Orbitz Inc SEC Form 10-Q Filed May 14, 2004 Last Updated February 2, 2020 at 11:38 PM ST

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Submission Parts

Sequence Document Type File Name Description
1 SEC Form 10-Q
2 SEC Form EX-10.2(A)
3 SEC Form EX-10.5(A)
4 SEC Form EX-10.11(A)
5 SEC Form EX-31.1
6 SEC Form EX-31.2
7 SEC Form EX-32.1
8 SEC Form EX-32.2

10-Q


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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

COMMISSION FILE NUMBER 000-50515

ORBITZ, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
52-2237052
(I.R.S. EMPLOYER
IDENTIFICATION NO.)

200 S. WACKER DRIVE, SUITE 1900
CHICAGO, ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

60606
(ZIP CODE)

(312) 894-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý-Yes    o-No

        Indicate by check mark whether the registrant is an accelerated filer o Yes    ý No

        As of May 7, 2004 the registrant had outstanding 13,105,402 shares of Class A common stock, $0.001 par value, and 27,269,809 shares of Class B common stock, $0.001 par value.





ORBITZ, INC.
INDEX

 
   
  Page Number
PART I. FINANCIAL INFORMATION    

Item 1.

 

Financial Statements

 

3

Condensed Consolidated Balance Sheets as of March 31, 2004 (Unaudited) and December 31, 2003

 

3

Consolidated and Combined Statements of Operations for the three months ended March 31, 2004 and 2003 (Unaudited)

 

4

Consolidated Statement of Equity for the three months ended March 31, 2004 (Unaudited)

 

5

Consolidated and Combined Statements of Cash Flows for the three months ended March 31, 2004 and 2003 (Unaudited)

 

6

Notes to Unaudited Condensed Consolidated and Combined Financial Statements

 

7

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

13

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

35

Item 4.

 

Controls and Procedures

 

35

PART II. OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

37

Item 2.

 

Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

37

Item 3.

 

Defaults Upon Senior Securities

 

38

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

38

Item 5.

 

Other Information

 

38

Item 6.

 

Exhibits and Reports on Form 8-K

 

38

SIGNATURES

 

39

Exhibit Index

 

40

2



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


ORBITZ, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 
  March 31,
2004

  December 31,
2003

 
  (Unaudited)

   
Assets            
Current assets:            
  Cash and cash equivalents   $ 147,000   $ 173,939
  Short-term investments, including restricted investments of $9,802 and $7,537 at March 31, 2004 and December 31, 2003, respectively     25,725     7,537
  Accounts receivable, net of allowance of $132 as of March 31, 2004 and $168 as of December 31, 2003     14,780     11,031
  Due from related parties     3,578     3,305
  Prepaid expenses     7,857     4,973
  Other current assets     1,434     1,394
   
 
  Total current assets     200,374     202,179
   
 
Property and equipment, net     15,702     17,146
   
 
Other long-term assets:            
  Long-term investments, including restricted investments of $965 and $1,265 as of March 31, 2004 and December 31, 2003, respectively     27,886     1,265
  Other assets, net     349     355
   
 
  Total other long-term assets     28,235     1,620
   
 
  Total assets   $ 244,311   $ 220,945
   
 

Liabilities and Shareholders' Equity

 

 

 

 

 

 
Current liabilities:            
  Accounts payable   $ 7,045   $ 5,206
  Accrued compensation     3,461     6,309
  Accrued supplier rebates     1,211     899
  Due to related parties     3,130     2,810
  Accrued expenses     31,342     24,932
  Deferred revenue     24,026     11,896
   
 
  Total current liabilities     70,215     52,052
   
 
Long-term liabilities     7,322     6,924
   
 
Redeemable Series A non-voting convertible preferred stock, $26.00 face value; 434,782 shares authorized, issued and outstanding at March 31, 2004 and December 31, 2003, stated at redemption price     11,396     11,323
   
 
Shareholders' Equity     155,378     150,646
   
 
  Total liabilities and shareholders' equity   $ 244,311   $ 220,945
   
 

See accompanying notes to condensed consolidated and combined financial statements.

3



ORBITZ, INC. AND SUBSIDIARIES

Consolidated and Combined Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 
  Three Months Ended
March 31,

 
 
  2004
  2003
 
Revenues, net:              
  Air revenues, net   $ 43,116   $ 35,392  
  Other travel revenues     17,699     7,359  
  Other revenues     9,442     6,717  
   
 
 
  Total revenues, net     70,257     49,468  
Cost of revenues     20,017     17,765  
   
 
 
  Gross profit     50,240     31,703  
   
 
 
Operating expenses:              
  Sales and marketing     32,492     22,574  
  Technology and development     7,945     6,371  
  General and administrative     6,722     4,837  
  Stock-based compensation*     1,755     499  
   
 
 
  Total operating expenses     48,914     34,281  
   
 
 
Operating income (loss)     1,326     (2,578 )
Interest income     534     192  
   
 
 
Income (loss) before provision for income taxes     1,860     (2,386 )
Provision for income taxes          
   
 
 
Net income (loss)     1,860     (2,386 )
Less: dividends and accretion on redeemable Series A non-voting convertible preferred stock     (141 )    
   
 
 
Net income available to common shareholders   $ 1,719   $ (2,386 )
   
 
 
Earnings per common share:              
  Basic   $ 0.04        
   
       
  Diluted   $ 0.04        
   
       
Weighted average shares used to calculate earnings per common share:              
  Basic     39,990        
   
       
  Diluted     42,754        
   
       
*Stock-based compensation:              
  Sales and marketing   $ 40   $ 291  
  Technology and development     39      
  General and administrative     1,676     208  
   
 
 
  Total stock-based compensation   $ 1,755   $ 499  
   
 
 

See accompanying notes to condensed consolidated and combined financial statements.

4



ORBITZ, INC. AND SUBSIDIARIES

Consolidated Statement of Equity

(In thousands, except share amounts)

 
  Common Stock
   
   
   
   
   
 
 
  Class A
  Class B
   
   
  Accumulated
Other
Comprehensive
Income

   
   
 
 
  Additional
Paid-in
Capital

  Unearned
Compensation

  Accumulated
Deficit

   
 
 
  Shares
  Amount
  Shares
  Amount
  Total Equity
 
Balance—December 31, 2003   12,813,212   $ 13   27,269,809   $ 27   $ 179,001   $ (2,382 ) $   $ (26,013 ) $ 150,646  
Stock-based compensation expense                 1,585     170             1,755  
Exercise of stock options   292,190               2,033                 2,033  
Dividends on preferred stock                 (85 )               (85 )
Accretion on preferred stock                 (56 )               (56 )
Costs related to the December 2003 initial public offering                 (811 )               (811 )
Comprehensive income:                                                    
  Net income                             1,860      
  Unrealized gain on available for sale securities                         36          
Total comprehensive income                                 1,896  
   
 
 
 
 
 
 
 
 
 
Balance—
March 31, 2004 (unaudited)
  13,105,402   $ 13   27,269,809   $ 27   $ 181,667   $ (2,212 ) $ 36   $ (24,153 ) $ 155,378  
   
 
 
 
 
 
 
 
 
 

See accompanying notes to condensed consolidated and combined financial statements.

5



ORBITZ, INC. AND SUBSIDIARIES

Consolidated and Combined Statements of Cash Flows

(In thousands)

(Unaudited)

 
  Three Months Ended
March 31,

 
 
  2004
  2003
 
Cash flows from operating activities:              
  Net income (loss)   $ 1,860   $ (2,386 )
  Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by operating activities:              
  Depreciation and amortization     3,550     2,921  
  Stock-based compensation     1,755     499  
  Changes in operating assets and liabilities:              
  Accounts receivable, net of allowance     (3,749 )   (274 )
  Prepaid expenses and other current assets     (2,924 )   (1,049 )
  Accounts payable     1,839     667  
  Due to/from related parties     47     (5,920 )
  Accrued liabilities     3,874     2,046  
  Deferred revenue     12,130     3,587  
  Other liabilities, net     398     516  
   
 
 
  Net cash and cash equivalents provided by operating activities     18,780     607  
   
 
 
Cash flows from investing activities:              
  Purchases of property and equipment     (2,100 )   (3,082 )
  Purchases of investments     (45,482 )   (462 )
  Redemptions of investments     709     1,171  
   
 
 
  Net cash and cash equivalents used in investing activities     (46,873 )   (2,373 )
   
 
 
Cash flows from financing activities:              
  Proceeds from exercise of stock options     2,033     126  
  Costs related to the December 2003 initial public offering     (811 )    
  Dividends paid on preferred stock     (68 )    
   
 
 
  Net cash and cash equivalents provided by financing activities     1,154     126  
   
 
 
  Net change in cash and cash equivalents     (26,939 )   (1,640 )
Cash and cash equivalents, beginning of period     173,939     56,028  
   
 
 
Cash and cash equivalents, end of period   $ 147,000   $ 54,388  
   
 
 

See accompanying notes to condensed consolidated and combined financial statements.

6


ORBITZ, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated and Combined Financial Statements
(unaudited)

(1)   Description of Business and Organization

        Orbitz, Inc. and Subsidiaries (collectively referred to as Orbitz, the Company, we, us and our) is an online travel company that enables customers to search for and purchase a broad array of travel products, including airline tickets, lodging, car rentals, cruises and vacation packages through its website, orbitz.com. We sell these travel products both individually and as part of packaged trips to leisure and corporate customers located primarily in the United States. We also offer access to travel news and other information of interest to travelers on our website.

        We generate the majority of our revenues from payments from the travel suppliers whose services we sell, from the distribution and reservation services we utilize and from customers who purchase travel on our website. We also generate revenues from other sources, such as from companies that advertise and sell travel-related products on our website. Additionally, we license components of our technology to selected airlines as a platform for their websites and provide ongoing website hosting services to these airlines.

        Orbitz, LLC was formed on February 24, 2000 as a Delaware limited liability company. The original investors and founders of Orbitz, LLC were Continental Airlines, Delta Air Lines, Northwest Airlines, and United Air Lines. American Airlines joined as an investor of Orbitz, LLC on May 9, 2000. Collectively, these five investors are referred to as the "Founding Airlines."

        Orbitz, Inc. was incorporated in the state of Delaware on May 4, 2000 and was initially owned by the Founding Airlines. Orbitz, Inc. joined the Founding Airlines as a member of Orbitz, LLC.

        On December 18, 2003, we formed a wholly owned subsidiary, O Holdings Inc., a Delaware corporation, and contributed 3,700,000 Class C Units in Orbitz, LLC to O Holdings Inc. In addition, on December 19, 2003, immediately prior to the closing of our initial public offering ("IPO") pursuant to an agreement among us and each of the holders of Class B common stock, our Founding Airlines or their affiliates contributed all their membership interests in Orbitz, LLC to us in exchange for an aggregate of 8,180,000 shares of Class A common stock, an aggregate of 27,262,980 shares of Class B common stock and an aggregate of 434,782 shares of redeemable Series A non-voting convertible preferred stock. As a result of the foregoing transactions, Orbitz, LLC is 99% owned by us and 1% owned by our wholly owned subsidiary, O Holdings Inc. We act as the sole manager of Orbitz, LLC. This transaction is referred to as the "IPO Exchange." Additionally, concurrent with the IPO Exchange, all shares of Class C common stock were converted to shares of Class A common stock.

        On December 19, 2003, we consummated an IPO of our Class A common stock. We sold 4,000,000 shares of Class A common stock at an offering price of $26.00 per share and received net proceeds of $93.8 million. The Founding Airlines sold an aggregate of 8,180,000 shares in the IPO; however, we did not receive any proceeds from the sale of these shares.

(2)   General

    (a) Basis of Presentation

        Our interim condensed consolidated and combined financial statements are unaudited and should be read in conjunction with the audited consolidated and combined financial statements for the year ended December 31, 2003 contained in our Annual Report on Form 10-K ("Annual Report"). In our opinion, all adjustments necessary for a fair presentation of such condensed consolidated and combined financial statements, consisting only of normal recurring items, have been included. Interim results are

7


not necessarily indicative of results for a full year. The interim condensed consolidated and combined financial statements and related notes are presented as permitted by the Securities and Exchange Commission and do not contain certain information included in our audited consolidated and combined financial statements.

        The accompanying financial statements present the condensed consolidated financial position, results of operations and cash flows of Orbitz, Inc. and Subsidiaries and the combined financial results of Orbitz, Inc. and Orbitz, LLC as further discussed below. All intercompany transactions have been eliminated in all periods presented.

        Before the IPO Exchange, the financial statements presented the combined financial position, results of operations and cash flows of Orbitz, Inc. and Orbitz, LLC. Subsequent to the IPO Exchange, the financial statements present the consolidated financial position, results of operations, and cash flows of Orbitz, Inc., O Holdings, Inc., and Orbitz, LLC.

    (b) Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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 from those estimates. On an ongoing basis, management reviews its estimates, including those related to allowances for doubtful accounts, asset lives and reserves for credit card fraud losses, debit memos, net deferred tax assets and litigation based on currently available information. Changes in facts and circumstances may result in revised estimates and such revisions could be material.

    (c) Significant Accounting Policies

        See Note 2 to the Consolidated and Combined Financial Statements in our Annual Report for a summary of all significant accounting policies. Other than our policy for accounting for investments discussed below, there have been no new policies or changes in our significant accounting policies during the three months ended March 31, 2004.

    Investments

        We classify marketable debt securities included in short-term and long-term investments as available-for-sale. The securities consist of investment grade, interest bearing corporate and government securities and are stated at fair value, with net unrealized gains or losses on the securities recorded as accumulated other comprehensive income (loss) in shareholders' equity. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of the securities. There were no realized gains or losses in the quarter ended March 31, 2004. We did not hold marketable securities during 2003.

    (d) Stock-Based Compensation

        We have two stock-based compensation plans, which are more fully described in Note 10 to the Consolidated and Combined Financial Statements in our Annual Report. We account for these plans in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Under APB No. 25, compensation expense is based on the difference, if any, on the measurement date, between the estimated fair value of the Company's stock and the exercise price of options to purchase that stock. Stock-based compensation expense is recognized on a straight-line basis over the vesting period of the equity award.

8


        A new measurement date for stock awards occurred as a result of the restructuring transaction discussed in Note 10 to the Consolidated and Combined Financial Statements in our Annual Report. Total compensation expense related to this new measurement date is approximately $33,502,000. We began to record this compensation expense for all vested awards on consummation of the IPO Exchange. We recognized $26,474,000 of this charge in the year ended December 31, 2003 and $1,453,000 in the three months ended March 31, 2004. We will recognize compensation on unvested stock awards of $5,575,000 on a go-forward basis over the remaining vesting periods. Stock-based compensation on unvested awards may be reduced by forfeitures of stock awards.

        Additionally, we recorded $133,000 of stock-based compensation expense in the three months ended March 31, 2004 related to issuances of stock options with an exercise price below fair market value on the measurement date and $169,000 and $499,000 related to issuances of restricted stock to certain executives for the three months ended March 31, 2004 and 2003, respectively.

        The following table illustrates the effect on net income (loss) if we had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock awards granted to employees (in thousands):

 
  Three Months Ended
March 31,

 
 
  2004
  2003
 
Net income (loss) as reported   $ 1,860   $ (2,386 )
Add stock-based compensation expense included in reported net income (loss)     1,755     499  
Less stock-based compensation determined under the provisions of SFAS No. 123     (2,441 )   (1,106 )
   
 
 
Pro forma net income (loss)     1,174   $ (2,993 )
         
 
Less dividends and accretion on redeemable Series A non-voting convertible preferred stock     (141 )      
   
       
Pro forma net income available to common shareholders   $ 1,033        
   
       
Basic earnings (loss) per share:              
  As reported   $ 0.04        
   
       
  Pro forma   $ 0.03        
   
       
Diluted earnings (loss) per share:              
  As reported   $ 0.04        
   
       
  Pro forma   $ 0.02        
   
       

        The fair value of options granted was estimated as of the grant date, using the Black-Sholes method. The following assumptions were used to calculate the weighted average fair values for grants in the quarter ended March 31:

 
  2004
  2003
 
Dividend yield     %   %
Volatility     51.5 %   %
Expected life     5 years     5 years  
Risk-free interest rate     2.6 %   2.6 %
Weighted average fair value   $ 11.39   $ 1.58  

9


    (e) Recent Accounting Pronouncements

        FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued in May 2003. This Statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For the Company, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Company currently does not have any financial instruments that are within the scope of this Statement.

        Emerging Issues Task Force Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement 128," (EITF No. 03-6) clarifies what is meant by a "participating security" under SFAS 128, provides guidance on applying the two-class method for computing earnings per share and requires affected companies to retroactively restate earnings per share amounts presented. Companies that issue securities that are entitled to participate in dividends with common stocks will report lower earnings per share under EITF No. 03-6, which is effective for reporting periods beginning after March 31, 2004. We do not expect the adoption of EITF No. 03-6 to have a material impact on our earnings per share.

(3)   Commitments and Contingencies

        In November 2001, we entered into a 10-year computer reservation system and related services agreement with Worldspan that expires in October 2011. This agreement, as amended, requires that we guarantee certain levels of minimum net air and car segments to be booked each calendar quarter through Worldspan's computer reservation system. The agreement provides that these minimum levels will be waived if we cure any shortfall within the quarter or if we elect to book 100% of net air and car segments through Worldspan for that quarter. In the event that we fall short of the minimum net segments without curing the shortfall, we would be required to pay $1.78 for each segment below the specified minimum. To date, no such shortfall has occurred.

        On January 10, 2004, NCR Corporation ("NCR") filed a complaint in the United States District Court for the Western District of Pennsylvania, alleging that our commercial Internet operations infringe 13 patents, including business method patents, allegedly owned by NCR. We have filed both an answer and counterclaims against NCR. While we believe that this lawsuit is without merit, we are exploring settlement possibilities with NCR. If we are not able to resolve this matter by agreement with NCR, we will vigorously defend this action. As of March 31, 2004, we have recorded a reserve for our potential loss related to this matter within accrued expenses on the accompanying condensed consolidated balance sheet. We do not expect the ultimate outcome of this matter to have a material adverse effect on our financial position or results of operations.

        In addition to the matters discussed above, we have certain contingencies resulting from litigation, government regulation and claims, some of which are incidental to the ordinary course of business. Management believes, after considering a number of factors, including (but not limited to) the views of legal counsel and the nature of the contingencies to which the Company is subject, that the ultimate disposition of these contingencies either cannot be determined at the present time or will not materially affect our results of operations or financial position.

(4)   Related Party Transactions

        We derive revenue from our Founding Airlines from ticket distribution and customer support services. Additionally, we provide Booking Engine Services and other services to certain of our

10



Founding Airlines. For the three months ended March 31, 2004 and 2003, the Company received total revenues from its Founding Airlines of approximately $13,648,000 and $12,748,000, respectively. Receivables outstanding from the Founding Airlines were approximately $3,460,000 and $3,232,000 at March 31, 2004 and December 31, 2003, respectively.

        As discussed in Note 3, we have an agreement with Worldspan, which was previously owned by Delta Air Lines, Northwest Airlines, and American Airlines, or their respective affiliates. On July 1, 2003, these airlines sold their interest in Worldspan and therefore, it ceased to be a related party. Worldspan pays us incentives for air and car bookings made on our website through the Worldspan reservation system. We recognized revenues from Worldspan for the three months ended March 31, 2003 in the amount of $8,342,000. Worldspan was not a related party in 2004.

        The Founding Airlines provide Orbitz with access to the fares and rates generally available to the public and also provide certain in-kind marketing support to the Company. In return, we rebate to the Founding Airlines a portion of the booking incentives received from the reservation system provider. Such rebates amounted to $3,130,000 and $2,799,000 for the three months ended March 31, 2004 and 2003, respectively, and are included as a component of cost of revenue in the accompanying consolidated and combined statements of operations. The related payables outstanding to the Founding Airlines totaled approximately $3,130,000 and $2,810,000 at March 31, 2004 and December 31, 2003, respectively.

        On August 1, 2001, we entered into an alliance agreement with Hotwire, which was previously owned by our Founding Airlines or their respective affiliates, among others, to offer reciprocal co-marketing links between our website and Hotwire's website. On November 5, 2003, the Founding Airlines sold their interests in Hotwire and therefore, Hotwire ceased to be a related party. For the three months ended March 31, 2003, we recognized other revenues of $1,536,000 from Hotwire, primarily for advertising on our website. Additionally, we recorded sales and marketing expense related to our alliance agreement with Hotwire of $168,000 for the three months ended March 31, 2003. Hotwire was not a related party in 2004.

        We have an outstanding loan to the Chairman, President and Chief Executive Officer of the Company, evidenced by a promissory note and stock pledge agreement executed in 2001. The loan is secured by a pledge of 83,333 shares of common stock of Orbitz. The note accrues interest at a rate equal to the applicable Federal Rate, and is adjusted and compounded semi-annually. As of March 31, 2004 and December 31, 2003, the amount outstanding, including accrued interest, was $269,000, and is included in other long-term assets on the accompanying condensed consolidated balance sheets.

(5)   Earnings Per Share and Pro Forma Net Loss Per Share

        Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur based on the effect of unvested restricted Class A common stock and the exercise of stock options with an exercise price of less than the average market price of our common stock.

        Before the December 2003 IPO Exchange, ownership in the enterprise was reflected primarily through membership in Orbitz, LLC, with only a small number of outstanding shares in Orbitz, Inc. The financial statements of Orbitz, Inc. and Orbitz, LLC were presented on a combined basis; accordingly, there was no single capital structure upon which to calculate historical earnings per share information. In addition, management has determined that presentation of actual earnings per share of Orbitz, Inc. for 2003 and prior periods is not meaningful and therefore, has elected to present only pro forma net loss per share for those periods.

11



        Pro forma net loss per share is calculated based on the weighted average number of shares outstanding assuming that all units held by members in Orbitz, LLC had been converted to shares in Orbitz, Inc. as of the date such units were issued and the automatic conversion of Class C common stock to Class A common stock that occurred immediately prior to the IPO. Pro forma net loss to common shareholders reflects charges for dividends and accretion on the preferred stock as if it had been outstanding at the beginning of each period presented.

        Actual earnings per share and pro forma net loss per share is calculated as follows for the three months ended March 31 (in thousands, except per share amounts):

 
  Actual
2004

  Pro forma
2003

 
Net income (loss)   $ 1,860   $ (2,386 )
Dividends and accretion on preferred stock     (141 )      
   
       
Net income available to common shareholders   $ 1,719        
   
       
Pro forma dividends and accretion on preferred stock           (141 )
         
 
Pro forma net loss attributable to common shareholders         $ (2,527 )
         
 
Earnings per common share:              
  Basic   $ 0.04        
   
       
  Diluted   $ 0.04        
   
       
Weighted average number of shares outstanding:              
  Basic     39,990        
   
       
  Diluted     42,754        
   
       
Pro forma net loss per common share—basic and diluted         $ (0.07 )
         
 
Pro forma weighted average number of shares outstanding—basic and diluted           35,639  
         
 
Anti-dilutive securities not included in the calculations above              
  Options     72     1,522  
  Convertible preferred stock     435     435  
   
 
 
  Total     507     1,957  
   
 
 

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and in our Annual Report filed with the Securities and Exchange Commission. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors.

Overview

    Description of Business

        We are an online travel company headquartered in Chicago, Illinois that enables our customers to search for and purchase a broad array of travel products, including airline tickets, lodging, car rentals, cruises and vacation packages. At present, we derive substantially all of our revenues from the following sources:

    Supplier transaction fees: We receive transaction fees based upon contractual arrangements with our charter associates and other suppliers. We also receive commissions from our non-charter suppliers who currently pay commissions to online travel agents.

    Consumer service fees: Consumers pay a service fee per ticket on air transactions and other additional fees in certain cases.

    Reservation system booking incentives: We receive booking incentives under our contracts with Worldspan for air and car rental ticket reservations, and Pegasus Solutions for lodging reservations made on their systems. We are contractually obligated to share with some of our air and car suppliers a percentage of the booking incentives we receive that pertain to travel products booked with that supplier.

    Supplier Link: Under our Supplier Link program, we establish direct links with an airline's internal reservation system, allowing us to book airline tickets without using a GDS. We receive a Supplier Link transaction fee from the airlines that utilize this service for each ticket booked through our Supplier Link services, net of refunded or exchanged tickets. Total fees received from a Supplier Link transaction are lower than total inducements received from a GDS transaction, resulting in lower revenues per transaction. However, we must pay part of the inducement received from a GDS transaction to the charter associates, and as a result, the gross profit from a Supplier Link transaction is higher than that from a GDS transaction.

    Orbitz Merchant Hotel: We introduced the Orbitz Merchant Hotel program in March 2003. Through this program, we receive revenues from hotel transactions where we serve as merchant of record and determine the price of the room.

    Other revenues: Other revenues are derived primarily from advertising, Booking Engine Services, sponsoring links on our website and commissions from sales of travel-related products on our site.

Critical Accounting Policies and Estimates

        In presenting our condensed consolidated and combined financial statements in conformity with generally accepted accounting principles in the United States of America, we are required to make judgments, estimates and assumptions that affect the amounts reported therein. Certain of the estimates and assumptions we are required to make relate to matters that are inherently uncertain, as they pertain to future events. While we believe the estimates and assumptions used were appropriate, actual results could differ significantly from those estimates under different assumptions and conditions.

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Note 2 to the Consolidated and Combined Financial Statements in our Annual Report and Note 2 to the Condensed Consolidated and Combined Financial Statements contained herein describe the significant accounting policies and methods used in the preparation of the consolidated and combined financial statements.

        The critical accounting policies that require particularly subjective and complex judgments that could have a material effect on our reported financial condition or results of operations are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report. There have not been any material changes to our critical accounting policies.

Results of Operations

First quarter ended March 31, 2004 compared to first quarter ended March 31, 2003

Overview

        Significant events of the quarter ended March 31, 2004 include:

    Gross bookings for the quarter were $1.1 billion, representing a 38% increase over the same period in the prior year. We achieved increases in gross bookings across all our major product offerings. This is the first quarter in which our gross bookings have exceeded $1 billion.

    We launched the Orbitz Merchant Hotel product in March 2003, which represented 49% and less than 1% of all hotel revenues for the quarters ended March 31, 2004 and 2003, respectively.

    We implemented our own dynamic packaging technical and operating infrastructure in February 2004. Dynamic packaging enables consumers to shop for combinations of travel products bundled together under one price. We believe that dynamic packaging has the potential to significantly increase bookings in higher-margin products.

    We introduced our attractions and services program in February 2004 to facilitate cross-selling and revenue growth. Under this program, consumers can purchase theme park passes, museum and sight-seeing tours, airport transportation and more.

    The annual resetting of volume thresholds under our Worldspan contract occurred on January 1, resulting in lower booking incentive fee revenues than in later quarters in the year.

Revenues, Net

 
  Three Months Ended
March 31,

   
   
 
 
  2004
  2003
  $ Change
  % Change
 
 
  (in thousands)

 
Air revenues, net   $ 43,116   $ 35,392   $ 7,724   22 %
Other travel revenues     17,699     7,359     10,340   141 %
Other revenues     9,442     6,717     2,725   41 %
   
 
 
     
Total revenues, net   $ 70,257   $ 49,468   $ 20,789   42 %
   
 
 
     

        The increase in air revenues was primarily driven by a $5.8 million increase in consumer service fee revenues resulting from an increase in both business and leisure air transactions and a $1.00 increase to our per ticket service fee implemented in late June 2003. Supplier transaction fee revenues increased by $1.0 million due to higher air transactions, offset by an 11% decrease in the average supplier transaction fee per ticket. We benefited from an industry-wide rebound in consumer bookings, as well as the continued migration to online booking of air travel.

