As filed with the Securities and Exchange Commission on May 14, 1997.
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
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>
----------------
c/o Alpine Consolidated, LLC
4701 Sangamore Road, Suite P15
Bethesda, Maryland 20816
(301) 320-7811
(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.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, Suite P15
Bethesda, Maryland 20816
(301) 320-7811
(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]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to offering price aggregate offering Amount of
registered be registered(1) per unit(2) price(2) registration fee
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per
share ........................... 2,875,000 $12.00 $34,500,000 $10,455
===========================================================================================================================
</TABLE>
(1) Includes 375,000 shares that the Underwriters have the option to purchase to
cover over-allotments
(2) Estimated solely for purpose of calculating the registration fee pursuant to
Rule 457(a).
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 MAY 14, 1997
2,500,000 Shares
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 $ AND $ 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 $ .
(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
, 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 by 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>
[To Come]
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 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 $33.5 million in
1994 to $53.0 million in 1996, representing a 25.8% 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 approximately $500
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 compared be
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 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 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.
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company ..................... 2,500,000 shares
Common Stock to be outstanding after the Offering ...... 8,463,892 shares (1)
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."
Proposed Nasdaq National Market symbol .................. TRVL
</TABLE>
- ----------
(1) Excludes 1,000,000 shares of Common Stock reserved for issuance under the
Company's option plans, of which options to purchase 715,000 shares are
expected to be issued concurrently with the Offering. See "Management -
1997 Long-Term Incentive Plan" and "- 1997 Non-Employee Directors' Stock
Plan."
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
DECEMBER 31, 1996 (1)
---------------------
<S> <C>
STATEMENT OF INCOME DATA:
Net revenues .................................................. $ 53,027
Operating expenses ............................................ 33,727
-----------
Gross profit .................................................. 19,300
General and administrative expenses (2) ....................... 11,526
1,009
Goodwill amortization (3) ..................................... --
Income from operations ........................................ 6,765
(411)
Interest and other income (expense), net ...................... --
Income before income taxes .................................... 6,354
$ 3,521
-----------
Net income .................................................... --
$ 0.43
-----------
Net income per share .......................................... --
Shares used in computing pro forma net income per share (4) ... 8,195,809
</TABLE>
DECEMBER 31, 1996
-------------------------------------
PRO FORMA AS
COMBINED (5) ADJUSTED (6)
-------------------- --------------
BALANCE SHEET DATA:
Working capital deficit ...... $ (26,739) (7) $
Total assets .................. 50,825 (8)
Long-term debt ............... 5,116
Stockholders' equity ......... 12,307
- ----------
(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 and benefits to the owners and certain key employees of the
Founding Companies to which they have agreed prospectively (the
"Compensation Differential"). In 1996, the Compensation Differential was
approximately $5.1 million.
(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.
6
<PAGE>
(4) Includes (i) 3,422,225 shares to be issued to owners of the Founding
Companies; (ii) 2,541,667 shares issued to the management and founders of
TSII; and (iii) 2,231,917 shares representing the number of shares sold in
the Offering necessary to pay the cash portion of the consideration for the
Combinations. Excludes options to purchase 715,000 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 December 31, 1996. 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) Includes a $22.2 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.
