertakings shall be deemed to have been merged into the Loan Documents and such prior oral and written agreements, commitments, and undertakings shall have no further force or effect except to the extent expressly incorporated in the Loan Documents. 8.10 Amendments; Consents. No amendment, modification, supplement, termination, or waiver of any provision of this Agreement or the other Loan Documents, and no consent to any departure by the Borrower therefrom, may in any event be effective unless in writing signed by the Bank, and then only in the specific instance and for the specific purpose given. 8.11 Assignments. (A) The Borrower shall have no right to assign any of its rights or obligations under the Loan Documents without the prior written consent of the Bank. (B) The Bank may sell participations in the Credit Facility or the Term Loan, as contemplated by Section 8.6 above, and the Bank may assign the Loan Documents (or the receivables evidenced thereby) to a Federal Reserve Bank or to any other agency or instrumentality of the United States of America to support borrowings of Federal Funds. 8.12 Severability. If any provision of any of the Loan Documents shall be held invalid under any applicable law, such invalidity shall not affect any other provision of the Loan Documents that can be given effect without the invalid provision, and, to this end, the provisions of the Loan Documents are severable. 8.13 The Bank's Right of Setoff; Security Interest in Accounts. After the occurrence and during the continuance of an Event of Default, the Bank may set off obligations owed by the Bank to the Borrower (such as balances in checking and savings accounts) against the Obligations, without first resorting to other Collateral. To secure the Obligations, the Borrower grants to the Bank a security interest in all checking, savings, and other deposit accounts now or hereafter maintained by the Borrower with the Bank. 8.14 Time is of the Essence. Time is of the essence under and in respect of this Agreement. 8.15 Joint and Several Liability. If more than one Borrower has signed this Agreement, all Borrowers shall be liable under this Agreement jointly, and each of them severally, for the payment, observance, and performance of all of the Obligations. 8.16 Headings. The headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not affect the meaning or construction of any provision. 8.17 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original instrument and all of which shall together constitute one and the same agreement. 8.18 Dispute Resolution. Any controversy or claim arising out of or relating to this Agreement or any of the other Loan Documents shall, at the request of either party, be decided by binding arbitration conducted in the State of Hawaii without a judge or jury, under the auspices of the American Arbitration Association or Dispute Prevention and Resolution, Inc. in accordance with Chapter 658 of the Hawaii Revised Statutes and the respective and applicable rules of the aforementioned organizations. The arbitrator will apply any applicable statute of limitations and will determine any controversy concerning whether an issue is arbitrable. Judgment upon the arbitration award may be entered in any court having jurisdiction. The prevailing party will be entitled to recover its reasonable attorneys' fees and costs as determined by the arbitrator. This agreement to arbitrate shall not limit or restrict the right, if any, of any party to exercise before, during or following any arbitration proceeding, with respect to any claim or controversy, self-help remedies such as setoff, to foreclose a mortgage or lien or other security interest in any Collateral judicially or by power of sale, or to obtain provisional or ancillary remedies such as injunctive relief from a court having jurisdiction. Either party may seek those remedies without waiving its right to submit the controversy or claim in question to arbitration. IX. DEFINITIONS 9.1 Applicable Margin shall have the meaning given in Section 1.9. 9.2 Base Rate means the primary index rate established from time to time in good faith by the Bank in the ordinary course of its business and with due consideration of the money market, and published by intrabank circular letters or memoranda for the guidance of its loan officers in pricing all of its loans which float with the Base Rate. 9.3 Base Rate Loan means any Loan or any portion of the Term Loan for which interest is calculated on the basis of the Base Rate. 9.4 Business Day means any day on which the Bank is open for business and, with respect to any LIBOR Loan, a day on which the Bank and commercial banks in New York City are open for business. 9.5 Closing Date means the date on which the Bank disburses the first Loan. 9.6 Collateral shall have the meaning given in Section 1.4. 9.7 Commitment shall have the meaning given in Section 1.1. 9.8 Conversion Date shall have the meaning given in Section 1.6. 9.9 Credit Facility shall have the meaning given in Section 1.1. 9.10 Credit Termination Date shall have the meaning given in Section 1.1. 9.11 Current Assets means all assets of the Borrower, on a consolidated basis, that should, in accordance with GAAP, be classified as current assets on the Borrower's financial statements. 9.12 Current Liabilities means all liabilities of the Borrower, on a consolidated basis, that should, in accordance with GAAP, be classified as current liabilities on the Borrower's financial statements. 9.13 Current Ratio means the number, rounded to the nearest hundredth, obtained by dividing Current Assets by Current Liabilities. 9.14 Debt Service means, for the four (4) fiscal quarter period immediately preceding the date of determination, the sum of all scheduled and of all required payments during such period in respect of all Funded Debt. 9.15 Debt Service Coverage Ratio means the number, rounded to the nearest hundredth, obtained by dividing Net Cash Flow by Borrower's Debt Service. 9.16 Equity Offering means the offering or sales of ownership interests in Borrower, excluding any such offerings made pursuant to an employee benefit plan. 9.17 Event of Default shall have the meaning given in Section 7.1. 9.18 Funded Debt means, on and as of the date of calculation thereof, the aggregate principal amount, determined in accordance with GAAP, of all obligations for borrowed money, including, without limitation, obligations under guaranties, all recourse obligations on investments, all obligations evidenced by bonds, debentures, notes or other similar instruments, standby letters of credit, and all obligations under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases. 9.19 Funded Debt to Cash Flow Ratio means the number, rounded to the nearest hundredth, obtained by dividing (i) Borrower's Funded Debt, less Borrower's cash balances, as of the date of calculation thereof, in excess of $1,500,000, divided by (ii) Net Cash Flow. 9.20 GAAP shall have the meaning given in Section 4.5. 9.21 Interest Period means the period commencing on the Business Day on which a LIBOR Loan is disbursed, rolled over or converted from another pricing option, and ending on the date 30, 60, 90 or 180 days thereafter, as selected by the Borrower in its Notice of Loan/Conversion in respect of LIBOR Loans; provided that if such ending date is not a Business Day, such ending date shall be deemed to be the next succeeding Business Day unless such next succeeding Business Day falls in a new calendar month, in which case the ending date shall be the next preceding Business Day. No Interest Period shall extend beyond the Maturity Date. 9.22 Legal Entity shall have the meaning given in Section 3.1(A)(3). 9.23 LIBOR means the reserve-adjusted rate of interest per annum, rounded upward if necessary, to the nearest four decimal places, at which U.S. dollar deposits in immediately available funds are offered to major banks in the interbank market at 11:00 a.m. New York time three Business Days prior to the commencement of an Interest Period. The Bank shall establish LIBOR for each Interest Period based on offered rates as reported by reporting services generally used by the Bank. Rates are quoted based on both the Interest Period and the amount of Loan requested by the Borrower. Such rate shall incorporate the following adjustment for any reserve requirements relative to dollar deposits, placed on the Bank by any regulatory body: LIBOR (Unadjusted) LIBOR (Reserve Adjusted) = (100% - LIBOR Reserve Requirement) -------------------------------------------------------------
The Bank's determination of LIBOR shall be binding and conclusive upon the Borrower absent manifest error. 9.24 LIBOR Loan means any Loan or any portion of the Term Loan for which interest is calculated on the basis of LIBOR. 9.25 LIBOR Reserve Requirement means the then maximum effective rate per annum (expressed as a percentage), as determined solely by the Bank, of reserve requirements imposed by any regulatory body (such as those pursuant to Regulation D of the Board of Governors of the Federal Reserve System) on eurocurrency liabilities of U.S. banks having a term to maturity equal to the applicable Interest Period; and as adjusted by the Bank for changes or scheduled changes in such percentage during the applicable Interest Period. 9.26 Loan shall have the meaning given in Section 1.2. 9.27 Loan Documents shall have the meaning given in Section 1.10. 9.28 Maturity Date means the Credit Termination Date, or if the Borrower exercises the Term Loan Option in accordance with Subsection 1.9(B)(1)(d), the third (3rd) anniversary of the Credit Termination Date. 9.29 Net Cash Flow means, for the twelve (12) month period immediately preceding the date of determination, Borrower's net income after taxes, net of extraordinary gains, plus depreciation, non-cash amortization and interest expense, all determined in accordance with GAAP. 9.30 Notice of Loan/Conversion shall mean a written notice in the form attached as Exhibit A. 9.31 Obligations shall have the meaning given in Section 1.11. 9.32 Participant shall have the meaning given in Section 8.6. 9.33 Payment Office shall mean Bank of Hawaii, Corporate Hawaii Division, 130 Merchant Street, Honolulu Hl 96813. 9.34 Pricing Ratio means the number, rounded to the nearest hundredth, obtained by dividing (i) Borrower's Funded Debt divided by (ii) Net Cash Flow. 9.35 Pro Forma Current Liabilities means Current Liabilities, less the amounts attributable to principal under the Credit Facility, plus the aggregate amount of indebtedness under the Term Loan divided by three (3). 9.36 Pro Forma Debt Service means Debt Service, less the amounts attributable to principal and interest under the Credit Facility, plus Pro Forma Principal and Pro Forma Interest. 9.37 Pro Forma Debt Service Coverage Ratio means the number, rounded to the nearest hundredth, obtained by dividing Net Cash Flow by the Borrower's Pro Forma Debt Service. 9.38 Pro Forma Funded Debt means Funded Debt, less the amounts attributable to principal under the Credit Facility, plus the aggregate amount of indebtedness under the Term Loan. 9.39 Pro Forma Interest means, for the twelve month period following the Credit Termination Date, the amount of interest to accrue on the aggregate amount of indebtedness under the Term Loan determined using, at the Borrower's option, either the Base Rate or LIBOR (based upon the rate for a 30-day LIBOR Loan) plus Applicable Margin, as set forth in Section 1.9(A). 9.40 Pro Forma Principal means the aggregate amount of indebtedness under the Term Loan divided by three (3). 9.41 Tangible Net Worth means that amount, determined on a consolidated basis in accordance with GAAP, that is equal to the Borrower's total assets less intangible assets, minus total liabilities. 9.42 Term Loan shall have the meaning given in Subsection 1.9(B)(1)(c). 9.43 Term Loan Option shall have the meaning given in Subsection 1.9(B)(1)(c). IN WITNESS WHEREOF, the Borrower and the Bank have duly executed this Agreement. CHEAP TICKETS, INC. BANK OF HAWAII By: /s/ Michael J. Hartley By: /s/ ---------------------------- --------------------------- Michael J. Hartley Its Vice President Its President and Chief Operating Officer Borrower Bank Schedule 1.9 ------------ Pro Forma Compliance Certificate DATE: ____________, 199__ TO: Bank of Hawaii Attn: Peter S. Ho, Vice President P.O. Box 2900 Honolulu, Hawaii 96846 Telecopier No.: (808) 537-8943 SUBJECT: Credit Agreement (the "Agreement") dated __________, 1997, between the BANK OF HAWAII (the "Bank") and CHEAP TICKETS, INC. (the "Borrower"). Pursuant to Section 1.9 of the Agreement, the Borrower hereby certifies as follows (capitalized terms not defined herein shall have the respective meanings assigned in the Agreement): 1. The information furnished in Attachment A hereto is true and correct as the last day of the fiscal quarter preceding the date of this Compliance Certificate. 2. The representations and warranties set forth in Section IV of the Agreement are true and correct on and as of the date hereto, provided that the representations and warranties set forth in the first sentence of Section 4.5 of the Agreement shall be deemed to be made with respect to the financial statements delivered to the Bank concurrently herewith pursuant to the Agreement. 3. As of the date hereof, no event has occurred and is continuing that (a) constitutes an Event of Default under the Agreement, or (b) with the giving of notice or passage of time, or both, would constitute an Event of Default. The Borrower has observed and performed all of the Borrower's covenants and other agreements, and satisfied every condition, contained in the Agreement and in the other Loan Documents, to be observed, performed or satisfied by the Borrower. CHEAP TICKETS, INC. By: --------------------------- Michael J. Hartley Its President and Chief Operating Officer Authorized Signatory Borrower Attachment A To Pro Forma Compliance Certificate Dated _________ PRO FORMA CURRENT RATIO (attach calculation) Required minimum: 1.50 to one _________________ TANGIBLE NET WORTH (attach calculation) Required minimum: $4,800,000, plus 100% of net proceeds from all Equity Offerings after the date hereof, plus 50% of Borrower's consolidated net earnings, excluding losses, for each quarter commencing January 1, 1997, to and including the fiscal quarter immediately preceding the date of determination. $_________________ PRO FORMA DEBT SERVICE COVERAGE RATIO (attach calculation indicating interest rate) Required minimum: 1.50 to one _________________ PRO FORMA FUNDED DEBT TO CASH FLOW RATIO (attach calculation) Permitted maximum: 3.00 to one _________________ PRICING RATIO (attach calculation) _________________ Master Note $3,000,000.00 Honolulu, Hawaii _______________, 1997 The undersigned ("Borrower") promises to pay to the order of BANK OF HAWAII ("Bank") the principal amount of $3,000,000.00 or so much thereof as shall have been disbursed by Bank and may remain outstanding, together with interest on outstanding balances of principal in accordance with and under the terms of that certain Credit Agreement of even date, between Bank and Borrower. CHEAP TICKETS, INC. By: ---------------------------- Michael J. Hartley Its President and Chief Operating Officer Authorized Signatory Borrower SECURITY AGREEMENT 1. Parties; Grant of Security Interest. CHEAP TICKETS, INC., a Hawaii corporation, ("Borrower"), whose address is 1440 Kapiolani Boulevard, Suite 800, Honolulu, Hawaii 96814, hereby grants to BANK OF HAWAII, a Hawaii corporation ("Bank"), whose mailing address is P.O. Box 2900, Honolulu, Hawaii 96846, a security interest in the collateral described in Schedule A attached to this Agreement ("Collateral"). 2. Obligations Secured. Borrower has granted the security interest in the Collateral to Bank for the purpose of securing the payment of all indebtedness evidenced by or arising out of or in connection with that certain Credit Agreement of even date by and between Borrower and Bank, as it may be modified or amended from time to time (the "Loan Agreement"), and the observance and performance of all obligations to be observed or performed by Borrower under this Agreement and the Loan Documents, as defined in the Loan Agreement, together with all modifications thereto. All obligations referred to in this Section 2 are herein called "Obligations". 