        Also contributing to the increase in air revenues were Supplier Link revenues, which rose by $1.6 million, offsetting the $0.7 million decrease in reservation system booking incentives, which reflects

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the trend of shifting more air transactions to our Supplier Link program. Supplier Link represented 40% of air transactions in the quarter ended March 31, 2004 compared to 27% in the quarter ended March 31, 2003. We expect our Supplier Link mix to stay fairly constant until our next implementation of a major carrier, which is expected to occur later in the year. We receive a higher margin on Supplier Link transactions because we do not pay GDS rebates to our airline charter associates on these transactions, but we recognize lower revenues because we do not receive GDS inducement payments.

        The increase in other travel revenues of 141% is due primarily to an $8.0 million increase in hotel revenues, mostly related to our Orbitz Merchant Hotel ("OMH") program launched in March 2003. OMH revenues represented 49% of all hotel revenues in the quarter ended March 31, 2004, compared to less than 1% in the quarter ended March 31, 2003, and, on average, rooms sold under this program generate more than three times the amount of revenue per transaction compared to rooms sold through other channels. Growth in hotel revenue outpaced growth in hotel transactions by nearly three times due to the more favorable economics of OMH bookings. Although we recently resolved our dispute with Travelweb, we expect that it will have an impact on our results for the second quarter of 2004, as our implementation of a number Orbitz merchant hotel properties did not begin until early May 2004, and will not generate additional revenues until any incremental hotel stays have been completed by the Orbitz customer. Additionally, favorable economic conditions have begun to cause hotel occupancy rates to increase generally, and we are beginning to see lower availability of merchant hotel rooms during peak demand periods, which could also impact future results.

        Other travel revenues also benefited from a $1.2 million increase in rental car revenues and a $1.1 million increase in vacation package revenues, driven by increases in bookings volume. In mid-February, 2004, we launched our attractions and services product, under which consumers can purchase theme park passes, museum and sight-seeing tours, airport transportation and similar products. Revenues from this product line were not significant in the three months ended March 31, 2004.

        Other revenues increased primarily as a result of a $1.5 million increase in advertising revenue. Additionally, we experienced increases of $0.5 million from commissions for sales driven by sponsoring links on our website and $0.3 million from our credit card loyalty program.

Cost of Revenues

 
  Three Months Ended
March 31,

   
   
 
 
  2004
  2003
  $ Change
  % Change
 
 
  (in thousands)

 
Cost of revenues   $ 20,017   $ 17,765   $ 2,252   13 %
% of revenues, net     28 %   36 %          
Gross profit     50,240     31,703     18,537   58 %
% of revenues, net     72 %   64 %          

        Gross profit rose 58% to $50.2 million for the first quarter of 2004, versus $31.7 million in the same period of 2003. The gross margin was 72% in the first quarter of 2004, compared with 64% in the first quarter of 2003, primarily because we shifted our mix into higher margin non-air products and incurred lower per transaction fraud, customer service and fulfillment costs. Cost of revenues increased 13% in absolute dollars to $20.0 million for the first quarter of 2004 from $17.8 million for the same period of 2003, primarily attributable to a $0.9 million increase in credit card processing fees resulting from higher transaction volumes in the Orbitz Merchant Hotel program and a $0.6 million increase in costs associated with our credit card loyalty program. We record a liability for the maximum value of all points earned under the credit card loyalty program; the actual value of points redeemed under the program could be less than the amount recorded.

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Sales and Marketing

 
  Three Months Ended
March 31,

   
   
 
 
  2004
  2003
  $ Change
  % Change
 
 
  (in thousands)

 
Sales and marketing   $ 32,492   $ 22,574   $ 9,918   44 %
% of revenues, net     46 %   46 %          

        Sales and marketing expense increased primarily due to a $7.3 million increase in online advertising expenditures intended to direct traffic to our website and increased marketing expenditures related to promoting Orbitz for Business. We expect to see greater marketing leverage as a percentage of revenues for the balance of the year as we continue to drive productivity in online marketing and see growth in our OMH and dynamic packaging business. We also experienced a $1.6 million increase in salaries and benefits related to additional personnel.

Technology and Development

 
  Three Months Ended
March 31,

   
   
 
 
  2004
  2003
  $ Change
  % Change
 
 
  (in thousands)

 
Technology and development   $ 7,945   $ 6,371   $ 1,574   25 %
% of revenues, net     11 %   13 %          

        Technology and development costs increased in absolute dollars in the first quarter of 2004 as compared to the first quarter of 2003, due mostly to a $1.0 million increase in salaries and benefits related to additional personnel and a $0.4 million increase in professional service fees.

General and Administrative

 
  Three Months Ended
March 31,

   
   
 
 
  2004
  2003
  $ Change
  % Change
 
 
  (in thousands)

 
General and administrative   $ 6,722   $ 4,837   $ 1,885   39 %
% of revenues, net     10 %   10 %          

        The increase in general and administrative costs is due primarily to a $1.1 million rise in legal fees due to litigation activity related to Travelweb and other matters, and an increase of $0.7 million for increased insurance expenses.

Stock-Based Compensation

 
  Three Months Ended
March 31,

   
   
 
 
  2004
  2003
  $ Change
  % Change
 
 
  (in thousands)

 
Stock-based compensation   $ 1,755   $ 499   $ 1,256   252 %
% of revenues, net     2 %   1 %          

        In connection with the April 2002 Restructuring described in our Annual Report, all options to purchase Class C nonvoting common stock were automatically converted to options to purchase Class A common stock. This conversion was deemed to be a new grant for all options outstanding at

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the restructuring date, resulting in non-cash stock compensation expense totaling $33.5 million. We recorded $26.5 million of this expense following the IPO Exchange for all of the affected options that were vested at the IPO Exchange date. The remaining expense of $7.0 million is being recorded as the options vest over 2004, 2005 and 2006. This charge accounted for $1.4 million of the total stock-based compensation expense for the quarter ended March 31, 2004 and none of the stock-based compensation expense for the quarter ended March 31, 2003.

Provision for Income Taxes

        Prior to the IPO Exchange, no provision for Federal or state income taxes was recorded, as the primary operations of the Company resided in Orbitz, LLC, which was treated as a partnership for tax purposes. All operating losses of the partnership were allocated to the Founding Airlines, pursuant to the limited liability company agreement. Following the IPO Exchange, all operating income or loss is allocated to Orbitz, Inc., which is taxed as a C Corporation. We did not record a provision for income taxes for the three months ended March 31, 2004, as the Company has net operating loss carryforwards sufficient to offset taxable income and has a full valuation allowance related to its net deferred tax assets.

Financial Condition, Liquidity and Capital Resources

        Historically, the majority of our financing was provided through contributions from our Founding Airlines and their affiliates and through lease arrangements on our equipment. Our Founding Airlines and their affiliates invested an aggregate of $214.8 million in us through August 31, 2002.

        In December 2003, we raised net proceeds of $93.8 million in an IPO. The Founding Airlines sold an aggregate of 8,180,000 shares of Class A common stock in the IPO, and now own 68% of our outstanding stock and control 95% of the voting power of our common stock.

        The Founding Airlines and their affiliates have no obligations to make further investments in us, and we do not anticipate that they will do so. Depending on the nature of the financing, our ability to raise capital from other sources may require the consent of two-thirds of our board of directors and the consent of the holders of three-fourths of the voting power of the Class B common stock then outstanding entitled to supervoting rights.

        During the next 12 months, we intend to continue our marketing campaigns focused on the retention of existing customers and the acquisition of new customers. In addition, we plan to continue to invest in expanding our product offerings, improving our website and improving the infrastructure supporting customer service and customer care. We believe that our available cash and anticipated future cash flows will be sufficient to fund currently anticipated liquidity needs for the next 12 months and beyond. However, any projections of future cash inflows and outflows and any projections of the future state of the economy and travel industry conditions, which may have a direct effect on our cash inflows, are subject to substantial uncertainty. If we determine that we need to raise additional capital in the future, we may seek to sell additional equity or borrow funds. The sale of additional equity would result in dilution to our shareholders. We cannot assure you that any of these financing alternatives will be available in amounts or on terms acceptable to us, if at all. If we are unable to raise or borrow any needed additional capital, we could be required to significantly alter our operating plan, which could have a material adverse effect on our business, financial condition or results of operations.

Cash and Cash Equivalents and Total Investments

        Cash and cash equivalents and total investments were $200.6 million at March 31, 2004, an increase of $17.9 million from $182.7 million at December 31, 2003. This increase was primarily due to cash flows generated from operations.

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Deferred Revenue

        Deferred revenue was $24.0 million at March 31, 2004 compared to $11.9 million at December 31, 2003. The increase of $12.1 million was mainly due to an $8.4 million increase in deferred revenue related to our OMH program and $2.4 million in deferred revenue related to the annual volume resetting of our Worldspan contract.

Cash flows

        We generated cash flows from operations of $18.8 million and $0.6 million for the quarters ended March 31, 2004 and 2003, respectively. This was our sixth consecutive quarter of positive cash flows from operations. The growth in cash flows generated from operations when comparing the quarter ended March 31, 2004 to the quarter ended March 31, 2003 is primarily due to cash received on prepaid hotel reservations in advance of our payments to the hotels and to our improved profitability.

        Net cash used in investing activities was $46.9 million and $2.4 million for the quarters ended March 31, 2004 and 2003, respectively. Our investing activities consist primarily of the purchase of available-for-sale securities, which we began following our IPO. We invest mostly in investment grade, interest bearing corporate and government securities.

        Cash flows from financing activities amounted to $1.2 million and $126,000 for the quarters ended March 31, 2004 and 2003, respectively. These amounts primarily related to proceeds from the exercises of stock options.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements, other than the operating leases discussed in our Annual Report.

Summary Disclosures about Contractual Obligations and Commercial Commitments

        There have been no material changes that are outside the ordinary course of our business to the contractual obligations and commercial commitments that we reported in our Annual Report.

        We do not currently have a borrowing facility in place. All outstanding letters of credit are secured by restricted investments. We have no available letters of credit.

        In November 2001, we entered into a 10-year computer reservation system and related services agreement with Worldspan that expires in October 2011. As amended, this agreement requires that we guarantee certain levels of minimum net air and car segments to be booked each calendar quarter through Worldspan's computer reservation system. The agreement provides that these minimum levels will be waived if we cure any shortfall within the quarter or elect to book 100% of net air and car segments through Worldspan for that quarter. In the event that we fall short of the minimum net segments without curing the shortfall, we would be required to pay $1.78 for each segment below the specified minimum.

        As a component of an employment agreement with Jeffrey G. Katz, our Chairman, President and Chief Executive Officer, we are obligated to make a one-time cash payment to him, at his option, in an amount calculated by multiplying 83,333 by the difference between $30.00 and the average closing price of our common stock (if less than $30.00) for the preceding 20 days on any of the following dates: (1) the first four anniversaries of July 6, 2003, (2) 30 days after the completion of our IPO, or (3) Mr. Katz's resignation or termination by us for any reason. Although he was eligible to receive the cash payment on January 16, 2004, 30 days after the completion of our IPO, Mr. Katz did not elect to exercise the right at such time.

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        At any time from and after December 19, 2008, the holders of the redeemable Series A non-voting convertible preferred stock have the right to require the Company to redeem the shares for cash at the Redemption Price, which is equal to the face value plus an annual accretion factor of 2.0% and any accrued but unpaid dividends. In lieu of paying the redemption price in cash, the Company may elect, in its sole option, to exchange such shares of Series A preferred stock for shares of Class A common stock having a fair market value equal to the Redemption Price. At any time from and after June 19, 2009, the Company has the right to redeem all of the Series A preferred shares for cash at the Redemption Price. Additionally, the holders of Series A preferred stock have the right to convert their shares for shares of class A common stock on a one-for-one basis at any time from and after December 19, 2008. As of March 31, 2004, the Redemption Price was $11,396,000.

Risks Related To Our Business

        Set forth below and elsewhere in this report and in other documents we file with the Securities and Exchange Commission are certain risks and uncertainties that we believe could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report.

        Because we have a limited operating history, it is difficult to evaluate our business and prospects.

        Our business began operations in February 2000 and we launched our online travel service in June 2001. As a result, we have only a limited operating history from which you can evaluate our business and our prospects. We will encounter risks and difficulties frequently experienced by early-stage companies in rapidly evolving industries, such as the online travel industry. Some of these risks relate to our ability to:

    attract and retain customers on a cost-effective basis;

    expand and enhance our service offerings;

    operate, support, expand and develop our operations, our website, our software and communications and other systems;

    diversify our sources of revenue;

    manage our relationships with important travel suppliers and other partners;

    maintain adequate control of our expenses;

    raise additional capital, if required;

    respond to technological changes;

    respond to litigation;

    respond to regulatory changes or demands; and

    respond to competitive market conditions.

        If we are unsuccessful in addressing these risks or in executing our business strategy, our business, financial condition or results of operations may suffer.

        We have a history of operating losses and may incur losses in the future.

        Since our inception in February 2000, we have reported operating losses each year. Our operating losses were $42.9 million from the period of inception through December 31, 2000, and $105.5 million, $18.9 million and $16.9 million for the years ended December 31, 2001, 2002, and 2003, respectively. Although we reported operating income of $1.3 million for the quarter ended March 31, 2004, we may continue to incur additional operating losses in the future, and cannot assure you that we will be

19



profitable in future periods. Historically, most of our financing came through contributions from our Founding Airlines and their affiliates. The Founding Airlines and their affiliates have no obligation to make further investments in us, and we do not anticipate that they will do so.

        Under our business plan, we will continue to incur significant sales and marketing expenses to expand our customer base. Accordingly, we will need to increase our revenues at a rate greater than our expenses to maintain profitability. We cannot predict whether we will maintain profitability in future periods. If our business does not expand enough to increase our revenues sufficiently, or even if our business does expand but we are unable to manage our expenses, we may not sustain profitability in future periods.

        Our growth cannot be assured. Even if we do experience growth, we cannot assure you that we will grow profitably.

        Our business strategy is dependent on the growth of our business. For us to achieve significant growth, consumers and travel suppliers must accept our website as a valuable commercial tool. Consumers who have historically purchased travel products through traditional commercial channels, such as using local travel agents and booking with suppliers directly, must instead purchase these products on our website. Similarly, travel suppliers will also need to accept or expand their use of our website and to view our website as an efficient and profitable channel of distribution for their travel products.

        Our growth will depend on our ability to broaden the range of travel products we offer. For the year ended December 31, 2003 and the quarter ended March 31, 2004, we derived 66% and 61%, respectively, of our revenues from airline ticket sales. Our business strategy is dependent on expanding our revenues from lodging, car rentals, cruises, vacation packages, corporate travel and other travel related products. Key components of this strategy include the growth of our hotel business, particularly our Orbitz Merchant Hotel program, and the dynamic packaging product that we have developed. See "—Our business plans call for the significant growth of our hotel business, and we may be unsuccessful in managing or expanding that business". We cannot assure you that our efforts will be successful or result in increased revenues, higher margins or continued profitability.

        Our growth is also dependent on our ability to broaden the appeal of our website to business and other travelers. Although we launched an Orbitz for Business service directed at corporate users in September 2002, we have had a short period of experience with corporate travel, and our ability to offer products and services that will attract a significant number of business travelers to use our services is not certain. If any of these initiatives is not successful, our growth may be limited and we may be unable to maintain profitability.

        Our plans to pursue other opportunities for revenue growth and cost reduction are at an early stage, and we cannot assure you that our plans will be successful or that we will actually proceed with them as described.

        Adverse changes or interruptions in our relationships with travel suppliers could affect our access to travel offerings and reduce our revenues.

        We rely on charter associate agreements or other participation or commission agreements with our airline suppliers, and these agreements contain terms that could affect our access to airline inventory and reduce our revenues. In particular, our charter associate agreements with our Founding Airlines, which accounted for approximately 71% and 68% of our air supplier transaction fees during the year ended December 31, 2003 and the quarter ended March 31, 2004, respectively, are terminable by each of the Founding Airlines upon 30 days notice to us, subject to the restriction set forth in the stockholders agreement that such agreements or similar commercial agreements not be terminated for a period of two years from the date of our IPO. Most of the remaining relationships we have with airline suppliers are freely terminable by the supplier, or will become so within the next year. None of

20



these arrangements is exclusive and airline suppliers could enter into, and in some cases may have entered into, similar agreements with our competitors.

        In addition, we are dependent for lodging and car rental inventory on arrangements with our lodging and car rental suppliers under which these suppliers provide us inventory and compensate us on a commission basis. These arrangements are short-term in nature and in some cases unwritten.

        We cannot assure you that our arrangements with travel suppliers will remain in effect or that any of these suppliers will continue to supply us with the same level of access to inventory of travel offerings in the future. If our access to inventory is affected, or our ability to obtain inventory on favorable economic terms is diminished, it could have a material adverse effect on our business, financial condition or results of operations.

        We are controlled by our Founding Airlines or their affiliates, who may have strategic interests that differ from those of our other shareholders.

        Our Founding Airlines or their affiliates hold a majority of our voting power and their designees comprise a majority of our board. Our Founding Airlines may have strategic interests that are different from ours. Our Founding Airlines or their affiliates own, in the aggregate, approximately 68% of our outstanding common stock, and, through the exercise of certain supermajority voting rights accorded to them in our corporate governance documents, control approximately 95% of the voting power of all shares of voting stock.

        In addition, our Founding Airlines have filed a Schedule 13G with the Securities and Exchange Commission to report their Orbitz holdings as a group. As a result, under a "controlled company" exception to Nasdaq's independence requirements, we are exempt from an obligation to maintain a majority of independent directors on our board and instead have a majority of directors affiliated with our Founding Airlines. In addition, directors affiliated with our Founding Airlines continue to oversee the director nomination and executive compensation functions.

        For the foreseeable future, to the extent that some or all of our Founding Airlines or their affiliates vote similarly, they will be able to exercise control over all matters requiring approval by the board of directors or our shareholders, and this power may be expected to continue even if our Founding Airlines or their affiliates own a minority economic interest in Orbitz. As a result, they or their affiliates will be able to:

    control the composition of our board of directors, including the right to select six of the nine members of our board (one of whom is our chief executive officer) and the ability to nominate the remaining three directors and vote their shares to elect (together with the holders of Class A common stock) them;

    control our management and policies; and

    determine the outcome of significant corporate transactions, including changes in control that may be beneficial to shareholders.

        In addition, our corporate governance documents and our stockholders agreement with our Founding Airlines or their affiliates provide them with a greater degree of control and influence in the operation of our business and the management of our affairs than is typically available to shareholders of a publicly-traded company. In particular, our corporate governance documents and the stockholders agreement with our Founding Airlines or their affiliates provide that:

    Orbitz cannot issue common stock or other securities without the vote of two-thirds of its directors and, for issuances of securities with voting rights greater than one vote per share, without the further approval of the holders of three-fourths of the voting power of the Class B common stock then outstanding entitled to supervoting rights;

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    Orbitz cannot enter into any transaction involving any merger, acquisition, consolidation, reorganization or issuance of securities as a result of which our Founding Airlines or their affiliates would own less than a majority of the voting power of the successor or surviving entity, without the approval of the holders of two-thirds of the voting power of the Class B common stock then outstanding entitled to supervoting rights; and

    Orbitz cannot sell, or contract for the lease or license of, all or substantially all of its assets or sell, or contract for the lease or license of, all or a substantial portion of the assets or business of any of its controlled affiliates, if the assets sold, leased or licensed generate more than 20% of its consolidated net revenues or consolidated income, without the approval of the holders of two-thirds of the voting power of the Class B common stock then outstanding entitled to supervoting rights.

        These restrictions could keep us from pursuing relationships with strategic partners and from raising additional capital, which could impede our ability to expand our business and strengthen our competitive position. These restrictions could also limit shareholder value by preventing a sale of Orbitz.

        We are controlled by our Founding Airlines and conflicts of interest with and among them could impede our business strategy and hurt our business.

        Our Founding Airlines and their affiliates will be able to act in each of their own interests, which may conflict with, or be different from, the interests of other shareholders who do not maintain a commercial relationship with Orbitz. For the foreseeable future, we expect a majority of our directors will be senior employees of our Founding Airlines. Our Founding Airlines compete with each other in the operation of their respective businesses and can be expected to have individual business interests that may conflict with those of the other Founding Airlines. Their differing interests could make it difficult for us to pursue strategic initiatives that require consensus among our Founding Airlines. In addition, our certificate of incorporation and stockholders agreement expressly provide that holders of our Class B common stock may have other business interests and may engage in any other businesses, including businesses similar to ours, except for restrictions on specified investments that expire two years after our IPO. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects.

        Our relationships with our Founding Airlines have subjected Orbitz to significant litigation and regulatory scrutiny, which may continue.

        As an enterprise founded and controlled by horizontal airline competitors, we may be subject to ongoing regulatory scrutiny of our business to a degree that is not likely to be experienced by our competitors.

        During the last several years, we have been reviewed or investigated by a number of federal and state regulators. In July 2003, the Antitrust Division of the Department of Justice completed an investigation of us and our Founding Airlines that it commenced in 2000 and concluded that our business has not harmed consumers or reduced competition. In late 2002, a commission created by Congress to study the economic status of travel agents and impediments to the flow of travel information concluded its review, which included an examination of our impact on traditional travel agents and consumers, without taking action adverse to us. In December 2002, the Department of Transportation issued the results of a review of our business and operations, and did not find evidence that our operations had an anti-competitive effect on the marketplace for air travel. Our business and operations were under longstanding informal review by a working group of Attorneys General from various states, the last of which ended their inquiry in July 2003 without taking action adverse to us.

        We remain at risk that other or similar regulatory investigations could commence in the future. At any time, the outcome of investigations and other regulatory scrutiny could lead to compulsory changes

22



to our business model, industry agreements, conduct or practices or our relationships with our Founding Airlines and governmental or additional private lawsuits against us, any of which could materially harm our revenue, impair our ability to provide access to the broadest range of low fares and impact our ability to grow and compete effectively.

        We expect that our competitors will continue to engage in lobbying and other activities, with the objective of generating negative publicity about us and pressing legislation or regulation that could be harmful to us. These activities may result in private or governmental litigation against us, further investigations of our business by various governmental authorities or the adoption of laws and regulations that make it more difficult for us to compete effectively, particularly as we implement new initiatives designed to enhance our competitive position.

        The continued involvement of our Founding Airlines on our board of directors and as shareholders may result in litigation and regulatory scrutiny of our business. For example, we are a defendant in a lawsuit filed by a group of offline travel agents against Orbitz and several of our Founding Airlines alleging anti-competitive conduct. See "Part II, Item 1. Legal Proceedings." Our competitors or other third parties could file additional lawsuits alleging anti-competitive conduct against us in the future.

        The activities described above may result in significant distractions to our management and could have a material adverse effect on our business, financial condition or results of operations.

    Restrictions on our ability to sell air travel in an "opaque" or "biased" manner may limit our growth.

        Our bylaws limit our ability to market, sell and service air travel products in an "opaque" manner and prevent us from displaying our airfares in a "biased" manner. Our bylaws also limit our ability to acquire a company that engages in either activity. "Opaque" refers to the sale of travel where the customer is not able to see one or more items of important information, such as the identity of the travel provider, or arrival or departure times, until the transaction is completed. "Bias" refers to the practice of favoring one travel supplier over another on the basis of commissions paid, fee overrides or other factors unrelated to price or the customer's choice. Our charter associate agreements contain similar provisions.

        Currently, our bylaws permit us to derive revenues from the sale of airline tickets in an opaque manner, but only to the extent such revenues are derived from links to opaque websites or referrals to opaque websites, and only to the extent the revenues we derive do not exceed 20% of our or our controlled affiliates' revenues from the sale of airline tickets. Under our bylaws, any change in the scope of our business to provide information concerning air travel products to customers in an opaque or biased manner requires the following approvals:

    on or prior to May 8, 2010, the unanimous approval of each holder of our Class B common stock that (1) is, or within the six months prior to the approval being sought was, a party to a commercial agreement with us, pursuant to which such holder of Class B common stock has agreed to provide us with published fare and inventory information for air transportation for inclusion and sale on our website, (2) terminated such an agreement due to an uncured default by us or (3) owns 2,421,360 shares of Class B and Class A common stock (received upon conversion of Class B common stock) in the aggregate (as adjusted to give effect to any stock split, stock dividend, reclassification, recapitalization or other event); and

    after May 8, 2010, the unanimous approval of each holder of our Class B common stock, so long as the holders of our Class B common stock own, in the aggregate, at least 20% of the voting power of all outstanding shares of our capital stock.

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        Currently, this would require approval of all of our Founding Airlines or their affiliates. These restrictions may limit our ability to expand the scope of our business and improve our margins in ways that are available to some of our competitors.

        Our Founding Airlines are not prevented from selling to consumers through their own websites or third-party websites and may be able to establish new competitors to Orbitz.

        Our five Founding Airlines collectively represented approximately 72% of the airline tickets sold through Orbitz and 71% of our air supplier transaction fees during the year ended December 31, 2003 and approximately 72% of the airline tickets sold through Orbitz and 68% of our air supplier transaction fees during the quarter ended March 31, 2004. Our Founding Airlines offer travel products, including Web-only fares, through their own websites and other distribution channels and offer some features, such as mileage bonus awards redemption, that we do not currently offer. Our Founding Airlines are not barred under their relationships with us from selling directly to consumers, and these parties may continue to operate their own businesses in a manner that could divert customers and revenues from us. Furthermore, one of our Founding Airlines has an ownership interest in priceline.com, and our Founding Airlines may make other investments in travel businesses, subject to restrictions in our stockholders agreement. Our stockholders agreement limits the ability, for the period ending two years after our IPO, of any holder of our Class B common stock or its affiliates to act in concert with two or more other holders of Class B common stock or their respective affiliates to acquire beneficial ownership of more than 10%, in the aggregate, of a third party that offers the direct sale to consumers of air travel products predominantly through an Internet site. However, nothing in our agreements with our Founding Airlines would prevent them individually or acting in concert with only one other Founding Airline from organizing or investing in a separate company, similar to Orbitz, for the purpose of competing with us or from pursuing corporate opportunities that might be attractive to Orbitz. After the expiration of the two-year period described above, this investment restriction will lapse. Our charter associate agreements with our Founding Airlines are terminable upon 30 days notice to us, subject to the restriction set forth in the stockholders agreement that such agreements or similar commercial agreements not be terminated for a period of two years from the date of our IPO.

        None of our other charter associates or other travel suppliers is prevented from selling directly to consumers, organizing or investing in a separate company similar to us or pursuing corporate opportunities that might be attractive to us.

        The terms of our agreement with Worldspan may limit the growth of our Supplier Link business.

        We have agreed with Worldspan, a GDS, that we will direct to Worldspan's system all airline and car rental bookings made through our website, with the exception of bookings transacted using our Supplier Link technology. Under our agreement, we are obligated to meet quarterly minimum volume guarantees totaling 16,000,000 segments on an annual basis for air and car transactions for any year in which we utilize Supplier Link technology for either travel product, with a similar, but separate, volume guarantee applicable to car transactions alone that would apply if we were using Supplier Link technology for car transactions. If we do not meet specific quarterly thresholds, we must pay Worldspan a segment fee of $1.78 for each segment that we fall short. Our current business plans contemplate the expansion of our Supplier Link program to include additional airlines. However, unless we are able to sufficiently increase our number of bookings, or modify the terms of the agreement with Worldspan, it will be necessary for us to control the number of Supplier Link segments we can complete in a particular year, and instead direct some of these transactions to Worldspan, if we wish to avoid making these segment fee payments to Worldspan. We have modified our Supplier Link agreements in a manner that would limit expansion of Supplier Link in the near term. If we were to make segment fee payments or avoid them by limiting the number of Supplier Link segments processed in a particular year, it could prevent us from profitably growing that business or have an adverse effect on our relations with Supplier Link participants.

