AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1997.
REGISTRATION NO. 333-27125
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------
TRAVEL SERVICES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 4724 52-2030324
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
----------
Travel Services International, Inc.
515 No. Flagler Drive
Suite 300--Pavilion
West Palm Beach, FL 33401
(561) 802-3396
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Joseph V. Vittoria, Chairman and Chief Executive Officer
TRAVEL SERVICES INTERNATIONAL, INC.
515 No. Flagler Drive
Suite 300-Pavilion
West Palm Beach, Florida 33401
(561) 802-3396
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
Bruce S. Mendelsohn, Esq. Neil Gold, Esq.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. FULBRIGHT & JAWORSKI L.L.P.
1333 New Hampshire Avenue, N.W., Suite 400 666 Fifth Avenue 31st Floor
Washington, D.C. 20036 New York, NY 10103
(202) 887-4000 (212) 318-3000
----------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
----------
As soon as practicable after this Registration Statement becomes effective.
----------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [x]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 1, 1997
2,500,000 SHARES
[LOGO]
TRAVEL SERVICES INTERNATIONAL, INC.
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold
(the "Offering") by the Company.
Prior to this Offering there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
of the Common Stock will be between $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for listing of the
Common Stock for quotation on the Nasdaq National Market under the symbol
"TRVL."
SEE "RISK FACTORS" COMMENCING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- -------------------------- ------------ ---------------- -----------------
Per Share................. $ $ $
Total (3)................. $ $ $
================================================================================
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $2,500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to the Public will total $__________, the Underwriting Discount
will total $__________ and the Proceeds to the Company will total
$___________. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
MONTGOMERY SECURITIES FURMAN SELZ
, 1997
[Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.]
<PAGE>
GLOBE OF THE WORLD
WITH COLLAGE OF PICTURES OF
TRAVEL DESTINATIONS.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
Simultaneously with and as a condition to the closing of the Offering made
by this Prospectus, Travel Services International, Inc. will acquire, in
separate combination transactions (the "Combinations") in exchange for cash and
shares of its Common Stock, all of the common stock and ownership interests of
five specialized distributors of travel services (each, a "Founding Company,"
and collectively, the "Founding Companies"). Unless otherwise indicated, all
references to the "Company" herein include the Founding Companies, and
references herein to TSII mean Travel Services International, Inc. prior to the
consummation of the Combinations. For more information about the Combinations,
see "Certain Transactions."
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
related notes appearing elsewhere in this Prospectus. Unless otherwise
indicated, all share, per share and financial information in this Prospectus:
(i) have been adjusted to give effect to the Combinations; and (ii) assume no
exercise of the Underwriters' over-allotment option. Except as indicated
otherwise, all references to Common Stock include Restricted Common Stock. See
"Description of Capital Stock -- Common Stock and Restricted Common Stock."
THE COMPANY
The Company was established to create a leading single source distributor of
specialized leisure travel services to both travel agents and travelers. The
Founding Companies are specialized distributors of travel services providing
airline, cruise or European auto rental reservations. Unlike travel agents,
specialized distributors such as the Founding Companies focus on a single
segment of the travel service industry and thus provide a greater level of
expertise with respect to their segments. Specialized distributors offer travel
providers, such as airlines, cruise lines and auto rental companies, an
alternative distribution channel through which significant amounts of capacity
are sold in return for preferential pricing. Through consolidation of
specialized distributors, the Company will be able to offer both travel agents
and travelers a single source of competitively priced services and extensive
expertise within and across multiple leisure travel segments.
The Founding Companies are specialized distributors of the following leisure
travel services: domestic airline reservations (Travel 800), international
airline reservations (D-FW Tours), cruise vacations (Cruises Only and Cruises
Inc.) and European auto rentals (Auto Europe). As leaders in their respective
segments, the Founding Companies have experienced significant internal growth,
with combined net revenues increasing from $34.0 million in 1994 to $52.0
million in 1996, representing a 23.7% compound annual growth rate. In 1996, the
Company sold reservations for approximately 224,000 airline passengers, 98,000
cruise passengers and 195,000 European auto rentals, representing the sale of
over $285 million in travel services. Of the Company's 1996 net revenues,
approximately 53% were attributable to travel agents and 47% were attributable
to travelers. The Company has negotiated arrangements with most major airline,
cruise line and European auto rental companies, including such travel providers
as Continental Airlines, Inc., Delta Air Lines, Inc., Carnival Cruise Lines,
Royal Caribbean Cruise Lines, Avis Europe Limited and Europcar International
S.A.
Travelers from the United States (the "U.S.") spent in excess of $200
billion on business and leisure travel in 1996, a 16.3% increase from 1995, with
leisure travelers comprising approximately 65% of the total travel market. The
travel industry's principal providers, such as airlines, cruise lines and auto
rental companies, historically have relied on their internal sales departments
and travel agencies as their primary distribution channels. These traditional
distribution channels, however, have not enabled such providers to maximize
their capacity utilization and generally have offered limited expertise to the
traveler. The internal sales department of a travel provider can offer in-depth
knowledge about its services but will not offer alternative services from other
travel providers. Travel agents, while enabling a traveler to compare multiple
options from different travel providers, often lack extensive expertise about
the specific services being offered. By focusing on specific segments of the
travel service industry, specialized distributors are able to more efficiently
sell the capacity of travel providers. As a result, travel providers are
increasingly utilizing specialized distributors. Furthermore, specialized
distributors are able to offer both travel agents
3
<PAGE>
and travelers in-depth knowledge about specific services from many different
travel providers. This is becoming increasingly important to travel agents and
travelers as the number of travel providers and travel options continues to
expand.
The Company's objective is to become the leading single source distributor
of specialized leisure travel services to both travel agents and travelers. To
achieve this goal, the Company intends to: (i) provide extensive expertise in
specific travel segments; (ii) maintain and enhance its strong strategic
relationships with travel providers; (iii) offer high levels of customer
service; (iv) leverage and expand its technology infrastructure; and (v) operate
with a decentralized management structure. In addition, the Company intends to
implement a focused internal growth strategy and pursue an aggressive
acquisition program.
IMPLEMENT INTERNAL GROWTH STRATEGY. While the Company intends to acquire
specialized distributors of leisure travel services, strong internal revenue
growth remains the core of the Company's growth strategy. The Company believes
that the Founding Companies' growth will be enhanced by: (i) continued growth in
the leisure travel industry; (ii) the ability of the Founding Companies to
leverage their recent investments in technology; (iii) the expansion of sales
and marketing programs; and (iv) continued hiring of reservation agents and
other staff to increase sales capacity.
On a combined basis, the Company expects to implement best practices,
particularly with respect to information and telecommunications technology, to
achieve economies of scale and, most importantly, to benefit from significant
cross-selling opportunities that will further enhance the Company's revenue
growth. Through the consolidation of the Founding Companies, the Company will be
able to offer "one-stop shopping" for a variety of travel services. For example,
Travel 800, which currently focuses on domestic air travel, has begun to satisfy
international air travel requests through D-FW Tours and offer international
customers a European auto rental option through Auto Europe. Similarly, Cruises
Only and Cruises Inc., which focus on cruise line reservations, are able to
provide travelers with domestic and international airline reservations through
Travel 800 and D-FW Tours. As a result of this cross-selling, the Company
retains the preferential pricing and in-depth expertise with regard to each
segment while providing its customers with the benefits of a broad array of
travel services.
PURSUE AN AGGRESSIVE ACQUISITION PROGRAM. The Company believes that the
travel service industry is highly fragmented with significant opportunities for
consolidation. The Company intends to implement an aggressive acquisition
program targeting other leading specialized distributors. The Company intends to
seek acquisitions within its core airline, cruise line and European auto rental
market segments in order to gain market share. In addition, the Company plans to
acquire companies that specialize in the distribution of travel services
complementary to those currently offered by the Company, such as tour operators
and distributors specializing in hotel and rail reservations. Acquisitions of
this nature will enhance the Company's ability to be a single source of leisure
travel services for its customers. Finally, the Company may also pursue
international acquisitions that will enable the Company to replicate its
business model for domestic and international travel originating in a country
other than the U.S. The Company has reviewed various strategic acquisition
opportunities and has held preliminary discussions with a number of such
acquisition candidates. As of the date of the Prospectus, except for the
Combinations, the Company has no agreement with respect to any acquisition.
The Company has analyzed significant data on the travel service industry and
individual businesses within the industry and believes that it is well
positioned to implement its acquisition program following the Offering. The
Company believes that the experience, reputation and relationships of the
Founding Companies' management will be of significant value in the Company's
attempts to acquire other specialized distributors. In addition, the Company
will rely on the industry experience of its senior management, particularly
Joseph Vittoria, the Chairman and Chief Executive Officer, who is the former
Chief Executive Officer of Avis, Inc. and a founding member of the World Travel
and Tourism Council.
4
<PAGE>
THE OFFERING
Common Stock offered by the Company................. 2,500,000 shares
Common Stock to be outstanding after the Offering .. 8,406,726 shares (1)(2)
Use of proceeds..................................... To pay the cash portion
of the purchase price for
the Founding Companies
and for general corporate
purposes, including future
acquisitions. See "Use of
Proceeds." (2)
Proposed Nasdaq National Market symbol.............. TRVL
- ----------
(1) Excludes 1,000,000 shares of Common Stock reserved for issuance under the
Company's option plans, of which options to purchase 813,900 shares are
expected to be issued concurrently with the Offering. See "Management --
1997 Long-Term Incentive Plan" and "-- 1997 Non-Employee Directors' Stock
Plan."
(2) Of the net proceeds, $23.9 million will be used to pay the cash portion of
the purchase price for the Founding Companies of which approximately $23.7
million will be paid to former stockholders of the Founding Companies who
will become officers, directors, key employees or holders of more than 5%
of the Common Stock of the Company. See "Certain Transactions --
Organization of the Company." The Company's executive officers and
directors, and entities affiliated with them and holders of at least 5% of
the outstanding Common Stock will beneficially own shares of Common Stock
representing 63.9% of the total voting power of the Common Stock after
giving effect to the Offering (70.2% if all shares of Restricted Common
Stock were converted into Common Stock). See "Principal Stockholders" and
"Description of Capital Stock -- Common Stock and Restricted Common Stock."
5
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
TSII will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. For financial statement
presentation purposes, however, Auto Europe, one of the Founding Companies, has
been designated as the "accounting acquiror." The following summary unaudited
pro forma combined financial data present certain data for the Company as
adjusted for: (i) the effects of the Combinations on a historical basis; (ii)
the effects of certain pro forma adjustments to the historical financial
statements; and (iii) the consummation of the Offering. See the Unaudited Pro
Forma Combined Financial Statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
-------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, -------------------------------------
1996 (1) MARCH 31, 1996 MARCH 31, 1997
-------------- ------------------- -----------------
<S> <C> <C> <C>
Statement of income data:
Net revenues........................... $52,017 $11,638 $15,126
Operating expenses..................... 34,217 8,164 9,876
-------------------- ---------------- ---------------
Gross profit........................... 17,800 3,474 5,250
General and administrative expenses
(2)................................... 9,664 2,278 2,628
Goodwill amortization (3).............. 1,151 288 288
-------------------- ---------------- ---------------
Income from operations................. 6,985 908 2,334
Interest and other income (expense),
net................................... (391) (69) (115)
---------------- ---------------
Income before income taxes............. 6,594 839 2,219
Net income ............................ $ 3,645 $ 464 $ 1,227
==================== ================ ===============
Net income per share .................. $ 0.44 $0.06 $ 0.15
==================== ================ ===============
Shares used in computing pro forma net
income per share (4).................. 8,284,476 8,284,476 8,284,476
</TABLE>
MARCH 31, 1997
----------------------------
AS
PRO FORMA ADJUSTED
COMBINED (5) (6)
--------------- ------------
BALANCE SHEET DATA:
Working capital
deficit....................... $(31,774)(7) $(6,374)
Total assets................... 57,785 (8) 59,252
Long-term debt ................ 5,058 5,058
Stockholders' equity........... 12,563 37,963
- ----------
(1) The pro forma combined income statement data assume that the Combinations
and the Offering were consummated on January 1, 1996 and are not
necessarily indicative of the results the Company would have obtained had
these events actually then occurred or of the Company's future results.
During the period presented above, the Founding Companies were not under
common control or management and, therefore, the data presented may not be
comparable to or indicative of post-combination results to be achieved by
the Company. The pro forma combined income statement data are based on
preliminary estimates, available information and certain assumptions that
management deems appropriate and should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus.
(2) The pro forma combined income statement data include pro forma reductions
in salary, bonuses and benefits to the owners and certain key employees of
the Founding Companies to which they have agreed prospectively (the
"Compensation Differential") and do not include the non-recurring, non-cash
compensation charge of $7.1 million recorded in the first quarter of 1997.
For the year ended December 31, 1996 and the three months ended March 31,
1996 and 1997, the Compensation Differential was approximately $5.4
million, $927,000 and $987,000, respectively.
6
<PAGE>
(3) Reflects amortization of the goodwill to be recorded as a result of the
Combinations over a 35-year period and computed on the basis described in
the Notes to the Unaudited Pro Forma Combined Financial Statements.
(4) Includes (i) 3,422,225 shares to be issued to owners of the Founding
Companies; (ii) 2,484,501 shares issued to the management and founders of
TSII; and (iii) 2,377,750 shares representing the number of shares sold in
the Offering necessary to pay the cash portion of the consideration for the
Combinations and to pay the estimated underwriting discount and other
Offering expenses. Excludes options to purchase 813,900 shares to be issued
concurrently with the Offering. See "Certain Transactions."
(5) The pro forma combined balance sheet data assume that the Combinations were
consummated on March 31, 1997. The pro forma combined balance sheet data
are based upon preliminary estimates, available information and certain
assumptions that management deems appropriate and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
(6) Adjusted for the sale of 2,500,000 shares of Common Stock offered hereby
(at an assumed initial public offering price of $12.00 per share less
estimated underwriting discount and offering expenses) and the application
of the net proceeds therefrom.
(7) Includes a $23.9 million payable representing the cash portion of the
consideration for the Combinations to be paid from a portion of the net
proceeds of the Offering and a $2.8 million reduction for certain working
capital adjustments and reimbursements to S-corp stockholders for certain
taxes to be paid by them in connection with the Combinations.
(8) Reflects (i) the creation of approximately $40.3 million of goodwill in
connection with the Combinations and (ii) a reduction of total assets as a
result of certain non-operating assets with a net book value of
approximately $2.5 million that will be excluded from the Combinations and
retained by certain stockholders of the Founding Companies.
7
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS)
The following table presents summary data for each of the Founding Companies
(see "The Company" for the complete names of each Founding Company) on a
historical basis for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, (1) MARCH 31, (1)
----------------------------- -----------------
1994 1995 1996 1996 1997
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
AUTO EUROPE:
Net revenues...................... $17,156 $21,919 $25,720 $5,764 $7,820
Operating expenses................ 11,101 15,413 18,807 4,615 5,723
--------- --------- --------- -------- --------
Gross profit...................... 6,055 6,506 6,913 1,149 2,097
General and administrative
expenses......................... 6,276 6,686 6,936 1,721 1,844
--------- --------- --------- -------- --------
Income (loss) from operations..... (221) (180) (23) (572) 253
CRUISES ONLY:
Net revenues...................... $ 7,467 $ 9,078 $ 7,937 $1,806 $2,213
Operating expenses................ 3,458 3,675 2,986 666 772
--------- --------- --------- -------- --------
Gross profit...................... 4,009 5,403 4,951 1,140 1,441
General and administrative
expenses......................... 2,922 3,929 4,318 764 828
--------- --------- --------- -------- --------
Income from operations............ 1,087 1,474 633 376 613
TRAVEL 800:
Net revenues...................... $ 3,504 $ 5,930 $ 7,645 $1,649 $2,108
Operating expenses................ 2,610 3,767 5,001 1,021 1,316
--------- --------- --------- -------- --------
Gross profit...................... 894 2,163 2,644 628 792
General and administrative
expenses......................... 1,068 1,107 1,315 221 296
--------- --------- --------- -------- --------
Income (loss) from operations..... (174) 1,056 1,329 407 496
CRUISES INC.:
Net revenues...................... $ 3,846 $ 4,996 $ 6,494 $1,492 $1,714
Operating expenses................ 2,361 3,681 4,140 1,080 1,034
--------- --------- --------- -------- --------
Gross profit...................... 1,485 1,315 2,354 412 680
General and administrative
expenses......................... 1,109 1,332 1,708 387 474
--------- --------- --------- -------- --------
Income from operations............ 376 (17) 646 25 206
D-FW TOURS (2):
Net revenues...................... $ 2,000 $ 2,632 $ 4,221 $ 927 $1,271
Operating expenses................ 1,067 1,367 3,283 782 1,031
--------- --------- --------- -------- --------
Gross profit...................... 933 1,265 938 145 240
General and administrative
expenses......................... 872 1,098 809 112 173
--------- --------- --------- -------- --------
Income from operations............ 61 167 129 33 67
</TABLE>
- ----------
(1) General and administrative expenses for the Founding Companies for each of
the years in the three year period ended December 31, 1996 and for the
three months ended March 31, 1996 and 1997 do not include a reduction for
the Compensation Differential as indicated below:
<PAGE>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------
1994 1995 1996 1996 1997
-------- -------- -------- ------ -------
Auto Europe .. $3,450 $2,725 $3,158 $770 $742
Cruises Only . 793 974 1,362 116 116
Travel 800.... -- 290 391 28 63
Cruises Inc. . -- -- 133 13 31
D-FW Tours.... -- 163 378 -- 35
-------- -------- -------- ------ -------
Total....... $4,243 $4,152 $5,422 $927 $987
======== ======== ======== ====== =======
(2) Other than the year ended December 31, 1996, the fiscal years presented for
the two companies comprising D-FW Tours are as follows: D-FW Tours, Inc. --
July 31, 1994 and 1995; and D-FW Travel Arrangements, Inc. -- October 31,
1994 and 1995.
8
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other information in this
Prospectus, the following risk factors should be considered carefully in
evaluating an investment in the Company. This Prospectus contains certain
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from the results anticipated in these
forward-looking statements as a result of certain of the factors set forth in
the following risk factors and elsewhere in this Prospectus.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
TSII was founded in April 1996 but has conducted no operations and generated
no revenues to date. TSII has entered into agreements to acquire the Founding
Companies simultaneously with and as a condition to the closing of the Offering.
Prior to the consummation of the Offering, the Founding Companies have operated
as separate independent entities. Currently, the Company has no centralized
financial reporting system and will initially rely on the existing reporting
systems of the Founding Companies. There can be no assurance that the Company
will be able to successfully integrate the operations of these businesses or
institute the necessary Company-wide systems and procedures to successfully
manage the combined enterprise on a profitable basis. The Company's management
group has been assembled only recently, and there can be no assurance that the
management group will be able to effectively manage the combined entity or
effectively implement the Company's internal growth strategy and acquisition
program. The combined financial statements of the Founding Companies cover
periods when the Founding Companies and TSII were not under common control or
management and, therefore, may not be indicative of the Company's future
financial or operating results. The inability of the Company to successfully
integrate the Founding Companies would have a material adverse effect on the
Company's business, financial condition and results of operations and would make
it unlikely that the Company's acquisition program will be successful.
A number of the Founding Companies offer different travel services, utilize
different capabilities and technologies and target different client segments.
While the Company believes that there are substantial opportunities to
cross-market and integrate these businesses, these differences increase the risk
inherent in successfully completing such integration. Further, there can be no
assurance that the Company's strategy to be a single source distributor of
specialized travel services will be successful, or that the customers of the
Founding Companies will accept the Company as a distributor of a variety of
specialized travel services. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -Business
Strategy."
FACTORS AFFECTING INTERNAL GROWTH
The Founding Companies have experienced revenue and earnings growth on a pro
forma basis over the past few years. There can be no assurance that the Founding
Companies will continue to experience internal growth comparable to these
levels, if at all. From time to time, certain of the Founding Companies have
been unable to hire and train as many qualified reservations personnel as
necessary to meet the demands of their businesses. Factors affecting the ability
of the Founding Companies to continue to experience internal growth include, but
are not limited to, the ability to expand the travel services offered, the
continued relationships with certain travel providers and travel agents, the
ability to recruit and retain qualified reservation personnel, continued access
to capital and the ability to cross-sell services between the Founding
Companies. See "Business -- Growth Strategy."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company intends to increase its revenues, expand the markets it serves
and increase its service offerings in part through the acquisition of additional
specialized distributors of travel services. There can be no assurance that the
Company will be able to identify, acquire or profitably manage additional
businesses or successfully integrate acquired businesses into the Company
without substantial costs, delays or other operational or financial problems.
Increased competition for acquisition candidates may
9
<PAGE>
develop, in which event there may be fewer acquisition opportunities available
to the Company as well as higher acquisition prices. Further, acquisitions
involve a number of special risks, including possible adverse effects on the
Company's operating results, diversion of management's attention, failure to
retain key personnel, risks associated with unanticipated events or liabilities
and amortization of acquired intangible assets, some or all of which could have
a material adverse effect on the Company's business, financial condition and
results of operations, particularly in the fiscal quarters immediately following
the consummation of such transactions. Customer dissatisfaction or performance
problems at a single acquired company could also have an adverse effect on the
reputation of the Company. In addition, there can be no assurance that the
Founding Companies or other businesses acquired in the future will achieve
anticipated revenues and earnings. The Company has reviewed various strategic
acquisition opportunities and has held preliminary discussions with a number of
such acquisition candidates. As of the date of the Prospectus, except for the
Combinations, the Company has no agreement with respect to any acquisition.
See "Business -- Growth Strategy."
RISKS RELATED TO ACQUISITION FINANCING
The Company intends to finance future acquisitions by using shares of its
Common Stock for a substantial portion of the consideration to be paid. In the
event that the Common Stock does not maintain a sufficient market value, or
potential acquisition candidates are otherwise unwilling to accept Common Stock
as part of the consideration for the sale of their businesses, the Company may
be required to utilize more of its cash resources, if available, in order to
initiate and maintain its acquisition program. If the Company has insufficient
cash resources, its growth could be limited unless it is able to obtain
additional capital through debt or equity financings. Although the Company
intends to seek a line of credit prior to completion of the Offering, there can
be no assurance that the Company will be able to obtain this credit line, or
other financing it may need, on terms the Company deems acceptable. If the
Company is unable to obtain financing sufficient for all of its desired
acquisitions, it may be unable to fully implement its acquisition strategy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources."
MANAGEMENT OF GROWTH
The Company expects to grow internally and through acquisitions. The Company
expects to expend significant time and effort in expanding existing businesses
and identifying, completing and integrating acquisitions. There can be no
assurance that the Company's systems, procedures and controls will be adequate
to support the Company's operations as they expand. Any future growth also will
impose significant added responsibilities on members of senior management,
including the need to identify, recruit and integrate new senior level managers
and executives. There can be no assurance that such additional management will
be identified and retained by the Company. To the extent that the Company is
unable to manage its growth efficiently and effectively, or is unable to attract
and retain additional qualified management, the Company's business, financial
condition and results of operations could be materially adversely effected. See
"Business -- Growth Strategy" and "Management."
RISKS ASSOCIATED WITH THE TRAVEL INDUSTRY; GENERAL ECONOMIC CONDITIONS
The Company's results of operations will be dependent upon factors affecting
the travel industry. The Company's revenues and earnings are especially
sensitive to events that affect domestic and international air travel, cruise
travel and auto rentals in Europe. A number of factors, including political
instability, armed hostilities, international terrorism, extreme weather
conditions, a rise in fuel prices, a decline in the value of the U.S. dollar,
labor disturbances and excessive inflation, could result in an overall decline
in demand for travel. These types of events could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, demand for the Company's travel services may be significantly related
to the general level of economic activity and employment in the U.S. Therefore,
any significant economic downturn or recession in the U.S. could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -Industry Overview."
10
<PAGE>
SEASONALITY AND QUARTERLY FLUCTUATIONS
The domestic and international leisure travel industry is extremely
seasonal. The results of each of the Founding Companies have been subject to
quarterly fluctuations caused primarily by the seasonal variations in the travel
industry, especially the leisure travel segment. Net revenues and net income for
the Founding Companies are generally higher in the second and third quarters.
The Company expects this seasonality to continue in the future on a combined
basis. Several of the Founding Companies experienced an operating loss in the
fourth quarter of 1996. The Company reported an operating loss on a combined
basis for the fourth quarter of 1996 and may continue to experience a loss in
this quarter in the future. The Company's quarterly results of operations may
also be subject to fluctuations as a result of the timing and cost of
acquisitions, fare wars by travel providers, changes in relationships with
certain travel providers, changes in the mix of services offered by the Company,
the timing of the payment of volume bonuses by travel providers, extreme weather
conditions or other factors affecting travel. Unexpected variations in quarterly
results could also adversely affect the price of the Common Stock, which in turn
could limit the ability of the Company to make acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON TRAVEL PROVIDERS
The Company is dependent upon travel providers for access to their capacity.
The Company receives from certain travel providers pricing that is preferential
to published fares which enables the Company to offer prices lower than would be
generally available to travelers and travel agents. Other distributors may have
similar arrangements with travel providers, some of which may provide better
availability or more competitive pricing than that offered by the Company. The
Company anticipates that a significant portion of the Company's revenues will be
derived from the sale of capacity for relatively few travel providers. In 1996,
net revenues from (i) two auto rental companies, Avis Europe and Europcar,
represented an aggregate of 39.6%; (ii) two cruise lines represented an
aggregate of 13.9%; and (iii) two airlines represented an aggregate of 9.5% of
the Company's combined net revenues. The Company's agreements with its travel
providers can generally be cancelled or modified by the travel provider upon
relatively short notice. The loss of a contract, changes in the Company's
pricing agreements or commission schedules or more restricted access to travel
providers' capacity could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -- Travel
Provider Relationships."
DEPENDENCE UPON TECHNOLOGY
The Company's business is dependent upon a number of different information
and telecommunication technologies to facilitate its access to information and
manage a high volume of inbound and outbound calls. Any failure of this
technology would have a material adverse effect on the Company's business,
financial condition and results of operations. For example, during 1996, Cruises
Only's results of operations were adversely affected by unanticipated
shortcomings in the functionality of call center software installed as part of a
new telephone system. In addition, the Company is dependent upon certain third
party vendors, including central reservation systems operators such as SABRE
Group and System One, for access to certain information. Any failure of these
systems or restricted access by the Company would have a material adverse effect
on the Company's business, financial condition and results of operations.
Currently, all of the Founding Companies operate on separate computer and
telephone systems, several of which utilize different technologies. The Company
expects that it will integrate these systems but it has not yet established a
timetable or its capital needs for such integration. There can be no assurance
that the contemplated integration of these systems will be successful, completed
without any disruption to the Company's business or that it will result in the
intended cost efficiencies. Furthermore, the Company believes that its current
technologies are a competitive advantage for each of the Founding Companies.
There can be no assurance that the Company will be successful in maintaining
this competitive advantage in the future. See "Business -- MIS Technology."
11
<PAGE>
SUBSTANTIAL COMPETITION
The travel service industry is extremely competitive and has low barriers to
entry. The Company competes with other distributors of travel services, its
travel providers, travel agents, tour operators and group travel sponsors, some
of which have greater experience, brand name recognition and/or financial
resources than the Company. The Company's travel providers may decide to compete
more directly with the Company and restrict the availability of tickets or
services or the ability of the Company to offer tickets or services at a
preferential price. In addition, other distributors may have relationships with
certain travel providers providing better availability or more competitive
pricing than that offered by the Company. Furthermore, some travel agents and
group travel sponsors have a strong presence in their geographic area which may
make it difficult for the Company to attract customers in those areas. See
"Business -- Competition."
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the efforts and relationships of
Joseph Vittoria and the other executive officers of TSII as well as the senior
management of the Founding Companies, including Imad Khalidi, Wayne Heller,
Susan Parker, Robert Falcone, and John Przywara. Furthermore, the Company will
likely be dependent on the senior management of any businesses acquired in the
future. If any of these individuals become unable to continue in their role the
Company's business or prospects could be adversely affected. Although the
Company or an operating subsidiary has entered into an employment agreement with
each of the Company's executive officers and the Chief Executive Officer of each
of the Founding Companies, there can be no assurance that such individuals will
continue in their present capacity for any particular period of time. The
Company does not intend to obtain key man life insurance covering any of its
executive officers or other members of senior management. See "Management."
VOTING CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
The Company's executive officers and directors, and entities affiliated with
them and holders of at least 5% of the outstanding Common Stock will
beneficially own shares of Common Stock representing 63.9% of the total voting
power of the Common Stock after giving effect to the Offering (70.2% if all
shares of Restricted Common Stock were converted into Common Stock). These
persons, if acting in concert, will be able to exercise control over the
Company's affairs and are likely to be able to elect the entire Board of
Directors and to control the disposition of any matter submitted to a vote of
stockholders. See "Principal Stockholders" and "Description of Capital Stock --
Common Stock and Restricted Common Stock."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
The market price of the Common Stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the Common Stock in the
public market following the Offering. The 2,500,000 shares being sold in the
Offering will be freely tradable unless acquired by affiliates of the Company.
Upon completion of the Offering, the holders of Common Stock who did not
purchase shares in the Offering, will own 5,906,726 shares of Common Stock,
including (i) the stockholders of the Founding Companies who will receive, in
the aggregate, 3,422,225 shares in connection with the Combinations and (ii)
management and founders of TSII who own 2,484,501 shares. These shares have not
been registered under the Securities Act and, therefore, may not be sold unless
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, these
stockholders have agreed with TSII not to sell, transfer or otherwise dispose of
any of these shares for one year following consummation of the Offering. These
stockholders also have certain demand registration rights beginning two years
after the Offering and certain piggyback registration rights with respect to
these shares.
The Company and the holders of all shares outstanding prior to the Offering
(including all officers and directors of the Company and the Founding Companies)
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, or any securities convertible into or exercisable
12
<PAGE>
or exchangeable for Common Stock, for a period of 180 days after the date of
this Prospectus without the prior written consent of Montgomery Securities
except for: (i) in the case of the Company, Common Stock issued pursuant to any
employee or director plan described herein or in connection with acquisitions
and (ii) in the case of all such holders, the exercise of stock options pursuant
to benefit plans described herein and shares of Common Stock disposed of as bona
fide gifts, subject, in each case, to any remaining portion of the 180-day
period applying to any shares so issued or transferred. See "Shares Eligible for
Future Sale" and "Underwriting."
The Company plans to register an additional 3,000,000 shares of its Common
Stock under the Securities Act after completion of the Offering for use by the
Company as consideration for future acquisitions. Upon such registration, these
shares will generally be freely tradable after issuance, unless the resale
thereof is contractually restricted. The piggyback registration rights described
above will not apply to the registration statement to be filed with respect to
these 3,000,000 shares. It is contemplated that the shares issued as
consideration for future acquisitions will be subject to restrictions at least
as restrictive as those described in the preceding paragraph. See "Shares
Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active public market for the Common Stock
will develop or continue after the Offering. The initial public offering price
for the Common Stock was determined by negotiation between the Company and the
Representatives of the Underwriters and may bear no relationship to the price at
which the Common Stock will trade after the Offering. See "Underwriting" for the
factors considered in determining the initial public offering price. After the
Offering, the market price of the Common Stock may be subject to significant
fluctuations in response to numerous factors, including variations in the annual
or quarterly financial results of the Company or its competitors, changes by
financial research analysts in their estimates of the earnings of the Company or
the failure of the Company to meet such estimates, conditions in the economy in
general or in the travel industry in particular, unfavorable publicity or
changes in applicable laws and regulations (or judicial or administrative
interpretations thereof) affecting the Company or the travel service industry.
From time to time, the stock market experiences significant price and volume
volatility, which may affect the market price of the Common Stock for reasons
unrelated to the Company's performance.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares of $12.28 per share. In the event the Company issues additional
Common Stock in the future, including shares issued in connection with future
acquisitions, purchasers of Common Stock in the Offering may experience further
dilution. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is authorized to issue preferred stock
in one or more series without stockholder action. The Board of Directors of the
Company serve staggered terms. The existence of this "blank-check" preferred
stock and the staggered Board of Directors could render more difficult or
discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise. Certain provisions of the Delaware
General Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. See "Management -- Directors and Executive
Officers," "Principal Stockholders" and "Description of Capital Stock."
13
<PAGE>
THE COMPANY
The Company was founded to create the leading single source distributor of
specialized leisure travel services for both travel agencies and travelers.
Although it has conducted no operations to date, TSII has entered into
agreements to acquire, simultaneously with the closing of the Offering, the five
Founding Companies. For a description of the Combinations, see "Certain
Transactions."
AUTO EUROPE. Auto-Europe, Inc. (Maine) ("Auto Europe"), founded in 1986, is
a leading specialized distributor of reservations for leisure auto rentals to
persons traveling from the U.S. and Canada to Europe. Auto Europe is based in
Portland, Maine and operates on a nationwide basis with approximately 90% of its
reservations during 1996 placed through travel agents and approximately 10%
directly to travelers. According to Conde Nast Traveler's 1996 Reader's Choice
Poll, Auto Europe was ranked second among twelve auto rental providers and
reservations companies for overall service quality. In 1996, Auto Europe made
reservations for approximately 195,000 auto rentals from companies such as Alamo
Europe, Avis Europe Limited, EuroDollar and Europcar International S.A. Auto
Europe's net revenues in 1996 were approximately $25.7 million and loss from
operations was approximately $23,000 (does not include a reduction in general
and administrative expenses for a Compensation Differential of approximately
$3.2 million).
CRUISES ONLY. Cruises Only, Inc. ("Cruises Only"), founded in 1985, believes
that it is the largest specialized distributor of reservations for cruise
vacations to travelers located in the U.S. Cruises Only is based in Orlando,
Florida and operates on a nationwide basis with sales directly to travelers.
Cruises Only offers a low-price guarantee and markets its services through
prominent advertisements in major newspapers and leading consumer and travel
magazines. In 1996, Cruises Only provided reservations for approximately 61,000
passengers on over 45 cruise lines such as Carnival Cruise Lines, Princess
Cruises and Royal Caribbean Cruise Lines. Cruises Only's net revenues in 1996
were approximately $7.9 million and income from operations was approximately
$633,000 (does not include a reduction in general and administrative expenses
for a Compensation Differential of approximately $1.4 million).
TRAVEL 800. 800-Ideas, Inc., which operates under the trade name "Travel
800" ("Travel 800"), was founded in 1989 and is a specialized distributor of
domestic airline reservations. Travel 800 is based in San Diego, California and
operates on a nationwide basis with sales principally to travelers. Travel 800
relies primarily on its reputation for low fares and mnemonic telephone numbers
such as 1-800-FLY-CHEAP and 1-800-LOW-FARE to attract business. In 1996, Travel
800 received approximately 2.3 million telephone calls and sold tickets to
approximately 182,000 passengers. Travel 800's net revenues in 1996 were
approximately $7.6 million and income from operations was approximately $1.3
million (does not include a reduction in general and administrative expenses for
a Compensation Differential of approximately $391,000).
CRUISES INC. Cruises Inc. ("Cruises Inc."), founded in 1982, was one of the
first specialized distributors of reservations for cruise vacations to travelers
located in the U.S. Cruises Inc. is based in Syracuse, New York and operates on
a nationwide basis with sales directly to travelers. Cruises Inc. utilizes a
network of approximately 200 independent licensed agents with knowledge of the
cruise industry to assist each traveler in selecting the most appropriate
cruise. Cruises Inc. has completed testing of Cruise Director, a computerized
reservation system developed for cruise lines by SABRE to increase the
efficiency of the reservation process, and is in the process of making the
system available to its independent agents. Cruises Inc. is also currently the
exclusive provider of cruise line information services for Travelocity, a
popular travel site on the Internet and a service of the SABRE Group. During
1996, Cruises Inc. provided reservations for approximately 37,000 passengers for
over 25 cruise lines such as Carnival Cruise Lines, Princess Cruises and Royal
Caribbean Cruise Lines. Cruises Inc.'s net revenues in 1996 were approximately
$6.5 million and income from operations was approximately $646,000 (does not
include a reduction in general and administrative expenses for a Compensation
Differential of approximately $133,000).
D-FW TOURS. D-FW Tours, Inc. and D-FW Travel Arrangements, Inc.
(collectively, "D-FW Tours"), founded in 1978, is a specialized distributor of
international airline reservations on regularly scheduled commercial flights.
D-FW Tours is based in Dallas, Texas and operates on a nationwide basis
14
<PAGE>
with sales primarily to travel agents. D-FW Tours currently holds contracts with
most major U.S. based and many foreign airlines. These contracts provide for
rates which are generally lower than published air fares. In addition, D-FW
Tours offers travel agents high quality customer service and access to its
proprietary database on Wings(Registered Trademark) software that allows agents
to identify low fare alternatives. D-FW Tours estimates that in 1996 it received
over 1.0 million telephone calls and sold tickets for approximately 41,900
passengers. D-FW Tours' net revenues in 1996 were approximately $4.2 million and
income from operations was approximately $129,000 (does not include a reduction
in general and administrative expenses for a Compensation Differential of
approximately $378,000).
The aggregate consideration being paid to acquire the Founding Companies
consists of $23.9 million in cash and 3,422,225 shares of Common Stock. The
consummation of each Combination, which will occur simultaneously with the
consummation of the Offering, is subject to customary conditions. These
conditions include, among others, the continuing accuracy on the closing date of
the Combinations of the representations and warranties of the Founding Companies
and of TSII, the performance by each of them of all covenants included in the
agreements relating to the Combinations and the nonexistence of a material
adverse change in the business, results of operations or financial condition of
each Founding Company. See "Certain Transactions."
The Company's executive offices are located at 515 No. Flagler Drive, Suite
300 -- Pavilion, West Palm Beach, Florida 33401, and its telephone number is
(561) 802-3396.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby (assuming an initial public offering price of $12.00
per share and after deducting the estimated underwriting discount and offering
expenses), are estimated to be approximately $25.4 million ($29.6 million if the
Underwriters' over-allotment option is exercised in full). Of the net proceeds,
$23.9 million will be used to pay the cash portion of the purchase price for the
Founding Companies, of which approximately $23.7 million will be paid to former
stockholders of the Founding Companies who will become officers, directors, key
employees or holders of more than 5% of the Common Stock of the Company. See
"Certain Transactions -- Organization of the Company."
The remaining $1.5 million of net proceeds will be used for working capital
and for general corporate purposes, which are expected to include future
acquisitions of specialized distributors of travel services. The Company has
reviewed various strategic acquisition opportunities and has held preliminary
discussions with a number of such acquisition candidates. Except for the
Combinations, the Company has no agreement with respect to any acquisition.
Pending such uses, the net proceeds will be invested in short-term,
interest-bearing, investment grade securities.
In addition to the net proceeds of the Offering, the Company will have
approximately $5.1 million in cash as a result of the Combinations. The Company
has received a commitment letter and is negotiating the definitive terms of a
credit agreement for a $20.0 million line of credit. There can be no assurance
that the Company will be able to obtain this line of credit, or other financing
it may need, on terms the Company deems acceptable.
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, in the event the Company is
successful in obtaining one or more lines of credit, it is likely that any such
facility will include restrictions on the ability of the Company to pay
dividends without the consent of the lender.
16
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt, including the current
maturities of long-term debt, and capitalization of the Company at March 31,
1997: (i) on a pro forma combined basis to give effect to the Combinations and
(ii) as further adjusted to give effect to the issuance of the 2,500,000 shares
of Common Stock offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." This table should be read in conjunction with
the Unaudited Pro Forma Combined Financial Statements of the Company and the
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------
PRO FORMA (1) AS ADJUSTED
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current maturities of long-term debt
(2)................................................................ $ 535 $ 535
============== ==============
Long-term debt, less current maturities (2)........................ $ 5,058 $ 5,058
Stockholders' equity:
Preferred Stock: $0.01 par value, 1,000,000 shares authorized;
none outstanding ................................................ -- --
Common Stock: $0.01 par value, 50,000,000 shares authorized;
5,906,726 shares outstanding, pro forma; and 8,406,726 shares
outstanding, as adjusted (3)..................................... 59 84
Additional paid-in capital........................................ 16,112 41,487
Retained earnings (deficit)....................................... (3,608) (3,608)
-------------- --------------
Total stockholders' equity ...................................... 12,563 37,963
-------------- --------------
Total capitalization............................................ $17,621 $43,021
============== ==============
</TABLE>
- ----------
(1) Combines the respective accounts of TSII and the Founding Companies at
March 31, 1997 and gives effect to the reclassification of the Founding
Companies' common stock as additional paid-in capital.
(2) For a description of the Company's debt, see Notes to the Financial
Statements of Auto Europe and Cruises Only.
(3) Includes 2,484,501 shares of Restricted Common Stock, consisting of 851,166
shares of Common Stock issued to management and 1,633,335 shares of Common
Stock issued to Alpine Consolidated, LLC and Capstone Partners, LLC. See
"Description of Capital Stock -- Common Stock and Restricted Common Stock."
Excludes 813,900 shares of Common Stock subject to options to be granted
concurrently with the Offering at an exercise price equal to the initial
public offering price. See "Management -- 1997 Long-Term Incentive Plan"
and -- "1997 Non-Employee Directors' Stock Plan."
17
<PAGE>
DILUTION
The deficit in pro forma net tangible book value of the Company as of March
31, 1997, was approximately $27.7 million, or approximately $(4.69) per share of
Common Stock, after giving effect to the Combinations. The deficit in pro forma
net tangible book value per share represents the amount by which the Company's
pro forma total liabilities exceeds the Company's pro forma net tangible assets
divided by the number of shares of Common Stock to be outstanding after giving
effect to the Combinations. After giving effect to the sale of the 2,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share and after deducting the estimated underwriting
discount and offering expenses, the Company's deficit in pro forma net tangible
book value at March 31, 1997 would have been approximately $2.3 million, or
approximately $(0.28) per share. This represents an immediate increase in pro
forma net tangible book value of approximately $4.41 per share to existing
stockholders and an immediate dilution of approximately $12.28 per share to new
investors purchasing the shares in the Offering. The following table illustrates
this pro forma dilution:
Assumed initial offering price per share .......... $12.00
Pro forma deficit in net tangible book value per --------
share before Offering.............................. $(4.69)
Increase in pro forma net tangible book value per
share attributable to new investors................ 4.41
---------
Pro forma deficit in net tangible book value per
share after Offering.............................. (0.28)
--------
Dilution per share to new investors................ $12.28
========
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by existing stockholders (after giving effect to the
Combinations) and the new investors purchasing shares of Common Stock from the
Company in the Offering:
SHARES PURCHASED AVERAGE
-------------------- TOTAL PRICE
NUMBER PERCENT CONSIDERATION(1) PER SHARE
----------- --------- --------------- -----------
Existing
stockholders......... 5,906,726 70.3% $(27,716,000) $(4.69)
New investors........ 2,500,000 29.7 30,000,000 12.00
----------- --------- --------------- -----------
Total............... 8,406,726 100.0% $ 2,284,000
=========== ========= ===============
- ----------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Companies before the Offering,
adjusted to reflect: (i) the cash portion of the consideration payable to
the stockholders of the Founding Companies in connection with the
Combinations; (ii) the transfer of selected assets to certain stockholders
of the Founding Companies in the net amount of approximately $2.5 million
in connection with the Combinations; and (iii) the payment of the working
capital adjustment and reimbursements to S-Corp stockholders for certain
taxes that will be paid by them in connection with the Combinations of
approximately $2.8 million in cash as part of the consideration for the
Combinations. See "Use of Proceeds" and "Capitalization."