3. Representations and Warranties. Borrower represents and warrants as follows: (a) Priority. Unless otherwise consented to by Bank in writing, the security interests granted to Bank by this Agreement now do and hereafter will constitute security interests of first priority. (b) Ownership. Borrower is, and, as to Collateral acquired by it from time to time after the date hereof, Borrower will be, except as may otherwise be permitted by Bank in writing and so long as any Obligations remain outstanding, the owner of all Collateral free from any encumbrances other than Bank's security interest therein, and Borrower shall defend the Collateral against any and all claims and demands of all persons at any time claiming any interest therein in any manner materially adverse to Bank. (c) Office. Borrower's chief executive office is located at the address stated in Section 1, above. Borrower shall not move its chief executive office without having given Bank 45 days' prior written notice. Evidence of all Collateral and the only original books of account and records of Borrower relating thereto are, and will continue to be, kept at Borrower's chief executive office. (d) Location of Collateral. All Inventory and Equipment included in the Collateral, held on the date hereof by Borrower, is located in the State of Hawaii or at such other locations described in any Schedule A, attached hereto, except for Inventory and Equipment in transit in the ordinary course of business to or from one or more of such locations. All Inventory and Equipment now held or subsequently acquired shall be kept at locations previously provided to Bank, which locations Borrower will certify and update from time to time at Bank's request (except for Inventory and Equipment which may at any one time be in transit in the ordinary course of business), or such new location as Borrower may establish if (1) it shall have given at least 45 days' prior written notice to Bank of its intention so to do, describing such new location and providing such other information in connection therewith as Bank may reasonably request, and (2) with respect to such new location Borrower shall take all action reasonably requested by Bank to maintain the perfection of the security interest in the Collateral intended to be granted hereby. (e) Power. Borrower has full power and authority and legal right to grant to Bank a security interest in the Collateral pursuant to this Agreement. (f) Consents. No consent of any other party (including, without limitation, creditors of Borrower) and no consent, authorization, approval, or other action by, and no notice to or filing with, any governmental authority is required either (1) for the grant to Bank of a security interest in the Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Borrower or (2) for the exercise by Bank of the rights provided for in this Agreement. 4. Supplements; Further Assurances. Borrower agrees that at any time and from time to time at its expense, Borrower will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that Bank deems appropriate or advisable, in order to initially perfect and thereafter preserve and protect any security interest granted or purported to be granted hereby or to enable Bank to exercise and enforce its rights and remedies hereunder. 5. Special Provisions Regarding Receivables Collateral. If Receivables are included in the Collateral: (a) Location of Records. All records pertaining to the Receivables (including computer records) and all returns of Inventory are or will be kept at the chief executive office of Borrower, and Borrower will give Bank 45 days' prior written notice of any change in address of the chief executive office of Borrower or of the change of the location where records pertaining to Receivables or returns of Inventory are kept. (b) Accuracy of Records. All books, records and documents relating to the Receivables (including computer records) are and will be genuine and in all respects what they purport to be; and the amount of each Receivable shown on the books and records of Borrower is and will be the correct amount actually owing or to be owing at maturity of such Receivable. (c) Collection of Receivables. Until Bank directs otherwise, Borrower shall use reasonable efforts in good faith to collect all the Receivables as and when they become due. Following Bank's demand for remittance of the Receivables to Bank, proceeds of Receivables collected by Borrower shall not be commingled with other funds of Borrower and shall be immediately delivered to Bank in the form received except for necessary endorsements to permit collection. (d) Government Contracts. Borrower shall notify Bank if any Receivables arise out of contracts with the United States government or any department or agency thereof, and Borrower shall execute any instruments and take any steps to perfect the assignment of the rights of Borrower to Bank as required by the Federal Assignment of Claims Act, Hawaii Revised Statutes, as amended, or any other similar law or regulation. (e) Analysis of Receivables. Borrower shall, upon Bank's request, furnish Bank within 10 days after the end of each calendar month, an aged analysis of all outstanding Receivables, in form and substance satisfactory to Bank. (f) Further Documents. Borrower shall provide to Bank, at Bank's request, from time to time: confirmatory assignment schedules; copies of all invoices relating to the Receivables; evidence of shipment or delivery of Inventory; and further information and/or schedules as Bank may reasonably require, all in form satisfactory to Bank. 6. Protection and Insurance of Collateral. Borrower will take reasonable efforts in good faith, at all times, to protect the Collateral against damage or loss. Borrower will also insure all insurable Collateral against such hazards and in such amounts as Bank may require, under policies containing endorsements naming Bank as loss payee and prohibiting any cancellation or material revision in such policies without 30 days' prior written notice to Bank. 7. Tax and Other Liens. Borrower shall pay promptly when due all taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith. 8. Bank Appointed Attorney-in-Fact. Borrower hereby appoints Bank Borrower's attorney-in-fact, with full power of substitution, and with full authority in the name, place and stead of Borrower, or otherwise, from time to time, after an Event of Default has occurred and is continuing, in Bank's discretion to take any action and to execute any instrument which Bank may reasonably deem necessary or advisable to accomplish the purposes of this Agreement. Such action includes, without limitation, withdrawal from a time deposit account before maturity, even if a forfeiture of accrued interest results. Said power of attorney is irrevocable, being coupled with an interest, and shall not be affected by the disability or incapacity of Borrower. 9. Reasonable Care. Bank shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equivalent to that which Bank, in its individual capacity, accords its own property. Bank shall have no responsibility for taking any necessary steps to preserve rights against any other persons with respect to any Collateral. 10. Events of Default. (a) Definition. As used in this Agreement, the term "Event of Default" has the meaning given to it in the Loan Agreement. (b) Remedies; Obtaining the Collateral Upon Event of Default. If any Event of Default shall have occurred and be continuing, then and in every such case, Bank may, at any time or from time to time during such Event of Default: (1) Personally, or by agents or attorneys, immediately take possession of the Collateral or any part thereof, with or without notice or process of law, and for that purpose may enter upon the premises where any of the Collateral is located and remove the same; (2) Instruct the obligor or obligors on any agreement, instrument or other obligation constituting Collateral to make any payment required by the terms of such instrument or agreement directly to Bank; (3) Withdraw all monies, securities and instruments included in the Collateral, for application to the Obligations; (4) Sell or otherwise liquidate, or direct Borrower to sell or otherwise liquidate, any or all investments made in whole or in part with the Collateral or any part thereof, and take possession of the proceeds of any such sale or liquidation; and (5) Take possession of the Collateral or any part thereof, by directing Borrower in writing to deliver it to Bank at any place or places designated by Bank, in which event Borrower shall at its own expense: (i) cause the same to be moved to the place or places so designated by Bank; (ii) store and keep any Collateral so delivered to Bank at such place or places pending further action by Bank as provided in Section 10.(c) below; and (iii) while the Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition. (c) Remedies; Disposition of the Collateral. Bank may from time to time exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party under the Uniform Commercial Code in effect in the State of Hawaii at the time of an Event of Default. Bank may also, without notice except as specified below, sell the Collateral or any part thereof at public or private sale, at any exchange, broker's board or at any of Bank's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as Bank may deem commercially reasonable. Bank may be the purchaser of any or all of the Collateral at any such sale to the extent permitted by law and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at such sale, to use and apply any of the Obligations as a credit on account of the purchase price. Each purchaser at any such sale shall acquire the property sold absolutely free from any claim or right on the part of Borrower, and Borrower hereby waives (to the fullest extent permitted by law) all rights of redemption, stay or appraisal under any rule of law or statute now existing or hereafter enacted. To the extent notice of sale shall be required by law, at least ten days' notice to Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Bank shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Bank may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and any such sale may, without further notice, be made at the time and place at and to which it was so adjourned. Borrower waives (to the fullest extent permitted by law) any claims against Bank arising by reason of the fact that the price at which any Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale, even if Bank accepts the first offer received and does not offer such Collateral to more than one offeree. 11. Application of Proceeds. After and during the continuance of an Event of Default, any cash held by Bank as Collateral and all cash proceeds received by Bank in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied from time to time: (a) First, to the payment of the costs and expenses of such sale, collection or other realization, including compensation to Bank's agents and attorneys, and all expenses, liabilities and advances made or incurred by Bank in connection therewith; (b) Second, to the payment of the Obligations then due; and (c) Third, after payment in full of all Obligations then due, to Borrower, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, any surplus then remaining from such proceeds. 12. No Waiver. No failure on the part of Bank to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by Bank of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein provided (are to the fullest extent permitted by law) cumulative and are not exclusive of any remedies provided by law. 13. Notices. Any notices or consents required or permitted by this Agreement shall be in writing and shall be deemed delivered if delivered in person or if sent by certified mail, postage prepaid, return receipt requested, or by FAX, to Borrower or Bank at the addresses set forth in Section 1, above, unless such address is changed by written notice hereunder. 14. Applicable Law. The laws of the State of Hawaii shall govern the construction of this Agreement and the rights and remedies of the parties hereto. 15. Binding Effect and Entire Agreement. This Agreement shall inure to the benefit of, and shall be binding on, Bank and its successors and assigns and Borrower and its successors and assigns. This Agreement, together with all other documents evidencing or securing the Obligations, constitutes the entire agreement between Bank and Borrower. 16. Amendments; Consents. No amendment, modification, supplement, termination, or waiver of any provision of this Agreement, and no consent to any material departure by Borrower therefrom, may in any event be effective unless in writing signed by Bank, and then only in the specific instance and for the specific purpose given. 17. Severability. If any provision of this Agreement shall be held invalid under any applicable law, such invalidity shall not affect any other provision of this Agreement that can be given effect without the invalid provision, and, to this end, the provisions of this Agreement are severable. IN WITNESS WHEREOF, Borrower and Bank have duly executed this Agreement this 26th day of November, 1997. CHEAP TICKETS, INC. BANK OF HAWAII By /s/ Michael J. Hartley By /s/ ------------------------- ------------------------- Michael J. Hartley Its Vice President Its Borrower Bank SCHEDULE A For purposes of this Schedule A, CHEAP TICKETS, INC. is called "Debtor". Debtor has granted to BANK OF HAWAII a security interest in the following Collateral: 1. Bankoh Deposit Accounts. All demand, time, savings and other deposit accounts now or hereafter maintained by Debtor with Bank of Hawaii. 2. Equipment. All of Debtor's equipment, whether now existing or hereafter acquired, including, in each case, all modifications, alterations, repairs, substitutions, additions and accessions thereto, all replacements thereof, and all substitutions therefor. 3. Fixtures. All of Debtor's fixtures, now owned or hereafter acquired, including without limitation, fixtures located at 1440 Kapiolani Boulevard, Suite 800, Honolulu, Hawaii 96814, the owner of record of which is Tosei Properties, Inc., or at 6151 West Century Boulevard, Suite 1200, Los Angeles, California 90045, the owner of record of which is General Electric Credit Equities, Inc., or at the real property described in Exhibit A attached hereto, the owner of record of which is Debtor, or at such other location as hereafter located and all replacements thereof and substitutions therefor. 4. Furniture and Furnishings. All of Debtor's furniture and furnishings, now owned or hereafter acquired, and all replacements thereof and substitutions therefor. 5. General Intangibles. All of Debtor's "general intangibles", as that term is defined in Section 490:9-106 of the Hawaii Revised Statutes. 6. Inventory. All of Debtor's inventory, whether now existing or hereafter acquired, including, without limitation, raw materials, supplies, work in process, returned goods, samples and consigned goods to the extent of the consignee's interest therein. 7. Receivables. All of Debtor's rights to payment for goods sold or leased or services performed by Debtor or any other party, whether now in existence or arising from time to time hereafter, including, without limitation, rights evidenced by accounts, notes, contracts, security agreements, chattel paper or other evidences of indebtedness, together with (a) all security granted to Debtor to secure the foregoing, (b) general intangibles arising out of Debtor's rights in any goods, the sale of which gave rise thereto, and (c) all guaranties, endorsements and indemnifications on or of any of the foregoing. 8. Tradenames and Licenses. All of Debtor's tradenames and license agreements with respect to any patents, trademarks, service marks or copyrights, whether Debtor is a licensor or licensee under such license agreements, together with all (a) renewals, extensions, supplements and continuations thereof, and (b) income, royalties, damages, claims and payments, now or hereafter due or payable to Debtor in respect thereof. 