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        Airline "journey controls" may reduce our advantage in the number of low-priced connecting itineraries we can present to our customers.

        Some carriers currently employ, or may adopt, "journey control logic" designed to enhance the management of airfares and seat availability for connecting itineraries, based on a traveler's origin and final destination. ITA's software is capable of accommodating journey control restrictions, but only if the particular airline implements procedures to provide availability information to ITA's database and update it regularly. If the carrier does not implement these procedures to keep the ITA database updated, then the journey control logic will cause some fare and flight combinations for connecting itineraries to be rejected by the airline. Orbitz consumers attempting to book a reservation on one of these itineraries will receive an error message indicating that the desired fare and flight combination is not available, which may affect their perception of the reliability of our service. We believe that our charter associate agreements and, as applicable, Supplier Link agreements with participating carriers require them to provide availability data on a timely basis to ITA's database on our behalf. If airlines activate journey control restrictions without coordinating these programs with Orbitz, then our ability to present a large number of low-priced fare and flight combinations on connecting itineraries that can be successfully booked by consumers may be compromised. This could have a material adverse effect on our business and financial results.

        We operate in a highly competitive market, and we may not be able to compete effectively.

        The market for travel products is intensely competitive. We compete with a variety of companies with respect to each product or service we offer, including:

    InterActiveCorp, an online commerce company, which owns or controls numerous travel-related enterprises, including Expedia, an online travel agency, Expedia Corporate Travel, an online travel agency for business travelers, Hotels.com, a distributor of online lodging reservations, Hotwire, a wholesaler of airline tickets, lodging and other travel products, and Ticketmaster and Citysearch, both of which offer destination information and tickets to attractions;

    Sabre Holdings, which owns Travelocity, an online travel agency, GetThere, a provider of online corporate travel technology and services, Travelocity Business, an online travel agency for corporate travel, and the Sabre Travel Network, a GDS;

    Cendant, a provider of travel and vacation services, which owns or controls the following: Galileo International, a worldwide GDS; Cheap Tickets, an online travel agency; Lodging.com, an online distributor of hotel rooms; Howard Johnson, Ramada Inns, and other hotel franchisors; Avis and Budget car rental companies; Travelport, a provider of online corporate travel services and other travel-related brands;

    other consolidators and wholesalers of airline tickets, lodging and other travel products, including priceline.com, which also owns Travelweb;

    travel agencies targeting the corporate market, such as American Express, Navigant/TQ3, World Travel Partners and Carlson Wagonlit, which compete against our Orbitz for Business service;

    other local, regional, national and international traditional travel agencies servicing leisure and business travelers; and

    operators of other GDSs, which control the computer systems through which travel reservations historically have been booked.

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        Many of our competitors have longer operating histories, larger customer bases, more established brands and significantly greater financial, marketing and other resources than we do. Some of our competitors benefit from vertical integration with GDSs. In particular, we believe our two primary competitors in the online travel products market to be Expedia and Travelocity, which have each operated their respective businesses for significantly longer than Orbitz and may benefit from greater market share, brand recognition, product diversification, scale and operating experience than we do. In addition, Expedia and Travelocity, unlike us, have each established exclusive relationships as preferred travel partners for widely used Internet destinations such as America Online, MSN and Yahoo!. These arrangements, and similar relationships Expedia and Travelocity may be able to secure in the future, could provide them with a significant advantage in obtaining new customers. Furthermore, the flexibility of being able to provide biased displays for fares may provide Expedia, Travelocity and other competitors an opportunity to receive additional incentive payments from their suppliers. We expect Expedia and Travelocity will devote significant financial and operating resources to maintain their respective positions in the online travel products market.

        We expect existing competitors and business partners and new entrants to the travel business to constantly revise and improve their business models in response to challenges from competing Internet-based businesses, including ours. For example, firms that provide services to us and our competitors may introduce pricing or other business changes that adversely affect our attractiveness to suppliers in favor of our competitors. Similarly, some of our airline suppliers have recently entered into arrangements with GDS providers containing "most favored nations" obligations in which they have committed, in exchange for reduced GDS booking fees, to provide to the GDS and its subscribers, including some of our online travel agency competitors, all fares the supplier offers to the general public through any distribution channel. The effect of these arrangements may be to preclude us from successfully bargaining for superior airline inventory or other promotional advantages, and to reduce the relative attractiveness of Orbitz as a low cost distribution channel for these airlines. If Expedia, Travelocity or other travel industry participants introduce changes or developments we cannot meet in a timely or cost-effective manner, our business may be adversely affected. We cannot assure you that we will be able to effectively compete with Expedia, Travelocity or with other travel industry providers.

        In addition, consumers frequently use our website for route pricing and other travel information, and then may choose to purchase travel products from a source other than our website, including travel suppliers' own websites. Many travel suppliers, including our Founding Airlines and other airlines, lodging, car rental companies and cruise operators, also offer and distribute travel products, including products from other travel suppliers, directly to the consumer through their own websites. In many cases, these competitors offer advantages, such as bonus miles or lower transaction fees, that we do not or cannot provide to consumers.

        In addition, the airline industry has experienced a shift in market share from full-service carriers, such as our Founding Airlines, to low-cost carriers that focus primarily on discount fares to leisure destinations. Some low-cost carriers, such as Southwest and JetBlue, do not distribute their tickets through Orbitz or other third-party intermediaries.

        Our business plans call for the significant growth of our hotel business, and we may be unsuccessful in managing or expanding that business.

        We are dependent on our hotel business as a significant source of growth for our business. We have less experience than our competitors in the area of hotels, and we remain subject to numerous risks in the operation and growth of that business. Our hotel strategy is particularly dependent on our ability to obtain an adequate inventory of hotel rooms to offer under our OrbitzSaver model, which requires pre-payment by the consumer at the time of booking. To procure this prepaid inventory, we currently rely on a third-party relationship with Travelweb and on internal sales efforts under our Orbitz Merchant Hotel program.

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        Our strategy calls for us to increase the number of hotel rooms we can offer under our Orbitz Merchant Hotel program based on merchant arrangements we make directly with individual hotel properties and independent chains. Under the Orbitz Merchant Hotel program, we receive inventory directly from a hotel at a negotiated rate, and we determine the retail price at which we choose to offer it to the consumer. We believe that acting as merchant under this model will allow us to achieve higher revenues per transaction. However, there are significant risks associated with our Orbitz Merchant Hotel program. Because we did not begin this program until March 2003, we have limited experience with its operation and we cannot assure you that we will be successful in signing up important hotel properties in a sufficient number of domestic or international geographical markets. In addition, we may be unable to achieve our financial objectives for the Orbitz Merchant Hotel program, especially if economic conditions improve or competition increases. Many hoteliers utilize merchant arrangements with us and our competitors as a channel to dispose of excess hotel room inventory at wholesale rates. If economic conditions create increased demand for hotel rooms, hotel managers may reduce the amount of inventory they choose to sell through merchant arrangements or increase the negotiated rates at which they provide that inventory to us. Similarly, heightened competition from our competitors' own merchant rate programs may result in increases in negotiated rates for merchant rate inventory. Either of these events would be expected to exert downward pressure on the margins we can achieve from our merchant hotel business, and could have a material adverse effect on our hotel business.

        In May 2004, we revised our agreement with Travelweb, under which we receive prepaid inventory from Travelweb founders and other participating chains and properties for display on our website. Travelweb was formed by Pegasus Solutions and by several leading hotel chains, including Hilton, Hyatt, Intercontinental, Marriott and Starwood. Although the founders sold the majority of their interests to priceline.com in May 2004, Travelweb continues to act as a reseller of hotel inventory provided by these and other participating chains. Travelweb sets the consumer prices for this inventory and pays us a commission for each hotel room. Under the terms of our revised agreement, which has been extended through the end of 2005, we are free to enter into direct relationships with any property, regardless of its participation in Travelweb, except that we cannot enter into direct relationships with properties affiliated with one of Travelweb's founding chains without such chain's consent. We are required to display all room inventory provided to us by hotels affiliated with Travelweb's founding chains, and we must engage in good faith efforts to sell such inventory, with specified compensatory payments due to Travelweb to the extent our bookings from Travelweb inventory fall short of the quarterly room night targets. If we are unable to meet these quarterly thresholds, there is a risk that our financial results could be adversely affected by the compensatory payments.

        A reduction in transaction fees or the elimination of commissions paid by travel suppliers could reduce our revenues. The minimum transaction fees many of our airline suppliers have agreed to pay to us decrease in amount each year over the term of our charter associate agreements.

        For the year ended December 31, 2003 and the quarter ended March 31, 2004, 19% and 18%, respectively, of our revenues came from the transaction fees paid directly by travel suppliers for airline bookings made by our customers through our online travel service. Where we have charter associate agreements with airline suppliers, these agreements obligate the airline to pay us transaction fees on published fares that are not less than certain agreed-upon floor rates for tickets sold on our website. These minimum transaction fees decrease in amount each year and are scheduled to decline approximately 27%, 28% and 30% on an annual basis each June 1, beginning in 2004, and become constant thereafter. It is unlikely that any of our charter associate airlines will choose to pay us transaction fees above the minimum levels specified in our contracts. Furthermore, our charter associate agreements have defined durations, and we cannot assure you that our transaction fees will not be reduced or eliminated in the future or will be competitive with market terms during the duration of the agreements.

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        A portion of our revenues is dependent on consumer service fees.

        For the year ended December 31, 2003 and the quarter ended March 31, 2004, approximately 21% and 22%, respectively, of our revenues were derived from consumer service fees. We charge our customers a $6 consumer service fee each time they purchase an airline ticket on our website. This fee is $10 for all international markets other than Canada, Mexico and the Caribbean. Although traditional travel agencies and many other online travel companies (including our principal competitors) charge consumer service fees, some other travel websites, including the websites of our travel suppliers, do not charge a service fee and many of our suppliers' sites offer benefits, such as frequent flier miles, that we cannot provide. If we were required by competitive forces to reduce or eliminate our service fee, our revenues could decline as a result.

        If we fail to attract and retain customers in a cost-effective manner, our ability to grow and become profitable may be impaired.

        Our business strategy depends on increasing our overall number of customer transactions in a cost-effective manner. In order to increase our number of transactions, we must attract new visitors to our website, convert these visitors into paying customers and capture repeat business from existing customers. Similarly, our corporate travel offering is dependent on enlisting new corporate customers and attracting their travel booking activity online to Orbitz. For the year ended December 31, 2003 and the quarter ended March 31, 2004, we incurred sales and marketing expenses of $110.6 million and $32.5 million, respectively. Although we have spent significant financial resources on sales and marketing and plan to continue to do so, there are no assurances that these efforts will be cost effective at attracting new customers or increasing transaction volume. In particular, we believe that rates for desirable advertising and marketing placements are likely to increase in the foreseeable future, and we may be disadvantaged relative to our larger competitors in our ability to expand or maintain our advertising and marketing commitments. Additionally, we have limited experience in marketing to corporate users. If we do not achieve our marketing objectives, our ability to grow and become consistently profitable may be impaired.

        Interruptions in service from third parties or transitions to new service providers could impair the quality of our service.

        We rely on third-party computer systems and other service providers, including the computerized central reservation systems of the airline, lodging and car rental industries, to make airline ticket, lodging and car rental reservations and credit card verifications and confirmations. Currently, approximately 60% of our airline ticket transactions are processed through Worldspan's systems, and approximately 80% of our hotel room transactions are processed through Pegasus. Other third parties provide, for instance, our data center, telecommunications access lines and significant computer systems and software licensing, support and maintenance services. In the past, third parties, including Worldspan and Pegasus, have suffered system outages that have adversely affected our ability to offer our travel services or to process booking transactions. Any future interruption in these, or other, third-party services or a deterioration in their performance could impair the quality of our service. We cannot be certain of the financial viability of all of the third parties on which we rely. We work with many vendors in the telecommunications industry, including MCI, Ameritech, AT&T, Sprint and Cable & Wireless. That industry is continuing to experience a severe economic downturn. If our arrangements with any of these third parties are terminated or if they were to cease operations, we might not be able to find an alternate provider on a timely basis or on reasonable terms, which could hurt our business.

        We rely on relationships with licensors for key components of our software. We also hire contractors to assist in the development and maintenance of our systems. Continued access to these licensors and contractors on favorable contract terms or access to alternative software licenses and information technology contractors is important to our operations. Adverse changes in any of these

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relationships could have a material adverse effect on our business, financial condition or results of operations.

        For all our service providers, we attempt to negotiate favorable pricing, service, confidentiality and intellectual property ownership or licensing terms in our contracts with them. These contracts usually have multi-year terms. However, there is no guarantee that these contracts will not terminate and that we will be able to negotiate successor agreements or agreements with alternate service providers on competitive terms. Further, the existing agreements may bind us for a period of time to terms and technology that become obsolete as our industry and our competitors advance their own operations and contracts.

        Our success depends on maintaining the integrity of our systems and infrastructure.

        In order to be successful, we must provide reliable, real-time access to our systems for our customers and suppliers. As our operations grow in both size and scope, we will need to improve and upgrade our systems and infrastructure to offer an increasing number of customers and travel suppliers enhanced products, services, features and functionality. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and technical resources before the volume of business increases, with no assurance that the volume of business will increase. Consumers and suppliers will not tolerate a service hampered by slow delivery times, unreliable service levels or insufficient capacity, any of which could have a material adverse effect on our business, financial condition or results of operations.

        Our computer systems may suffer failures, capacity constraints and business interruptions that could increase our operating costs and cause us to lose customers.

        Our operations face the risk of systems failures. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, computer hacking break-ins and other malicious activity, earthquake, terrorism and similar events. The occurrence of a natural disaster or unanticipated problems at our facilities in Chicago or locations of key vendors such as Hitachi Data Systems, ITA, MCI, AT&T, Oracle, Sun, Compaq, Worldspan or Pegasus could cause interruptions or delays in our business, loss of data or render us unable to process reservations. We are particularly dependent on Oracle, Sun and Hitachi Data Systems as providers of computer infrastructure critical to our business. Hardware failure or software error that affects their systems could result in corruption or loss of data and could cause an interruption in the availability of our services. We are also dependent on external data centers operated by MCI and Savvis, which we do not control. The failure of our computer and communications systems to provide the data communications capacity required by us, as a result of human error, natural disaster or other occurrence of any or all of these events could adversely affect our reputation, brand and business. In the past, third-party failures and human error have resulted in system interruptions, including a significant outage in July 2003, and we cannot assure you that similar system interruptions will not occur in the future.

        In these circumstances, our redundant systems or disaster recovery plans may not be adequate. Similarly, although many of our contracts with our service providers require them to have disaster recovery plans, we cannot be certain that these will be adequate or implemented properly. In addition, our business interruption insurance may not adequately compensate us for losses that may occur. If we were to experience significant systems failures, it could erode consumer confidence in our services and have a material adverse effect on our business, financial condition and results of operations.

        Rapid technological changes may render our technology obsolete or decrease the attractiveness of our products to consumers.

        To remain competitive in the online travel industry, we must continue to enhance and improve the functionality and features of our website. The Internet and the online commerce industry are rapidly changing. In particular, the online travel industry is characterized by increasingly complex systems and

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infrastructures and new business models. If competitors introduce new products embodying new technologies, or if new industry standards and practices emerge, our existing website, technology and systems may become obsolete. Our future success will depend on our ability to do the following:

    enhance our existing products;

    develop and license new products and technologies that address the increasingly sophisticated and varied needs of our prospective customers and suppliers; and

    respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

        Developing our website and other technology entails significant technical and business risks. We may use new technologies ineffectively or we may fail to adapt our website, transaction processing systems and network infrastructure to consumer requirements or emerging industry standards. For example, our website functionality that allows searches and displays of ticket pricing and travel itineraries is a critical part of our service, and it may become out-of-date or insufficient from our customers' perspective and in relation to the search and display functionality of our competitors' websites. Additionally, as the architecture of our systems becomes more complex, our ability to efficiently innovate or react to emerging standards may be impaired. If we face material delays in introducing new services, products and enhancements, our customers and suppliers may forego the use of our products and use those of our competitors.

        We may not protect our technology effectively, which would allow competitors to duplicate our products. This could make it more difficult for us to compete with them.

        Our success and ability to compete in the online travel industry depend, in part, upon our technology. We rely primarily on patent, copyright, trade secret and trademark laws and provisions in our contracts to protect our technology. We attempt to negotiate beneficial intellectual property ownership provisions in our contracts. However, laws and our actual contractual terms may not be sufficient to protect our technology from use or theft by third parties. For instance, a third party might try to reverse engineer or otherwise obtain and use our technology without our permission and without our knowledge, allowing competitors to duplicate our products. We may have legal or contractual rights that we could assert against such illegal use, but lawsuits claiming infringement or misappropriation are complex and expensive, and the outcome would not be certain. In addition, the laws of some countries in which we may wish to sell our products may not protect software and intellectual property rights to the same extent as the laws of the United States.

        Defending against intellectual property claims could be expensive and disruptive to our business.

        We cannot assure you that others will not obtain and assert patents or other intellectual property rights against us affecting essential elements of our business. From time to time, in the ordinary course of our business, we have been subject to legal proceedings and claims relating to the intellectual property rights of others, and we expect that third parties will continue to assert intellectual property claims against us, particularly as we expand the complexity and scope of our business. For example, NCR Corporation has filed a complaint alleging that we have infringed 13 patents, including business method patents, allegedly owned by NCR Corporation. We diligently defend our intellectual property rights, but intellectual property litigation is expensive and time consuming, and successful infringement claims against us could result in significant monetary liability or prevent us from operating our business, or portions of our business. In addition, resolution of claims may require us to obtain licenses to use intellectual property rights belonging to third parties or possibly to cease using those rights altogether. Any of these events could have a material adverse effect on our business, results of operations or financial condition. Please see "Part II, Item 1. Legal Proceedings."

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        If we do not continue to attract and retain qualified personnel, we may not be able to expand our business.

        Our business and financial results depend on the continued service of our key personnel. The loss of the services of our executive officers or other key personnel could harm our business and financial results. Our success also depends on our ability to hire, train, retain and manage highly skilled employees. We cannot assure you that we will be able to attract and retain a significant number of qualified employees or that we will successfully train and manage the employees we hire.

        We may acquire other businesses, products or technologies; if we do, we may be unable to integrate them with our business, or we may impair our financial performance.

        If appropriate opportunities present themselves, we may acquire businesses, products or technologies that we believe are strategic. We may not be able to identify, negotiate or finance any future acquisition successfully. Even if we do succeed in acquiring a business, product or technology, we have no experience in integrating an acquisition into our business; the process of integration may produce unforeseen operating difficulties and expenditures and may absorb significant attention of our management that would otherwise be available for the ongoing development of our business. Such acquisitions may involve numerous other risks, including: failure to realize expected synergies or cost savings; unidentified issues not discovered in our due diligence process, including product and service quality issues and legal contingencies; potential loss of our key employees or key employees of the acquired company; difficulty in maintaining controls, procedures and policies during the transition and integration process and difficulty in maintaining our relationships with existing travel suppliers or customers. If we make acquisitions, we may issue shares of stock that dilute the interests of our other shareholders and dilute our earnings per share, expend cash, incur debt, assume contingent liabilities or create additional expenses related to amortizing other intangible assets with estimable useful lives, any of which might harm our business, financial condition or results of operations.

        Declines or disruptions in the travel industry, such as those caused by general economic downturns, terrorism, health concerns or strikes or bankruptcies within the travel industry could reduce our revenues.

        Our business is affected by the health of the travel industry. Travel expenditures are sensitive to business and personal discretionary spending levels and tend to decline during general economic downturns. Since 2001, the travel industry has experienced a protracted downturn, and there is a risk that a future downturn, or the continued weak demand for travel, could adversely affect the growth of our business. Additionally, travel is sensitive to safety concerns, and thus may decline after incidents of terrorism, during periods of geopolitical conflict in which travelers become concerned about safety issues, or when travel might involve health-related risks. For example, the terrorist attacks of September 11, 2001, which included attacks on the World Trade Center and the Pentagon using hijacked commercial aircraft, resulted in a decline in travel bookings, including those through our website. Following the September 11, 2001 attacks, our weekly transactions decreased approximately 50% and returned to pre-attack levels in late October 2001. Similarly, our weekly transactions decreased approximately 20% when the war with Iraq began in mid-March 2003 and returned to pre-war levels in mid-April 2003. The long-term effects of events such as these could include, among other things, a protracted decrease in demand for air travel due to fears regarding terrorism, war or disease. These effects, depending on their scope and duration, which we cannot predict at this time, could significantly impact our long-term results of operations or financial condition. Other adverse trends or events that tend to reduce travel and may reduce our revenues include:

    higher fares and rates in the airline industry or other travel-related industries;

    labor actions involving airline or other travel suppliers;

    political instability and hostilities;

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    fuel price escalation;

    travel-related accidents;

    bankruptcies of travel suppliers and vendors; and

    bad weather.

        Evolving government regulation could impose taxes or other burdens on our business, which could increase our costs or decrease demand for our products.

        We must comply with laws and regulations applicable to online commerce and the sale of air transportation. Increased regulation of the Internet or air transportation or different applications of existing laws might slow the growth in the use of the Internet and commercial online services, or could encumber the sale of air transportation, which could decrease demand for our products, increase the cost of doing business or otherwise reduce our sales and revenues. The statutes and case law governing online commerce are still evolving, and new laws, regulations or judicial decisions may impose on us additional risks and costs of operations.

        Federal legislation imposing limitations on the ability of states to tax Internet-based sales was enacted in 1998. The Internet Tax Freedom Act, which was extended by the Internet Non-Discrimination Act, exempted specific types of sales transactions conducted over the Internet from multiple or discriminatory state and local taxation through November 1, 2003. If this legislation is not renewed, state and local governments could impose additional taxes on Internet-based sales, and these taxes could decrease the demand for our products or increase our costs of operations.

        We are currently reviewing the tax laws in various states and jurisdictions relating to state and local hotel occupancy taxes. Several jurisdictions have indicated that they may take the position that hotel occupancy tax is applicable to the gross profit on merchant hotel transactions. Historically, we have not paid such taxes. Some state and local jurisdictions could rule that we are subject to hotel occupancy taxes on the gross profit and could seek to collect such taxes, either retroactively or prospectively or both. If hotel occupancy tax is applied to the gross profit on merchant hotel transactions, it could increase our costs or decrease demand for our products.

        In addition, new regulations, domestic or international, regarding the privacy of our users' personally identifiable information may impose on us additional costs and operational constraints. Because our market is seasonal, our quarterly results will fluctuate. Our business experiences seasonal fluctuations, reflecting seasonal trends for the products offered by our website, as well as Internet services generally. For example, traditional leisure travel bookings are higher in the first two calendar quarters of the year in anticipation of spring and summer vacations and holiday periods, but online travel reservations may decline with reduced Internet usage during the summer months. In the last two quarters of the calendar year, demand for travel products generally declines and the number of bookings flattens or decreases. These factors could cause our revenues to fluctuate from quarter to quarter. Our results may also be affected by seasonal fluctuations in the inventory made available to us by travel suppliers.

        The success of our business depends on continued growth of online travel commerce.

        Our sales and revenues will not grow as we plan if consumers and businesses do not purchase significantly more travel products online than they currently do and if the use of the Internet as a medium of commerce for travel products does not continue to grow or grows more slowly than expected. Consumers and businesses have traditionally relied on travel agents and travel suppliers and are accustomed to a high degree of human interaction in purchasing travel products. The success of our business is dependent on the number of consumers and businesses who use the Internet to purchase travel products increasing significantly.

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        Our business is exposed to risks associated with online commerce security and credit card fraud.

        Consumer concerns over the security of transactions conducted on the Internet or the privacy of users may inhibit the growth of the Internet and online commerce. To transmit confidential information such as customer credit card numbers securely, we rely on encryption and authentication technology. Unanticipated events or developments could result in a compromise or breach of the systems we use to protect customer transaction data. Furthermore, our servers and those of our service providers may be vulnerable to viruses or other harmful code or activity transmitted over the Internet. While we proactively check for intrusions into our infrastructure, a virus or other harmful activity could cause a service disruption.

        In addition, we bear financial risk from products or services purchased with fraudulent credit card data. Although we have implemented anti-fraud measures, a failure to control fraudulent credit card transactions adequately could adversely affect our business. Because of our limited operating history, we cannot assure you that our anti-fraud measures are sufficient to prevent material financial loss.

        The market price of our Class A common stock may be highly volatile or may decline regardless of our operating performance.

        The market prices of the securities of Internet-related and online commerce companies have been extremely volatile and have declined overall significantly since early 2000. Broad market and industry factors may adversely affect the market price of our Class A common stock, regardless of our actual operating performance. Factors that could cause fluctuation in the stock price may include, among other things:

    actual or anticipated variations in quarterly operating results;

    changes in financial estimates by us or by any securities analysts who cover our stock;

    conditions or trends in our industry;

    changes in the market valuations of other travel service providers;

    announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures;

    announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;

    capital commitments;

    additions or departures of key personnel; and

    sales of our common stock, including sales of our common stock by our directors and officers or our Founding Airlines.

        Future sales of our Class A common stock may cause our stock price to decline.

        If our shareholders sell substantial amounts of our Class A common stock in the public market, the market price of our Class A common stock could decline. These sales might also make it more difficult for us to sell additional equity securities at a time and price that we deem appropriate. As of March 31, 2004, we had 40,375,211 shares of common stock outstanding, including Class A common stock and Class B common stock, which is convertible at any time into Class A common stock. Of these outstanding shares, 12,180,000 shares of our Class A common stock are freely tradable in the public market. The remaining 28,195,211 shares of common stock are restricted securities as defined in Rule 144 under the Securities Act.

        We and our directors and officers and substantially all of our shareholders, including all of our Founding Airlines or their affiliates, and our option holders have agreed that, subject to limited

33



exceptions, for a period of 180 days from December 16, 2003, the date of our IPO prospectus, we and they will not, without the prior written consent of Goldman, Sachs & Co., dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable for our common stock. However, Goldman, Sachs & Co. in its sole discretion may release any of the securities subject to these lock-up agreements at any time without notice.

        Subject to the 180-day lock-up agreement, these 28,195,211 restricted securities may be sold into the public market in the future without registration under the Securities Act to the extent permitted under Rule 144. 27,480,635 shares will be available for sale 180 days after December 16, 2003, the date of our IPO prospectus pursuant to Rule 144; of these shares, approximately 0.2% would be available for sale under Rule 144(k), which imposes no volume or other limits. In addition, commencing 180 days after December 16, 2003, the date of our IPO prospectus, shareholders holding 27,269,809 outstanding shares of these restricted securities, consisting of the Class B common stock which is convertible into our Class A common stock at any time, will have registration rights which could allow those holders to sell their shares freely through a future registration statement filed under the Securities Act.

        In addition, 5,797,291 shares reserved for issuance pursuant to outstanding options and 2,472,984 shares available for grant under our existing stock plans as of March 31, 2004, if granted, will become eligible for sale in the public market once permitted by provisions of various vesting agreements, lock-up agreements and Rule 144, as applicable. In addition, 434,782 shares of redeemable Series A non-voting convertible preferred stock will be convertible into the same number of shares of Class A common stock at any time from and after December 19, 2008.

        Under our tax agreement with the Founding Airlines, we could have exposure if a tax authority were to determine that tax benefits were unavailable to us in connection with the IPO Exchange and the Founding Airlines were unable to satisfy related repayment obligations.