(8) Reflects (i) the creation of approximately $35.3 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)
for the three most recent fiscal years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (1)
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
AUTO EUROPE:
Net revenues ................................. $17,156 $21,919 $25,742
Operating expenses ........................... 11,101 15,413 18,560
Gross profit ................................. 6,055 6,506 7,182
General and administrative expenses (2) ...... 6,276 6,686 7,205
------- ------- -------
Loss from operations ........................ (221) (180) (23)
CRUISES ONLY:
Net revenues ................................. $ 7,467 $ 9,078 $ 7,937
Operating expenses ........................... 3,458 3,675 2,986
Gross profit ................................. 4,009 5,403 4,951
General and administrative expenses (3) ....... 2,922 3,929 4,318
------- ------- -------
Income from operations ........................ 1,087 1,474 633
TRAVEL 800:
Net revenues ................................. $ 3,504 $ 5,930 $ 7,789
Operating expenses ........................... 2,610 3,767 5,202
Gross profit ................................. 894 2,163 2,587
General and administrative expenses ......... 1,068 1,107 1,238
------- ------- -------
Income (loss) from operations ............... (174) 1,056 1,349
CRUISES, INC.:
Net revenues ................................. $ 3,846 $ 5,113 $ 6,424
Operating expenses ........................... 2,361 3,682 4,140
Gross profit ................................. 1,485 1,431 2,284
General and administrative expenses ......... 1,109 1,350 1,675
------- ------- -------
Income from operations ........................ 376 81 609
D-FW TOURS (4):
Net revenues ................................. $ 2,000 $ 2,632 $ 5,135
Operating expenses ........................... 1,067 1,367 2,839
Gross profit ................................. 933 1,265 2,296
General and administrative expenses ......... 872 1,098 2,167
------- ------- -------
Income from operations ........................ 61 167 129
</TABLE>
- ----------
(1) General and administrative expenses for the Founding Companies in 1994,
1995 and 1996 do not include a reduction for the Compensation Differential
in the aggregate amount of approximately $4.1, $3.9 and $5.1 million
respectively.
(2) General and administrative expenses for Auto Europe in 1994, 1995 and 1996
do not include a reduction for the Compensation Differential of
approximately $3.5 million, $2.7 million and $3.2 million, respectively, in
such years.
(3) General and administrative expenses for Cruises Only in 1994, 1995 and 1996
do not include a reduction for the Compensation Differential of
approximately $0.7 million, $0.9 million and $1.3 million, respectively, in
such years.
(4) 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 DFW 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.
FACTORS AFFECTING INTERNAL GROWTH
The Founding Companies have experienced revenue and earnings growth over
the past few years. There can be no assurance that the Founding Companies will
continue to experience internal growth comparable to historical 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 develop, in which event
there may be fewer acquisition opportunities available to the Company as well
9
<PAGE>
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. 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 sufficient financing, 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.
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 revenue and net income for
10
<PAGE>
each of the Founding Companies is 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.
DEPENDENCE ON TRAVEL PROVIDERS
The Company is dependent upon travel providers for access to their
capacity. The Company receives preferential pricing from certain travel
providers, which enables the Company to price its services more competitively.
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 represented an
aggregate of 38.8%, (ii) two cruise lines represented an aggregate of 14.2% and
(iii) two airlines represented an aggregate of 9.4% 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. There can be
no assurance that the contemplated integration of these systems will be
successful, completed on time or 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.
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.
11
<PAGE>
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. 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 59.0% of the total voting
power of the Common Stock after giving effect to the Offering (70.1% 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 5,963,892 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 2,541,667 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. 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
12
<PAGE>
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 Representative 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 $_____ 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.
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.
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 $7.8 million.
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. is currently involved in the pilot testing of
Cruise Director, a computerized reservation system developed for cruise lines by
SABRE to increase the efficiency of the reservation process. 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 $6.4 million.
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 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\R 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 $5.1 million.
The aggregate consideration being paid to acquire the Founding Companies
consists of $22.2 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
14
<PAGE>
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 c/o Alpine Consolidated,
LLC, 4701 Sangamore Road, Suite P15, Bethesda, Maryland 20816, and its telephone
number is (301) 320-7811.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby, after deducting the underwriting discount and
estimated offering expenses, are estimated to be approximately $____ million
($____ million if the Underwriters' over-allotment option is exercised in full).
Of the net proceeds, $____ million will be used to pay the cash portion of the
purchase price for the Founding Companies, of which approximately $____ 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.
The remaining $ 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.
The Company intends to seek a line of credit of approximately $20.0 million
to be used for acquisitions and working capital. 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.