9. Proceeds. All Proceeds of the Collateral, including, without limitation, all proceeds of the conversion, voluntary or involuntary, of the Collateral, into cash or liquidated claims, including proceeds of insurance thereon. EXHIBIT A --------- DESCRIPTION OF REAL PROPERTY The following land situated in the City of Lakeport, County of Lake, State of California, described as follows: Parcel A as shown on a map filed in the office of the County Recorder of said Lake County on January 30, 1984, in Book 24 of Parcel Maps at Page 42. FIRST LOAN MODIFICATION AGREEMENT This Agreement is dated June 15, 1998 between CHEAP TICKETS, INC., a Hawaii corporation ("Borrower"), and BANK OF HAWAII, a Hawaii corporation ("Bank"). Recitals A. Bank established a Credit Facility in the principal amount of $3,000,000.00 in favor of Borrower under a Credit Agreement and Master Note both dated November 26, 1997, including any renewals, extensions, or modifications thereof ("Loan Agreement" and "Note" respectively). The documents which evidence, secure or guaranty the Credit Facility are called the "Loan Documents." B. The performance of Borrower's obligations under the Loan Documents is secured by the following ("Security Instrument"): Security Agreement dated November 26, 1997, made by Borrower, as the same may from time to time be amended. C. Borrower has requested a modification of the Loan Documents and Bank is willing to accommodate this modification under the terms of this Agreement. Agreement Therefore, Bank and Borrower agree as follows: 1. The Loan Documents are amended to conform to the following: a. Section 1.9(B)(1)(d)(ii) of the Loan Agreement is amended to read as follows: (ii) no earlier than thirty (30) days and no later than ten (10) days prior to the Credit Termination Date, the Borrower shall provide to the Bank written notice of the Borrower's election to exercise the Term Loan Option. Such notice shall set forth the Borrower's interest rate selection(s) pursuant to Section 1.9(A) and shall include a pro forma compliance certificate, signed by the Borrower's chief financial officer, in the form attached hereto as Schedule 1.9 and made a part hereof. Such pro forma compliance certificate shall be calculated using the financial results from the most recent compliance certificate submitted to the Bank and shall certify to the Bank that the Borrower's financial condition at that time meets the following standards, in each case determined in accordance with GAAP: Pro Forma Current Ratio of not less than 1.10 to one; Tangible Net Worth of not less than the amount equal to: $4,300,000, plus 100% of net proceeds of all Equity Offerings after the date hereof, plus 50% of Borrower's consolidated net earnings, excluding losses, for each quarter commencing January 1, 1998, to and including the fiscal quarter immediately preceding the date of determination; Pro Forma Debt Service Coverage Ratio of not less than 1.50 to one; and Pro Forma Funded Debt to Cash Flow Ratio of not more than 3.00 to one. If no interest rate option is set forth in the notice of exercise, the Base Rate shall apply; and b. Section 5.10 of the Loan Agreement is amended to read as follows: 5.10 Financial Condition. Maintain the Borrower's financial condition according to the following standards, in each such case determined in accordance with GAAP as of the end of each fiscal quarter: (A) Current Ratio of not less than: 1.15 to one, increasing to 1.50 to one commencing with the Borrower's financial reporting period ending September 30, 1997; 1.00 to one for fiscal quarters ending March 31, 1998, and June 30, 1998, increasing 1.10 to one commencing with fiscal quarter ending September 30, 1998; (B) Commencing with fiscal quarter ending March 31, 1998, Tangible Net Worth of not less than the amount equal to: $4,300,000, plus 100% of net proceeds of all Equity Offerings after November 26, 1997, plus 50% of Borrower's consolidated net earnings, excluding losses, for each quarter commencing January 1, 1998, to and including the fiscal quarter immediately preceding the date of determination; (C) Debt Service Coverage Ratio of not less than: 1.10 to one for the calendar year to and including the fiscal quarter ending March 31, 1998; 1.25 to one for the calendar year to and including, the fiscal quarters ending June 30, 1998, and September 30, 1998; and increasing to 1.50 to one commencing with the financial reporting period ending December 31, 1998; and (D) Funded Debt to Cash Flow Ratio of not more than 3.00 to one. 2. Upon execution of this Agreement and in consideration of these amendments, Borrower shall pay Bank a fee of $2,500.00. 3. Capitalized terms used, but not defined, in this Agreement, shall have the definitions stated in the Loan Agreement. 4. Borrower agrees that there are no claims, defenses, or offsets that may be asserted by Borrower to the enforcement of the Loan Documents arising prior to the date of this Agreement, and that Borrower agrees that all such claims, defenses, and offsets are hereby released. 5. In all other respects, the Loan Documents, as amended, remain in full force and effect and the provisions of the Loan Documents including, without limitation, all promises, representations, warranties, covenants, and conditions, are ratified and confirmed as of the date of this Agreement by the parties hereto. Borrower acknowledges that the Security Instrument shall continue to apply to the remaining Loan Documents. 6. This Agreement is binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. To signify their agreement, the parties have executed this Agreement as of the date first written above. CHEAP TICKETS, INC. By /s/ Michael J. Hartley ----------------------------------------- Michael J. Hartley Its President and Chief Operating Officer Borrower BANK OF HAWAII By /s/ ----------------------------------------- Its Vice President Bank Attachment A To Pro Forma Compliance Certificate Dated ________________ PRO FORMA CURRENT RATIO (attach calculation) Required minimum: 1.15 to one, increasing to 1.50 to one commencing with the Borrower's financial reporting period ending September 30, 1997; 1.00 to one for fiscal quarters ending March 31, 1998, and June 30, 1998, increasing 1.10 to one commencing with fiscal quarter ending September 30, 1998 ______________ TANGIBLE NET WORTH (attach calculation) Required minimum: $4,300,000, plus 100% of net proceeds of all Equity Offerings after November 26, 1997, plus 50% of Borrower's consolidated net earnings, excluding losses, for each quarter commencing January 1, 1998, to and including the fiscal quarter Immediately preceding the date of determination ______________ PRO FORMA DEBT SERVICE COVERAGE RATIO (attach calculation indicating interest rate) Required minimum: 1.10 to one for the calendar year to and including the fiscal quarter ending March 31, 1998; 1.25 to one for the calendar year to and including, the fiscal quarters ending June 30, 1998, and September 30, 1998; and increasing to 1.50 to one commencing with the financial reporting period ending December 31, 1998 ______________ PRO FORMA FUNDED DEBT TO CASH FLOW RATIO (attach calculation) Permitted maximum: 3.00 to one ______________ PRICING RATIO (attach calculation) ______________ EX-10.13 16 SUBSCRIBER AGREEMENT WITH SABRE DATED 12/31/1998 Exhibit 10.13 Note: Portions of this exhibit indicated by "[*]" are subject to a confidential treatment request, and have been omitted from this exhibit. Complete, unredacted copies of this exhibit have been filed with the Securities and Exchange Commission as part of the Company's confidential treatment request. SABRE SUBSCRIBER AGREEMENT - (UNITED STATES) This SABRE* Subscriber Agreement (the "Agreement") is entered into by and between The SABRE Group, Inc. ("TSG") and the undersigned ("Customer"), effective as of December 31, 1998 ("Effective Date") regarding the provision of products and services set forth herein to Customer's locations within the United States and its territories. 1. LEASE TERM 1.1 Lease. For the term specified in Article 0 below, TSG shall lease to Customer the System, as defined herein. 1.2 Term. The lease term of the System identified on Schedule A shall commence on the Effective Date and shall continue for 60 months ("Initial Term"). The lease term of any additional System installed prior to the twenty-fourth (24th) month after the Effective Date shall terminate at the end of the Initial Term. Commencing on the twenty-fifth (25th) month, any additional System installed shall have a term of sixty (60) months from the date of its installation ("Additional Term"). Any additional System installed after the Effective Date shall be subject to the same terms and conditions as this Agreement. 2. DEFINITIONS The following terms shall have the following meanings in this Agreement: 2.1 Agreement means this SABRE Subscriber Agreement, and all Amendments, Schedules and Supplements made a part hereof. 2.2 Charges has the meaning given in Article 0. 2.3 Communication Protocol means the rules or standards on how data transmission takes place across computer networks. 2.4 Confidential Information means this Agreement, any and all applicable rights to patents, copyrights, trademarks and trade secrets, proprietary and confidential information of TSG or Customer, their affiliates, subsidiaries, successors or assigns concerning their past, present or future research, development, business activities or affairs, finances, properties, methods of operation, processes and systems, agreements (including without limitation private fare or special discount agreements) related to the business of TSG or Customer. 2.5 Information Provider means any party, other than Customer, which provides information for inclusion in the SABRE System, including, without limitation, Reed Elsevier Inc., the publisher of the Official Airline Guide. 2.6 Instructions means any and all manuals, operating procedures, manufacturer's recommendations, rules, and instructions delivered or made available to Customer by TSG either in hard-copy or via the SABRE System, and which must be complied with by Customer. Such Instructions may be unilaterally revised or amended by TSG at any time. 2.7 Internet means the global computer network commonly referred to as the "Internet". 2.8 Internet Connection means any connection between the Internet and the SABRE System or System for the purpose of allowing clients of Customer to make direct reservations for the products and services offered in the SABRE System. 2.9 ISP means any third party computer network which connects Customer or its employees to the SABRE System or the System via the Internet. ISPs and ISP supplied equipment such as datalines or browser software are not included in the definitions of the SABRE System or the System. - ----------------- *SABRE is a registered trademark of a subsidiary of The SABRE Group, Inc. 2.10 Non-SABRE Traffic means data other than that passing to and from the SABRE System which is transmitted and received by Customer using the System. 2.11 Non-Standard System means any hardware, software, communication access devices or firmware not acquired from TSG, including any such Non-Standard System acquired from an ISP. 2.12 PNR means a passenger name record created in the SABRE System. 2.13 Participant means any air carrier (including scheduled, charter, domestic and international airlines), car rental company, surface transportation carrier, hotel or lodging provider, railroad, steamship company, cruise or tour operator or other vendor of travel related products, information or services which has an agreement with TSG for the display of information regarding its products or services in the SABRE System. 2.14 Prohibited Segment means a Travel Service Segment for which no corresponding space has been reserved within the transporting carrier's internal reservation system. 2.15 SABRE Booking means an airline, hotel, tour, rental car or cruise Segment that obligates a Participant to pay a booking fee to TSG and that is created in or processed through the SABRE System by Customer during any one calendar month or that is secured to Customer's location, less cancellations made prior to the Segment Activity Date. SABRE Bookings are credited in the latter of (i) the calendar month in which the Segment Activity Date occurs or (ii) the calendar month in which the Segment is actually processed by the SABRE System for billing to the Participant. SABRE Bookings may include additional product or service Segments in the future at TSG's sole discretion. 2.16 SABRE Component means all memory, disk storage space, ports and any other element of the Standard Equipment. 2.17 SABRE Licensee means a person or entity licensed to market the SABRE System in a designated area of the world. 2.18 SABRE Subscriber means a person or entity, other than an airline, which utilizes the SABRE System to make reservations. The term "SABRE Subscriber" shall include any person or entity making reservations through any version of the SABRE System or through a SABRE Licensee. 2.19 SABRE System means TSG's global distribution system (commonly referred to as a computerized reservation system) which collects, stores, processes, displays and distributes information through computer terminals concerning air and ground transportation, lodging and other travel related products and services offered by travel suppliers and which enables SABRE Subscribers to (i) reserve or otherwise confirm the use of, or make inquiries or obtain information in relation to, such products and services and/or (ii) issue tickets for the acquisition or use of such products and services. 2.20 Schedule A means the document reflecting the Charges and any applicable discounts for the System as amended by any additional documents. 2.21 Segment means (a) for airline bookings, each separate flight segment reservation identified by a separate flight number in a PNR, multiplied by the number of passengers booked in such PNR for such flight segment; (b) for hotel bookings, each separate reservation that is processed through the SABRE System with an action status code of HK, KK or KL regardless of the number of rooms, suites or other accommodations or the number of persons or the duration of the stay; (c) for car rental bookings, each separate reservation that is processed through the SABRE System with an action status code of HK, KK or KL regardless of the number of vehicles or persons or the duration of the rental; and (d) for cruise and tour bookings, each separate reservation that is created in or processed through the SABRE System and confirmed by that Participant, regardless of the number of cabins or travelers or the duration of the cruise or tour. The term Segment does not include Prohibited Segments. 2.22 Segment Activity Date means the first date listed in a PNR for the relevant Segment. 2.23 Site means Customer's location at which the System is to be installed as identified on Schedule A. 2.24 Standard Equipment means the items of hardware and communication access devices, including, without limitation, communication data lines and networks, leased to Customer by TSG in accordance with this Agreement and identified on Schedule A. 2.25 Supplement means a document reflecting any changes to the System, and/or Charges or discounts related thereto, all as agreed to by the parties. A Supplement will be provided by TSG upon request of Customer. 2.26 System means the Standard Equipment, SABRE Component, System Software and/or Internet Connection. 2.27 System Software means that software delivered by TSG to Customer. 2.28 Transaction means a grouping of characters transmitted to the SABRE System whether such transmission is made in the SABRE System manually or automated, including transmissions made through an Internet Connection. Each transmission to the SABRE System from Customer constitutes one Transaction. No input message may exceed three hundred (300) characters in length. 2.29 Transaction Limit has the meaning given in Article 0. 2.30 Transaction Ratio has the meaning given in Article 0. 2.31 Travel Service Segment means a SABRE Booking entered in the SABRE System with an action status code of GK, GL, BK, BL, HN, YK, HK*, or HL*. 3. CHARGES AND PAYMENTS 3.1 Prepayment. Upon execution of this Agreement by Customer, Customer shall pay to TSG the non-refundable prepayment as shown on Schedule A. If the System is installed, the prepayment shall be credited against the Customer's first Charges. 3.2 Charges. All amounts payable to TSG ("Charges") shall be due and payable in United States dollars within fifteen (15) days of the date of TSG's invoice, without setoff or counterclaim. 3.3 Additional Charges. Customer agrees to pay to TSG additional Charges at TSG's then prevailing rate for services and materials including without limitation the following: (a) the installation or removal of Standard Equipment; (b) Standard Equipment relocation within the Site; (c) each Site disconnect or relocation to different premises; (d) modifications, upgrades, enhancements or additions of Standard Equipment and/or System Software; (e) any applicable fees for non-compliance with any payment terms; (f) installation of peripheral devices requested by Customer; (g) processing Transactions which exceed the level of one hundred thirty (130) Transactions per SABRE Booking ("Transaction Ratio"); (h) materials for use with the Standard Equipment, including, but not limited to, ticket stock for use with thermal ticket printers; and (i) connecting the System to other TSG approved networks or systems. The Transaction Ratio is subject to change by TSG upon thirty (30) days advance notice to Customer. 