        We expect the IPO Exchange to be treated as a taxable exchange of membership units in Orbitz, LLC for capital stock of Orbitz, Inc., resulting in our Founding Airlines or their affiliates recognizing taxable gain. We expect our tax basis in our tangible and intangible assets to be increased by an amount equal to the taxable gain recognized by our Founding Airlines or their affiliates. As a result, we expect the IPO Exchange to reduce the amounts we must pay in the future to various tax authorities by increasing our future tax deductions for depreciation and amortization. We have agreed in our tax agreement with our Founding Airlines or their affiliates to pay them 87% of the amount by which our tax payments to various tax authorities actually are reduced. Such payments to our Founding Airlines or their affiliates could exceed $250 million over 15 years or longer. If, as a result of an income tax audit or examination, a tax authority determines that any significant amount of these tax benefits should not have been available, we might be required to pay additional taxes, interest and/or penalties to one or more tax authorities, as well as any costs associated with such tax audit or examination, after having already paid the tax benefits to our Founding Airlines or their affiliates. If at that time any of our Founding Airlines were insolvent or bankrupt or otherwise unable to repay such tax benefits to us as provided in our tax agreement, this could have a material adverse effect on our financial condition.

        We do not expect to pay any dividends to the holders of our common stock for the foreseeable future.

        We do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our Class A common stock.

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        Recently enacted and proposed changes in securities laws and regulations are likely to increase our costs.

        The Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commission rules implementing that Act have required changes in some of our corporate governance practices and may require further changes. These new rules and regulations will increase our legal and financial compliance costs, and make some activities more difficult, time-consuming or costly. We also expect these new rules and regulations to make it more difficult and more expensive for us to maintain director and officer liability insurance. These new rules and regulations could also make it more difficult for us to attract and retain qualified independent members of our board of directors and qualified members of our management team.

FORWARD-LOOKING STATEMENTS

        We have made statements in this report, including statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations," which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company, including those described under "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

        You can identify these forward-looking statements by forward-looking words such as "believe," "may," "could," "will," "estimate," "continue," "anticipate," "intend," "seek," "plan," "expect," "should," "would" and similar expressions in this report.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We consider investments purchased with an original or remaining maturity of less than three months at the date of purchase to be cash equivalents. We maintain an investment portfolio of various holdings, types and maturities, consisting primarily of corporate debt. These securities are classified as available-for-sale and consequently are recorded on the condensed consolidated balance sheets at fair market value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income.

        At any time, a sharp rise in interest rates could have a material impact on the fair value of our investment portfolio. Conversely, declines in interest rates could have a material impact on interest earnings for our investment portfolio. We do not currently hedge these interest rate exposures.


ITEM 4. CONTROLS AND PROCEDURES

        The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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        As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level.

        There has been no change in the Company's internal controls over financial reporting during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        On October 16, 2002, Amadeus Global Travel Distribution, S.A. and Amadeus s.a.s., collectively "Amadeus," filed a complaint against us in the United States District Court for the District of Delaware. In the lawsuit, Amadeus alleged that our use of the ITA software in combination with GDS services from Worldspan (a competitor of Amadeus) constituted a breach of the terms of the agreement with ITA under which we license components of the search technology we employ. Amadeus also contended that we tortiously interfered with the contract between Amadeus s.a.s. and ITA, claiming that ITA was not contractually free to license its low fare searching software to us in light of our supposed "affiliation" with Worldspan, which was owned by three of our Founding Airlines prior to the sale of Worldspan's business on July 1, 2003. Amadeus sought an injunction prohibiting our use of the ITA search technology software in combination with other GDS firms, as well as unspecified compensatory damages and punitive damages of not less than $5 million. The court granted summary judgment in favor of Orbitz and ITA and against Amadeus on February 19, 2004. We are vigorously contesting Amadeus' efforts to appeal the decision.

        On October 9, 2003, Travelweb filed a motion in the Circuit Court of Cook County, Illinois requesting a temporary restraining order ("TRO") and preliminary injunction to prevent us from continuing our Orbitz Merchant Hotel relationships with hotel chains that also participate in Travelweb and from entering into new such relationships. The judge declined to rule on the TRO and conducted a hearing on Travelweb's preliminary injunction. On March 31, 2004, the judge preliminarily enjoined us from terminating our agreement with Travelweb, from excluding from display on our site hotel accommodations transmitted to Orbitz by Travelweb, and from implementing new direct agreements with hotels that have agreements with Travelweb. On May 3, 2004, we entered into a negotiated settlement agreement with Travelweb that extends the relationship under modified terms. The parties have released their claims against each other, and the court actions have been dismissed effective May 4, 2004.

        On January 10, 2004, NCR Corporation ("NCR") filed a complaint in the United States District Court for the Western District of Pennsylvania, alleging that Orbitz's commercial Internet operations infringe 13 separate patents, including business method patents, allegedly owned by NCR. We have filed both an answer and counterclaims against NCR. While we believe that this lawsuit is without merit, we are exploring settlement possibilities with NCR. If we are not be able to resolve this matter by agreement with NCR, we will defend the action vigorously.

        In addition to the matters described above, we are party to various pending legal actions that we believe to be incidental to the operation of our business. We believe that the outcome of these pending, incidental legal proceedings will not have a material adverse effect on our financial position or results of operations.

        We cannot predict the outcome or ultimate impact of any legal or regulatory proceedings pending against us or affecting our business. Consequently, we cannot assure you that the legal or regulatory proceedings referred to in this report or any that may arise in the future will be resolved without a material adverse effect on our business, financial condition or results of operations.


ITEM 2.  CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

Proceeds from Our Initial Public Offering

        On December 19, 2003, we completed our initial public offering of common stock. We sold 4,000,000 shares and selling shareholders sold 8,180,000 shares of our Class A common stock at an offering price of $26.00 per share. The shares were registered under the Securities Act on registration

37



statements on Form S-1 (Registration Nos. 333-88646 and 333-111248). The Securities and Exchange Commission declared the registration statements effective on December 16, 2003 and the offering commenced on December 17, 2003. The managing underwriters for the offering were Goldman Sachs & Co. and Credit Suisse First Boston. Pursuant to the registration statements we registered a total of 14,007,000 shares of our Class A common stock, including 1,827,000 shares to cover over-allotments. The underwriters' option to purchase up to 1,827,000 additional shares from us at the initial public offering price less underwriting discount has expired.

        The sale of our Class A common stock generated gross proceeds to us of $104 million ($97.5 million after deducting the underwriting discount) and gross proceeds to the selling shareholders of $212.7 million ($199.4 million after deducting the underwriting discount). After deducting legal, accounting and other fees incurred in the offering totaling $3.7 million, the net proceeds to us were approximately $93.8 million.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        None.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.


ITEM 5. OTHER INFORMATION

        There have been no material changes to the procedures set forth in our proxy statement by which stockholders may recommend nominees to the Company's board.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)
Exhibits: The exhibits listed in the accompanying "Exhibit Index" are filed as part of this report.

(b)
Reports on Form 8-K

        We furnished one report on Form 8-K during the quarter ended March 31, 2004. Information regarding each item reported on is as follows:

Date Furnished

  Item No.
  Description
February 10, 2004   Item 12   On February 10, 2004, we announced our financial results for the quarter and year ended December 31, 2003.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    ORBITZ, INC.

Date: May 13, 2004

 

/s/  
JEFFREY G. KATZ      
Jeffrey G. Katz
Chairman of the Board, President and Chief Executive Officer

Date: May 13, 2004

 

/s/  
JOHN J. PARK      
John J. Park
Chief Financial Officer

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Exhibit Index

Exhibit Number
  Description

3.1   Amended and Restated Certificate of Incorporation of Orbitz, Inc. (incorporated by reference to Exhibit No. 3.1 to Amendment No. 5 to the Registration Statement on Form S-1 of Orbitz, Inc., Registration No. 333-88646, with a file date of November 26, 2003)

3.2

 

Amended and Restated Bylaws of Orbitz, Inc. (incorporated by reference to Exhibit No. 3.2 to Amendment No. 5 to the Registration Statement on Form S-1 of Orbitz, Inc., Registration No. 333-88646, with a file date of November 26, 2003)

4.1

 

Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit No. 4.1 to Amendment No. 5 to the Registration Statement on Form S-1 of Orbitz, Inc., Registration No. 333-88646, with a file date of November 26, 2003)

4.2

 

Amended and Restated Stockholders Agreement (incorporated by reference to Exhibit No. 4.2 to Amendment No. 5 to the Registration Statement on Form S-1 of Orbitz, Inc., Registration No. 333-88646, with a file date of November 26, 2003)

4.3

 

Certificate of Designations, Preferences and Rights of Series A Non-Voting Convertible Preferred Stock (incorporated by reference to Exhibit No. 4.3 to Amendment No. 5 to the Registration Statement on Form S-1 of Orbitz, Inc., Registration No. 333-88646, with a file date of November 26, 2003)

10.2(a)*

 

Revised Form of Supplier Link Agreement between Orbitz and certain airline charter associates

10.5(a)*†

 

Second Amendment to the Amended and Restated Agreement for CRS Access and Related Services, dated as of January 28, 2004, between Orbitz and Worldspan, L.P.

10.11(a)*†

 

Amendment No. 2 to the Development, License and Hosting Agreement, dated as of January 23, 2004, between Orbitz and American Airlines, Inc.

31.1*

 

Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

 

Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*
Filed herewith.

Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

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ORBITZ, INC. INDEX
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION
SIGNATURES
Exhibit Index

EX-10.2(A)


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Exhibit 10.2(a)


ORBITZ SUPPLIER LINK AGREEMENT

        THIS AGREEMENT (the "Agreement") is made as of the later of the two dates set forth in the signature block below (the "Effective Date"), by and between                                       , a corporation organized and existing under the laws of                                        ("Airline"), and Orbitz, LLC, a limited liability company organized and existing under the laws of Delaware ("Orbitz").

        WHEREAS, Orbitz and Airline are parties to that certain Amended and Restated Airline Charter Associate Agreement dated as of                                        (as amended and supplemented from time to time, the "Airline Charter Associate Agreement").

        NOW THEREFORE, in consideration of the above recitals, the mutual undertakings of the parties as contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.    DEFINITIONS.    The terms defined in this Section or elsewhere in this Agreement may be used in the singular or plural, as the context requires.

        1.1    "Affiliate" means, in respect of any specified Person, a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Person specified; provided, however, that notwithstanding the foregoing, no Participating Carrier shall be deemed to be an Affiliate of any other Participating Carrier due solely to being a party to a Stockholders Agreement that also includes Orbitz; and provided, further, that notwithstanding the foregoing, no Participating Carrier, or any affiliate thereof, shall be deemed to be an Affiliate of Orbitz as a result of the existence or continuation of the board positions, relationships with, or equity ownership of Orbitz as such exist on the date hereof. For purposes of this definition, "control" (including the terms "controlled by" and "under common control with") means the power, directly or indirectly, to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract, or otherwise. When used in this Agreement, the term "party" includes such party's Affiliates.

        1.2    "Airline Host System" means the Airline's central reservation system on which Airline stores Inventory and records Tickets, as is specified in Schedule E, its successors or assigns.

        1.3    "Airline Software" means software, and derivative works thereof, developed by Airline based on the Airline Specifications.

        1.4    "Airline Specifications" means any application, program or functionality interface specifications developed by or on behalf of Airline or provided to Orbitz by or on behalf of the Airline that will be used for purposes of allowing the Network to interface with the Airline Host System. For the avoidance of doubt, unless agreed in writing by the parties in Schedule C hereto or elsewhere, any specifications developed by Orbitz for use in connection with the Network Services shall not be deemed to be part of Airline Specifications.

        1.5    "ARC" means the Airline Reporting Corporation.

        1.6    "ATPCO" means the Airline Tariff Publishing Company.

        1.7    "Change Request" means the form set forth as Schedule A that will be used to request any modification of or addition to the Services, in accordance with Section 8 of this Agreement.

        1.8    "Codeshare" means the industry practice whereby Airline markets flights that are not operated by Airline but which are sold, confirmed and ticketed in the Airline Host System under Airline's designator code.

        1.9    "Confidential Information" means any information of either party hereto (the "Disclosing Party"), disclosed in writing or verbally to, or observed by the other party (the "Receiving Party") in connection with or as a result of discussions between Airline and Orbitz, and which is at the time of



disclosure is either (a) marked as being "Confidential" or "Proprietary", (b) otherwise reasonably identifiable as the confidential information of the Disclosing Party, or (c) under the circumstances of disclosure should reasonably be considered as confidential information of the Disclosing Party. Airline's Confidential Information may include, but is not limited to its product requirements, business plans and forecasts, customer data, and similar information of itself and its Affiliates, and its customers. Orbitz's Confidential Information may include, but is not limited to its product plans, specifications and pricing. In addition, (i) the terms of this Agreement shall be considered the Confidential Information of both parties; and (ii) the following information shall be considered Confidential Information of Airline, regardless of whether such information is labeled as such: (A) an Airline customer's name, travel destinations, itineraries, traveler profiles and travel contacts, and all other information contained in a PNR, after submission to Airline through the Network; (B) the Inventory and any information related thereto; and (C) the Airline Specifications or any other specifications relating to the Airline Host System, all other information contained in the Airline Host System, business plans and forecasts, and similar information of Airline and its Affiliates.

        1.10    "Commencement Date" means the date when Orbitz issues the first Supplier Link Ticket.

        1.11    "Competitor" means any passenger or cargo air transportation carrier or Reservation System.

        1.12    "Forecast" means Orbitz's commercially reasonable estimate of (a) the annual aggregate number of Supplier Link Tickets and Worldspan Tickets to be booked and issued, as applicable, on behalf of Airline, based on known and forecast business conditions, as well as the amount of Throttling required to comply with the Worldspan Segment Obligation, (b) the annual aggregate number of Tickets to be booked and issued through the Network Services and Worldspan Tickets to be booked and issued, as applicable, on behalf of each Participating Carrier, based on known and forecast business conditions, as well as the amount of Throttling required to comply with the Worldspan Segment Obligation, and (c) the monthly aggregate number of Tickets, Tickets issued through the Network Services, Worldspan Tickets and anticipated Throttling.

        1.13    "Interface" means the connectivity between the Airline Host System and the Network pursuant to which Orbitz Customers place Queries and book Tickets directly within the Airline Host System.

        1.14    "Inventory' means the seat availability as stored in the Airline Host System for flight numbers with the Airline designator code (including Codeshare flights); provided that, Inventory shall only include inventory made available to Orbitz pursuant to the Charter Associate Agreement or such similar or replacement commercial agreement between Orbitz (or any of its Affiliates) and Airline in effect from time to time pursuant to which Airline provides Orbitz with published fare and inventory information for air transportation for inclusion and sale on the Site.

        1.15    "Network" means the hardware, Orbitz Software and communication pathways that are used to provide a direct connection, which permits Orbitz to provide pricing, availability, booking, ticketing and settlement services including, without limitation, the Network Services.

        1.16    "Network Fees" means the fees specified in Schedule B (the "Network Fees Schedule").

        1.17    "Network Services" means the pricing, availability, booking, ticketing, and settlement services provided by Orbitz hereunder through the Interface with respect to the sale of Tickets on or through the Site, all as set forth in this Agreement and the Specifications.

        1.18    "Orbitz Customer" means any (i) individual consumer, (ii) business traveler, (iii) entity that uses the Site to make travel decisions or purchase travel products or services on behalf of its employees, agents, contractors or authorized representatives for such entity's business travel purposes or (iv) as otherwise agreed by Airline, any Person who is given access to the Airline Host System through the Network to view Inventory or book Tickets.

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        1.19    "Orbitz Software" means the software, owned by or licensed to Orbitz that Orbitz uses to provide the Network and the Network Services.

        1.20    "Participating Carrier" means                                        so long as such carrier (i) is also a party to a Charter Associate Agreement or such replacement commercial agreement with Orbitz (or any of its Affiliates) pursuant to which such carrier provides Orbitz with published fare and inventory information for air transportation for inclusion and sale on the Site and (ii) is not in material default of its Charter Associate Agreement or replacement commercial agreement, where any such default has not been cured within the applicable cure period stated in such agreement.

        1.21    "Person" means any individual, entity, firm, corporation, partnership, association, limited liability company, joint stock company, trust or unincorporated organization.

        1.22    "PNR" means a single passenger name record containing sufficient information to reserve Inventory. A PNR may contain the same itinerary for more than one passenger.

        1.23    "Project Managers" means the employees of Airline and Orbitz, or their replacements, who will manage specific projects and take responsibility for project plans under this Agreement.

        1.24    "Queries" means a search of Inventory by an Orbitz Customer through the Network based upon parameters entered by an Orbitz Customer and the return to such Orbitz Customer of Inventory information.

        1.25    "Relationship Managers" means the employees of Airline and Orbitz or their replacements who are designated by the parties in writing from time to time and will have overall responsibility to manage the relationship between Airline and Orbitz pursuant to this Agreement.

        1.26    "Remaining Segments" means, for the period of time beginning on the date when Orbitz first issues a Ticket through the Network Services under a Supplier Link Agreement with DL or UA (whichever is earlier) until December 31, 2004, all Segments available to be issued through the Network Services above the number of Segments required to satisfy the Caps for each of the Participating Carriers set forth in Section 5.3.1, it being understood that if any such Participating Carrier is unable to reach its Cap (other than as a result of a failure of the Network Services or Throttling) any Segments which would have been available to such Participating Carrier to attain such Participating Carrier's Cap will be included in the number of Remaining Segments to be allocated under Section 5.3.2.

        1.27    "Remaining Segment Carriers" means the carriers who have signed a letter of intent to participate in the Network Services but have not yet commenced processing Tickets through the Network Services as of the date of this Agreement.

        1.28    "Reservation System" means Sabre, Galileo, Worldspan and Amadeus and any other computerized reservation system within the meaning of 14 C.F.R. Sec. 255, as such regulation existed on the date hereof; provided that, Reservation System shall not include Orbitz or the Site.

        1.29    "Reservation System Fees" means all booking fees, distribution costs and/or other fees or charges payable to a Reservation System in connection with the sale of any tickets for air carriage, other than fees paid by Airline for the Airline Host System.

        1.30    "Safe Harbor Event" means either (a) an act of God, natural disaster, civil disturbance, strike, labor unrest, act of war (whether declared or undeclared), act of terrorism, outbreak or escalation of hostilities, or other calamity or crisis, which has a material adverse effect on Orbitz's business and the travel industry generally, or (b) the first period of two consecutive calendar months in a calendar year in which the total number of air and car booking transactions completed by Orbitz, as measured by Orbitz, has declined, in each such month, by more than 10% when compared to the same calendar months in calendar year 2002.

3



        1.31    "Segments" means those portions of a Ticket, each of which represents a direct or through flight represented by a single flight number.

        1.32    "Services" means the Network Services and any other services that are required under this Agreement for Orbitz to book and ticket in the Airline Host System, including without limitation any services required by Section 5.11 of this Agreement.

        1.33    "Site" means the Orbitz publicly available website presence on the internet known as orbitz.com or any replacement or successor URL through which Orbitz primarily conducts its business in accordance with the Airline Charter Associate Agreement or any replacement commercial agreement.

        1.34    "Specifications" means the functional and technical specifications for the Network Services set forth in Schedule C (as amended and updated from time to time by mutual written agreement of the parties). For the avoidance of doubt, unless otherwise agreed in writing by the parties, the Airline Specifications shall not be deemed to be part of the Specifications.

        1.35    "Statement of Work" means the form of any agreed upon obligations of the parties, which form shall be mutually agreeable to both parties and may be either a separate agreement or addendum to this Agreement, regarding any modifications, adaptations, additional uses or other development services outside of the scope of the Specifications entered into by the parties pursuant to Section 8 hereof.

        1.36    "Subcontractors" means the subcontractors that Orbitz engages to provide services under this Agreement.

        1.37    "Supplier Link Agreement" means an agreement between a carrier and Orbitz for Network Services.

        1.38    "Supplier Link Segment" means a Segment booked and issued for transportation on Airline's flights, Codeshare flights or flights sold under Airline's designator code through the Network Services.

        1.39    "Supplier Link Share" means a Participating Carrier's relative proportion of Segments booked and issued through the Network Services, equal to (X/Y) × 100, where X = the total number of Airline's Supplier Link Segments during the previously completed three months and Y = the total number of Segments issued through the Network Services for all carriers during the previously completed 3 months. For example, if the Forecast for May shows that Orbitz will be short by 1,000,000 segments in meeting its Worldspan Segment Obligation, and 14,000,000 Segments were processed using Network Services by all carriers during Feb., Mar. and Apr., and 6,000,000 Supplier Link Segments were processed by Airline during Feb., Mar. and Apr., then Orbitz could Throttle Airline by 42.86% (6/14) of 1,000,000 Segments or a total of 428,600 Segments.

        1.40    "Supplier Link Ticket" means a Ticket booked and issued for transportation on Airline's flights, Codeshare flights or flights sold under Airline's designator code through the Network Services. All Supplier Link Tickets shall be in electronic form except as expressly agreed by the parties in writing.

        1.41    "Throttle", "Throttled" or "Throttling" means the reduction by Orbitz of Tickets to be processed by Orbitz through the Network Services on behalf of carriers as required to meet the Worldspan Segment Obligation. In determining which Tickets to Throttle pursuant to this Agreement, Orbitz shall not consider the number of Segments in any Ticket; the parties acknowledge that Orbitz is unable to Throttle a partial Ticket, and therefore, if Orbitz has one remaining Segment available for processing through the Network Services and a Ticket consists of more than one Segment, the entire Ticket will be Throttled.

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        1.42    "Ticket" means an airline passenger reservation (in the itinerary portion of a PNR) ticketed to an Orbitz Customer, net of cancellations, for transportation on an airline's flights, Codeshare flights or flights sold under an airline designator. For clarification purposes: (a) one ticketed passenger on a one-way or round-trip direct flight shall be counted as one Ticket, (b) one ticketed passenger on a one-way or round-trip connecting flight shall be counted as one Ticket, (c) one ticketed passenger on a one-way or round-trip combination of direct and or connecting flights shall be counted as one Ticket and (d) multiple ticketed passengers within the same PNR constitute multiple Tickets.

        1.43    "True-Up Report" means a monthly report created by Orbitz which compares the previous month's Forecast for each Participating Carrier against the actual results achieved during such month and the Worldspan Segment Obligation.

        1.44    "Worldspan Segment Obligation" means Orbitz's obligation under Section 4.3 of the Amended and Restated Agreement for CRS Access and Related Services between Orbitz, LLC and Worldspan, L.P. dated November 1, 2001, and Sections 3.2 and 4.8(a) of the First Amendment to the Amended and Restated Agreement for CRS Access and Related Services, dated December 13, 2002 as in effect on the date hereof (collectively, the "Orbitz/Worldspan Agreement") to book segments via the Worldspan Reservation System in order to achieve the highest inducement level and avoid payment of any Minimum Segment Fees (as defined in the Orbitz/Worldspan Agreement).

        1.45    "Worldspan Segment" means a Segment booked and issued through the Worldspan Reservation System.

        1.46    "Worldspan Ticket" means a Ticket booked and issued through the Worldspan Reservation System.

2.    GENERAL

        2.1    Engagement.    During the term hereof and in accordance with the provisions of this Agreement, Orbitz shall provide to Airline, and Airline shall purchase from Orbitz the Network Services.

        2.2    Subcontractors.    Upon prior written approval of Airline, Orbitz may subcontract its performance of all or a portion of the Services to one or more Subcontractors, provided that Orbitz remains responsible for the work performed by such Subcontractor and for Subcontractor's compliance with all of its obligations pursuant to this Agreement. Prior to performing any Services, each Subcontractor shall execute a written agreement with Orbitz containing protections for Airline's confidential information and proprietary rights that are at least as protective as the terms and conditions of this Agreement. Notwithstanding the foregoing, however, (i) Airline has the right, in good faith, to deny any Subcontractor access to its facilities, systems and Confidential Information; and (ii) Orbitz may not engage a Subcontractor who is then-currently providing any services to a Competitor of Airline without first obtaining Airline's written approval.

        2.3    Facilities.    Airline will provide Orbitz with Airline-supervised access to those portions of Airline's premises and computer systems that Orbitz may reasonably require to perform the Services. Such access will be provided at mutually convenient times during Airline's normal business hours, unless otherwise agreed by the parties. While working at Airline's premises, Orbitz employees and Subcontractors will adhere to Airline's rules and regulations as they may exist from time to time; provided that such Subcontractors shall be informed of such rules and regulations. Orbitz agrees that it will immediately remove any employee or Subcontractor working at Airline's premises (a) who violates any of Airline's workplace rules and regulations, (b) whose action or inaction constitutes a breach under this Agreement, or (c) as requested by the Airline.

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3.    MANAGEMENT

        3.1    Relationship Managers.    Each party will designate a Relationship Manager to act as the primary point of contact between the parties with respect to this Agreement. Each party from time to time may also appoint one or more Project Managers to manage specific projects under this Agreement. The Project Managers will serve as the primary interface points between the parties with respect to such projects.

        3.2    Reports.    [Reporting Format and Specifics]

        3.3    Project Problems.    In the event of any actual or potential problem or delay in the Network Services or other development projects, the Relationship Managers will discuss the relevant source of such problem or delay, possible remedies and the potential impact on the Network Services or other development projects within twelve hours after such problem or delay is identified or the beginning of the next business day (whichever is earlier). To assist in such discussions, each Relationship Manager may invite any applicable Project Managers or other persons to such discussions.

4.    Intentionally left blank

5.    NETWORK SERVICES

        5.1    Network Services.    Upon the Commencement Date and throughout the term of this Agreement, subject to Airline performing its responsibilities set forth in this Agreement and the Specifications, Orbitz will provide the Network Services in accordance with the Specifications. Subject to Sections 5.3 and 5.4, if a Ticket is eligible for the Network Services and complies with the Schedule and the Specifications, Orbitz shall issue the Ticket through the Network Services. Orbitz will obtain from ATPCO (or such other third party agreed upon by the parties) the fare and fare rules, which apply to Airline's flights, Codeshare flights or flights sold under the Airline's designator code in order to provide the Network Services in the event such information is not available to Orbitz through the Network Services. To the extent Orbitz is not able to issue Tickets through the Network Services and such inability is not due to a failure by Orbitz to perform its obligations set forth in this Agreement and the Specifications (not including any Throttling), then Orbitz shall issue Tickets through an available Reservation System in which Airline is a participant, and Airline will be charged and will pay the corresponding Reservation System Fees payable by Airline with respect to any such Tickets, subject to Section 3.2 of the Airline Charter Associate Agreement (or similar provisions of any agreement that replaces the Airline Charter Associate Agreement between Orbitz (or any of its Affiliates) and Airline in effect from time to time pursuant to which Airline provides Orbitz with published fare and inventory information for air transportation for inclusion and sale on the Site), but Airline will not be responsible for any Network Fees payable hereunder related to such Tickets. In the event either party becomes aware that Tickets cannot be issued by Orbitz through the Network Services for a continuous period of more than six (6) hours, such party will notify the other party's Project Manager or Relationship Manager immediately upon becoming aware of such problem. Notwithstanding the foregoing, Orbitz shall remain obligated at all times during the term of this Agreement to correct and update the Orbitz Software and the integration of the Orbitz Software with the Airline Host System to enable it to perform the Services in accordance with the Specifications.

        5.2    Limitation on Uses of the Network Services.    The Airline Host System may be accessed only by Orbitz Customers who access the Network Services to purchase Supplier Link Tickets through the Site. Any use of the Network Services or access to the Airline Host System through the Network not contemplated by this Agreement, including but not limited to third party use or access to the Network, will be covered by a Change Request, a Statement of Work, or a separate written agreement between the parties. Provided Airline has consented to such third party use or access to the Airline Host System through the Network for the issuance of Airline's Tickets as contemplated in the previous sentence, Orbitz shall provide such third party access to Airline's Tickets through the Network on terms and

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conditions, which shall be no less favorable to Airline than the terms and conditions set forth in this Agreement, subject to the negotiation of a mutually acceptable agreement between Orbitz and such third party.