15
<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 December 31,
1996: (i) on a pro forma combined basis to give effect to the Combinations and
the issuance of 908,332 shares of additional Common Stock to management of the
Company after December 31, 1996; and (ii) as further adjusted to give effect to
the Offering 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>
DECEMBER 31, 1996
--------------------------------
PRO FORMA (1) AS ADJUSTED
---------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current maturities of long-term debt (2).. $ 3,634 $
======== =====
Long-term debt, less current maturities (2) ...................... $ 5,116 $
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;
5,963,892 shares outstanding, pro forma; and 8,463,892 shares
outstanding, as adjusted (3) ....................................... 60
Additional paid-in capital ....................................... 12,363
Retained earnings (deficit) ....................................... (116)
-------- -----
Total stockholders' equity ....................................... 12,307
-------- -----
Total capitalization ............................................. $17,423 $
======== =====
</TABLE>
- ----------
(1) Combines the respective accounts of TSII and the Founding Companies at
December 31, 1996 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 2,541,667 shares of Restricted Common Stock. See "Description of
Capital Stock - Common Stock and Restricted Common Stock." Excludes 715,000
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."
16
<PAGE>
DILUTION
The deficit in pro forma net tangible book value of the Company as of
December 31, 1996, was approximately $22.9 million, or approximately $(3.84) per
share of Common Stock, after giving effect to the Combinations and the issuance
of 908,332 shares of Common Stock to management of the Company after December
31, 1996. 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, after deducting the underwriting discount and estimated offering
expenses payable by the Company, the Company's pro forma net tangible book value
at December 31, 1996 would have been approximately $ million, or approximately $
per share. This represents an immediate increase in pro forma net tangible book
value of approximately $ per share to existing stockholders and an immediate
dilution of approximately $____ per share to new investors purchasing the shares
in the Offering. The following table illustrates this pro forma dilution:
<TABLE>
<S> <C> <C>
Assumed initial offering price per share ......... $
-----
Pro forma deficit in net tangible book value per
share before Offering ........................... $(3.84)
Increase in pro forma net tangible book value per
share attributable to new investors ...............
--------
Pro forma net tangible book value per share after
Offering ..........................................
-----
Dilution per share to new investors ............... $
=====
</TABLE>
The following table sets forth, as of the date of this Prospectus, 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:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
------------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ...... 5,963,892 70.5% $ $
New investors ............... 2,500,000 29.5
----------- ------ ------ ----- ------
Total ..................... 8,463,892 100.0% $ $
=========== ====== ====== ===== ======
</TABLE>
- ----------
(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) a liability for deferred
income taxes. See "Use of Proceeds" and "Capitalization."
17
<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
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>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
AUTO EUROPE:
Net revenues .............................. $10,894 $12,208 $17,156 $21,919 $25,742
Operating expenses ........................ 7,523 8,469 11,101 15,413 18,560
------- ------- ------- ------- -------
Gross profit .............................. 3,371 3,739 6,055 6,506 7,182
General and administrative expenses ...... 3,577 3,985 6,276 6,686 7,205
------- ------- ------- ------- -------
Loss from operations ..................... (206) (247) (221) (180) (23)
Interest expense, net ..................... - 19 28 81 221
------- ------- ------- ------- -------
Net loss ................................. $ (206) $ (266) $ (249) $ (261) $ (244)
======= ======= ======= ======= =======
PRO FORMA COMBINED(1):
Net revenues ........................................................................... $ 53,027
Operating expenses ..................................................................... 33,727
---------
Gross profit ........................................................................... 19,300
General and administrative expenses (2) ................................................ 11,526
Goodwill amortization (3) ............................................................ 1,009
---------
Income from operations ............................................................... 6,765
Interest income (expense) and other income, net ....................................... (411
Net income ........................................................................... 3,521
=========
Net income per share .................................................................. $ 0.43
=========
Shares used in computing pro forma net income per share (4) ........................... 8,195,809
</TABLE>
<TABLE>
<CAPTION>
COMBINED
AUTO EUROPE COMPANIES
YEARS ENDED DECEMBER 31, DECEMBER 31, 1996
--------------------------------------------------------- -----------------------------------
1992 1993 1994 1995 1996 PRO FORMA(5) AS ADJUSTED (6)
---------- ---------- ----------- ----------- ----------- ------------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital deficit ......... $ (691) $ (891) $ (2,729) $ (3,683) $ (6,318) $ (26,739)(7) $
Total assets .................. 1,555 3,307 4,689 5,264 7,450 50,941 (8)
Long-term debt .................. - 17 48 12 1,880 5,116
Stockholders' equity (deficit) 243 (95) (536) (855) (1,170) 12,423
</TABLE>
- ----------
(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 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.