3.4 Variables. If Customer elects to use certain variables including, without limitation, Ticketing and Invoice/Itinerary functions or Microfiche, Customer shall pay all Charges for much variables based an TSG's then prevailing rate. 3.5 Increases. TSG shall have the right to increase, the Charges, other than the Fixed Monthly Charges identified on Schedule A, for the remaining term of this Agreement upon thirty (30) days advance written notice to Customer. If the increase exceeds ten percent (10%) of the Charges in any consecutive twelve month period, Customer may terminate this Agreement upon written notice to TSG within fifteen days of receipt of TSG's notice of the increase. Notwithstanding the foregoing, the Charges for data lines or other communication access devices, shall be subject to increase, at any time and without limitation, to cover any increase in the cost imposed upon TSG by the telecommunications vendor. 3.6 Modifications. TSG's completion of any modification to the System or Customer's payment of any revised Charges related thereto, whichever occurs first, constitutes acceptance and ratification of the modifications to the System and the revised Charges and/or discounts related thereto. 3.7 Interest. Charges not paid when due shall accrue interest at the rate of eighteen percent (18%) per annum or the highest rate permitted by the governing law indicated in Article 0, whichever is less. 3.8 Taxes. Customer shall pay any taxes, or assessments including any interest or penalty thereon levied as a result of this Agreement, excluding taxed measured by the net income of TSG. Customer shall indemnify and hold harmless TSG from all costs, fines and expenses (including reasonable legal costs) incurred by TSG resulting from Customer's failure to pay taxes as provided in this Article. 4. INSTALLATION AND DELIVERY 4.1 Delivery. TSG shall arrange for delivery of the System F.O.B. the Site, on the estimated installation date, as identified on Schedule A. 4.2 Installation. Subject to Article 0, TSG shall install, or cause to be installed, the System at the Site. Customer shall allow installation of the System at the Site. Customer's failure to do so or to give adequate assurance that it will do so on the estimated installation date will constitute an Event of Default pursuant to Article 0. 4.3 Customer's Obligations Prior to Installation. Customer, at its expense, shall be responsible for preparing, on or before the estimated installation date, the Site for the System in accordance with the Instructions. If installation of the System is prevented or delayed because of Customer's failure to prepare the Site, TSG shall use reasonable efforts to install the System upon Customer's compliance with this Article and upon payment of all reasonable expenses incurred by TSG resulting from Customer's failure to prepare the Site. 4.4 Relocation and Possession. Customer shall at all times keep the System in its sole possession and control at the Site. Customer shall not move any part of the System from the Site without first obtaining the written consent of TSG. Such consent will not be unreasonably withhold. 4.5 Communication Access. Except when Customer utilizes an ISP to access the SABRE System, TSG or its designated third party shall install the necessary communication access device to connect the System to the SABRE System and other approved systems or networks. All such devices are either owned by TSG or such third-party, are subject to this Agreement, and shall be returned to TSG or the third-party as TSG directs upon termination of the Agreement. 4.6 Non-Standard System. 4.6.1 Subject to Customer's compliance with all other terms and conditions of this Agreement, TSG agrees to allow Customer to connect or use Non-Standard System with the System without TSG's prior written consent, except to the extent that such Non-Standard System consists or communications data lines, emulator boards, gateways, routers, ticket printers or other devices connecting directly to the System or SABRE System ("Reserved Equipment"). TSG consent for Reserved Equipment shall be conditioned upon TSG certification and approval prior to its use with the System. Such consent may be withheld in order to preserve the integrity of the SABRE System and the System. 4.6.2 Customer shall represent and warrant to TSG that the Non-Standard System and its connection to the System conforms in all respects to TSG's Non- Standard System standards and specifications, a copy of which Customer may request from TSG, and will not be altered or modified without prior notice to TSG. 4.6.3 Customer shall remove all Non-Standard System placed on or within the Standard Equipment prior to TSG's removing such Standard Equipment from Customer's Site. TSG disclaims, and Customer hereby waives and indemnifies, any responsibility or liability on the part of TSG, under any theory whatsoever, for any Non-Standard System that Customer has failed to remove from the Standard Equipment prior to TSG's removing such Standard Equipment from Customer's site. 4.6.4 Customer shall not use Non-Standard System in conjunction with the System for any function not specifically outlined in this Agreement and any use or attempted use for any other function shall constitute an Event of Default under Article 0. 4.6.5 Customer shall also ensure that TSG has access to Customer's Site on request for conducting on-site inspections, testing or to oversee installation of the Non-Standard System. Customer is responsible for ensuring that any Standard Equipment at Customer's Site is connected to the System for the purposes of performing testing and diagnostics on such Standard Equipment by TSG's designated agent. If TSG reasonably determines that the Non-Standard System is causing, or contributing to, a problem with the System, the SABRE System or another SABRE Subscriber's access to or operation of the SABRE System, then TSG has the right to immediately restrict access to the SABRE System upon notice to Customer as provided for in this Agreement and TSG shall have no liability to Customer for such restriction of access. 4.6.6 Customer agrees that its continued right to maintain the connection between the Non-Standard System and the System and/or the SABRE System and to use the Non-Standard System in connection with the Standard Equipment shall be dependent upon Customer's full cooperation with requests by TSG to repair, alter, modify, or where necessary, de-install the Non-Standard System if TSG reasonably determines that the Non-Standard System, or a component thereof, is impairing the System, the SABRE System or another SABRE Subscriber's access to or operation of the SABRE System. 4.6.7 Customer shall pay TSG's then prevailing rate for all employee resources expended by TSG for, but not limited to, TSG's monitoring of the installation of the Non-Standard System and/or expended in connection with on- site, inspection and/or testing of the Non-Standard System after installation, service calls and any travel and incidental expenses incurred by TSG's personnel or vendors for the conduct of such monitoring, inspecting, testing or service calls; provided, however, that after the initial installation of the Non- Standard System, TSG will make such on-site inspections or test only where it reasonably believes that the Non-Standard System is impairing the System, the SABRE System or another SABRE Subscriber's access to or operation of the SABRE System. 4.6.8 Customer agrees that TSG has first and complete access to the SABRE Component. If, as a result of Customer's use of Non-Standard System, an upgrade of the SABRE Component is required, Customer shall comply with the applicable provisions of this Agreement. 4.6.9 TSG reserves the right to modify the SABRE System or the System, even if such modification requires changes in Customer's Non-Standard System. TSG will make reasonable efforts to notify Customer in advance of such changes. Any expenses incurred in modifying Customer's Non-Standard System to conform to the SABRE System or System modifications shall be the sole responsibility of Customer. 4.7 Acceptance of System. Upon installation of the System and establishment of a successful connection with the SABRE System and any other TSG approved systems or networks, Customer shall be deemed to have accepted the System. Any use of the System, additional System and/or Non-Standard System further constitutes acceptance of this Agreement by Customer. 5. REPAIRS AND MAINTENANCE 5.1 Repairs and Maintenance. Upon prompt notification from Customer, TSG or its designated agent shall promptly repair and maintain or replace the Standard Equipment provided that the Standard Equipment has been subject to reasonable operation. Customer shall not make any modifications nor attempt to perform repairs or maintenance of any kind to the System. 5.2 Limitation. TSG is not responsible for repairs and maintenance of any Non- Standard System or other hardware, software or communication access devices at Customer's Site or at the locations of other TSG approved systems or networks beyond the point at which they are connected to the System and/or the SABRE System. 5.3 Notification. Customer shall promptly inform TSG of any breakdown of the Standard Equipment by contacting SABRE Customer Services. Customer shall maintain a record of all occasions upon which repair or maintenance service is performed and make such records available to TSG upon request. 5.4 Charges. Repair or maintenance services on Standard Equipment during normal business hours (9:00 a.m. to 6:00 p.m. local time, Monday through Friday, excluding legal holidays) are included in the Charges, provided that the Customer has not been negligent and the Standard Equipment has been subject to reasonable operation; otherwise, Customer will be charged a service fee in accordance with TSG's or its independent contractor's then prevailing rates. 5.5 Non-Standard System. All maintenance of the Non-Standard System shall be the sole responsibility of the Customer. TSG will accept calls to SABRE Customer Services regarding a malfunction of the Non-Standard System if TSG determines that the malfunction is not attributable to the Non-Standard System. Customer shall pay TSG's then prevailing maintenance charges for any maintenance calls for the SABRE System or the System if TSG reasonably determines that the problems were caused by or attributable to the Non-Standard System. 6. TITLE AND OWNERSHIP OF SYSTEM The System leased hereunder shall remain the property of TSG. Customer shall not in any other manner dispose of the System or any part thereof or suffer any lien or legal process to be incurred or levied on the System. 7. INSURANCE 7.1 General. Customer shall take all necessary precautions to protect the System installed at Customer's Site. 7.2 At its own cost, Customer shall procure and maintain insurance, from an insurer and on terms and conditions acceptable to TSG, insuring the System against all risk of loss or damage, including, without limitation, the risk of fire, theft and any other such risks as are customarily insured in a standard all risk policy. Such insurance shall also provide the following: 7.2.1 Full replacement value coverage for the Standard Equipment, which value is set forth on Schedule A; 7.2.2 An endorsement naming TSG as a co-insured and as a loss payee to the extent of its interest in the Standard Equipment; and 7.2.3 An endorsement requiring the insurer to give TSG at least thirty (30) days prior written notice of any intended cancellation, non-renewal, material change in coverage or, within thirty (30) days of the event, written notice of any default in the payment of a premium. 7.3 Risk of loss for and damage to the System shall pass to the Customer upon delivery of the System to the Site. 7.4 TSG may request at any time proof of such insurance and/or other form of surety from Customer. The failure of Customer to produce such proof or surety within thirty (30) days of the request by TSG will be considered an Event of Default as defined in Article 0 herein. 8. TITLE AND OWNERSHIP OF CONFIDENTIAL INFORMATION 8.1 Each party's Confidential Information shall remain that party's exclusive property. 8.2 Each party shall maintain the confidentiality of the other party's Confidential Information at all times during and after the term or this Agreement. Neither party shall use, sell, sublicense, transfer, publish, disclose, display, or otherwise make available to others, except as authorized in this Agreement the Confidential Information of the other party or any other material relating to the Confidential Information of the other party nor shall either party permit its officers, employees, agents, contractors or subcontractors to divulge the other party's Confidential Information without that party's prior written consent. 8.3 Customer shall use the data, other then Non-SABRE Traffic, transmitted under this Agreement ("Data") solely for the benefit of itself and its customers in connection with rendering the following services: (i) air carrier, hotel, car and rail reservations, including schedule quotations; (ii) customer accounting and record keeping activities; or (iii) the sale of or reservations for other miscellaneous products or services offered in the SABRE System. Customer shall not publish, disclose or otherwise make available to any third party any compilation of Data obtained from the SARRE System. However, Customer may use specific Data for the benefit of its customers in connection with any reservation or schedule quotation production of a hard copy travel itinerary, invoice, statement or ticket. 8.4 Nothing in this Agreement shall be interpreted to limit in any way TSG's right to use, market, sell or publish any booking related data subject only to any applicable laws or regulations. 9. SYSTEM SOFTWARE LICENSE 9.1 Ownership of System Software. Customer acknowledges that TSG or the original manufacturer of the System Software, as applicable, owns or has licensed from the owner, copyrights in the respective System Software and that ownership and title are retained by the manufacturer or its licensor. All applicable rights to patents, copyrights, trademarks, and trade secrets inherent in the System Software and pertinent thereto are and shall remain TSG's or the original manufacturer's sole and exclusive property. Any copy of such System Software must incorporate any copyright, trade secret, or trademark notices or legends appearing in the original version delivered to Customer. 9.2 Grant of License. Subject to the provisions of this Agreement and for the term specified in Article 0, either TSG or the original manufacturer grants to Customer a non-transferable, non-exclusive limited license to use the System Software subject to the following restrictions: (a) Customer shall use the System Software solely in connection with its use of the SABRE System, (b) the System Software shall be used and installed solely at the Site and solely used on the Standard Equipment or Non-Standard System authorized under Article 0, (c) the System Software shall be used solely for internal purposes and only in the ordinary course of business, (d) Customer shall not compile, reverse compile, decompile, disassemble, reverse assemble or reverse engineer the System Software or any portion thereof, (e) the System Software shall not be copied or reprinted in whole or in part except (i) a reasonable number of copies of each program may be made in machine readable form for reasonable archival or backup purposes or (ii) when TSG has granted permission to do so, (f) Customer shall not lease, sell, license, sublicense or otherwise transfer the System Software to any other party, and (g) the terms of this Agreement shall govern the System Software license unless modified by a license which may be associated with a particular software product, wherein the license associated with that particular software product shall govern. 9.3 Modification Rights. Customer shall not modify the System Software or merge such software into other programs or create derivative works based on such software. Additionally, Customer shall not delete or cause to be deleted the System Software from the Standard Equipment. Notwithstanding anything to the contrary contained herein, noncompliance with this provision shall constitute an Event of Default under this Agreement and this Agreement shall immediately terminate and Customer shall be obligated to pay TSG damages as specified in Article 0 hereof. 9.4 Upgrades and Modifications. All tangible objects containing or relating to the System Software are the sole and exclusive property of TSG or the manufacturer. In the event TSG modifies the System Software, it may deliver such modified System Software to Customer at its then current charge, if any, and Customer shall promptly return to TSG any and all tangible objects relating to all previous versions of the System Software as provided in Article 0. Customer shall be solely responsible for protecting all software not obtained from TSG hereunder and the data related thereto in the event of a software upgrade. Customer, in order to receive an upgraded or updated program, shall comply with any and all terms, conditions and Instructions requested by TSG. 9.5 Operating Program. 