        5.3    Throttling in 2004.    During the period from January 1, 2004 through December 31, 2004 and only to the extent that Orbitz is subject to the Worldspan Segment Obligation, then:

            5.3.1    Beginning on the date Orbitz first issues a Ticket through the Network Services under a Supplier Link Agreement with DL or UA (whichever is earlier), Orbitz shall limit Tickets booked and issued through the Network Services for the following Participating Carriers to the percentage of such Participating Carrier's total Segments processed through the Site (in each case including Codeshare Segments) specified as follows (each, a "Cap" and collectively, the "Caps"):                                       . Orbitz will manage the application of the Caps with the intent of reaching the specified Caps for the time period between the date Orbitz first issues a Ticket through the Network Services under a Supplier Link Agreement with DL or UA (whichever is earlier) and December 31, 2004, on a cumulative basis.

            5.3.2    Subject to Section 5.3.3, beginning on the date Orbitz first issues a Ticket through the Network Services under a Supplier Link Agreement with DL or UA (whichever is earlier) until such time as all of the Remaining Segment Carriers have each reached their respective Cap (the Cap for each Remaining Segment Carrier shall be                                       %, in each case including the Remaining Segment Carrier's Codeshare Segments), Orbitz shall allocate all Remaining Segments as follows: (i) while only one of DL or UA is processing Tickets through the Network Services, all Remaining Segments will be allocated among the Remaining Segment Carriers then issuing Tickets through Network Services in accordance with each of their relative proportion of the total Tickets during the previous 3-month period and (ii) beginning on the date or dates that other Remaining Segment Carriers commence issuing Tickets through the Network Services but before they have all reached their respective Caps, all Remaining Segments will be allocated among the Remaining Segment Carriers then issuing Tickets through Network Services in accordance with their relative proportion of the total Tickets during the previous 3-month period.

            5.3.3    Notwithstanding the requirements in Section 5.3.2, Orbitz shall have the right to limit the number of Remaining Segments available to be allocated to the Remaining Segment Carriers as necessary (based on the Forecast) in order to meet the Worldspan Segment Obligation. In determining the number of Remaining Segments, Orbitz shall use reasonable commercial efforts to ensure that the Worldspan Segment Obligation is satisfied using as few Segments from the Remaining Segment as possible, and Orbitz shall use reasonable commercial efforts to allow Remaining Segments to exist, while at the same time satisfying the Worldspan Segment Obligation.

            5.3.4    If all Participating Carriers have reached their respective Caps, then all additional Segments shall be divided among all Participating Carriers in accordance with their respective Supplier Link Share.

            5.3.5    Subject to Section 5.3.1, if any Participating Carrier is unable to reach its Cap (other than as a result of a failure of the Network Services or Throttling) any Segments which would have been available to such Participating Carrier to attain such Participating Carrier's Cap will be treated as additional Segments under Section 5.3.4.

            5.3.6    During 2004, Orbitz may not Throttle Tickets with respect to                                        below their respective Caps (set forth in Section 5.3.1) unless Orbitz has first completely Throttled all other carriers. If all other carriers have been completely Throttled, then Orbitz shall Throttle                                        as follows:                                       .

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        5.4    Throttling in 2005 and Beyond.    

            5.4.1    Subject to Section 5.4.2, beginning on January 1, 2005 and continuing thereafter, no Caps shall apply to Airline (or any Participating Carrier), and subject to Section 5.4.2, Airline (and each Participating Carrier) shall be allowed to process an unlimited number of Tickets through the Network Services in accordance with the Specifications.

            5.4.2    Subject to the restrictions set forth in Section 5.4.3 and 5.4.4, beginning on January 1, 2005 and continuing thereafter, during such periods of time and to the extent that Orbitz is subject to the Worldspan Segment Obligation, Orbitz shall have the right to Throttle Tickets with respect to all Participating Carriers as necessary (based on the Forecast) in order to meet the Worldspan Segment Obligation, on a pro rata basis in accordance with each Participating Carrier's Supplier Link Share.

            5.4.3    From January 1, 2005 through December 31, 2006, Orbitz shall not Throttle Tickets with respect to                                        below the percentage of Segments set forth below ("Floor") unless Orbitz has first ceased processing Tickets through the Network Services for all other carriers. The Floor applicable to                                        is                                       . If all other carriers have been completely Throttled, then Orbitz shall Throttle                                        as follows:                                       .

            5.4.4    Orbitz may not Throttle Tickets with respect to Airline (or any Participating Carrier) in any month unless Orbitz has completely ceased processing Tickets through the Network Services for any carrier that is not a Participating Carrier.

        5.5    Throttling Payments.    For any Throttling that occurs on or after January 1, 2005, Orbitz will reimburse Airline (and each Participating Carrier) in the amount of $                                       for each Segment Throttled, subject to the limitations of Section 5.6 (the "Throttling Payment"). Orbitz will pay Airline the Throttling Payment on a quarterly basis within 30 days following the end of the calendar quarter and shall include with such quarterly payment a report of the Throttling Payments made to each Participating Carrier since the date of the last report, provided that if no Throttling Payments were made for any particular quarterly period, then no report shall be issued with respect to such quarterly period.

        5.6    Limitations to Throttling Payments.    The sum of all Throttling Payments provided by Orbitz to all Participating Carriers shall not exceed $3.0 million for 2005, $4.0 million for 2006, $5.0 million for 2007 and $5.0 million per year for any year beyond 2007.

        5.7    Excess Throttling; 4th Quarter Adjustments.    If the number of Tickets subject to Throttling was overestimated by Orbitz in the Forecast and as a result Airline was Throttled by a number of Tickets in excess of the number actually necessary to meet the Worldspan Segment Obligation for any calendar quarter, Orbitz will use commercially reasonable efforts to make available to Airline an additional allocation for Supplier Link Tickets in a future calendar quarter during the same calendar year equal to such excess amount. Orbitz acknowledges that over-Throttling will cause Airline economic harm and will therefore endeavor to manage Throttling so as to avoid over-Throttling and will delay Throttling to the extent possible until the second half of the year to reduce the risk that more Segments are Throttled than are necessary based on the Worldspan Segment Obligation.

        5.8    Throttling Due to a Safe Harbor Event.    Notwithstanding any of the procedures for Throttling set forth in Sections 5.3 or 5.4, but subject to Orbitz's obligation to make Throttling Payments in Section 5.5 (as limited by Section 5.6), in the event Orbitz provides Worldspan notice of a Safe Harbor Event and invokes its ability to avoid the payment of Minimum Segment Fees by availing itself of such Safe Harbor Event, then for so long as Orbitz is required to discontinue processing any and all Tickets through the Network Services in order to avoid the payment of Minimum Segment Fees, then Orbitz shall cease processing Tickets through the Network Services for all Participating Carriers, including

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Airline. Notwithstanding the foregoing, Orbitz hereby acknowledges and agrees that Orbitz' cessation of processing Tickets through the Network Services in connection with its declaration of a Safe Harbor Event pursuant to Orbitz' agreement with Worldspan will cause Airline economic harm and therefore, in the event of any such cessation, Orbitz agrees to reinstate processing Tickets through the Network Services on the first date following such cessation that a Forecast, if then prepared by Orbitz in good faith and based upon reasonable assumptions, would reflect that, for the year in which the cessation occurred, Orbitz would be able to comply with the Worldspan Segment Obligation if on such date Orbitz again commenced processing Tickets through the Network Services for all Participating Carriers, including Airline.

        5.9    Change to Worldspan Segment Obligation.    Orbitz shall not agree to any increase in the Worldspan Segment Obligation so long as any Supplier Link Agreement remains in effect, and Orbitz shall notify Participating Carriers of any reduction to, or other modification that affects in any way, directly or indirectly, the Worldspan Segment Obligation, which notice shall contain specificity as to the reduction or modification. Orbitz' right to Throttle shall be updated to reflect any reduction in the Worldspan Segment Obligation, and this Agreement shall be amended to reflect the full benefit of the reduction.

        5.10    Notice of New Network Service Features and Functions.    Orbitz will, on an ongoing basis during the term, notify Airline in writing of any new capabilities, features or functions developed by Orbitz for the Network Services or any different capabilities, features or functions made available to another carrier relating to the Network Services. In addition, Orbitz shall notify Airline in writing within ten (10) days of offering any new or different capabilities, features or functions relating to the Network Services to any other carrier (including, but not limited to, all of the specifications agreed upon between any carrier and Orbitz applicable to the Network Services) and Airline will have the option to participate in such new or different capabilities, features or functions on the same terms and conditions which are no less favorable than those offered to any other carrier. Notwithstanding the foregoing, Orbitz will not be required to notify Airline of (i) any error, correction or minor change that Orbitz may implement with respect to Network Services if such correction or change affects all carriers at substantially the same time and in substantially the same manner or (ii) any changes or additions to the specifications applicable to the Network Services that are solely to accommodate the technology of a particular carrier and do not result in more favorable treatment of such carrier.

        5.11    Further Development.    Following the Commencement Date, Orbitz shall provide additional development services with respect to the Orbitz Software and the Interface as follows:

            5.11.1.    Changes or Modifications at the Request of Airline.    Upon Airline's request and subject to mutually agreeable terms and conditions, Orbitz may provide to Airline development services (collectively, "Airline Development") that are in addition to any development required to be performed by Orbitz in order to perform the Services in accordance with the Specifications or as provided in Section 5.11.2 hereof. Any Airline Development shall be performed pursuant to a Change Request or a Statement of Work entered into by the parties in accordance with Section 8 hereof. The parties agree that in the event Orbitz provides Airline with any Airline Development, Orbitz will charge Airline rates that are no higher than those it charges to other carriers for similar types of development services or for similar enhancements or modifications. Orbitz' current hourly rates for Airline Development are set forth in Schedule D hereto.

            5.11.2    Changes or Modifications Required by Law or by Industry Standards.    Upon either party's request that the Network Services be modified to meet or be compatible with any (a) applicable law or regulation, including but not limited to any laws or regulations administered or promulgated by the U.S. Department of Transportation, or (b) governmental or industry standards, that have been adopted on an industry-wide basis, Orbitz and Airline will mutually agree in writing on the parties' respective development obligations regarding such modifications

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    and any amounts to be paid by the parties for the development of such modifications or other services that are performed, pursuant to the procedures in Section 8 of this Agreement. In the event that the parties are unable to reach agreement on such changes in good faith after reasonable deliberation, and continued use of the Network Services would violate applicable law or regulation, or government or industry standards, either party may terminate this Agreement by giving the other party at least 30 days notice of its intent to terminate.

        5.12    Compliance.    During the term of this Agreement, Orbitz will ensure that the Network Services comply with all applicable interline reservations policies, procedures and message formats and are in accordance with the requirements set forth in the Specifications. Orbitz agrees that all Supplier Link Tickets and Inventory will be marketed, displayed, filed, sold and settled (a) through ARC in accordance with its agreement with ARC, Airline's addendum thereto and any ARC policies and procedures and (b) in accordance with any and all applicable laws, industry standard and governmental regulations, including the Department of Transportation's Notice dated January 18, 2001 regarding the "Prohibition on Deceptive Practices in the Marketing of Airfares to the Public using the Internet". Orbitz will, at all times during the term of this Agreement, remain in good standing with ARC. Orbitz shall process all Supplier Link Tickets created by Orbitz Customers, and shall handle information relating to Airline, with the same care and timeliness as the Tickets and information of all other airlines and without regard to the identity of the carrier but no less than what is reasonable. Orbitz will review and work on rejected messages and, where justified by volume, investigate methods of reducing and resolving such rejected messages. Without the prior written consent of Airline, Orbitz will not (i) make changes to the functionality of its system or services in a manner that increases the fees payable by Airline to Orbitz under this Agreement (including, without limitation, changes to functionality that result in the generation of multiple separate tickets for travel to a specific location), or (ii) make changes to its processes or procedures related to the Network Services in a manner that materially increases the fees payable by Airline to the Airline Host System provider. Orbitz will not provide any type of incentive to Customers that would motivate Customers to request the issuance of multiple separate Tickets for travel to a specific location.

        5.13    Display.    Orbitz agrees to display Inventory in an unbiased manner in accordance with Section 3.1 of the Airline Charter Associate Agreement.

        5.14    Reporting; Audit.    Orbitz shall provide to Airline in electronic form all back-up documentation and information specified in the Specifications or otherwise reasonably requested by Airline to substantiate the charges to Airline pursuant to this Agreement, provided that Orbitz may provide such documentation and information in a manner that protects the confidentiality of any information that Orbitz by law or contract is prohibited from disclosing to Airline. Airline will also have the right, at anytime during the term of this Agreement, upon not less than five (5) days prior written notice to conduct, or to cause an independent auditor retained by Airline to conduct, an audit of Orbitz' books and records with respect to the Services provided to Airline hereunder to verify the amounts charged Airline hereunder and Orbitz' compliance with its obligations hereunder. If any such audit reveals that the amounts paid to Orbitz by Airline pursuant to this Agreement have been greater than or less than the amounts actually due to Orbitz pursuant to this Agreement, then Orbitz shall promptly pay to Airline, or charge Airline, for the amount by which such paid amounts are greater than, or less than, such amounts actually due. Airline agrees that it will notify Orbitz if Airline has knowledge that any Orbitz Customer is using the Network Services in an improper fashion. Upon receipt of such notice and confirmation of the matters described therein, or if Orbitz discovers such improper use independent of information supplied by Airline, Orbitz shall report in writing to Airline, the extent of the misuse discovered and shall take such action as is reasonably necessary to correct the improper use of the Network Services. Airline may terminate this Agreement pursuant to Section 17.2 upon notice to Orbitz if Orbitz fails to take prompt action to correct the improper use of the Network Services with respect to an Orbitz Customer following a request by Airline to take such action.

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        5.15    Support and Security.    For Network Services failures or other reported problems, each party will provide, or have its authorized agent provide, the technical support services described in the Specifications. Airline agrees to assist Orbitz in interpreting ATPCO rules to the extent it does for other ARC-accredited agencies. Airline agrees to use commercially reasonable efforts to maintain, or cause to be maintained, the Airline Host System. Orbitz is solely responsible for hosting, and agrees to maintain, the Network at Orbitz's expense (except for any fees payable hereunder). Orbitz will use its commercially reasonable efforts to promptly fix or provide a work around solution for material, identifiable errors in the Network Services at no additional charge. Orbitz will provide a secure environment for the Network and Inventory provided to Orbitz by Airline in accordance with the security standards set forth in the Specifications. Orbitz agrees to notify Airline as soon as possible, but in any event within six (6) hours or by 9 a.m. of the next business day, whichever is shorter, if it learns of a suspected or actual security breach.

        5.16    Customer Support.    [Customer Support Specifics]

        5.17    Out-of Scope Services.    Orbitz and Airline acknowledge and agree that certain transactions identified in Section 4 of Schedule C to this Agreement will be considered as "normal exclusions" from the Network Services. The parties agree that the Orbitz Software is not currently designed to support or process these transactions through the Network Services and Orbitz will not be required to enable the Network Services to process or support such transactions unless otherwise agreed by the parties in writing.

        5.18    Direct Billing.    Airline may during the term of this Agreement request that certain Orbitz Customers or other third parties to be qualified for direct billing by Orbitz. Upon mutual agreement by Orbitz and Airline, and provided such Orbitz Customer or other third party executes an appropriate agreement with Orbitz, (i) Orbitz will invoice such Orbitz Customer or other third party for the Network Fees for Tickets booked by such Orbitz Customer or other third party and (ii) Airline will have no obligation to pay the applicable Network Fees for Tickets booked by such Orbitz Customer or other third party.

6.    AIRLINE OBLIGATIONS.

        6.1    Airline Charter Associate.    During the term of this Agreement, each party agrees that it will not be in material default of its Airline Charter Associate Agreement or any other commercial agreement pursuant to which Airline provides Orbitz with published fare and inventory information for air transportation for inclusion and sale on the Site (provided that such party shall have the opportunity to cure any such default within the cure period stated in such agreement). In the event that the Airline Charter Associate Agreement (or another commercial agreement pursuant to which Airline provides Orbitz with published fare and inventory information for air transportation for inclusion and sale on the Site) is terminated as a result of an uncured material default by either Airline or Orbitz, the non-defaulting party may, following notice and expiration of the period to cure such default provided in Section 17.2), terminate this Agreement for breach pursuant to Section 17.2, and upon any such termination, neither party shall have any further obligation under this Agreement.

        6.2    Assistance and Cooperation.    Upon request by Orbitz, Airline will provide Orbitz with reasonable assistance and cooperation in the performance of the Services in accordance with the express provisions contained in this Agreement and the Specifications. Airline agrees to provide Orbitz with reasonable advance notice of any changes to the Airline Host System that Airline reasonably believes will affect the Network Services.

        6.3    Inventory.    Airline shall provide Orbitz with access to Inventory information in accordance with the formatting and delivery requirements set forth in the Specifications.

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        6.4    Fulfillment.    [Fulfillment Specifics]

        6.5    Availability Data.    Airline will provide to Orbitz, or such other party as Orbitz may, with Airline's consent, which consent shall be limited to use in connection with this Agreement, designate to act on behalf of Orbitz, complete, accurate and timely direct access to Airline's availability data such that the quality of data is at least as good as that available via Worldspan or any other Reservation System providing services to Orbitz. In the event the parties mutually agree that Orbitz will use Worldspan availability data to provide the Network Services (but not process substantially all bookings though Worldspan), Airline will pay Orbitz the amount owed by Orbitz to Worldspan as set forth in the Orbitz/Worldspan Agreement to access through Worldspan availability data with respect to flights sold under Airline's designator code.

7.    FEES AND PAYMENT

        7.1    Fees.    Following the Commencement Date, Airline will pay to Orbitz for each Supplier Link Ticket issued the Network Fees set forth in the Network Fees Schedule attached hereto as Schedule B; provided that, no Network Fees shall be due or payable for any Ticket booked or issued through Worldspan.

        7.2    Reimbursable Expenses.    If agreed to in advance in writing by Airline, Airline will reimburse Orbitz for reasonable, actual, out-of-pocket expenses incurred by Orbitz in conjunction with out of town travel required for Orbitz to perform the Services. In the event Airline approves any such travel by Orbitz, Airline will, at its option, provide Orbitz with Coach Class space available or other tickets for air travel on Airline or reimburse Orbitz the actual cost for Coach Class, round trip air travel. Orbitz shall utilize Airline's air transportation unless specifically approved otherwise, on a case-by-case basis, by Airline's Relationship Manager. Other reimbursable expenses will be limited to reasonable and actual expenses for lodging, meals, local transportation and incidentals only as are required by Orbitz in the performance of its obligations hereunder. Unless specifically agreed upon otherwise by Airline's Relationship Manager, rental car expenses will only be reimbursed if the car is necessary for Orbitz to complete its obligations hereunder. Receipts will be required for any expenditure totaling US $10.00 or more. Air travel, hotel and rental car expenses will only be reimbursed if reservations are made through Airline, unless Airline declines to make such reservations. Notwithstanding the foregoing, the parties may agree upon, in advance of any travel, a per diem payment in lieu of reimbursement.

        7.3    Payment Terms.    Orbitz will invoice Airline monthly for any fees or expenses payable by Airline hereunder. Airline will pay to Orbitz within 30 days of receipt of an Orbitz' invoice all undisputed amounts set forth on such invoice. In the event that Airline asserts in good faith that any item or items on an invoice are not correct, then Airline will within thirty (30) days of receipt of such invoice (a) deliver written notice to Orbitz explaining in detail why Airline believes that an item or items are not correct and (b) pay to Orbitz all amounts on the invoice that are not the subject of a good faith dispute by Airline.

        7.4    Most Favored Buyer.    If prior to the execution of, or during the term of this Agreement, Orbitz provides to another airline services (including but not limited to the Network Services) that are the same or substantially the same as those provided to Airline under this Agreement: (i) under a more favorable fee schedule than the fee schedule in effect for Airline but with substantially the same terms and conditions, then Orbitz will immediately notify Airline of the existence of such agreement and the more favorable fee schedule will apply immediately to Airline effective as of the effective date of such agreement with the other airline; and/or (ii) on terms and conditions that taken as a whole are more favorable to such other airline than the terms hereof are favorable to Airline, then such more favorable terms and conditions will apply to Airline and this Agreement; provided that in determining whether the fee schedule and/or the terms and conditions of such other agreement are more favorable to the other airline than those set forth herein, any set-up fees associated with the initial development of the

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Interface shall be disregarded; provided, however, that Orbitz agrees that set-up fees associated with any Supplier Link Agreement shall reflect only the actual costs attributable to implementation of Network Services.

        7.5    Taxes.    The Network Fees are exclusive of all sales, use, customs, excise, value added, ad valorem or other similar tax, assessment or duty ("Taxes") that Orbitz may be legally obligated to charge Airline on account of the payment of any amounts from Airline to Orbitz for the provision of goods or for performing the Services pursuant to this Agreement. Orbitz shall pay and be solely responsible for all taxes that are: (i) on, based on, or measured by, gross or net income or gross or net receipts (including any capital gains taxes or minimum taxes) of Orbitz, or taxes which are capital, doing business, excess profits, net worth, or franchise taxes of Orbitz; (ii) caused by or arising out of the willful misconduct or negligence of Orbitz; or (iii) any interest, additions to tax, or penalties associated with the taxes set forth in (i) or (ii) above. Orbitz shall be registered to collect sales tax and shall be responsible for the collection of applicable sale and use taxes in jurisdiction where such registration is required by law. Airline shall pay or reimburse Orbitz for the payment of all Taxes that are lawfully imposed by any governmental authority and are based on or measured by any payments of Airline pursuant to this Agreement. All such Taxes shall be separately stated on the invoice. Airline shall not pay any Taxes if: (i) a specific exemption applies to (a) the products or services purchased hereunder, or (b) any transaction occurring pursuant to this Agreement, (ii) Airline has provided Orbitz with written confirmation that Airline is authorized to make tax payments directly to the applicable taxing authorities, or (iii) Orbitz is obligated to pay the taxes as set forth herein. Orbitz shall promptly, upon receipt from any tax authority of any levy, notice, assessment, or withholding of any tax for which Airline may be obligated, notify Airline in writing. If under the applicable law of the taxing jurisdiction Airline is allowed directly to contest such tax in its own name, then Airline shall be entitled, at its own expense and in its own name, to contest the imposition, validity, applicability or amount of such tax and, to the extent permitted by law, withhold payment during pendency of such contest. If Airline is not permitted by law to contest such tax in its own name, upon Airline's request, Orbitz shall in good faith and using best efforts, at Airline's direction and expense, contest the imposition, validity, applicability or amount of such tax. Orbitz shall in good faith and using best efforts: (i) supply Airline with such information and documents reasonably requested by Airline as are necessary or advisable for Airline to (a) recover or seek a refund of any sales or use tax paid by Airline as a result of this Agreement; or (b) control or participate in any proceeding to the extent permitted herein, and (ii) reasonably assist Airline with evidentiary and procedural development of any such proceeding or contest. If all or any part of any Taxes are refunded or credited, Orbitz shall repay Airline such part thereof as Airline paid, including any interest received thereon. Upon Airline's request, Orbitz shall delineate the fees among the component portions of the products and services contracted for in this Agreement. The term "Component Portions" for purposes of this paragraph shall include, but is not limited to: (i) maintenance, including upgrades and enhancements, (ii) installation, (iii) support, and (iv) training and related manuals.

8.    CHANGE REQUESTS

        8.1    Change Request.    If either party wants to request a modification, addition or change in the Services, including without limitation a modification to the Network Services, other than those changes or modifications that Orbitz is required to perform pursuant to this Agreement, its Relationship Manager will submit a completed Change Request to the Relationship Manager of the other party. The Change Request will adequately describe (a) the requested modification, (b) the estimated resources required to implement the modification, (c) its impact on a Statement of Work if it is a modification or development as contemplated by Section 5.4, (d) its impact on the Network Fees, and (e) any required information and resources by Airline. Notwithstanding the foregoing, Orbitz may modify, add to or change the Network Services upon not less than thirty (30) days prior notice to Airline, without Airline's approval, if (i) the proposed modification, addition or change is being made in the same

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manner to the Network Services Orbitz provides to all other carriers, (ii) such modification, addition or change does not increase the Network Services Fees, (iii) such modification, addition, or change does not adversely affect the functionality or reliability of the Services or the processes and procedures of Airline, and (iv) such modification, addition, or change does not result in additional development work for Airline.

        8.2    Change Acceptance.    Upon receipt of a completed Change Request, the recipient Relationship Manager will either (a) expressly accept the proposed modification without qualification within thirty (30) days after its receipt or (b) defer the request for discussion of the next scheduled or emergency status meeting. The Relationship Managers will use good faith efforts to resolve any deferred proposed modification expeditiously. Neither party shall have any obligation to enter into a Change Request proposed by the other party, and no proposed modification will be effective unless accepted in writing by the authorized employees of both parties. Any Change Request that is accepted and so executed will thereafter constitute a formal amendment of this Agreement.

9.    CONFIDENTIALITY.

        9.1    Protection of Confidential Information.    Each party agrees to maintain strict confidentiality regarding the subject matter of this Agreement. Each party will take such measures that are necessary to protect against the disclosure or use of the Confidential Information of the other party as it takes to protect its own proprietary or confidential information (but in any case no less than reasonable measures). Each party agrees that the other party will have no adequate remedy at law if there is a breach or threatened breach of this Section 9 and, accordingly, that either party will be entitled (in addition to any legal or equitable remedies available to such party) to injunctive or other equitable relief to prevent or remedy such breach.

        9.2    Restrictions on Disclosure and Use.    Unless expressly authorized in writing by the Disclosing Party or as authorized by the Airline Charter Associate Agreement, the Receiving Party agrees to retain the Confidential Information in confidence and shall not copy or disclose the Confidential Information to, or use the Confidential Information for, the benefit of any third party, except as set forth in this Section 9.2. Confidential Information may be disclosed on a need to know basis to the Receiving Party's employees, Affiliates, and independent contractors who are parties to a written agreement with the Receiving Party which prohibits the disclosure of Confidential Information, and limits its use to the benefit of the Receiving Party and its Affiliates, using reasonable technical and organizational measures to protect the confidentiality of the information.

        9.3    Exclusions.    Notwithstanding any other provisions of this Agreement, each party acknowledges that Confidential Information shall not include any information which (a) is or becomes publicly known through no wrongful act of the Receiving Party; (b) is at the time of disclosure, already known to the Receiving Party without restriction on use or disclosure and was not obtained from the Disclosing Party or its contractors under a duty of confidentiality; or (c) is independently developed or obtained from a third party by the Receiving Party without breach of this Agreement. In addition, nothing contained in this Section 9 or elsewhere in this Agreement shall restrict Orbitz from complying with ARC reporting requirements, or the reporting requirements of any such other settlement company to which Orbitz is required to report.

        9.4    Relief from Obligations.    Either party will be relieved of its confidentiality obligations hereunder if and to the extent that Confidential Information (a) is disclosed pursuant to the lawful requirement of a governmental agency, or disclosure is required by operation of law, provided that the party making the disclosure requires reasonable measures to protect the security of the information, has given timely notice to the Disclosing Party and the Disclosing Party has been permitted at its expense to interpose objections, defenses or obtain a protective order limiting disclosure and use of the information; or (b) is explicitly approved for release by written authorization of the Disclosing Party.

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        9.5    Ownership of Confidential Information.    No license, express or implied, in the Confidential Information is granted by one party to the other party other than to use such Confidential Information in the manner and to the extent authorized by this Agreement. Each party shall retain the title and full ownership rights to their respective Confidential Information. Each party agrees that upon the request of the Disclosing Party, it shall return to the Disclosing Party all of the Disclosing Party's Confidential Information in such party's possession or control.