18
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
TSII will consummate the Combinations with the Founding Companies
simultaneously with and as a condition to the consummation of this Offering. For
financial statement presentation purposes, however, Auto Europe, one of the
Founding Companies, has been designated as the "accounting acquiror." The
following selected historical financial data of Auto Europe as of December 31,
1995 and 1996 and for each of the three years in the periods ended December 31,
1994, 1995 and 1996 have been derived from the audited financial statements of
Auto Europe included elsewhere in this Prospectus. The following selected
historical financial data for Auto Europe as of December 31, 1992, 1993 and 1994
and as of March 31, 1997, for the years ended December 31, 1992 and 1993 and for
the three months ended March 31, 1996 and 1997 have been derived from unaudited
financial statements of Auto Europe, which have been prepared on the same basis
as the audited financial statements and, in the opinion of Auto Europe, reflect
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of such data. The selected unaudited pro forma combined
financial data present data for the Company, adjusted for (i) the effects of the
Combinations; (ii) the effects of certain pro forma adjustments to the
historical financial statements described below; and (iii) the consummation of
this Offering and the application of the net proceeds therefrom. See the
Unaudited Pro Forma Combined Financial Statements and the Notes thereto and the
historical Financial Statements of Auto Europe and certain of the Founding
Companies and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Auto Europe:
Net revenues................ $10,894 $12,208 $17,156 $21,919 $25,720 $ 5,764 $ 7,820
Operating expenses.......... 7,523 8,469 11,101 15,413 18,807 4,615 5,723
--------- --------- --------- --------- ----------- ----------- -----------
Gross profit................ 3,371 3,739 6,055 6,506 6,913 1,149 2,097
General and administrative
expenses................... 3,577 3,986 6,276 6,686 6,936 1,721 1,844
--------- --------- --------- --------- ----------- ----------- -----------
Income (loss) from
operations................. (206) (247) (221) (180) (23) (572) 253
Interest expense, net....... -- (19) (28) (81) (221) (42) (74)
--------- --------- --------- --------- ----------- ----------- -----------
Net income (loss)........... $ (206) $ (266) $ (249) $ (261) $ (244) $ (614) $ 179
========= ========= ========= ========= =========== =========== ===========
PRO FORMA COMBINED (1):
Net revenues......................................................... $52,017 $11,638 $15,126
Operating expenses................................................... 34,217 8,164 9,876
----------- ----------- -----------
Gross profit......................................................... 17,800 3,474 5,250
General and administrative expenses (2).............................. 9,664 2,278 2,628
Goodwill amortization (3)............................................ 1,151 288 288
----------- ----------- -----------
Income from operations............................................... 6,985 908 2,334
Interest income (expense) and other income, net...................... (391) (69) (115)
Net income........................................................... 3,645 464 1,227
=========== =========== ===========
Net income per share................................................. $ 0.44 $ 0.06 $ 0.15
=========== =========== ===========
Shares used in computing pro forma net income per share (4).......... 8,284,476 8,284,476 8,284,476
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AUTO EUROPE
-------------------------------------------------------- COMBINED COMPANIES
DECEMBER 31, MARCH 31, 1997
---------------------------------------------- MARCH 31, ----------------------------
1992 1993 1994 1995 1996 1997 PRO FORMA(5) AS ADJUSTED(6)
------- ------- --------- -------- -------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital deficit
(7)....................... $ (691) $ (891) $(2,729) $(3,683) $(6,318) $(6,433) $(31,774) $(6,374)
Total assets (8)........... 1,555 3,307 4,689 5,264 7,450 9,443 57,785 59,252
Long-term debt............. -- 17 24 12 1,880 1,880 5,058 5,058
Stockholders' equity
(deficit)................. 243 (95) (535) (855) (1,170) (1,129) 12,563 37,963
</TABLE>
19
<PAGE>
- ----------
(1) The pro forma combined income statement data assume that the Combinations
and the Offering were consummated on January 1, 1996 and are not
necessarily indicative of the results the Company would have obtained had
these events actually then occurred or of the Company's future results.
During the periods presented above, the Founding Companies were not under
common control or management and, therefore, the data presented may not be
comparable to or indicative of post-combination results to be achieved by
the Company. The pro forma combined income statement data is based on
preliminary estimates, available information and certain assumptions that
management deems appropriate and should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus.
(2) Pro forma general and administrative expenses for 1996 and the three months
ended March 31, 1996, and 1997 include a reduction of approximately $5.4
million, $927,000 and $987,000, respectively, for the Compensation
Differential. Pro forma general and administrative expenses for the three
months ended March 31, 1997 do not include the non-recurring, non-cash
compensation charge of $7.1 million recorded in such period.
(3) Reflects amortization of the goodwill to be recorded as a result of the
Combinations over a 35-year period and computed on the basis described in
the Notes to the Unaudited Pro Forma Combined Financial Statements.
(4) Includes (i) 3,422,225 shares to be issued to owners of the Founding
Companies, (ii) 2,484,501 shares issued to the management and founders of
TSII, and (iii) 2,377,750 shares representing the number of shares to be
sold in the Offering necessary to pay the cash portion of the consideration
for the Combinations and to pay the estimated underwriting discount and
other Offering expenses. Excludes options to purchase 813,900 shares to be
granted upon consummation of the Offering. See "Certain Transactions."
(5) The pro forma combined balance sheet data assume that the Combinations were
consummated on March 31, 1997. The pro forma combined balance sheet data
are based upon preliminary estimates, available information and certain
assumptions that management deems appropriate and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
(6) Adjusted for the sale of 2,500,000 shares of Common Stock offered hereby
and the application of the net proceeds therefrom.
(7) Pro forma figures include a $23.9 million payable representing the cash
portion of the consideration for the Combinations to be paid from a portion
of the net proceeds of the Offering and $2.8 million payable for certain
working capital adjustments and reimbursements to S-corp stockholders for
certain taxes to be paid by them in connection with the Combinations.
(8) Pro forma figure reflects (i) the creation of approximately $40.3 million
of goodwill in connection with the Combinations and (ii) a reduction of
total assets as a result of certain non-operating assets with a net book
value of approximately $2.5 million that will be excluded from the
Combinations and retained by certain stockholders of the Founding
Companies.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Founding Companies' Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.
INTRODUCTION
The Company was established to create the leading single source distributor
of specialized leisure travel services to both travel agents and travelers. The
Founding Companies are specialized distributors of the following leisure travel
services: domestic airline reservations (Travel 800), international airline
reservations (D-FW Tours), cruise vacations (Cruises Only and Cruises Inc.) and
European auto rentals (Auto Europe). The Company was formed in April 1996 and
has conducted no operations to date. The Company will succeed to the operations
of the five Founding Companies upon consummation of the Offering.
The Company's revenue is derived primarily from the sale of travel related
services, including airline tickets, cruise berths and auto rentals. The Company
recognizes as net revenues only the commissions and other related payments it
receives from travel providers and not the total cost of the travel services
sold. Net revenues include commissions, volume bonuses (overrides) and rebates
received from travel service providers for the sale of travel services. The
Company recognized $52.0 million of net revenues in 1996, representing the sale
of over $285 million in travel services. Additional revenue sources include
service, shipping and handling charges related to reservations and delivery of
tickets and commissions on the sale of travel insurance. Net revenues are
recognized for the purchase of airline tickets, cruise berths and auto rentals
on the date the reservation is booked and ticketed. The Company maintains a
reserve related to potential cancellations.
Operating expenses include commission payments to travel agents, salaries
and incentive compensation payable to sales and related support personnel,
telephone expenses, credit card fees and advertising and promotional costs.
Commission payments to travel agents are typically based on a percentage of the
price paid for the travel service, but in certain circumstances are fixed dollar
amounts. Reservations agents are compensated either on an hourly basis, a
commission basis or a combination of the two. The Company's telephone costs
primarily relate to the cost of incoming calls on toll-free numbers used by each
of the Founding Companies. General and administrative expenses consist primarily
of compensation and benefits to owners as well as to administrative and other
non-sales personnel, fees for professional services, depreciation of equipment
and other general office expenses. General and administrative expenses also
include incentive and discretionary bonuses paid to owners and key employees,
significant portions of which were paid in lieu of S Corporation distributions.
The Founding Companies have operated throughout the periods presented as
independent, privately-owned entities, and their results of operations reflect
varying tax structures (S Corporations or C Corporations) which have influenced
the historical level of owners' compensation. The owners and key employees of
the Founding Companies have agreed to certain reductions in their salary,
bonuses and benefits in connection with the Combinations (the "Compensation
Differential"). The Compensation Differentials for 1996 and for the three months
ended March 31, 1996 and 1997 were $5.4 million, $927,000, and $987,000,
respectively, and have been reflected as a pro forma adjustment in the Unaudited
Pro Forma Combined Statement of Income. The Unaudited Pro Forma Combined
Statement of Income includes a provision for income tax as if the Company was
taxed as a C Corporation.
Following the Combinations, the Company expects to realize certain savings
as a result of (i) consolidation of telecommunications, advertising, courier and
other operating expenses; (ii) consolidation of insurance, employee benefits,
training, technology and software purchasing, billing and other general and
administrative expenses; and (iii) the Company's ability to borrow at lower
interest rates than most of the Founding Companies. The Company has not and
cannot quantify these savings until completion of the combination of the
Founding Companies. It is anticipated that these savings will be partially
offset by the costs of being a publicly held company and the incremental
increase in costs related to the
21
<PAGE>
Company's new management. However, these costs, like the savings that they
offset, cannot be quantified accurately. Neither the anticipated savings nor the
anticipated costs have been included in the pro forma financial information of
the Company.
In the first quarter of 1997, TSII sold an aggregate of 851,166 shares of
Common Stock to management at a price of $.01 per share and recorded (for
financial statement presentation purposes) a non-recurring, non-cash
compensation charge of $7.1 million.
In July 1996, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 97 ("SAB 97") relating to business combinations immediately prior
to an initial public offering. SAB 97 requires that these combinations be
accounted for using the purchase method of acquisition accounting. Under the
purchase method, Auto Europe has been designated as the accounting acquiror. For
the remaining Founding Companies, $40.3 million, representing the excess of the
fair value of the consideration received in the Combinations over the fair value
of the net assets to be acquired, will be recorded as "goodwill" on the
Company's balance sheet. Goodwill will be amortized as a non-cash charge to the
income statement over a 35 year period. The pro forma impact of this
amortization expense, a portion of which is deductible for tax purposes, is $1.2
million per year on an pre-tax basis. The amount of goodwill to be recorded and
the related amortization expense will depend in part on the initial public
offering price. See "Certain Transactions -- Organization of the Company."
COMBINED RESULTS OF OPERATIONS
The combined results of operations of the Founding Companies for the periods
presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only a
summation of the revenues, operating expenses and general and administrative
expenses of the individual Founding Companies on a historical basis. The
combined results also exclude the effect of pro forma adjustments and may not be
comparable to, and may not be indicative of, the Company's post-combination
results of operations because (i) the Founding Companies were not under common
control or management during the periods presented; (ii) the Company will incur
incremental costs related to its new corporate management and the costs of being
a public company; and (iii) the combined data do not reflect potential benefits
and cost savings the Company expects to realize when operating as a combined
entity.
The following table sets forth the combined results of operations of the
Founding Companies on a historical basis and as a percentage of net revenues for
the period indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------- -------------------------------------
1995 1996 1996 1997
------------------ ------------------ ------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues...... $44,672 100.0% $52,017 100.0% $11,638 100.0% $15,126 100.0%
Operating
expenses.......... 27,904 62.5 34,217 65.8 8,164 70.1 9,876 65.3
--------- -------- --------- -------- --------- -------- --------- --------
Gross profit...... $16,768 37.5% $17,800 34.2% $ 3,474 29.9% $ 5,250 34.7%
========= ======== ========= ======== ========= ======== ========= ========
</TABLE>
COMBINED RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1996
Net Revenues. Net revenues increased approximately $3.5 million, or 30.0%,
from $11.6 million in 1996 to $15.1 million in 1997. This increase is primarily
attributable to increased sales of travel services by the Company, including an
increase in the number of flight reservations made from 52,000 in 1996 to 60,000
in 1997, an increase in the number of car rental reservations made from 43,000
in 1996 to 60,000 in 1997, and an increase in the number of cruise reservations
made from 11,000 in 1996 to 14,000 in 1997. Increases in average commissions
were also realized at Travel 800 and Cruises Inc.
Operating Expenses. Operating expenses increased approximately $1.7 million,
or 21.0%, from $8.2 million in 1996 to $9.9 million in 1997. As a percentage of
net revenues, operating expenses decreased from 70.1% in 1996 to 65.3% in 1997,
primarily due to lower commission rates as a percentage of net revenues paid at
Auto Europe, Cruises Inc. and D-FW Tours.
22
<PAGE>
COMBINED RESULTS FOR 1996 COMPARED TO 1995
Net Revenues. Net revenues increased approximately $7.3 million, or 16.3%,
from $44.7 million in 1995 to $52.0 million in 1996. This increase is primarily
attributable to increased sales of travel services by the Company, including an
increase in the number of flight reservations made from 167,000 in 1995 to
224,000 in 1996 and an increase in the number of car rental reservations made
from 175,000 in 1995 to 195,000 in 1996, partially offset by a decrease in the
number of cruise reservations made from 102,000 in 1995 to 98,000 in 1996. This
decrease in the number of cruise reservations reflects an increase of 2,000
reservations by Cruises Inc. and a decrease of 6,000 reservations by Cruises
Only. The decrease in reservations by Cruises Only was the result of telephone
system problems experienced by it in 1996. See "Results for 1996 Compared to
1995 -- Cruises Only."
Operating Expenses. Operating expenses increased approximately $6.3 million,
or 22.6%, from $27.9 million in 1995 to $34.2 million in 1996. As a percentage
of net revenues, operating expenses increased from 62.5% in 1995 to 65.8% in
1996, primarily due to increased operating expenses as a percentage of net
revenue at Auto Europe and Travel 800.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company that conducts all of its operations through
its subsidiaries. Accordingly, the primary internal source of the Company's
liquidity is the cash flow of its subsidiaries. After the consummation of the
Combinations and the Offering, the Company will have approximately $6.5 million
in cash and approximately $5.6 million of indebtedness outstanding, other than
the line of credit discussed below. Certain assets, including real estate,
personal property, receivables and cash, that are not used in the operations of
certain Founding Companies will be excluded from the Combinations and retained
by the respective stockholders of such Founding Companies. As of March 31, 1997,
the aggregate book value of these excluded assets was approximately $2.5
million. These exclusions have been reflected in the pro forma balance sheet of
the Company as of March 31, 1997.
The Company has received a commitment letter and is negotiating the
definitive terms of a credit agreement for a $20.0 million line of credit. It is
anticipated that the line of credit will require the Company to comply with
various loan covenants including: (i) maintenance of certain financial ratios;
(ii) restrictions on additional indebtedness; and (iii) restrictions on liens,
guarantees, advances and dividends. The facility is intended to be used for
acquisitions, capital expenditures, refinancing of Founding Company debt, if
necessary, and for general corporate purposes.
The Company anticipates that its cash flow from operations will provide cash
in excess of the Company's normal working capital needs, debt service
requirements and planned capital expenditures. The Company made capital
expenditures of $4.4 million in 1996 and $425,000 in the three months ended
March 31, 1997. Each of the Founding Companies has made significant upgrades to
their technology systems within the past few years. As a result, the Company
does not expect to have significant capital expenditures in the next two years,
other than as may be required to integrate the systems of the Founding Companies
and to upgrade and integrate companies that are acquired in the future. After
the consummation of the Combinations, the Company intends to study the
feasibility of upgrading and integrating the systems of the Founding Companies.
Consequently, the Company has not yet established its capital needs for such
integration and upgrades, and it is likely to change as additional acquisitions
are made.
The Company intends to pursue attractive acquisition opportunities. The
timing, size or success of any acquisition effort and the associated potential
capital commitments are unpredictable. The Company expects to fund future
acquisitions primarily through a combination of a portion of the net proceeds of
the Offering, cash flow from operations and borrowings, including borrowings
under the proposed credit facility, as well as issuances of additional equity.
The Company plans to register an additional 3,000,000 shares of its Common Stock
under the Securities Act after completion of the Offering for use by the Company
as consideration for future acquisitions.
23
<PAGE>
RESULTS OF OPERATIONS -- AUTO EUROPE
Auto Europe provides reservations for leisure auto rentals to persons
traveling from the U.S. and Canada to Europe. Auto Europe's revenue is derived
primarily from the sale of European rental car reservations.
The following table sets forth certain selected financial data for Auto
Europe on a historical basis and as a percentage of net revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------- -----------------------------------
1994 1995 1996 1996 1997
------------------ ------------------ ------------------ ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. $17,156 100.0% $21,919 100.0% $25,720 100.0% $5,764 100.0% $7,820 100.0%
Operating expenses........ 11,101 64.7 15,413 70.3 18,807 73.1 4,615 80.1 5,723 73.2
--------- -------- --------- -------- --------- -------- -------- -------- -------- --------
Gross profit.............. 6,055 35.3 6,506 29.7 6,913 26.9 1,149 19.9 2,097 26.8
General and
administrative
expenses................. 6,276 36.6 6,686 30.5 6,936 27.0 1,721 29.9 1,844 23.6
--------- -------- --------- -------- --------- -------- -------- -------- -------- --------
Income (loss) from
operations............... $ (221) (1.3)% $ (180) (0.8)% $ (23) (0.1)% $ (572) (9.9)% $ 253 3.2%
========= ======== ========= ======== ========= ======== ======== ======== ======== ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
- -- AUTO EUROPE
Net Revenues. Net revenues increased $2.1 million, or 35.7%, from $5.8
million to $7.8 million, primarily due to an increase in the number of auto
rental reservations from approximately 43,000 to approximately 60,000.
Operating Expenses. Operating expenses increased approximately $1.1 million,
or 24.0%, from $4.6 million to $5.7 million. As a percentage of net revenues,
operating expenses decreased from 80.0% to 73.2%, primarily due to a decrease in
the commission rate as a percentage of net revenues paid to travel agents.
General and Administrative Expenses. General and administrative expenses
increased $123,000, or 7.1%, from $1.7 million to $1.8 million. As a percentage
of net revenues, general and administrative expenses decreased from 29.9% to
23.6%. Excluding Compensation Differential of $770,000 and $742,000 in the first
quarter of 1996 and 1997, respectively, general and administrative expenses as a
percentage of net revenues decreased from 16.5% to 14.1%. This decrease as a
percentage of net revenues was due to spreading the Company's overhead costs
over a larger revenue base.
RESULTS FOR 1996 COMPARED TO 1995 -- AUTO EUROPE
Net Revenues. Net revenues increased $3.8 million, or 17.4%, from $21.9
million in 1995 to $25.7 million in 1996, primarily due to an increase in the
number of auto rental reservations made by Auto Europe from approximately
175,000 in 1995 to approximately 195,000 in 1996. This increase in the number of
cars rented was a result of the continuing growth in the number of travelers
from the United States to Europe and increased rentals by Auto Europe to
Canadians traveling to Europe. The percentage of revenue attributable to
Canadian travelers was approximately 10.0% and 6.4% in 1996 and 1995,
respectively. To a lesser extent, Auto Europe's net revenues increased due to
higher commission rates received. Continuing the trend that began in 1995,
European auto rental companies increased the commission rates to be paid to
travel agents. These increased commission rates received by Auto Europe were
passed along to travel agents.
Operating Expenses. Operating expenses increased approximately $3.4 million,
or 22.1%, from $15.4 million in 1995 to $18.8 million in 1996. As a percentage
of net revenues, operating expenses increased from 70.3% in 1995 to 73.1% in
1996, primarily due to the increase in commissions paid to travel agents. These
higher commissions did not impact the average revenue per car (after
commissions) recognized by Auto Europe, but resulted in higher commission
expense as a percentage of net revenues.
24
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased $250,000, or 3.7%, from $6.7 million in 1995 to $6.9 million in 1996.
As a percentage of net revenues, general and administrative expenses decreased
from 30.5% in 1995 to 27.0% in 1996. Excluding Compensation Differential of $2.7
million and $3.2 million in 1995 and 1996, respectively, general and
administrative expenses as a percentage of net revenues decreased from 18.2% to
14.5%. This decrease as a percentage of net revenues was due to spreading the
Company's overhead costs over a larger revenue base.
RESULTS FOR 1995 COMPARED TO 1994 -- AUTO EUROPE
Net Revenues. Net revenues increased $4.8 million, or 27.8%, from $17.1
million in 1994 to $21.9 million in 1995 due to an increase in the number of
auto rental reservations made by Auto Europe from approximately 142,000 in 1994
to approximately 175,000 in 1995. This increase was due to higher commission
rates provided by European auto rental companies to be paid to travel agents for
booking rentals. These increased commission rates were passed along to travel
agents by Auto Europe. The revenue growth was also a result of Auto Europe's
expanded efforts to target Canadians travelling to Europe.
Operating Expenses. Operating expenses increased approximately $4.3 million,
or 38.8%, from $11.1 million in 1994 to $15.4 million in 1995. As a percentage
of net revenues, operating expenses increased from 64.7% in 1994 to 70.3% in
1995, primarily as a result of (i) increases in salaries and benefits for sales
personnel and the hiring of a new vice president of sales and marketing in order
to accommodate Auto Europe's continuing growth and (ii) increased telephone
expenses related to the introduction of toll free customer service lines from
Europe to Auto Europe's headquarters and higher international telephone rates
related to the growth of Auto Europe's Canadian operations. In addition, the
increase was due to increases in commissions paid to travel agents. These higher
commissions did not impact the average revenue per car (after commissions)
recognized by Auto Europe, but resulted in higher commission expenses as a
percentage of net revenues.
General and Administrative Expenses. General and administrative expenses
increased $410,000, or 6.5%, from $6.3 million in 1994 to $6.7 million in 1995.
As a percentage of net revenues, general and administrative expenses decreased
from 36.6% in 1994 to 30.5% in 1995. Excluding Compensation Differential of $3.5
million and $2.7 million in 1994 and 1995, respectively, general and
administrative expenses as a percentage of net revenues increased from 16.2% to
18.2%. This increase primarily was due to an increase in salaries and benefits
related to the hiring of additional personnel to accommodate Auto Europe's
continuing growth.
LIQUIDITY AND CAPITAL RESOURCES -- AUTO EUROPE
Auto Europe used $938,000 in net cash from operating activities in 1996. In
the three months ended March 31, 1997, $4.9 million of cash was provided by
operating activities primarily due to an increase in payables. Net cash used in
investing activities was approximately $2.7 million in 1996 and $347,000 in the
three months ended March 31, 1997, principally for the construction of Auto
Europe's new headquarters and purchases of computer equipment. Net cash provided
by financing activities was $3.6 million in 1996, including the incurrence of
(i) $2.6 million in long-term debt which was used to acquire and renovate Auto
Europe's new headquarters and (ii) $2.2 million in short-term debt which was
used for working capital purposes, and the repayment of $1.1 million of
long-term debt. In the three months ended March 31, 1997, net cash used in
financing activities was $2.5 million, primarily as a result of the paydown of
short-term debt. At March 31, 1997, Auto Europe had a working capital deficit of
$6.4 million, and had $1.9 million of long-term debt outstanding.
RESULTS OF OPERATIONS -- CRUISES ONLY
Cruises Only provides reservations for cruise vacations. Cruises Only's
revenues are primarily derived from sales of cruise reservations, including
commissions and certain volume bonuses and rebates received from the cruise
lines based on sales volume.
25
<PAGE>
The following table sets forth certain selected financial data for Cruises
Only on a historical basis and as a percentage of net revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------ -----------------------------------
1994 1995 1996 1996 1997
----------------- ------------------ ----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... $7,467 100.0% $9,078 100.0 % $7,937 100.0% $1,806 100.0% $2,213 100.0%
Operating expenses......... 3,458 46.3 3,675 40.5 2,986 37.6 666 36.9 772 34.9
-------- -------- -------- --------- -------- -------- -------- -------- -------- --------
Gross profit............... 4,009 53.7 5,403 59.5 4,951 62.4 1,140 63.1 1,441 65.1
General and administrative
expenses.................. 2,922 39.1 3,929 43.3 4,318 54.4 764 42.3 828 37.4
-------- -------- -------- --------- -------- -------- -------- -------- -------- --------
Income from operations .... $1,087 14.6% $1,474 16.2% $ 633 8.0% $ 376 20.8% $ 613 27.7%
======== ======== ======== ========= ======== ======== ======== ======== ======== ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
- -- CRUISES ONLY
Net Revenues. Net revenues increased $407,000, or 22.5%, from $1.8 million
to $2.2 million due to a 30% increase in the number of cruise reservations. Net
revenues in 1996 were adversely affected by telephone system problems
experienced by Cruises Only. This increase was partially offset by a 3% decline
in the average commission per reservation.
Operating Expenses. Operating expenses increased $106,000, or 15.9%, from
$666,000 to $772,000. As a percentage of net revenues, operating expenses
decreased from 36.9% to 34.9% primarily due to reductions in communication
expenses as a percentage of net revenues as a result of the new telephone system
installed in July 1996. The decrease as a percentage of net revenues was also
due to more efficient utilization of sales personnel.
General and Administrative Expenses. General and administrative expenses
increased approximately $64,000, or 8.4%, from $764,000 to $828,000. As a
percentage of net revenues, general and administrative expenses decreased from
42.3% to 37.4%. Excluding Compensation Differential of $115,500 in the first
quarter of each of 1996 and 1997, general and administrative expenses as a
percentage of net revenues decreased from 35.9% to 32.2%. This decrease as a
percentage of net revenues was primarily due to spreading personnel costs over a
larger revenue base.
RESULTS FOR 1996 COMPARED TO 1995 -- CRUISES ONLY
Net Revenues. Net revenues decreased $1.1 million, or 12.6%, from $9.1
million in 1995 to $7.9 million in 1996 due to a decrease in the number of
cruise reservations made from approximately 67,000 passengers in 1995 to
approximately 61,000 passengers in 1996. This decrease in net revenues resulted
from the relocation of Cruises Only's headquarters and unanticipated
shortcomings of call center software installed as part of a new telephone system
in October 1995. This telephone system was removed by the provider and replaced
with a new telephone system in July 1996. During the first six months of 1996, a
large number of incoming telephone calls were not able to be answered. The
decrease in sales revenue was further compounded by the related decrease in
volume bonuses and rebates from the cruise lines which are earned based on sales
volume. The commission per cabin received by Cruises Only increased by 4.0% from
1995 to 1996.
Operating Expenses. Operating expenses decreased approximately $689,000, or
18.7%, from $3.7 million in 1995 to $3.0 million in 1996. As a percentage of net
revenues, operating expenses decreased from 40.5% in 1995 to 37.6% in 1996
primarily due to (i) a reduction in net advertising expenses and (ii) a
reduction in telephone expenses as a result of decreased call volume related to
the telephone system problems experienced in 1996.
General and Administrative Expenses. General and administrative expenses
increased approximately $389,000, or 9.9%, from $3.9 million in 1995 to $4.3
million in 1996. As a percentage of net revenues, general and administrative
expenses increased from 43.3% to 54.4%. Excluding Compensation
26
<PAGE>
Differential of $974,000 in 1995 and $1.4 million in 1996, respectively, general
and administrative expenses as a percentage of net revenues increased from 32.6%
to 37.2%, but stayed relatively constant at $3.0 million.
RESULTS FOR 1995 COMPARED TO 1994 -- CRUISES ONLY
Net Revenues. Net revenues increased $1.6 million, or 21.6%, from $7.4
million in 1994 to $9.0 million in 1995 due to an increase in the number of
cruise reservations made by Cruises Only from approximately 61,000 in 1994 to
approximately 67,000 in 1995 and an increase in commissions per cabin received
by Cruises Only of 5.4%.
Operating Expenses. Operating expenses increased approximately $217,000, or
6.3%, from $3.5 million in 1994 to $3.7 million in 1995. As a percentage of net
revenues, operating expenses decreased from 46.3% in 1994 to 40.5% in 1995.
Operating expenses decreased as a percentage of net revenues due to reductions
in net advertising expenses and increased operating leverage.
General and Administrative Expenses. General and administrative expenses
increased $1.0 million, or 34.5%, from $2.9 million in 1994 to $3.9 million in
1995. As a percentage of net revenues, general and administrative expenses
increased from 39.1% to 43.3%. Excluding Compensation Differential of $793,000
in 1994 and $974,000 in 1995, respectively, general and administrative expenses
as a percentage of net revenues increased from 28.5% to 32.6%, primarily due to
increased salaries and benefits related to additional personnel hired to manage
Cruises Only's growth.
LIQUIDITY AND CAPITAL RESOURCES -- CRUISES ONLY
Cruises Only generated net cash from operating activities of $1.5 million in
1996 and $1.0 million in the three months ended March 31, 1997. Net cash used in
investing activities was approximately $1.2 million in 1996, principally for
purchases of the replacement phone system and a new personal computer network.
Net cash used in financing activities was $360,000 in 1996, including net
proceeds from long-term debt incurred of $839,000 and net distributions to
stockholders of $1.2 million. In the three months ended March 31, 1997, net cash
used in financing activities was $626,000, primarily as a result of
distributions to stockholders. At March 31, 1997, Cruises Only had a working
capital deficit of $1.3 million, including $378,000 of current portion of
long-term debt, and had $3.1 million of long-term debt outstanding.
RESULTS OF OPERATIONS -- TRAVEL 800
Travel 800 provides domestic airline reservations on most major domestic
airlines. Travel 800's net revenues are primarily derived from sales of airline
tickets, including commissions and certain volume bonuses received from the
airlines based on sales volume. Additional sources of net revenues include
service and shipping and handling charges on ticket sales, as well as segment
payments from System One, a central reservations service.
The following table sets forth certain selected financial data of Travel 800
on a historical basis and as a percentage of net revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------- -----------------------------------
1995 1996 1996 1997
----------------- ----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues....................... $5,930 100.0% $7,645 100.0% $1,649 100.0% $2,108 100.0%
Operating expenses................. 3,767 63.5 5,001 65.4 1,021 61.9 1,316 62.4
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit....................... 2,163 36.5 2,644 34.6 628 38.1 792 37.6
General and administrative
expenses.......................... 1,107 18.7 1,315 17.2 221 13.4 296 14.1
-------- -------- -------- -------- -------- -------- -------- --------
Income from operations............. $1,056 17.8% $1,329 17.4% $ 407 24.7% $ 496 23.5%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
- -- TRAVEL 800
Net Revenues. Net revenues increased $459,000, or 27.8%, from $1.6 million
in 1996 to $2.1 million in 1997. This increase was due to a 12% increase in
tickets sold accompanied by increases in the average commission and volume
bonuses.
27
<PAGE>
Operating Expenses. Operating expenses increased $295,000, or 28.9%, from
$1.0 million to $1.3 million. As a percentage of net revenues, operating
expenses increased from 61.9% to 62.4%. This increase was primarily due to an
increase in commission expense, partially offset by a decline in communication
expense as a percentage of net revenues.
General and Administrative Expenses. General and administrative expenses
increased $75,000, or 33.9%, from $221,000 to $296,000. As a percentage of net
revenues, general and administrative expenses increased from 13.4% to 14.1%.
Excluding Compensation Differential of $28,000 in the first quarter of 1996 and
$63,000 in the first quarter of 1997, general and administrative expenses
decreased as a percentage of net revenues from 11.7% to 11.1%.
RESULTS FOR 1996 COMPARED TO 1995 -- TRAVEL 800
Net Revenues. Net revenues increased $1.7 million, or 28.9%, from $5.9
million in 1995 to $7.6 million in 1996 due to an increase in the number of
airline tickets sold by Travel 800 from approximately 128,000 in 1995 to
approximately 182,000 in 1996. This increase in net revenue also resulted from
Travel 800 being able to negotiate and receive an increase in commission rates
paid by certain airlines. This commission rate increase was partially offset by
a decrease in the average commission per ticket as a result of a decline in the
average price per ticket during 1996. The Company also recognized segment
payments from System One of approximately $695,000 in 1996.
Operating Expenses. Operating expenses increased approximately $1.2 million,
or 32.8%, from $3.8 million in 1995 to $5.0 million in 1996. As a percentage of
net revenues, operating expenses increased from 63.5% in 1995 to 65.4% in 1996,
primarily due to the addition of new reservation agents and reservations center
supervisory personnel to accommodate greater call volumes. In addition, Travel
800 increased its commission rates paid to reservation agents in an effort to
attract and retain more qualified agents.
General and Administrative Expenses. General and administrative expenses
increased $208,000, or 18.8%, from $1.1 million in 1995 to $1.3 million in 1996.
As a percentage of net revenues, general and administrative expenses decreased
from 18.7% to 17.2%, primarily due to $138,000 of non-recurring legal expenses
in 1995.
LIQUIDITY AND CAPITAL RESOURCES -- TRAVEL 800
Travel 800 generated net cash from operating activities of $976,000 in 1996
and $821,000 in the three months ended March 31, 1997. Net cash used in
investing activities was approximately $248,000 in 1996, principally for
purchases of furniture and equipment. Net cash used in financing activities was
$193,000 in 1996, of which $169,000 was distributed to the sole shareholder of
Travel 800, and $899,000 in the three months ended March 31, 1997, all of which
was distributed to the sole stockholder of Travel 800. At March 31, 1997, Travel
800 had working capital of $1.6 million and no debt outstanding.
RESULTS OF OPERATIONS -- CRUISES INC.
Cruises Inc. provides reservations for cruise vacations. Cruises Inc.'s
revenues are primarily derived from sales of cruise reservations, including
commissions and certain volume bonuses and rebates received from the cruise
lines based on sales volumes.
28
<PAGE>
The following table sets forth certain selected financial data of Cruises
Inc. on a historical basis and as a percentage of net revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------- -----------------------------------
1996 1996 1997
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues................... $6,494 100.0% $1,492 100.0% $1,714 100.0%
Operating expenses............. 4,140 63.8 1,080 72.4 1,034 60.3
-------- -------- -------- -------- -------- --------
Gross profit................... 2,354 36.2 412 27.6 680 39.7
General and administrative
expenses...................... 1,708 26.3 387 25.9 474 27.7
-------- -------- -------- -------- -------- --------
Income from operations......... $ 646 9.9% $ 25 1.7% $ 206 12.0%
======== ======== ======== ======== ======== ========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
- -- CRUISES INC.
Net Revenues. Net revenues increased $222,000, or 14.9%, from $1.5 million
to $1.7 million. This increase was due to an 11% increase in the number of
cruise reservations, accompanied by a small increase in the average commission
rate per reservation.
Operating Expenses. Operating expenses were approximately the same in both
periods. As a percentage of net revenues, operating expenses declined from 72.4%
to 60.3%. This decrease was primarily due to a relatively constant dollar level
of salaries, commissions and net advertising expenses during these periods while
net revenues were increasing.
General and Administrative Expenses. General and administrative expenses
increased $87,000, or 22.5%, from $387,000 to $474,000. As a percentage of net
revenues, general and administrative expenses increased from 25.9% to 27.7%, due
to an increase in salaries and benefits. Excluding Compensation Differential of
$13,000 in the first quarter of 1996 and $31,000 in the first quarter as 1997,
general and administrative expenses increased as a percentage of net revenues
from 25.1% to 25.8%.
LIQUIDITY AND CAPITAL RESOURCES -- CRUISES INC.
Cruises Inc. generated net cash from operating activities of $588,000 in
1996 and $691,000 in the three months ended March 31, 1997. Net cash used in
investing activities was approximately $167,000 in 1996 for the purchase of
property and equipment. Net cash used in financing activities was $46,000 in
1996 for the payment of long-term debt. At March 31, 1997, Cruises Inc. had
working capital of $680,000 and $39,000 of long-term debt.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The domestic and international leisure travel industry is extremely
seasonal. The results of each of the Founding Companies have been subject to
quarterly fluctuations caused primarily by the seasonal variations in the travel
industry, especially the leisure travel segment. The net revenues and net income
for the Founding Companies are generally higher in the second and third
quarters. The Company expects this seasonality to continue in the future on a
combined basis. Several of the Founding Companies experienced an operating loss
in the fourth quarter of 1996. The Company reported an operating loss on a pro
forma combined basis for the fourth quarter of 1996 and may continue to
experience a loss in this quarter in the future. The Company's quarterly results
of operations may also be subject to fluctuations as a result of the timing and
cost of acquisitions, fare wars by travel providers, changes in relationships
with certain travel providers, changes in the mix of services offered, the
timing of the payment of volume bonuses, extreme weather conditions or other
factors affecting travel.
INFLATION
Inflation did not have a significant effect on the results of operations of
the combined Founding Companies for 1994, 1995 or 1996.
29
<PAGE>
BUSINESS
GENERAL
The Company was established to create the leading single source distributor
of specialized leisure travel services to both travel agents and travelers. The
Founding Companies are specialized distributors of travel services, providing
airline, cruise or European auto rental reservations. Unlike travel agents,
specialized distributors such as the Founding Companies focus on a single
segment of the travel service industry and thus provide a greater level of
expertise with respect to their segments. Specialized distributors offer travel
providers, such as airlines, cruise lines and auto rental companies, an
alternative distribution channel through which significant amounts of capacity
are sold in return for preferential pricing. Through consolidation of
specialized distributors, the Company will be able to offer both travel agents
and travelers a single source of competitively priced services and extensive
expertise within and across multiple leisure travel segments.
The Founding Companies are specialized distributors of the following leisure
travel services: domestic airline reservations (Travel 800), international
airline reservations (D-FW Tours), cruise vacations (Cruises Only and Cruises
Inc.) and European auto rentals (Auto Europe). As leaders in their respective
segments, the Founding Companies have experienced significant internal growth,
with combined net revenues increasing from $34.0 million in 1994 to $52.0
million in 1996, representing a 23.7% compound annual growth rate. In 1996, the
Company sold reservations for approximately 224,000 airline passengers, 98,000
cruise passengers and approximately 195,000 European auto rentals, representing
the sale of over $285 million in travel services. Of the Company's 1996 net
revenues, approximately 53% were attributable to travel agents and 47% were
attributable to travelers. The Company has negotiated arrangements with many
major airlines, cruise lines and European auto rental companies, including such
travel providers as Continental Airlines, Inc., Delta Air Lines, Inc., Carnival
Cruise Lines, Royal Caribbean Cruise Lines, Avis Europe Limited and Europcar
International S.A. To enhance its strong internal growth, the Company intends to
leverage its technology, realize cross-selling opportunities and capitalize on
cost efficiencies and economies of scale. In addition, the Company intends to
implement an aggressive acquisition program to broaden its travel service
offerings and consolidate the highly fragmented specialized travel service
industry.
INDUSTRY OVERVIEW
U.S. travelers spent in excess of $200 billion on business and leisure
travel in 1996, a 16.3% increase from 1995, with leisure travelers comprising
approximately 65% of the total travel market. The travel industry's principal
providers include airlines, cruise lines, auto rental companies, hotels and
railroads. Historically these travel providers have relied on their internal
sales departments and travel agencies as their primary distribution channels.
These traditional distribution channels have not enabled travel providers to
maximize utilization of their capacity and generally have offered limited
expertise to the traveler. The internal sales department of a travel provider
can offer in-depth knowledge about its services but will not offer alternative
services from other travel providers. Travel agents, while enabling a traveler
to compare multiple options from different travel providers, often lack
extensive expertise about the specific services being offered.
Travel providers are increasingly utilizing specialized distributors to sell
capacity. By focusing on specific segments of the travel service industry, these
companies are able to act more efficiently as a distributor of capacity.
Specialized distributors assist travel providers both on a spot basis and with
longer term yield management. Many travel agents are seeking ways to cut their
costs, diversify their revenue sources and strengthen their relationships with
the travelers that they serve. As a result, the Company believes that travel
agents seek specialized distributors that offer better customer service,
competitive prices and attractive commission structures. In addition,
specialized distributors are able to offer both travel agents and travelers
in-depth knowledge about specific services from many different travel providers,
which is becoming increasingly important as the number of travel options
continues to expand. Specifically, specialized distributors are becoming
increasingly important in the air travel, cruise vacation and European auto
rental markets.
30
<PAGE>
During 1996, commercial airlines carried approximately 500 million
passengers and posted domestic and international passenger growth of 7% and 6%,
respectively. Airlines rely heavily on travel agents and specialized
distributors to supplement their own internal marketing efforts. Given their
focus on air travel and their corresponding large volumes of reservations,
specialized distributors often receive preferential pricing from domestic
airlines. In addition, international airlines also offer specialized
distributors controlled access to capacity at deeply discounted prices and
typically utilize a limited number of specialized distributors in order to
increase capacity utilization without disrupting their overall pricing strategy.
These specialized distributors are then able to offer non-published discounted
fares for international flights to both travel agents and travelers.
The number of North American cruise passengers increased to 4.6 million in
1996 from 1.4 million in 1980, representing an 8.3% compound growth rate. The
character of a cruise varies significantly among the different cruise lines and
cruise ships. In addition, a cruise, which consists of lodging, entertainment,
dining and travel, typically represents a large portion of a traveler's vacation
budget. As a result, cruise sales require significant marketing time and effort
in comparison with other travel services. Cruise lines traditionally have relied
primarily on third party distributors to sell virtually all of their berth
capacity. While travel agents remain an important channel of distribution for
cruise lines, specialized cruise vacation distributors have become an
increasingly significant source of capacity utilization and, accordingly, are
given preferential pricing and access to preferred berth locations. In contrast
to travel agents, specialized cruise vacation distributors offer travelers
extensive knowledge of cruise options available and are able to provide more
detailed information with respect to daily excursions and other amenities.
The European auto rental market, both for business and leisure, was
estimated to be approximately $5.0 billion in 1996. According to a survey by the
European Travel Commission, there were over 9.0 million U.S. tourists visiting
Europe in 1996, a 6.5% increase from 1995. Unlike domestic auto rental providers
which, to a large extent, market directly to travelers in the U.S., European
auto rental providers rely heavily on third party distributors to market to U.S.
customers traveling abroad. As in the U.S., European auto rental providers focus
on the business traveler segment which peaks in the spring and fall seasons. As
a result, specialized distributors in the U.S. serve an important role to these
European auto rental providers by supplementing their sales efforts during
non-peak periods. In addition, these specialized distributors serve as a
centralized and efficient source of information on pricing and availability of
reservations to travel agents in the U.S.