9.5.1 Customer acknowledges that the System Software may incorporate, in part, copyrighted materials pertinent to the Operating Program as identified on Schedule A ("Operating Program"). Customer agrees that such copyrighted portions shall be subject to the Operating Program copyright and license. 9.5.2 If Customer requires additional Operating Programs, Customer shall notify TSG and TSG will provide Customer with additional copies to support additional video agent sets pursuant to this Agreement. 9.5.3 Customer will look only to TSG and not to the manufacturer for any support, maintenance, assistance and upgrades and the like with respect to the Operating Program and the manufacturer shall have no liability to Customer in relation to the Operating Program. 9.5.4 No action, regardless of form, arising out of the license of the Operating Program may be brought more then two years after the cause of action has arisen. 9.5.5 Customer shall physically retain a copy of the Conditions of Use for SABRE Users (Attachment I) with each applicable video agent set or dedicated fileserver/processor eligible to use such Operating Program. 10. OPERATION OF THE SABRE SYSTEM AND THE SYSTEM 10.1 Operation of System. 10.1.1 The SABRE System and the System shall be operated by Customer or solely for the purposes and functions expressly permitted by this Agreement and in strict accordance with the Instructions. Customer shall not in any way utilize the System for the direct or indirect purpose of bypassing or circumventing the SABRE System in communicating in any way with Participants. Any violation of this provision will be deemed an Event of Default under Article 0. 10.1.2 Customer may use the System to transmit and receive Non-SABRE Traffic only from those systems or networks approved in writing by TSG. Customer acknowledges that in cases of communications capacity limits being reached, data transmission through the System with the SABRE System will be given priority over any Non-SABRE Traffic. 10.1.3 Customer shall access the SABRE System only through the System, an ISP or another system or device authorized in writing by TSG. 10.1.4 Customer shall take all precautions necessary to prevent unauthorized operation or misuse of the SABRE System or the System, including without limitation, speculative booking, shell bookings, reservation of space in anticipation of demand, or improper record or access. In the event of misuse of the SABRE System or the System, TSG reserves the right, in addition to all rights under the Agreement, to immediately terminate the Agreement. 10.1.5 Customer shall not enter any Prohibited Segments into the SABRE System. Prohibited Segments so entered shall not be calculated in determining productivity levels under the Agreement. All Travel Services Segments shall be removed from the SABRE System should corresponding space be canceled direct via telephone with the transporting carrier. 10.2 Non-Exclusivity. This Agreement is not exclusive and nothing in the Agreement is intended to preclude or prohibit Customer from using any other computerized [illegible] expected use of the System is the Fixed Monthly Discount Booking Level stated in Schedule A. 10.3 Transaction Volume. Notwithstanding the provisions of Article 0(g), TSG shall have the right, upon thirty (30) days notice to Customer to limit Customer to generating no more then one hundred thirty (130) Transactions per SABRE Booking ("Transaction Limit"). The Transaction Limit may be changed by TSG upon thirty (30) days advance notice to Customer. 10.4 Training. TSG will make available introductory SABRE System training during the installation process. For purposes of this Article, the installation process is defined as anytime between contract signing by both Customer and TSG through two months after installation is complete. 10.4.1 Upon written request from Customer, at such time that installation is complete, additional training may be offered subject to availability and at TSG's then prevailing rate per person, per class. The additional training charge will be assessed on Customer's monthly invoice. 10.4.2 The training described in Article O shall be performed at a location designated by TSG. 10.4.3 Except as otherwise provided herein, Customer is responsible for all training of all its employes in the proper use of the SABRE System. 10.4.4 In addition to the training described in Article O, TSG may offer to Customer supplemental training programs on a local level at TSG's then prevailing rate and method of delivery. Such training may consist of, but not be limited to, workshops, seminars, self-paced instruction and individual consultations. 10.4.5 Customer and its trainees agree to comply with all training procedures and rules established by TSG, and TSG reserves the right to remove any Customer trainee from the training program if such trainee fails to comply with such procedures and rules. 10.4.6 TSG may, at its discretion, monitor or test Customer's employee's training levels. If TSG determines the training level of any one or more of Customer's employees to be insufficient, then Customer will institute such additional training at its own expense (including, if necessary, additional training by TSG at TSG's then prevailing charges) as may be necessary to bring Customer's employees to the level of training required by TSG. 11. WARRANTY, AND LIMITATION OF WARRANTY, LIABILITY AND REMEDY 11.1 SABRE Warranty. TSG agrees to use reasonable efforts to maintain the availability of the SABRE System, but shall have no liability for interruptions in the operation of the SABRE System except as specifically provided herein. Subject to the terms hereof, in the event that the SABRE System is not operable ninety-five percent (95%) of the total normal business hours each month, excluding periods for maintenance of Standard Equipment or other scheduled down time ("Normal Time"), TSG will reduce the monthly Charges (on a pro-rata basis according to the percentage of Normal Time during which the SABRE System was not operable at least ninety-five percent (95%) of the Normal Time. For purposes of this article, normal business hours shall be 9:00 a.m. to 6:00 p.m., local time, Monday through Saturday. The SABRE System shall be deemed inoperable if Customer is unable, after calling SABRE Customer Service to make any SABRE Bookings as a result of a failure attributable to the SABRE System. To request a reduction under this Article, Customer shall submit a written record to TSG and request an adjustment in the monthly charges. Customer's written records must be submitted in a timely manner and include, at a minimum, the date and time of the outage, the time the outage was reported to SABRE Customer Service, the time the SABRE System was restored (within normal business hours as defined above) and the type of outage. 11.2 Limited Warranty of the System. In the event of a material malfunction or defect in an unaltered component of the System that substantially affects performance of the System that is reported by Customer to TSG and that can be reproduced by TSG, TSG will use reasonable efforts to correct such malfunction or defect without additional charge to Customer. THE FOREGOING SHALL BE CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY MALFUNCTION OR DEFECT IN THE SYSTEM. IF SUCH MALFUNCTION OR DEFECT MATERIALLY IMPAIRS CUSTOMER'S USE OF THE SYSTEM AND CANNOT BE CURED AS PROVIDED IN THIS SECTION, THEN CUSTOMER'S ALTERNATE SOLE AND EXCLUSIVE REMEDY SHALL BE TO TERMINATE THIS AGREEMENT WITHOUT FURTHER LIABILITY TO TSG FOR DAMAGES HEREUNDER. 11.3 Exclusion of Other Warranties. EXCEPT AS SPECIFICALLY PROVIDED IN THIS ARTICLE, THE USE OF THE SABRE SYSTEM, THE DATA DERIVED FROM THE SABRE SYSTEM, THE SYSTEM AND/OR ANY COMPONENTS THEREOF ARE PROVIDED TO CUSTOMER BY TSG, ANY INFORMATION PROVIDER OR THE OWNER OF ANY ELEMENT OF THE SYSTEM (AS THE CASE MAY BE) "AS IS AND WITH ALL FAULTS". ALL OTHER WARRANTIES ARE HEREBY DISCLAIMED INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF ACCURACY, COMPLETENESS AND NON-INFRINGEMENT OF THE DATA DERIVED FROM THE SABRE SYSTEM, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING OUT OF COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE. 11.4 Limitation of Liability. 11.4.1 NEITHER TSG NOR ANY INFORMATION PROVIDER NOR ANY OWNER OF ANY ELEMENT OF THE SYSTEM OR THE SABRE SYSTEM SHALL BE LIABLE TO CUSTOMER OR ANY THIRD PARTY FOR ANY INJURY, LOSS, CLAIM OR DAMAGE CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF TSG OR ANY INFORMATION PROVIDER OR BY ANY OWNER OF ANY ELEMENT OF THE SYSTEM OR BY EVENTS BEYOND THE CONTROL OF TSG OR OF ANY OF THOSE OTHER PERSONS. 11.4.2 IF A PASSENGER USES A CONFIRMED TICKET FOR AIR TRANSPORTATION ISSUED PURSUANT TO A RESERVATION MADE BY CUSTOMER BY MEANS OF THE SABRE SYSTEM AND IS REFUSED CARRIAGE BECAUSE OF AN OVERSALE OF SEATS OR THE LACK OF RECORD OF SUCH RESERVATION, THE SOLE REMEDY OF CUSTOMER SHALL BE AS SET FORTH IN THE TARIFF OF THE REFUSING CARRIER OR APPLICABLE TERMS AND CONDITIONS OF THE CARRIER'S CONTRACT OF CARRIAGE. 11.4.3 TO THE EXTENT THAT TSG HAS ANY LIABILITY UNDER THIS AGREEMENT OR UNDER ANY THEORY OF LIABILITY, TSG'S CUMULATIVE LIABILITY FOR DAMAGES TO CUSTOMER HEREUNDER SHALL BE LIMITED TO THE LESSER OF (1) CUSTOMER'S DIRECT DAMAGES, (2) THE TOTAL AMOUNT OF CHARGES ACTUALLY PAID BY CUSTOMER TO TSG PURSUANT TO THIS AGREEMENT OVER THE TERM OF THIS AGREEMENT, OR (3) ONE MILLION DOLLARS ($1,000,000). 11.4.4 NEITHER TSG NOR ANY INFORMATION PROVIDER NOR ANY OWNER OF ANY ELEMENT OF THE SYSTEM SHALL BE LIABLE TO CUSTOMER UNDER ANY THEORY OF LIABILITY OR ANY FORM OF ACTION, INCLUDING NEGLIGENCE FOR ANY INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES UNDER ANY CIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO LOST PROFITS, REVENUE OR SAVINGS, OR THE LOSS OF USE OF ANY DATA, EVEN IF THAT PERSON THAT WOULD HAVE BEEN LIABLE IN THE ABSENCE OF THIS SECTION HAD BEEN ADVISED OF, KNEW, OR SHOULD HAVE KNOWN, OF THE POSSIBILITY THEREOF. 11.5 NON-SABRE TRAFFIC. CUSTOMER ACKNOWLEDGES THAT IT IS SOLELY LIABLE FOR THE CONTENT, ACCURACY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON- INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OR OTHER THIRD PARTY RIGHTS, OF THE NON-SABRE TRAFFIC. CUSTOMER WARRANTS THAT THE TRANSMISSION AND RECEIPT OF NON-SABRE TRAFFIC BY CUSTOMER IS NOT IN CONTRAVENTION OF ANY LAWS, RULES OR REGULATIONS. FURTHER, CUSTOMER HEREBY WARRANTS THAT IT HAS ENTERED INTO SUCH SEPARATE AGREEMENTS AS IT DEEMS NECESSARY OR APPROPRIATE WITH THE SYSTEMS OR NETWORK PROVIDERS FOR THE TRANSMISSION AND RECEIPT BY CUSTOMER OF THE NON-SABRE TRAFFIC AND, IN PARTICULAR, CUSTOMER WARRANTS THAT IT SHALL BE SOLELY LIABLE TO THESE PROVIDERS FOR ANY MALFUNCTION OR OTHER ADVERSE IMPACT EXPERIENCED BY SAID PROVIDERS AS A RESULT OF THE TRANSMISSION AND RECEIPT BY CUSTOMER OF THE NON- SABRE TRAFFIC. 12. INDEMNIFICATION 12.1 Customer and TSG ("Indemnitor") hereby agree to indemnity and hold each other, their affiliates, subsidiaries, successors end assigns and their officers, directors, agents and employees ("Indemnitees") harmless from and against third-party liabilities, including, but not limited to, attorneys' fees, and other expenses incident, thereto, ("Claims") which may be threatened against, or recoverable from the Indemnitees by reason of any injuries to or death of persons or loss of, damage to, or destruction of property to the extent arising out of or in connection with any act, or omission of the Indemnitor. 12.2 Customer will indemnify TSG for any Claims, including debt memos issued by Participants, arising from Customer's misuse of the SABRE System including, without limitation, making fraudulent bookings and/or failing to honor Participant ticketing and fare rules. 13. ASSIGNMENT 13.1 Assignment Or Sublease By Customer. Customer shall not sublease, transfer or assign this Agreement or any portion thereof, or any right or obligation hereunder, unless customer has obtained the prior written consent of TSG, which consent shall not be unreasonably withheld. Any attempted assignment in violation of this Article shall be void. 13.2 Assignment by TSG. TSG shall have the right to sell, transfer, assign or delegate its, interests, rights and/or obligations, without the prior consent of Customer, and, provided that such transferee or assignee assumes all of TSG's obligations, TSG shall be released of all obligations after the effective date of such sale, transfer, delegation or assignment. 14. TERMINATION AND DEFAULT 14.1 Default By Customer. The occurrence of any one or more of the following events shall constitute a non-exclusive event of default (the "Event of Default") pursuant to the terms of this Agreement: 14.1.1 Customer falls to pay any amount when due; 14.1.2 Any representation by Customer is discovered to be materially misleading or inaccurate, or Customer fails to perform any material covenant, agreement, obligation, term or condition contained herein; 14.1.3 Customer terminates or cancels this Agreement or any portion thereof, except as expressly permitted in this Agreement; 14.1.4 Customer ceases to do business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay debts as they become due, acquiesces in the appointment of a trustee, receiver or liquidator for it or any substantial part of its assets or properties, or executes an agreement to sell all or substantially all of its assets without obtaining the consent for assignment of this Agreement under Article 0; 14.1.5 Customer fails to secure and maintain Airlines Reporting Corporation ("ARC") accreditation for ticketing of reservations; 14.1.6 Events of Default described in 0, 0 and 0 shall not be cause for termination if Customer cures such failure within fifteen (15) days after date of written notice from TSG. If Customer cures its failure as provided in this provision, said failure shall not be considered to be an Event of Default for the purposes of Article 0. 14.2 TSG's Rights Upon Termination. Upon the occurrence of an Event of Default and subject to Article 0, TSG shall have the right to any one or more of the following remedies; (i) terminate this Agreement and Customer's access to the SABRE System, the System and any other approved systems or networks; (ii) seek all legal and equitable remedies to which it is entitled; and (iii) retake immediate possession of the System. If Customer's Event of Default results in termination, Customer agrees to pay to TSG damages suffered by TSG as a result of such Event of Default. 14.3 Termination By Customer. In the event that TSG breaches any material term of this Agreement, which breach continues for a period of fifteen (15) days after TSG receives from Customer written notice which sets forth the specific breach and Customer's intent to terminate the Agreement if such breach is not cured, then Customer may immediately terminate the Agreement upon separate written notice to TSG. Customer may not otherwise cancel, terminate, modify, repudiate, excuse or substitute this Agreement without TSG's prior written consent, which TSG may withhold in its absolute discretion. 15. MISCELLANEOUS 15.1 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA. CUSTOMER HEREBY SUBMITS AND CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS AND THE COURTS OF THE STATE OF TEXAS IN ANY DISPUTE ARISING OUT OF THIS AGREEMENT AND AGREES THAT SERVICE OF PROCESS SHALL BE SUFFICIENT IF MADE ON THE SECRETARY OF STATE OF THE STATE OF TEXAS WITH A COPY TO BE SENT, REGISTERED MAIL TO THE CUSTOMER AT THE ADDRESS SET FORTH IN SCHEDULE A OR SUCH OTHER ADDRESS AS CUSTOMER MAY LATER SPECIFY BY WRITTEN NOTICE TO TSG. 15.2 Binding Effect. Except as otherwise provided, this Agreement shall inure to the benefit of and bind the successors and assigns of the parties hereto. 15.3 Deletion of Equipment. During the term of the Agreement, Customer may delete up to [*] of the installed productive video agent sets, video agent set terminal addresses and printers, contingent upon the following: (a) Customer provides documentation of a substantial decrease in the number of SABRE Bookings, which decrease is the result of the loss of its commercial accounts and/or customer base; (b) Customer notifies TSG, in writing, of the description and location of the equipment to be deleted (the "Deleted Equipment"); (c) Customer pays to TSG the then current de-installation charges for the Deleted Equipment plus any outstanding Charges for such Deleted Equipment up through the Stop Billing Date which TSG will specify to Customer; and (d) Customer will forfeit all right and equity, if any, in the Deleted Equipment removed from Customer's location. 