        9.6    No Publicity.    Neither party will issue a press release, advertisement or public statement concerning the existence of this Agreement, its contents or the transactions contemplated by it without the express written consent of the other for each such event.

        9.7    Data Privacy.    With respect to any information provided by the other party that is processed under this Agreement that relates to, or is about, an identified or identifiable person, each party shall at all times (i) use reasonable efforts to protect such information and (ii) comply with all applicable laws and regulations, including but not limited to data privacy laws, in its use of such information.

10.    LICENSE GRANT.

        10.1    By Airline.    Airline grants Orbitz a limited, worldwide, non-exclusive, royalty-free right and license, without the right to sublicense, to: (a) access, display, transmit and distribute Inventory made available by Airline through the Network to Orbitz Customers in response to Queries on the Site and (b) use any information owned and provided by Airline hereunder about the Airline Host System, the Airline Specifications and the Inventory solely for the purposes of meeting Orbitz's obligations hereunder. The foregoing is a license merely to access the Airline Host System and exchange information with it. No rights are granted by or implied in this Agreement for Orbitz or Orbitz Customers to modify in any manner or use directly the Airline Host System, except as provided herein.

        10.2    By Orbitz.    Orbitz grants Airline a limited, worldwide, non-exclusive, royalty free right and license to: (a) use the Network to access all Orbitz Customer records that contain at least one Airline or Codeshare flight segment to allow Airline to test and validate the operation, compliance and quality of the Network Services prior to implementation of the Network Services and during mutually agreed upon testing periods and (b) use the Network and any information provided by Orbitz hereunder about the Orbitz Software solely for any purposes of obtaining the Services contemplated by this Agreement and meeting Airline's obligations to Orbitz under this Agreement.

11.    PROPRIETARY RIGHTS.

        11.1    Orbitz.    Subject to Sections 11.2 and 11.3, as between Airline and Orbitz and to the extent of Orbitz' prior ownership rights, Airline acknowledges and agrees that Orbitz will own all patents (including any business process patents), rights to file for patents, inventions, copyrights, trademarks, trade secrets and all other right, title and interest (including any renewals or extensions) in or to the Network, the Orbitz Software and any interfaces, networks, configurations, programs (including without limitation, those programs that integrate the Network Services with the Airline Host System) and other systems developed by Orbitz or its employees or Subcontractors during the performance of this Agreement, and including, without limitation, any derivative works thereof created by Orbitz or its employees or Subcontractors. Airline hereby assigns and agrees to assign to Orbitz all rights that Airline may have or acquire in or to such works for no additional consideration. No other person will acquire or retain any rights in or to such works, unless Orbitz otherwise agrees on a case-by-case basis. At Orbitz' request, Airline will cause the execution of the instruments that may be appropriate to give full legal effect to this Section for no additional consideration.

        11.2    Developments.    With respect to any development performed by Orbitz at the request of Airline subsequent to the Commencement Date, the parties will determine, in connection with such request, the ownership of proprietary rights thereto.

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        11.3    Prior Agreements.    Nothing in this Agreement will affect the proprietary rights of Airline in any intellectual property that Orbitz has agreed in a prior agreement will be owned by Airline.

        11.4    Airline Information.    As between Airline and Orbitz and to the extent of Airline's prior ownership rights, Orbitz acknowledges and agrees that Airline will own all patents (including any business process patents), rights to file for patents, inventions, copyrights, trademarks, trade secrets and all other right, title and interest (including any renewals or extensions) in or to (a) the Inventory, the Airline Specifications and the Airline Host System, and all modifications thereto and derivatives of the foregoing, and (b) and the Airline Software and any interfaces, networks, configurations, programs and other systems developed by or on behalf of Airline or its employees or subcontractors during the performance of this Agreement, and including without limitation any derivative works thereof created by or on behalf of Airline or its employees or subcontractors. Except as otherwise explicitly provided in this Agreement, Orbitz shall have no right or license to use, reproduce, transfer, disclose, display or distribute (electronically or otherwise) any technology or intellectual property rights in the Airline Specifications, Inventory, Airline Host System or Airline Software, and all other developments created by, on behalf of Airline. Orbitz hereby assigns and agrees to assign and will cause its Subcontractor to assign, to Airline all rights that Orbitz may have or acquires in or to such works or rights for no additional consideration. At Airline's request, Orbitz will cause the execution of such instruments that may be appropriate to give full legal effect to this Section 11.4 for no additional consideration.

        11.5    Interface.    Except as otherwise agreed to by the parties in this Agreement, the Specifications and any Change Request or any Statement of Work or otherwise, as between Airline and Orbitz, each party shall own all right, title and interest in such portions of the Interface and the functionalities designed to integrate the Network with the Airline Host System as such party creates and/or develops pursuant to this Agreement or any prior agreement between the parties. Notwithstanding this Section 11.3, in no event will Airline be deemed to have any right, title or interest in the Network, and in no event will Orbitz be deemed to have any right, title or interest in the Airline Host System, the Airline Software or the Airline Specifications as a result of this Agreement.

12.    NON-EXCLUSIVITY.    The relationship between Airline and Orbitz as set forth in this Agreement will be non-exclusive. Nothing in this Agreement is intended to prevent either party from entering into similar agreements with any other party. Airline may participate in other Internet travel sites similar to the Network and may obtain services from other entities similar to the Network Services. Orbitz may permit other carriers to participate in the Network and may provide services similar to the Services to other carriers. Orbitz and Airline may market, maintain, service and support Internet travel sites that compete with or provide functionality similar to the Network. This Agreement will not confer any rights on one party to restrict the other party's ability to offer fare information or to do business, or choose not to do business, with any other airline, Internet travel provider site, or any other entities.

13.    WARRANTIES AND DISCLAIMERS

        13.1    General Warranty.    Each party represents and warrants that (a) it has the full corporate authority to execute this Agreement and perform its obligations hereunder, (b) the execution or performance of this Agreement will not violate or be considered a breach of any obligation of such party to any third party and (c) the execution or performance of this Agreement will not violate any applicable law or regulation.

        13.2    Specific Warranty.    Orbitz represents and warrants that (a) it has sufficient rights or license in or to the Network and the Orbitz Software to perform the Services, (b) it will perform the Services in a good and workmanlike manner and in accordance with the Specifications and (c) the number of segments Orbitz must book via the Worldspan Reservation System to achieve the highest inducement level is                                        air segments and Orbitz is obligated to pay Minimum Segment Fees if Orbitz fails to book 16,000,000 total air and car segments via the Worldspan Reservation System.

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Except as provided in Section 5.2.2 hereof, during the term of this Agreement, Orbitz shall maintain the availability of the Network Services for the issuance of Supplier Link Tickets in accordance with the Specifications. In case of breach of the warranty set forth in subsection (b) above, Orbitz will correct or re-perform the defective Services, or refund the fees actually paid to Orbitz for the defective Services. Airline acknowledges and agrees that this Section 13.2 and Section 5.1 set forth its exclusive remedy and Orbitz' exclusive liability for any claim of breach of warranty with respect to the Services. The limitations in the foregoing sentence shall not apply to any failure by Orbitz to perform hereunder that results from the gross negligence or willful misconduct of Orbitz, its officers, employees, representatives, agents, contractors or subcontractors, the breach by Orbitz of its confidentiality obligations pursuant to Section 9 and the indemnities set forth in Section 14 hereof.

        13.3    Limitation.    The warranties and remedies specified in this Section will not apply if the Services are defective due to extrinsic causes outside the reasonable control of the warranting party, such as (a) natural disasters, including without limitation fire, smoke, water, earthquakes or lightning, (b) electrical power fluctuations or failures, (c) neglect or misuse by either party, (d) incorrect information provided by Airline regarding Inventory (e) a correction or modification of a Service not provided or recommended by Orbitz, or (f) the combination of the Services with other items or services (other than the Airline Host System to the extent it is operated in accordance with the Specifications) with which the Services are not intended to be used. In addition, Airline shall not be responsible or liable for unavailability or errors or omissions of the Interface, the Airline Host System or Inventory due to (i) errors or omissions in Orbitz's interpretation or transmission of Inventory, except to the extent that such errors originated with Airline, (ii) errors in HTML or other coding provided by Orbitz or its employees or Subcontractors, (iii) third party information of any kind whatsoever, or (iv) any matters listed in Section 19.5.

        13.4    WARRANTY DISCLAIMER.    EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, ALL WARRANTIES, CONDITIONS, REPRESENTATIONS AND GUARANTEES WITH RESPECT TO THE SERVICES, INCLUDING WITHOUT LIMITATION THE ORBITZ SOFTWARE, WHETHER EXPRESS OR IMPLIED, ARISING BY LAW, CUSTOM, PRIOR ORAL OR WRITTEN STATEMENTS BY ORBITZ, ITS AGENTS OR OTHERWISE (INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OR CONDITION OF SATISFACTORY QUALITY, ACCURACY, UNINTERRUPTED USE, TIMELINESS, SEQUENCE, TRUTHFULNESS, COMPLETENESS, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT AND ANY IMPLIED WARRANTIES ARISING FROM TRADE USAGE, COURSE OF DEALING OR COURSE OF PERFORMANCE) ARE HEREBY OVERRIDDEN, EXCLUDED AND DISCLAIMED.

14.    INDEMNITY.

        14.1    Indemnification.    Orbitz will indemnify, defend, and hold harmless Airline, its directors, officers, employees, and agents (each, an "Indemnified Party") from and against all any and all costs, demands, losses, claims (including any claim by a third party), liabilities, fines, penalties, assessments, damages, including, without limitation, interest, penalties, reasonable attorneys' fees and expenses and all amounts paid in proceedings, claims, complaints, disputes, arbitrations, investigations, defense or settlement of any of the foregoing, connected with the furnishing of any services or data by Orbitz pursuant to this Agreement (including but not limited to actual or alleged infringement or misappropriation of any trade name, patent, copyright, trade secret or other property right based on any software, program, service and/or other materials furnished by Orbitz hereunder, including the Site); provided, the foregoing shall not apply to the extent of claims or liabilities resulting from the negligence or willful misconduct of Airline, its directors, officers, employees or agents.

        14.2    Indemnification Procedures.    If any action, claim or other proceeding shall be brought against any Indemnified Party, and it shall notify Orbitz of the commencement thereof, Orbitz shall be entitled

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to assume the defense thereof at its own expense, with counsel satisfactory to such Indemnified Party in its reasonable judgment; provided, however, that any Indemnified Party may, at its own expense, retain separate counsel to participate in such defense at its own expense. Notwithstanding the foregoing, in any action, claim or proceeding in which both Orbitz, on the one hand, and an Indemnified Party, on the other hand, are, or are reasonably likely to become, a party, such Indemnified Party shall have the right to employ separate counsel at the reasonable expense of Orbitz and to control its own defense of such action, claim or proceeding if, in the reasonable opinion of counsel to such Indemnified Party, a conflict or potential conflict exists between Orbitz, on the one hand, and such Indemnified Party, on the other hand, that would make such separate representation advisable; provided, however, that Orbitz shall not be liable for the fees and expenses of more than one counsel to all Indemnified Parties. Orbitz agrees that it will not, without the prior written consent of the Indemnified Party, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated hereby (if any Indemnified Party is a party thereto or has been actually threatened to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of the Indemnified Party from all liability arising or that may arise out of such claim, action or proceeding. Orbitz shall not be liable for any settlement of any claim, action or proceeding effected against an Indemnified Party without Orbitz's written consent, which consent shall not be unreasonably withheld.

        15.    DAMAGES LIMITATIONS.    EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS OF THE PARTIES EXPRESSLY SET FORTH HEREIN AND CLAIMS ARISING OUT OF ANY BREACH OF SECTION 9, WITH RESPECT TO EACH OF WHICH LIABILITY SHALL NOT BE LIMITED PURSUANT TO THIS SECTION 15, UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL, PUNITIVE OR INCIDENTAL DAMAGES OR LOST PROFITS, WHETHER FORESEEABLE OR UNFORESEEABLE, BASED ON THE OTHER PARTY'S CLAIMS (INCLUDING, BUT NOT LIMITED TO, CLAIMS FOR LOSS OF DATA, GOODWILL, USE OF MONEY, USE OF THE NETWORK OR USE OF THE SERVICES, INTERRUPTION IN USE OR AVAILABILITY OF INFORMATION, STOPPAGE OF WORK OR IMPAIRMENT OF OTHER ASSETS), ARISING OUT OF BREACH OR FAILURE OF EXPRESS OR IMPLIED WARRANTY, BREACH OF CONTRACT, MISREPRESENTATION, NEGLIGENCE, STRICT LIABILITY IN TORT OR OTHERWISE. EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS OF THE PARTIES EXPRESSLY SET FORTH HEREIN, CLAIMS ARISING OUT OF ANY BREACH OF SECTION 9 AND AIRLINE'S PAYMENT OBLIGATIONS, WITH RESPECT TO EACH OF WHICH LIABILITY SHALL NOT BE LIMITED PURSUANT TO THIS SECTION 15, IN NO EVENT WILL THE AGGREGATE LIABILITY WHICH EITHER PARTY MAY INCUR TO THE OTHER PARTY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT EXCEED THE GREATER OF (A) THE TOTAL FEES PAYABLE BY AIRLINE TO ORBITZ DURING THE TWELVE (12) MONTH PERIOD PRECEDING THE EVENT THAT RESULTED IN SUCH LIABILITY, OR (B)  $                                      . THIS SECTION 15 WILL APPLY IN ALL CASES EXCEPT AND TO THE EXTENT THAT APPLICABLE LAW SPECIFICALLY REQUIRES LIABILITY, DESPITE THE FOREGOING EXCLUSION AND LIMITATION.

16.    INSURANCE

        16.1    Minimums.    [Insurance Specifics]

        16.2    Endorsement.    Orbitz agrees to insure (or self-insure) all losses to its owned or leased tools and equipment used in the delivery of the Products and provision of the Services and agrees to obtain an endorsement from its insurance carrier waiving its right of subrogation against Airline.

        16.3    Rating.    If requested by Airline, Certificates of Insurance shall be delivered to Airline evidencing compliance with the insurance terms of this Agreement. All of the above insurance shall be

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written through a company or companies with an A.M. Best rating of A-(VIII) or better. Orbitz will notify Airline in writing in advance of the effective date of any material change in or cancellation of such insurance; provided Orbitz receives such advance notice from the insurer. Orbitz' failure to provide or to maintain the insurance required during the term of this Agreement shall be deemed a material breach of this Agreement.

17.    TERMINATION.

        17.1    Term.    This Agreement shall commence on the Effective Date and shall continue until                                       ; provided that, Airline may terminate this Agreement upon prior written notice to Orbitz, at any time after the completion of the 2ndanniversary of the Effective Date; and further provided that, Airline shall have the option to extend the term of this Agreement beyond the                                        (on the same terms and conditions as in existence at such time) to a date coterminous with the Airline Charter Associate Agreement (or replacement commercial agreement), if Airline and Orbitz have extended the Airline Charter Associate Agreement (or replacement commercial agreement) between them to a date beyond.

        17.2    Termination for Cause.    In addition to all other termination rights set forth herein, either party may terminate this Agreement for cause in the event that the other party fails to cure a breach of this Agreement within                                        after receiving written notice of such breach from the non-breaching party. If voluntary bankruptcy proceedings are instituted by a party under any federal, state or foreign insolvency laws, or if an involuntary petition is filed or executed against it and not dismissed or satisfied within                                       ; the other party may, at its option, terminate this Agreement by written notice; provided, however, that all monies owed hereunder prior to the date of termination shall be immediately due and payable. Airline may terminate this Agreement for cause in the event Orbitz is acquired and/or its ownership changes such that a Competitor acquires a controlling interest in Orbitz. For purposes of this provision, "control" means the power to direct or cause the direction of the management and policies of Orbitz, whether through the ownership of voting securities, by contract or otherwise.

        17.3    Effect of Termination.    If this Agreement terminates or expires for any reason, Airline will promptly pay Orbitz any undisputed amounts payable by Airline hereunder for Services rendered prior to the effective date of such termination. The provisions of Sections 9, 11, 14, 15, 17, and 19 will survive the termination of this Agreement for any reason. In the event of any termination of this Agreement for any reason, the parties shall have no further obligations hereunder other than those that expressly survive termination of this Agreement or are otherwise specified herein.

18.    LEGAL STATUS.    Airline and Orbitz are independent parties. Nothing in this Agreement will be construed to create any agency, employee, franchisee, joint venture, partnership or legal representative relationship between the parties. The parties expressly disclaim any such relationship, and agree that the parties have no fiduciary duty to one another or any other special or implied duties that are not expressly stated herein. Orbitz is solely and exclusively responsible for the salaries, wages, benefits, fees or other compensation that Orbitz, its Subcontractors or its or their agents or employees may be entitled to receive.

19.    MISCELLANEOUS

        19.1    Notices.    Any notice required or permitted under the terms of this Agreement or required by law must be in writing and must be (a) delivered in person, (b) sent by first class registered mail, or air mail, as appropriate, (c) sent by overnight air courier, or (d) sent by electronic mail (with a follow-up copy of such electronic mail message being sent by first class mail), in each case properly posted and fully prepaid to the appropriate address set forth on the signature page of this Agreement. Either party may change its address for notice by notice to the other party given in accordance with

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this Section 19.1. Notices will be considered to have been given as of the date received by the intended recipient. Notwithstanding the foregoing, in the case of notices required by Section 5.1 or Section 5.15, or notices related to Network Services or Airline Host System outages as provided in the Specifications, notice sent by electronic mail shall be considered to have been given as of the date sent and a follow-up copy of such electronic mail message shall not be required. Such communications will be sent to the address specified below or to any other address that may be designated by prior notice.

            If to Airline:

                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
   

            If to Orbitz:

Orbitz, LLC
200 South Wacker Drive
Suite 1900
Chicago, Illinois 60606
Attn: General Counsel
Telephone: 312-894-5000
Fax: 312-894-5001
   

        19.2    Waiver, Amendment and Modification.    Except as otherwise provided above, any amendment or other modification of this Agreement will not be effective unless in writing and signed by the party against whom enforcement is sought. No waiver of breach of any provision of this Agreement by either party will constitute a waiver of any subsequent breach of the same or any other provision, and no waiver will be effective unless made in writing and signed by an authorized representative of the other party.

        19.3    Severability.    If any provision of this Agreement is held to be unenforceable, in whole or in part, such holding will not affect the validity of the other provisions of this Agreement.

        19.4    Assignment.    Except as set forth in this Agreement, neither party may assign, delegate, sub-contract or otherwise transfer this Agreement or any of its rights or obligations without the other party's prior approval, which will not be unreasonably withheld or delayed. Notwithstanding the foregoing, either party may assign this Agreement, upon prior written notice to the other party, to (a) an Affiliate of the assigning party, or (b) to an unaffiliated Person (but not to a competitor of the non-assigning party) pursuant to a merger, consolidation or sale of substantially all of the assigning party's assets, but only if such assignee assumes in writing all of the obligations of the assignor and provides a copy of such assumption to the non-assigning party. Further, Orbitz may not assign, sell or otherwise transfer the Orbitz Software or its ownership interest in the Interface in whole or substantial part unless Orbitz (i) maintains sufficient rights to use the Orbitz Software to provide the Network Services as provided in this Agreement or (ii) without also assigning this Agreement in accordance with this Section 19.4. Subject to the foregoing, this Agreement shall be binding on the parties and their respective successors and permitted assigns.

        19.5    Force Majeure.    Except to the extent the Services, the Orbitz Software or the Network are designed to accommodate for such failures or delays, neither party will be liable for any failure or delay in performing an obligation under this Agreement that is due to causes beyond its reasonable control, such as an act of God, natural disasters, acts of terrorism, outbreak or escalation of hostilities, governmental acts or omissions, laws or regulations, labor strikes or difficulties, transportation stoppages or slowdowns or the inability to procure parts or materials. If any of these causes continue to prevent or delay performance for more than one-hundred eighty (180) days, the non-delaying party may terminate this Agreement, effective immediately upon notice to the delaying party.

        19.6    Governing Law.    This Agreement will be governed by and interpreted exclusively in accordance with the laws of the state of Delaware exclusive of conflict of laws provisions.

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        19.7    Counterparts.    This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

        19.8    Integration.    This Agreement and all Schedules, Exhibits and attachments hereto, and together with the Airline Charter Associate Agreement, constitute the complete and entire statement of all terms, conditions and representations of the agreement between Airline and Orbitz with respect to its subject matter, and upon execution of this Agreement by Orbitz, the Orbitz Supplier Link Agreement, dated as of September 6, 2002 (the "Original Agreement") shall immediately terminate. Notwithstanding the foregoing, nothing in this Agreement will be deemed to modify or supersede any of the provisions of any agreement between Orbitz and ARC, including Airline's addendum thereto).

        19.9    Conflicts with Other Agreements.    Except as set forth in Section 19.8, nothing in this Agreement is intended to alter, amend or in any manner affect any rights, obligations or duties granted or imposed on either Party under any other agreement that was executed prior to the date hereof.

[Signature Page Follows]

21



        IN WITNESS WHEREOF, Airline and Orbitz cause this Agreement to be executed by their duly authorized representatives identified below.

                                                           
("Airline")
  ORBITZ, LLC
("Orbitz")

By:

    


 

By:

    

 
 
   
 

Name:

    


 

Name:

    

 
 
   
 

Title:

    


 

Title:

    

 
 
   
 

Date:

    


 

Date:

    


Schedules:

 
Schedule A: Change Request
Schedule B Network Fees
Schedule C: Specifications
Schedule D: Current Rates for Airline Development
Schedule E: Airline Host System


Schedule A
Change Request

Scope Change Request

1 Title:

2

Requested By:

3

Status: Unapproved, Approved, Rejected, or Implemented.

4

Business Need Detail:

5

Impact on Project:

6

Impact on Schedule:

7

Services Impacted:

8

Approvals:




 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
                                                              ORBITZ, LLC

By:

    


 

By:

    

 
 
   
 

Name:

    


 

Name:

    

 
 
   
 

Title:

    


 

Title:

    



Schedule B
Network Fees

Orbitz will invoice Airline on a monthly basis the following Network Fees:

    $                                       Network Switching Fee for (i) each Supplier Link Ticket issued and (ii) each Airline or Codeshare Ticket issued by or on behalf of any third party using the Network other than those issued through the Site, in each case, net of refunded, voided or exchanged Supplier Link Tickets or Airline / Codeshare Tickets, as applicable, during the prior calendar month; and

    $                                       Network Incentive Fee for each Supplier Link Ticket issued, net of refunded, voided or exchanged Supplier Link Tickets issued through the Site.

        Airline will pay Orbitz the Network Fees within thirty (30) days after receipt of Orbitz' invoice therefore. In the event that the Network Fees paid by Airline to Orbitz for any year that this Agreement is in effect are less than US$                                      , Airline will pay Orbitz the difference between the aggregate Network Fees paid to Orbitz by Airline and US$                                       within forty-five (45) days of the Airline's receipt of the invoice from Orbitz. This amount will be prorated in the first year and the last year of the term hereof and for any year during the term in which Airline did not incur US$                                       in Network Fees as a result of the failure of the Network Services during any portion of such year. If Throttling results in Network Fees below $                                      , then Airline shall pay Orbitz the actual Network Fees incurred and shall not be responsible for the minimum $                                       set forth in this paragraph.

        In addition to the per Supplier Link Ticket charges above, Airline will pay to Orbitz one-half of the actual costs incurred by Orbitz for the communications services that are dedicated to Airline and are required for the interface between the Airline Host System and the Network servers for gathering Inventory information.



Schedule C
Specifications



Schedule D
Current Rates for Airline Development

        Current hourly rates for services provided pursuant to this Agreement and the procedure for determining such rates during the term of this Agreement:

    Development of revisions, updates, etc. that Orbitz determines in its reasonable discretion will be beneficial to roll out to other users:                                        per hour

    Development of enhancements specific to and requested by Airline $                                       per hour

        These rates will be adjusted annually based upon the Consumer Price Index or Producer Price Index.



Schedule E
Airline Host System

The Airline Host System is residing in                                                                     





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ORBITZ SUPPLIER LINK AGREEMENT
Schedule A Change Request
Schedule B Network Fees
Schedule C Specifications
Schedule D Current Rates for Airline Development
Schedule E Airline Host System

EX-10.5(A)


Exhibit 10.5(a)

        SECOND AMENDMENT
TO THE
AMENDED AND RESTATED AGREEMENT
FOR CRS ACCESS AND RELATED SERVICES

This SECOND AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT FOR CRS ACCESS AND RELATED SERVICES (this "Amendment"), dated as of January 28, 2004 ("Amendment Effective Date"), is between Worldspan, L.P., a Delaware limited partnership, ("Worldspan") and Orbitz, LLC, a Delaware limited liability company ("Orbitz").

WHEREAS, Orbitz and Worldspan entered into that certain Amended and Restated Agreement for CRS Access and Related Services dated as of November 1, 2001 and as amended effective as of December 13, 2002 and December 23, 2002 ("Agreement"); and

WHEREAS, Orbitz and Worldspan desire to amend the Agreement as set forth herein;

NOW, THEREFORE, Orbitz and Worldspan hereby agree to amend the Agreement as follows:

1.
Section 5.3 of the Agreement is hereby amended by adding the following sentence to the end of said section:

    "Worldspan will provide weekly booking segment data to Orbitz effective with the week commencing on February 15, 2004, subject to the Parties' mutual agreement on the content of the data and subject to the data being reconciled at the end of each calendar month."

2.
The definition of Material Service Level Failure in Paragraph 26(a) of Schedule A of the Agreement is amended to provide as follows:

    "(a) The Monthly System Availability of the Worldspan System is below [***]% for any [***] calendar months in any period of [***] consecutive calendar months during the Term of this Agreement."

3.
This Amendment shall be construed in connection with and as part of the Agreement, and except as expressly modified above, all of the provisions of the Agreement are hereby ratified and shall be and remain in full force and effect.

4.
This Amendment may be executed in multiple counterparts, each of which will be an original and all of which will constitute one and the same instrument.

5.
Any and all notices, requests, orders and other instruments executed and delivered after the execution of this Amendment may refer to the Agreement without making specific reference to this Amendment but nevertheless all such references shall be deemed to include this Amendment unless the context otherwise requires.

IN WITNESS WHEREOF, each of Orbitz and Worldspan has caused this Amendment to be executed by its duly authorized representative as of the date first above written.

Orbitz, LLC   Worldspan, L.P.

By:

 

/s/  
GARY DOERNHOEFER      

 

By:

 

/s/  
R. GANGWAL      

Title:

 

V.P. & GENERAL COUNSEL


 

Title:

 

CHAIRMAN, PRESIDENT &

CHIEF EXECUTIVE OFFICER

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EX-10.11(A)


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Exhibit 10.11(a)


Amendment No. 2
to the
Development, License and Hosting Agreement

        This Amendment No. 2 ("Amendment") is effective as of this 23rd day of January, 2004 ("Amendment Effective Date") by and between American Airlines, Inc., a Delaware corporation with its principle offices in Fort Worth, Texas ("AA") and Orbitz, LLC, a Delaware limited liability company with offices in Chicago, Illinois ("Orbitz"). This Amendment amends that certain Development, License and Hosting Agreement entered into by and between Orbitz and AA, on September 9, 2001 (the "Agreement").

        WHEREAS, Orbitz and AA intend to revise or amend certain portions of the Agreement in accordance with the terms of Section 19.2 therein;

        NOW, THEREFORE, the parties agree as follows:

        1. Precedence. To the extent a term or expression used in this Amendment is defined in the Agreement, the term or expression will have the meaning ascribed to it in the Agreement, unless agreed otherwise in this Amendment. To the extent any terms or conditions of this Amendment conflict with the terms of the Agreement, the terms of this Amendment will prevail. Except as otherwise set forth in this Amendment, the terms and conditions of the Agreement will remain in full force and effect.