The market for specialized distributors of leisure travel services is
fragmented, with numerous companies offering services in a single travel
segment. These specialized distributors generally have made little investment in
technology to improve their efficiency and access to information. Furthermore,
most of these companies lack the scale necessary to obtain preferential pricing
from travel providers. The Company believes significant opportunities are
available to a well capitalized company providing a broad offering of
specialized travel services with a high level of customer service.
BUSINESS STRATEGY
The Company's objective is to become the leading single source distributor
of specialized leisure travel services for both travel agents and travelers. In
order to achieve this goal, the Company has a focused business strategy based
upon the following key principles:
PROVIDE EXTENSIVE EXPERTISE IN SPECIFIC TRAVEL SEGMENTS. Each of the
Founding Companies is a specialist in a particular travel segment. By leveraging
the expertise of the Founding Companies and future acquisitions, the Company
will provide a higher level of expertise and information for a broader array of
travel services than may be available through traditional distribution channels.
For example, the Company's cruise reservation agents represent virtually every
cruise line and focus exclusively on selling cruises. In order to enhance their
knowledge, these agents are given periodic cruise vacations and have access to
proprietary reviews on most cruises. As a result, the Company believes that it
is better able to assist customers in choosing the specific cruise vacation that
best suits their needs. The Company believes that providing expertise in
multiple travel segments will help differentiate its services and be a
significant competitive advantage.
31
<PAGE>
MAINTAIN AND ENHANCE STRONG STRATEGIC RELATIONSHIPS WITH TRAVEL PROVIDERS.
The Company believes that the strategic relationships with its travel providers
have been and will continue to be integral to its success. As leaders in their
respective segments, the Founding Companies have negotiated with many travel
providers for pricing that is preferential to published fares and preferred
access to capacity. These strategic relationships enable the Company to provide
a comprehensive service offering within each travel segment and to offer prices
that are lower than would be generally available to travelers and travel agents.
OFFER HIGH LEVELS OF CUSTOMER SERVICE. The Company believes that maintaining
high levels of customer service is critical to its ability to generate
significant repeat business. In addition to the Company's competitive prices,
customer service is an important differentiating factor to both the leisure
traveler who is making a significant investment in a vacation and the travel
agent who is seeking attractive commission structures and the ability to make
travel arrangements with greater ease. In addition to its expertise with respect
to the travel service offered, each of the Founding Companies has a dedicated
customer service department. For example, Auto Europe maintains 24-hour
toll-free numbers connected directly to its customer service department in the
U.S. from which its customers in Europe can obtain emergency assistance. These
toll-free numbers provide the customer with an English speaking contact with
access to the appropriate emergency roadside assistance in the relevant foreign
location. Other customer service initiatives offered by the Company include fax
vouchers, extended weekday and weekend hours, proprietary cruise ship reviews
and a commitment to minimize telephone waiting time.
LEVERAGE AND EXPAND TECHNOLOGY INFRASTRUCTURE. A key element of the
Company's strategy will be to capitalize on the technology investments made by
the Founding Companies and to continue to invest in state-of-the-art information
and telecommunications technology. The Founding Companies have made significant
investments in technology over the past few years and, in most cases, have
developed proprietary software that enables them to access information about
pricing and capacity availability on a more timely and efficient basis. By
leveraging the telecommunications investment of the Founding Companies, the
Company expects to be able to increase the efficiency of its reservation agents,
minimize the telephone waiting time for its customers and more effectively
manage its telephone expenses. Similarly, continued investment in technology
will enable the Company to: (i) facilitate cross-marketing opportunities and the
transfer of knowledge across travel service segments; (ii) build a centralized
database of information on travelers that can be utilized for highly targeted
marketing campaigns; and (iii) achieve operating leverage to support its growth.
OPERATE WITH A DECENTRALIZED MANAGEMENT STRUCTURE. The Company believes that
the experienced local management teams at the Founding Companies have an
in-depth understanding of their respective markets and businesses and have built
strong relationships with their travel providers and customers. Accordingly, as
the Company implements "best practices" and the necessary systems to effect
cross-selling and achieve economies of scale, each of the Founding Companies
will continue to operate on a decentralized basis as a separate profit center
and local management will remain empowered to make most of the day-to-day
operating decisions. The Company intends to utilize stock ownership as well as
appropriate incentive compensation to ensure that the objectives of local
management are aligned with those of the Company.
GROWTH STRATEGY
The Company plans to achieve its goal of becoming the leading single source
distributor of specialized leisure travel services by implementing its internal
growth strategy and pursuing an aggressive acquisition program.
IMPLEMENT INTERNAL GROWTH STRATEGY. While the Company intends to continue to
acquire specialized distributors of leisure travel services, strong internal
revenue growth remains the core of the Company's growth strategy. From 1994 to
1996, the Founding Companies on a combined basis experienced revenue growth of
23.7% compounded annually. The Company believes that the growth of Founding
Companies individually will be enhanced by: (i) continued growth in the leisure
travel industry; (ii) the ability of the Founding Companies to leverage their
recent investments in technology; (iii) the expansion of sales and marketing
programs; and (iv) continued hiring of reservation agents and other staff to
increase sales capacity. In addition, the Company expects to realize the
following key benefits on a combined basis:
32
<PAGE>
Cross-Selling. The Company believes that significant cross-selling
opportunities exist that will further enhance the Company's revenue growth. Each
of the Founding Companies specializes in one segment of the travel market.
Consolidation of these companies enables the Company to offer "one-stop
shopping" for a variety of travel services. For example, Travel 800, which
currently focuses on domestic air travel, has begun to satisfy international air
travel requests through D-FW Tours and offer international travelers a European
auto rental option through Auto Europe. Travel 800 and D-FW Tours plan to
establish an electronic link by mid-1997 that will enable Travel 800 reservation
agents to make reservations for international airline capacity offered by D-FW
Tours. D-FW Tours, which specializes in international airline ticket sales to
travel agents, has installed software from Auto Europe and is able to book
European auto rentals as well. Similarly, Cruises Only and Cruises Inc., which
focus on cruise line reservations, are expected to be able to provide travelers
with domestic and international airline reservations through Travel 800 and D-FW
Tours.
Best Practices. The Company has identified certain best practices at each of
the Founding Companies that can be implemented at the other Founding Companies
in order to generate incremental revenue and enhance profitability. For example,
due to the importance of technology and access to complete, accurate and current
information, the Company expects to identify the best applications among the
software and information technology systems of each of the Founding Companies.
In addition, the Founding Companies have begun to cross-implement such programs
as travel insurance, third party credit cards and cooperative marketing.
Economies of Scale. The Company believes that it can achieve significant
economies of scale through the combination of the Founding Companies and future
acquisitions and that its size and relationships with travel providers will be a
key competitive advantage in gaining market share and enhancing revenue
opportunities. The Company should benefit from greater purchasing power in such
key expense areas as telecommunications, advertising, insurance, courier
expenses and employee benefits. The Company believes that it can substantially
reduce the total operating expenses of the Founding Companies and other acquired
businesses by eliminating or consolidating certain duplicative administrative
functions.
PURSUE AN AGGRESSIVE ACQUISITION PROGRAM. The Company believes that the
travel service industry is highly fragmented with significant opportunities for
consolidation. The Company intends to implement an aggressive acquisition
program targeting other leading specialized distributors. The Company intends to
seek acquisitions within its core airline, cruise line and European auto rental
market segments in order to gain market share. In addition, the Company plans to
acquire companies that specialize in the distribution of travel services
complementary to those currently offered by the Company, such as tour operators
and distributors specializing in hotel and rail reservations. Acquisitions of
this nature will enhance the Company's ability to be a single source of leisure
travel services for its customers. Finally, the Company may also pursue
international acquisitions that will enable the Company to replicate its
business model for domestic and international travel originating in a country
other than the U.S.
While acquisitions are a primary component of its growth strategy, the
Company is focused on making strategic acquisitions of market leaders rather
than "tuck-in" or smaller acquisitions. As a result, the Company will seek to
acquire high quality companies with longstanding reputations within their
specific travel service segments. Generally, these companies will: (i) be run by
successful, experienced entrepreneurs whom the Company will endeavor to retain;
(ii) have strong relationships with their travel providers and an emphasis on
customer service; and (iii) have demonstrated growth and profitability. Once
these companies have been acquired, the Company intends to implement a
disciplined integration program which will facilitate the opportunities for
revenue enhancement and margin improvement while allowing local management to
operate under the Company's decentralized management structure.
The Company believes that the opportunity to join under the Travel Services
International umbrella will be attractive to many specialized distributors of
travel services. The Company offers owners of potential acquisition candidates:
(i) significant opportunities to enhance the growth of their businesses through
cross-selling other travel services; (ii) the opportunity to enhance their
technology; (iii) the Company's financial strength and visibility as a public
company; (iv) the potential for increased profitability as a result of the
Company's centralization of certain administrative functions and other economies
of scale; and (v) near-term liquidity.
33
<PAGE>
The Company has analyzed significant data on the travel service industry and
individual businesses within the industry and believes that it is well
positioned to implement its acquisition program following the Offering. The
Company believes that the experience, reputation and relationships of the
Founding Companies' management will be of significant value in the Company's
attempts to acquire other specialized distributors of travel services. In
addition, the Company will rely on the industry experience of its senior
management, particularly Joseph Vittoria, the Chairman and Chief Executive
Officer, who is the former Chief Executive Officer of Avis, Inc. and a founding
member of the World Travel and Tourism Council, a global organization of the
chief executive officers of companies engaged in all sectors of the travel and
tourism industry. The Company has reviewed various strategic acquisition
opportunities and has held preliminary discussions with a number of acquisition
candidates. Other than the Agreements with the Founding Companies, the Company
is not a party to any agreements regarding any acquisitions.
As consideration for future acquisitions, the Company intends to use various
combinations of Common Stock, cash and notes. The Company plans to register an
additional 3,000,000 shares of its Common Stock under the Securities Act for use
by the Company as all or a portion of the consideration to be paid in future
acquisitions.
SERVICES
The Company, through the Founding Companies, distributes leisure travel
services primarily for domestic and international air travel, cruises and
European auto rentals. The Company provides its services nationwide through the
use of toll-free telephone numbers. Typically, potential customers call the
Company, often in response to an advertisement or other promotion. The Company's
reservation agents assist potential customers, whether travel agents or
travelers, in selecting the appropriate travel arrangement and making the
reservation.
Air Travel. The Company provides reservations for domestic airline flights
through Travel 800 and for international flights through D-FW Tours. Through
strategic relationships with most major airlines, both Travel 800 and D-FW Tours
are generally able to offer fares below published rates and have developed
software that enable their reservation agents to identify low price ticket
alternatives. Travel 800 sells primarily to travelers and relies primarily on
its reputation and mnemonic telephone numbers such as 1-800-FLY-CHEAP and
1-800-LOW-FARE to attract business. In 1996, Travel 800 received approximately
2.3 million calls and sold tickets to approximately 182,000 passengers. D-FW
Tours sells primarily to travel agents utilizing multiple fax distribution
technology to advise travel agents of special fares and promotions. D-FW Tours
estimates that in 1996 it received over 1.0 million calls and sold tickets to
approximately 41,900 passengers. Travel 800 is open 19 hours per day Monday
through Friday and 12 hours per day on Saturday and Sunday, and D-FW Tours is
open 11 hours per day Monday through Friday and six hours on Saturday.
Cruise. The Company, through Cruises Only and Cruises Inc., provides
reservations for cruises on all major cruise lines. Typically, the Company books
berths on behalf of its customers at specified discounts from the published
prices. In addition, the Company is permitted to reserve more desirable berths
on a number of cruises, which gives the Company an "exclusive" right to sell
these berths for a period of time. If the Company does not sell these reserved
berths, they are returned to the cruise lines at a specified time, usually 60 or
90 days prior to sailing, at no cost to the Company. Virtually all of the
Company's customers for its cruise services are travelers. The Company also has
established a marketing division focused on advising large groups, such as
affinity groups, corporate groups and business seminars, in selecting the
appropriate cruise. The Company advises travelers and assists them in selecting
the cruise that best fits their particular needs and desires. This requires the
Company's sales personnel to have extensive knowledge about the character of the
various cruise lines and the differences in their ships and cruises offered. The
Company's personnel undergo extensive in-house training, participate in frequent
seminars conducted by cruise lines and often receive complementary passes for
cruises. These sales personnel endeavor to develop relationships with travelers
in order to encourage repeat business. The Company provides extensive services
to its cruise customers in the form of periodic mailings of information, reviews
of various cruises and ships, advice regarding planning for the specific cruise
and assistance in preparing the necessary travel documents. In addition to
reserving a berth on a cruise,
34
<PAGE>
reservation agents can give customers information about the activities,
shopping, sightseeing and restaurants available at the various ports at which
the cruise stops and can make reservations for these activities. In 1996,
Cruises Only and Cruises Inc. provided reservations for approximately 98,000
passengers on over 45 cruise lines. Cruises Only is open 14 hours per day seven
days a week. Cruises Inc.'s independent agents are available to answer calls
24-hours a day, seven days a week.
European Auto Rental. The Company, through Auto Europe, provides
reservations in the U.S. and Canada for auto rentals in Europe. The Company has
agreements with a number of auto rental companies that operate in Europe, such
as Alamo Europe, Avis Europe Limited, EuroDollar and Europcar International
S.A., which provide automobiles to the Company for rental. Approximately 90% of
Auto Europe's customers are travel agents, and the remaining 10% are travelers.
The Company's field representatives establish and maintain the Company's
relationships with a majority of the travel agents located in the U.S. Recently,
Auto Europe established a site on the World Wide Web to more effectively target
travelers directly. Auto rentals in Europe pose a number of challenges for a
U.S. traveler. In addition to costs such as drop off fees and airport levies,
travelers run the risk of additional costs associated with currency fluctuations
and rate changes if they do not pre-pay in U.S. dollars. Travelers are also
faced with age restrictions, lack of flexibility in drop off and pick up and
insurance complications. Further, the difficulty obtaining air conditioned,
automatic transmission cars makes the European auto rental process difficult for
travelers. Auto Europe is able to simplify the process and overcome many of
these challenges for travel agents and travelers. The Company maintains 24-hour
toll-free numbers connected directly to its customer service department in the
U.S. from which its customers in Europe can obtain emergency assistance. These
toll-free numbers provides the customer with an English speaking contact with
access to the appropriate emergency roadside assistance in the relevant foreign
location. In 1996, Auto Europe made reservations for approximately 195,000 auto
rentals.
MIS TECHNOLOGY
Technology is critical to providing the most complete, accurate and current
information and to maximizing the efficiency of the Company's reservation
agents. The Company's strategy is to capitalize on the technology investments
made by its Founding Companies and to continue to invest in state-of-the-art
information and telecommunications technology. During 1995 and 1996, the
Founding Companies expended in excess of $3.0 million dollars for the
development and implementation of new technology. The Company operates its basic
reservations systems using SABRE and System One, two of the leading reservations
systems in the travel service industry, along with its own proprietary systems.
The Company has made a substantial investment in developing and implementing a
number of new technology systems which will: (i) increase the efficiency of its
reservations centers; (ii) improve the quality of information available to
management; and (iii) reduce personnel requirements by automating a larger
portion of operations. These systems have been developed specifically for the
operations of each segment in which the Company operates. One system, currently
in place at Auto Europe, automatically identifies travel agencies to reservation
agents using a caller identification system thereby enabling reservation agents
to provide preferential pricing based upon the historical sales volume of such
travel agencies. Cruises Inc. has completed testing of Cruise Director, a
computerized reservation system developed for cruise lines by SABRE to increase
the efficiency of the reservation process, and is in the process of making this
system available to its independent agents. Cruises Only has also been utilizing
Cruise Director in its Orlando reservation center since mid-1996.
The Company expects to begin implementing two new systems at Travel 800. The
first is a new user-friendly front end system for System One which permits the
Company's reservation agents to provide information and make reservations using
a simple point and click method, rather than by entering lengthy codes into the
standard Central Reservations Systems ("CRSs"). This software also identifies
alternate routing and fare information where lower fares are available. This new
software will enable the Company to train new reservation agents and put them
on-line with customers in two to three days, rather than the two to three weeks
required to train agents on the existing CRSs. This new software is currently
being tested by certain Travel 800 reservation agents and is expected to be
implemented Company-wide by the end of 1997. In addition, in an effort to reduce
"talk time" per sale, the Company expects to begin testing in early 1998 a
continuous speech recognition technology that will enable
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customers to talk to the reservations computer to retrieve price and schedule
information. The Company expects that this new system will increase the
efficiency of the Company's reservation agents by minimizing the average length
of a telephone call.
The Company expects to increase the utilization of its existing systems by
making them available to other Founding Companies and at companies to be
acquired in the future. Investment in technology will enable the Company to: (i)
facilitate cross-marketing opportunities and the transfer of knowledge across
travel service segments; (ii) build a centralized database of information on
travelers that can be utilized for highly targeted direct mail advertising
campaigns; and (iii) achieve operating leverage to support its growth.
TRAVEL PROVIDER RELATIONSHIPS
The Founding Companies have negotiated arrangements with many major airline,
cruise line and European auto rental companies. In 1996, net revenues from (i)
two auto rental companies, Avis Europe and Europcar, represented an aggregate of
39.6%; (ii) two cruise lines represented an aggregate of 13.9%; and (iii) two
airlines represented an aggregate of 9.5% of the Company's net revenues.
The following table sets forth a list of certain of the Company's key travel
providers:
<TABLE>
<CAPTION>
Cruise Lines Airlines European Auto Rental Companies
- ----------------------------- -------------------- ------------------------------
<S> <C> <C>
Carnival Cruise Lines American Airlines Alamo Europe
Celebrity Cruise Line British Airways Avis Europe Limited
Holland America Continental Airlines Budget
Norwegian Cruise Line Delta Air Lines Europcar International S.A.
Princess Cruises Northwest Airlines
Royal Caribbean Cruise Lines
</TABLE>
The Company receives from certain travel providers pricing that is
preferential to published fares which enables the Company to offer prices lower
than would be generally available to travelers and travel agents. The Company's
agreements with its travel providers can generally be cancelled or modified by
the travel provider upon relatively short notice. Other distributors may have
similar arrangements with travel providers, some of which may provide better
availability or more competitive pricing than that offered by the Company. See
"-- Competition."
SALES AND MARKETING
The Company engages in different marketing and advertising programs
depending on whether the customers are primarily travel agents or travelers and
the particular travel service. The Company markets domestic air travel service
through the use of various toll-free numbers, such as 1-800-FLY-CHEAP and
1-800-LOW-FARE. The Company markets its other services to travelers in numerous
ways, principally through newspaper and magazine advertisements highlighting
toll-free numbers and special travel offers. Cruises Inc. is also currently the
exclusive provider of cruise line information services for Travelocity, a
popular travel site on the Internet and a service of the SABRE Group. In many
cases, the travel providers contribute to the cost of the advertising and
marketing. To market directly to travel agents, the Company uses dedicated
salespeople, direct mailings and multiple fax distribution technology. Most of
the Founding Companies have sites on the World Wide Web for use by travel agents
and travelers. The Company believes it will be able to significantly increase
its revenue base by offering travel agents and travelers a broader range of
travel services through a single telephone call to any of the Company's
locations. In addition, the Company will focus on increasing its revenues from
its existing customers by cross-selling its services and broadening its service
offerings.
COMPETITION
The travel service industry is extremely competitive and has low barriers to
entry. The Company competes with other distributors of travel services, its
travel providers, travel agents, tour operators and group travel sponsors, some
of which have more experience, brand name recognition and/or financial resources
than the Company. The Company competes for customers based upon service, price
and
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specialized in-depth knowledge and, in addition, with respect to travel agents,
attractive commission structures. The Company's travel providers may decide to
compete more directly with the Company and restrict the availability of tickets
or services or the ability of the Company to offer tickets or services at a
preferential price. Other distributors may have similar arrangements with
certain travel providers, some of which may provide better availability or more
competitive pricing than that offered by the Company. Furthermore, some travel
agents and group travel sponsors have a strong presence in their geographic area
which may make it difficult for the Company to attract customers in those areas.
EMPLOYEES
As of March 31, 1997, the Company had 722 full-time employees, of whom 275
were employed in connection with auto rental services, 219 were employed in
connection with cruise services and 228 were employed in connection with air
services. In addition, the Company has contracts with 251 independent agents and
uses temporary employees as required to meet the needs of seasonal demand. The
Company believes that its relations with its employees are good.
FACILITIES
As of March 31, 1997, the Company had five facilities, two of which it owns
and three of which are leased. Auto Europe owns one facility which is located in
Portland, Maine and is approximately 45,000 square feet. Cruises Only owns one
facility which is located in Orlando, Florida and is approximately 37,600 square
feet. Cruises Inc. leases one facility which is located in Syracuse, New York
and includes approximately 10,600 square feet. The lease will expire on February
28, 2006 and contains a five year renewal option. Travel 800 leases one facility
which is located in San Diego, California and includes approximately 12,800
square feet. The lease will expire on March 31, 1998. D-FW Tours leases one
facility which is located in Dallas, Texas and includes approximately 9,000
square feet. The lease will expire on August 31, 1998. The Company's corporate
headquarters are located in temporary facilities in West Palm Beach, Florida.
The Company intends to relocate to permanent headquarters in Florida after the
consummation of the Offering.
LEGAL PROCEEDINGS
On June 29, 1995, the U.S. Department of Labor filed suit against Cruises
Only, Wayne Heller and Judy Heller in the U.S. District Court of the Middle
District of Florida, the Orlando Division, based on a claim that Cruises Only
was not entitled to pay its commission sales people under a provision of the
Fair Labor Standards Act of 1938 established for commission sales people in
retail and service businesses. The complaint did not specify a dollar amount of
relief sought. In late 1996, both parties filed a motions for summary judgement.
On June 5, 1997, the Court granted the motion of summary judgment in favor of
Cruises Only. The U.S. Department of Labor has 60 days from the above date to
appeal the order. Cruises Only has created a reserve of $275,000 for its
estimated potential liability for this case.
The Company is involved in various legal actions arising in the ordinary
course of business. The Company believes that none of these actions will have a
material adverse effect on its business, financial condition and results of
operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors, executive officers and certain key employees, and those persons who
will become directors and executive officers in upon consummation of the
Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- ----- ----------------------------------------------------
<S> <C> <C>
Joseph V. Vittoria . 62 Chairman and Chief Executive Officer, Director
Michael J.
Moriarty............ 50 President and Chief Operating Officer
Jill M. Vales....... 39 Senior Vice President and Chief Financial Officer
Maryann Bastnagel .. 40 Senior Vice President and Chief Information Officer
Suzanne B. Bell..... 30 Senior Vice President, General Counsel and Secretary
Melville W. Robinson 42 Vice President, Corporate Development
Robert G. Falcone .. 56 CEO-Cruises Inc.; Director
Wayne Heller........ 40 CEO-Cruises Only; Director
Vice President, European Operations of the Company;
Imad Khalidi........ 45 CEO-Auto Europe, Director
Susan Parker........ 49 CEO-Travel 800; Director
John W. Przywara ... 46 CEO-D-FW Tours; Director
Elan J. Blutinger .. 42 Director
D. Fraser Bullock .. 42 Director
Tommaso Zanzotto ... 55 Director
Leonard A. Potter .. 35 Advisory Director
</TABLE>
Joseph V. Vittoria will become the Chairman and Chief Executive Officer and
a director of the Company upon the consummation of the Offering. From September
1987 to February 1997 Mr. Vittoria was the Chairman and Chief Executive Officer
of Avis, Inc., a multinational auto rental company where he was employed for
over 26 years. Mr. Vittoria was responsible for the purchase of the Avis company
by creating one of the world's largest Employee Stock Ownership Plans in 1987.
He was a founding member of the World Travel and Tourism Council, a global
organization of the chief executive officers of companies engaged in all sectors
of the travel and tourism industry. He has been named travel executive of the
year several times by various travel media, including Business Travel News,
Travel Weekly, Travel Agent Tour and Travel News-North America. Mr. Vittoria
serves on the Board of Directors of United Air Lines, Inc., Transmedia Europe,
Transmedia Asia and various non-profit associations.
Michael J. Moriarty will become the President and Chief Operating Officer of
the Company upon the consummation of the Offering. Mr. Moriarty was the
President and Chief Operating Officer of Studio Plus Hotels, Inc., a national
extended stay hotel company from July 1996 until its sale in 1997. From 1981 to
July 1996, Mr. Moriarty held various senior executive positions with the
Marriott Company, a hotel company, including Brand Vice President of Marriott
International (1994-1996), Vice President of Operations for the Residence Inn by
Marriott Company (1989-1994), Vice President Finance and Development of
Residence Inn (1987-1989), Vice President of Finance and Development for the Roy
Rogers Restaurants Company, a subsidiary of the Marriott Company and Director of
Finance and Business Analysis for Marriott Hotels and Resorts.
Jill M. Vales will become the Chief Financial Officer of the Company upon
the consummation of the Offering. Since November 1996, Ms. Vales has served as
the Chief Operating Officer of Gunster, Yoakley, Valdes-Fauli & Stewart, P.A., a
law firm. From June 1990 until July 1996, Ms. Vales held various positions at
Certified Vacations, an affiliate of Alamo Rent-A-Car, including Senior Vice
President and Chief Financial Officer (1994-1996), Vice President of Finance and
Operations (1992-1994) and Senior Director of Finance and Operations and
Controller (1990-1992). From 1979 to 1990, Ms. Vales held various positions at
KPMG Peat Marwick. Ms. Vales is a certified public accountant.
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Maryann Bastnagel will become the Senior Vice President and Chief
Information Officer of the Company upon the consummation of the Offering. From
1989 to 1997, Ms. Bastnagel held various positions with Marriott International,
Inc. in information services and technology. She was most recently Vice
President of Business Technology, where she was responsible for defining systems
and technology strategy for the Marriott Lodging Group. From 1990 to 1994, Ms.
Bastnagel was Vice President of Information Systems and a member of the
Executive Committee for Residence Inns by Marriott. From 1985 to 1989, she was a
Senior Manager with Price Waterhouse Management Consulting Services on large
scale information systems development projects. From 1981 to 1985, Ms. Bastnagel
was a Senior Consultant with Booz, Allen & Hamilton, Inc.
Suzanne B. Bell will become the Senior Vice President, General Counsel and
Secretary of the Company upon the consummation of the Offering. Since July,
1996, Ms. Bell has been an attorney at Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A. From September 1991 to July 1996, she was an attorney at Morgan,
Lewis & Bockius LLP. Ms. Bell has concentrated her practice in the areas of
mergers and acquisitions and securities laws, representing both public and
private companies.
Melville W. Robinson will become the Vice President - Corporate Development
of the Company upon the consummation of the Offering. From 1994 to the present,
Mr. Robinson has served as the Chief Financial Officer of Cruises Only, one of
the Founding Companies. From 1989 until 1993, Mr. Robinson was the President and
Chief Financial Officer of the Gale Group, a U.S. based consumer products
manufacturing firm. From 1986 to 1989, Mr. Robinson was a Managing Director at
PNC Merchant Banking Corp., where he founded and managed the Growth Capital
Group. From 1983 to 1986, Mr. Robinson was the Chief Financial Officer of Drug
Emporium Inc., a publicly-traded discount drugstore chain.
Robert G. Falcone will become a director of the Company after the
consummation of the Offering. Mr. Falcone has served as the Chairman and Chief
Executive Officer of Cruises Inc. since its founding in 1982. Mr. Falcone is a
member of the National Association of Cruise Only Agencies ("NACOA"), the
Airline Reporting Corporation ("ARC"), the Travel Council of the World
(Environmental Group), the American Society of Travel Agents ("ASTA"), Cruise
Lines International Association ("CLIA") and is the co-founder of the Society of
Elite Agents, a trade association of leading cruise specialists ("SEA").
Wayne Heller will become a director of the Company after the consummation of
the Offering. Mr. Heller has served as the Chief Executive Officer of Cruises
Only since its founding in 1985 and was previously employed with Norwegian
Caribbean Cruise Lines from 1980 to 1984. Mr. Heller is a member of ASTA, NACOA
and CLIA.
Imad Khalidi will become the Vice President, European Operations, of the
Company and a director of the Company after the consummation of the Offering.
Mr. Khalidi has been President of Auto Europe since 1992. In 1990, he joined
Auto Europe as Executive Vice President of Marketing and Sales. From 1983 to
1990, Mr. Khalidi served as an International Travel Trade Manager and an
International Licensee Manager with Europcar International S.A., an auto rental
company in France. Mr. Khalidi is a member of the Association of Retail Travel
Agencies ("ARTA"), ASTA and CLIA.
Susan Parker will become a director of the Company after the consummation of
the Offering. Ms. Parker has served as the President of Travel 800 since its
founding in 1989. From 1984 to 1989, Ms. Parker was President of Continental
Travel, an incentive travel company. Ms. Parker is a member of ASTA, CLIA and
the International Airlines Travel Agent Network ("IATAN").
John W. Przywara will become a director of the Company after the
consummation of the Offering. Mr. Przywara has served as President of D-FW Tours
since its founding in 1978. Mr. Przywara is a member of the ARC, CLIA and IATAN.
Elan J. Blutinger has been a director of the Company since October 1996. Mr.
Blutinger is a Managing Director of Alpine Consolidated LLC, a consolidator of
highly fragmented businesses. From 1987 to 1995, he was the Chief Executive
Officer of Shoppers Express, Inc., an electronic retailing service, which he
founded. Mr. Blutinger is currently the Vice Chairman of Shoppers Express, Inc.
From 1983 to 1986, Mr. Blutinger was the Chairman and Chief Executive Officer of
DSI, a wholesale distributor for the personal computer industry until its
acquisition in 1986 by Independent Distribution Incorporated.
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<PAGE>
D. Fraser Bullock has been a director of the Company since October 1996. Mr.
Bullock is a Managing Director of Alpine Consolidated LLC, and was most recently
the President and Chief Operating Officer of VISA Interactive, a wholly-owned
subsidiary of VISA International from its inception in 1994 to 1996. In 1993,
Mr. Bullock became the President and Chief Operating Officer of U.S. Order,
Inc., a provider of remote electronic transaction processing, until it was
acquired by VISA International in 1994. From 1991 to 1992, Mr. Bullock was the
Senior Vice President of U.S. Order, Inc. From 1986 to 1991, he was the Chief
Financial Officer and Executive Vice President of World Corp., Inc., a holding
company with various operating subsidiaries including World Airways, Inc. Mr.
Bullock was a founding partner of Bain Capital, a Manager of Bain and Company,
and a founder of MediVision, Inc., a consolidation of eye surgery centers.
Tommaso Zanzotto will become a director of the Company after the
consummation of the Offering. Mr. Zanzotto is the President of Toscana Ville E
Castelli, a real estate development company which owns and operates residential
and commercial properties in the lodging and hotel industry. From 1994 to 1996,
he was the Chairman and Chief Executive Officer of Hilton International. From
1969 to 1993, Mr. Zanzotto held various positions with American Express Travel
Related Services including President International, American Express Financial
and Travel Services (1990-1993); President, American Express Corporate Card
Division (1987-1990); President, American Express Travelers Cheques (Europe,
Africa, Middle East). Mr. Zanzotto is a member of the World Travel and Tourism
Council, and a Governor of the Transportation and Travel Committee of the World
Economic Summit.
Leonard A. Potter served as a director of the Company from its formation
until May 1997. After the Offering, he will be an Advisory Director to the
Board. Mr. Potter is a co-founder and Managing Director of Capstone Partners,
LLC, a venture firm specializing in consolidation transactions. Capstone
Partners, LLC was a co-sponsor of Staffmark, Inc., a consolidation of six
staffing services companies in September 1996 with a simultaneous initial public
offering. Prior to forming Capstone Partners, LLC in April 1996, Mr. Potter was
an attorney at Morgan, Lewis & Bockius LLP for more than five years practicing
in the areas of mergers and acquisitions and securities law. While at Morgan,
Lewis & Bockius he represented a number of public companies in connection with
their creation and subsequent implementation of consolidation strategies similar
to the Company's, including U.S. Office Products, F.Y.I., Inc. and Cotelligent
Group.
BOARD OF DIRECTORS
After consummation of the Combinations, the Board of Directors of the
Company will consist of nine directors divided into three classes with each
class serving for a term of three years. At each annual meeting of stockholders,
directors will be elected by the holders of the Common Stock to succeed those
directors whose terms are expiring. Directors whose terms expire in 1998 are:
Elan J. Blutinger, D. Fraser Bullock and Tommasso Zanzotto; directors whose
terms expire in 1999 are: Imad Khalidi, John W. Przywara and Joseph V. Vittoria;
directors whose terms expire in 2000 are: Robert G. Falcone, Wayne Heller and
Susan Parker. The Company expects that the Board of Directors will establish an
Audit Committee, a Compensation Committee, and such other committees as the
Board may determine. The members of each committee are expected to be determined
at the first meeting of the Board of Directors following the consummation of the
Combinations.
The Advisory Director will attend meetings of the Board of Directors,
consult with officers and directors of the Company and provide guidance (but not
direction) concerning management and operation of the Company's business. The
Advisory Director is not a director of the Company and accordingly will not have
a right to vote as a director.
All officers serve at the discretion of the Board of Directors.
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
do not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries receives a fee
of $2,000 for attendance at each Board of Directors' meeting and $1,000 for
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<PAGE>
each committee meeting (unless held on the same day as a Board of Directors'
meeting). Directors are also reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board of Directors or committees thereof incurred in
their capacity as directors.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
The Company was incorporated in April 1996, has conducted no operations and
generated no revenue to date and did not pay any of its executive officers
compensation during 1996. The Company anticipates that during 1997 its most
highly compensated executive officers will be Messrs. Vittoria, Moriarty,
Khalidi and Ms. Bastnagel and Ms. Vales. The Company will grant Messrs.
Vittoria, Moriarty and Ms. Bastnagel and Ms. Vales options to purchase 100,000,
75,000, 110,000 and 50,000 shares of Common Stock, respectively, at the price
per share at the initial public offering price. These options will vest in equal
installments on each of the first four anniversaries of the employment
agreements.
Mr. Vittoria has entered into an employment agreement with the Company
providing for an annual base salary of $200,000. Mr. Moriarty has entered into
an employment agreement with the Company providing for an annual base salary of
$150,000 plus in the first year a guaranteed minimum bonus of $75,000. Ms.
Vales, Mr. Khalidi and Ms. Bastnagel each have entered into an employment
agreement with the Company providing for an annual base salary of $150,000,
$140,000 and $150,000, respectively. Each of these agreements will be for a term
of three years. In addition, certain executive officers of the Founding
Companies, including Messrs. Falcone, Heller and Przywara and Ms. Parker, will
enter into employment agreements. Effective upon the consummation of the
Offering. Mr. Falcone's and Ms. Parker's employment agreements will be for a
term of five years; Mr. Heller's and Mr. Przywara's employment agreements will
be for a term of three years (in each case, the "Initial Term"). Unless
terminated or not renewed by the Company or the employee, the term will continue
thereafter on a year-to-year basis on the same terms and conditions existing at
the time of renewal. Each employment agreement will contain a covenant not to
compete (the "Covenant") with the Company for a period of two years immediately
following termination of employment or, in the case of a termination by the
Company without cause in the absence of a change in control, for a period of one
year following termination of employment. Under this Covenant, the executive
officer is prohibited from: (i) engaging in any travel service business in
direct competition with the Company within defined geographic areas in which the
Company or its subsidiaries does business; (ii) enticing a managerial employee
of the Company away from the Company; (iii) calling upon any person or entity
which is, or has been, within one year prior to the date of termination, a
customer of the Company; or (iv) calling upon a prospective acquisition
candidate which the employee knew was approached or analyzed by the Company, for
the purpose of acquiring the entity. The Covenant may be enforced by injunctions
or restraining orders and shall be construed in accordance with the changing
activities, business and location of the Company.
Each of these employment agreements will provide that, in the event of a
termination of employment by the Company without cause during the Initial Term
the employee will be entitled to receive from the Company an amount equal to his
or her then current salary for the remainder of the Initial Term or for one
year, whichever is greater. In the event of a termination of employment without
cause after the Initial Term of the employment agreement, the employee will be
entitled to receive an amount equal to his or her then current salary for one
year. In either case, payment is due in one lump sum on the effective date of
termination. In the event of a change in control of the Company (as defined in
the agreement) during the Initial Term, if the employee is not given at least
five days' notice of such change in control and the successor's intent to be
bound by such employment agreement, the employee may elect to terminate his or
her employment and receive in one lump sum three times the amount he or she
would receive pursuant to a termination without cause during the Initial Term.
The employment agreements of Messrs. Falcone, Heller, Khalidi and Przywara and
Ms. Parker also state, that in the event of a termination without cause by the
Company or a change in control, the employee may elect to waive the right to
receive severance compensation and, in such event, the noncompetition provisions
of the employment agreement will not apply. In the event the employee is given
at least five days' notice of such change in control, the employee may elect to
terminate his or her employment agreement and receive in one lump sum two times
the amount he or she would receive pursuant to a termination without cause
during the Initial Term. In such an event, the noncompetition provisions of the
employment agreement would apply for two years from the effective date of
termination.
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Each Agreement and Plan of Organization also contains a similar covenant
prohibiting the Founding Stockholders from competing with the Company for a
period of three years following the consummation of the Offering.
1997 LONG-TERM INCENTIVE PLAN
No stock options were granted to, or exercised by or held by any executive
officer in 1996. In May 1997, the Board of Directors and the Company's
stockholders approved the Company's 1997 Long-Term Incentive Plan (the "Plan").
The purpose of the Plan is to provide directors, officers, employees,
consultants and independent contractors with additional incentives by increasing
their ownership interests in the Company. Individual awards under the Plan may
take the form of one or more of: (i) either incentive stock options ("ISOs") or
non-qualified stock options ("NQSOs"); (ii) stock appreciation rights ("SARs");
(iii) restricted or deferred stock; (iv) dividend equivalents; and (v) other
awards not otherwise provided for, the value of which is based in whole or in
part upon the value of the Common Stock. The Compensation Committee will
administer the Plan and generally select the individuals who will receive awards
and the terms and conditions of those awards.
The Company has reserved 900,000 shares of Common Stock for use in
connection with the Plan. Beginning with the Company's first fiscal quarter
after the closing of this Offering and continuing each fiscal quarter
thereafter, the number of shares available for use in connection with the Plan
will be the greater of 900,000 shares or 12% of the aggregate number of shares
of Common Stock outstanding on the last day of the preceding calendar quarter.
Shares of Common Stock which are attributable to awards which have expired,
terminated or been canceled or forfeited are available for issuance or use in
connection with future awards.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any Federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
In connection with the Offering, NQSOs to purchase a total of 773,900 shares
of Common Stock will be granted. Of this amount, options to purchase 400,000
shares of Common Stock will be granted to management of the Company, including
100,000 options to Mr. Vittoria, 110,000 options to Ms. Bastnagel, 75,000
options to Mr. Moriarty and 50,000 options to Ms. Vales, and an aggregate of
343,900 options will be granted to certain employees of the Founding Companies.
The grants of all of the foregoing options will be effective as of the date of
the Offering and each option will have an exercise price equal to the initial
public offering price per share in the Offering. These options will vest at the
rate of 25% per year commencing on the first anniversary of the grant, and will
expire 10 years from the date of grant or three months following termination of
employment.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in 1997, provides for: (i) the automatic grant to each
non-employee director and Advisory Director (a "Participant") serving at the
commencement of the Offering of an option to purchase 10,000 shares; and
thereafter (ii) the automatic grant to each Participant of an option to purchase
10,000 shares upon such person's initial election as a director or appointment
as an Advisory Director. In addition, the Directors' Plan provides for an
automatic annual grant to each Participant of an option to purchase 5,000 shares
at each annual meeting of stockholders following the Offering; provided,
however, that if the first annual meeting of stockholders following a person's
initial election as a non-employee director or appointment by the Board as an
Advisory Director is within three months of the date of such election or
appointment, such person will not be granted an option to purchase 5,000 shares
of Common Stock at such annual meeting. These options will have an exercise
price per share equal to the fair market value of a share at the date of grant.
Options granted under the Directors' Plan will expire at the earlier of 10 years
from the date of grant or one year after termination of service as a director or
advisor, and options will be immediately exercisable. In addition, the
Directors' Plan permits Participants
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to elect to receive, in lieu of cash directors' fees, shares or credits
representing "deferred shares" that may be settled at future dates, as elected
by the Participants. The number of shares or deferred shares received will be
equal to the number of shares which, at the date the fees would otherwise be
payable, will have an aggregate fair market value equal to the amount of such
fees. The Company has reserved 100,000 shares of Common Stock for use in
connection with the Directors' Plan. Immediately after the consummation of the
Offering, the Participants will be Messrs. Blutinger, Bullock, Zanzotto and
Potter.
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CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
The Company was formed in April 1996. The Company was initially capitalized
by Alpine Consolidated, LLC, a consolidator of highly fragmented businesses, of
which Elan Blutinger and D. Fraser Bullock, Directors of the Company, are
Managing Directors, and Capstone Partners, LLC, a venture firm specializing in
consolidation transactions, of which Leonard Potter, who will be an Advisory
Director to the Board, is a Managing Director. As a result of a 5,444.45 for one
stock split effective on May 14, 1997, the 300 shares of Common Stock initially
issued by the Company to its founders will total 1,633,335 shares on the
consummation of the Offering.
TSGI Funding, LLC ("TSGI"), a Delaware limited liability company, will lend
to TSII from time to time an amount equal to the legal, accounting and other
transactional costs, expenses and disbursements incurred by TSII in connection
with the Combinations and the Offering. The member managers of TSGI are Alpine
Consolidated, LLC and Capstone Partners, LLC. Any amounts loaned by TSGI to TSII
will be repaid without interest by the Company. As of June 15, 1997, TSGI had
loaned $725,000 to TSII.
The aggregate consideration to be paid by TSII in the Combinations consists
of approximately $23.9 million in cash and 3,422,225 shares of Common Stock. The
following table sets forth the consideration paid to each of Founding Companies.
COMPANY CASH SHARES
-------------- --------- -----------
(DOLLARS IN THOUSANDS)
Auto Europe ............ $ 5,000 1,083,334
Cruises Only ........... 8,600 908,334
Travel 800.............. 6,417 902,778
Cruises Inc. ........... 2,500 333,334
D-FW Tours.............. 1,416 194,445
--------- -----------
Total.................. $ 23,933 3,422,225
========= ===========
The purchase price of certain of the Founding Companies will be increased by
working capital adjustments based on cash and receivable balances as of June 30,
1997 of the respective Founding Companies. In addition, certain non-operating
assets with a net book value of approximately $2.5 million will be excluded from
the Combinations and retained by certain stockholders of the Founding Companies.
The consideration to be paid for the Founding Companies was determined
through arm's-length negotiations between TSII and representatives of each
Founding Company. The factors considered by the parties in determining the
consideration to be paid include, among others, the historical operating
results, the net worth, the levels and type of indebtedness and the future
prospects of the Founding Companies. Each Founding Company was represented by
independent counsel in the negotiation of the terms and conditions of the
Combinations.