18
<PAGE>
(2) Pro forma general and administrative expenses include a reduction of
approximately $5.1 million for the Compensation Differential.
(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) 2,541,667 shares issued to the management and founders of
TSII, and (iii) 2,231,917 shares representing the number of shares to be
sold in the Offering necessary to pay the cash portion of the consideration
for the Combinations. Excludes options to purchase 715,000 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 December 31, 1996. 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) Includes a $22.2 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.
(8) Reflects (i) the creation of approximately $35.3 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.
19
<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'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 $53.0 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 compensation
and benefits in connection with the Combinations. The Compensation Differential
for 1996 of $5.1 million has 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) cross-utilization of sales personnel between
Founding Companies with different peak sales periods; (iii) consolidation of
insurance, employee benefits, training, technology and software purchasing,
billing and other general and administrative expenses; and (iv) 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 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.
20
<PAGE>
After December 31, 1996, the Company sold an aggregate of 908,332 shares of
Common Stock to management and will record (for financial statement presentation
purposes) a non-recurring, non-cash compensation charge in the first and second
quarters of 1997 relating to such sale.
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, $35.3 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 $1.0 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 Founding Companies
used different tax structures (S Corporations or C Corporations) during the
periods presented; (iii) the Company will incur incremental costs related to its
new corporate management and the costs of being a public company; (iv) the
Company will use the purchase method to record the Combinations, resulting in
the recording of goodwill which will be amortized over 35 years; and (v) the
combined data do not reflect the Compensation Differential and 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,
-----------------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues ........................ $33,973 100.0% $44,672 100.0% $53,027 100.0%
Operating expenses .................. 20,597 60.6 27,904 62.5 33,727 63.6
-------- ------- -------- ------- -------- -------
Gross profit ........................ 13,376 39.4 16,765 37.5 19,300 36.4
General and administrative expenses . 12,247 36.0 14,170 31.7 16,603 31.3
-------- ------- -------- ------- -------- -------
Income from operations ............... $ 1,129 3.3% $ 2,598 5.8% $ 2,697 5.1%
======== ======= ======== ======= ======== =======
</TABLE>
COMBINED RESULTS FOR 1996 COMPARED TO 1995
NET REVENUES. Net revenues increased approximately $8.4 million, or 18.7%,
from $44.7 million in 1995 to $53.0 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".
21
<PAGE>
Operating Expenses. Operating expenses increased approximately $5.8
million, or 20.9%, from $27.9 million in 1995 to $33.7 million in 1996. As a
percentage of net revenues, operating expenses increased from 62.5% in 1995 to
63.6% in 1996, primarily due to increased operating expenses as a percentage of
net revenue at Auto Europe and Travel 800.
General And Administrative Expenses. General and administrative expenses
increased approximately $2.4 million, or 17.2% from $14.2 million in 1995 to
$16.6 million in 1996. As a percentage of net revenues, general and
administrative expenses decreased from 31.7% in 1995 to 31.3% in 1996. Excluding
the Compensation Differential of $3.9 million and $5.1 million in 1995 and 1996,
respectively, general and administrative expenses as a percentage of net
revenues decreased from 22.9% in 1995 to 21.7% in 1996, primarily due to
operating leverage at Auto Europe.