        2. Replace the last two sentences at the end of amended Section 1.22, "Labor Rate":

      Effective October 1, 2003 and except for Initial Development Services, Orbitz's Labor Rate shall be $[***]/hour. Orbitz may increase this $[***]/hour rate during the Term no more frequently than once every 12-month period; provided, however, that in no event will any such increase exceed the annual change in the monthly index published by the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index for all Urban Consumers (CPI-U) Dallas-Fort Worth, Texas.

        3. Add the following new subsections to section 1, "Definitions":

      1.42 "ITA Set-up Fee" means the one-time fee to be paid by AA to Orbitz for the resources and hardware required to prepare for hosting the ITA Software, including but not limited to all activities associated with setting up the development, quality assurance and production environments, and the associated configuration connectivity tasks.

      1.43 "ITA Dev/QA Fee" means the monthly fee to be paid by AA upon the ITA Hosting Date, during construction and functional testing, and prior to commencement of the "ITA Load Testing Fee".

      1.44 "ITA Load Testing Fee" means the monthly fee to be paid by AA upon completion of functional testing and commencement of load testing activities, prior to commencement of the ITA Hosting Fee.

      1.45 "ITA Hosting Fee" means the fee to be paid by AA to Orbitz for hosting the ITA Software in all environments.

      1.46 "ITA Hosting Date" means the date of initial installation of the ITA Software on the development environment and services on the Orbitz system.

      1.47 "ITA Software" means the computer programs provided to AA by ITA and hosted by Orbitz.


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      1.48 "Hardware Transfer Fee" means the fee to be paid for title to the hardware used by Orbitz in connection with the ITA Software in the event that (a) AA elects to terminate pursuant to subsections 16.2 or (b) the Agreement is terminated pursuant to Section 16.3 and AA notifies Orbitz of its desire to purchase or lease the computer hardware used by Orbitz to provide to AA the hosting services for the ITA Software. Depending on whether Orbitz purchases or leases the computer hardware to provide the hosting services for the ITA Software, the Hardware Transfer Fee shall be either: (i) the fair market value of such hardware, or (ii) all fees charged by the lessor in connection with the transfer or termination of the hardware lease and may include the following:

      a)
      the monthly lease amounts, if AA elects to assume lease obligations prospectively;

      b)
      the cancellation fee specified in Orbitz's lease agreement, if AA requests that Orbitz cancel such hardware lease; or

      c)
      the early buyout amount specified in the Orbitz lease agreement, if AA elects to exercise such an early buyout option. Upon payment of said buyout amount, AA will receive title to said hardware from lessor.

      In addition to the foregoing, the Hardware Transfer Fee shall also include the reasonable and actual, out-of-pocket expenses incurred by Orbitz to accomplish the transfer of the hardware, including but not limited to: labor for unplugging and unracking, packing and packing material costs, shipping and shipping insurance costs, and the unused portion of any associated third-party hardware or software license and maintenance agreements provided, however, that such third-party license agreements and maintenance services shall be transferred to AA, to the extent permissible under their respective contracts, and, if applicable, consented to by such third party licensor and/or service provider.

        4. Add the following sentence at the end of subsection 5.2 "Service Levels":

      AA agrees to provide reasonable notice of its intention to allow AA products other than AA.com (such as AACORN) to access the ITA Software and, subject to the provisions of subsection B(v) within Exhibit D1, Orbitz agrees to cooperate with AA in establishing more stringent SLA performance levels, if required by such other AA products.

        5. Add the following sentence at the end of subsection 5.5 "Out-of-Scope Services":

      Notwithstanding the foregoing, AA will not incur additional fees or charges (other than the labor charges associated with the feature integration to the AA code base) for Orbitz's implementation of any enhancements or modifications to the ITA Software to the extent such enhancements or modifications are already being utilized or have previously been implemented by Orbitz, provided that Orbitz may utilize such enhancements or modifications or previous implementations by Orbitz in the ITA Software under its license agreement with ITA.

        6. Add the following as new subsection 5.7 to Section 5, "Hosting and Support":

      5.7 Hosting of ITA Software

        a) Cooperation. Orbitz's performance hereunder is contingent upon the timely and complete cooperation of AA, ITA and such other vendors under contract with AA as may be required ("Cooperation"), including, without limitation, the supply to Orbitz of adequate resources, access to necessary personnel, and the provision of reliable, accurate and complete information, timely decisions and management approvals. AA shall provide such Cooperation or cause such Cooperation to be provided to Orbitz. Without limiting the foregoing, such Cooperation shall include AA entering into, successfully performing

2


        its obligations thereunder, and maintaining such agreements with ITA and other third parties as are necessary for Orbitz to perform its hosting, implementation, operation and other obligations hereunder. To the extent any delays or failures in Orbitz's performance occur as a result of the lack of Cooperation, Orbitz shall not incur any liability, expense, cost or penalty to AA, ITA, or any other third party as a result of such lack of Cooperation.

        b) Installation and Integration. In coordination with ITA and AA, Orbitz shall install and implement the ITA Software on its servers or servers under its control. Upon implementation, Orbitz will provide AA with supporting documentation and evidence of the satisfactory implementation and operation of the ITA Software. AA shall have been deemed to have accepted such implementation and operation in the event that AA does not provide Orbitz written notification, reasonably detailed, outlining where such implementation and operation fails in any material respect to meet the specifications and/or other acceptance criteria mutually agreed upon by the parties, within sixty (60) days after AA receives written notification by Orbitz of such implementation and operation of the ITA Software. Notwithstanding any rejection by AA, operational use of the ITA hosting services, or any portion thereof, by AA shall be deemed to constitute acceptance thereof.

        c) Interface to ITA. Any connectivity interface that is required of Orbitz under any Specifications or is related to the implementation of the ITA Software, will be included as part of the ITA Set-up Fee and Orbitz will be solely responsible for the maintenance, support and operation of such development. AA will provide Orbitz with any and all information and assistance reasonably requested by Orbitz to develop and maintain a connectivity interface with ITA. Orbitz will responsible for coordinating with ITA so that the hardware, data, configuration files, kernel and other aspects of the production servers are similar to those in the production test servers at ITA. Orbitz shall use commercially reasonable efforts to assist in the certification of all ITA configuration changes; provided, however that ITA and AA shall be responsible for obtaining, in a timely fashion, certification of all ITA configuration changes. Orbitz agrees that it will use commercially reasonable efforts to cooperate with ITA for all purposes in connection with this Agreement.

        d) Notwithstanding anything to the contrary elsewhere in this Agreement, Orbitz will not be responsible for any liability, fees, credits, costs or expenses, arising out of or in connection with the ITA Software or the services provided by Orbitz hereunder to the extent such liability, delay or failure is (a) caused by or related to a non-conformity, failure or functionality in the ITA Software or in any data, information or other technology, services or products provided by or through ITA (excluding the connectivity interface between Orbitz and ITA, for which Orbitz is responsible), or (b) any failure or breach of AA's obligations to ITA or ITA's obligations to AA pursuant to any license or other agreement by and between AA and ITA with regards to the ITA Software or any related Service Level Agreement. Without limiting the foregoing, Orbitz shall not be responsible for any liability or fees assessed by ITA to the extent incurred due to problems that result in a new version, bug fix, update or revision of or to the ITA Software by ITA. For the avoidance of doubt, configuration changes shall not be considered a new version, bug fix, update or revision of or to the ITA Software.

        7. Replace subsection 6.2 "Fixed Hosting and Support Fees" with the following:

      6.2 Fixed Hosting and Support Fees. Following the ITA Hosting Date, Orbitz will perform the Hosting and Support Services for (a) an annual Fixed Hosting and Support Fee, as set forth in

3


      Exhibit D; (b) the one-time ITA Set-up Fee, as set forth in Exhibit D; (c) the monthly ITA Dev/QA Fee as set forth in Exhibit D; (d) the monthly ITA Load Testing Fee, as set forth in Exhibit D; and (e) the ITA Hosting Fee, as set forth in Exhibit D.

        8. Add the following as the fourth sentence in subsection 6.5 "Payment Terms":

      The ITA Hosting Fee will be invoiced monthly in arrears.

        9. Replace Subsection 6.6(a) with the following:

        (a) The License and Development Fees, Fixed Hosting and Support Fees, ITA Hosting Fee, and Reimbursable Expenses are exclusive of all sales, services or other taxes that Orbitz may be legally obligated to charge AA for performing the Services, and AA will promptly pay, or reimburse Orbitz for the payment of, any and all such taxes that may be due or payable. Orbitz will honor any tax-exempt certificates provided by AA.

        10. Add the following subsection (c) to section 9.1 "Ownership":

        (c) AA and Orbitz acknowledge that ITA will own and retain all rights, title and interest to any ITA Software hosted by Orbitz, including any improvements thereto. Orbitz shall have the right to interface the ITA Software hosted by Orbitz and to use it in conjunction with other software, programs, routines and subroutines developed or acquired by Orbitz. ITA and AA shall have no ownership interest in any other software, program, routine or subroutine developed by Orbitz or acquired by Orbitz from a third party by virtue of its having been interfaced with or used in conjunction with the ITA Software.

        11. Replace the first sentence of subsection 9.2(e) with the following:

        At anytime after (i) April 1, 2005 or (ii) the date of termination of this Agreement, whichever is earlier, AA will have the option to purchase from Orbitz, and Orbitz agrees to grant to AA, a perpetual, non-exclusive license to the compiled and object code for the Orbitz Software (including the related Documentation) for a one-time fee to be negotiated by the parties.

      The remainder of Section 9.2(e) shall remain in full force and effect.

        12. Add the following sentence to the end of subsection 9.3 "License to Orbitz":

      Also, commencing upon notification from AA that it has signed an agreement with ITA and effective during the Extended Initial Term and any applicable Renewal Term, AA grants to Orbitz a non-exclusive, non-transferable, royalty-free right to host the ITA Software; provided, however, that agents of Orbitz who are under contract with Orbitz to provide application development services, data processing or other transactional services on behalf of Orbitz and for the benefit of AA, are authorized to access and use the ITA Software in accordance with the terms and conditions set forth herein.

        13. Replace subsection 16.1 "Term" with the following:

      This Agreement shall be in effect as of the Effective Date and will have an initial term of three years following the Launch Date (the "Initial Term"). Thereafter, the Initial Term will be extended for an additional two years (the "Extended Initial Term"). After the Extended Initial Term, AA may renew this Agreement for up to two (2) successive one-year renewal terms (each, a "Renewal Term"), unless AA notifies Orbitz of its intention not to renew this Agreement at least 60 days prior to the expiration of the then-current term. The Initial Term, the Extended Initial Term, and any Renewal Terms are collectively refined to herein as the "Term".

4


        14. Replace the first sentence of subsection 16.2 "Termination for Convenience" with the following:

      AA may terminate this Agreement or any portion thereof or any Statement of Services hereunder at any time upon 60 days notice to Orbitz.

        15. Replace the last sentence of subsection 16.2 "Termination for Convenience" with the following:

      If AA terminates pursuant to this subsection during the Extended Initial Term or during any Renewal Term, AA will only be liable to pay Orbitz for services performed and materials delivered as of the effective termination date. Notwithstanding the foregoing, in the event AA terminates Orbitz's hosting services for the ITA Software, AA will pay to Orbitz the Hardware Transfer Fee and, if such termination for convenience occurs before 25 months following the ITA Hosting Date, AA will also pay to Orbitz liquidated damages in the amount of $[***] plus a severance fee equal to [***] for each employee that had been hired to support Orbitz's obligations to host the ITA Software under this Agreement and whom Orbitz is unable to re-deploy, provided that Orbitz transfers (at the time of such payment) all title to such hardware or use commercially reasonable efforts to allow AA to assume Orbitz's obligation under the applicable lease. In the event Orbitz enters a lease for the hardware used by Orbitz in connection with the ITA Software rather than purchases such hardware, Orbitz will utilize commercially reasonable efforts to have included in any such lease the following terms which will allow AA certain rights in the event of any termination of this agreement: (a) AA may assume the terms of the lease from Orbitz and continue to make payments under the lease with the imposition of no additional fees (including transfer or assignment fees); (b) AA may cancel said lease on its own or through Orbitz and pay to lessor the cancellation fee (if any) included in the lease; and (c) AA may elect to exercise an accelerated buyout option for the leased hardware according to the terms of the lease, and upon payment of said buyout fee, AA will receive title to said hardware from lessor. The terms of this section 16.2 shall constitute Orbitz's sole and exclusive remedy for AA's termination for convenience.

        16. Add the following subsection (c) to subsection 16.3 "Termination for Cause":

      In the event that AA terminates this Agreement pursuant to subsection 16.3(a) or 16.3(b), upon payment of the Hardware Transfer Fee, Orbitz will transfer all title to such hardware or use commercially reasonable effort to allow AA to assume Orbitz's obligations under the applicable lease.

        17. Add the following sentence at the end of subsection (e) to subsection 16.4 "Effect of Termination":

      Notwithstanding the foregoing, no license rights granted to Orbitz under Section 9.1 with regard to the ITA Software supplied by AA to Orbitz will survive the expiration or termination of this Agreement.

        18. Replace subsection 19.1 "Notices" with the following:

      19.1 Notices. Any notice, approval or other communication required or permitted under this Agreement will be given in writing. Such communication will be sent to the address specified below or to any other address that may be designated by prior notice.


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            If to AA:

        American Airlines, Inc.
        4333 Amon Carter Blvd., MD 5358
        Fort Worth, TX 76155
        Attn.: Manager, IT Vendor Sourcing
        Telephone: (817) 963-5045
        Facsimile: (817) 931-9270

            If to Orbitz:

        Orbitz, LLC
        200 South Wacker Drive
        Suite 1900
        Chicago, IL 60606
        Attn.: VP, Business Systems
        Telephone: (312) 894-5000
        Facsimile: (312) 894-5001

        19. Replace Exhibit D in its entirety with Exhibit D1 attached hereto.

        20. Replace Exhibit E in its entirety with the following:

      Rick Weber, VP Business Systems will be the Relationship Manager for Orbitz.

      Daniel Henry, Managing Director of Application Development, will be the Relationship Manager for AA.

        21. Replace Exhibit F in its entirety with Exhibit F1 attached hereto.

        22. This Second Amendment is subject to approval by the Orbitz Board of Directors.

6


        IN WITNESS WHEREOF, the parties hereby cause this Agreement to be executed by their duly authorized representatives identified below.

American Airlines, Inc. ("AA")   Orbitz, LLC ("Orbitz")

By:

 

 

 

By:

 

 

Signature:

 

/s/  
MONTE FORD      

 

Signature:

 

/s/  
RICK WEBER      

Printed Name:

 

Monte Ford

 

Printed Name:

 

Rick Weber

Title:

 

Sr. Vice President and CIO

 

Title:

 

VP Business Services

Date:

 

2/6/04


 

Date:

 

2/6/04

7



Exhibit D1
Hosting and Support Fees

A.    Fixed Hosting and Support Fee for the Orbitz Software

        Prior to January 1, 2004, the pricing for the Fixed Hosting and Support Fee shall be that set forth in Exhibit D. Commencing upon January 1, 2004, AA will pay Orbitz a Fixed Hosting and Support Fee in the amount of $[***] per year for the remainder of the Initial Term and the Extended Initial Term pursuant to the terms of this Agreement. After March 31, 2005, the Fixed Hosting and Support Fee may be increased on an annual basis by Orbitz provided that such increase shall not exceed [***].

        The Fixed Hosting and Support Fee for each of the annual periods will be an all-inclusive fee for Orbitz to provide the Orbitz Software and the Hosting and Support Services. AA will not be charged any transaction fees, annual maintenance and support fees, or fees for Third Party Components, in addition to the Fixed Hosting and Support Fees during the Term unless otherwise agreed by the parties. The Fixed Hosting and Support Fee will not include ITA, car, hotel or other functionality for which Orbitz typically charges a separate fee or the development of AA-Specific Functionality or AA-Competitive Functionality (which are separately chargeable as described herein) and will only cover Orbitz Software functionality for air bookings.

        In the event that projected server loads are greater than [***]% of capacity, Orbitz will promptly communicate to AA the need for increased capacity. Orbitz will demonstrate such condition to AA before acquiring the additional servers necessary to keep sustained hardware loads at or below [***]% of capacity. Upon approval from AA, such approval not to be unreasonably withheld, Orbitz will acquire such additional servers and invoice AA in the amount of $[***] per month for each [***] booking engine servers [***], additional hosting space and additional telecommunications capacity. During the time period (a) that AA withholds such approval, or (b) after AA grants such approval through the date that Orbitz successfully installs the additional servers into the Orbitz systems (not to exceed 45 days absent circumstances outside Orbitz's control), Orbitz shall not be liable for any fees, liabilities, credits, costs, expenses or other charges associated with sustained hardware loads at or above [***]% of capacity.

        To clarify, the Fixed Hosting and Support Fee includes, but is not limited to, the following:

    Hosting of the Orbitz Software in Orbitz primary facilities

    Any required hardware to support hosting and booking engine services. By April 1, 2005, Orbitz will perform an analysis to upgrade such hardware to a technological level generally comparable to that of other providers of similar services or general industry standards. Orbitz will provide AA with the results of such analysis, including Orbitz's hardware upgrade recommendations and the related implementation timeline. Upon approval from AA, Orbitz will perform such hardware upgrade at no additional charge to AA.

    Any third party licenses and sublicenses required to meet the Launch Date requirements identified as of the effective date of the definitive agreement.

    7x24 technical support

    Development costs to build Direct Connect link to AA Host

    Periodic enhancements and upgrades over the Term

    Server load "peak factors" targeted at 8-to-1 vs. normal volumes

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    Routine business and administrative expenses incurred by Orbitz, such as a telephone, postage, photocopying, etc.

        The Fixed Hosting and Support Fee does not include the following:

    Development of AA-Specific Functionality or AA-Competitive Functionality

    Profile Databases

    Presentation and web design

    ITA pricing services or shared use of other Orbitz partnerships, unless otherwise specified herein

    Non-air functionality

    Customer service

    Fulfillment

B.    Fees for ITA Software Hosting Services

        In addition to the Fixed Hosting and Support Fee, Orbitz shall invoice AA for the following fees relating to the hosting of the ITA Software:

    (i)
    the one-time ITA Set-Up Fee in the amount of $[***], upon the execution of this Amendment.

    (ii)
    the ITA Dev/QA Fee in the amount of $[***] per month at the end of each month, commencing upon the ITA Hosting Date

    (iii)
    the ITA Load Testing Fee in the amount of $[***] per month at the end of each month, commencing upon the completion of functionality testing and the commencement of load testing activities, for the first two months following commencement of the ITA Load Testing Fee, and $[***] per month thereafter until commencement of the ITA Hosting Fee.

    (iv)
    The ITA Hosting Fee in the amount of $[***] per month in arrears, commencing upon the date the ITA Software is hosted in all environments and accessible by AA customers.

        In the event that the ITA Dev/QA Fee or the ITA Load Testing Fee occurs in the middle of a month, there will be a pro-rata adjustment in the calculation of the fee due Orbitz for such month by dividing the ITA Dev/QA Fee or the applicable ITA Load Testing Fee, as the case may be, by the number of days in that month, to arrive at a daily rate to be applied to the number of days associated with such fee.

        Similarly, in the event that the ITA Hosting Fee occurs in the middle of a month, there will be a pro-rata adjustment in the calculation of the fee due Orbitz for such month by dividing the ITA Hosting Fee by the number of days in that month, to arrive at a daily rate to be applied to the number of days associated with such fee.

        To clarify, the ITA Hosting Fee includes, but is not limited to, the following:

    Hosting of the ITA Software in Orbitz primary facilities, including adequate operations personnel who are familiar with the operation of the ITA Software and who are dedicated to the AA implementation of the ITA Software

    Any required hardware to support the hosting of the ITA Software, such hardware to be contained in a separate server farm from that comprising the implementation of the ITA Software for Orbitz.com, based on an AA provided estimate of [***] servers for the production, staging, development and QA for all environments, and other such assumptions as provided by AA. By March 31, 2007 and every three (3) years after March 31, 2007, Orbitz will

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3


      perform an analysis to upgrade such hardware to a technological level generally comparable to that of other providers of similar services or general industry standards. Orbitz will provide AA with the results of such analysis, including Orbitz's hardware upgrade recommendations and the related implementation timeline. Upon approval from AA, Orbitz will perform such hardware upgrade at no additional charge to AA.

    7x24 technical support. As between AA and Orbitz, Orbitz will work jointly with AA and ITA in analyzing and diagnosing problems that may arise with hosting the ITA Software to determine whether a problem is a data problem (and therefore the responsibility of ITA or AA to resolve) or an operations/hosting problem (and therefore the responsibility of Orbitz to resolve, an "Orbitz Problem"). AA shall be responsible for any fees assessed by ITA to the extent incurred due to problems that are not an Orbitz Problem. Orbitz Problems shall exclude any problems that result in a new version, bug fix, update or revision of or to the ITA Software. Orbitz shall be responsible for any fees that may be assessed by ITA for ITA assistance provided to Orbitz regarding an Orbitz Problem. Orbitz agrees that it will not delay in engaging ITA, once it becomes apparent that ITA assistance is required to expeditiously resolve an Orbitz Problem.

    Coordination with ITA of all data loads, upgrades, hardware or configuration changes, kernel changes or other matters relating to the production servers that may affect the operation of the ITA Software on behalf of AA

    Sustained server loads to be less than [***]% of capacity and related capacity planning and analysis services to proactively identify load requirements.

    Routine business and administrative expenses incurred by Orbitz, such as a telephone, postage, photocopying, etc.

        The ITA Hosting Fee does not include the following:

    Development of AA-Specific Functionality or AA-Competitive Functionality

    Profile Databases

    Presentation and web design

    Non-air functionality

    Customer service

    Fulfillment

        The ITA Dev/QA Fee and the ITA Load Testing Fee also include all of the above services, except that technical support will be provided during normal business hours, rather than on a 7 × 24 basis.

        (v) In the event that projected server loads are greater than [***]% of capacity, Orbitz will promptly communicate to AA the need for increased capacity. Orbitz will demonstrate such condition to AA before acquiring the additional servers necessary to keep sustained hardware loads at or below [***]% of capacity. Upon approval from AA, such approval not to be unreasonably withheld, Orbitz will acquire such additional servers and invoice AA in the amount of $[***] per month for each additional cluster of [***] servers. During the time period (a) that AA withholds such approval, or (b) after AA grants such approval through the date that Orbitz successfully installs the additional servers into the Orbitz systems (not to exceed 45 days absent circumstances outside Orbitz's control), Orbitz shall not be liable for any fees, liabilities, credits, costs, expenses or other charges associated with sustained hardware loads at or above [***]% of capacity.

        (vi) The ITA Hosting Fee for may be increased by Orbitz on an annual basis provided that such increase shall not exceed [***]


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4



Exhibit F1
Service Level Agreement

A. HOSTING SERVICES

1.     General Definitions.

        "Expected Transaction Volume" means, for each month during the Term, the number of Transactions as calculated in accordance with Section A(2) of this Exhibit.

        "Guaranteed Transaction Volume" means [***]% of the Expected Transaction Volume.

        "Maximum Transaction Volume" is defined in Exhibit D.

        "Material Service Level Failure" means any of the following: (a) the Monthly System Availability Commitment (defined below) is not achieved for any [***] calendar months in any period of [***] consecutive calendar months during the Service Level Period, or (b) the Monthly System Availability Commitment is missed by [***]% or more for any calendar month during the Service Level Period and has been missed by [***]% or more for two or more previous calendar months during the Service Level Period.

        "Monthly System Availability Commitment" means, for each calendar month, the number of minutes (expressed as a percentage) during such month that the Orbitz Software is to be operating to specifications, excluding Excluded Hours Unavailable (as defined in Section A(4)(d) of this Exhibit). The Monthly System Availability Commitment will be determined in accordance with Section A(4)(b) of this Exhibit.

        "Query" means a query to the ITA Software for a rules text display or a query in which the input consists of origin, destination and date and the output consists of one or more itineraries which include fares, schedules and/or availability.

        "Service Level Period" will mean (i) with respect to the first contract year, the ten-month period commencing on 60th day after the Launch Date, and (ii) with respect to each contract year thereafter, each subsequent twelve-month period that Orbitz is obligated to provide the Hosting Services.

        "ITA Service Level Period" will mean (i) with respect to the first ITA contract year, the eleven-month period commencing on the 30th day that the ITA Hosting Fee applies, and (ii) with respect to each contract year thereafter, each subsequent twelve-month period that Orbitz is obligated to provide the hosting services for the ITA Software.

        "System Response Time" will mean the total elapsed time added to a Transaction from initiating a Booking Engine service call/request to the receipt of the corresponding response attributed to the Orbitz Software.

        "ITA Query Response Time" will mean the total elapsed time added to a query from initiating a Query service call/request to the receipt of the corresponding response attributed to ITA Software.

2.     Expected Transaction Volume

        (a) Sixty (60) days in advance of the Launch Date, AA will provide Orbitz with a forecast of the Expected Transaction Volumes by month for the upcoming Service Level Period. The first month's projected volume should be no more than 1/12th of the Maximum Transaction Volume.

        (b) If the actual Transaction volume exceeds the Guaranteed Transaction Volume for any particular calendar month and the Monthly System Availability is adjusted pursuant to Section A(3)(g) of this Exhibit, the parties may mutually agree to prospectively adjust the forecast of Expected Transaction Volumes for the upcoming months, based on historical data and anticipated events. Unless otherwise


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Exhibit F-i


agreed by the parties, in no event will the total Expected Transaction Volumes for a given Service Level Period exceed the applicable Maximum Transaction Volume.

    (c)
    Notwithstanding the foregoing, at least every six months, the parties will review the Expected Transaction Volume trend and, if indicated, may mutually agree to prospectively adjust the forecast of Expected Transaction Volumes for the upcoming months, based on historical data and anticipated events. Unless otherwise agreed by the parties, in no event will the total Expected Transaction Volumes for a given Service Level Period exceed the applicable Maximum Transaction Volume.

    (d)
    The concept of Expected Transaction Volume applies only to the Orbitz booking engine software.

3.     Maximum Transactions Per Hour

        (a) Maximum Transactions Per Hour (MTH) refers to the targeted upper limit of Transactions per hour based on targeted hardware capacity. For the purposes of this Agreement, MTH is defined as:

        [***]

    Where   ETV = Expected Transaction Volume
        MHP = Monthly High Volume Percentage
        MHV = Monthly High Volume Period
        DHP = Daily High Volume Percentage
        DHV = Daily High Volume Period
        HWL = Targeted Hardware Load (as defined in Section A(6) of this Exhibit)

 

 

(b)

 

For the Launch Date, the following variables will be used:

 

 

 

 

Monthly High Volume Percentage (MHP) will be equal to [***]%
        Monthly High Volume Period (MHV) will be equal to [***] days
        Daily High Volume Percentage (DHP) will be equal to [***]%
        Daily High Volume Period (DHV) will be equal to [***] hours
        Targeted Hardware Load (HWL) will be equal to [***]% (as defined in Section A(6) of this Exhibit)

        (c) During the first month of the first Service Level Period and every six months thereafter, the parties will review all defined variables in the MTH calculation, based on the historical data for the [***] busiest days during any 30-day period since the last review of the MTH calculation. If a change in the MHP or DHP variables is favorable to AA (i.e., will result in an increase in net MTH Transactions), the parties will prospectively change such variable(s) for the upcoming months, by the full value of such change. If a change in the MHP or DHP variables is favorable to Orbitz (i.e., will result in a decrease in net MTH Transactions), the parties will prospectively change such variable(s) for the upcoming months, by [***] percent ([***]%) of the value of the net change. For example, when the historical data is applied, if the DHP value is actually [***]%, and the former DHP value was [***]%, then the DHP value will be changed by [***]% of the [***]% change, resulting in a revised DHP value of [***]%. Should both parties be able demonstrate an application of the historical data that results in conflicting results, the MTH calculation will not change for the upcoming period.