The consummation of each Combination is subject to customary conditions.
These conditions include, among others, the continuing accuracy on the closing
date of the Combinations of the representations and warranties of the Founding
Companies and of TSII, consummation of the Offering, receipt of all necessary
consents and approvals, delivery of certain opinions of counsel, the performance
of all covenants included in the agreements relating to the Combinations, and
the nonexistence of a material adverse change in the business, results of
operations or financial condition of each Founding Company.
Pursuant to the agreements entered into in connection with the Combinations,
the stockholders of the Founding Companies agreed not to compete with the
Company for three years, commencing on the date of consummation of the Offering.
Prior to the Offering, substantially all of the indebtedness of the Founding
Companies was personally guaranteed by their respective stockholders or by
entities controlled by such stockholders. The Company will assume all remaining
payment obligations of such indebtedness, primarily consisting of real
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estate mortgages, following consummation of the Offering. The outstanding
balances of the indebtedness secured by real estate mortgages being assumed by
the Company was $3,902,000 as of March 31, 1997 and consisted of three notes
payable to unrelated parties. Auto Europe has a mortgage note of $1,201,000
payable to Key Bank, bearing interest at prime plus 1% due in monthly principal
installments of $7,000 plus accrued interest, maturing in September 2011 and
secured by a first mortgage on Auto Europe's office building. Auto Europe also
has a note of $738,000 payable to the U.S. Small Business Administration,
bearing interest at 7.27% due in monthly principal and interest installments of
$6,000, maturing in October 2016 and secured by a second mortgage on Auto
Europe's office building. Cruises Only has a note of $1,963,000 to a bank,
bearing interest at 7.8% with monthly payments of $17,000 through October 2000
and thereafter bearing interest at a rate equal to the five-year treasury yield
plus 1.9% or prime, as selected by Cruises Only through maturity in October
2005. This note is secured by a lien on the land, building, improvements and
personal property of Cruises Only.
In connection with the Combinations, and as consideration for their
interests in the Founding Companies, certain executive officers, directors, key
employees and holders of more than 5% of the outstanding shares of the Company,
together with their spouses and trusts for the benefit of their immediate
families, received cash and shares of Common Stock of the Company as follows:
SHARES OF
CASH COMMON STOCK
------------- ---------------
Alex Cecil.................. $5,000,000 1,083,334
Robert G. Falcone .......... 2,300,000* 300,000
Wayne A. Heller ........... 8,600,000 908,334
Susan Parker................ 6,416,667 902,778
John W. Przywara ........... 1,416,667** 194,445
- ----------
* Plus certain cash remaining in Cruises Inc., as of June 30, 1997.
** Plus certain cash remaining in D-FW Tours, as of June 30, 1997.
OTHER TRANSACTIONS
Since 1990, Cruises Inc. has leased office space from Pioneer Park I Company
("Pioneer") pursuant to a lease dated August 9, 1990, as subsequently amended
and supplemented. One of the principals of Pioneer is Michael Falcone, the
brother of Robert Falcone. The annual rent paid by Cruises Inc. to Pioneer was
$190,636, $191,367 and $48,029 in 1995, 1996, and for the three month period
ended March 31, 1997, respectively. The lease terminates on February 28, 2006.
Prior to the Offering, Travel 800 entered into a Custom Network Service
Arrangement ("CNSA") with Sprint Communications Company LP for long distance
telephone services which provides for a minimum monthly commitment of $120,000
and certain minimum monthly usages. This contract will not be transferred as
part of the Combinations, but will be retained by a company owned by Susan
Parker, Chief Executive Officer of Travel 800. After the Combinations, Travel
800 will utilize long distance telephone services under the CNSA and has agreed
to pay for its portion of usage under the CNSA.
During 1995, Cruises Only leased office space from Heller Properties, an
entity wholly owned by Wayne Heller, the President of Cruises Only, and Judy
Heller, the Senior Vice President of Cruises Only, pursuant to an oral agreement
on a month to month basis for rent plus the payment of operating expenses and
property taxes. In 1992, Cruises Only guaranteed a mortgage note in principal
amount of $620,000 on such property. The note was repaid and the guarantee was
released in April, 1997. The rent on this office space ranged from $6,165 per
month to $6,835 per month. The oral agreement was terminated on December 31,
1995. Thereafter, Cruises Only moved into office space that is wholly-owned by
Cruises Only.
Jacqueline Duffort Cecil, the wife of Alex Cecil, the Chief Executive
Officer of Auto Europe prior to the Offering, loaned $300,000 to Auto Europe on
December 31, 1995 and 1996 at an interest rate of prime plus 1%. Auto Europe
repaid these respective loans in March and February of the following years.
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During 1995, Auto Europe advanced $2.1 million to Alex Cecil who used the
advance to purchase an island off the coast of Maine. Subsequently he
contributed this island to Auto Europe in return for the cancellation of his
obligations on the advance. This island will not be included in the assets of
Auto Europe acquired by the Company.
Auto Europe has purchased computer equipment from The Seris II Group, which
is owned by Imad Khalidi, President of Auto Europe, and certain other employees
of Auto Europe. Auto Europe purchases the equipment at the cost to The Seris II
Group. Auto Europe purchased $477,000 worth of computer supplies and equipment
from The Seris II Group during 1996.
COMPANY POLICY
In the future, any transactions with officers, directors and affiliates will
be approved by a majority of the Board of Directors, including a majority of the
disinterested members of the Board of Directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company, after giving effect to the
Combinations, by: (i) each person known to beneficially own more than 5% of the
outstanding shares of Common Stock; (ii) each of the Company's directors; (iii)
each named executive officer; and (iv) all executive officers and directors as a
group. All persons listed have an address in care of the Company's principal
executive offices and have sole voting and investment power with respect to
their shares unless otherwise indicated.
PERCENTAGE OWNED
----------------------
NAME AND ADDRESS BEFORE AFTER
OF BENEFICIAL OWNER (1) SHARES OFFERING OFFERING
- ------------------------------------ ---------- ---------- --------
Joseph V. Vittoria.................. 245,000 4.1% 2.9%
Michael Moriarty.................... 40,833 * *
Jill M. Vales....................... 40,833 * *
Suzanne B. Bell..................... 24,500 * *
Robert G. Falcone (2) .............. 300,000 5.1 3.6
Wayne Heller (3) ................... 908,334 15.4 10.8
Imad Khalidi ....................... 500,000 8.5 5.9
Susan Parker ....................... 902,778 15.3 10.7
John W. Przywara ................... 194,445 3.3 2.3
Elan J. Blutinger (4)............... 1,098,890 18.6 13.1
D. Fraser Bullock (4)............... 1,098,890 18.6 13.1
Tommaso Zanzatto (5)................ 10,000 * *
Alex Cecil (6)...................... 1,083,334 18.3 12.9
Alpine Consolidated, LLC............ 1,088,890 18.4 13.0
Capstone Partners, LLC (7).......... 544,445 9.2 6.5
All Directors and Executive
Officers as a Group (11
persons)(8)........................ 4,275,613 72.2 50.9
- ----------
* Less than 1.0%
(1) Unless indicated otherwise, the address of the beneficial owners is, TSII,
515 No. Flagler Drive, Suite 300 -- Pavilion, West Palm Beach, Florida
33401.
(2) Includes 150,000 shares owned by Judith A. Falcone, his spouse.
(3) Includes 454,167 shares owned by Judy Heller, his spouse.
(4) Includes for each of Messrs. Blutinger and Bullock 10,000 shares which may
be acquired upon the exercise of options and 1,088,890 shares held by
Alpine Consolidated, LLC. Elan J. Blutinger and D. Fraser Bullock are
Managing Directors of Alpine Consolidated, LLC.
(5) Includes 10,000 shares which may be acquired upon the exercise of options.
(6) Mr. Cecil's address is Auto Europe, 39 Commercial Street, Portland, ME
04112.
(7) Leonard A. Potter, an Advisory Director, is a Managing Director of Capstone
Partners, LLC.
(8) Includes 30,000 shares which may be acquired upon the exercise of options.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 51,000,000 shares of
capital stock, par value $.01 per share, consisting of 50,000,000 shares of
Common Stock, of which 2,484,501 shares shall be designated restricted common
stock (the "Restricted Common Stock") and 1,000,000 shares of preferred stock,
par value $.01 per share (the "Preferred Stock"). Without giving effect to the
issuance of shares in the Combinations or this Offering, the Company has
outstanding 2,484,501 shares of Common Stock held by seven shareholders, all of
which are shares of Restricted Common Stock, and no shares of Preferred Stock.
COMMON STOCK AND RESTRICTED COMMON STOCK
After giving effect to the Combinations but without giving effect to the
Offering, 5,906,726 shares of the Common Stock (of which 2,484,501 are shares of
Restricted Common Stock) were issued and outstanding and were held by 15
stockholders.
All of the rights, privileges and obligations of the Common Stock and
Restricted Common Stock are the same, except for voting rights. The holders of
the Common Stock are entitled to one vote for each share held on all matters.
The holders of Restricted Common Stock are entitled to four-tenths of one vote
for each share held on all matters.
Subject to the rights of any then outstanding shares of Preferred Stock, the
holders of the Common Stock are entitled to such dividends as may be declared in
the discretion of the Board of Directors out of funds legally available
therefor. Holders of Common Stock are entitled to share ratably in the net
assets of the Company upon liquidation after payment or provision for all
liabilities and any preferential liquidation rights of any Preferred Stock then
outstanding. The holders of Common Stock have no preemptive rights to purchase
shares of stock of the Company. Shares of Common Stock are not subject to any
redemption provisions and are not convertible into any other securities of the
Company. All outstanding shares of Common Stock are, and the shares of Common
Stock to be issued pursuant to this Prospectus will be upon payment therefor,
fully paid and nonassessable.
The Board of Directors is classified into three classes as nearly equal in
number as possible, with the term of each class expiring on a staggered basis.
See "Management -- Board of Directors." The classification of the Board of
Directors may make it more difficult to change the composition of the Board of
Directors and thereby may discourage or make more difficult an attempt by a
person or group to obtain control of the Company. Cumulative voting for the
election of directors is not permitted, enabling holders of a majority of the
outstanding Common Stock to elect all members of the class of directors whose
terms are then expiring.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share for share basis: (a) in the event of a disposition of such
share of Restricted Common Stock by the holder thereof (other than a disposition
which is a distribution by a holder to its partners or beneficial owners or a
transfer to a related party of such holder (as defined in Section 267, 707, 318,
and/or 4946 of the Internal Revenue Code of 1986, as amended)), (b) in the event
any person acquires beneficial ownership of 15% or more of the outstanding
shares of Common Stock of the Company, (c) in the event any person offers to
acquire 15% or more of the outstanding shares of Common Stock of the Company, or
(d) in the event a majority of the aggregate number of votes which may be voted
by the holders of outstanding shares of Common Stock and Restricted Common Stock
entitled to vote and approve such conversion. After December 31, 1999, the
Company may elect to convert any outstanding shares of Restricted Common Stock
into shares of Common Stock in the event 80% or more of the outstanding shares
of Restricted Common Stock have been converted into shares of Common Stock.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the
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<PAGE>
number of shares and to change the number of shares constituting any series and
to provide for or change the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATIONS PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3 % of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is: (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
After the Offering, the Company will have outstanding 8,406,726 shares of
Common Stock. The 2,500,000 shares being sold in the Offering are, freely
tradable without restriction unless acquired by affiliates of the Company. None
of the remaining 5,906,726 outstanding shares of Common Stock
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<PAGE>
(including 2,484,501 shares of Restricted Common Stock beneficially owned by the
Company's officers, directors and certain other stockholders) has been
registered under the Securities Act, which means that they may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from either the Company or any affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three-month period commencing 90
days after the date of the Prospectus relating to the Offering, a number of
shares that does not exceed the greater of one percent of the then outstanding
shares of the Common Stock, or the average weekly trading volume of the Common
Stock on the Nasdaq National Market during the four calendar weeks preceding the
date on which notice of the proposed sale is sent to the Commission. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the later of the date of the
acquisition of restricted shares of Common Stock from the Company or any
affiliate of the Company, a person who is not deemed to have been an affiliate
of the Company at any time for 90 days preceding a sale would be entitled to
sell such shares under Rule 144 without regard to the volume limitations, manner
of sale provisions or notice requirements.
Upon completion of the Offering, the holders of Common Stock who did not
purchase shares in the Offering will own 5,906,726 shares of Common Stock,
including the stockholders of the Founding Companies who will receive, in the
aggregate, 3,422,225 shares in connection with the Combinations and management
and founders of TSII who own 2,484,501 shares. These shares have not been
registered under the Securities Act and, therefore, may not be sold unless
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, these
stockholders have agreed with TSII not to sell, transfer or otherwise dispose of
any of these shares for one year following consummation of the Offering. These
stockholders also have certain demand registration rights beginning two years
after the Offering and certain piggyback registration rights with respect to
these shares.
The Company and the holders of all shares outstanding prior to the Offering
(including all officers and directors of the Company and the Founding Companies)
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of Montgomery Securities except
for: (i) in the case of the Company, Common Stock issued pursuant to any
employee or director plan described herein or in connection with acquisitions
and (ii) in the case of all such holders, the exercise of stock options pursuant
to benefit plans described herein and shares of Common Stock disposed of as bona
fide gifts, subject, in each case, to any remaining portion of the 180-day
period applying to any shares so issued or transferred. In evaluating any
request for a waiver of the 180-day lock-up period, Montgomery Securities will
consider, in accordance with their customary practice, all relevant facts and
circumstances at the time of the request, including, without limitation, the
recent trading market for the Common Stock, the size of the request and, with
respect to a request by the Company to issue additional equity securities, the
purpose of such an issuance. See "Underwriting."
The 3,000,000 shares of Common Stock to be registered pursuant to the
Company's shelf registration statement will be, upon issuance thereof, freely
tradable unless acquired by parties to the acquisition or affiliates of such
parties, other than the issuer, in which case they may be sold pursuant to Rule
145 under the Securities Act. Rule 145 permits such persons to resell
immediately securities acquired in transactions covered under the Rule, provided
such securities are resold in accordance with the public information, volume
limitations and manner of sale requirements of Rule 144. If a period of one year
has elapsed since the date such securities were acquired in such transaction and
if the issuer meets the public information requirements of Rule 144, Rule 145
permits a person who is not an affiliate of the issuer to freely resell such
securities. The Company intends to contractually restrict the sale of shares
issued in connection with future acquisitions. The piggyback registration rights
described above do not apply to such shelf registration statement.
Sales, or the availability for sale of, substantial amounts of the Common
Stock in the public market could adversely affect prevailing market prices and
the ability of the Company to raise equity capital in the future.
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UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Montgomery
Securities and Furman Selz LLC (the "Representatives"), have severally agreed,
subject to the terms and conditions in the underwriting agreement (the
"Underwriting Agreement") by and between the Company and the Underwriters, to
purchase from the Company the number of shares of Common Stock indicated below
opposite its name, at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to purchase
all of the shares of Common Stock, if they purchase any.
NUMBER OF
UNDERWRITERS SHARES
--------------------- ------------
Montgomery
Securities...........
Furman Selz LLC......
------------
Total.............. 2,500,000
============
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share; and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to certain
other dealers. After the initial public offering, the public offering price and
other selling terms may be changed by the Representatives. The Common Stock is
offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 375,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise such over-allotment
option, the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
The Company's officers and directors and all of the stockholders of the
Company prior to the Offering (including the holders of shares issued in
connection with the acquisition of the Founding Companies and shares issuable
upon the exercise of outstanding options), have agreed that for a period of 180
days after the date of this Prospectus they will not, without the prior written
consent of Montgomery Securities, directly or indirectly sell, offer, contract
or grant any option to sell, pledge, transfer, establish an open put equivalent
position or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable or exercisable for
or convertible into shares of Common Stock. The Company has also agreed not to
issue, offer, sell, grant options to purchase or otherwise dispose of any of the
Company's equity securities for a period of 180 days after the effective date of
this Offering without the prior written consent of Montgomery Securities, except
for securities issued by the Company in connection with acquisitions and for
grants and exercises of stock options, subject in each case to any remaining
portion of the 180-day period applying to shares issued or transferred. In
evaluating any request for a waiver of the 180-day lock-up period, Montgomery
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Securities will consider, in accordance with their customary practice, all
relevant facts and circumstances at the time of the request, including, without
limitation, the recent trading market for the Common Stock, the size of the
request and, with respect to a request by the Company to issue additional equity
securities, the purpose of such an issuance. See "Shares Eligible for Future
Sale."
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities and Exchange Act of 1934,
pursuant to which such persons may bid for or purchase Common Stock for the
purpose of stabilizing its market price. The Underwriters also may create a
short position for the account of the Underwriters by selling more Common Stock
in connection with the Offering than they are committed to purchase from the
Company and, in such case, may purchase Common Stock in the open market
following completion of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 375,000 shares of Common Stock, by exercising the Underwriters'
over-allotment option referred to above. In addition, Montgomery Securities, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the offering) for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of the number of
shares of Common Stock offered hereby.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company and the
Representatives. Among the factors considered in such negotiations were the
results of operations of the Founding Companies in recent periods, the prospects
for the Company and the industry in which the Company competes, an assessment of
the Company's management, its financial condition, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of the economy and the securities markets at the time of the
Offering and the market prices of and demand for publicly traded common stock of
comparable companies in recent periods.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Akin, Gump, Strauss, Hauer &
Feld, L.L.P., Washington, D.C. Certain legal matters related to the Offering
will be passed upon for the Underwriters by Fulbright & Jaworski L.L.P., New
York, New York.
EXPERTS
The audited financial statements included elsewhere in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
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ADDITIONAL INFORMATION
Upon completion of the Offering, the Company will be subject to the
information requirements of the Exchange Act, and in accordance therewith will
file reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza
Building, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and its
regional offices located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained from the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of that site
is http://www.sec.gov.
The Company's Common Stock is traded on the Nasdaq National Market. Reports,
proxy statements and other information concerning the Company can also be
inspected at the offices of the Nasdaq National Market, 1735 K Street,
Washington, D.C. 20006.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
TRAVEL SERVICES INTERNATIONAL, INC. PRO FORMA:
Introduction to Unaudited Pro Forma Combined Financial Statements.. F-2
Unaudited Pro Forma Combined Balance Sheet......................... F-3
Unaudited Pro Forma Combined Statements of Income.................. F-4
Notes to Unaudited Pro Forma Combined Financial Statements......... F-7
TRAVEL SERVICES INTERNATIONAL, INC.:
Report of Independent Public Accountants........................... F-10
Balance Sheets..................................................... F-11
Statement of Operations............................................ F-12
Statement of Changes in Stockholders' Equity....................... F-13
Statement of Cash Flows............................................ F-14
Notes to Financial Statements...................................... F-15
AUTO-EUROPE, INC. (MAINE):
Report of Independent Public Accountants........................... F-18
Balance Sheets..................................................... F-19
Statements of Operations........................................... F-20
Statements of Changes in Stockholders' Deficit .................... F-21
Statements of Cash Flows........................................... F-22
Notes to Financial Statements...................................... F-23
CRUISES ONLY, INC.:
Report of Independent Public Accountants........................... F-29
Balance Sheets..................................................... F-30
Statements of Income............................................... F-31
Statements of Changes in Stockholders' Equity (Deficit)............ F-32
Statements of Cash Flows........................................... F-33
Notes to Financial Statements...................................... F-34
800-IDEAS, INC.:
Report of Independent Public Accountants........................... F-39
Balance Sheets..................................................... F-40
Statements of Income............................................... F-41
Statements of Changes in Stockholder's Equity...................... F-42
Statements of Cash Flows........................................... F-43
Notes to Financial Statements...................................... F-44
CRUISES INC.:
Report of Independent Public Accountants........................... F-48
Balance Sheets..................................................... F-49
Statements of Income............................................... F-50
Statements of Changes in Stockholders' Equity...................... F-51
Statements of Cash Flows........................................... F-52
Notes to Financial Statements...................................... F-53
</TABLE>
F-1
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Travel Services International, Inc. (TSII or the
Company), of the outstanding capital stock of Cruises Inc. (Cruises Inc.), and
D-FW Tours, Inc., and D-FW Travel Arrangements, Inc. (collectively, D-FW Tours),
and substantially all of the assets of Auto-Europe, Inc. (Maine) (Auto Europe),
Cruises Only, Inc. (Cruises Only), and 800-Ideas, Inc. (Travel 800) (together,
the Founding Companies). These acquisitions (the Combinations) will occur
simultaneously with the closing of TSII's initial public offering (the Offering)
and will be accounted for using the purchase method of accounting. Auto Europe,
one of the Founding Companies, has been designated as the accounting acquiror
for financial statement presentation purposes. Auto Europe has been designated
the accounting acquiror in accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. 97 which states that the combining company which
receives the largest portion of voting rights in the combined corporation is
presumed to be the acquiror for accounting purposes.
The unaudited pro forma combined balance sheet gives effect to the
Combinations and the Offering as if they had occurred on March 31, 1997. The
unaudited pro forma combined statements of income gives effect to these
transactions as if they had occurred on January 1, 1996.
The Company has preliminarily analyzed the savings that it expects to be
realized by consolidating certain operational and general and administrative
functions. To the extent the owners and certain key employees of the Founding
Companies have agreed prospectively to reductions in salary, bonuses and
benefits, these reductions have been reflected in the unaudited pro forma
combined statement of income. With respect to other potential cost savings, the
Company has not and cannot quantify these savings until completion of the
combination of the Founding Companies. It is anticipated that these savings will
be partially offset by the costs of being a publicly held company and the
incremental increase in costs related to the Company's new management. However,
these costs, like the savings that they offset, cannot be quantified accurately.
Neither the anticipated savings nor the anticipated costs have been included in
the pro forma combined financial information of TSII.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The unaudited pro forma financial data do not purport to
represent what the Company's financial position or results of operations would
actually have been if such transactions in fact had occurred on those dates and
are not necessarily representative of the Company's financial position or
results of operations for any future period. Since the Founding Companies were
not under common control or management, historical combined results may not be
comparable to, or indicative of, future performance. The unaudited pro forma
combined financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
See "Risk Factors" included elsewhere herein.
F-2
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUTO CRUISES TRAVEL CRUISES D-FW PRO FORMA
TSII EUROPE ONLY 800 INC. TOURS ADJUSTMENTS
------- ---------- ----------- --------- ------------ --------- -----------
(NOTE 3)
-----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $ -- $ 2,061 $ 604 $ 970 $ 1,611 $ 2,426 $ (2,603)
Trade and other receivables, net of allowance.. -- 123 773 831 87 518 (240)
Other current assets........................... 136 75 261 132 337 17 96
Total current assets.......................... 136 2,259 1,638 1,933 2,035 2,961 (2,747)
Property and Equipment, net..................... -- 4,981 3,800 287 286 38 (144)
Goodwill........................................ -- -- -- -- -- -- 40,279
Other assets.................................... -- 2,203 43 85 31 -- (2,319)
------- ---------- ----------- --------- ------------ --------- -----------
Total assets.................................. $ 136 $ 9,443 $ 5,481 $ 2,305 $ 2,352 $ 2,999 $ 35,069
======= ========== =========== ========= ============ ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit and short-term debt............. $ -- $ -- $ -- $ -- $ 17 $ -- $ --
Current maturities of long-term debt........... -- 123 378 17 -- -- --
Trade payables, customer deposits and deferred
income........................................ 127 8,569 2,561 333 1,360 2,571 --
Payable to Founding Companies' Stockholders.... -- -- -- -- -- -- 23,933
------- ---------- ----------- --------- ------------ --------- -----------
Total current liabilities..................... 127 8,692 2,939 350 1,377 2,571 23,933
Long-term debt, net of current maturities ...... -- 1,880 3,139 -- 39 -- --
Deferred income................................. -- -- 175 -- -- -- --
Commitments and contingencies
Stockholders' Equity (Deficit):
Common stock (2,484,501 shares outstanding
(TSII), 5,906,726 shares outstanding (pro
forma combined), 8,406,726 shares outstanding
(pro forma as adjusted)....................... 25 41 7 71 -- 37 (122)
Additional paid in capital..................... 7,125 96 -- -- -- -- 8,891
Retained earnings (deficit).................... (7,141) (1,266) (779) 1,884 936 410 2,348
Treasury stock................................. -- -- -- -- -- (19) 19
------- ---------- ----------- --------- ------------ --------- -----------
Total stockholders' equity (deficit).......... 9 (1,129) (772) 1,955 936 428 11,136
------- ---------- ----------- --------- ------------ --------- -----------
Total liabilities and stockholders' equity
(deficit).................................... $ 136 $ 9,443 $ 5,481 $ 2,305 $ 2,352 $ 2,999 $ 35,069
======= ========== =========== ========= ============ ========= ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO OFFERING AS
FORMA ADJUSTMENTS ADJUSTED
--------- ----------- ----------
(NOTE 3)
-----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $ 5,069 $ 1,467 $ 6,536
Trade and other receivables, net of allowance.. 2,092 -- 2,092
Other current assets........................... 1,054 -- 1,054
Total current assets.......................... 8,215 1,467 9,682
Property and Equipment, net..................... 9,248 -- 9,248
Goodwill........................................ 40,279 -- 40,279
Other assets.................................... 43 -- 43
--------- ----------- ----------
Total assets.................................. $ 57,785 $ 1,467 $59,252
========= =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit and short-term debt............. $ 17 $ -- $ 17
Current maturities of long-term debt........... 518 -- 518
Trade payables, customer deposits and deferred
income........................................ 15,521 -- 15,521
Payable to Founding Companies' Stockholders.... 23,933 (23,933) --
--------- ----------- ----------
Total current liabilities..................... 39,989 (23,933) 16,056
Long-term debt, net of current maturities ...... 5,058 -- 5,058
Deferred income................................. 175 -- 175
Commitments and contingencies
Stockholders' Equity (Deficit):
Common stock (2,484,501 shares outstanding (TSII)
5,906,726 shares outstanding (pro forma
combined), 8,406,726 shares outstanding
(pro forma as adjusted)....................... 59 25 84
Additional paid in capital..................... 16,112 25,375 41,487
Retained earnings (deficit).................... (3,608) -- (3,608)
Treasury stock................................. -- -- --
--------- ----------- ----------
Total stockholders' equity (deficit).......... 12,563 25,400 37,963
--------- ----------- ----------
Total liabilities and stockholders' equity
(deficit).................................... $ 57,785 $ 1,467 $59,252
========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-3
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TSII AUTO EUROPE CRUISES ONLY TRAVEL 800 CRUISES INC. D-FW TOURS
------ ------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................................. $ -- $ 25,720 $ 7,937 $ 7,645 $ 6,494 $ 4,221
Operating expenses........................... -- 18,807 2,986 5,001 4,140 3,283
------ ------------ -------------- ------------ -------------- ------------
Gross profit................................ -- 6,913 4,951 2,644 2,354 938
General and administrative expenses.......... -- 6,936 4,318 1,315 1,708 809
Goodwill amortization........................ -- -- -- -- -- --
------ ------------ -------------- ------------ -------------- ------------
Income (loss) from operations............... -- (23) 633 1,329 646 129
Interest (expense) and other income, net .... -- (221) (243) 51 12 10
------ ------------ -------------- ------------ -------------- ------------
Income (loss) before income taxes............ -- (244) 390 1,380 658 139
Provision for income taxes................... -- -- -- -- 263 19
------ ------------ -------------- ------------ -------------- ------------
Net income (loss)............................ $ -- $ (244) $ 390 $ 1,380 $ 395 $ 120
====== ============ ============== ============ ============== ============
Net income per share ........................
Shares used in computing net income per
share (note 5)..............................
</TABLE>
PRO FORMA
ADJUSTMENTS PRO FORMA
------------- -----------
(NOTE 4)
Net revenues................................. $ -- $ 52,017
Operating expenses........................... -- 34,217
------------- -----------
Gross profit................................ -- 17,800
General and administrative expenses.......... (5,422)(a) 9,664
Goodwill amortization........................ 1,151 (b) 1,151
------------- -----------
Income (loss) from operations............... 4,271 6,985
Interest (expense) and other income, net .... -- (391)
------------- -----------
Income (loss) before income taxes............ 4,271 6,594
Provision for income taxes................... 2,667 (c) 2,949
------------- -----------
Net income (loss)............................ $ 1,604 $ 3,645
============= ===========
Net income per share ........................ $ 0.44
===========
Shares used in computing net income per
share (note 5).............................. 8,284,476
===========
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-4
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT -- MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TSII AUTO EUROPE CRUISES ONLY TRAVEL 800 CRUISES INC. D-FW TOURS
------ ------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................................. $ -- $ 5,764 $ 1,806 $ 1,649 $ 1,492 $ 927
Operating expenses........................... -- 4,615 666 1,021 1,080 782
------ ------------ -------------- ------------ -------------- ------------
Gross profit................................ -- 1,149 1,140 628 412 145
General and administrative expenses.......... -- 1,721 764 221 387 112
Goodwill amortization........................ -- -- -- -- -- --
------ ------------ -------------- ------------ -------------- ------------
Income (loss) from operations............... -- (572) 376 407 25 33
Interest (expense) and other income, net .... -- (42) (34) 4 -- 3
------ ------------ -------------- ------------ -------------- ------------
Income (loss) before income taxes............ -- (614) 342 411 25 36
Provision for income taxes................... -- -- -- -- 10 14
------ ------------ -------------- ------------ -------------- ------------
Net income (loss)............................ $ -- $ (614) $ 342 $ 411 $ 15 $ 22
====== ============ ============== ============ ============== ============
Net income per share ........................
Shares used in computing net income per
share (note 5)..............................
</TABLE>
PRO FORMA
ADJUSTMENTS PRO FORMA
------------- -----------
(NOTE 4)
Net revenues................................. $ -- $ 11,638
Operating expenses........................... -- 8,164
------------- -----------
Gross profit................................ -- 3,474
General and administrative expenses.......... (927)(a) 2,278
Goodwill amortization........................ 288 (b) 288
------------- -----------
Income (loss) from operations............... 639 908
Interest (expense) and other income, net .... -- (69)
------------- -----------
Income (loss) before income taxes............ 639 839
Provision for income taxes................... 351 (c) 375
------------- -----------
Net income (loss)............................ $ 288 $ 464
============= ===========
Net income per share ........................ $ 0.06
===========
Shares used in computing net income per
share (note 5).............................. 8,284,476
===========
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-5
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT -- MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TSII AUTO EUROPE CRUISES ONLY TRAVEL 800 CRUISES INC. D-FW TOURS
---------- ------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................................. $ -- $ 7,820 $ 2,213 $ 2,108 $ 1,714 $ 1,271
Operating expenses............................ -- 5,723 772 1,316 1,034 1,031
---------- ------------ -------------- ------------ -------------- ------------
Gross profit................................. -- 2,097 1,441 792 680 240
General and administrative expenses........... 7,141 1,844 828 296 474 173
Goodwill amortization......................... -- -- -- -- -- --
---------- ------------ -------------- ------------ -------------- ------------
Income (loss) from operations................ (7,141) 253 613 496 206 67
Interest (expense) and other income, net ..... -- (74) (52) 2 5 4
---------- ------------ -------------- ------------ -------------- ------------
Income (loss) before income taxes............. (7,141) 179 561 498 211 71
Provision for income taxes.................... -- -- -- -- 84 28
---------- ------------ -------------- ------------ -------------- ------------
Net income (loss)............................. $ (7,141) $ 179 $ 561 $ 498 $ 127 $ 43
========== ============ ============== ============ ============== ============
Net income per share .........................
Shares used in computing net income per share
(Note 5).....................................
</TABLE>
PRO FORMA
ADJUSTMENTS PRO FORMA
------------- -----------
(NOTE 4)
Net revenues.................................. $ -- $ 15,126
Operating expenses............................ -- 9,876
------------- -----------
Gross profit................................. -- 5,250
(987)(a)
General and administrative expenses........... (7,141)(d) 2,628
Goodwill amortization......................... 288 (b) 288
------------- -----------
Income (loss) from operations................ 7,840 2,334
Interest (expense) and other income, net ..... -- (115)
------------- -----------
Income (loss) before income taxes............. 7,840 2,219
Provision for income taxes.................... 880 (c) 992
------------- -----------
Net income (loss)............................. $ 6,960 $ 1,227
============= ===========
Net income per share ......................... $ 0.15
===========
Shares used in computing net income per share
(Note 5)..................................... 8,284,476
===========
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-6
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. GENERAL:
Travel Services International, Inc. (TSII), was formed to create a leading
single source distributor of specialized leisure travel services to both travel
agents and travelers. TSII has conducted no operations to date and will acquire
substantially all of the assets of the Founding Companies concurrently with the
consummation of the Offering.
The historical financial statements reflect the financial position and results
of operations of TSII and the Founding Companies as of March 31, 1997, and for
the twelve months ended December 31, 1996, and the three months ended March 31,
1996 and 1997, and were derived from the respective TSII and Founding Company
financial statements where indicated. The audited historical financial
statements included elsewhere herein have been included in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 80.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrent with the closing of the Offering, TSII will acquire all of the
outstanding capital stock of Cruises Inc. and D-FW Tours and substantially all
of the assets of Auto Europe, Cruises Only and Travel 800. The Combinations will
be accounted for using the purchase method of accounting with Auto Europe being
designated as the accounting acquiror.
The following table sets forth the consideration to be paid (a) in cash and (b)
in shares of Common Stock to the stockholders of each of the Founding Companies.
For purposes of computing the estimated purchase price for accounting purposes,
the value of the shares is determined using an estimated fair value of $9.00 per
share, which represents a discount of 25 percent from the assumed initial public
offering price of $12.00 per share due to restrictions on the sale and
transferability of the shares issued. The estimated purchase price for the
acquisitions is based upon preliminary estimates.
SHARES OF
CASH COMMON STOCK
---------- ------------
(IN
THOUSANDS)
Auto Europe ..................... $ 5,000 1,083,334
Cruises Only .................... 8,600 908,334
Travel 800 ...................... 6,417 902,778
Cruises Inc. .................... 2,500 333,334
D-FW Tours ...................... 1,416 194,445
---------- ----------
$ 23,933 3,422,225
========== ==========
The estimated purchase price for the Acquisitions is subject to certain
purchase price adjustments at closing. See "Certain Transactions -- Organization
of the Company."
F-7
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES -
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (Continued)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
The following table summarizes unaudited pro forma combined balance sheet
adjustments (in thousands):
PRO FORMA
(a) (b) (c) ADJUSTMENTS
-------- -------- -------- ----------
Cash and cash equivalents ...... -- (2,603) -- (2,603)
Trade and other receivables .... -- (240) -- (240)
Other current assets ........... -- -- 96 96
Property and equipment, net .... $ (144) $ -- $ -- $ (144)
Goodwill ....................... 40,279 40,279
Other assets ................... (2,319) -- (2,319)
Payable to Founding Companies'
stockholders ................. (23,933) (23,933)
Other long-term liabilities .... --
Common stock ................... 122 122
Additional paid-in capital ..... (8,891) (8,891)
Retained earnings .............. 2,463 (4,715) (96) (2,348)
Treasury stock ................. (19) (19)
-------- -------- -------- --------
$ -- $ -- $ -- $ --
======== ======== ======== ========
OFFERING
(d) (e) ADJUSTMENTS
---------- ----------- ------------
Cash and cash equivalents.................. $ 25,400 $ (23,933) $ 1,467
Payable to Founding Companies'
stockholders............................. 23,933 23,933
Common stock............................... (25) (25)
Additional paid-in capital................. (25,375) (25,375)
---------- ----------- ------------
$ -- $ -- $ --
========== =========== ============
- ----------
(a) Reflects the exclusion of certain non-operating assets with a net book
value of $2,463,000 which will be retained by certain stockholders of the
Founding Companies.
(b) Reflects the Combinations of the Founding Companies including: (i) the
liability for cash consideration to be paid of $23,933,000; (ii)
approximately $2,843,000 representing certain working capital adjustments
and reimbursements to S-Corp stockholders for certain taxes that will be
paid by them in connection with the Combinations; (iii) the issuance of
3,422,225 shares of common stock to the stockholders of the Founding
Companies at $9.00 per share (or $30.8 million); (iv) the creation of
approximately $40,279,000 of goodwill; and (v) the reduction in
compensation expenses relating to the non-recurring, non-cash compensation
charge of $7.1 million recorded in the first quarter of 1997 related to
Common Stock issued to management. See Note 2.
(c) Reflects the deferred income tax liability attributable to the temporary
differences between financial reporting and income tax bases of assets and
liabilities currently held in S Corporations.
(d) Reflects the proceeds from the issuance of 2,500,000 shares of common
stock, net of estimated offering costs (based on an assumed initial public
offering price of $12.00 per share). Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and
printing expenses.
(e) Reflects the cash portion of the consideration to be paid to the Founding
Companies in connection with the Combinations.
F-8
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (Continued)
4. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS :
(a) Reflects a reduction in salaries, bonuses and benefits derived from
contractual agreements which establish the compensation of the owners and
certain key employees of the Founding Companies subsequent to the Offering.
(b) Reflects the amortization of goodwill using a 35-year estimated life.
(c) Reflects the incremental provision for federal and state income taxes
relating to the other statement of income adjustments and to reflect income
taxes on S Corporation income.
(d) Reflects the reduction in compensation expense in the three months ended
March 31, 1997, relating to the non-recurring, non-cash compensation charge
of $7.1 million related to Common Stock issued to management.
5. NET INCOME PER SHARE
The shares used in computing net income per share include: (i) 2,484,501 shares
issued to management of and founders of TSII; (ii) 3,422,225 shares to be issued
to the stockholders of the Founding Companies in connection with the
Combinations; and (iii) 2,377,750 shares to be issued in connection with the
Offering necessary to pay the $23,933,000 cash portion of the consideration for
the Combinations and to pay the estimated underwriting discount and other
offering expenses in the aggregate amount of $4,600,000. Excludes 813,900 shares
of Common Stock subject to options to be granted concurrently with the Offering
at an exercise price equal to the initial public offering price.
F-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Travel Services International, Inc.:
We have audited the accompanying balance sheet of Travel Services International,
Inc., as of December 31, 1996. This financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Travel Services International,
Inc., as of December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 13, 1997
F-10
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................... $ -- $ --
Deferred offering costs............................................ -- 136
-------------- ------------
Total assets..................................................... $ -- $ 136
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities and amounts due to TSGI Funding, LLC .......... $ -- $ 127
Stockholders' equity:
Preferred stock, $.01 par, 1,000,000 authorized, none outstanding. -- --
Common stock, $.01 par, 50,000,000 shares authorized, 1,633,335
and 2,484,501 shares outstanding, respectively................... 16 25
Additional paid in capital........................................ (16) 7,125
Retained deficit.................................................. -- (7,141)
-------------- ------------
Total stockholders' equity....................................... -- 9
-------------- ------------
Total liabilities and stockholders' equity........................ $ -- $ 136
============== ============
</TABLE>
Reflects a 5,445.45-for-one stock split effective on May 12, 1997.
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(IN THOUSANDS)
Net revenues.............................................. $ --
Selling, general and administrative
expenses............................................... 7,141
----------
Loss before income taxes.................................. (7,141)
Income tax benefit........................................ --
----------
Net loss.................................................. $ (7,141)
==========
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 25, 1996)
THROUGH MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Initial Capitalization............ 1,633,335 $ 16 $ (16) $ -- $ --
----------- -------- ------------ ---------- ---------------
Balance, December 31, 1996........ 1,633,335 16 (16) -- --
Issuance of Management Shares
(unaudited)..................... 851,166 9 7,141 -- 7,150
Net loss (unaudited)............. -- -- -- (7,141) (7,141)
----------- -------- ------------ ---------- ---------------
Balance, March 31, 1997
(unaudited)...................... 2,484,501 $ 25 $ 7,125 $ (7,141) $ 9
=========== ======== ============ ========== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net Loss..................................................................... $(7,141)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities --
Compensation expense related to issuance of management shares............... 7,141
Changes in assets and liabilities --
Increase in deferred offering costs........................................ (136)
Increase in accrued liabilities and amounts due to TSGI Funding, LLC....... 127
----------
Net cash used in operating activities..................................... (9)
----------
Cash flows from financing activities:
Issuance of stock........................................................... 9
----------
Net cash provided by financing activities................................. 9
----------
Net increase in cash and cash equivalents.................................... --
Cash and cash equivalents, beginning of period............................... --
----------
Cash and cash equivalents, end of period..................................... $ --
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL:
Travel Services International, Inc., a Delaware Corporation, ("TSII" or the
"Company"), was founded in April 1996 to create a leading single source
distributor of specialized leisure travel services to both travel agents and
travelers. TSII intends to acquire substantially all of the assets of five
companies (the "Founding Companies") (the "Combinations") and complete an
initial public offering (the "Offering") of its common stock.
TSII has not conducted any operations, and all activities to date have related
to the Offering and the Combinations. Cash of $30 was provided from the initial
capitalization of the Company (see Note 2). All other expenditures will be
funded by TSGI Funding, LLC, a Delaware limited liability company whose member
managers are owners of the Company. Accordingly, statements of operations and
cash flows for this period would not provide meaningful information and have
been omitted. As of March 31, 1997 and December 31, 1996, costs of approximately
$136,000 (unaudited) and $0, respectively, have been incurred by TSGI Funding,
LLC in connection with the Offering. The Company is dependent upon the Offering
to execute the pending Combinations. There is no assurance that the pending
Combinations will be completed or that TSII will be able to generate future
operating revenues.
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1997, and for the three months
ended March 31, 1997, are unaudited, and certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been included.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
2. STOCKHOLDERS' EQUITY:
COMMON STOCK AND PREFERRED STOCK
TSII effected a 5,444.45 -for-one stock split on May 12, 1997 for each share of
common stock (the Company "Common Stock") then outstanding. In addition, the
Company increased the number of authorized shares of Common Stock to 50,000,000
and authorized 1,000,000 shares of $.01 par value preferred stock. The effects
of Common Stock split and the increase in the shares of authorized Common Stock
have been retroactively reflected in the balance sheet and the accompanying
notes.
In connection with the organization and initial capitalization of TSII, the
Company issued 100 shares of common stock at $.01 per share to Capstone
Partners, LLC ("Capstone"). In October 1996, the Company issued 200 additional
shares at $.01 per share to Alpine Consolidated, LLC ("Alpine").
In the first quarter of 1997, the Company issued a total of 851,166 shares of
Common Stock to management of the Company at a price of $.01 per share. As a
result, the Company recorded for financial statement purposes a non-recurring
non-cash compensation charge of $7.1 million (unaudited) in the first quarter of
1997, representing the difference between the amount paid for the shares and the
estimated fair value of the shares on the date of sale.
RESTRICTED COMMON STOCK
In May 1997, the stockholders exchanged 2,484,501 shares of Common Stock
(consisting of 851,166 Shares owned by management, and an aggregate of 1,633,335
Shares owned by Alpine and Capstone) for an equal number of shares of restricted
voting common stock ("Restricted Common Stock"). The Common Stock and the
Restricted Common Stock are identical except that the holders of Restricted
Common Stock are only entitled to four-tenths of one vote for each share on all
matters.