15.3.1 If Customer complies with the requirements identified in 0 above, TSG shall de-install the Deleted Equipment and disconnect it from the System. 15.3.2 TSG shall defer all Charges related to the Deleted Equipment ("Deferred Charges") from the Stop Billing Date to the termination date of this Agreement on the following conditions: (a) the Additional Term and all other terms and conditions of this Agreement that would have applied to the Deleted Equipment shall apply to any Standard Equipment added to the System after the Stop Billing Date, up to an amount equal in number and type to the Deleted Equipment or such lesser amount agreed to by TSG ("Re-installed Equipment"); and (b) Customer shall pay TSG all applicable Charges for the Re-installed Equipment, including installation, lease, maintenance and use Charges, at TSG's then current rates. 15.3.3 The Deferred Charges shall be deemed waived by TSG at the end of the Initial Term of the Agreement or any renewal thereof if Customer has not breached this Agreement. Interest shall accrue on the Deferred Charges at the maximum rate allowed by applicable law from the date of the deferral until payment. In addition to all other rights under Article 0, TSG shall be entitled to immediate payment of the Deferred Charges plus interest upon default by Customer. 15.4 Entire Agreement. This Agreement and the Instructions constitute the entire agreement of the parties as to the matter set forth herein and shall supersede any previous understandings, agreements, representations, statements, negotiations and undertakings, whether written or oral, between the parties relating to the matters set forth herein. Any amendment to this Agreement must be in writing and signed by the authorized representatives of both parties. 15.5 Force Majeure. TSG and Customer shall be relieved of their obligations hereunder in the event and to the extent and only so long as that performance is delayed or prevented by any cause reasonably beyond their control, including, but not limited to, acts of God, public enemies, war, civil disorder, fire, flood, explosion, labor disputes or strikes, or any acts or orders of any governmental authority, inability to obtain supplies and materials (including without limitation computer hardware) or any delay or deficiency caused by the electrical or telephone line suppliers or other third parties. [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. 15.6 Notices. Unless otherwise stated, notices given or required under this Agreement must be in writing and shall be deemed delivered upon deposit through the United States Mail, to TSG at P.O. Box 619815, MD 3558, Dallas/Fort Worth, Texas, 75261-9615 (to be sent to the attention of SABRE Travel Information Network, Financial Services) or to the Customer at the address set forth in Schedule A. 15.7 Return of System. Upon the termination of this Agreement for any reason, Customer, at its sole cost and expense, shall return the System and all Confidential information as requested by TSG, in good repair, condition and working order, less normal and ordinary wear and tear, by delivering it to a common carrier selected and designated by TSG, F.O.B. the destination designated by TSG in writing. 15.8 SABRE System Modification. TSG retains the right to modify the SABRE System, at its discretion at any time during the term of this Agreement. However, such modifications will not materially impair Customer's ability to access and use the SABRE System in the manner expressly permitted in this Agreement. 15.9 Severability. Any provision of this Agreement which may be determined by a court or other competent governmental authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective, only to the extent of such prohibition or unenforceability, without invalidating the remaining provisions thereof, unless said prohibition or unenforceability materially alters the rights or obligations of either party. 15.10 Subsequent Acts of Government. In the event that there is any change in any statute, rule, regulation or order governing the operation of computerized reservations systems, or air transportation generally or the SABRE System, which in any way materially impairs the benefits of this Agreement to TSG, then the parties hereto will commence consultation in order to determine what, if any, changes to this Agreement are necessary or appropriate, including, but not limited to, early termination of this Agreement. If the parties hereto are unable to agree upon changes in the Agreement in response to such new statute, rule, order or regulation within thirty (30) days after commencement of such consultation, this Agreement may be canceled by TSG upon giving Customer ninety (90) days prior written notice of such cancellation. If TSG elects to terminate the Agreement pursuant to this Article, except for Customer's obligation to pay any and all Charges incurred through the date of termination, each party shall be relieved of any future obligations under this Agreement as of the effective date of cancellation. each party shall bear its own costs and expenses incurred as a result of said termination. Customer does not have the right to terminate the Agreement under this provision. 15.11 Surviving Sections. If the term of the Agreement expires or is terminated for any reason before Customer has paid to TSG all of the sums due, the Agreement shall survive such expiration or termination to the extent necessary to protect TSG's rights until all sums owed to TSG have been paid. Notwithstanding anything to the contrary referenced herein, Articles 0, 0, 0 and 0 shall survive the termination of this Agreement. 15.12 Waiver. A failure or delay of either party to require strict performance to enforce a provision of this Agreement or a previous waiver or forbearance by either party shall in no way be construed as a waiver or continuing waiver of any provision of this Agreement. 15.13 Acknowledgment. Customer hereby acknowledges that TSG has offered Customer a SABRE Subscriber Agreement with three (3) year term with reasonable terms and conditions. 16. INTERNET CONNECTIONS 16.1 Limited License. Customer may establish an Internet Connection using TSG's products or a third party application. Customer is hereby given a limited license to utilize data transmitted from the SABRE System for purposes of developing, operating and maintaining a reservation booking site solely for the use of its customers and according to the other limitations contained in the Agreement, including, without limitation, Article 0. All uses of the SABRE System through an Internet Connection will be considered uses by Customer under this Agreement. Customer may not utilize any data transmitted from the SABRE System for purposes of developing, operating or maintaining a reservation booking site or any other redisplay of SABRE System data for any third party including any un-affiliated travel agencies. 16.2 Termination. The limited license granted in Article 0 may be terminated by TSG for any reason upon five (5) days written notice to Customer. Upon such termination Customer must immediately remove the Internet Connection and cease utilizing data transmitted under the Agreement for purposes of developing, operating or maintaining a reservation booking site. 16.3 Branding. Customer agrees to adhere to the branding standards and requirements as communicated by TSG which may be modified from time to time upon thirty (30) days advance notice to Customer. 16.4 Charges. Customer will pay a Charge for each PNR created through an Internet Connection at TSG's then current rate. 17. TSG RESERVES THE RIGHT TO CHANGE SABRE GUARANTEE PROGRAM RULES, REGULATIONS, AND SPECIAL OFFERS WITHOUT NOTICE, AND TO END SABRE GUARANTEE PROGRAMS WITHOUT NOTICE IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth below. ALL SIGNATURES MUST BE IN BLACK INK CUSTOMER By: --------------------------------------- (Signature) Name: ------------------------------------ (Print Name) Title: ----------------------------------- Agency Name: ----------------------------- Pseudo City Code: ------------------------ THE SABRE GROUP, INC. By: -------------------------------------- (Signature) Name: ------------------------------------ (Print Name) Title: ----------------------------------- ATTACHMENT I Conditions of Use for SABRE Users 1. QUALIFYING USE. The manufacturer has made this package available to you through The SABRE Group, whether directly or indirectly, on the understanding that it is being supplied to you primarily for use with the SABRE System, and not with a view to resale or other re-marketing. 2. COPYRIGHT AND OTHER RIGHTS. The manufacturer's programs contain material in which the manufacturer and in many cases the manufacturer's suppliers, retain proprietary rights. The manufacturer wants these programs to be fully useable by you for the purpose for which they are supplied, that is, in connection with a computer. No infringement of the rights of the manufacturer or of the manufacturer's suppliers will occur provided that the following conditions are observed with respect to each program: a. The program is used only on: (i) a single machine; or (ii) on any workstation connected to a single fileserver which is primarily used in connection with the SABRE System. b. The program is copied into machine-readable or printed form for backup or modification purposes only in support of use on a single machine, or on a workstation connected to the SABRE System; c. However, certain diskettes marked "Copy Protected" may include mechanisms to limit or inhibit copying of the program; d. The program is modified or merged into another program only for use on a single machine or on a workstation connected to the SABRE System. Any portion so merged continues to be subject to these conditions; e. The copyright notice is reproduced and included in any copy or modifications made of the program and in any program merged into other programs; and f. If the program package is transferred to another party, all copies and modifications made of the program must be transferred or destroyed. You do not retain any right with respect to the transferred package. The other party agrees to observes all of these Conditions of Use. Any other act involving reproduction or use of, or other dealing in the program is prohibited. You are reminded that it may be necessary to obtain local and United States licenses to export or re-export this package. No statements contained in this package shall affect the statutory rights of any person. AMENDMENT NO. 1 TO SABRE SUBSCRIBER AGREEMENT This Amendment to that certain SABRE Subscriber Agreement is made and entered into this 31st day of December, 1998, between The SABRE Group, Inc. ("TSG") and Cheap Tickets, Inc. ("Customer"). RECITALS WHEREAS, TSG and Customer have entered into that certain SABRE Subscriber Agreement, dated as of 31 December 1998 (the "Agreement"); and WHEREAS, it is in the best interest of the parties to modify certain provisions of the Agreement. NOW THEREFORE, in consideration of the mutual covenants contained herein, TSG and Customer hereby agree as follows: 1. Effective Date. The effective date of this Amendment is 31 December 1998. 2. Cash Advance. TSG agrees to pay to Customer the following, as SABRE Promotional Support, pursuant to the schedule set out below contingent upon the Agreement and this Amendment have been signed by both Customer and TSG: [*] within [*] after the Agreement and this Amendment have been signed by both parties. If an Event of Default as defined in Article 14.1 of the Agreement occurs, TSG's obligations under this Amendment are nullified and Customer will be immediately obligated to repay to TSG all monies paid by TSG to Customer pursuant to this Amendment. 3. Line of Credit. TSG shall extend to Customer a line of credit in the following amount, which amount will be applied automatically toward the payment of SABRE/ADS/IBT Charges. Such line of credit shall be applied each month until the total amount is exhausted. Any unused portion of this line of credit shall revert to TSG and be unavailable for Customer's use upon the happening of either of the following events: (i) the expiration of the Initial Term of the Agreement or (ii) termination of the Agreement for any reason. [*] 4. Current and Expansionary Devices. Upon the Effective Date of this Amendment and provided Customer meets the terms and conditions as set forth below and in the Agreement TSG shall provide, each month during the term hereof, fixed monthly discounts to offset the charges for the services and products listed below that are either currently installed or installed subsequent to the Effective Date of the Agreement: (a) data lines, fileservers, gateways, SABRE video agent sets, SABRE Printers, Satellite Ticket Printers (STP's) or any other equipment standard to the SABRE System, provided the following: (i) TSG will not provide fileservers, gateways or SABRE video agent sets at Customer call center locations; (ii) TSG will provide currently installed equipment at Customer locations other than at Customer call centers; (iii) TSG will provide expansionary SABRE gateways and SABRE video agent sets at Customer locations other than at Customer call centers, [*] [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. based on total Customer SABRE Bookings and Customer SABRE gateways and SABRE video agent sets on the Effective Date of this Agreement at Customer locations other than at Customer call centers; (iv) TSG will provide expansionary SABRE Printers and Satellite Ticket Printers (STP's) [*] based on total Customer SABRE Bookings and Customer SABRE Printers and Satellite Ticket Printers (STP's) on the Effective Date of this Agreement; (v) TSG will provide expansionary SABRE data lines [*] based on total Customer SABRE Bookings and Customer SABRE data lines on the Effective Date of this Agreement. Equivalent Data Line is defined as [*]; (vi) TSG will not provide maintenance for equipment that is not owned by TSG; (b) SABREscribe; (c) installation, de-installation, move and relocation charges (excluding charges associated with moves or relocations outside the ordinary course of business which shall be determined by Customer's past practices, which shall be billed to Customer at TSG's then prevailing rate); (d) variable charges for Branch Access, Bargain Finder Plus, FACTS Report, Option 6 Interface, Invoice and Itinerary, Microfiche, Ticketing, ARC Report, SABRE Report Managers, Classified Fares, STARS and SABRE Re-Check; (e) [*] of the monthly lease and SMU Charges for SABRE TravelBase equipment, operating system licenses and software license fee sufficient to process [*] SABRE Bookings per year, [*] (f) [*] SABRE TravelBase workstations in Year One of this Agreement, increasing up to a total of not more than [*] SABRE TravelBase workstations by Year Five of the Agreement, as TSG and Customer jointly determine that a need for such SABRE TravelBase workstations exists; in addition, TSG will provide to Customer sufficient software licenses for Customer-owned SABRE TravelBase workstations. 5. Additional Standard Equipment. TSG agrees to allow Customer to add Standard Equipment in excess of that provided for in paragraph 4, and Customer and TSG agree that all Standard Equipment added under this paragraph 5 will be charged on a monthly basis at TSG's then prevailing rate. Customer and TSG agree that the rate charged is the rate that applies to the actual piece of Standard Equipment most recently added by Customer. TSG agrees to allow Customer to choose to pay for this additional Standard Equipment with either cash or funds from Customer's Line of Credit. 6. Booking Threshold Adjustments. TSG agrees to offer Customer, as new products are introduced, the option to pay for those products at standard non-discriminatory rates as described in the product offering. 7. Booking Threshold. Notwithstanding anything contained herein, TSG shall have no obligation to perform the undertakings set forth in paragraph 4 unless: (a) the Standard Equipment is available for purchase by TSG on reasonable terms and conditions from the manufacturer, and (b) Customer processes a minimum of the following number of SABRE Bookings [*] (the "[*] Volume Threshold") during the term of the Agreement: [*] Notwithstanding anything contained herein, TSG shall have no obligation to perform the undertakings set forth in paragraph 9 unless Customer achieves the Monthly Booking Threshold as described herein. [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. 8. SABRE Bookings Below [*] Volume Threshold. In the event Customer fails to achieve the [*] Volume Threshold in paragraph 7 for each [*] measurement period, Customer shall pay to TSG an amount equal to the prevailing booking fee that TSG charges to airlines that participate in the full availability features of the SABRE System multiplied by the difference between the [*] Volume Threshold and the actual SABRE Bookings at all the Customer's locations. Measurement of the [*] Volume Threshold shall be performed by TSG on a [*] basis commencing on the Effective Date of the Agreement. 