        (d) The concept of MTH applies only to the Orbitz Software and not to the ITA Software.


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Exhibit F-ii


4.     System Availability

        (a) Monthly System Availability shall be defined using the following formula.

[***]

    Where   AP = Availability Percentage
        HM = Total hours in a given month
        EHU = Excluded Hours Unavailable (or the fraction thereof)
        HU = Total Hours Unavailable (or the fraction thereof)
    (b)
    Monthly System Availability Commitment. Monthly System Availability Commitment is defined in the table below for each contract year:

Contract Year

  Monthly System Availability
Commitment (Orbitz Software)

  Monthly System Availability
Commitment (ITA Software)

1   [***]%   [***]    
2   [***]%   [***]    
3   [***]%   [***]%
4   [***]%   [***]%
5   [***]%   [***]%

        (c) Hours Unavailable. Hours Unavailable shall be calculated from earlier of: (i) the time a Trouble Ticket is opened that either the Orbitz Software or ITA Software is unavailable or (ii) the time Orbitz is notified that either the Orbitz Software or ITA Software is not operating to specifications, and ends when the Orbitz Software or ITA Software, as the case may be, is restored to the extent that the system is operating substantially in conformance to specifications.

        (d) Excluded Hours Unavailable. Hours unavailable shall not include hours or portion thereof in which the Orbitz Software or ITA Software is unavailable due to (i) Scheduled Downtime, (ii) hours where actual Transactions exceeded the Maximum Transaction Per Hour (MTH) threshold (iii) failure of software, hardware, middleware or systems which are necessary for the delivery of the Orbitz Software or hosting of the ITA Software but which are not provided and controlled by Orbitz, including, but not limited to, 3rd party networks; SABRE hardware, middleware, operating system kernels, software, or systems; availability of the World Wide Web; software owned or licensed by AA connected to Orbitz Software (excluding AA-Competitive Functionality); or Orbitz Software modified by AA. Additionally, hours unavailable shall not include the following (i) hours unavailable or portion thereof due to functionality or defects that reside within the ITA Software, (ii) hours unavailable or portion thereof due to response times that are internal processing times within the ITA Software, (iii) hours unavailable or portion thereof due to reaching 100% capacity of search results or text rule display results from the ITA Software, provided that Orbitz has met its obligations as set forth in Exhibit D1, B(v), (iv) hours unavailable or portion thereof due to ITA's failure to provide realtime availability data,. Notwithstanding the foregoing, Orbitz will be responsible for maintaining: (i) the Orbitz interface between Orbitz Software and AA, (ii) the Orbitz interface leading to SABRE, (iii) communications between the Orbitz interface and the SABRE interface, and (iv) communications between the Orbitz data centers and ITA data centers.

        (e) Scheduled Downtime. Inaccessibility of the Orbitz Software and/or the ITA Software as part of the Website for normal maintenance or upgrades of the Orbitz or its Subcontractor's network, equipment and systems ("Scheduled Downtime") will occur during Orbitz's or its Subcontractor's regularly scheduled maintenance window, which Orbitz or its Subcontractor may, in its or their reasonable discretion, adjust to best serve the needs of its network and customer base. The parties will coordinate maintenance schedules and Orbitz agrees to schedule Scheduled Downtime to coincide with


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Exhibit F-iii


AA's scheduled maintenance, unless commercially impractical in which case Orbitz will use commercially reasonable efforts to ensure that Scheduled Downtime shall not inconvenience AA or its customers. Total Scheduled Downtime will not exceed [***] hours in total during a calendar month for the Orbitz Booking Engine. Total Scheduled Downtime will not exceed [***] hours in total during a quarter for the ITA Software. Scheduled Downtime that violates the foregoing requirements will violate the Monthly System Availability Commitment.

        (f) AA will use commercially reasonable efforts to provide Orbitz with at least 24 hours advance notification of any AA-initiated promotional events that are expected to create a significant increase in the number of booking Transactions or create a significant increase in the number of Queries on the system.

        (g) This subsection 4(g) shall apply to the Orbitz Software only. If the actual Transaction volume less Transactions incurred during hours excluded from the System Availability percentage due to the Maximum Transactions per Hour (MTH) threshold exceeding the Guaranteed Transaction Volume ("Adjusted Actual Transaction Volume") exceeds the Guaranteed Transaction Volume for any particular calendar month in the Service Level Period for years two and three, the Monthly System Availability Commitment will be reduced by [***] percent ([***]%) for each [***] percent ([***]%) increment (or portions thereof) that the Adjusted Actual Transaction Volume exceeds the Guaranteed Transaction Volume.

        For example, if the Expected Transaction Volume for a given month in the second year is [***] Transactions, the Guaranteed Transaction Volume will be [***] Transactions. If the actual number of Transactions turns out to be [***], and if there were [***] hours where the actual transactions were greater than the MTH, and the total number of transactions processed during such [***] hours equaled [***] transactions, then the Adjusted Actual Transactions would be [***]. The Monthly System Availability Commitment will be calculated (in the second year) as [***]% (i.e., [***] divided by [***] = [***]%. This results in [***] percent [***] (or portions thereof) which, in turn, reduces the year two base of [***]% by [***] percent ([***]%) amounts, for a total reduction of [***] percent ([***]%) to arrive at a Monthly System Availability Commitment of [***]%.

    (h)
    Service Availability Credits. If Orbitz fails to meet the Monthly System Availability after the Service Level Period commences, Orbitz will credit AA a prorated amount of the Fixed License and Hosting Fee and/or the ITA Hosting Fee, as the case may be, ("Hosting Credit"), calculated as follows: AA will be entitled to receive a credit equal to (i) [***] percent ([***]%) of the applicable monthly Fixed License and Hosting Fee for each [***] percent ([***]%) the Service Level falls below the Monthly System Availability Commitment for the Orbitz Software, and (ii) [***] percent ([***]%) of the applicable monthly ITA Hosting Fee for each [***] percent ([***]%) the Service Level falls below the Monthly System Availability Commitment for the ITA Software. The applicable annual Fixed License and Hosting Fee will be divided by twelve to determine the applicable monthly Fixed License and Hosting Fee. Such Hosting Credits may be deducted from the invoice for the next installment of the annual Fixed License and Hosting Fee or the ITA Hosting Fee or, if there is no subsequent installment due, Orbitz will refund to AA the amount of such Hosting Credits that have not been applied to invoices, subject to the limitation set forth in Section C(2) of this Exhibit F.

    (i)
    Additional ITA Grace Periods. For projects that require substantial modifications to existing ITA infrastructure or substantial changes to load on the ITA system in a live production environment; AA and Orbitz may mutually agree that such projects will have a 30 SLA exempt grace period commencing on the launch of the project.

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Exhibit F-iv


5.     System Response

      (a)


      i.
      Orbitz will be responsible for System Response Time; provided, however, Orbitz will not be responsible for System Response Time in the event that System Response Time is adversely impacted by factors, occurrences or circumstances beyond the control of Orbitz. Such factors, occurrences and circumstances that are deemed to be beyond the control of Orbitz include, but are not limited to, 3rd party networks, SABRE system response and hours, or portions thereof, where actual Transactions exceeded the Maximum Transactions Per Hour (MTH) threshold.

      ii.
      Additionally, Orbitz will not be responsible for adverse impact to the ITA Query Response Time due to the following (1) functionality or defects that reside within the ITA Software, (2) factors due to response times that are internal processing times within the ITA Software, (3) factors due to reaching 100% capacity of search results or text rule display results from the ITA Software, provided that Orbitz has met its obligations as set forth in Exhibit D1, B(v), and (4) changes made to the ITA Query format from the AA system (AA and Orbitz may mutually agree that configuration or parameter changes can require a new baseline for the ITA Query Response Time. Orbitz shall include detailed information as to delays attributed to Orbitz, Sabre and other causes outside the control of Orbitz in the monthly System Availability and Performance Report set forth in Section B(4) of this Exhibit.

        (b) Orbitz will provide System Response Time within acceptable limits for at least [***]% of all booking engine service calls/requests. Specific metric TBD, however, 2 months of response time data should be gathered and the metric shall be set as a result of looking at [***] standard deviations from the mean of this data. For the ITA Query Response Time, AA and Orbitz will mutually agree on a baseline metric that is based on current AA.com web site shopping patterns and the ITA Query Response Time for those shopping patterns.

        (c) The "System Response Time Commitment" shall equal an amount calculated at [***]% higher than [***] standard deviations above the observed mean.

        (d) System Response Time Credit. For each month that Orbitz fails to achieve at least [***]% performance at or below such System Response Time Commitment, AA shall receive a credit of $[***] subject to the limitation set forth in Section C(2) of this Exhibit.

        (e) This subsection 5(e) shall apply to the Orbitz Software only. If the actual Transaction volume exceeds the Guaranteed Transaction Volume for any particular calendar month, the value of the System Response Time Commitment will be increased by [***] percent ([***]%) for each [***] percent ([***]%) increment (or portions thereof) that the actual Transaction volume exceeds the Guaranteed Transaction Volume.

6.     Hardware Capacity

        (a) Unless otherwise agreed by both parties, Orbitz will provide performance monitoring and capacity planning aimed at keeping sustained hardware loads at or below [***]% of capacity for the production systems only.

7.     Escalation for Cases of Hosting Failure

        (a) In the event the Orbitz Software is not accessible or operational for any consecutive [***]-hour period, or for a cumulative total of [***] hours or more in any [***]-hour period, AA may, in its sole discretion, send its employees and/or consultants to the physical facilities at which the Orbitz Software


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Exhibit F-v


is hosted to assist with the problem resolution. Orbitz will cooperate with AA in implementing any technical or business solutions jointly deemed advisable to rectify the outage.

        (b) Orbitz has provided AA with a copy of its disaster recovery plan attached hereto as ("Disaster Recovery Plan") containing arrangements for restoration and continued provision of Hosting Services in the event of a disaster or Force Majeure event, which plan takes effect from the Launch Date. Orbitz agrees to maintain, at a minimum, the provisions included in such Disaster Recovery Plan during the term of the Agreement. In the event that the Orbitz Software or the ITA Software is not accessible or operational for a 12-hour period AA may require Orbitz to enact the Disaster Recovery Plan.

8.     Equivalent Services

        In addition to the specific Service Levels specified above, during the term of this Agreement:

        (a) Orbitz will provide AA with Monthly System Availability Commitment that is equivalent to or better than that provided to any Competitor using the Orbitz Software in a substantially similar manner, to be effective as of the date of the other Competitor's agreement.

        (b) Orbitz will provide AA with System Response Time Commitment that is equivalent to or better than that provided to any Competitor using the Orbitz Software in a substantially similar manner, to be effective as the of date of the other Competitor's agreement.


B. SUPPORT SERVICES

1.     Service Description

        (a) First Level Support. AA shall be responsible for providing all 1st level support to consumers using the Software for purposes of investigating or booking travel and travel related services. AA shall be responsible for determining if any of AA's own software, hardware, backend systems, middleware or systems are responsible for any consumer problems or error reports prior to contacting Orbitz.

        (b) Second Level Support. Orbitz shall be responsible for providing all 2nd level support. This refers to the support provided for facilities management, maintenance and hosting services required to operate the Orbitz Software and the ITA Software.

        (c) Third Level Support. Orbitz shall be responsible for providing all 3rd level support. This refers to the support provided for Software modifications, or functionality issues, as well as issues with ITA Software hosted services

        (d) AA Single Point of Contact (SPOC). AA will provide a SPOC for Orbitz to contact in the case of outage or downtime or status change. The AA SPOC will be available twenty-four hours, seven days per week by phone and/or pager. AA will also provide escalation procedures should the AA SPOC be unavailable.

        (e) ITA Point of Contact (POC). AA will identify the contact information for Orbitz to use in the event of outage, downtime, status change, functionality problems, or response time problems with ITA Software. An ITA POC will be available twenty-four hours, seven days per week by phone and/or pager. AA will also provide escalation procedures should the ITA POC be unavailable. Note to verify that support agreement to this effect is in the amendment.

        (f) Orbitz Single Point of Contact (SPOC). Orbitz will provide a SPOC for AA to contact in the case of outage or downtime. The SPOC will be available twenty-four hours, seven days per week by phone and/or pager. Orbitz will also provide escalation procedures should the Orbitz SPOC be unavailable.

Exhibit F-vi



        (g) Trouble Ticket. Orbitz will create a Trouble Ticket in response to system abnormalities. Each Trouble Ticket shall contain:

        (i)
        Trouble Ticket reference number.
        (ii)
        A description of the problem or interruption or degradation of the Hosting and Support Services, (each a "Service Problem") sufficient to assign a severity level and initiate an investigation of the Service Problem.
        (iii)
        A description of any actions taken by AA to correct the reported Service Problem.
        (iv)
        The time and date of the call.
        (v)
        Source of Service Problem report
        (vi)
        An initial severity level designation assigned by Orbitz based upon agreed upon Severity Level Definitions

    (h)
    Resolution Categories. For each Trouble Ticket, Orbitz will assign a resolution category for its internal tracking purposes. Initial problem categories are as follows:

      CODE CHANGE: revised source code is required and a patch kit will be made available to AA.

      DUPLICATE: the problem is a duplicate of an existing one.

      DOCUMENTATION: the relevant Documentation is in error and no source code change is needed.

      USE: the problem was caused by incorrect usage.

      PERMANENT RESTRICTION: the problem can be traced to a problem in the Orbitz Software that cannot be corrected in this version.

      SUGGESTION: the Orbitz Software is operating to specification and the reported problem is an enhancement or a (non-compliant) suggested change.

      CONFIGURATION: the problem has been caused by use of the Orbitz Software on an unsupported or invalid configuration.

      THIRD PARTY ERROR: the Orbitz Software is operating to specification and the reported problem is due to an uplink error and/or 3rdparty outside of Orbitz's direct control.

Exhibit F-vii



        (h) Severity Level Classification. The severity level of each reported problem will be classified in accordance with the following definitions:

Severity
Level

  Description

  Service Level


1   Critical Impact. The problem or defect in the Orbitz Software or ITA Software cannot be reasonably circumvented, rendering the Orbitz Software or ITA Software unusable   Notification within [***] minutes; commitment to identify and implement steps to fix within [***] hours for [***].

 

 

ITA Software search utilization drops to [***]% for [***] or error results are returned for [***]% or more of the canned test queries originating from the front end over [***] in a production environment.

 

Notification within [***] minutes; and resolution within [***] hours, with updates every [***] minutes for [***].

 

 

New fare/schedule data is not loaded within [***] minutes after Orbitz's receipt of notification that a complete fare load is available for loading into the ITA Software.

 

 

 

 

Significant performance degradation as measured by a [***]% [***] in the mutually agreed baseline on the canned test queries from the front end.

 

 



2

 

High Impact. As mutually agreed to by the parties for each reported problem: An error or defect in the Orbitz Software or ITA Software has caused incorrect results; and/or System Response Time greater than [***] times the agreed upon System Response Time Commitment; and/or a specific function has been interrupted, significantly restricting the use of the Orbitz Software, but not rendering the Orbitz Software or ITA Software unusable.

 

Notification within [***] hour; commitment to identify and implement steps to fix within [***] hours with hourly updates for [***].

 

 

Orbitz will resolve pricing bugs as follows: (1) Orbitz will use commercially reasonable efforts to assist and facilitate any pricing bug which [***] (2) if AA reports other pricing bugs that are "material" (i.e., involve errors of more than $[***], or affect more than [***]% of Queries to the ITA Software), those will be addressed (with AA's approval) by [***]. AA will provide written documentation on any fare [***] as well as who has authority from AA to request [***]. AA's request [***] is not completed within [***] minutes of the time of request.

 

Notification within [***] hour; and resolution within [***] hours, with hourly updates for [***].

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Exhibit F-viii


Severity
Level

  Description

  Service Level

    Fare/schedule data load ready notification is not received from ITA within [***] minutes of scheduled delivery time    

3   Moderate Impact. An error or defect in the Orbitz Software or ITA Software that has caused unexpected behavior or a minor error where use of the Orbitz Software or ITA Software is not interrupted, but unexpected results have occurred.   Notification within [***] business day; commitment to identify and implement steps to fix within [***] business days for [***].

 

 

Hardware replacement and reinstallation to correct a previous problem which is not completed within [***] days of machine failure for the QD (query distributor) machines.

 

Notification within [***] hours; and resolution within [***] hours, with daily updates for [***]

 

 

Failure of power, cooling, or major system within co-location facility that does not affect availability of the ITA Software where the failure persists for [***] hours or more. These items will be for notification only.

 

 

 

 

The ITA Software running on the Test Servers is unavailable Non-production servers will be exempt from response time requirements.

 

 



4

 

Low Impact or Request for Enhancement. The parties agree that the problem encountered requires new functionality or an enhancement to be added to the existing Orbitz Software or ITA Software.

 

As mutually agreed.

 

 

Hardware replacement and reinstallation to correct a previous problem which is not completed within [***] of machine failure for the LFS(low fare search) machines.

 

 


*
The severity of problems can be upgraded or downgraded depending on the impact to AA as mutually agreed by Orbitz and AA.

(i)
Resolution by Orbitz.

(i)
Orbitz will use its commercially reasonable efforts to provide a Resolution to each problem, within the specified time periods below in not less than [***]% of all reported cases for Severity Levels 1 and 2, and within [***]% of all reported cases for Severity Level 3. The AA SPOC will use reasonable efforts to assist the Orbitz SPOC to resolve the

***
Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit F-ix



      problem if problem determination is unclear and impacts the resolution time frames noted.

      (ii)
      Orbitz will use commercially reasonable efforts to meet the resolution times (depending on the Severity Level) set forth above with respect to acknowledging, formulating an action plan and resolving such problems by contacting the AA SPOC and/or ITA SPOC through e-mail, telephone, fax or other reliable means of communication. Orbitz will maintain a log of all incoming problems for tracking purposes. Orbitz will contact the AA SPOC as soon as Orbitz discovers that a problem cannot be resolved in the specified time period.

      (iii)
      In the event that Orbitz reasonably determines that the problem is not an error in or problem with the Orbitz Software, Orbitz will promptly notify the AA SPOC with a detailed explanation. In the event that Orbitz provides such notice, but the AA SPOC continues to request that Orbitz remedy the problem, Orbitz may charge AA for such requests.

      (iv)
      Orbitz will be primary contact for resolving problems associated with ITA Software subject to the exclusions of A.4(d). Orbitz will facilitate the resolution of ITA Software issues.

2.     Notification by Orbitz

        (a) The Notification schedules are detailed in section B1(f). Orbitz will notify AA or AA's designated agents after the commencement of the condition giving rise to the problem notification, and will provide continuing updates until resolution.

        (b) Orbitz will notify AA of (i) any known Orbitz Software, ITA Software or hosted system errors; (ii) communications failures from Orbitz to the SABRE host; (iii) availability of the SABRE Gateway, SABRE Host, and SABRE products called by the Orbitz Booking Engine, and (iv) communications failures from Orbitz to ITA.. The parties agree that Orbitz does not have responsibility for resolving the SABRE specific problems; however, Orbitz has the responsibility for communicating this information to AA as specified above. For each month that Orbitz fails to provide such notification as specified herein for Severity Level 1 and Severity Level 2 problems within Orbitz's control, AA may receive a credit of $[***] ("Notification Credit"), subject to the limitation set forth in Section C(2) of this Exhibit.

3.     Escalation

        (a) In the event that a Severity 1 or Severity 2 defect or problem is not resolved within the response time listed above, such defect or problem will be reported to the applicable Project Managers. If the Project Managers cannot agree on a resolution and defect remains unresolved for [***] hours, the defect will be reported to the Relationship Managers. If the defect remains unresolved for an additional [***] hours, the Relationship Managers will call an emergency meeting and AA may receive a credit of $[***] ("Service Resolution Credit"), subject to the limitation set forth in Section C(2) of this Exhibit.

4.     Reporting

        (a) Within 15 days after the end of each month, Orbitz agrees to provide a monthly SLA report (the "System Availability and Performance Report") showing:

      (i)
      actual service levels delivered compared to the monthly expected service levels;
      (ii)
      supporting data used in the computation of the service level results;
      (iii)
      notifications of any security breach;

***
Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit F-x


      (iv)
      an explanation for each failure and its corresponding resolution; and
      (v)
      the calculation of System Availability Credits, System Response Time Credits, Service Resolution Credits and Notification Credits (whether or not such calculations result in a Credit due AA).

        (b) Orbitz agrees to "lock-down" performance data and to make no changes to the data once it has been reported to AA. At any time, upon reasonable notice, AA may request raw service level performance data for a time period within 90 days of such request, from Orbitz and such will be provided to AA.

        (c) Monthly Reports:

      (i)
      Capacity Analysis and Planning—. The Capacity Analysis Report includes business metrics and goals (AA to provide these business metrics and goals) and maps against current and project system utilization. Based on the results of the analysis, Orbitz will provide appropriate capacity planning recommendations

      1)
      In regards to capacity planning, AA acknowledges and understands that capacity will be added in increments of a cluster of 15 LFS(low fare search) boxes.

      2)
      In regards to capacity planning, AA acknowledges and understands that each new cluster of LFS(low fare search) boxes will be added to a specific data center in order to maintain a target distribution of 50% of the machines in each data center.

      3)
      In regards to capacity planning, AA acknowledges and understands that approximate lead time required by Orbitz to add a new LFS(low fare seach) cluster is 4 weeks after written notification and approval by AA.

      (ii)
      Patch Assessment. Orbitz will report on all OS upgrades prior to implementation, and on all OS patches (other than in connection with upgrades) in summary fashion following implementation.

      (iii)
      Security Assessments. Orbitz will include a security assessment of vulnerabilities in the SLA report every 6 months.

        5. Quality Checks—AA has the right to conduct quality performance reviews of all performance related records and raw performance data to establish validity of reported service level data. Orbitz shall provide all pertinent data necessary to verify the validity of the performance report(s). AA requires the SLA performance data collection and data access processes to be repeatable, reliable and accurate. AA agrees to make such requests for time periods 90 days or less from the date such request is made.


C. TERMINATION OPTION AND LIMITATION OF REMEDIES

1.     Termination Option

        In the event (a) of a Material Service Level Failure, or (b) that AA is entitled to receive System Response Time Credits for any [***] months during a Service Level Period, AA may terminate this Agreement for cause and without penalty upon thirty (30) days written notice. Such termination will be AA's sole and exclusive remedy for a Material Service Level Failure or Orbitz's failure to maintain System Response Time

2.     Limitation of Remedies

        In no event shall the total of System Availability Credits, System Response Time Credits, Service Resolution Credits and/or Notification Credits (individually and collectively, a "Credit") due AA during any month exceed the value of [***] percent ([***]%) of the sum of the Fixed License and Hosting Fee


***
Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit F-xi


and ITA Hosting Fee for such month. Further, in no event shall the total of Credits due AA during any Service Level Period exceed the value of [***] percent ([***]%) of the sum of the Fixed License and Hosting Fee and the ITA Hosting Fee during that Service Level Period. Each such Credit owed AA will be calculated within 15 days after each month of the Service Level Period and applied to the next invoice or scheduled payment or, if there is no subsequent installment due, Orbitz will refund to AA the amount of such Hosting Credits that have not been applied to invoices.

3.     Earnback.

        Orbitz shall have the earnback opportunity with respect to Credits paid or owed to AA pursuant to this Exhibit, as follows:

        Within 30 days after each Service Level Period, Orbitz shall report on each performance obligation for which there was a Credit. If Orbitz achieved a yearly performance average that was greater than or equal to the agreed upon performance obligation, Orbitz shall be refunded (or relieved from paying, as the case may be) the amount of Credit formerly paid (or owed) for such performance obligation.


***
Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit F-xii



Attachment 1 to Exhibit F1

Orbitz High Availability Booking Engine
Summary

To provide business continuity in event of a complete or partial data center disaster Orbitz will run the AA.com booking engine in two data centers simultaneously in an active-active configuration. Figure I provides a high level overview of the solution.

Capacity, Performance & Connectivity

Server Capacity—Server capacity will be provided in each site to accommodate the full projected transaction volumes. Component redundancy within each site will also be maintained to ensure uninterrupted service. These improvements can be accomplished within the cost structure of the original proposal due to the reduction in scale of the staging environment. Assets originally dedicated to a "production-scale" staging environment will be used to provide the incremental capacity necessary to accommodate running two sites.

ITA Server Capacity—The total searching capacity of the site will be distributed as evenly as possible between the redundant Orbitz data centers. This component of the site differs from the rest of the site in that searching capacity is not redundant. In the event that one data center is not online, searching capacity of the site will be reduced by 50%.

Sabre Connectivity -The additional Sabre connectivity required in the event of a disaster will be provided via cost effective stand-by TIs.

Front End to Booking Engine Connectivity -There will be incremental costs associated with connecting the AA.com front end application data center to two booking engine sites. These costs are borne by AA and estimated to be 1.5 times the cost to connect to a single booking engine site. Although twice as many circuits will be required between the Exodus data centers, the traffic sent over anyone circuit will be reduced to half the traffic for a single site scenario.

Operations
Site Operations -The data centers will continue to be operated from a single location at the Orbitz Network Operations Center (NOC) in Chicago. In the event of a catastrophic event at the NOC location, the service can be monitored and operated from either. of the data center locations.

Log File Consolidation -Log files between the two booking sites will be consolidated on an hourly basis for troubleshooting, reporting and accounting purposes.

Future Considerations

Orbitz currently has facilities in two data centers in the Chicagoland area. AA will be included in Orbitz's future plans to enhance both geographic diversity of the data centers and vendor diversity in providers. AA will be migrated along with Orbitz in any future plans if the costs remain the same for enhancing the geographic and vendor diversity.




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Amendment No. 2 to the Development, License and Hosting Agreement
Exhibit D1 Hosting and Support Fees
Exhibit F1 Service Level Agreement A. HOSTING SERVICES
B. SUPPORT SERVICES
C. TERMINATION OPTION AND LIMITATION OF REMEDIES
Attachment 1 to Exhibit F1

EX-31.1


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Exhibit 31.1

CERTIFICATION

I, Jeffrey G. Katz, Chairman of the Board, President and Chief Executive Officer of Orbitz, Inc., certify that:

            1)    I have reviewed this quarterly report of Orbitz, Inc.;

            2)    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

            3)    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

            4)    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

              a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

              b)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

              c)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

            5)    The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

              a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

              b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 13, 2004

    /s/  JEFFREY G. KATZ      
Jeffrey G. Katz
Chairman of the Board, President and Chief Executive Officer



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CERTIFICATION

EX-31.2


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Exhibit 31.2

CERTIFICATION

I, John J. Park, Chief Financial Officer of Orbitz, Inc., certify that:

            1)    I have reviewed this quarterly report of Orbitz, Inc.;

            2)    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

            3)    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

            4)    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

              a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

              b)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

              c)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

            5)    The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

              a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

              b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 13, 2004

    /s/  JOHN J. PARK      
John J. Park
Chief Financial Officer



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CERTIFICATION

EX-32.1


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Exhibit 32.1

Certification

        Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Orbitz, Inc. (the "Company") hereby certifies, to such officer's knowledge, that:

              (i)  the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2004 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

             (ii)  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 13, 2004   /s/  JEFFREY G. KATZ      
Jeffrey G. Katz
Chairman of the Board, President and Chief Executive Officer



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Certification

EX-32.2


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Exhibit 32.2

Certification

        Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Orbitz, Inc. (the "Company") hereby certifies, to such officer's knowledge, that:

              (i)  the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2004 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

             (ii)  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 13, 2004   /s/  JOHN J. PARK      
John J. Park
Chief Financial Officer



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