F-15
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
LONG-TERM INCENTIVE PLAN
In May 1997, the Board of Directors and the Company's stockholders approved the
Company's 1997 Long-Term Incentive Plan (the "Plan"). The purpose of the Plan is
to provide directors, officers, employees, consultants and independent
contractors with additional incentives by increasing their ownership interests
in the Company. Individual awards under the Plan may take the form of one or
more of: (i) either incentive stock options ("ISOs") or non-qualified stock
options ("NQSOs"); (ii) stock appreciation rights ("SARs"); (iii) restricted or
deferred stock; (iv) dividend equivalents; and (v) other awards not otherwise
provided for, the value of which is based in whole or in part upon the value of
the Common Stock.
The maximum number of shares of Common Stock that may be subject to outstanding
awards, determined immediately after the grant of any award, may not exceed the
greater of 900,000 shares or 12% of the aggregate number of shares of Common
Stock outstanding. Shares of Common Stock which are attributable to awards which
have expired, terminated or been canceled or forfeited are available for
issuance or use in connection with future awards.
Concurrently with the Offering, the Company intends to grant NQSOs to purchase a
total of 773,900 shares of Common Stock of the Company. The grants of all of the
foregoing options will be effective as of the closing of the Offering and each
will have an exercise price equal to the initial public offering price per share
in the Offering. These options will vest at the rate of 25% per year and will
expire 10 years from the date of grant or three months following termination of
employment.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1997 Non-Employee Directors' Stock Plan (the "Directors' Plan"),
which was adopted by the Board of Directors and approved by the Company's
stockholders in 1997, provides for: (i) the automatic grant to each non-employee
director and advisory director (a "Participant") serving at the commencement of
the Offering of an option to purchase 10,000 shares; and thereafter (ii) the
automatic grant to each Participant of an option to purchase 10,000 shares upon
such person's initial election as a director. In addition, the Directors' Plan
generally provides for an automatic annual grant to each Participant of an
option to purchase 5,000 shares at each annual meeting of stockholders following
the Offering . These options will have an exercise price per share equal to the
fair market value of a share at the date of grant. Options granted under the
Directors' Plan will expire at the earlier of 10 years from the date of grant or
one year after termination of service as a director or advisor, and options will
be immediately exercisable. In addition, the Directors' Plan permits
Participants to elect to receive, in lieu of cash directors' fees, shares or
credits representing "deferred shares" that may be settled at future dates, as
elected by the Participants. The number of shares or deferred shares received
will be equal to the number of shares which, at the date the fees would
otherwise be payable, will have an aggregate fair market value equal to the
amount of such fees. The Company has reserved 100,000 shares of Common Stock for
issuance under the Directors' Plan.
3. STOCK BASED COMPENSATION:
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," allows entities to choose between a new fair value
based method of accounting for employee stock options or similar equity
instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Companies electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosure of net income and earnings per share as if the fair value
method of accounting had been applied. The Company will provide pro forma
disclosure of net income and net income per share, as applicable, in the notes
to future consolidated financial statements.
F-16
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"). For the
Company, SFAS No. 128 will be effective for the year ended December 31, 1997.
SFAS No. 128 simplifies the standards required under current accounting rules
for computing earnings per share and replaces the presentation of primary
earnings per share and fully diluted earnings per share with a presentation of
basic earnings per share ("basic EPS") and diluted earnings per share ("diluted
EPS"). Basic EPS excludes dilution and is determined by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
could occur if securities and other contracts to issue common stock were
exercised or converted into common stock. Diluted EPS is computed similarly to
fully diluted earnings per share under current accounting rules.
The implementation of SFAS NO. 128 is not expected to have a material effect on
the Company's earnings per share as determined under current accounting rules.
4. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
TSII has signed definitive agreements to acquire by merger or share exchange all
of the Common Stock and ownership interests of the Founding Companies to be
consummated simultaneously with the closing of the Offering. The companies to be
acquired are Auto-Europe, Inc. (Maine), Cruises Only, Inc., 800-Ideas, Inc.,
Cruises Inc., and D-FW Tours, Inc., and D-FW Travel Arrangements, Inc. The
aggregate consideration that will be paid by TSII to acquire the Founding
Companies is, subject to working capital adjustments and reimbursements to
S-Corp stockholders for certain taxes that will be paid by them in connection
with the Combinations, approximately $23.9 million in cash and 3,422,225 shares
of Common Stock.
The Company has received a commitment letter and is negotiating the definitive
terms of a credit agreement for a $20.0 million line of credit which would be
available upon the closing of the Offering. The facility is intended to be used
for acquisitions, capital expenditures, and for general corporate purposes.
There can be no assurance that any line of credit will be obtained or that, if
obtained, it will be on terms that are favorable to the Company.
On May 14, 1997, TSII filed a registration statement on Form S-1 for the sale of
its Common Stock. An investment in shares of Common Stock offered by this
Prospectus involves a high degree of risk, including, among others, absence of a
combined operating history, risks relating to the Company's acquisition
strategy, risks relating to acquisition financing, reliance on key personnel and
a substantial portion of the proceeds from the offering payable to affiliates of
the Founding Companies. See "Risk Factors" included elsewhere in this
Prospectus.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Auto-Europe, Inc. (Maine):
We have audited the accompanying balance sheets of Auto-Europe, Inc. (Maine) (a
Maine corporation), as of December 31, 1995 and 1996, and the related statements
of operations, changes in stockholders' deficit and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Auto-Europe, Inc. (Maine), as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 23, 1997 (except with respect to
the matter discussed in Note 5, as to
which the date is June 26, 1997)
F-18
<PAGE>
AUTO-EUROPE, INC. (MAINE)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996 MARCH 31, 1997
-------- --------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................................... $ 14 $ -- $ 2,061
Receivables from stockholder and employees.................... 2,391 370 123
Other current assets.......................................... 19 52 75
-------- --------- ---------------
Total current assets......................................... 2,424 422 2,259
PROPERTY AND EQUIPMENT, net.................................... 2,840 4,825 4,981
OTHER ASSET.................................................... -- 2,203 2,203
-------- --------- ---------------
Total assets................................................. $5,264 $ 7,450 $ 9,443
======== ========= ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft................................................ $ 105 $ 672 $ --
Short-term debt............................................... 700 2,300 --
Current maturities of long-term debt.......................... 535 204 123
Due to travel service providers............................... 2,967 1,790 4,455
Accounts payable and accrued liabilities...................... 1,800 1,774 4,114
-------- --------- ---------------
Total current liabilities.................................... 6,107 6,740 8,692
LONG-TERM DEBT, net of current maturities...................... 12 1,880 1,880
STOCKHOLDERS' DEFICIT:
Class A voting common stock, no par value; 1,000 authorized
shares; 800 shares outstanding .............................. 1 1 1
Class B nonvoting common stock, no par value; 50,000
authorized shares; 40,000 shares outstanding................. 40 40 40
Capital in excess of par value................................ 96 96 96
Deficit....................................................... (992) (1,307) (1,266)
-------- --------- ---------------
Total stockholders' deficit.................................. (855) (1,170) (1,129)
-------- --------- ---------------
Total liabilities and stockholders' deficit.................. $5,264 $ 7,450 $ 9,443
======== ========= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
AUTO-EUROPE, INC. (MAINE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- -----------------
1994 1995 1996 1996 1997
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues..................... $17,156 $21,919 $25,720 $5,764 $7,820
Operating expenses............... 11,101 15,413 18,807 4,615 5,723
--------- --------- --------- -------- --------
Gross profit.................... 6,055 6,506 6,913 1,149 2,097
General and administrative
expenses...................... 6,276 6,686 6,936 1,721 1,844
--------- --------- --------- -------- --------
Income (Loss) from operations .. (221) (180) (23) (572) 253
Interest expense................. (28) (81) (221) (42) (74)
--------- --------- --------- -------- --------
Net income (loss)................ $ (249) $ (261) $ (244) $ (614) $ 179
========= ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
AUTO-EUROPE, INC. (MAINE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------- ----------------- CAPITAL
COMMON COMMON IN EXCESS
SHARES STOCK SHARES STOCK OF PAR VALUE DEFICIT TOTAL
-------- -------- -------- -------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993........ 800 $ 1 40,000 $ 40 $ 70 $ (206) $ (95)
Net loss......................... -- -- -- -- -- (249) (249)
Contributions.................... -- -- -- -- 26 -- 26
Distributions.................... -- -- -- -- -- (218) (218)
-------- -------- -------- -------- -------------- ---------- ----------
Balance, December 31, 1994........ 800 1 40,000 40 96 (673) (536)
Net loss......................... -- -- -- -- -- (261) (261)
Distributions.................... -- -- -- -- -- (58) (58)
-------- -------- -------- -------- -------------- ---------- ----------
Balance, December 31, 1995........ 800 1 40,000 40 96 (992) (855)
Net loss......................... -- -- -- -- -- (244) (244)
Distributions.................... -- -- -- -- -- (71) (71)
-------- -------- -------- -------- -------------- ---------- ----------
Balance, December 31, 1996........ 800 $ 1 40,000 $ 40 $ 96 $ (1,307) $(1,170)
-------- -------- -------- -------- -------------- ---------- ----------
Net Income (unaudited)........... -- -- -- -- -- 179 179
Contributions (unaudited)........ -- -- -- -- -- -- --
Distributions (unaudited)........ -- -- -- -- -- (138) (138)
-------- -------- -------- -------- -------------- ---------- ----------
Balance, March 31, 1997
(unaudited)...................... 800 $ 1 40,000 $ 40 $ 96 $ (1,266) $(1,129)
======== ======== ======== ======== ============== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
AUTO-EUROPE, INC. (MAINE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income (loss)................................. $ (249) $ (261) $ (244) $ (614) $ 179
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities-
Depreciation..................................... 275 382 643 160 190
Changes in operating assets and liabilities-
Receivables from stockholder and employees...... (182) 85 (113) (491) 247
Other current assets............................ -- 22 (33) (62) (23)
Due to travel service providers................. 1,134 935 (1,177) 65 2,665
Accounts payable and accrued liabilities........ 40 146 (14) 1,088 1,669
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities.................................... 1,018 1,309 (938) 146 4,927
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment................ (1,713) (1,172) (2,707) (1,121) (377)
Improvements to other asset....................... -- -- (69) -- --
Proceeds from sale of office equipment and
vehicles......................................... 23 15 79 13 30
--------- --------- --------- --------- ---------
Net cash used in investing activities.......... (1,690) (1,157) (2,697) (1,108) (347)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net proceeds from (payments on) short-term debt
and bank overdraft............................... 589 (525) 2,155 (700) (2,300)
Proceeds from long-term debt...................... 113 524 2,621 1,819 --
Payments on long-term debt........................ (55) (79) (1,084) -- (81)
Capital contributions............................. 26 -- -- -- --
Distributions to stockholders..................... (218) (58) (71) (71) (138)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities.................................... 455 (138) 3,621 1,048 (2,519)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash.................... (217) 14 (14) 86 2,061
Cash, beginning of period.......................... 217 -- 14 14 --
--------- --------- --------- --------- ---------
Cash, end of period................................ $ -- $ 14 $ -- $ 100 $ 2,061
========= ========= ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest............................ $ 28 $ 81 $ 197 43 97
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Auto-Europe, Inc. (Maine) (the Company), is a Maine corporation headquartered in
Portland, Maine. The Company is a specialized distributor of reservations for
leisure auto rentals to persons traveling primarily from the United States and
Canada to Europe. The Company's operations are seasonal, with a peak during the
second and third quarters of the year.
The Company had working capital deficits at December 31, 1995 and 1996. The
Company has funded its operations with cash flows from operations and short-term
borrowings from lenders. Management expects that operations will generate
sufficient cash flows from operations to meet the Company's working capital
needs during 1997.
The Company and its stockholders intend to enter into a definitive agreement
with Travel Services International, Inc. (TSII), pursuant to which all of the
operating assets of the Company and related liabilities and the Auto Europe
tradename which is owned personally by Alex Cecil, the Chief Executive Officer
of the Company will be exchanged for cash and shares of TSII common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of TSII. In addition, the owner and certain key employees
have agreed to reductions in salary and benefits which would have reduced
general and administrative expenses by approximately $3.5 million, $2.7 million
and $3.2 million for 1994, 1995 and 1996, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1997, and for the three months
ended March 31, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
REVENUE RECOGNITION
The Company records net revenues when earned, which is at the time a reservation
is booked and ticketed. Revenues primarily consist of commissions on travel
services and volume bonuses from travel service providers. The Company provides
a reserve for cancellations, reservation changes and currency exchange
guarantees, and provisions for such amounts are reflected in net revenues. The
reserves that have been netted against net revenues are not material in the
three years ended December 31, 1996.
The Company estimates and records accruals for cancellations and changes to
reservation revenues booked. However, such estimates could vary significantly
based upon changes in economic and political conditions that impact leisure
travel patterns.
OPERATING EXPENSES
Operating expenses include travel agent commissions, salaries, communications,
advertising, credit card fees and other costs associated with the selling and
processing of travel reservations.
FOREIGN CURRENCY TRANSACTIONS
The Company enters into foreign currency forward purchase contracts to hedge
part or all of its foreign currency denominated liabilities and reservation
commitments to foreign travel service providers on a continuing basis for
periods consistent with its committed exposures. The hedging minimizes the
impact
F-23
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS - (Continued)
of foreign exchange rate movements on the Company's operating results because
gains and losses on these contracts generally offset losses and gains on the
liabilities being hedged. Due to the nature of the liabilities being hedged, the
typical maturity of these purchase contracts is 30 days. The risk of loss on the
unhedged liabilities is not significant. At December 31, 1996, the Company had
approximately $687,000 of outstanding foreign currency purchase contracts. At
December 31, 1995, the Company had no open foreign currency contracts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of operations.
OTHER ASSET
Other asset represents an investment in real estate of an island off the coast
of Maine and related improvements transferred to the Company during 1996 by a
stockholder in satisfaction of a portion of the receivable due from the
stockholder. The island is valued at the cost to the stockholder which is
estimated by management to be at least equal to its net realizable value. The
island is not used in the operations of the Company; accordingly, no
depreciation expense has been recorded. The island will be excluded from the
assets transferred in connection with the consummation of the transactions
discussed in Note 1.
RENTAL COUPONS
As part of its marketing campaigns, the Company regularly issues to its travel
agent customers a rental coupon per transaction booked. Each coupon represents a
value equal to one free day of car rental at certain Western Europe destinations
based upon the rate charged for the smallest car available in the applicable
area of service. The Company's policy is to accrue expense for anticipated
coupon redemptions in the year such coupons are issued. The coupon redemption
accruals are estimated based upon historical usage patterns, and such estimates
could vary significantly based upon changes in economic and political conditions
that impact leisure travel patterns. The reserve for coupon redemptions totaled
approximately $219,000 and $329,000 at December 31, 1995 and 1996, respectively,
and is included in accrued liabilities.
INCOME TAXES
The Company has elected S Corporation status as defined by the Internal Revenue
Code, whereby the Company is not subject to taxation for federal purposes. Under
S Corporation status, the stockholders report their share of the Company's
taxable earnings or losses in their personal tax returns.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-24
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NEW ACCOUNTING STANDARD
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that
facts and circumstances indicate that property and equipment and intangible or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value is necessary. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
CONCENTRATIONS OF RISK
Travel Service Providers--The Company markets and sells the services of global,
national and local rental car agencies in various foreign countries. Two auto
rental companies accounted for approximately 90% of the Company's total auto
rentals in 1994, 82% of the Company's total auto rentals in 1995 and 80% of the
Company's total auto rentals in 1996.
Geographical--The percentage of total auto rentals during the three years ended
December 31, 1996, occurred in the destinations noted below:
1994 1995 1996
---- ---- ----
Germany ........................... 22% 21% 19%
United Kingdom .................... 18 19 19
France ............................ 19 16 17
Italy ............................. 12 13 14
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment as of December 31, 1995 and 1996, consisted of the
following (in thousands):
ESTIMATED
USEFUL LIVES
IN YEARS 1995 1996
-------------- --------- --------
Land................................... - $ 419 $ 365
Buildings and improvements ............ 27 1,174 2,766
Office equipment and
vehicles............................... 5 2,779 2,622
--------- --------
4,372 5,753
Less - Accumulated
depreciation........................... (1,532) (928)
--------- --------
Property and equipment, net........... $ 2,840 $4,825
========= ========
F-25
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS - (Continued)
Accounts payable and accrued liabilities as of December 31, 1995 and 1996,
consisted of the following (in thousands):
1995 1996
-------- --------
Accrued compensation and benefits............. $ 415 $ 285
Accounts payable and other accrued
liabilities................................... 1,373 1,489
-------- --------
Total accounts payable and accrued
liabilities................................. $1,788 $1,774
======== ========
4. DEBT:
The Company had a $2,000,000 revolving line-of-credit with Key Bank of Maine
(Key Bank) which bears interest, payable monthly, at prime plus 1% (9.25% at
December 31, 1996) and expires in July 1997. The line of credit is secured by a
first security interest in all business assets. At December 31, 1995 and 1996,
borrowings outstanding under the line of credit were approximately $412,000 and
$2,000,000, respectively.
At both December 31, 1995 and 1996, the Company had a loan payable of $300,000
to a related party, bearing interest at prime plus 1%. The Company repaid the
respective loans in March and February of the following years.
Long-term debt consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- --------
<S> <C> <C>
Mortgage note payable to Key Bank, bearing interest at prime plus 1%, due in
monthly principal installments of $7 plus accrued interest, matures in
September, 2011, secured by first real estate mortgage on the Company's office
building and personally guaranteed by a stockholder........................... $ -- $1,229
Note payable to U.S. Small Business Administration (SBA), bearing interest at
7.27% due in monthly principal and interest installments of $6, matures in
October 2016. Secured by second mortgage on the Company's office building and
personally guaranteed by a stockholder........................................ -- 745
Term loan to Key Bank, bearing interest at prime plus 1% with monthly
interest-only payments. The Company repaid the note in May 1996............... 500 --
Notes payable to various automobile lenders, bearing interest ranging from 7.90%
to 11.90%, maturing at various dates through 2001 and secured by automobiles . 47 110
------- --------
547 2,084
Less - Current maturities....................................................... (535) (204)
------- --------
$ 12 $1,880
======= ========
</TABLE>
The line-of-credit and mortgage note agreements include various affirmative and
negative covenants, including a cross-default clause in the line-of-credit
agreement related to the Company's mortgage note with Key Bank. Among these
covenants, the Company is required to maintain certain minimum tangible net
worth, debt-to-net-worth and cash-flow-to-debt-service ratios. At December 31,
1995 and 1996, the Company did not meet such financial ratio requirements and
has obtained the necessary waivers through the term of the revolving
line-of-credit agreement and through January 1, 1998, for the mortgage note
payable, regarding such noncompliance.
F-26
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS - (Continued)
Certain covenants of the SBA note require the Company to obtain SBA approval
prior to transferring or issuing additional capital, becoming party to a
reorganization, merger or consolidation, changing ownership or selling any
assets.
At December 31, 1996, maturities of long-term debt were as follows (in
thousands):
Year ending December 31,
1997 .................................. $ 204
1998 .................................. 140
1999 .................................. 118
2000 .................................. 112
2001 .................................. 112
Thereafter ............................ 1,398
------
$2,084
======
5. COMMITMENTS AND CONTINGENCIES:
OPERATOR AGREEMENTS
The Company regularly enters into agreements with its significant travel service
providers. Among other things, these agreements generally provide for negotiated
rates to the Company and bonuses to the Company based upon sales volume. Such
agreements also generally require letters of credit to be issued in favor of the
travel service provider to secure performance by the Company. No such letters of
credit are outstanding at December 31, 1996.
Also, from time-to-time the Company enters into dedicated fleet agreements with
certain travel service providers. These agreements generally require the Company
to pay for a minimum number of auto rentals for a stated period of time usually
not exceeding six to nine months if minimal volume requirements are not
achieved. The Company had one dedicated fleet agreement in effect at December
31, 1996 which expires at the end of April 1997.
In November 1992, the Company entered into an operating agreement with one of
its travel service providers which, among other things, required the Company to
pay the travel service provider a rebate payment amount equal to 10% of its net
profits (as defined) and contained a right of first refusal clause in the event
of a transfer of ownership in the Company. This agreement was terminated
effective January 1, 1997. The Company is in the process of negotiating the
terms of a new agreement with this travel service provider. Rebate payments
related to this agreement totalled $100,000 and $110,000 in 1995 and 1996,
respectively, and have been reflected as reductions of net revenues.
Effective March 1996, the Company entered into an agreement with another global
travel service provider to secure rate discounts on car rentals in Europe. The
agreement is effective for 5 years and is renewed automatically for consecutive
one-year periods thereafter unless terminated by either party with six months'
notice. Among other things, the agreement requires that the Company pay for a
minimum number of auto rentals with this travel service provider. A volume bonus
is due to the Company upon the attainment of certain car rental volume goals.
Under this agreement, this travel service provider is entitled to 5 to 10
percent of the Company's net profit (as defined). Based upon a letter from the
travel service provider, the travel service provider has waived the requirement
of the Company to meet minimum volume car rental targets and has waived its
right to receive such payments through February 1997. On June 26, 1997, the
Company entered into an amendment of the March 1996 agreement effective March 1,
1997. The amendment provides that the travel service provider will not be
entitled to receive rebate payments unless a volume bonus has been earned by the
Company in the same year. The amount
F-27
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS - (Continued)
of any volume bonus earned by the Company will be reduced by the amount of any
rebate payments due to the travel service provider. The amendment also provides
for the travel service provider's rebate payment percentage to fluctuate between
1 and 10 percent of the Company's net profit (as defined).
LITIGATION
The Company is involved in various legal actions arising in the ordinary course
of business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general and
business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statements.
BENEFIT PLANS
The Company's 401(k) retirement plan, as amended, is available to substantially
all of the Company's employees. The Company's contribution to the plan is based
upon a percentage of employee contributions. The cost of this plan was
approximately $11,000 in 1994, $18,000 in 1995 and $21,000 in 1996.
6. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments," and SFAS
No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," require the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. The carrying
value of the Company's financial instruments approximates fair value.
7. RELATED PARTIES:
During 1996, the Company purchased $477,000 of computer equipment from an entity
owned and controlled by an officer and certain employees of the Company at the
original cost of the equipment to the entity.
During 1995, the Company advanced $2.1 million to a shareholder who used the
advance to purchase an island off the coast of Maine. The island was later
contributed to the Company in return for the cancellation of his obligations on
the advance. This island will not be included in the assets of the Company
acquired by the TSII.
8. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
The Company and its stockholders have entered into a definitive agreement with
TSII providing for the acquisition of substantially all of the assets and
liabilities of the Company by TSII.
In connection with the Offering, certain non-operating assets with a net book
value of $2,438,000 will be retained by the stockholders. Had this transaction
been recorded at March 31, 1997, the effect on the accompanying balance sheet
would be a decrease in assets and a decrease in stockholders' equity of
$2,438,000.
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cruises Only, Inc.:
We have audited the accompanying balance sheets of Cruises Only, Inc. (a Florida
corporation), as of December 31, 1995 and 1996, and the related statements of
income, changes in stockholders' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cruises Only, Inc., as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 28, 1997
F-29
<PAGE>
CRUISES ONLY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996 MARCH 31, 1997
-------- -------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 311 $ 235 $ 604
Receivables from cruise lines......................... 791 912 773
Prepaid expenses and other current assets............. 165 24 261
-------- -------- ----------------
Total current assets................................. 1,267 1,171 1,638
Property and equipment, net............................ 2,978 3,866 3,800
Other assets........................................... 36 44 43
-------- -------- ----------------
Total assets......................................... $4,281 $5,081 $5,481
======== ======== ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt.................. $ 128 $ 375 $ 378
Accounts payable and accrued liabilities.............. 248 729 995
Customer deposits and deferred income................. 865 1,044 1,275
Other current liabilities............................. 388 308 291
-------- -------- ----------------
Total current liabilities............................ 1,629 2,456 2,939
Long-term debt, net of current maturities.............. 2,644 3,236 3,139
Deferred income........................................ -- 190 175
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $1 par value; 7,500 shares authorized
and outstanding ..................................... 7 7 7
Capital in excess of par value........................ 1 -- --
Deficit............................................... -- (808) (779)
-------- -------- ----------------
Total stockholders' equity (deficit)................. 8 (801) (772)
-------- -------- ----------------
Total liabilities and stockholders' equity (deficit). $4,281 $5,081 $5,481
======== ======== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
CRUISES ONLY, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- -----------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues...................... $7,467 $9,078 $7,937 $1,806 $2,213
Operating expenses................ 3,458 3,675 2,986 666 772
-------- -------- -------- -------- --------
Gross profit..................... 4,009 5,403 4,951 1,140 1,441
General and administrative
expenses......................... 2,922 3,929 4,318 764 828
-------- -------- -------- -------- --------
Income from operations........... 1,087 1,474 633 376 613
Interest expenses................. (2) (16) (236) (50) (71)
Other income (expense), net ...... 3 (131) (7) 16 19
-------- -------- -------- -------- --------
Net income........................ $1,088 $1,327 $ 390 $ 342 $ 561
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
CRUISES ONLY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL RETAINED
COMMON IN EXCESS EARNINGS
SHARES STOCK OF PAR VALUE (DEFICIT) TOTAL
-------- -------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993........ 7,500 $ 7 $ (155) $ -- $ (148)
Net income....................... -- -- -- 1,088 1,088
Contributions.................... -- -- 1,535 -- 1,535
Distributions.................... -- -- (262) (1,088) (1,350)
-------- -------- -------------- ---------- ---------
Balance, December 31, 1994....... 7,500 7 1,118 -- 1,125
Net income....................... -- -- -- 1,327 1,327
Contributions.................... -- -- 912 -- 912
Distributions.................... -- -- (2,029) (1,327) (3,356)
-------- -------- -------------- ---------- ---------
Balance, December 31, 1995........ 7,500 7 1 -- 8
Net income....................... -- -- -- 390 390
Contributions.................... -- -- 1,300 -- 1,300
Distributions.................... -- -- (1,301) (1,198) (2,499)
-------- -------- -------------- ---------- ---------
Balance, December 31, 1996........ 7,500 $ 7 $ -- $ (808) $ (801)
-------- -------- -------------- ---------- ---------
Net income (unaudited)........... -- -- -- 561 561
Contributions (unaudited)........ -- -- -- -- --
Distributions (unaudited)........ -- -- -- (532) (532)
-------- -------- -------------- ---------- ---------
Balance, March 31, 1997
(unaudited)...................... 7,500 $ 7 $ -- $ (779) $ (772)
======== ======== ============== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
CRUISES ONLY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- -----------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 1,088 $ 1,327 $ 390 $ 342 $ 561
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation ............................. 99 121 213 53 75
Deferred income........................... -- -- -- 235 (15)
Loss on retirement of assets.............. -- 181 85 -- --
Capitalized interest...................... -- (45) (19) (19) --
Changes in operating assets and
liabilities-
Receivables from cruise lines............ (694) (58) (121) 296 139
Prepaid expenses and other current
assets.................................. -- (166) 141 100 (237)
Other assets............................. 22 (34) (8) 7 --
Accounts payable and accrued liabilities. (286) (139) 481 440 266
Customer deposits and deferred income.... 241 625 69 509 231
Other current liabilities................ 168 (36) (80) (30) (18)
--------- --------- --------- --------- -------
Promotion support payment................ -- -- 300 -- --
--------- --------- --------- --------- -------
Net cash provided by operating
activities............................. 638 1,776 1,451 1,933 1,002
--------- --------- --------- --------- -------
Cash flows from investing activities:
Purchase of property and equipment ........ (1,222) (1,796) (1,167) (226) (7)
--------- --------- --------- --------- -------
Net cash used in investing activities... (1,222) (1,796) (1,167) (226) (7)
--------- --------- --------- --------- -------
Cash flows from financing activities:
Proceeds from long-term debt............... -- 2,775 1,200 -- --
Payments on long-term debt................. (49) (53) (361) (39) (94)
Contributions from stockholders............ 1,535 912 1,300 -- --
Distributions to stockholders.............. (1,350) (3,356) (2,499) (1,500) (532)
--------- --------- --------- --------- -------
Net cash provided by (used in) financing
activities............................. 136 278 (360) (1,539) (626)
--------- --------- --------- --------- -------
Net increase (decrease) in cash and cash
equivalents................................ (448) 258 (76) 168 369
Cash and cash equivalents, beginning of
year....................................... 501 53 311 311 235
--------- --------- --------- --------- -------
Cash and cash equivalents, end of year ..... $ 53 $ 311 $ 235 $ 479 $ 604
========= ========= ========= ========= =======
Supplemental disclosure of cash flow
information:
Cash paid for-interest..................... $ 2 $ 61 $ 255 $ 50 $ 71
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Cruises Only, Inc. (the Company), a Florida corporation, is a specialized
distributor of reservations for cruise vacations to travelers located in the
United States. It offers cruises to its clients on over 45 cruise lines
traveling to the Caribbean and other destinations around the world. The
Company's operations are seasonal with a peak during the second and third
quarter of the year.
The Company had working capital deficits at December 31, 1995 and 1996.
Management expects that operations will generate sufficient cash flows from
operations to meet the Company's working capital needs during 1997.
The Company and its stockholders intend to enter into a definitive agreement
with Travel Services International, Inc. (TSII), pursuant to which all of the
assets and liabilities of the Company will be exchanged for cash and shares of
TSII common stock concurrent with the consummation of the initial public
offering (the Offering) of the common stock of TSII. In addition, the owners
have agreed to reductions in salary and benefits which would have reduced
general and administrative expenses by approximately $793,000, $974,000 and $1.4
million for 1994, 1995 and 1996, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1997, and for the three months
ended March 31, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, including the net amount of interest
cost associated with significant capital additions. Capitalized interest was
approximately $45,000 in 1995 and $19,000 in 1996. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the life of the related
asset or life of the lease.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of income.
CUSTOMER DEPOSITS AND DEFERRED INCOME
Customer deposits represent the cost of cruises for cash sales which have not
yet been remitted to the cruise lines. Deferred income generally includes
commissions collected more than 60 days prior to the sail date. Deferred income
also includes the unearned portion of a $300,000 promotion support payment
received by the Company during 1996 from a supplier. In the event the Company
breaches the agreement
F-34
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
during the 60-month term, the promotion support payment must be refunded. The
promotional support payment is being amortized to income using the straight-line
method over the 60-month agreement term. Approximately $50,000 of this amount
has been included in other income for the year ended December 31, 1996.
INCOME TAXES
The Company has elected S Corporation status as defined by the Internal Revenue
Code, whereby the Company is not subject to taxation for federal purposes. Under
S Corporation status, the stockholders report their share of the Company's
taxable earnings or losses in their personal tax returns.
REVENUE RECOGNITION
The Company recognizes net revenues when the customer is no longer entitled to a
full refund of the cost of the cruise, which is generally 45 to 90 days prior to
the sail date. Net revenues primarily consist of commissions and year-end volume
bonuses from the cruise lines.
OPERATING EXPENSES
Operating expenses include sales persons' commissions, salaries, communication,
advertising, credit card fees and other costs associated with the selling and
processing of cruise reservations.
ADVERTISING COSTS
All advertising and promotion costs are expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARD
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that
facts and circumstances indicate that property and equipment and intangible or
other assets may be impaired, an evaluation of recoverabililty would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value is necessary. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
CONCENTRATIONS OF RISK
Cruise Lines--Net revenues from the sales of cruises on behalf of two cruise
lines represented approximately 32% and 12%, respectively, of net revenues in
1994, and 35% and 11%, respectively, of net revenues in 1995. Three cruise lines
accounted for 42%, 12% and 12%, respectively, of net revenues in 1996.
F-35
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment as of December 31, 1995 and 1996, consist of the
following (in thousands):
ESTIMATED
USEFUL LIVES
IN YEARS 1995 1996
-------------- -------- --------
Land............................ -- $ 470 $ 470
Buildings and improvements ..... 40 2,003 2,153
Office equipment................ 5-7 311 1,327
Furniture and fixtures.......... 7 430 347
-------- --------
3,214 4,297
Less-Accumulated
depreciation.................... (236) (431)
-------- --------
Property and equipment,
net.......................... $2,978 $3,866
======== ========
Accounts payable and accrued expenses as of December 31, 1995 and 1996, consist
of the following (in thousands):
1995 1996
------ ------
Accounts payable.............................. $122 $578
Accrued compensation and
benefits.................................... 111 135
Other accrued liabilities..................... 15 16
------ ------
$248 $729
====== ======
4. DEBT:
Long-term debt as of December 31, 1995 and 1996, consists of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Note payable to a bank, bearing interest at 8.5% and monthly payments of $12
through maturity in October 2002. Secured by substantially all assets of the
Company and personally guaranteed by the stockholders............................. $ 737 $ 655
Note payable to a bank, bearing interest at 7.8% and monthly payments of $17
through October 2000. Thereafter, note bears interest at a rate equal to the
five-year treasury yield plus 1.9% or prime, as selected by the Company, through
maturity in October 2005. Secured by land, building, improvements and personal
property of the Company and personally guaranteed by the stockholders. ........... 2,018 1,975
Note payable to a bank, bearing interest at prime minus .25% (8.0% at December
31, 1996), payable in monthly principal payments of $20 through May 2001. Secured
by furniture, fixtures and equipment of the Company and personally guaranteed by
the stockholders.................................................................. -- 981
Other notes......................................................................... 17 --
-------- --------
2,772 3,611
Less-Current maturities............................................................. (128) (375)
-------- --------
$2,644 $3,236
======== ========
</TABLE>
F-36
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Future maturities of long-term obligations as of December 31, 1996, are as
follows (in thousands):
Year ending December 31,
1997 ................................... $ 375
1998 ................................... 387
1999 ................................... 400
2000 ................................... 414
2001 ................................... 210
Thereafter ............................. 1,825
------
$3,611
======
Since October 1995, the Company has had a line of credit available in the amount
of $500,000, with a stated interest rate of prime, as defined, secured by the
Company's receivables and payable on demand. As of December 31, 1996, the
Company had not drawn any funds under this credit arrangement. The credit
facility expires June 30, 1997.
5. RELATED-PARTY TRANSACTIONS:
During 1994 and 1995, the Company leased office space from an affiliate,
pursuant to an oral agreement on a month to month basis for rent plus the
payment of operating expenses and property taxes. Total rents for 1994 and 1995
were approximately $155,000 and $79,000, respectively. The oral agreement was
terminated on December 31, 1995.
The Company employs a small number of individuals related to the stockholders at
wages commensurate with their experience and level of responsibility.
6. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is involved in various legal actions arising in the ordinary course
of business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general and
business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statements.
401(K) PLAN
The Company adopted a defined contribution 401(k) savings and retirement plan
effective August 1, 1994. Employees are eligible to participate after completing
one year of service and attaining age 21. Participants may contribute 1% to 15%
of their gross compensation subject to certain limitations. The Company may make
discretionary contributions as a percentage of each participant's elective
deferral. During 1995, the Company made discretionary contributions of $50,000.
No contributions were made by the Company during 1994 or 1996.
F-37
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
7. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments," and SFAS
No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," require the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. The carrying
value of the Company's financial instruments approximates fair value.
8. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
The Company and its stockholders have entered into a definitive agreement with
TSII providing for the acquisition of all of the assets and liabilities of the
Company by TSII.
F-38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 800-Ideas, Inc.:
We have audited the accompanying balance sheets of 800-Ideas, Inc. (a Nevada
corporation), as of December 31, 1995 and 1996, and the related statements of
income, changes in stockholder's equity and cash flows for each of the two years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 800-Ideas, Inc., as of December
31, 1995 and 1996, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 20, 1997
F-39
<PAGE>
800-IDEAS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996 MARCH 31, 1997
-------- -------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................. $ 527 $1,062 $ 970
Accounts receivable, net of allowance of $125......... 873 1,111 831
Prepaid expenses and other current assets............. 216 188 132
-------- -------- ---------------
Total current assets................................. 1,616 2,361 1,933
Furniture and equipment, net........................... 148 298 287
Other Assets........................................... 3 17 85
-------- -------- ---------------
Total assets......................................... $1,767 $2,676 $2,305
======== ======== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Capital lease obligations............................. $ 33 $ 24 $ 17
Accounts payable and accrued liabilities ............. 565 296 333
-------- -------- ---------------
Total current liabilities............................ 598 320 350
Long-Term Debt, net of current maturities.............. 24 -- --
Stockholder's Equity: .................................
Common stock, no par value; 1,000 shares authorized
and outstanding...................................... 71 71 71
Retained earnings..................................... 1,074 2,285 1,884
-------- -------- ---------------
Total stockholder's equity........................... 1,145 2,356 1,955
-------- -------- ---------------
Total liabilities and stockholder's equity........... $1,767 $2,676 $2,305
======== ======== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
800-IDEAS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------- -----------------
1995 1996 1996 1997
-------- -------- -------- --------
(UNAUDITED)
Net revenues..................... $5,930 $7,645 $1,649 $2,108
Operating expenses............... 3,767 5,001 1,021 1,316
-------- -------- -------- --------
Gross profit.................... 2,163 2,644 628 792
General and administrative
expenses......................... 1,107 1,315 221 296
-------- -------- -------- --------
Income from operations.......... 1,056 1,329 407 496
Other income, net................ 15 51 4 2
-------- -------- -------- --------
Net income....................... $1,071 $1,380 $ 411 $ 498
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
800-IDEAS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
-------- -------- ---------- --------
Balance, December 31, 1994........ 1,000 $ 71 $ 177 $ 248
Net income....................... -- -- 1,071 1,071
Distributions.................... -- -- (174) (174)
-------- -------- ---------- --------
Balance, December 31, 1995........ 1,000 71 1,074 1,145
Net income....................... -- -- 1,380 1,380
Distributions.................... -- -- (169) (169)
-------- -------- ---------- --------
Balance, December 31, 1996........ 1,000 $ 71 $2,285 $2,356
-------- -------- ---------- --------
Net income (unaudited)........... -- -- 498 498
Distributions (unaudited)........ -- -- (899) (899)
Balance, March 31, 1997
(unaudited)...................... 1,000 $ 71 $1,884 $1,955
======== ========== ========
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
800-IDEAS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------- ---------------
1995 1996 1996 1997
-------- -------- ------- -------
(UNAUDITED)
Cash flows from operating activities :
Net income................................. $1,071 $1,380 $ 411 $ 498
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization............. 67 99 26 25
Changes in operating assets and
liabilities-
Accounts receivable...................... (722) (239) (119) 281
Prepaid expenses and other current
assets.................................. (184) 27 75 44
Other assets............................. (3) (14) (8) (57)
Accounts payable and accrued liabilities 439 (277) (281) 30
-------- -------- ------- -------
Net cash provided by operating
activities............................. 668 976 104 821
Cash flows from investing activities:
Purchase of furniture and equipment........ (25) (248) (185) (14)
-------- -------- ------- -------
Net cash used in investing activities... (25) (248) (185) (14)
Cash flows from financing activities:
Proceeds from debt......................... -- -- 39 --
Payments on capital lease obligations...... (117) (24) -- --
Distributions to stockholder............... (174) (169) (148) (899)
-------- -------- ------- -------
Net cash used in financing activities... (291) (193) (109) (899)
-------- -------- ------- -------
Net increase in cash and cash equivalents . 352 535 (190) (92)
Cash and cash equivalents, beginning of
year....................................... 175 527 527 1,062
-------- -------- ------- -------
Cash and cash equivalents, end of year ..... $ 527 $1,062 $ 337 $ 970
======== ======== ======= =======
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
800-Ideas, Inc. (the Company), a Nevada corporation, which operates under the
trade name "Travel 800", is a specialized distributor of domestic airline
reservations. The Company's operations are seasonal with a peak during the
second and third quarters of the year.
The Company and its stockholder intend to enter into a definitive agreement with
Travel Services International, Inc. (TSII), pursuant to which all of the
operating assets and related liabilities of the Company related to its travel
services (substantially all of the assets and liabilities of the Company) will
be contributed to a subsidiary limited liability corporation. The subsidiary
entity's member interest will subsequently be exchanged for cash and shares of
TSII common stock concurrent with the consummation of the initial public
offering (the Offering) of the common stock of TSII.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1997, and for the three months
ended March 31, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost, and depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Equipment under capital lease is amortized over the shorter of the life of the
related asset or the life of the lease.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of furniture and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of income.
INCOME TAXES
The Company has elected S Corporation status as defined by the Internal Revenue
Code, whereby the Company is not subject to taxation for federal purposes. Under
S Corporation status, the stockholder reports the Company's taxable earnings or
losses in her personal tax return.
REVENUE RECOGNITION
The Company recognizes net revenue when earned, which is at the time the
reservation is booked and ticketed. Net revenues primarily include commissions
on travel services, volume bonuses, ticket processing fees and delivery fees.
The Company provides a reserve for cancellations, reservation changes and lost
ticket charges, and provisions for such amounts are reflected in net revenues.
F-44
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
OPERATING EXPENSES
Operating expenses include travel agent commissions, salaries, communication,
advertising, credit card fees and other costs associated with selling and
processing air travel reservations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARD
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that
facts and circumstances indicate that property and equipment and intangible or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value is necessary. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
CONCENTRATIONS OF RISK
TRAVEL SERVICE PROVIDERS--The Company primarily markets and sells the services
of various United States domestic airlines. Two airlines accounted for 34% and
12%, respectively, of net revenues in 1995 and 25% and 11%, respectively, of net
revenues in 1996.
CREDIT--Substantially all of the tickets sold by the Company and the related
processing and delivery fees are paid for by credit card; the cost of the
airline ticket is billed directly to the customer by Airline Reporting
Corporation (ARC), and the Company's net commission is subsequently remitted by
the ARC. Generally, credit card payments are processed and collection is assured
prior to the final delivery of the airline ticket to the customer.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Furniture and equipment as of December 31, 1996, consist of the following (in
thousands):
ESTIMATED
USEFUL LIVES
IN YEARS 1996
-------------- -------
Computer and office equipment................. 5 $ 564
Furniture and fixtures........................ 7 79
Leasehold improvements........................ 7 19
-------
662
Less-Accumulated depreciation and
amortization.................................. (364)
-------
Furniture and equipment, net................. $ 298
=======
F-45
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
DECEMBER 31,
-------------
1995 1996
------ ------
Balance at beginning of year.................... $125 $ 125
Additions charged to expense.................... 42 --
Deduction for uncollectible receivables written
off and recoveries........................... (42) --
------ ------
$125 $ 125
====== ======
Accounts payable and accrued expenses as of December 31, 1996, consist of the
following (in thousands):
Accounts payable.............................. $ 32
Accrued compensation and benefits............. 264
------
$296
======
4. LEASES:
CAPITAL LEASES
The Company leases hardware and software under noncancelable capital leases
which expire in October 1997 at which time there is a combined bargain purchase
option of $1. Minimum payments under these leases for the year ending December
31, 1997, total approximately $27,000.