COMBINED RESULTS FOR 1995 COMPARED TO 1994
Net Revenues. Net revenues increased approximately $10.7 million, or 31.5%,
from $34.0 million in 1994 to $44.7 million in 1995. This increase is
attributable to increased sales of travel services by the Company, including an
increase in the number of flight reservations made from 117,000 in 1994 to
167,000 in 1995, an increase in the number of car rental reservations made from
142,000 in 1994 to 175,000 in 1995, and an increase in the number of cruise
reservations made from 90,000 in 1994 to 102,000 in 1995.
Operating Expenses. Operating expenses increased approximately $7.3
million, or 35.5%, from $20.6 million in 1994 to $27.9 million in 1995. As a
percentage of net revenues, operating expenses increased from 60.6% in 1994 to
62.5% in 1995, primarily due to general increases in salaries and increased
telephone expenses at Auto Europe, offset in part by an increase in operating
leverage at Cruises Only.
General And Administrative Expenses. General and administrative expenses
increased $1.9 million, or 15.7%, from $12.2 million in 1994 to $14.2 million in
1995. As a percentage of net revenues, general and administrative expenses
decreased from 36.0% in 1994 to 31.7% in 1995. Excluding the Compensation
Differential of $4.1 million and $3.9 million in 1994 and 1995, respectively,
general and administrative expenses as a percentage of net revenues decreased
from 23.9% in 1994 to 22.9% in 1995. This decrease was due primarily to
increased operating leverage at Travel 800, offset in part by increases in
salaries and the hiring of additional personnel to manage growth at Auto Europe
and Cruises Only.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
The Company generated $2.4 million of net cash from operating activities
during 1996. Net cash used in investing activities was $4.0 million on a
combined basis, primarily for purchases of computer and telecommunications
equipment by Auto Europe and Cruises Only. Net cash provided by financing
activities was $1.6 million on a combined basis, consisting of proceeds of
long-term debt of $3.8 million, proceeds from short-term debt of $1.6 million,
capital contributions of $1.3 million, net reductions in long-term debt of $1.4
million and distributions to stockholders of $3.7 million. At December 31, 1996,
the Company had a cash balance of $2.7 million, a working capital deficit of
$4.5 million and long-term debt of $5.1 million, including debt to stockholders.
Certain assets that are not essential to the operations of certain Founding
Companies will be excluded from the Combinations and retained by the respective
stockholders of such Founding Companies. As of December 31, 1996, the aggregate
amount of these excluded assets were approximately $2.5 million. These
exclusions have been reflected in the pro forma balance sheet of the Company as
of December 31, 1996.
The Company is currently negotiating to obtain a credit facility which
would be available upon the consummation of the Offering. The Company expects
this facility to be a revolving line of credit of at least $20.0 million. It is
anticipated that such facility 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.
22
<PAGE>
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 $4.3 million in 1996. 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. 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.
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,
----------------------------------------------------------------------------------
1994 1995 1996
-------------------------- ------------------------- -------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues ........................ $17,156 100.0% $21,919 100.0% $25,742 100.0%
Operating expenses .................. 11,101 64.7 15,413 70.3 18,560 72.1
------- ---------- ------- --------- ------- ---------
Gross profit ........................ 6,055 35.3 6,506 29.7 7,182 27.9
General and administrative expenses . 6,276 36.6 6,686 30.5 7,205 28.0
------- ---------- ------- --------- ------- ---------
Loss from operations ............... $ (221) (1.3)% $ (180) (0.8)% $ (23) (0.1)%
======= ========== ======= ========= ======= =========
</TABLE>
23
<PAGE>
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. 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 $3.1
million, or 20.4%, from $15.4 million in 1995 to $18.6 million in 1996. As a
percentage of net revenues, operating expenses increased from 70.3% in 1995 to
72.1% 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.