9. [*] 10. [*] 11. SABREscan. TSG and Customer agree to a contractual SABREscan rate of [*] Transactions per SABRE Booking. Transactions and SABRE Bookings include, but are not limited to, those generated by Customer retail, call-center and on-line ("Internet") locations. Customer agrees to pay TSG on a semi-annual basis an additional charge at the rate of [*] per Host Transaction for Host Transactions which exceed the level of [*] Host Transactions per SABRE Booking. 12. Fares Filing. TSG and Customer agree to retain in force the provisions of the agreement termed "SABRE Agreement for Negotiated Fares Maintenance" dated 15 July 1994, throughout the term of the Agreement. Customer agrees to pay TSG the monthly charge of [*] for these services. Should TSG's costs to provide Customer's fares [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. filing decline substantially below [*] per month, TSG agrees to reduce Customer's charges associated with this fares filing. 13. SABRE Terminal Addresses (TAs). Customer agrees to pay TSG the sum of [*] for every Terminal Address exceeding the [*] total number allowed by TSG below. Year Total Number of TAs Allowed ---- --------------------------- Year 1 [*] Year 2 [*] Year 3 [*] Year 4 [*] Year 5 [*] 14. Internet On-line Bookings. Customer agrees to pay TSG the sum of [*] for every Passenger Name Record ("PNR") created which utilizes Customer's Internet website for all or part of the booking process. 15. Credit Card Address Verification ("AVS"). Customer agrees to pay TSG the sum of [*] for every automated credit card address verification ("AVS") query Customer processes through SABRE. [*]. 16. Turbo SABRE License Fees. Customer agrees to pay TSG the sum of [*] for each additional Turbo SABRE license utilized by Customer during the term of this Agreement. [*]. 17. TSG Technical Support. Customer agrees to pay TSG the sum of [*] per hour for any TSG in-house technical support provided to Customer by TSG during the term of this Agreement. Customer agrees that TSG is under no obligation to provide technical support to Customer, and agrees to pay TSG for the services of any outside parties (including but not limited to consultants and subcontractors), which may be passed through to Customer at rates which may exceed [*] per hour. Customer also agrees to pay TSG's reasonable administrative costs and travel and incidentals expenses associated with any Customer technical support provided by or on behalf of TSG. 18. Reports. Reports showing the number of SABRE Bookings shall be provided by TSG on a monthly basis. Invoicing, if necessary, will be made at the end of each month and Customer agrees to pay all amounts due to TSG, including applicable taxes, within thirty (30) days of the invoice date. 19. Monthly Reconciliation. The reports will be reconciled by TSG and Customer each month. The semi-annual measurement will be calculated using the reconciled information. 20. Yearly Reconciliation. Upon each anniversary of the Effective Date, there shall be a reconciliation of payments/credits made throughout the year. Such reconciliation shall consist of the following: the total SABRE Bookings over the year shall be compared to the Booking Threshold as defined in paragraph 7 and the differentiation shall be applied to the formula herein regarding SABRE Bookings above or below the Booking Threshold as applicable ("The Reconciled Amount"). The Reconciled Amount, and all [*] Volume Threshold incentives under paragraph 10, shall be compared to the actual amount of payments/credits provided during the same year and TSG shall invoice or credit customer for the difference between The Reconciled Amount and the actual amount paid/credited during the year. 21. Acquisitions. If at any time during the term of the Agreement, Customer purchases or otherwise acquires all of the assets of any travel agency which utilizes SABRE, then such travel agencies shall be bound by the terms and conditions as set forth in the Agreement and this Amendment. Notwithstanding the foregoing, all outstanding receivables at the time of acquisition by Customer must be paid to TSG prior to inclusion of the acquired locations and/or equipment under the terms of the Agreement, unless otherwise agreed to by both parties. Customer and travel agency acquired must both notify TSG in [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. writing of the acquisition and must provide at a minimum (i) the pseudo city code of acquired location(s), (ii) total number of productive devices being acquired, and (iii) the effective date of the acquisition. 22. Agreement Reviews. Commencing on the first anniversary of the Effective Date but not more than once every contract year, the parties will review this Agreement in order to adjust the [*] Volume Threshold Incentives in paragraphs 9 and 10 to reflect changes in the actual costs of providing products and services hereunder. Upon conclusion of such review, TSG shall have the right to decrease the [*] Volume Threshold Incentives by no more than [*] per year to compensate for automation cost increase. Notwithstanding the foregoing, TSG shall have the right to decrease the [*] Volume Threshold Incentives to recover any actual increases in communication costs during the upcoming year. TSG shall provide to Customer satisfactory evidence of such increased communication costs. 23. Wholly Owned Offices/Outlets. The terms and conditions of the Agreement and this Amendment are only applicable to wholly owned offices/outlets of Customer and shall not apply to any franchise or associate operation. 24. Confidentiality. It is expressly understood and agreed that this Amendment and the Agreement, and each and every provision hereof, shall be held and treated as confidential and shall not be disclosed by Customer to any other person, firm, organization, association, or entity, of any and every kind, whether public, private or governmental, for any reason, or at any time, without the prior written consent of TSG (except that Customer may disclose the provisions of the Agreement and this Amendment to its attorney and/or accountant), unless such disclosure is required by law or legal process. In the event of such disclosure, this Amendment and the Agreement may be terminated immediately by TSG, without notice to Customer, and TSG shall have the right to pursue any remedies available to it in law or in equity. 25. Defined Terms. The defined terms used in this Amendment shall have the meaning assigned to such terms in the Agreement. 26. Agreement. Except as otherwise provide herein, all other terms of the Agreement remain in full force and effect. In the event of any conflict between the terms of the Agreement and this Amendment, the Amendment shall control. 27. Termination of Prior Agreements. All oral or written agreements entered into by the parties prior to the effective date of the Agreement and this Amendment which relate to the maintenance or use of the SABRE System or any portion thereof shall be deemed terminated upon execution of the Agreement and this Amendment. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year written below. CUSTOMER THE SABRE GROUP, INC. By: ______________________________ By: ______________________________ (Signature) (Signature) Name: ______________________________ Name: ______________________________ (Print Name) (Print Name) Title: ______________________________ Title: ______________________________ Date: ______________________________ Date: ______________________________ PCC: ______________________________ [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. EX-10.14 17 AGREEMENT FOR NEGOTIATED FARES MAINTENANCE Exhibit 10.14 Note: Portions of this exhibit indicated by "[*]" are subject to a confidential treatment request, and have been omitted from this exhibit. Complete, unredacted copies of this exhibit have been filed with the Securities and Exchange Commission as part of the Company's confidential treatment request. SABRE AGREEMENT --------------- FOR --- NEGOTIATED FARES MAINTENANCE ---------------------------- THIS AGREEMENT is made as of the 15th day of July, 1994, by and between SABRE TRAVEL INFORMATION NETWORK ("STIN"), a division of AMERICAN AIRLINES, INC. a Delaware corporation having its principal address at 4200 American Boulevard, Fort Worth, Texas 76155 (American), and CTI CORPORATION, a corporation having its principal place of business at 738 Kaheka Street, Honolulu, Hawaii ("Customer"). RECITALS A. STIN provides computerized reservations services for travel agents with related data processing activities through its SABRE Computerized Reservations System which is a database of fares and pricing data. B. Customer operates a travel agency and enters into contractual arrangements for negotiated fares with carriers operating air transportation services. C. The parties desire to enter into an agreement governing the SABRE display and maintenance of the Customer's negotiated fares. SECTION 1. DEFINITIONS. The following definitions shall apply to this Agreement. 1.1 ATPCo is the Airline Tariff Publishing Company which is a vendor of fares data to the airline industry. 1.2 Fare Base Management is a department of SABRE Computer Services. Fare Base Management shall be responsible for updating and maintenance of the Negotiated Fares, Fare Rules, Fare Routings and other related information. 1.3 Fare Rule is a set of provisions, limitations or conditions applicable to a specific Negotiated Fare or set of Negotiated Fares as reflected in a single rule number assigned by ATPCo. The same ATPCo rule number in two tariffs will be construed to be two rules. 1.4 Fare Routing is the path of travel the traveler must follow to obtain the Negotiated Fare from the appropriate carrier. 1.5 Implementation Date is August 2, 1994 but will be extended one day for each day after July 21 that ATPCo fails to deliver the Customer's Negotiated Fares through an acceptable transmission to Fare Base Management. If the revised implementation Date falls on a weekend or legal holiday, the date will be further extended until the following Tuesday. 1.5 Negotiated Fares are fares subject to various rules and restrictions which are negotiated by Customer with various air transportation carriers and which are evidenced by valid contracts with the applicable air carriers. 1.6 SABRE System Database is the database of fares, rules and restrictions maintained in STIN's SABRE Computerized Reservations System. SECTION 2. RESPONSIBILITIES OF STIN 2.1. STIN agrees to process the Customer's Negotiated Fares, Fare Rules and Fare Routings into the SABRE System Database and to maintain Customer's Negotiated Fares and the Fare Rules and Fare Routings pertaining to such fares, subject to the following terms and conditions: a. STIN agrees to process and maintain Customer's Negotiated Fares, together with the applicable Fare Rules and Fare Routings, to the extent that such rules and routings are, at STIN's sole discretion, practical for inclusion in the SABRE System. However, notwithstanding the above, STIN shall not, at any time, be required to maintain more than [*] Customer Fare Rules within the SABRE System Database. b. STIN shall use its best efforts to provide SABRE access to Customer's Negotiated Fares, Fare Rules and Fare Routings by the Implementation Date. In the event that Customer does not have access to its Negotiated Fares, Fare Rules and Fare Routings by the Implementation Date, it may terminate this contract which shall be its exclusive remedy for STIN's failure to meet the Implementation Date. c. After the initial implementation of Customer's existing Negotiated Fares, Fare Rules and Fare Routings in the SABRE System Database, STIN will make changes or additions to the Customer's Negotiated Fares, Fare Rules and Fare Routings upon Customer's written request to Fare Base Management. Such changes or additions will be made within [*] days of receipt of Customer's request whenever reasonably practical. d. Should all or part of Customer's data be lost or destroyed Fare Base Management shall use its best efforts to reconstruct the data within twenty four (24) hours of such loss or destruction; in the event that such loss of Customer's data is caused, in whole or in part, by force majeure or Customer's negligence such reconstruction shall be at Customer's expense; and in any other event, such reconstruction shall be at STIN's expense. To the extent that reconstruction of the Customer's data requires data solely in Customer's possession, STIN shall use its best efforts to reconstruct the database within twenty four (24) hours of receiving such data from the Customer. e. STIN shall, under no circumstances, be responsible for calculating the Negotiated Fares under the Customer's contracts with various air carriers. Instead, the Customer's Negotiated Fares will be added to the SABRE System Database solely through transmissions or magnetic tapes received from ATPCo. STIN assumes no responsibility or liability for the accuracy of any information received from ATPCo. 2.2. STIN shall bill the Customer on a monthly basis. Payment is due upon receipt of each monthly invoice. 2.3. STIN shall use its best efforts to assure that data supplied by the Customer is promptly and accurately incorporated into the SABRE Database; however, STIN does not warrant the accuracy or completeness of the data so incorporated, nor does it assume liability for consequential damages resulting from any delay in, or error or omission made in the course of such incorporation, whether or not solely attributable to STIN's negligence or other conduct. 2.4. SABRE Downtime. Customer recognizes that from time to time, SABRE and/or access to Customer's Negotiated Fares, Fare Rules and Fare Routings may be unavailable due to unexpected failures and routine maintenance, upgrading or repairs. STIN shall not be liable for any such downtime. [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. SECTION 3. RESPONSIBILITIES OF CTI CORPORATION 3.1 Customer Representations and Warranties. Customer makes the following representations and warranties: a. The Customer warrants that the Negotiated Fares, Fare Rules, Fare Routings and any other data it supplies under this Agreement is based on fully and validly executed contractual agreements between the Customer and various carriers on whose behalf it is authorized to sell transportation. b. Customer warrants the accuracy and reliability of all Negotiated Fares, Fare Rules, Fare Routings and any other information it supplies to STIN under this contract and assumes sole responsibility and liability (if any) for providing this information to STIN on behalf of those carriers with whom contracts for Negotiated Fares exist. c. Customer warrants that in executing this agreement and in supplying the Negotiated Fares, Fare Rules, Fare Routings and any other information hereunder, it is not in breach of any existing contracts or in violation of any Federal or State statutes, rules or regulations. 3.2 Information Supplied. In supplying data to be included in the SABRE System Database, the Customer shall conform to the standards and procedures as prescribed in attached Schedule 1 and as amended from time to time by mutual consent. 3.3 Customer Payment. Customer shall pay STIN each of the following charges for services provided pursuant to this Agreement. a. A one time implementation fee of [*] for development, testing and for the inputting of the Customer's existing Negotiated Fares, Fare Rules, Fare Routings and other related information into the SABRE System Database, which shall be due and payable within thirty (30) days of the Implementation Date. b. A charge for each request change or addition to the SABRE System Database as follows: i. A filing fee of [*] to be charged each time Customer request STIN to make one or more changes or additions to the existing SABRE System Database. ii. An additional processing fee of [*] per Fare Rule or Fare Routing for each change or addition to the existing SABRE System Database. However, nothwithstanding the above, STIN shall waive this [*] processing fee for a given number of requested changes or additions as set forth in the following chart. Number of Customer Fare Number of Changes / Additions For Rules in SABRE System Which No Processing Fee Will Be Database Charged 1 - 75 [*] 76 - 100 [*] 100 - 125 [*] 126 - 200 [*] [*] [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. c. A monthly maintenance and storage fee based on the number of Fare Rules maintained in the SABRE System Database as shown in the following chart.