OPERATING LEASE AGREEMENTS
The Company conducts a portion of its operations in a leased facility classified
as an operating lease. Minimum future rental payments under the noncancelable
operating lease as of December 31, 1996, are as follows (in thousands):
Year ending December 31,
1997......................................... $143
1998......................................... 41
------
$184
======
The lease provides for the payment of taxes and other expenses by the Company.
Rent expense for the operating lease was approximately $122,000 and $149,000 in
1995 and 1996, respectively.
F-46
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
5. RELATED-PARTY TRANSACTIONS:
The Company has entered into a custom Network Service Arrangement ("CSNA") with
Sprint Communications Company L.P. for long distance telephone service which
provides for a minimum monthly commitment of $120,000 and certain minimum
monthly usages. This agreement will not be transferred to TSII as part of the
Offering. The Company has agreed to provide long distance telephone services
under the CSNA to TSII for a period of four to six months subsequent to the
Offering and TSII has agreed to pay for its portion of usage under the CNSA.
6. COMMITMENTS AND CONTINGENCIES:
INSURANCE
The Company carries a broad range of insurance coverage, including general and
business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statements.
SERVICE CONTRACT
On October 3, 1995, the Company entered into a five-year service contract for
the use of an automated reservations system. According to the contract, the
Company must pay a monthly rental fee of approximately $42,000, unless waived
based upon a minimum monthly volume of reservation transactions. Historically,
the Company has met this requirement, and the monthly rental fee has been
waived.
Under this service contract, the Company receives volume bonuses based on the
number of flown segments sold by the Company. During 1995 and 1996, the Company
received volume bonuses totaling approximately $881,000 and $901,000,
respectively.
7. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments," and SFAS
No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," require the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. The carrying
value of the Company's financial instruments approximates fair value.
8. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
The Company and its stockholder have entered into a definitive agreement with
TSII, providing for the acquisition of substantially all of the assets and
liabilities of the Company by TSII.
In connection with the Offering, certain non-operating assets with a net book
value of $25,000 will be retained by the stockholders. Had this transaction been
recorded at March 31, 1997, the effect on the accompanying balance sheet would
be a decrease in assets and a decrease in stockholders' equity of $25,000.
F-47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cruises Inc.:
We have audited the accompanying balance sheet of Cruises Inc. (a New York
corporation), as of December 31, 1996, and the related statements of income,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cruises Inc., as of December
31, 1996, the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 30, 1997
F-48
<PAGE>
CRUISES INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------- -----------
1996 1997
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 937 $1,611
Receivables from cruise lines............................... 419 87
Prepaid expenses and other current assets................... 206 337
------------- -----------
Total current assets....................................... 1,562 2,035
Property and equipment, net.................................. 293 286
Other assets................................................. 34 31
------------- -----------
Total assets............................................... $1,889 $2,352
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........................ $ 15 $ 17
Accounts payable and accrued liabilities.................... 624 622
Customer deposits and deferred income....................... 375 716
------------- -----------
Total current liabilities.................................. 1,014 1,355
Deferred income taxes........................................ 22 22
Long-term debt, net of current maturities.................... 44 39
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 200 shares authorized; 100
shares outstanding......................................... -- --
Retained earnings........................................... 809 936
------------- -----------
809 936
------------- -----------
Total liabilities and stockholders' equity................. $1,889 $2,352
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
CRUISES INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------- -----------------
1996 1996 1997
-------------- -------- --------
(UNAUDITED)
Net revenues...................... $6,494 $1,492 $1,714
Operating expenses................ 4,140 1,080 1,034
-------------- -------- --------
Gross profit..................... 2,354 412 680
General and administrative
expenses.......................... 1,708 387 474
-------------- -------- --------
Income from operations........... 646 25 206
Interest income, net.............. 16 2 3
Other income (expense) net........ (4) (2) 2
-------------- -------- --------
Income before taxes............... 658 25 211
Income tax provision.............. 263 10 84
-------------- -------- --------
Net income........................ $ 395 $ 15 $ 127
============== ======== ========
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
CRUISES INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
RETAINED
SHARES EARNINGS
-------- ----------
Balance, December 31, 1995........ 100 $414
Net income....................... -- 395
-------- ----------
Balance, December 31, 1996........ 100 $809
Net income (unaudited)........... -- 127
Balance, March 31, 1997
(unaudited)....................... 100 $936
======== ==========
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
CRUISES INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------- ---------------
1996 1996 1997
-------------- ------ --------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 395 $ 15 $ 127
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation.................................... 83 17 21
Changes in operating assets and liabilities--
Receivables from cruise lines.................. (248) 35 332
Prepaid expenses and other current assets...... 92 22 (131)
Other assets................................... 28 39 3
Accounts payable and accrued liabilities....... 130 (8) (2)
Customer deposits and deferred income.......... 112 327 341
Other current liabilities...................... (4) (4) --
Net cash provided by operating activities.... 588 443 691
-------------- ------ --------
Cash flows from investing activities:
Purchase of property and equipment and
capitalized interest............................ (167) (51) (14)
-------------- ------ --------
Net cash used in investing activities........ (167) (51) (14)
-------------- ------ --------
Cash flows from financing activities:
Payments on long-term debt....................... (46) (32) (3)
-------------- ------ --------
Net cash used in financing activities........ (46) (32) (3)
-------------- ------ --------
Net increase in cash and cash equivalents ........ 375 360 674
Cash and cash equivalents, beginning of year ..... 562 562 937
-------------- ------ --------
Cash and cash equivalents, end of year............ $ 937 $922 $1,611
============== ====== ========
Supplemental disclosure of cash flow information:
Cash paid for interest........................... $ 2 $ 3 $ 1
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
CRUISES INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Cruises Inc. (the Company), a New York corporation, is a specialized distributor
of reservations for cruise vacations to travelers located throughout the United
States. It offers cruises to its clients on over 25 cruise lines traveling to
the Caribbean and other destinations around the world.
The Company and its stockholders have entered into a definitive agreement with
Travel Services International, Inc. (TSII), pursuant to which all outstanding
stock of the Company will be exchanged for cash and shares of TSII common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of TSII.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1997, and for the three months
ended March 31, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, including the net amount of interest
cost associated with significant capital additions. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the life of the related
asset or life of the lease.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of income.
CUSTOMER DEPOSITS AND DEFERRED INCOME
Customer deposits represent the cost of cruises for cash sales which have not
yet been remitted to the cruise lines. Deferred income generally includes
commissions collected more than 60 days prior to the sail date.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax assets and liabilities for expected future
tax consequences of events that have been recognized in the financial statements
or tax returns. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statement carrying
amounts and the tax bases of assets and liabilities using enacted tax rates and
laws in effect in the years in which the differences are expected to reverse.
F-53
<PAGE>
CRUISES INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
REVENUE RECOGNITION
The Company recognizes revenue when the customer is no longer entitled to a full
refund of the cost of the cruise, which is generally 45 to 90 days prior to the
sail date. Net revenues primarily consist of commissions and year-end volume
bonuses from cruise lines.
OPERATING EXPENSES
Operating expenses include sales persons' commissions, salaries, communication,
advertising, credit card fees and other costs associated with the selling and
processing of cruise reservations.
ADVERTISING COSTS
All advertising and promotion costs are expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARD
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Accordingly, in the event that facts and circumstances indicate that property
and equipment and intangible or other assets may be impaired, an evaluation of
recoverabililty would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if a write-down to market value is
necessary. Adoption of this standard did not have a material effect on the
financial position or results of operations of the Company.
CONCENTRATIONS OF RISK
CRUISE LINES -- Net revenues from the sales of cruises on behalf of two cruise
lines represented approximately 27% and 17%, respectively, of net revenues in
1996.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment as of December 31, 1996, consist of the following (in
thousands):
ESTIMATED
USEFUL LIVES
IN YEARS 1996
--------------- --------
Leasehold improvements................ 7 $ 10
Office equipment...................... 5-7 454
Furniture and fixtures................ 7 99
--------
563
Less-Accumulated depreciation......... (270)
--------
Property and equipment, net......... $ 293
========
F-54
<PAGE>
CRUISES INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Accounts payable and accrued expenses as of December 31, 1996, consist of the
following (in thousands):
Accounts payable............................. $106
Accrued compensation and benefits............ 508
Other accrued expenses....................... 159
-------
$773
=======
4. INCOME TAXES:
The income tax expense consisted of the following components for the year ended
December 31, 1996 (in thousands):
Current..................................... $228
Deferred.................................... 35
-------
Total income tax expense.................... $263
=======
For the year ended December 31, 1996, the primary difference between the
Company's effective tax rate and the statutory rate is due to state income
taxes.
Deferred tax assets and liabilities include the following as of December 31,
1996 (in thousands):
CURRENT NONCURRENT TOTAL
--------- ------------ -------
Tax assets-
Accrued expenses................. $ 178 $ -- $ 178
--------- ------------ -------
Tax liability-
Accounts receivable.............. (149) -- (149)
Depreciation and amortization.... -- (22) (22)
--------- ------------ -------
Net deferred tax asset
(liability)...................... 29 (22) 7
Less-Valuation allowance.......... -- -- --
--------- ------------ -------
$ 29 $ (22) $ 7
========= ============ =======
5. DEBT:
Long-term debt as of December 31, 1996, consists of the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Note payable to a bank, bearing interest at the bank's base rate plus 1% (9.25%
at December 31, 1996) and monthly payments of $2 through maturity in May 2000.
Secured by certain of the assets of the Company .................................. $ 59
Less-Current maturities........................................................... (15)
------
$ 44
======
</TABLE>
Future maturities of long-term obligations as of December 31, 1996, are as
follows (in thousands):
Year ending December 31,
1997........................................ $15
1998........................................ 17
1999........................................ 18
2000........................................ 9
-----
$59
=====
F-55
<PAGE>
CRUISES INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
The Company has a bank line-of-credit agreement with a $100,000 credit line.
Borrowings on the line of credit bear interest at the bank's base rate plus 1%
(9.25% at December 31, 1996) and are personally guaranteed by certain
stockholders. There were no borrowings outstanding on the line of credit as of
December 31, 1996.
6. RELATED-PARTY TRANSACTIONS:
Since 1990, Cruises Inc. has leased office space from Pioneer Park I Company
("Pioneer") pursuant to a lease dated August 9, 1990, as subsequently amended
and supplemented. One of the principals of Pioneer is Michael Falcone, the
brother of Robert Falcone. The annual rent paid by Cruises Inc. to Pioneer was
$190,636 and $191,367 in 1995 and 1996, respectively. The lease terminates on
February 28, 2006.
The Company employs a small number of individuals related to the stockholders at
wages commensurate with their experience and level of responsibility.
7. COMMITMENTS AND CONTINGENCIES:
INSURANCE
The Company carries a broad range of insurance coverage, including general and
business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statements.
401(K) PLAN
The Company adopted a defined contribution 401(k) savings and retirement plan
effective January 1, 1994. Employees are eligible to participate after
completing one year of service and attaining age 21. Participants may contribute
1% to 20% of their gross compensation. The Company matches 25%, to a maximum of
4% of an employee's gross compensation. Employees vest in the Company's
contribution over a five-year period. During 1996, the Company made
contributions of approximately $7,000.
OPERATING LEASES
The Company leases a building under an operating lease agreement expiring in
February 2006. Additionally, the Company leases office equipment under various
operating lease agreements expiring between 1997 and 2001.
Minimum future lease payments under noncancelable operating leases having
remaining terms in excess of one year as of December 31, 1996, are summarized as
follows:
Year ending December 31,
1997............................ $ 234,978
1998............................ 215,432
1999............................ 211,943
2000............................ 180,008
2001............................ 168,315
Thereafter...................... 701,312
------------
$1,711,988
============
F-56
<PAGE>
CRUISES INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
8. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments," and SFAS
No. 119, "Disclosures About Derivative Financial Instruments and Fair Value of
Financial Instruments," require the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. The carrying
value of the Company's financial instruments approximates fair value.
F-57
<PAGE>
================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create implication that
there has been no change in the affairs of the Company or that the information
contained herein is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
------
Prospectus Summary ............ 3
Risk Factors................... 9
The Company.................... 14
Use of Proceeds................ 16
Dividend Policy................ 16
Capitalization................. 17
Dilution....................... 18
Selected Financial Data........ 19
Management's Discussion and
Analysis of Financial
Condition
and Results of Operations ..... 21
Business....................... 30
Management..................... 38
Certain Transactions........... 44
Principal Stockholders......... 47
Description of Capital Stock .. 48
Shares Eligible for Future
Sale........................... 49
Underwriting................... 51
Legal Matters.................. 52
Experts........................ 52
Additional Information......... 53
Index to Financial Statements . F-1
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
<PAGE>
================================================================================
2,500,000 SHARES
TRAVEL SERVICES
INTERNATIONAL, INC.
COMMON STOCK
PROSPECTUS
MONTGOMERY SECURITIES
FURMAN SELZ
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
SEC Registration Fee................................... $ 11,326
NASD Filing Fee........................................ 3,950
Nasdaq National Market Listing Fee..................... 38,660
Accounting Fees and Expenses .......................... 1,200,000
Legal Fees and Expenses................................ 800,000
Printing Expenses...................................... 300,000
Transfer Agent's Fees.................................. 3,500
Miscellaneous.......................................... 142,564
-------------
Total................................................. $2,500,000
=============
- ----------
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of the State of
Delaware (the "DGCL") empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been made to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section 145
in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided for by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers the
corporation to purchase and maintain insurance on
II-1
<PAGE>
behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director: (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from
which the director derived an improper personal benefit.
Article Seventh of the Company's Certificate of Incorporation, as amended,
states that:
"No director shall be liable to the corporation or any of its stockholders
for monetary damages for breach of fiduciary duty as a director, except with
respect to: (1) a breach of the director's duty of loyalty to the corporation or
its stockholders; (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) liability under
Section 174 of the DGCL; or (4) a transaction from which the director derived an
improper personal benefit, it being the intention of the foregoing provision to
eliminate the liability of the corporation's directors to the corporation or its
stockholders to the fullest extent permitted by Section 102(b)(7) of the DGCL,
as amended from time to time. The corporation shall indemnify to the fullest
extent permitted by Sections 102(b)(7) and 145 of the DGCL, as amended from time
to time, each person that such Sections grant the corporation the power to
indemnify."
In addition, Article VII of the Company's Bylaws further provides that the
Company shall indemnify its officers, directors, advisory directors and
employees to the fullest extent permitted by law.
The Company intends to enter into indemnification agreements with each of its
executive officers, advisory directors and directors which indemnifies such
person to the fullest extent permitted by its Amended and Restated Certificate
of Incorporation, its Bylaws and the DGCL. The Company also intends to obtain
directors and officers liability insurance.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under certain
conditions, the Company against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information concerning all sales of securities by
the Company during the past three years that were not registered under the
Securities Act.
(a) TSII was organized in April 1996 and issued 100 and 200 shares of its
Common Stock to its Founders, Capstone Partners LLC and Alpine Consolidated,
LLC, respectively, at a per share price of $.01. The offer and sale of these
shares was exempt from registration under the Securities Act of 1933 in reliance
on Section 4(2) thereof because the offers and sales were made to sophisticated
investors who had access to information about TSII and were able to bear the
risk of loss of their investment. On May 14, 1997, the number of these shares
were increased by a 5,444.45 to one stock split.
(b) During the first quarter of 1997, 851,166 shares of Common Stock were
issued to persons who will become officers, directors, key employees, or holders
of more than 5% of the stock of the Company at a per share price of $.01. The
offers and sales of these shares were exempt from registration under the
Securities Act of 1933 in reliance on Section 4(2) thereof because the offers
and sales were made to sophisticated investors or executive officers or
directors of the Company who had access to the information about the Company and
were able to bear the risk of loss of their investment.
Although the issuances of Common Stock to senior executives and to former
stockholders of the Founding Companies may be integrated among themselves, in
reliance on the safe harbor provided by Rule 152 under the Securities Act of
1933 for transactions not involving any public offering even if the issuer
subsequently files a registration statement, such Common Stock should not be
integrated with the issuance of Common Stock in the registered public offering.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits Exhibit
EXHIBIT
- ----------
1.1 -- Form of Underwriting Agreement.
**2.1 -- Agreement and Plan of Organization, dated as of May 9, 1997,
among Travel Services International, Inc., Auto-Europe, Inc.
(Maine), Imad Khalidi, Alex Cecil and Wilfred Diller, as
trustee for Thurston Cecil and Lila Cecil.
**2.2 -- Agreement and Plan of Organization, dated as of May 9, 1997,
among Travel Services International, Inc., Cruises Only, Inc.,
Wayne Heller and Judy Heller.
**2.3 -- Agreement and Plan of Organization, dated as of May 9, 1997,
among Travel Services International, Inc., 800-Ideas, Inc. and
Susan Parker.
**2.4 -- Agreement and Plan of Organization, dated as of May 9, 1997,
among Travel Services International, Inc., Cruises, Inc.,
Robert G. Falcone, Judith A. Falcone and Pamela C. Cole.
**2.5 -- Agreement and Plan of Organization, dated as of May 9, 1997,
among Travel Services International, Inc., D-FW Tours, Inc.,
D-FW Travel Arrangements, Inc., John W. Przywara and Sharon S.
Przywara.
2.6 -- First Amendment to Agreement and Plan of Merger, dated as of
June 30, 1997, by and among Travel Services International,
Inc., Auto-Europe, Inc. (Maine), Imad Khalidi Alex Cecil and
Wilfred Diller, as trustee for Thurston Cecil and Lila Cecil.
2.7 -- First Amendment to Agreement and Plan of Merger, dated as of
June 30, 1997, by and among Travel Services International,
Inc., Cruises, Inc., Robert G. Falcone, Judith A. Falcone, and
Pamela C. Cole.
2.8 -- First Amendment to Agreement and Plan of Merger, dated as of
June 30, 1997, by and among Travel Services International,
Inc., Cruises Only, Inc., Wayne Heller and Judy Heller.
2.9 -- First Amendment to Agreement and Plan of Merger, dated as of
June 30, 1997, by and among Travel Services International,
Inc., D-FW Travel Arrangements, Inc., John W. Przywara and
Sharon Scott Przywara.
2.10 -- First Amendment to Agreement and Plan of Merger, dated as of
June 30, 1997, by and among Travel Services International,
Inc., 800-Ideas, Inc. and Susan Parker.
**3.1 -- Certificate of Incorporation, as amended.
**3.2 -- Amended and Restated Certificate of Incorporation.
**3.3 -- Bylaws.
4.1 -- Specimen Common Stock Certificate.
***4.2 -- Form of Registration Rights Agreement, dated as of .
5.1 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to the
legality of the securities being registered.
***10.1 -- Form of Employment and Non-Competition Agreement dated May ,
1997, between Travel Services International, Inc. and Joseph
Vittoria.
-- Form of Employment and Non-Competition Agreement dated May ,
1997, between Travel Services International, Inc. and Jill M.
Vales.
-- Form of Employment and Non-Competition Agreement dated May ,
1997, between Travel Services International, Inc. and Michael
J. Moriarty.
-- Form of Employment and Non-Competition Agreement dated May ,
1997, between Travel Services International, Inc. and Mel
Robinson.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Auto Europe,
LLC and Imad Khalidi.
II-3
<PAGE>
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Auto
Europe, LLC and Alex Cecil.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Cruises, Inc.
and Robert Falcone.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Cruises, Inc.
and Judith Falcone.
-- Form of Employment and Non-Competition Agreement dated ,
1997, between Travel Services International, Inc., Cruises,
Inc. and Holley Christen.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Cruises
Only, LLC and Wayne Heller.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Cruises Only,
LLC and Judy Heller.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., D-FW Tours,
Inc. and John Przywara.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Travel 800,
LLC and Susan Parker.
***10.2 -- Form of Officer and Director Indemnification Agreement.
**10.3 -- Form of 1997 Long-Term Incentive Plan.
**10.4 -- Form of 1997 Non-Employee Directors' Stock Plan.
***10.5 -- Note from TSGI Funding, LLC to TSII.
10.6 -- Form of Employment and Non-Competition Agreement dated ,
1997, between Travel Services International, Inc., and Suzanne
B. Bell.
10.7 -- Form of Employment and Non-Competition Agreement dated ,
1997, between Travel Services International, Inc. and MaryAnn
Bastnagel.
23. -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included
in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
*23.3 -- Consent of Fulbright & Jaworski L.L.P. pursuant to Rule 438.
**23.4 -- Consents to Become Directors.
***23.5 -- Consent to Become Advisory Director.
**24.1 -- Powers of Attorney (included in signature page).
27 -- Financial Data Schedule.
* To be filed by amendment. All other exhibits are filed herewith.
** Previously filed on May 14, 1997.
*** Previously filed on June 19, 1997.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That for the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State of
New York, on the 30th day of June, 1997.
TRAVEL SERVICES INTERNATIONAL, INC.
By: /s/ ELAN J. BLUTINGER
-------------------------------
Elan J. Blutinger
President
Pursuant to the requirements of the Securities Act, this amendment to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
TRAVEL SERVICES INTERNATIONAL, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ---------------------------- ----------------
<S> <C> <C>
/s/ ELAN J. BLUTINGER President, Director June 30, 1997
- ------------------------------------
Elan J. Blutinger
(Principal Executive Officer)
* Vice President, Director June 30, 1997
- ------------------------------------
D. Fraser Bullock
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
* By: /s/ LEONARD A. POTTER
------------------------------------
Attorney-in-fact (as previously filed)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ---------- ---- ------------------------------------------------------------------------------- --------------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement.
**2.1 -- Agreement and Plan of Organization, dated as of May 9, 1997,
among Travel Services International, Inc., Auto-Europe, Inc.
(Maine), Imad Khalidi, Alex Cecil and Wilfred Diller, as
trustee for Thurston Cecil and Lila Cecil.
**2.2 -- Agreement and Plan of Organization, dated as of May 9, 1997,
among Travel Services International, Inc., Cruises Only, Inc.,
Wayne Heller and Judy Heller.
**2.3 -- Agreement and Plan of Organization, dated as of May 9, 1997,
among Travel Services International, Inc., 800-Ideas, Inc. and
Susan Parker.
**2.4 -- Agreement and Plan of Organization, dated as of May 9, 1997,
among Travel Services International, Inc., Cruises, Inc.,
Robert G. Falcone, Judith A. Falcone and Pamela C. Cole.
**2.5 -- Agreement and Plan of Organization, dated as of May 9, 1997,
among Travel Services International, Inc., D-FW Tours, Inc.,
D-FW Travel Arrangements, Inc., John W. Przywara and Sharon S.
Przywara.
2.6 -- First Amendment to Agreement and Plan of Merger, dated as of
June 30, 1997, by and among Travel Services International,
Inc., Auto-Europe, Inc. (Maine), Imad Khalidi Alex Cecil and
Wilfred Diller, as trustee for Thurston Cecil and Lila Cecil.
2.7 -- First Amendment to Agreement and Plan of Merger, dated as of
June 30, 1997, by and among Travel Services International,
Inc., Cruises, Inc., Robert G. Falcone, Judith A. Falcone, and
Pamela C. Cole.
2.8 -- First Amendment to Agreement and Plan of Merger, dated as of
June 30, 1997, by and among Travel Services International,
Inc., Cruises Only, Inc., Wayne Heller and Judy Heller.
2.9 -- First Amendment to Agreement and Plan of Merger, dated as of
June 30, 1997, by and among Travel Services International,
Inc., D-FW Travel Arrangements, Inc., John W. Przywara and
Sharon Scott Przywara.
2.10 -- First Amendment to Agreement and Plan of Merger, dated as of
June 30, 1997, by and among Travel Services International,
Inc., 800-Ideas, Inc. and Susan Parker.
**3.1 -- Certificate of Incorporation, as amended.
**3.2 -- Amended and Restated Certificate of Incorporation.
**3.3 -- Bylaws.
4.1 -- Specimen Common Stock Certificate.
***4.2 -- Form of Registration Rights Agreement, dated as of .
5.1 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to the
legality of the securities being registered.
***10.1 -- Form of Employment and Non-Competition Agreement dated May ,
1997, between Travel Services International, Inc. and Joseph
Vittoria.
-- Form of Employment and Non-Competition Agreement dated May ,
1997, between Travel Services International, Inc. and Jill M.
Vales.
-- Form of Employment and Non-Competition Agreement dated May ,
1997, between Travel Services International, Inc. and Michael
J. Moriarty.
-- Form of Employment and Non-Competition Agreement dated May ,
1997, between Travel Services International, Inc. and Mel
Robinson.
<PAGE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ---------- ---- ------------------------------------------------------------------------------- --------------
<S> <C> <C> <C>
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Auto Europe,
LLC and Imad Khalidi.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Auto
Europe, LLC and Alex Cecil.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Cruises, Inc.
and Robert Falcone.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Cruises, Inc.
and Judith Falcone.
-- Form of Employment and Non-Competition Agreement dated ,
1997, between Travel Services International, Inc., Cruises,
Inc. and Holley Christen.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Cruises
Only, LLC and Wayne Heller.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Cruises Only,
LLC and Judy Heller.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., D-FW Tours,
Inc. and John Przywara.
-- Form of Employment and Non-Competition Agreement dated ,
1997, among Travel Services International, Inc., Travel 800,
LLC and Susan Parker.
***10.2 -- Form of Officer and Director Indemnification Agreement.
**10.3 -- Form of 1997 Long-Term Incentive Plan.
**10.4 -- Form of 1997 Non-Employee Directors' Stock Plan.
***10.5 -- Note from TSGI Funding, LLC to TSII.
10.6 -- Form of Employment and Non-Competition Agreement dated ,
1997, between Travel Services International, Inc., and Suzanne
B. Bell.
10.7 -- Form of Employment and Non-Competition Agreement dated ,
1997, between Travel Services International, Inc. and MaryAnn
Bastnagel.
23. -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included
in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
*23.3 -- Consent of Fulbright & Jaworski L.L.P. pursuant to Rule 438.
**23.4 -- Consents to Become Directors.
***23.5 -- Consent to Become Advisory Director.
**24.1 -- Powers of Attorney (included in signature page).
27 -- Financial Data Schedule.
</TABLE>
* To be filed by amendment. All other exhibits are filed herewith.
** Previously filed on May 14, 1997.
*** Previously filed on June 19, 1997.
Draft of June 27, 1997
2,500,000 SHARES
TRAVEL SERVICES INTERNATIONAL, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED _____________, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Section 1. Representations and Warranties of the Company................................. 2
Compliance with Registration Requirements................................... 2
Offering Materials Furnished to Underwriters................................ 3
Distribution of Offering Material By the Company............................ 3
The Underwriting Agreement.................................................. 3
Authorization of the Common Shares.......................................... 3
No Applicable Registration or Other Similar Rights.......................... 3
No Material Adverse Change.................................................. 4
Independent Accountants..................................................... 4
Preparation of the Financial Statements..................................... 4
Incorporation and Good Standing of the Company, its
Subsidiaries and the Founding Companies..................................... 5
Capitalization and Other Capital Stock Matters.............................. 6
Stock Exchange Listing...................................................... 6
Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required........................................ 6
No Material Actions or Proceedings.......................................... 7
Intellectual Property Rights................................................ 7
All Necessary Permits, etc.................................................. 7
Title to Properties......................................................... 8
Tax Law Compliance.......................................................... 8
Company Not an "Investment Company"......................................... 8
Insurance................................................................... 8
No Price Stabilization or Manipulation...................................... 9
Related Party Transactions.................................................. 9
No Unlawful Contributions or Other Payments................................. 9
Accounting Systems.......................................................... 9
Compliance with Environmental Laws.......................................... 9
ERISA Compliance............................................................ 10
Combination Agreements...................................................... 11
Representations in Combination Agreements................................... 11
Section 2. Purchase, Sale and Delivery of the Common Shares.............................. 11
The Firm Common Shares...................................................... 11
The First Closing Date...................................................... 11
The Optional Common Shares; the Second Closing Date......................... 12
Public Offering of the Common Shares........................................ 12
Payment for the Common Shares............................................... 12
Delivery of the Common Shares............................................... 13
Delivery of Prospectus to the Underwriters.................................. 13
i
<PAGE>
Section 3. Additional Covenants of the Company........................................... 13
Representatives' Review of Proposed Amendments and
Supplements.............................................................. 13
Securities Act Compliance................................................... 14
Amendments and Supplements to the Prospectus and Other
Securities Act Matters................................................... 14
Copies of any Amendments and Supplements to the
Prospectus............................................................... 14
Blue Sky Compliance......................................................... 14
Use of Proceeds............................................................. 15
Transfer Agent.............................................................. 15
Earnings Statement.......................................................... 15
Periodic Reporting Obligations.............................................. 15
Agreement Not To Offer or Sell Additional Securities........................ 15
Future Reports to the Representatives....................................... 16
Satisfaction of Founding Company Combination
Conditions............................................................... 16
Section 4. Payment of Expenses........................................................... 16
Section 5. Conditions of the Obligations of the Underwriters............................. 17
Accountants' Comfort Letter................................................... 17
Compliance with Registration Requirements; No Stop Order;
No Objection from NASD.................................................. 17
No Material Adverse Change.................................................. 18
Opinion of Counsel for the Company.......................................... 18
Opinion of Counsel for the Underwriters..................................... 18
Officers' Certificate....................................................... 18
Bring-down Comfort Letter................................................... 19
Combination Closings........................................................ 19
Combination Agreements...................................................... 20
Lock-Up Agreement from Certain Stockholders of the
Company.................................................................. 20
Termination of Profit-Sharing Agreements.................................... 20
Additional Documents........................................................ 20
Section 6. Reimbursement of Underwriters' Expenses....................................... 20
Section 7. Effectiveness of this Agreement............................................... 21
Section 8. Indemnification............................................................... 21
Indemnification of the Underwriters......................................... 21
Indemnification of the Company, its Directors and Officers.................. 22
Notifications and Other Indemnification Procedures.......................... 23
Settlements.............................................................. 24
ii
<PAGE>
Section 9. Contribution.................................................................. 24
Section 10. Default of One or More of the Several Underwriters............................ 26
Section 11. Termination of this Agreement................................................. 27
Section 12. Representations and Indemnities to Survive Delivery........................... 27
Section 13. Notices....................................................................... 27
Section 14. Successors.................................................................... 28
Section 15. Partial Unenforceability...................................................... 28
Section 16. Governing Law Provisions...................................................... 29
Consent to Jurisdiction..................................................... 29
Section 17. General Provisions............................................................ 29
</TABLE>
iii
<PAGE>
UNDERWRITING AGREEMENT
, 1997
MONTGOMERY SECURITIES
FURMAN SELZ LLC
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Travel Services International, Inc., a Delaware
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in Schedule A (the "Underwriters") an aggregate of 2,500,000
shares (the "Firm Common Shares") of its Common Stock, par value $.01 per share
(the "Common Stock"). In addition, the Company has granted to the Underwriters
an option to purchase up to an additional 375,000 shares (the "Optional Common
Shares") of Common Stock, as provided in Section 2. The Firm Common Shares and,
if and to the extent such option is exercised, the Optional Common Shares are
collectively called the "Common Shares". Montgomery Securities and Furman Selz
LLC have agreed to act as representatives of the several Underwriters (in such
capacity, the "Representatives") in connection with the offering and sale of the
Common Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-27125), which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement". Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Common Shares, is called the "Prospectus";
provided, however, if the Company has, with the consent of the Representatives,
elected to rely upon Rule 434 under the Securities Act,
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the term "Prospectus" shall mean the Company's prospectus subject to completion
(each, a "preliminary prospectus") dated ___________, 1997 (such preliminary
prospectus is called the "Rule 434 preliminary prospectus"), together with the
applicable term sheet (the "Term Sheet") prepared and filed by the Company with
the Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
Simultaneously with the closing of the purchase of the Firm
Common Shares by the Underwriters, the Company will acquire in separate
combination transactions (the "Combinations") all of the Common Stock and
ownership interests of the Founding Companies (as hereinafter defined)
(collectively, the "Founding Company Combinations"), the consideration for which
will be a combination of cash and shares of Common Stock as described in the
Registration Statement.
The Company hereby confirms its agreements with the
Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) Compliance with Registration Requirements. The
Registration Statement and any Rule 462(b) Registration Statement have been
declared effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the Commission
for additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the time it
became effective and at all subsequent times, complied and will comply in all
material respects with the Securities Act and did not and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
The
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Prospectus, as amended or supplemented, as of its date and at all subsequent
times, did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company
has delivered to the Representatives two complete manually signed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The
Company has not distributed and will not distribute, prior to the later of the
Second Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with the
offering and sale of the Common Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to
be purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There
are no persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or included
in the offering contemplated by this Agreement, except for such rights as have
been duly waived.
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(g) No Material Adverse Change. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings, business,
operations or prospects, whether or not arising from transactions in the
ordinary course of business, of the Company, its subsidiaries and Auto-Europe,
Inc. (Maine), Cruises Only, Inc., 800-Ideas, Inc., Cruises, Inc., D-FW Tours,
Inc. and D-FW Travel Arrangements, Inc. (collectively, the "Founding
Companies"), considered as one entity (any such change is called a "Material
Adverse Change"); (ii) the Company, its subsidiaries and the Founding Companies,
considered as one entity, have not incurred any material liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; (iii) there has been no adverse change with respect
to the goodwill and other intangible assets (collectively, the "Intangible
Assets") such that, as of the date hereof, the Intangible Assets, net of
accumulated amortization, do not have a value at least equal to the value
reflected in the combined financial statements of the Company and the Founding
Companies and no part of the Intangible Assets are required to be written down
in conformity with generally accepted accounting principles applied on a basis
consistent with prior periods; and (iv) except as disclosed in the Registration
Statement, there has been no dividend or distribution of any kind declared, paid
or made by the Company or any Founding Company or, except for dividends paid to
the Company or other subsidiaries, any of its subsidiaries on any class of
capital stock or repurchase or redemption by the Company, any of its
subsidiaries or any Founding Company of any class of capital stock.
(h) Independent Accountants. Arthur Anderson LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants with respect to the Company and each of the Founding Companies as
required by the Securities Act.
(i) Preparation of the Financial Statements. The financial
statements of the Company, the separate financial statements of each of the
Founding Companies and the combined financial statements of the Company and the
Founding Companies, in each case together with related notes and schedules,
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the financial position, results of operations
and cash flows of the Company, of each of such Founding Companies and of the
Company and the Founding Companies combined, respectively, at the dates
specified and for the periods specified. The supporting schedules included in
the Registration Statement present fairly the information required to be stated
therein. Such financial statements and supporting schedules have been prepared
in conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as may be expressly
stated in the related notes thereto, and all adjustments necessary for a fair
presentation of
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results for such period have been made. No other financial statements or
supporting schedules are required to be included in the Registration Statement.
The financial data set forth in the Prospectus under the captions "Prospectus
Summary--Summary Pro Forma Combined Financial Data" and "--Summary Individual
Founding Company Financial Data", "Capitalization" and "Selected Financial Data"
fairly present the information set forth therein on a basis consistent with that
of the audited and pro forma financial statements contained in the Registration
Statement and the books and records of the Company and the Founding Companies,
as applicable. The pro forma combined financial statements of the Company and
the Founding Companies together with the related notes thereto included under
the captions "Prospectus Summary-- Summary Pro Forma Combined Financial Data",
"Selected Financial Data," "Travel Services International, Inc. and Founding
Companies Unaudited Pro Forma Combined Financial Statements" and elsewhere in
the Prospectus and in the Registration Statement present fairly the information
contained therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements and have been
properly presented on the pro forma bases described therein, and the assumptions
used in the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions and circumstances referred to
therein.
(j) Incorporation and Good Standing of the Company, its
Subsidiaries and the Founding Companies. Each of the Company, its subsidiaries
and the Founding Companies has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation and has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and,
in the case of the Company, to enter into and perform its obligations under this
Agreement. Each of the Company, each subsidiary and each Founding Company is
duly qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except for such jurisdictions where the failure to so qualify or to be
in good standing would not, individually or in the aggregate, result in a
Material Adverse Change. All of the issued and outstanding capital stock of each
subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien, encumbrance or
claim. As of the First Closing Date (as hereinafter defined), after giving
effect to the Founding Company Combinations, all of the outstanding shares of
the capital stock of each of the Founding Companies will be owned by the Company
free and clear of any security interest, mortgage, pledge, lien, encumbrance or
claim; and no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in any of the Founding Companies are
outstanding. The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 21 to the Registration Statement.
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(k) Capitalization and Other Capital Stock Matters. The
authorized, issued and outstanding capital stock of the Company is as set forth
in the Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Stock (including the Common Shares) conforms in all
material respects to the description thereof contained in the Prospectus. All of
the issued and outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued in
compliance with federal and state securities laws. None of the outstanding
shares of Common Stock were issued in violation of any preemptive rights, rights
of first refusal or other similar rights to subscribe for or purchase securities
of the Company. Upon completion of the Founding Company Combinations in the
manner described in the Registration Statement, the shares of Common Stock of
the Company to be issued in such Combinations will be duly authorized, validly
issued and fully paid and non-assessable. There are no authorized or outstanding
options, warrants, preemptive rights, rights of first refusal or other rights to
purchase, or equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company or any of its subsidiaries
other than those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common Shares have been
approved for inclusion on the Nasdaq National Market, subject only to official
notice of issuance.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company or any of its
subsidiaries nor any of the Founding Companies is in violation of its charter or
by-laws or is in default (or, with the giving of notice or lapse of time, would
be in default) ("Default") under any indenture, mortgage, loan or credit
agreement, note, contract, franchise, lease or other instrument to which the
Company or any of its subsidiaries or any Founding Company is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any of its subsidiaries or any Founding Company is subject
(each, an "Existing Instrument"), except for such Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change. The
Company's execution, delivery and performance of this Agreement and consummation
of the transactions contemplated hereby and by the Prospectus (i) have been duly
authorized by all necessary corporate action and will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary or any Founding Company, (ii) will not conflict with or constitute a
breach of, or Default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries or any Founding Company pursuant to, or require the consent of
any other part to, any Existing Instrument, except for such conflicts, breaches,
Defaults, liens, charges or encumbrances as would not, individually
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or in the aggregate, result in a Material Adverse Change; and (iii) will not
result in any violation of any law, administrative regulation or administrative
or court decree applicable to the Company or any subsidiary or any Founding
Company unless the penalty for any such violations would not, individually or in
the aggregate, result in a Material Adverse Change. No consent, approval,
authorization or other order of, or registration or filing with, any court or
other governmental or regulatory authority or agency, is required for the
Company's execution, delivery and performance of this Agreement or any
Combination Agreement and consummation of the transactions contemplated hereby
or thereby and by the Prospectus, except such as have been obtained or made by
the Company and are in full force and effect under the Securities Act,
applicable state securities or blue sky laws and from the National Association
of Securities Dealers, Inc. (the "NASD").
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any of
its subsidiaries or any Founding Company, (ii) which has as the subject thereof
any officer or director of, or property owned or leased by, the Company or any
of its subsidiaries or any Founding Company or (iii) relating to environmental
or discrimination matters, where in any such case (A) there is a reasonable
possibility that such action, suit or proceeding might be determined adversely
to the Company or such subsidiary or such Founding Company and (B) any such
action, suit or proceeding, if so determined adversely, would reasonably be
expected to result in a Material Adverse Change or adversely affect the
consummation of the transactions contemplated by this Agreement. No material
labor dispute with the employees of the Company or any of its subsidiaries or
any Founding Company exists or, to the best of the Company's knowledge, is
threatened or imminent.
(o) Intellectual Property Rights. The Company, its
subsidiaries and the Founding Companies own or possess sufficient trademarks,
trade names, patent rights, copyrights, licenses, approvals, trade secrets and
other similar rights (collectively, "Intellectual Property Rights") reasonably
necessary to conduct their businesses as now conducted; and the expected
expiration of any of such Intellectual Property Rights would not result in a
Material Adverse Change. Neither the Company or any of its subsidiaries nor any
of the Founding Companies has received any notice of infringement or conflict
with asserted Intellectual Property Rights of others, which infringement or
conflict, if the subject of an unfavorable decision, would result in a Material
Adverse Change.
(p) All Necessary Permits, etc. The Company and each
subsidiary and each Founding Company possess such valid and current
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct their respective
businesses, and neither the Company or any subsidiary nor any of the Founding
Companies has received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such
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certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could result in a
Material Adverse Change.
(q) Title to Properties. The Company, each of its subsidiaries
and each Founding Company has good and marketable title to all the properties
and assets reflected as owned in the financial statements referred to in Section
1(i) above (or elsewhere in the Prospectus), in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the value of such
property and do not materially interfere with the use made or proposed to be
made of such property by the Company or such subsidiary or such Founding
Company. The real property, improvements, equipment and personal property held
under lease by the Company or any subsidiary or any Founding Company are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
such subsidiary or such Founding Company.
(r) Tax Law Compliance. The Company and its subsidiaries and
each of the Founding Companies have filed all necessary federal, state and
foreign income and franchise tax returns and have paid all taxes required to be
paid by any of them and, if due and payable, any related or similar assessment,
fine or penalty levied against any of them. The Company has made adequate
charges, accruals and reserves in the applicable financial statements referred
to in Section 1(i) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company,
any of its subsidiaries or any Founding Company has not been finally determined.
(s) Company Not an "Investment Company". The Company has been
advised of the rules and requirements under the Investment Company Act of 1940,
as amended (the "Investment Company Act"). The Company is not, and after receipt
of payment for the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act and will conduct its business in a manner so
that it will not become subject to the Investment Company Act.
(t) Insurance. Each of the Company and its subsidiaries and
the Founding Companies are insured by recognized, financially sound and
reputable institutions with policies in such amounts and with such deductibles
and covering such risks as are generally deemed adequate and customary for their
businesses including, but not limited to, policies covering real and personal
property owned or leased by the Company and its subsidiaries and the Founding
Companies against theft, damage, destruction, acts of vandalism and earthquakes.
The Company has no reason to believe that it or any subsidiary or any Founding
Company will not be able (i) to renew its existing insurance coverage as and
when such policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business as now
conducted and at a cost that would not result in a Material Adverse Change.
Neither of the Company or any subsidiary nor any Founding
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Company has been denied any insurance coverage which it has sought or for which
it has applied.
(u) No Price Stabilization or Manipulation. Neither the
Company, nor to the Company's best knowledge, any of its affiliates or any of
the Founding Companies or any of their affiliates, has taken or will take,
directly or indirectly, any action designed to or that might be reasonably
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Common Shares.
(v) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company, any
subsidiary, any Founding Company or any other person required to be described in
the Prospectus which have not been described as required.
(w) No Unlawful Contributions or Other Payments. Neither the
Company or any of its subsidiaries nor any Founding Company nor, to the best of
the Company's knowledge, any employee or agent of the Company or any subsidiary
or any Founding Company, has made any contribution or other payment to any
official of, or candidate for, any federal, state or foreign office in violation
of any law or of the character required to be disclosed in the Prospectus.