General And Administrative Expenses. General and administrative expenses
increased $519,000, or 7.8%, from $6.7 million in 1995 to $7.2 million in 1996.
As a percentage of net revenues, general and administrative expenses decreased
from 30.5% in 1995 to 28.0% 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
15.2%. This decrease as a percentage of net revenues was due to increased
leverage of the Company's overhead costs.
RESULTS FOR 1995 COMPARED TO 1994 - AUTO EUROPE
Net Revenues. Net revenues increased $4.7 million, or 27.8%, from $17.2
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 $371,000 in net cash from operating activities in 1996.
Net cash used in investing activities was approximately $2.7 million,
principally for the construction of Auto Europe's new headquarters and purchases
of computer equipment. Net cash provided by financing activities was $3.1
24
<PAGE>
million, including the incurrence of (i) $2.0 million in long-term debt which
was used to acquire and renovate Auto Europe's new headquarters and (ii) $1.6
million in short-term debt which was used for working capital purposes, and the
repayment of $1.1 million of long-term debt. At December 31, 1996, Auto Europe
had a working capital deficit of $6.3 million, including $2.5 million of short-
term debt and current portion of long-term debt and $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.
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,
---------------------------------------------------------------------
1994 1995 1996
--------------------- ---------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues ........................ $7,467 100.0% $9,078 100.0% $7,937 100.0%
Operating expenses .................. 3,458 46.3 3,675 40.5 2,986 37.6
------- ------- ------- -------- ------- --------
Gross profit ......................... 4,009 53.7 5,403 59.5 4,951 62.4
General and administrative expenses .. 2,922 39.1 3,929 43.3 4,318 54.4
------- ------- ------- -------- ------- --------
Income from operations ............... $1,087 14.6% $1,474 16.2% $ 633 8.0%
======= ======= ======= ======== ======= ========
</TABLE>
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,
which is traditionally the period in which Cruises Only books approximately 60%
of its sales, Cruises Only estimates that 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 Differential of
$862,000 in 1995 and $1.3 million in 1996, respectively, general and
administrative expenses as a percentage of net revenues increased from 33.8% to
38.7%, 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 $7.5
million in 1994 to $9.1 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%.
25
<PAGE>
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 $681,000
in 1994 and $862,000 in 1995, respectively, general and administrative expenses
as a percentage of net revenues increased from 30.0% to 33.8%, 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 $1.2 million in net cash from operating activities
in 1996. Net cash used in investing activities was approximately $886,000,
principally for purchases of the replacement phone system and a new personal
computer network. Net cash used in financing activities was $360,000, including
net proceeds from long-term debt incurred of $839,000 and net distributions to
shareholders of $1.2 million. At December 31, 1996, Cruises Only had a working
capital deficit of $1.3 million, including $375,000 of current portion of
long-term debt, and had $3.2 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,
-----------------------------------------------
1995 1996
---------------------- -----------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Net revenues .............................. $5,930 100.0% $7,789 100.0%
Operating expenses ........................ 3,767 63.5 5,202 66.8
------- ------- ------- -------
Gross profit ............................ 2,163 36.5 2,587 33.2
General and administrative expenses ...... 1,107 18.7 1,238 15.9
------- ------- ------- -------
Income from operations .................. $1,056 17.8% $1,349 17.3%
======= ======= ======= =======
</TABLE>
RESULTS FOR 1996 COMPARED TO 1995 - TRAVEL 800
Net Revenues. Net revenues increased $1.9 million, or 31.3%, from $5.9
million in 1995 to $7.8 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 an increase in
segment payments from System One.
Operating Expenses. Operating expenses increased approximately $1.4
million, or 38.1%, from $3.8 million in 1995 to $5.2 million in 1996. As a
percentage of net revenues, operating expenses increased from 63.5% in 1995 to
66.8% 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.
26
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased $131,000, or 11.8%, from $1.1 million in 1995 to $1.2 million in 1996.