Number of Customer Fare Monthly Maintenance Rules in SABRE System and Storage Database Fee 1 - 75 [*] 76 - 100 [*] 100 - 125 [*] 125 - 200 [*]
d. The filling fee of [*] and the processing fee of [*] shall be [*] made to the Customer's Negotiated Fares, Fare Rules of Fare Routings during the first [*] days after the actual Implementation Date. SECTION 4. TERM, DEFAULT AND TERMINATION PROVISIONS 4.1. Term. This Agreement shall be effective for a period of one (1) year from the date of this Agreement or until terminated pursuant to Sections 2.1(b), 4.4. or 4.5 of this Agreement. In the event that this Agreement has not been terminated prior to the expiration of one (1) year, it shall continue in effect thereafter until terminated by either party upon ninety (90) days written notice. 4.2. Price Increases. At the end of the one (1) year initial term of this agreement, STIN may increase the charges set forth in Section 3.3 of this Agreement. STIN agrees to notify Customer in writing at least thirty (30) days prior to any such price increase. 4.3 Default. The occurrence of any one (1) or more of the following events shall constitute an event of default pursuant to this Agreement ("Event of Default"). a. Customer fails to pay or cause to be paid any amounts due hereunder as it becomes due in accordance with the terms of this Agreement and such failure continues for a period of five (5) days after receipt of written notice from STIN that Customer is in default under this Agreement. b. Either party has materially breached or misrepresented any representation, warranty, or covenant given by it in this Agreement. c. Customer commences bankruptcy or insolvency proceedings or Customer ceases to do business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay debts as they become due, or acquiesces in the appointment of a trustee, receiver or liquidator for it or any substantial part of its assets. 4.4 Termination. Upon occurrence of an Event of Default, the non-defaulting party shall have the right to (i) terminate this Agreement, and if Customer is the defaulting party. Customer's access to SABRE; and (ii) seek all legal and equitable remedies to which it is entitled. 4.5 Right to Terminate if Claim is Made. In the event that any claim is made or threatened to be made against STIN by one of the carriers with whom Customer has Negotiated Fares, Fare Rules or Fare Routings and such claim arises out of STIN's performance under this Agreement, STIN may, in its sole discretion, terminate this Agreement without any further obligation or liability on the part of STIN. [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. SECTION 5. LIMITATION ON LIABILITY 5.1 STIN shall not be liable to Customer for any loss, claim or damage caused in whole or in part by STIN's negligence or by contingencies beyond STIN's control in procuring, collecting, compiling, abstracting, Interpreting, communicating, processing or delivering Negotiated Fares, Fare Rules or Fare Routings through SABRE. However, if errors in data are due to circumstances under STIN's direct control, STIN shall use its best efforts to correct such errors within 72 hours after notification by the Customer of the error. Although STIN shall use its best efforts to accurately maintain Customer's Negotiated Fares, Fare Rules and Fare Routings in the SABRE System Database, the foregoing limitation on liability includes, but is not limited to, any liability in contract or tort, for the difference between the fare reflected in SABRE, or on tickets autopriced and issued by SABRE, the Customer's actual Negotiated Fares. 5.2 STIN DISCLAIMS AND CUSTOMER HEREBY WAIVES ANY WARRANTIES EXPRESS OR IMPLIED INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR INTENDED USE OF SERVICES FURNISHED HEREUNDER OR ANY LIABILITY IN NEGLIGENCE OR TORT WITH RESPECT TO THE SERVICES FURNISHED HEREUNDER. CUSTOMER AGREES THAT STIN SHALL NOT BE LIABLE TO IT FOR CONSEQUENTIAL DAMAGES UNDER ANY CIRCUMSTANCES. SECTION 6. INDEMNITY Customer hereby agrees to indemnify and hold STIN, its officers, directors, agents and employees harmless from and against any and all liabilities, damages, losses, expenses, claims, demands, suits, debit memos, fines or judgments including, but not limited to, attorney's fees, costs and expenses incident thereto, which may be suffered by, accrue against, be charged to or recoverable from STIN, its officers, directors, agents, or employees, by reason of losses (including lost profits), damages, injuries or deaths of persons arising out of or in connection with, STIN's performance of the terms if this Agreement or any negligent act, error, or omission of the Customer. SECTION 7. MISCELLANEOUS PROVISIONS 7.1 Force Majeur. STIN shall not be liable for delays in or failure of performance hereunder caused by acts of God, strikes or other labor disputes, fires, or for any other delay or failure resulting from a cause beyond its reasonable control. 7.2 Assignment. Customer shall not transfer or assign this Agreement, or any right or obligation under it by operation of law or otherwise, without the prior written consent of STIN. 7.3 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA. CUSTOMER HEREBY SUBMITS AND CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS AND THE COURTS OF THE STATE OF TEXAS IN ANY DISPUTE ARISING OUT OF THIS AGREEMENT AND AGREES THAT SERVICE OF PROCESS SHALL BE SUFFICIENT IF MADE ON THE SECRETARY OF STATE OF THE STATE OF TEXAS WITH A COPY TO BE SENT, REGISTERED MAIL TO THE CUSTOMER AT THE ADDRESS SET FORTH BELOW OR SUCH OTHER ADDRESS AS CUSTOMER MAY LATER SPECIFY BY WRITTEN NOTICE TO STIN. BELOW OR SUCH OTHER ADDRESS AS CUSTOMER MAY LATER SPECIFY BY WRITTEN NOTICE TO STIN. 7.4 Notices. Notices given or required under this Agreement shall be deemed delivered if sent by United States mail, postage prepaid, fax, or by telex, to the respective address of SABRE Travel Information Network or Customer set forth below: STIN: Customer: SABRE Travel Information Network C.T.I. Corporation - ------------------------------------ --------------------------------------- P.O. Box 819816 738 Kaheka Street #301 - ------------------------------------ --------------------------------------- DFW Airport, TX 75261-9616 Honolulu, HI 86814 - ------------------------------------ --------------------------------------- 7.5 Waiver. A failure or delay of STIN to require strict performance or to enforce a provision of this Agreement shall in no way be construed as a waiver or continuing waiver of any provision of this Agreement. 7.6 Severability. Any provision of this Agreement which may be determined in a court or other competent government authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition and unenforceability, without invalidating the remaining provisions thereof, unless such prohibition or unenforceability materially after the rights or obligations of either party. 7.7 Entire Agreement. This Agreement shall constitute the entire agreement of the parties as to the matters set forth herein and shall supersede any previous understandings, whether written or oral, between the parties relating to the matters set forth herein. Any amendment to this Agreement must be in writing and signed by the authorized representatives of both parties. 7.8 Effective Date. This Agreement shall not be effective until countersigned by an authorized representative of STIN. IN WITNESS WHEREOF, STIN and Customer have executed this Agreement as of the date first above written. CTI CORPORATION STIN By: Customer /s/ Mike Hartley By: /s/ -------------------------- -------------------------- Name: Mike Hartley Name: ------------------------ ------------------------- Title: General Manager Title: ---------------------- ------------------------ QCP Schedule for SABRE Vendor WDM WDM QCP SABRE Transmission Update Freetext Processing Load Times Cutoff Cutoff Time QCP 09:00 09:30 09:30 - 13:00 - 1 ATP Dom 13:00 14:00 QCP 11:30 11:30 - 11:45 12:00 - 18:30 - 2 ATP Int'l 10:00 12:00 18:30 20:30 ATP Dom 11:30 QCP 14:00 19:00 19:00 - 23:00 - 3 ATP Int'l 14:00 23:00 02:30 SITA 17:00 QCP 19:00 23:00 21:45 23:00 - 03:00 - 4 ATP Int'l 03:00 06:30 ATP Dom QCP 04:30 05:00 05:00 - 07:30 - 5 ATP Int'l 07:30 10:00 Sat/ 16:00 18:00 14:30 18:00 - 20:30 - Sun ATP Int'l 20:30 08:30 ATP Dom
Reference WorldFare Data Management - -------------------------------------------------------------------------------- GFS, Commercial, and SABRE Categories/Tables IMS Menu Screens (see chart for specific category screens): Main Menu /FOR [*] Fare Class Application /FOR [*] Rule /FOR [*] Fares Update (Fare Record) /FOR [*] Browse for Footnotes/Rules /FOR [*] or /FOR [*] or /FOR [*] QCP Table /FOR [*]
- ------------------------------------------------------------------------------------------------------- QCP (IMS) Auto SABRE RD GFS /FOR [*] MRT Rules Freetext - ------------------------------------------------------------------------------------------------------- 01 Booking Code WAR 412 02 Penalty 16 402 03 Reservation/Ticketing 05 008 [*] 04 Minimum Stay 06 001 [*] 05 Maximum Stay 07 002 [*] 06 Day/Time 02 005 [*] 07 Season 03 03 08 Blackouts 11 11 09 Effective/Expired 14-15 003 [*] Sales/Travel 006 [*] 10 Flight Application 04 014 [*] WAR* 11 Stopovers 08 009 [*] WAR* 408 12 Ticket Issue 15 016 [*] 420 13 Surcharges 12 015 [*] 936 14 Discounts 19-22 012 [*] 406 15 Reroute 16 404 16 Transfers 09 09 17 Combinability 10 10 18 Open Return 05 410 19 Refunds 16 416 20 Special Provision 13 011 [*] 21 Co-terminals WAR* 418 22 Int'l Construction 114/116 23 Group 26 414 24 Tour 27 422 25 Deposit 27 424 26 Misc. 23 426 Ticket Endorsements 18 108
* Limited WAR applications - -------------------------------------------------------------------------------- Version 2.3 Categories-1 10/27/97 [*] The redacted portion, indicated by this symbol, is the subject of a confidential treatment request. EX-23.1 18 CONSENT OF PRICEWATERHOUSECOOPERS LLP. CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-1, to be filed on or about January 20, 1999, of our report dated October 13, 1998, except for Notes 4 and 5 as to which the date is January 15, 1999, on our audits of the financial statements of Cheap Tickets, Inc. We also consent to the references to our firm under the captions "Experts" and "Selected Financial Data." /s/ PricewaterhouseCoopers LLP Honolulu, Hawaii January 19, 1999 EX-27.1 19 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JAN-01-1998 SEP-30-1998 9,232,480 0 1,793,229 0 399,012 12,014,746 4,024,656 1,319,256 14,903,140 7,767,918 1,097,882 4,007,495 0 10,338 1,887,051 14,903,140 122,994,328 131,047,672 104,547,056 128,639,676 61,532 0 117,955 2,497,375 1,023,924 1,473,451 0 0 0 1,473,451 1.00 .84
EX-99.1 20 CONSENT OF GILES H. BATEMAN Exhibit 99.1 CONSENT The undersigned hereby consents to his nomination to serve as a Director on the Board of Directors of Cheap Tickets, Inc., a Delaware Corporation, and to all references to him and to his professional history, including but not limited to his biography on pages 47 and 48, that are included or made a part of this Registration Statement on Form S-1 filed with the Securities and Exchange Commission. Dated as of January 19, 1999. /s/ Giles H. Bateman ------------------------ GILES H. BATEMAN EX-99.2 21 CONSENT LETTER OF KPMG LLP [LETTERHEAD OF KPMG] EXHIBIT 99.2 January 19, 1999 Office of the Chief Accountant SECPS Letter Files Securities and Exchange Commission Mail Stop 9-5 450 Fifth Street, N.W. Washington, D.C. 20549 Ladies and Gentlemen: We were previously principal accountants for Cheap Tickets, Inc. and, under the date of March 13, 1998, we reported on the financial statements of Cheap Tickets, Inc. as of and for the years ended December 31, 1997 and 1996. Subsequent to March 13, 1998, the Board of Directors recommended that our appointment as principal accountants be terminated. We have read Cheap Tickets, Inc.'s statements included under "Change in Independent Auditors" in its S-1 Registration Statement to be filed on January 20, 1999, and we agree with such statements. Very truly yours, /s/ KPMG LLP c: Cheap Tickets, Inc. -----END PRIVACY-ENHANCED MESSAGE-----