(x) Accounting Systems. The Company and each of the Founding
Companies maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles as applied in the United States and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(y) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company or any of its subsidiaries nor any Founding Company is in
violation of any federal, state, local or foreign law or regulation relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or wildlife, including without limitation, laws and regulations relating
to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum and petroleum products (collectively, "Materials of Environmental
Concern"), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environment Concern (collectively, "Environmental Laws"), which violation
includes, but is not limited to, noncompliance with any permits or other
governmental
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authorizations required for the operation of the business of the Company or its
subsidiaries or the Founding Companies under applicable Environmental Laws, or
noncompliance with the terms and conditions thereof, nor has the Company or any
of its subsidiaries or any Founding Company received any written communication,
whether from a governmental authority, citizens group, employee or otherwise,
that alleges that the Company or any of its subsidiaries or any Founding Company
is in violation of any Environmental Law; (ii) there is no claim, action or
cause of action filed with a court or governmental authority, no investigation
with respect to which the Company or any Founding Company has received written
notice, and no written notice by any person or entity alleging potential
liability for investigatory costs, cleanup costs, governmental responses costs,
natural resources damages, property damages, personal injuries, attorneys' fees
or penalties arising out of, based on or resulting from the presence, or release
into the environment, of any location owned, leased or operated by the Company
or any of its subsidiaries or any Founding Company, now or in the past
(collectively, "Environmental Claims"), pending or, to the best of the Company's
knowledge, threatened against the Company or any of its subsidiaries or any
Founding Company or any person or entity whose liability for any Environmental
Claim the Company or any of its subsidiaries or any Founding Company has
retained or assumed either contractually or by operation of law; and (iii) to
the best of the Company's knowledge, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that reasonably could result in a violation
of any Environmental Law or form the basis of a potential Environmental Claim
against the Company or any of its subsidiaries or any Founding Company or
against any person or entity whose liability for any Environmental Claim the
Company or any of its subsidiaries or any Founding Company has retained or
assumed either contractually or by operation of law.
(z) ERISA Compliance. The Company and each of the Founding
Companies and any "employee benefit plan" (as defined under the Employee
Retirement Income Security Act of 1974, as amended, and the regulations and
published interpretations thereunder (collectively, "ERISA")) established or
maintained by the Company, any Founding Company or their "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company or a Founding Company, any member
of any group of organizations described in Sections 414(b),(c),(m) or (o) of the
Internal Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such Founding
Company is a member. No "reportable event" (as defined under ERISA) has occurred
or is reasonably expected to occur with respect to any "employee benefit plan"
established or maintained by the Company, any Founding Company or any of their
ERISA Affiliates. No "employee benefit plan" established or maintained by the
Company, any Founding Company or any of their ERISA Affiliates, if such
"employee benefit plan" were terminated, would have any "amount of unfunded
benefit liabilities" (as defined under ERISA). Neither the Company, any Founding
Company nor any of their ERISA Affiliates has incurred or reasonably expects to
incur any liability under (i) Title IV of ERISA with respect to
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termination of, or withdrawal from, any "employee benefit plan" or (ii) Sections
412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan" established
or maintained by the Company, any Founding Company or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
(aa) Combination Agreements. The Company has entered into the
agreements (the "Combination Agreements"), set forth as Exhibits 2.1, 2.2, 2.3,
2.4 and 2.5 to the Registration Statement, pursuant to which the Company will
acquire in separate Combinations all of the common stock and ownership interests
of the Founding Companies. Each of the Combination Agreements is in full force
and effect, has been duly and validly authorized, executed and delivered by the
parties thereto, and is valid and binding on the parties thereto in accordance
with its terms and none of the parties thereto is in default in any respect
thereunder. A complete and correct copy of each Combination Agreement (including
exhibits and schedules) has been delivered to the Representatives and no changes
therein will be made subsequent hereto and prior to the Closing Date.
(ab) Representations in Combination Agreements. The representations and
warranties made in each Combination Agreement by the Company and by each
Founding Company and/or its stockholders are true and correct in all material
respects, except for such changes permitted or contemplated by such Combination
Agreement.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company shall be $___ per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representatives) at 6:00 a.m. San Francisco time, on ____________, 1997 or such
other time and date not later than
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10:30 a.m. San Francisco time, on ____________, 1997 as the Representatives
shall designate by notice to the Company (the time and date of such closing are
called the "First Closing Date"). The Company hereby acknowledges that
circumstances under which the Representatives may provide notice to postpone the
First Closing Date as originally scheduled include, but are in no way limited
to, any determination by the Company or the Representatives to recirculate to
the public copies of an amended or supplemented Prospectus or a delay as
contemplated by the provisions of Section 10.
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 375,000 Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
Public Offering of the Common Shares. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Common Shares as
soon after this Agreement has been executed and the Registration Statement has
been declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
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Payment for the Common Shares. Payment for the Common Shares shall be
made at the First Closing Date (and, if applicable, at the Second Closing Date)
by wire transfer of immediately available funds to the order of the Company.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. Montgomery Securities, individually and not as a Representatives of
the Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
Delivery of the Common Shares. The Company shall deliver, or cause to
be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Firm Common Shares at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall also
deliver, or cause to be delivered, to the Representatives for the accounts of
the several Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase at the First Closing Date or the Second
Closing Date, as the case may be, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The certificates for the Common Shares shall be in definitive form and
registered in such names and denominations as the Representatives shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Representatives may designate. Time shall be of the essence, and delivery at the
time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
on the second business day following the date the Common Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY. The Company further
covenants and agrees with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and
Supplements. During such period beginning on the date hereof and ending on the
later of the First Closing Date or such date, as in the opinion of counsel for
the Underwriters, the
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Prospectus is no longer required by law to be delivered in connection with sales
by an Underwriter or dealer (the "Prospectus Delivery Period"), prior to
amending or supplementing the Registration Statement (including any registration
statement filed under Rule 462(b) under the Securities Act) or the Prospectus,
the Company shall furnish to the Representatives for review a copy of each such
proposed amendment or supplement, and the Company shall not file any such
proposed amendment or supplement to which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this
Agreement, the Company shall promptly advise the Representatives in writing (i)
of the receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing of any
post-effective amendment to the Registration Statement or any amendment or
supplement to any preliminary prospectus or the Prospectus, (iii) of the time
and date that any post-effective amendment to the Registration Statement becomes
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any post-effective
amendment thereto or of any order preventing or suspending the use of any
preliminary prospectus or the Prospectus, or of any proceedings to remove,
suspend or terminate from listing or quotation the Common Stock from any
securities exchange upon which the it is listed for trading or included or
designated for quotation, or of the threatening or initiation of any proceedings
for any of such purposes. If the Commission shall enter any such stop order at
any time, the Company will use its best efforts to obtain the lifting of such
order at the earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b), 430A and 434, as applicable,
under the Securities Act and will use its reasonable efforts to confirm that any
filings made by the Company under such Rule 424(b) were received in a timely
manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any event
shall occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if in the reasonable opinion of the Representatives or counsel
for the Underwriters it is otherwise necessary to amend or supplement the
Prospectus to comply with law, the Company agrees to promptly prepare (subject
to Section 3(A)(a) hereof), file with the Commission and furnish at its own
expense to the Underwriters and to dealers, amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the
Prospectus. The Company agrees to furnish the Representatives, without charge,
during the Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
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(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of) the
Blue Sky or state securities laws of those jurisdictions designated by the
Representatives, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as required for
the distribution of the Common Shares. The Company shall not be required to
qualify as a foreign corporation or to take any action that would subject it to
general service of process in any such jurisdiction where it is not presently
qualified or where it would be subject to taxation as a foreign corporation. The
Company will advise the Representatives promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the Common
Shares for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the issuance
of any order suspending such qualification, registration or exemption, the
Company shall use its best efforts to obtain the withdrawal thereof at the
earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company
will make generally available to its security holders and to the Representatives
an earnings statement (which need not be audited) covering the twelve-month
period ending September 30, 1998 that satisfies the provisions of Section 11(a)
of the Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the Commission
and the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall file with the Commission
all reports on Form SR as may be required under Rule 463 under the Securities
Act.
(j) Agreement Not To Offer or Sell Additional Securities.
During the period of one hundred eighty days following the date of the
Prospectus, the Company will not, without the prior written consent of
Montgomery Securities (which consent may be withheld at the sole discretion of
Montgomery Securities), directly or indirectly, sell, offer, contract or grant
any option to sell, pledge, transfer or establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act, or
otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares of
Common Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of Common
Stock (other than as contemplated by this Agreement with respect to the Common
Shares); provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common
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Stock, or shares of Common Stock upon exercise of options, pursuant to any stock
option, stock bonus or other stock plan or arrangement described in the
Prospectus and may issue shares of Common Stock in connection with the
acquisition of additional travel service companies, but only if the holders of
such shares, options, or shares issued upon exercise of such options, agree in
writing not to sell, offer, dispose of or otherwise transfer any such shares or
options during such 180 day period without the prior written consent of
Montgomery Securities (which consent may be withheld at the sole discretion of
the Montgomery Securities).
(k) Future Reports to the Representatives. During the period
of five years after the date of this Agreement the Company will furnish to the
Representatives (i) as soon as practicable after the end of each fiscal year,
copies of the Annual Report of the Company containing the balance sheet of the
Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the opinion
thereon of the Company's independent public or certified public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current
Report on Form 8-K or other report filed by the Company with the Commission, the
NASD or any securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of its
capital stock.
(l) Satisfaction of Founding Company Combination Conditions.
The Company will: (i) use its best efforts to satisfy all conditions to
consummation of the Founding Company Combinations as set forth in the
Combination Agreements with respect thereto; (ii) use its best efforts to cause
each other party to such Combination Agreements to satisfy all conditions to the
consummation of the Founding Company Combinations; and (iii) promptly notify the
Representatives of the occurrence of any event which may result in the
non-consummation of any of the Founding Company Combinations on the First
Closing Date.
The Representatives, on behalf of the several Underwriters, may, in its
sole discretion, waive in writing the performance by the Company of any one or
more of the foregoing covenants or extend the time for their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
under this Agreement and in connection with the transactions contemplated hereby
and in connection with the Founding Company Combinations, including without
limitation (i) all expenses incident to the issuance and delivery of the Common
Shares (including all printing and engraving costs), (ii) all fees and expenses
of the registrar and transfer agent of the Common Stock, (iii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Common Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified pubic accountants and other
advisors, (v) all costs and expenses incurred in connection with
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the preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the Blue Sky laws, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey" or memorandum, and any supplements
thereto, advising the Underwriters of such qualifications, registrations and
exemptions, (vii) the filing fees incident to, and the reasonable fees and
expenses of counsel for the Underwriters in connection with, the NASD's review
and approval of the Underwriters' participation in the offering and distribution
of the Common Shares, (viii) the fees and expenses associated with including the
Common Shares on the Nasdaq National Market, and (ix) all other fees, costs and
expenses referred to in Item 14 of Part II of the Registration Statement. Except
as provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from Coopers & Lybrand L.L.P., independent
public or certified public accountants for the Company, a letter dated the date
hereof addressed to the Underwriters, in form and substance satisfactory to the
Representatives, containing statements and information of the type ordinarily
included in accountant's "comfort letters" to underwriters, delivered according
to Statement of Auditing Standards No. 72 (or any successor bulletin), with
respect to the audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus (and the
Representatives shall have received an additional [___] conformed copies of such
accountants' letter for each of the several Underwriters). The specified date
referred to therein for the carrying out of procedures shall be no more than
three business days prior to the date of this Agreement.
(b) Compliance with Registration Requirements; No Stop Order;
No Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date:
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(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by
Rule 424(b) under the Securities Act; or the Company shall have filed a
post-effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective
amendment shall have become effective; or, if the Company elected to
rely upon Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed a Term
Sheet with the Commission in the manner and within the time period
required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in
effect and no proceedings for such purpose shall have been instituted
or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change. For the period from and after
the date of this Agreement and prior to the First Closing Date and, with respect
to the Optional Common Shares, the Second Closing Date, in the judgment of the
Representatives there shall not have occurred any Material Adverse Change.
(d) Opinion of Counsel for the Company. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for
the Company, dated as of such Closing Date, the form of which is attached as
Exhibit A (and the Representatives shall have received an additional [___]
conformed copies of such counsel's legal opinion for each of the several
Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the
First Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Fulbright & Jaworski L.L.P., counsel for the
Underwriters, dated as of such Closing Date, with respect to the matters set
forth in paragraphs (i), (viii), (ix) and (xi) and the next-to-last paragraph of
Exhibit A (and the Representatives shall have received an additional [___]
conformed copies of such counsel's legal opinion for each of the several
Underwriters).
(f) Officers' Certificate. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsections (b)(ii) and (c)(ii) of this Section 5, and further to the effect
that:
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(i) for the period from and after the date of this Agreement
and prior to such Closing Date, there has not occurred any Material
Adverse Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1 of this Agreement are true and correct
with the same force and effect as though expressly made on and as of
such Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received from
Coopers & Lybrand L.L.P., independent public or certified public accountants for
the Company, a letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received an additional [___] conformed copies of such accountants' letter for
each of the several Underwriters).
(h) Combination Closings. With respect to the Founding Company
Combinations:
(i) Each condition to the obligations of the Company set forth
in Section 9 of each of the Combination Agreements shall have been
satisfied, without waiver or modification, except as may be approved by
the Representatives.
(ii) Each certificate delivered to the Company pursuant to
each Combination Agreement shall have also been delivered to the
Representatives.
(iii) Counsel for each of the Founding Companies shall have
furnished to the Representatives a letter, in form and substance
satisfactory to the Representatives, to the effect that they are
entitled to rely on the opinion of such counsel delivered to the
Company pursuant to each Combination Agreement as if such opinion were
addressed to them.
(iv) On the first Closing Date the Representatives shall have
received opinions, in form and substance satisfactory to the
Representatives, from counsel for the Company and counsel for each of
the Founding Companies, to the effect that each Combination pursuant to
the respective Combination Agreement has become effective and that such
Combination was consummated in accordance with the provisions of the
Combination Agreement, which has been duly
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authorized by the Company, the respective Founding Company and their
respective stockholders, and comply in all respects with applicable
law.
(i) Combination Agreements. The Combination Agreements shall
be in full force and effect and none of the parties thereto shall be in default
thereunder. The Representatives shall have received assurances reasonably
satisfactory to it that all documents required to be filed in the respective
states in order to effectuate the consummation of each Combination shall have
been approved for filing by the appropriate authorities in each state and that
all of such Combination documents shall be filed substantially concurrently with
the consummation of the transactions pursuant to this Agreement.
(j) Lock-Up Agreement from Certain Stockholders of the
Company. On the date hereof, the Company shall have furnished to the
Representatives an agreement in the form of Exhibit B hereto from each director,
officer and each beneficial owner of Common Stock (as defined and determined
according to Rule 13d-3 under the Exchange Act, except that a one hundred eighty
day period shall be used rather than the sixty day period set forth therein),
including, without limitation, each person who will receive shares of Common
Stock pursuant to the terms of the Combination Agreements, and such agreement
shall be in full force and effect on each of the First Closing Date and the
Second Closing Date.
(k) Termination of Profit-Sharing Agreements and Dedicated
Fleet Agreements. On or before the First Closing Date, the Representatives and
counsel for the Underwriters shall have received a termination of all profit or
revenue sharing arrangements, dedicated fleet agreements, minimum volume
requirements, penalty provisions or similar arrangements between any of the
Founding Companies and any other party except for the agreement between Auto
Europe and Avis Europe, as amended on June ___, 1997.
(l) Additional Documents. On or before each of the First
Closing Date and the Second Closing Date, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Common Shares as contemplated herein, or in order to
evidence the accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
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SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representatives pursuant to Section 5, Section 7, Section
10 or Section 11, or if the sale to the Underwriters of the Common Shares on the
First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Representatives
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all
out-of-pocket expenses that shall have been reasonably incurred by the
Representatives and the Underwriters in connection with the proposed purchase
and the offering and sale of the Common Shares, including but not limited to
fees and disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of
(i) the execution of this Agreement by the parties hereto and (ii) notification
by the Commission to the Company and the Representatives of the effectiveness of
the Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated
by any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4 and
6 hereof, (b) of any Underwriter to the Company, or (c) of any party hereto to
any other party except that the provisions of Section 8 and Section 9 shall at
all times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage, liability
or expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a
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material fact required to be stated therein or necessary to make the statements
therein not misleading; or (ii) upon any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to, the
Common Stock or the offering contemplated hereby, and which is included as part
of or referred to in any loss, claim, damage, liability or action arising out of
or based upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its gross negligence or willful misconduct; and to reimburse each Underwriter
and each such controlling person for any and all expenses (including the fees
and disbursements of counsel chosen by Montgomery Securities) as such expenses
are reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action; provided, however, that
the foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of or
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for use in
the Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto); and provided, further, that with respect to
any preliminary prospectus, the foregoing indemnity agreement shall not inure to
the benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Common Shares, or any person controlling
such Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 8(a) shall be in addition to any liabilities that the
Company may otherwise have.
(b) Indemnification of the Company, its Directors and
Officers. Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act, against
any loss, claim, damage, liability or
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expense, as incurred, to which the Company, or any such director, officer or
controlling person may become subject, under the Securities Act, the Exchange
Act, or other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such loss,
claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The Company
hereby acknowledges that the only information that the Underwriters have
furnished to the Company expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) are the statements set forth (A) as the last paragraph on the inside
front cover page of the Prospectus concerning stabilization by the Underwriters
and (B) in the table after the first paragraph and in the third, sixth and
[seventh-discretionary account paragraph] paragraphs under the caption
"Underwriting" in the Prospectus; and the Underwriters confirm that such
statements are correct. The indemnity agreement set forth in this Section 8(b)
shall be in addition to any liabilities that each Underwriter may otherwise
have.
(c) Notifications and Other Indemnification Procedures.
Promptly after receipt by an indemnified party under this Section 8 of notice of
the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this Section
8, notify the indemnifying party in writing of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section 8 or to
the extent it is not prejudiced as a proximate result of such failure. In case
any such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to the extent that
it shall elect, jointly with all other indemnifying parties similarly notified,
by written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have
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reasonably concluded that a conflict may arise between the positions of the
indemnifying party and the indemnified party in conducting the defense of any
such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (Montgomery Securities in the case
of Section 8(b) and Section 9), representing the indemnified parties who are
parties to such action) or (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(d) Settlements. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by Section 8(c) hereof, the indemnifying party agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding.
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SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any
reason held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other hand, from the offering of the Common Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Common Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Common
Shares pursuant to this Agreement (before deducting expenses) received by the
Company and the total underwriting discount received by the Underwriters, in
each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company, on the one hand,
and the Underwriters, on the other hand, shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact or any
such inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 9.
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<PAGE>
Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 9 are several, and not joint, in proportion
to their respective underwriting commitments as set forth opposite their names
in Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination. In
any such case either the Representatives or the Company shall have the right to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action
26
<PAGE>
taken under this Section 10 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement maybe terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Delaware or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 11 shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4 and
6 hereof, (b) any Underwriter to the Company, or (c) any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
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If to the Representatives:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Mr. Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Travel Services Group International, Inc.
c/o Alpine Consolidated LLC
4701 Sangamore Road, Suite P15
Bethesda, Maryland 20816
Facsimile:
Attention:
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
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<PAGE>
SECTION 16. GOVERNING LAW PROVISIONS. (A) THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby ("Related Proceedings") may be instituted in the federal
courts of the United States of America located in the City and County of San
Francisco or the courts of the State of California in each case located in the
City and County of San Francisco (collectively, the "Specified Courts"), and
each party irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such jurisdiction is non-exclusive) of
such courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party's address set forth above
shall be effective service of process for any suit, action or other proceeding
brought in any such court. The parties irrevocably and unconditionally waive any
objection to the laying of venue of any suit, action or other proceeding in the
Specified Courts and irrevocably and unconditionally waive and agree not to
plead or claim in any such court that any such suit, action or other proceeding
brought in any such court has been brought in an inconvenient forum.
SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
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<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
TRAVEL SERVICES INTERNATIONAL, INC.
By:
------------------------------------------
[Title]
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Representatives in San Francisco, California as of the date
first above written.
MONTGOMERY SECURITIES
FURMAN SELZ LLC
Acting as Representatives of the several Underwriters named in the attached
Schedule A.
BY MONTGOMERY SECURITIES
By:____________________________
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SCHEDULE A
NUMBER OF FIRM
COMMON SHARES
UNDERWRITERS TO BE PURCHASED
Montgomery Securities ........................................
Furman Selz LLC...............................................
Total................................................ 2,500,000
=========
<PAGE>
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to
Section 5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Underwriting Agreement. The Company and each of
its subsidiaries have all necessary authorizations, approvals,
consents, licenses, certificates and permits of and from all Federal
and state governmental or regulatory bodies or officials, to conduct
all the activities conducted by them, to own or lease all the assets
owned or leased by them and to conduct their businesses, all as
described in the Registration Statement and the Prospectus, and no such
authorization, approval, consent, order, license, certificate or permit
contains a materially burdensome restriction other than as disclosed in
the Registration Statement and the Prospectus.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a
Material Adverse Change.
(iv) Each subsidiary listed in Exhibit 21 to the Registration
Statement (a "Subsidiary") has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and, to the best knowledge of such counsel,
is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change.
A-1
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(v) All of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance or, to the best knowledge of such counsel,
any pending or threatened claim.
(vi) The authorized, issued and outstanding capital stock of
the Company (including the Common Stock) conforms to the descriptions
thereof set forth in the Prospectus. All of the outstanding shares of
Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable and, to the best of such counsel's knowledge,
have been issued in compliance with the registration and qualification
requirements of federal and state securities laws. The form of
certificate used to evidence the Common Stock is in due and proper form
and complies with all applicable requirements of the charter and
by-laws of the Company and the General Corporation Law of the State of
Delaware. The description of the Company's stock option, stock bonus
and other stock plans or arrangements, and the options or other rights
granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
(vii) No stockholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (a) by
operation of the charter or by-laws of the Company or the General
Corporation Law of the State of Delaware or (b) to the best knowledge
of such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
(ix) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale
pursuant to the Underwriting Agreement and, when issued and delivered
by the Company pursuant to the Underwriting Agreement against payment
of the consideration set forth therein, will be validly issued, fully
paid and nonassessable. The shares of Common Stock to be issued in
connection with the Founding Company Combinations have been duly
authorized for issuance and, when issued and delivered by the Company
in connection with the Founding Company Combinations, will be validly
issued, fully paid and nonassessable.
A-2
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(x) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such
counsel, no stop order suspending the effectiveness of either of the
Registration Statement or the Rule 462(b) Registration Statement, if
any, has been issued under the Securities Act and no proceedings for
such purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) under the Securities Act
has been made in the manner and within the time period required by such
Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus and each amendment or supplement
to the Registration Statement and the Prospectus, as of their
respective effective or issue dates (other than the financial
statements and supporting schedules included therein or in exhibits to
or excluded from the Registration Statement, as to which no opinion
need be rendered) comply as to form in all material respects with the
applicable requirements of the Securities Act.
(xii) The Common Shares have been approved for listing on the
Nasdaq National Market.
(xiii) The statements (a) in the Prospectus under the captions
"Risk Factors--Anti-Takeover Effect of Certain Charter Provisions",
"Description of Capital Stock" and "Shares Eligible for Future Sale"
and (b) in Item 14 and Item 15 of the Registration Statement, insofar
as such statements constitute matters of law, summaries of legal
matters, the Company's charter or by-law provisions, documents or legal
proceedings, or legal conclusions, has been reviewed by such counsel
and fairly present and summarize, in all material respects, the matters
referred to therein.
(xiv) To the best knowledge of such counsel, there are no
legal or governmental actions, suits or proceedings pending or
threatened which are required to be disclosed in the Registration
Statement, other than those disclosed therein.
(xv) To the best knowledge of such counsel, there are no
Existing Instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed or incorporated by
reference as exhibits thereto; and the descriptions thereof and
references thereto are correct in all material respects.
(xvi) No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental
authority or agency, is required for the Company's execution, delivery
and performance of the
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Underwriting Agreement and of each Combination Agreement and
consummation of the transactions contemplated thereby and by the
Prospectus, except as required under the Securities Act and from the
NASD.
(xvii) The execution and delivery of the Underwriting
Agreement and of each Combination Agreement by the Company and the
performance by the Company of its obligations thereunder (other than
performance by the Company of its obligations under the indemnification
section of the Underwriting Agreement, as to which no opinion need be
rendered) (a) have been duly authorized by all necessary corporate
action on the part of the Company; (b) will not result in any violation
of the provisions of the charter or by-laws of the Company or any
subsidiary; (c) will not constitute a breach of, or Default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries
pursuant to, to the best knowledge of such counsel, any other material
Existing Instrument; or (d) to the best knowledge of such counsel, will
not result in any violation of any law, administrative regulation or
administrative or court decree applicable to the Company or any
subsidiary.
(xviii) The Company is not, and after receipt of payment for
the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act.
(xix) Except as disclosed in the Prospectus under the caption
"Shares Eligible for Future Sale", to the best knowledge of such
counsel, there are no persons with registration or other similar rights
to have any equity or debt securities registered for sale under the
Registration Statement or included in the offering contemplated by the
Underwriting Agreement, except for such rights as have been duly
waived.
(xx) To the best knowledge of such counsel, neither the
Company nor any subsidiary is in violation of its charter or by-laws or
any law, administrative regulation or administrative or court decree
applicable to the Company or any subsidiary or is in Default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any material Existing Instrument, except in each
such case for such violations or Defaults as would not, individually or
in the aggregate, result in a Material Adverse Change.
(xxi) Each of the Combination Agreements have been duly and
validly authorized, executed and delivered by the parties thereto, is
valid and binding on the parties thereto in accordance with its terms
and, to the best knowledge of such counsel, none of the parties thereto
is in default in any respect thereunder. The Combinations pursuant to
the Combination Agreements have become effective. Such Combinations
were consummated in accordance with the provisions of the Combination
Agreements and comply in all respects with applicable law.
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(xxii) To the best knowledge of such counsel, no profit or
revenue sharing agreements, dedicated fleet agreements, minimum volume
requirements, penalty provisions or other similar agreements are in
effect with respect to any of the Founding Companies except for the
agreement between Auto Europe and Avis Europe, as amended on June ___,
1997.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of
the Company, representatives of the independent public or certified
public accountants for the Company and with representatives of the
Underwriters at which the contents of the Registration Statement and
the Prospectus, and any supplements or amendments thereto, and related
matters were discussed and, although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement
or the Prospectus (other than as specified above), and any supplements
or amendments thereto, on the basis of the foregoing, nothing has come
to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the
Registration Statement or such amendments became effective, contained
an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of its date or at the
First Closing Date or the Second Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading
(it being understood that such counsel need express no belief as to the
financial statements or schedules or other financial or accounting data
derived therefrom, included in the Registration Statement or the
Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
General Corporation Law of the State of Delaware, the State of New York or the
federal law of the United States, to the extent they deem proper and specified
in such opinion, upon the opinion (which shall be dated the First Closing Date
or the Second Closing Date, as the case may be, shall be satisfactory in form
and substance to the Underwriters, shall expressly state that the Underwriters
may rely on such opinion as if it were addressed to them and shall be furnished
to the Representatives) of other counsel of good standing whom they believe to
be reliable and who are satisfactory to counsel for the Underwriters; provided,
however, that such counsel shall further state that they believe that they and
the Underwriters are justified in relying upon such opinion of other counsel,
and (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and public officials.
A-5
<PAGE>
EXHIBIT B
______________, 1997
Montgomery Securities
Furman Selz LLC
As Representatives of the Several Underwriters
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
RE: Travel Services International, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Montgomery Securities
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934,
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned either of
record or beneficially (as defined in Rule 13d-3 under Securities Exchange Act
of 1934, as amended) by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the date hereof
and continuing through the close of trading on the date one hundred eighty days
after the date of the final Prospectus used in connection with the Offering. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of
B-1
<PAGE>
record or beneficially by the undersigned, including any rights to receive
notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
- ----------------------------------------
Printed Name of Holder
By: ------------------------------------
Signature
- ----------------------------------------
Printed Name of Person Signing (and
indicate capacity of person signing if
signing as custodian, trustee, or on
behalf of an entity)
B-2
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF ORGANIZATION
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF ORGANIZATION (the
"Amendment") is dated as of June 30, 1997, by and among Travel Services
International, Inc., a Delaware corporation ("TSII"), Auto-Europe, Inc. (Maine),
a Maine corporation (the "Company"), and Imad Khalidi, an individual residing in
the City of Portland, Maine, Alex Cecil, an individual residing in the City of
Portland, Maine, Wilfred Diller, as Trustee for Thurston Cecil, and Wilfred
Diller, as Trustee for Lila Cecil (collectively, the "Stockholders").
In consideration of the mutual agreements herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Defined Terms. All capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Agreement and Plan of Organization, dated as of May 9, 1997, by and among the
parties hereto (the "Agreement").
2. Amendment to Section 10.3. Section 10.3(ii) of the
Agreement is hereby deleted in its entirety and replaced with the following:
"(ii) TSII shall file or cause to be filed all separate Returns of, or that
include, the LLC for all taxable periods ending after the Funding and
Consummation Date."
3. Amendment to Annex V. Annex V to the Agreement is hereby
deleted in its entirety and replaced with Annex V attached hereto.
4. Amendment to Schedules 5.25, 7.2 and 7.3. The paragraph
entitled "PERMITTED DISTRIBUTIONS" on Schedules 5.25, 7.2 and 7.3 to the
Agreement is hereby deleted in its entirety and replaced with the following:
"PERMITTED DISTRIBUTIONS. The Company has made distributions to
shareholders totaling $1.1 million prior to the date hereof. Further,
prior to the Funding and Consummation Date, the Company may make
distributions of all cash and cash equivalents in an amount not to
exceed (a) $700,000 plus (b) an estimated amount equal to the tax
obligations of the Stockholders on any income of the Company for the
period from January 1, 1997, through the Funding and Consummation Date,
in excess of $3.2 million (the "Permitted Tax Distribution"), subject
to adjustment as soon as practicable after the Funding and Consummation
Date to correspond with the actual tax obligations of the Stockholders
for such amount for such period. To the extent that the Company makes
additional distributions in excess of $700,000 (not including the
<PAGE>
Permitted Tax Distribution), the cash consideration set forth in Annex
III to the Agreement shall be reduced by an amount equal to such excess
amount.
5. No Other Amendments. Except as expressly provided in this
Amendment, all of the terms and conditions of the Agreement remain unchanged,
and the terms and conditions of the Agreement as amended hereby remain in full
force and effect.
6. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7. Governing Law. This Amendment shall be construed in
accordance with laws of the State of Delaware.
8. Captions. The headings of this Amendment are inserted for
convenience only and shall not constitute a part of this Amendment or be used to
construe or interpret any provision hereof.
[The next page is the signature page]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Agreement and Plan of Organization to be duly executed and delivered as of
the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: /s/ Elan J. Blutinger
-------------------------------
Elan J. Blutinger
President
AUTO-EUROPE, INC. (MAINE)
By:/s/ Imad Khalidi
-------------------------------
Imad Khalidi
President
STOCKHOLDERS:
/s/ Imad Khalidi
----------------------------------
Imad Khalidi, Individually
/s/ Alex Cecil
----------------------------------
Alex Cecil, Individually
----------------------------------
Wilfred Diller, as Trustee for Thurston Cecil
----------------------------------
Wilfred Diller, as Trustee for Lila Cecil
3
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF ORGANIZATION
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF ORGANIZATION (the
"Amendment") is dated as of June 30, 1997, by and among Travel Services
International, Inc., a Delaware corporation ("TSII"), Cruises, Inc., a New York
corporation (the "Company"), and Robert G. Falcone, an individual residing in
Bridgeport, New York, individually and in his capacity as a trustee of The
Judith A. Falcone Grantor Retained Annuity Trust, Judith A. Falcone, an
individual residing in Bridgeport, New York, individually and in her capacity as
a trustee of The Judith A. Falcone Grantor Retained Annuity Trust, and Pamela C.
Cole, an individual residing in Manlius, New York (collectively, the
"Stockholders").
In consideration of the mutual agreements herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Defined Terms. All capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Agreement and Plan of Organization, dated as of May 9, 1997, by and among the
parties hereto (the "Agreement").
2. Additional Stockholders. The parties hereto acknowledge
that, prior to the date hereof, Judith A. Falcone transferred 15 shares of
Company Stock to Robert G. Falcone and Judith A. Falcone, each as trustees of
The Judith A. Falcone Grantor Retained Annuity Trust (the "Trust"). Robert G.
Falcone and Judith A. Falcone, as trustees of the Trust, hereby accept and agree
to be bound by all of the terms and conditions of the Agreement as fully as if
each of them had been original signatories to the Agreement in such capacities.
3. Amendment to Annex III. Annex III to the Agreement is
hereby deleted in its entirety and replaced with Annex III attached hereto.
4. Amendment to Annex IV. Annex IV to the Agreement is hereby
deleted in its entirety and replaced with Annex IV attached hereto.
5. Amendment to Annex V. Annex V to the Agreement is hereby
deleted in its entirety and replaced with Annex V attached hereto.
6. Amendment to Employment Agreements. The Employment
Agreements of each of Robert G. Falcone and Judith A. Falcone, forms of which
are attached as Annex VIII to the Agreement, are hereby amended as follows:
<PAGE>
a. The first sentence of Paragraph 2(a) of each
Employment Agreement is amended by deleting "$238,000
per year" as the combined base salary and inserting
"$138,000 per year for the first three years of the
term" as the combined base salary.
b. The last two sentences of Paragraph 2(a) of each
Employment Agreement are hereby deleted in their
entirety and replaced with the following sentence:
"The combined base salary payable hereunder for the
fourth and fifth years of the term shall be subject
to renegotiation, but in no event shall such combined
salary be less than $138,000. Employee shall have the
right to terminate Employee's employment hereunder at
the end of the third year of the term."
7. No Other Amendments. Except as expressly provided in this
Amendment, all of the terms and conditions of the Agreement remain unchanged,
and the terms and conditions of the Agreement as amended hereby remain in full
force and effect.
8. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9. Governing Law. This Amendment shall be construed in
accordance with laws of the State of Delaware.
10. Captions. The headings of this Amendment are inserted for
convenience only and shall not constitute a part of this Amendment or be used to
construe or interpret any provision hereof.
[The next page is the signature page]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Agreement and Plan of Organization to be duly executed and delivered as of
the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: /s/ Elan J. Blutinger
-----------------------------------
Elan J. Blutinger
President
CRUISES, INC.
By: /s/ Robert G. Falcone
-----------------------------------
Robert G. Falcone
Chairman and Chief Executive Officer
STOCKHOLDERS:
/s/ Robert G. Falcone
----------------------------------
Robert G. Falcone, Individually and as a
trustee of The Judith A. Falcone Grantor
Retained Annuity Trust
/s/ Judith A. Falcone
----------------------------------
Judith A. Falcone, Individually and as a
trustee of The Judith A. Falcone Grantor
Retained Annuity Trust
/s/ Pamela C. Cole
----------------------------------
Pamela C. Cole, Individually
3
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF ORGANIZATION
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF ORGANIZATION (the
"Amendment") is dated as of June 30, 1997, by and among Travel Services
International, Inc., a Delaware corporation ("TSII"), Cruises Only, Inc., a
Florida corporation (the "Company"), and Wayne Heller, an individual residing in
the City of Orlando, Florida, and Judy Heller, an individual residing in the
City of Orlando, Florida (collectively, the "Stockholders").
In consideration of the mutual agreements herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Defined Terms. All capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to them in the Agreement and
Plan of Organization, dated as of May 9, 1997, by and among the parties hereto
(the "Agreement").
2. Amendment to Section 10.3. Section 10.3(ii) of the Agreement is
hereby deleted in its entirety and replaced with the following: "(ii) TSII shall
file or cause to be filed all separate Returns of, or that include, the LLC for
all taxable periods ending after the Funding and Consummation Date."
3. Amendment to Annex III. Annex III to the Agreement is hereby deleted
in its entirety and replaced with Annex III attached hereto.
4. Amendment to Annex V. Annex V to the Agreement is hereby deleted in
its entirety and replaced with Annex V attached hereto.
5. Amendment to Employment Agreements. The Employment Agreements of
each of the Stockholders, forms of which are attached as Annex VIII to the
Agreement, are hereby amended as follows:
a. The first sentence of Paragraph 2(a) of Judy Heller's
Employment Agreement is amended by deleting
"$125,000" as the base salary and inserting "$13,000"
as the base salary.
b. The third sentence of Paragraph 2(a) of each
Employment Agreement shall be deleted and replaced
with the following in each agreement respectively: In
Wayne Heller's agreement, the third sentence should
read: "If Judy Heller shall cease to be employed by
the Company, the base salary payable hereunder to
Employee shall remain at $125,000 per year." In Judy
Heller's agreement, the third sentence should read:
"If Wayne Heller shall cease to be employed by the
Company, the base salary payable hereunder to
Employee shall be increased to $125,000 per year."
c. The salary changes set forth in (a) and (b) above
shall be effective only for the initial three (3)
year term (the "Term") set forth in Paragraph 5 of
the Employment Agreements. Salaries for any
continuation
<PAGE>
following the initial three (3) year Term shall be
negotiated between the parties.
6. Amendment to Section 18.6. The third sentence of Section 18.6 of the
Agreement is hereby amended to read: "Notwithstanding the foregoing, if the
transactions contemplated by this Agreement are consummated, TSII shall
reimburse the COMPANY and the STOCKHOLDERS for such reasonable attorneys' fees
and accounting fees upon the closing of the IPO up to $125,000 plus such
additional fees, expenses and disbursements as are required by Section 3.5 and
as currently set forth on Schedule 18.6 and such other costs and expenses as
will be set forth on Schedule 18.6 prior to the Pre-Closing Date as costs or
expenses incurred as a result of not structuring the transactions contemplated
hereby as a merger.
7. Amendments to Schedule 5.25, 7.2, and 7.3. The paragraph entitled
"JULY TAX DISTRIBUTIONS" on each of Schedules 5.25, 7.2 and 7.3 of the Agreement
is hereby amended by inserting "the close of business on" after the phrase "to
be paid on the income of the Company from" in the second line of such paragraph.
8. No Other Amendments. Except as previously provided in this
Amendment, all of the terms and conditions of the Agreement remain unchanged,
and the terms and conditions of the Agreement as amended hereby remain in full
force and effect.
9. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10. Governing Law. This Amendment shall be construed in accordance with
the laws of the State of Florida.
11. Captions. The headings of this Amendment are inserted for
convenience only and shall not constitute a part of this Amendment or be used to
construe or interpret any provision hereof.
(The next page is the signature page)
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Agreement and Plan of Organization to be duly executed and delivered as of
the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: \s\ Elan J. Blutinger
------------------------------
Elan J. Blutinger
President
CRUISES ONLY, INC.
By: \s\ Wayne Heller
------------------------------
Wayne Heller
President
STOCKHOLDERS:
\s\ Wayne Heller
------------------------------
Wayne Heller, Individually
\s\ Judy Heller
------------------------------
Judy Heller, Individually
3
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF ORGANIZATION
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF ORGANIZATION (the
"Amendment") is dated as of June 30, 1997, by and among Travel Services
International, Inc., a Delaware corporation ("TSII"), D-FW Tours, Inc., a Texas
corporation, D-FW Travel Arrangements, Inc., a Texas corporation (D-FW Tours,
Inc. and D-FW Travel Arrangements, Inc. are herein collectively referred to as
the "Company"), and John W. Przywara, an individual residing in the City of
Dallas, Texas, and Sharon Scott Przywara, an individual residing in the City of
Dallas, Texas (collectively, the "Stockholders").
In consideration of the mutual agreements herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Defined Terms. All capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Agreement and Plan of Organization, dated as of May 9, 1997, by and among the
parties hereto (the "Agreement").
2. Amendment to Annex III. Annex III to the Agreement is hereby deleted
in its entirety and replaced with Annex III attached hereto.
3. Amendment to Annex V. Annex V to the Agreement is hereby deleted in
its entirety and replaced with Annex V attached hereto.
4. Amendment to Employment Agreement. The Employment Agreement of the
Stockholder, a form of which is attached as Annex VIII to the Agreement, is
hereby amended as follows:
a. The first sentence of Paragraph 2(a) of the
Employment Agreement is amended by deleting
"$150,000" as the base salary and inserting
"$100,000" as the base salary.
b. The last two sentences of Paragraph 2(a) of the
Employment Agreement are hereby deleted in their
entirety.
5. No Other Amendments. Except as expressly provided in this Amendment,
all of the terms and conditions of the Agreement remain unchanged, and the terms
and conditions of the Agreement as amended hereby remain in full force and
effect.
6. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
7. Governing Law. This Amendment shall be construed in accordance with
laws of the State of Delaware.
8. Captions. The headings of this Amendment are inserted for
convenience only and shall not constitute a part of this Amendment or be used to
construe or interpret any provision hereof.
[The next page is the signature page]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Agreement and Plan of Organization to be duly executed and delivered as of
the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: /s/ Elan J. Blutinger
--------------------------------
Elan J. Blutinger
President
D-FW TOURS, INC.
By: /s/ John Przywara
--------------------------------
John Przywara
Chairman and Chief Executive Officer
D-FW TRAVEL ARRANGEMENTS, INC.
By: /s/ John Przywara
--------------------------------
John Przywara
President
STOCKHOLDERS:
/s/ John W. Przywara
----------------------------------
John W. Przywara, Individually,
as a stockholder of each of D-FW Tours,
Inc. and D-FW Travel Arrangements, Inc.
/s/ Sharon Scott Przywara
----------------------------------
Sharon Scott Przywara, Individually,
as a stockholder of each of D-FW Tours,
Inc. and D-FW Travel Arrangement, Inc.
3
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF ORGANIZATION
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF ORGANIZATION (the
"Amendment") is dated as of June 30, 1997, by and among Travel Services
International, Inc., a Delaware corporation ("TSII"), 800-Ideas, Inc., a Nevada
corporation (the "Company"), and Susan Parker, an individual residing in the
City of San Diego, California (the "Stockholder").
In consideration of the mutual agreements herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Defined Terms. All capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Agreement and Plan of Organization, dated as of May 9, 1997, by and among the
parties hereto (the "Agreement").
2. Amendments Relating to Structure. The parties acknowledge
that the Agreement as originally drafted contemplates a transfer of the LLC
Interest on the Funding and Consummation Date. The parties hereto agree that the
transaction structure described in the Agreement shall be changed in the
following ways:
a. The LLC to be formed under the Agreement shall be
formed as a wholly-owned subsidiary of TSII rather
than as a wholly-owned subsidiary of the Company.
b. In lieu of a transfer of the LLC Interest
contemplated by Section 1 of the Agreement, the asset
transfer from the Company to the LLC contemplated by
Section 7.13 of the Agreement shall occur on the
Funding and Consummation Date. All actions necessary
and appropriate to be taken for such asset transfer,
except for the actual delivery of transfer documents
and consideration, shall be taken on the Closing
Date.
c. To the extent necessary, the provisions of the
Agreement shall be construed to be consistent with
the above-described change in structure. Except as
described above, the provisions of the Agreement are
ratified and confirmed in all respects.