As a percentage of net revenues, general and administrative expenses decreased
from 18.7% to 15.9%, primarily due to $170,000 of non-recurring legal expenses
in 1995.
LIQUIDITY AND CAPITAL RESOURCES - TRAVEL 800
Travel 800 generated $1.0 million in net cash from operating activities in
1996. Net cash used in investing activities was approximately $248,000,
principally for purchases of furniture and equipment. Net cash used in financing
activities was $193,000, of which $169,000 was distributed to the sole
shareholder of Travel 800. At December 31, 1996, Travel 800 had working capital
of $2.0 million and no debt outstanding.
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 revenue and net income for
each of the Founding companies is 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, 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.
27
<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 $33.5 million in
1994 to $53.0 million in 1996, representing a 25.8% 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 approximately $500 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 to travel agents and travelers as the
number of travel providers and travel options continues to expand. Specifically,
specialized distributors are becoming increasingly important in the air travel,
cruise vacation and European auto rental markets.
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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.
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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 preferential pricing
and access to capacity with many travel providers. These strategic relationships
enable the Company to provide a comprehensive service offering within each
travel segment.
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
25.8% 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:
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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 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.
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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 the 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,
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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. At Cruises, Inc. reservation 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 has 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. The Company operates its basic
reservation 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. is currently involved in the pilot testing of
Cruise Director, a computerized reservation system developed for cruise lines by
SABRE to increase the efficiency of the reservation process.
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 fall of 1997. In addition, in
an effort to reduce "talk time" per sale, the Company expects to begin testing
in mid-1997 a continuous speech recognition technology that will enable
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.
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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 represented an aggregate of 38.8%, (ii) two
cruise lines represented an aggregate of 14.2% and (iii) two airlines
represented an aggregate of 9.4% of the Company's net revenues.
The following table sets forth a list of certain of the Company's key
travel providers:
European
Cruise Lines Airlines Auto Rental Companies
- --------------------------- -------------------- --------------------------
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
The Company receives preferential pricing from certain travel providers,
which enables the Company to price its services more competitively. The
Company's agreements with its travel providers can generally be cancelled or
modified by the travel provider upon relatively short notice.
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'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 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.
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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.
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 18,800 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 Bethesda, Maryland. The Company intends to relocate
its corporate headquarters to Florida before 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, alleging that Cruises Only failed to
pay overtime to employees in violation of the Fair Labor Standards Act of 1938.
In late 1996, both parties filed a motions for summary judgement. Although the
court has not rendered any decision on these motions, Cruises Only has created a
reserve 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 of the Company; Director
Michael J. Moriarty 50 President and Chief Operating Officer of the Company
Robert G. Falcone ... 56 CEO-Cruises, Inc.; Director
Wayne Heller ......... 40 Cruises Only; Director
Imad Khalidi ......... 45 Vice President, European Operations of the Company; CEO-Auto
Europe, Director
Susan Parker ......... 49 CEO-Travel 800; Director
John W. Przywara ... 45 CEO-D-FW Tours; Director
Elan J. Blutinger ... 41 Director
D. Fraser Bullock ... 42 Director
Tommasso 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, Pudgies, Inc. 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 (1981-1984).
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.
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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 its formation.
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.
D. FRASER BULLOCK has been a director of the Company since its formation.
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.
TOMMASSO 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 was a founder of the Company. 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 the Staffmark, Inc.