3. Amendment to Section 10.3. Section 10.3(ii) of the
Agreement is hereby deleted in its entirety and replaced with the following:
"(ii) TSII shall file or cause to be filed all separate Returns of, or that
include, the LLC for all taxable periods ending after the Funding and
Consummation Date."
<PAGE>
4. Amendment to Annex III. Annex III to the Agreement is
hereby deleted in its entirety and replaced with Annex III attached hereto.
5. Amendment to Annex V. Annex V to the Agreement is hereby
deleted in its entirety and replaced with Annex V attached hereto.
6. Amendment to Employment Agreement. The Employment Agreement
of the Stockholder, a form of which is attached as Annex VIII to the Agreement,
is hereby amended as follows:
a. The first sentence of Paragraph 2(a) of the
Employment Agreement is amended by deleting
"$200,000" as the base salary and inserting
"$150,000" as the base salary.
b. The last two sentences of Paragraph 2(a) of the
Employment Agreement are hereby deleted in their
entirety.
c. Paragraph 4(b) of the Employment Agreement is
amended by adding the following at the end of the
sentence: ", and in such circumstance Employee shall
continue to be employed hereunder"
d. The first sentence in Paragraph 5 of the
Employment Agreement is hereby amended by deleting
"three (3)" and inserting "five (5)" as the number of
years in the Term.
7. Amendment relating to Sprint Agreement. The Agreement is
hereby amended to provide that the Sprint Agreement to which the Company is a
party reflected on the Schedules to the Agreement shall be retained by the
Company and shall not be assigned to the LLC. The parties agree that the
services provided to the Company under the Sprint agreement, from and after the
transfer of assets to the LLC contemplated by Section 7.13 of the Agreement,
shall be provided to the LLC and the fees therefor to be paid by the LLC shall
be at the same cost charged by Sprint to the Company.
8. Amendments to Schedules 5.25, 7.2 and 7.3. Schedules 5.25,
7.2 and 7.3 of the Agreement are hereby amended by inserting the following at
the end of item (1) relating to net working capital in the paragraph entitled
"PERMITTED DISTRIBUTIONS": ", except that the accounts receivables listed as
Excluded Assets on Schedule 7.13 shall be included in current assets for
purposes of this item"
9. Amendment to Schedule 7.13. Schedule 7.13 of the Agreement
is hereby amended to add as an Excluded Asset "accounts receivables of the
Company in an amount equal to the adjusted book value of the fixed assets of the
Company (which on the date hereof is approximately $240,000."
<PAGE>
10. Future Payments. The parties hereby agree that Steve
Parker shall not receive, directly or indirectly, any compensation, fees or
other payments of any type (except for reimbursements for reasonable expenses
incurred while in the employ of the Company) in cash or in kind, as an employee,
consultant, independent contractor, agent, vendor or in any other capacity, from
the LLC or any successor in interest of the LLC.
11. No Other Amendments. Except as expressly provided in this
Amendment, all of the terms and conditions of the Agreement remain unchanged,
and the terms and conditions of the Agreement as amended hereby remain in full
force and effect.
12. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. Governing Law. This Amendment shall be construed in
accordance with laws of the State of Delaware.
14. Captions. The headings of this Amendment are inserted for
convenience only and shall not constitute a part of this Amendment or be used to
construe or interpret any provision hereof.
[The next page is the signature page]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Agreement and Plan of Organization to be duly executed and delivered as of
the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: /s/ Elan J. Blutinger
--------------------------------
Elan J. Blutinger
President
800-IDEAS, INC.
By: /s/ Susan Parker
--------------------------------
Susan Parker
President
STOCKHOLDER:
/s/ Susan Parker
----------------------------------
Susan Parker, Individually
[GRAPHICS OMITTED]
<TABLE>
<CAPTION>
<S> <C> <C>
TRAVEL SERVICES INTERNATIONAL, INC. CUSIP 894169 10 l
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS
</TABLE>
THIS CERTIFIES THAT
Is the owner of
FULLY-PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $0.01 PAR VALUE OF
CERTIFICATE OF STOCK
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
President Secretary
[COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE]
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
The Corporation will furnish upon request and without charge to each
shareholder the powers, designations, preferences and relative. participating,
optional and other special rights of each class of stock and series within a
class of stock of the Corporation, as well as the qualifications, limitations
and restrictions relating to those preference and/or rights. A shareholder may
make the request to the Corporation or to its Transfer Agent and Registrar.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ____________________
TEN ENT -- as tenants by the entireties (Com) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to minors
of survivorship and not as Act ____________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-------------------------------------
[ ]
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitue and appoint_______________________________________________
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated _________________________________
____________________________________________
SIGNATURE
Signature Guaranteed By:
______________________________________
______________________________________
Banker or Member Firm
of a Stock Exchange
[NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alternative or enlargement, or any change whatsoever.]
June 30, 1997
Travel Services International, Inc.
515 North Flagler Drive
Suite 300 - Pavilion
West Palm Beach, Florida 33401
Ladies and Gentlemen:
We have acted as counsel to Travel Services International, Inc., a
Delaware corporation (the "Company"), in connection with the registration of
2,875,000 shares of Common Stock, par value $.01 per share (the "Common Stock"),
of the Company, pursuant to the Registration Statement on Form S-1 (Registration
No. 333-27125) (the "Registration Statement") filed by the Company under the
Securities Act of 1933, as amended, and the proposed sale of the Common Stock to
the public through underwriters.
In our opinion, the Common Stock has been duly authorized for issuance
by the Company, and upon issuance and delivery in accordance with the
Underwriting Agreement referred to in the Registration Statement, the Common
Stock will be validly issued, fully paid and non-assessable.
We consent to the inclusion of this opinion in the Registration
Statement and reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement.
Very truly yours,
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and between Travel
Services International, Inc., a Delaware corporation ("TSI"), and Maryann
Bastnagel ("Employee"), is hereby entered into as of this ____ day of ______,
1997, and shall be effective as of a date (the "Effective Date") to be agreed
upon by the parties hereto as soon as practicable after the consummation of the
initial public offering of the common stock of TSI (the "IPO").
R E C I T A L S
A. As of the date of this Agreement, TSI is engaged primarily in the
business of providing travel services.
B. Employee is employed hereunder by TSI in a confidential relationship
wherein Employee, in the course of Employee's employment with TSI, has and will
continue to become familiar with and aware of information as to TSI's customers,
specific manner of doing business, including the processes, techniques and trade
secrets utilized by TSI, and future plans with respect thereto, all of which has
been and will be established and maintained at great expense to TSI; this
information is a trade secret and constitutes the valuable goodwill of TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) TSI hereby employs Employee as a Senior Vice President and Chief
Information Officer of TSI. As such, Employee shall have responsibilities,
duties and authority reasonably accorded to and expected of a Senior Vice
President and Chief Information Officer of TSI and will report directly to the
President of TSI. Employee acknowledges that TSI is a start-up company and that
Employee's responsibilities may extend beyond the traditional responsibilities
of a Senior Vice President and Chief Information Officer. Employee hereby
accepts this employment upon the terms and conditions herein contained and,
subject to paragraph 1(c) hereof, agrees to devote Employee's full business
time, attention and efforts to promote and further the business of TSI.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board of Directors of TSI (the "Board").
(c) Employee shall not, during the term of her employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 4 hereof.
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2. COMPENSATION.
For all services rendered by Employee, TSI shall compensate Employee as
follows:
(a) Base Salary. The base salary payable to Employee shall be $150,000
per year, payable on a regular basis in accordance with TSI's standard payroll
procedures but not less than monthly. On at least an annual basis, the Board
will review Employee's performance and may make increases to such base salary
if, in its discretion, any such increase is warranted. Such recommended increase
would, in all likelihood, require approval by the Board or a duly constituted
committee thereof. In no event shall Employee's base salary be reduced.
(b) Incentive Bonus Plan. For 1997 and subsequent years, TSI shall
develop, as soon as practicable after the Effective Date, a written Incentive
Bonus Plan setting forth the criteria and performance standards under which
Employee and other officers and key employees will be eligible to receive
year-end bonus awards. TSI contemplates that the maximum bonus for which
Employee may be eligible will be 75% of Employee's base salary.
(c) Executive Perquisites, Benefits, and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from TSI in
such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that TSI may have in
effect from time to time. Reimbursement for COBRA payments for coverage
for Employee and Employee's dependent family members in the event that
TSI is unable to provide insurance coverage at the Effective Date.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with TSI's expense reporting
policy.
(iii) TSI shall provide Employee with other executive
perquisites as may be available to senior management of TSI and
participation in all other TSI-wide employee benefits as available from
time to time, including vacation benefits in accordance with TSI's
established policies.
3. OPTIONS.
At the date of the IPO, TSI shall grant to Employee options to acquire
100,000 shares of TSI common stock at the price per share at which such stock is
offered to the public in the IPO, subject to forfeiture if Employee does not
commence employment with TSI. Such options shall vest in installments of 25,000
shares on each of the first, second, third and fourth anniversaries of the
Effective Date.
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4. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
TSI, and for a period of two (2) years immediately following the termination of
Employee's employment under this Agreement, for any reason whatsoever, directly
or indirectly, for herself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor or as a sales
representative, in any travel service business that was formed to
acquire, or who's business plan contemplates the acquisition of,
specialized distributors of leisure travel services, within the United
States or within 100 miles of any other geographic area in which TSI or
any of TSI's subsidiaries conducts business, including any territory
serviced by TSI or any of its subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSI (including the subsidiaries thereof) in a
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of TSI (including the
subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of TSI (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services
in direct competition with TSI or any subsidiary of TSI within the
Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by TSI (including the respective subsidiaries thereof) or for
which TSI made an acquisition analysis, for the purpose of acquiring
such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to TSI as a
result of a breach of the foregoing covenant, and because of the immediate and
irreparable damage that could be caused to TSI for which it would have no other
adequate remedy, Employee agrees that the foregoing covenant may be enforced by
TSI in the event of breach by her, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 4 impose a reasonable restraint on Employee in light of the activities
and business of TSI (including TSI's subsidiaries) on the date of the execution
of this Agreement and the current plans of TSI (including TSI's subsidiaries);
but it is also the intent of TSI and Employee that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of TSI (including TSI's subsidiaries) throughout the term of this Agreement. For
example, if, during the term of this Agreement, TSI (including TSI's
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
Agreement.
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It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with TSI (including TSI's
subsidiaries), or similar activities, or business in locations the operation of
which, under such circumstances, does not violate clause (i) of this paragraph
4, and in any event such new business, activities or location are not in
violation of this paragraph 4 or of employee's obligations under this paragraph
4, if any, Employee shall not be chargeable with a violation of this paragraph 4
if TSI (including TSI's subsidiaries) shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 4 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
All of the covenants in this paragraph 4 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against TSI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TSI of such covenants. It is specifically agreed that the period
of two (2) years following termination of employment stated at the beginning of
this paragraph 4, during which the agreements and covenants of Employee made in
this paragraph 4 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 4.
5. PLACE OF PERFORMANCE.
(a) Employee understands that she shall relocate from Employee's
present residence to another geographic location near TSI's headquarters in Palm
Beach in order to more efficiently carry out Employee's duties and
responsibilities under this Agreement. TSI will, for the initial year of the
Term (as defined below) hereof, pay all actual reasonable relocation costs to
move Employee, Employee's immediate family and their personal property and
effects. Such costs may include, but are not limited to, moving expenses, air
fare, temporary lodging expenses prior to moving into a new permanent residence
and other associated expenses; provided, the maximum total amount to be paid by
TSI hereunder shall be $20,000.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 6(c).
6. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for three (3) years, and, unless terminated sooner as herein provided, shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein in effect as of the time of renewal. As used herein, the word
"Term" shall mean (i) during the three year period referred to in the preceding
sentence, such three year period, and (ii) during any one year renewal pursuant
to the terms hereof, such one year period. This Agreement and Employee's
employment may be terminated in any one of the following ways:
(a) Death. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
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(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, as reasonably determined by Employee's physician, Employee
shall have been absent from Employee's full-time duties hereunder for four (4)
consecutive months, then thirty (30) days after receiving written notice (which
notice may occur before or after the end of such four (4) month period, but
which shall not be effective earlier than the last day of such four (4) month
period), TSI may terminate Employee's employment hereunder provided Employee is
unable to resume Employee's full-time duties at the conclusion of such notice
period. Also, Employee may terminate Employee's employment hereunder if her
health should become impaired to an extent that makes the continued performance
of Employee's duties hereunder hazardous to Employee's physical or mental health
or life, provided that Employee shall have furnished TSI with a written
statement from a qualified doctor to such effect and provided, further, that, at
TSI's request made within thirty (30) days of the date of such written
statement, Employee shall submit to an examination by a doctor selected by TSI
who is reasonably acceptable to Employee or Employee's doctor and such doctor
shall have concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated by either party as a result of Employee's disability,
Employee shall receive from TSI, in a lump-sum payment due within ten (10) days
of the effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Term of this Agreement or for
one (1) year, whichever amount is greater.
(c) Good Cause. TSI may terminate the Agreement ten (10) days after
delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Employee's material duties and responsibilities hereunder; (3)
Employee's willful dishonesty, fraud or misconduct with respect to the business
or affairs of TSI which materially and adversely affects the operations or
reputation of TSI; (4) Employee's conviction of a felony crime; or (5) chronic
alcohol abuse or illegal drug abuse by Employee. In the event of a termination
for good cause, as enumerated above, Employee shall have no right to any
severance compensation.
(d) Without Cause. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to TSI. Employee may
only be terminated without cause by TSI during the Term hereof if such
termination is approved by at least two-thirds of the members of the Board.
Should Employee's employment be terminated by TSI without cause during the Term,
Employee shall receive from TSI, in a lump-sum payment due on the effective date
of termination, the base salary at the rate then in effect for whatever time
period is remaining under the Term of this Agreement or for one (1) year,
whichever amount is greater, plus any accrued salary and declared but unpaid
bonus and reimbursement of expenses. Should Employee's employment be terminated
by TSI without cause at any time after the Term, Employee shall receive from
TSI, in a lump-sum payment due on the effective date of termination, the base
salary rate then in effect equivalent to one (1) year of salary, plus any
accrued salary and declared but unpaid bonus and reimbursement of expenses.
Further, any termination without cause by TSI shall operate to shorten the
period set forth in paragraph 4(a) and during which the terms of paragraph 4
apply to one (1) year from the date of termination of employment. If Employee
resigns or otherwise terminates Employee's employment without cause pursuant to
this paragraph 6(d), Employee shall receive no severance compensation.
(e) Change in Control of TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 13 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 13 hereof. All other rights and
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obligations of TSI and Employee under this Agreement shall cease as of the
effective date of termination, except that TSI's obligations under paragraph 10
hereof and Employee's obligations under paragraphs 4, 7, 8, 9 and 11 hereof
shall survive such termination in accordance with their terms.
If termination of Employee's employment arises out of TSI's failure to
pay Employee on a timely basis the amounts to which she is entitled under this
Agreement or as a result of any other material breach of this Agreement by TSI
(including but not limited to a material reduction in Employee's
responsibilities hereunder), as mutually agreed to by Employee and TSI or as
determined by a court of competent jurisdiction or pursuant to the provisions of
paragraph 17 below, such termination shall be deemed a termination without
cause, and TSI shall pay to Employee severance compensation pursuant to the
applicable provisions of paragraph 6(d) and all amounts and damages to which
Employee may be entitled as a result of such breach, including interest thereon
and all reasonable legal fees and expenses and other costs incurred by Employee
to enforce Employee's rights hereunder. Further, none of the provisions of
paragraph 4 hereof shall apply in the event this Agreement is terminated as a
result of a breach by TSI.
In the event of any termination of Employee's employment for any reason
provided above, Employee shall be under no obligation to seek other employment
and there shall be no offset against any amounts due to Employee under this
Agreement on account of any remuneration attributable to any subsequent
employment that Employee may obtain. Any amounts due under this paragraph 6 are
in the nature of severance payments, or liquidated damages, or both, and are not
in the nature of a penalty.
7. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists and other property delivered to or compiled by
Employee by or on behalf of TSI, or its representatives, vendors or customers
which pertain to the business of TSI shall be and remain the property of TSI,
and be subject at all times to its discretion and control. Likewise, all
correspondence, reports, records, charts, advertising materials, and other
similar data pertaining to the business, activities or future plans of TSI which
is collected by Employee shall be delivered promptly to TSI without request by
it upon termination of Employee's employment.
8. INVENTIONS.
Employee shall disclose promptly to TSI any and all significant
conceptions and ideas for inventions, improvements and valuable discoveries,
whether patentable or not, which are conceived or made by Employee, solely or
jointly with another, during the period of employment, and which are directly
related to the business or activities of TSI and which Employee conceives as a
result of Employee's employment by TSI. Employee hereby assigns and agrees to
assign all of Employee's interests therein to TSI or its nominee. Whenever
requested to do so by TSI, Employee shall execute any and all applications,
assignments or other instruments that TSI shall deem necessary to apply for and
obtain Letters Patent of the United States or any foreign country or to
otherwise protect TSI's interest therein.
9. TRADE SECRETS.
Employee agrees that she will not, other than as required by court
order, during or after the Term of this Agreement with TSI, disclose the
confidential terms of TSI's or its subsidiaries' relationships or agreements
with its significant vendors or customers or any other significant and material
trade secret of TSI or its subsidiaries, whether in existence or proposed, to
any person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
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10. INDEMNIFICATION.
In connection with any threatened, pending or completed claim, demand,
liability, action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by TSI against Employee), by reason of
the fact that Employee is or was performing services (including an act, omission
or failure to act) under this Agreement, TSI shall indemnify and hold harmless,
to the maximum extent permitted by law, Employee against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, as actually
and reasonably incurred by Employee in connection therewith. In the event that
both Employee and TSI are made a party to the same third-party action,
complaint, suit or proceeding, TSI agrees to engage competent legal
representation reasonably acceptable to Employee, and Employee agrees to use the
same representation, provided that if counsel selected by TSI shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge her duties under this Agreement,
Employee cannot be held liable to TSI for errors or omissions made in good faith
where Employee has not exhibited gross, willful or wanton negligence or
misconduct or performed criminal and fraudulent acts which materially damage the
business of TSI. TSI shall pay, on behalf of Employee upon presentation of
proper invoices, all fees, costs and expenses (including attorneys' fees)
incurred in connection with any matter referenced in this paragraph 10.
11. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to TSI that the execution of
this Agreement by Employee and her employment by TSI and the performance of
Employee's duties hereunder will not violate or be a breach of any agreement
with a former employer, client or any other person or entity. Further, Employee
agrees to indemnify TSI for any claim, including but not limited to attorneys'
fees and expenses of investigation, by any such third party that such third
party may now have or may hereafter come to have against TSI based upon or
arising out of any noncompetition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
12. ASSIGNMENT; BINDING EFFECT.
Employee understands that she has been selected for employment by TSI
on the basis of Employee's personal qualifications, experience and skills.
Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 13 below, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.
13. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that TSI may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of TSI hereunder or that TSI
may undergo another type of Change in Control. In the event such a merger or
consolidation or other Change in Control is initiated prior to the end of the
Term, then the provisions of this paragraph 13 shall be applicable.
(b) In the event of a pending Change in Control wherein TSI and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of TSI's business
and/or assets that such successor is willing as of the closing to assume and
agree to perform TSI's obligations under this Agreement in the same manner and
to the same extent that TSI is hereby required to perform, then such
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Change in Control shall be deemed to be a termination of this Agreement by TSI
without cause during the Term and the applicable portions of paragraph 6(d) will
apply; however, under such circumstances, the amount of the lump-sum severance
payment due to Employee shall be triple the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to TSI at least five (5) business
days prior to the anticipated closing of the transaction giving rise to the
Change in Control. In such case, the applicable provisions of paragraph 6(d)
will apply as though TSI had terminated the Agreement without cause during the
Term; however, under such circumstances, the amount of the lump-sum severance
payment due to Employee shall be double the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall all apply
for a period of two (2) years from the effective date of termination.
(d) For purposes of applying paragraph 6 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by TSI at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase TSI Common Stock, including any options
with accelerated vesting under the provisions of TSI's 1997 Long-Term Incentive
Plan, such that Employee may convert the options to shares of TSI Common Stock
at or prior to the closing of the transaction giving rise to the Change in
Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, or group of persons or entities
acting together, other than TSI or an employee benefit plan of TSI,
acquires directly or indirectly the Beneficial Ownership (as defined in
Section 13(d) of the Securities Exchange Act of 1934, as amended) of
any voting security of TSI and immediately after such acquisition such
person, entity or group is, directly or indirectly, the Beneficial
Owner of voting securities representing 33% or more of the total voting
power of all of the then-outstanding voting securities of TSI and has a
larger percentage of voting securities of TSI than any other person,
entity or group holding voting securities of TSI, unless the
transaction pursuant to which such acquisition is made is approved by
at least two-thirds (2/3) of the Board; or
(ii) the following individuals no longer constitute a majority
of the members of the Board: (A) the individuals who, as of the closing
date of TSI's initial public offering, constitute the Board (the
"Original Directors"); (B) the individuals who thereafter are elected
to the Board and whose election, or nomination for election, to the
Board was approved by a vote of at least two-thirds (2/3) of the
Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election);
and (C) the individuals who are elected to the Board and whose
election, or nomination for election, to the Board was approved by a
vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election); or
(iii) the stockholders of TSI shall approve a merger,
consolidation, recapitalization or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
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power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by TSI at any time that TSI or
any member of its Board anticipates that a Change in Control may take place.
(g) Employee shall be reimbursed by TSI or its successor, on a grossed
up basis, for any excise taxes that Employee incurs under Section 4999 of the
Internal Revenue Code of 1986, as a result of any Change in Control. Such amount
will be due and payable by TSI or its successor within ten (10) days after
Employee delivers a written request for reimbursement accompanied by a copy of
Employee's tax return(s) showing the excise tax actually incurred by Employee.
14. COMPLETE AGREEMENT.
If the IPO does not occur, this Agreement is not a promise of future
employment. This Agreement supersedes any other agreements or understandings,
written or oral, between TSI and Employee, and Employee has no oral
representations, understandings or agreements with TSI or any of its officers,
directors or representatives covering the same subject matter as this Agreement.
This written Agreement is the final, complete and exclusive statement
and expression of the agreement between TSI and Employee and of all the terms of
this Agreement, and it cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of TSI and Employee, and no term of this
Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
15. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To TSI: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: Maryann Bastnagel
3 Bloomingdale Court
Bethesda, Maryland 20852
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 15.
16. SEVERABILITY; HEADINGS.
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If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in the community where the corporate
headquarters of TSI is located on the Effective Date, in accordance with the
rules of the American Arbitration Association then in effect. The arbitrators
shall not have the authority to add to, detract from or modify any provision
hereof nor to award punitive damages to any injured party. The arbitrators shall
have the authority to order back-pay, severance compensation, vesting of options
(or cash compensation in lieu of vesting of options), reimbursement of costs,
including those incurred to enforce this Agreement, and interest thereon in the
event the arbitrators determine that Employee was terminated without disability
or good cause, as defined in paragraphs 6(b) and 6(c) hereof, respectively, or
that TSI has otherwise materially breached this Agreement. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by TSI.
18. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware without regard to the conflicts of laws principles of
such state.
19. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: ____________________________
Name:__________________________
Title:___________________________
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Maryann Bastnagel
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and between Travel
Services International, Inc., a Delaware corporation ("TSI"), and Suzanne B.
Bell ("Employee"), is hereby entered into as of this ____ day of ______, 1997,
and shall be effective as of a date (the "Effective Date") to be agreed upon by
the parties hereto as soon as practicable after the consummation of the initial
public offering of the common stock of TSI (the "IPO").
R E C I T A L S
A. As of the date of this Agreement, TSI is engaged primarily in the
business of providing travel services.
B. Employee is employed hereunder by TSI in a confidential relationship
wherein Employee, in the course of Employee's employment with TSI, has and will
continue to become familiar with and aware of information as to TSI's customers,
specific manner of doing business, including the processes, techniques and trade
secrets utilized by TSI, and future plans with respect thereto, all of which has
been and will be established and maintained at great expense to TSI; this
information is a trade secret and constitutes the valuable goodwill of TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) TSI hereby employs Employee as a Senior Vice President, General
Counsel and Secretary of TSI. As such, Employee shall have responsibilities,
duties and authority reasonably accorded to and expected of a Senior Vice
President, General Counsel and Secretary of TSI and will report only directly to
the Chief Executive Officer of TSI. Employee acknowledges that TSI is a start-up
company and that Employee's responsibilities may extend beyond the traditional
responsibilities of a General Counsel. Employee hereby accepts this employment
upon the terms and conditions herein contained and, subject to paragraph 1(c)
hereof, agrees to devote Employee's full business time, attention and efforts to
promote and further the business of TSI.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board of Directors of TSI (the "Board"), subject
only to those laws governing TSI and Employee's ethical and professional
responsibilities.
(c) Employee shall not, during the term of her employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 4 hereof.
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2. COMPENSATION.
For all services rendered by Employee, TSI shall compensate Employee as
follows:
(a) Base Salary. The base salary payable to Employee shall be $125,000
per year, payable on a regular basis in accordance with TSI's standard payroll
procedures but not less than monthly. On at least an annual basis, the Board
will review Employee's performance and may make increases to such base salary
if, in its discretion, any such increase is warranted. Such recommended increase
would, in all likelihood, require approval by the Board or a duly constituted
committee thereof. In no event shall Employee's base salary be reduced.
(b) Incentive Bonus Plan. For 1997 and subsequent years, it is TSI's
intent to develop, as soon as practicable after the Effective Date, a written
Incentive Bonus Plan setting forth the criteria and performance standards under
which Employee and other officers and key employees will be eligible to receive
year-end bonus awards. TSI contemplates that the maximum bonus for which
Employee may be eligible will be 50% of Employee's base salary.
(c) Executive Perquisites, Benefits, and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from TSI in
such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that TSI may have in
effect from time to time. Reimbursement for COBRA payments for coverage
for Employee and Employee's dependent family members in the event that
TSI is unable to provide insurance coverage at the Effective Date.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with TSI's expense reporting
policy.
(iii) TSI shall provide Employee with other executive
perquisites as may be available to senior management of TSI at
Employee's level and participation in all other TSI-wide employee
benefits as available from time to time, including vacation benefits in
accordance with TSI's established policies.
(iv) TSI will provide for Employee's annual professional
association fees and dues for the States of New York, New Jersey and
Florida and required continuing legal education expenses.
3. OPTIONS.
At the Effective Date, TSI shall grant to Employee options to acquire
25,000 shares of TSI common stock at the price per share at which such stock is
offered to the public in the IPO. Such options shall vest in installments of
6,250 shares on each of the first, second, third and fourth anniversaries of the
Effective Date.
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4. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
TSI, and for a period of two (2) years immediately following the termination of
Employee's employment under this Agreement, for any reason whatsoever, directly
or indirectly, for herself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor or as a sales
representative, in any travel service business in direct competition
with TSI or any subsidiary of TSI, within the United States or within
100 miles of any other geographic area in which TSI or any of TSI's
subsidiaries conducts business, including any territory serviced by TSI
or any of its subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSI (including the subsidiaries thereof) in a
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of TSI (including the
subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of TSI (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services
in direct competition with TSI or any subsidiary of TSI within the
Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by TSI (including the respective subsidiaries thereof) or for
which TSI made an acquisition analysis, for the purpose of acquiring
such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to TSI as a
result of a breach of the foregoing covenant, and because of the immediate and
irreparable damage that could be caused to TSI for which it would have no other
adequate remedy, Employee agrees that the foregoing covenant may be enforced by
TSI in the event of breach by her, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 4 impose a reasonable restraint on Employee in light of the activities
and business of TSI (including TSI's subsidiaries) on the date of the execution
of this Agreement and the current plans of TSI (including TSI's subsidiaries);
but it is also the intent of TSI and Employee that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of TSI (including TSI's subsidiaries) throughout the term of this Agreement,
whether before or after the date of termination of the employment of Employee.
For example, if, during the term of this Agreement, TSI (including TSI's
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
Agreement.
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It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with TSI (including TSI's
subsidiaries), or similar activities, or business in locations the operation of
which, under such circumstances, does not violate clause (i) of this paragraph
4, and in any event such new business, activities or location are not in
violation of this paragraph 4 or of employee's obligations under this paragraph
4, if any, Employee shall not be chargeable with a violation of this paragraph 4
if TSI (including TSI's subsidiaries) shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 4 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
All of the covenants in this paragraph 4 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against TSI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TSI of such covenants. It is specifically agreed that the period
of two (2) years following termination of employment stated at the beginning of
this paragraph 4, during which the agreements and covenants of Employee made in
this paragraph 4 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 4.
5. PLACE OF PERFORMANCE.
(a) Employee shall not be requested by the Board to relocate from
Employee's present residence for a period of twelve months from and after the
Effective Date. After such twelve-month period, by notice given at least 60 days
prior to the requested date of relocation, Employee may be requested by the
Board to relocate from Employee's present residence to another geographic
location in order to more efficiently carry out Employee's duties and
responsibilities under this Agreement. In such event, TSI will pay all actual
reasonable relocation costs to move Employee, Employee's immediate family and
their personal property and effects. Such costs may include, but are not limited
to, moving expenses, temporary lodging expenses prior to moving into a new
permanent residence; all closing costs on the purchase of a residence
(comparable to Employee's present residence) in the new location. The general
intent of the foregoing is that Employee shall not personally bear any
out-of-pocket cost as a result of the relocation, with an understanding that
Employee will use Employee's best efforts to incur only those costs which are
reasonable and necessary to effect a smooth, efficient and orderly relocation
with minimal disruption to the business affairs of TSI and the personal life of
Employee and Employee's family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate during the twelve-month period immediately following the Effective Date
and Employee refuses, Employee's employment hereunder shall terminate on the
requested date of relocation and Employee shall be entitled to receive from TSI,
in a lump-sum payment due on the effective date of termination, the base salary
at the rate then in effect for whatever time period is remaining under the Term
of this Agreement or for one year, whichever amount is greater, plus any accrued
salary and declared but unpaid bonus and reimbursement of expenses. In any
event, if Employee is requested by the Board to relocate during the Term of this
Agreement and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 6(c).
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6. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for three (3) years (the "Term"), and, unless terminated sooner as herein
provided, shall continue thereafter on a year-to-year basis on the same terms
and conditions contained herein in effect as of the time of renewal. This
Agreement and Employee's employment may be terminated in any one of the
following ways:
(a) Death. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, as reasonably determined by Employee's physician, Employee
shall have been absent from Employee's full-time duties hereunder for four (4)
consecutive months, then thirty (30) days after receiving written notice (which
notice may occur before or after the end of such four (4) month period, but
which shall not be effective earlier than the last day of such four (4) month
period), TSI may terminate Employee's employment hereunder provided Employee is
unable to resume Employee's full-time duties at the conclusion of such notice
period. Also, Employee may terminate Employee's employment hereunder if her
health should become impaired to an extent that makes the continued performance
of Employee's duties hereunder hazardous to Employee's physical or mental health
or life, provided that Employee shall have furnished TSI with a written
statement from a qualified doctor to such effect and provided, further, that, at
TSI's request made within thirty (30) days of the date of such written
statement, Employee shall submit to an examination by a doctor selected by TSI
who is reasonably acceptable to Employee or Employee's doctor and such doctor
shall have concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated by either party as a result of Employee's disability,
Employee shall receive from TSI, in a lump-sum payment due within ten (10) days
of the effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Term of this Agreement or for
one (1) year, whichever amount is greater.
(c) Good Cause. TSI may terminate the Agreement ten (10) days after
delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Employee's material duties and responsibilities hereunder; (3)
Employee's willful dishonesty, fraud or misconduct with respect to the business
or affairs of TSI which materially and adversely affects the operations or
reputation of TSI; (4) Employee's conviction of a felony crime; or (5) chronic
alcohol abuse or illegal drug abuse by Employee. In the event of a termination
for good cause, as enumerated above, Employee shall have no right to any
severance compensation.
(d) Without Cause. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to TSI. Employee may
only be terminated without cause by TSI during the Term hereof if such
termination is approved by at least two-thirds of the members of the Board.
Should Employee's employment be terminated by TSI without cause during the Term,
Employee shall receive from TSI, in a lump-sum payment due on the effective date
of termination, the base salary at the rate then in effect for whatever time
period is remaining under the Term of this Agreement or for one (1) year,
whichever amount is greater, plus any accrued salary and declared but unpaid
bonus and reimbursement of expenses. Should Employee's employment be terminated
by TSI without cause at any time after the Term, Employee shall receive from
TSI, in a lump-sum payment due on the effective date of termination, the base
salary rate then in effect equivalent to one (1) year of salary, plus any
accrued salary and declared but unpaid bonus and reimbursement of expenses.
Further, any termination without cause by TSI shall operate to shorten the
period set forth in paragraph 4(a) and during which the terms of paragraph 4
apply to one (1) year from the date of
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termination of employment. If Employee resigns or otherwise terminates
Employee's employment without cause pursuant to this paragraph 6(d), Employee
shall receive no severance compensation.
(e) Change in Control of TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 13 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 13 hereof. All other rights and obligations of TSI and Employee under
this Agreement shall cease as of the effective date of termination, except that
TSI's obligations under paragraph 10 hereof and Employee's obligations under
paragraphs 4, 7, 8, 9 and 11 hereof shall survive such termination in accordance
with their terms.
If termination of Employee's employment arises out of TSI's failure to
pay Employee on a timely basis the amounts to which she is entitled under this
Agreement or as a result of any other material breach of this Agreement by TSI
(including but not limited to a material reduction in Employee's
responsibilities hereunder), as determined by a court of competent jurisdiction
or pursuant to the provisions of paragraph 17 below, such termination shall be
deemed a termination without cause, and TSI shall pay to Employee severance
compensation pursuant to the applicable provisions of paragraph 6(d) and all
amounts and damages to which Employee may be entitled as a result of such
breach, including interest thereon and all reasonable legal fees and expenses
and other costs incurred by Employee to enforce Employee's rights hereunder.
Further, none of the provisions of paragraph 4 hereof shall apply in the event
this Agreement is terminated as a result of a breach by TSI.
In the event of any termination of Employee's employment for
any reason provided above, Employee shall be under no obligation to seek other
employment and there shall be no offset against any amounts due to Employee
under this Agreement on account of any remuneration attributable to any
subsequent employment that Employee may obtain. Any amounts due under this
paragraph 6 are in the nature of severance payments, or liquidated damages, or
both, and are not in the nature of a penalty.
7. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists and other property delivered to or compiled by
Employee by or on behalf of TSI, or its representatives, vendors or customers
which pertain to the business of TSI shall be and remain the property of TSI,
and be subject at all times to its discretion and control. Likewise, all
correspondence, reports, records, charts, advertising materials, and other
similar data pertaining to the business, activities or future plans of TSI which
is collected by Employee shall be delivered promptly to TSI without request by
it upon termination of Employee's employment.
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8. INVENTIONS.
Employee shall disclose promptly to TSI any and all significant
conceptions and ideas for inventions, improvements and valuable discoveries,
whether patentable or not, which are conceived or made by Employee, solely or
jointly with another, during the period of employment, and which are directly
related to the business or activities of TSI and which Employee conceives as a
result of Employee's employment by TSI. Employee hereby assigns and agrees to
assign all of Employee's interests therein to TSI or its nominee. Whenever
requested to do so by TSI, Employee shall execute any and all applications,
assignments or other instruments that TSI shall deem necessary to apply for and
obtain Letters Patent of the United States or any foreign country or to
otherwise protect TSI's interest therein.
9. TRADE SECRETS.
Employee agrees that she will not, other than as required by court
order, during or after the Term of this Agreement with TSI, disclose the
confidential terms of TSI's or its subsidiaries' relationships or agreements
with its significant vendors or customers or any other significant and material
trade secret of TSI or its subsidiaries, whether in existence or proposed, to
any person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
10. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by TSI against Employee), by reason of the
fact that Employee is or was performing services under this Agreement, then TSI
shall indemnify Employee against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, as actually and reasonably
incurred by Employee in connection therewith. In the event that both Employee
and TSI are made a party to the same third-party action, complaint, suit or
proceeding, TSI agrees to engage competent legal representation, and Employee
agrees to use the same representation, provided that if counsel selected by TSI
shall have a conflict of interest that prevents such counsel from representing
Employee, Employee may engage separate counsel and TSI shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use Employee's best efforts to faithfully discharge her duties under this
Agreement, Employee cannot be held liable to TSI for errors or omissions made in
good faith where Employee has not exhibited gross, willful or wanton negligence
or misconduct or performed criminal and fraudulent acts which materially damage
the business of TSI.
11. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to TSI that the execution of
this Agreement by Employee and her employment by TSI and the performance of
Employee's duties hereunder will not violate or be a breach of any agreement
with a former employer, client or any other person or entity. Further, Employee
agrees to indemnify TSI for any claim, including but not limited to attorneys'
fees and expenses of investigation, by any such third party that such third
party may now have or may hereafter come to have against TSI based upon or
arising out of any noncompetition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
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12. ASSIGNMENT; BINDING EFFECT.
Employee understands that she has been selected for employment by TSI
on the basis of Employee's personal qualifications, experience and skills.
Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 13 below, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.
13. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that TSI may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of TSI hereunder or that TSI
may undergo another type of Change in Control. In the event such a merger or
consolidation or other Change in Control is initiated prior to the end of the
Term, then the provisions of this paragraph 13 shall be applicable.
(b) In the event of a pending Change in Control wherein TSI and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of TSI's business
and/or assets that such successor is willing as of the closing to assume and
agree to perform TSI's obligations under this Agreement in the same manner and
to the same extent that TSI is hereby required to perform, then such Change in
Control shall be deemed to be a termination of this Agreement by TSI without
cause during the Term and the applicable portions of paragraph 6(d) will apply;
however, under such circumstances, the amount of the lump-sum severance payment
due to Employee shall be triple the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to TSI at least five (5) business
days prior to the anticipated closing of the transaction giving rise to the
Change in Control. In such case, the applicable provisions of paragraph 6(d)
will apply as though TSI had terminated the Agreement without cause during the
Term; however, under such circumstances, the amount of the lump-sum severance
payment due to Employee shall be double the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall all apply
for a period of two (2) years from the effective date of termination.
(d) For purposes of applying paragraph 6 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by TSI at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase TSI Common Stock, including any options
with accelerated vesting under the provisions of TSI's 1997 Long-Term Incentive
Plan, such that Employee may convert the options to shares of TSI Common Stock
at or prior to the closing of the transaction giving rise to the Change in
Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, or group of persons or entities
acting together, other than TSI or an employee benefit plan of TSI,
acquires directly or indirectly the Beneficial Ownership (as defined in
Section 13(d) of the Securities Exchange Act of 1934, as amended) of
any voting security of TSI and immediately after such acquisition such
person, entity or group is, directly or indirectly, the Beneficial
Owner of voting securities representing 33% or more of the total voting
power of all of the
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then-outstanding voting securities of TSI and has a larger percentage
of voting securities of TSI than any other person, entity or group
holding voting securities of TSI, unless the transaction pursuant to
which such acquisition is made is approved by at least two-thirds (2/3)
of the Board; or
(ii) the following individuals no longer constitute a majority
of the members of the Board: (A) the individuals who, as of the closing
date of TSI's initial public offering, constitute the Board (the
"Original Directors"); (B) the individuals who thereafter are elected
to the Board and whose election, or nomination for election, to the
Board was approved by a vote of at least two-thirds (2/3) of the
Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election);
and (C) the individuals who are elected to the Board and whose
election, or nomination for election, to the Board was approved by a
vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election); or
(iii) the stockholders of TSI shall approve a merger,
consolidation, recapitalization or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by TSI at any time that TSI or
any member of its Board anticipates that a Change in Control may take place.
(g) Employee shall be reimbursed by TSI or its successor, on a grossed
up basis, for any excise taxes that Employee incurs under Section 4999 of the
Internal Revenue Code of 1986, as a result of any Change in Control. Such amount
will be due and payable by TSI or its successor within ten (10) days after
Employee delivers a written request for reimbursement accompanied by a copy of
Employee's tax return(s) showing the excise tax actually incurred by Employee.
14. COMPLETE AGREEMENT.
To the extent that the IPO may not occur, this Agreement is not a
promise of future employment. This Agreement supersedes any other agreements or
understandings, written or oral, between TSI and Employee, and Employee has no
oral representations, understandings or agreements with TSI or any of its
officers, directors or representatives covering the same subject matter as this
Agreement.
This written Agreement is the final, complete and exclusive statement
and expression of the agreement between TSI and Employee and of all the terms of
this Agreement, and it cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of TSI and Employee, and no term of this
Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
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15. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To TSI: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: Suzanne B. Bell
3047 Lakewood Drive
Weston, Florida 33332
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 15.
16. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in the community where the corporate
headquarters of TSI is located on the Effective Date, in accordance with the
rules of the American Arbitration Association then in effect. The arbitrators
shall not have the authority to add to, detract from or modify any provision
hereof nor to award punitive damages to any injured party. The arbitrators shall
have the authority to order back-pay, severance compensation, vesting of options
(or cash compensation in lieu of vesting of options), reimbursement of costs,
including those incurred to enforce this Agreement, and interest thereon in the
event the arbitrators determine that Employee was terminated without disability
or good cause, as defined in paragraphs 6(b) and 6(c) hereof, respectively, or
that TSI has otherwise materially breached this Agreement. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by TSI.
18. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware without regard to the conflicts of laws principles of
such state.
19. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: ____________________________
Name:__________________________
Title:___________________________
-------------------------------
Suzanne B. Bell
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
Dated: July 1, 1997
/s/ Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Travel Services International, Inc., and Founding Companies Unaudited Pro
Forma Combined Financial Statements for the three month period ended March 31,
1997 (In Thousands)
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1<F1>
<CASH> 6,536
<SECURITIES> 0
<RECEIVABLES> 2,092
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,376
<PP&E> 9,248
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,252
<CURRENT-LIABILITIES> 16,231
<BONDS> 5,058
0
0
<COMMON> 37,963
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 59,252
<SALES> 15,126
<TOTAL-REVENUES> 15,126
<CGS> 9,876
<TOTAL-COSTS> 9,876
<OTHER-EXPENSES> 2,916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115
<INCOME-PRETAX> 2,219
<INCOME-TAX> 992
<INCOME-CONTINUING> 1,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,227
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
<FN>
<F1>
The above numbers should only be read in conjunction with TSII's financial
statements and accompanying footnotes, for the three month period ended March
31, 1997.
</FN>
</TABLE>