consolidation and initial public offering in September 1996. Prior to forming
Capstone Partners, LLC, Mr. Potter was an attorney at Morgan, Lewis & Bockius,
LLP, for more than five years practicing in the areas of merger and acquisition
and securities law. While at Morgan, Lewis & Bockius he represented a number of
public companies in connection with the 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
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directors whose terms are expiring. Directors whose terms expire in 1988 are:
_____, ______, and _____; directors whose terms expire in 1999 are: ____, ____,
and _____; directors whose terms expire in 2000 are: ____, _____, ______. 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 has the right to attend the meeting of the Board of
Directors, to consult with officers and directors of the Company and will
provide guidance (but not direction) concerning management and operation of the
Company's business. The Advisory Director does not have a right to vote as the
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 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 and Moriarty. The
Company will grant Messrs. Vittoria and Moriarty options to purchase 100,000
shares and 75,000 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 will enter into an employment agreement with the Company
providing for an annual base salary of $200,000. Mr. Moriarty will enter into
an employment agreement with the Company providing for an annual base salary of
$150,000. In addition, certain executive officers of the Founding Companies,
including Messrs. Falcone, Heller, Khalidi and Przywara and Ms. Parker, will
enter into employment agreements. Each employment agreement will be for a term
of three years, and 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 equivalent to the longer 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 agreements will
provide that, in the event of a termination of employment by the Company without
cause during the first three years of the employment term (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
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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, 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. 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.
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 675,000
shares of Common Stock of the Company will be granted as follows: [ ]. In
addition, options to purchase approximately ____________ shares will be granted
to the employees of the Founding Companies. 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 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
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<PAGE>
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 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 initially capitalized by Capstone Partners and Alpine
Consolidated. As a result of a 5,444.45 for one stock split effective on May 12,
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 of which Elan Blutinger and D. Fraser Bullock, directors of the
Company, are Managing Directors, and Capstone Partners LLC, of which Leonard
Potter, who will be an Advisory Director of the Company, is a Managing Director.
Any amounts loaned by TSGI to TSII will be repaid from the proceeds of the
Offering.
The aggregate consideration to be paid by TSII in the Combinations
consists of approximately $22.2 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 ...... 8,100 908,334
Travel 800 ......... 5,917 902,778
Cruises, Inc. ...... 2,000 333,334
D-FW Tours ......... 1,167 194,445
-------- -----------
Total ............... $ 22,184 3,422,225
======== ===========
The purchase price of each of the Founding Companies will be increased by
certain working capital adjustments. In addition, Certain non-operating assets
with a net book value of approximtely $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, 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.
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 following consummation of the
Offering.
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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 ...... 1,800,000* 300,000
Wayne A. Heller ......... 8,100,000 908,334
Susan Parker ............ 5,916,667 902,778
John W. Przywara ........ 1,166,667** 194,445
- ----------
* plus 45% of 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 $41,615, $47,453 and $50,946 in 1990, 1991 and 1993, respectively. The lease
terminates on October 31, 2003.
Travel 800 has 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. Travel 800 has agreed to provide long distance telephone
services under the CNSA to certain other entities which are owned by Susan
Parker, Chief Executive Officer of Travel 800 and is responsible for the minimum
monthly commitment of 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. The rent ranged from $6,165 per month to $6,835 per month. The
oral agreement was terminated on December 31, 1995.
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.
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 Ceris 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 The Ceris
II Group. Auto Europe purchased $477,000 worth of computer supplies and
equipment from The Ceris 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.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
--------------------------------------
NAME AND ADDRESS BEFORE AFTER
OF BENEFICIAL OWNER (1) SHARES OFFERING OFFERING
- --------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Joseph V. Vittoria ........................ 245,000 4.1% 2.9%
Michael Moriarty ........................... 40,833 * *
Robert G. Falcone (2) ..................... 300,000 5.0 3.5
Wayne Heller (3) ........................ 908,334 15.2 10.7
Imad Khalidi .............................. 500,000 8.4 5.9
Susan Parker .............................. 902,778 15.1 10.7
John W. Przywara ........................ 194,445 3.3 2.3
Elan J. Blutinger (4) ..................... 1,098,890 18.4 13.0
D. Fraser Bullock (4) ..................... 1,098,890 18.4 13.0
Tommasso Zanzatto (5) ..................... 10,000 * *
Alex Cecil (6) ........................... 1,083,334 18.2 12.8
Alpine Consolidated LLC .................. 1,088,890 18.3 12.8
Capstone Partners LLC (7) .................. 544,445 9.1 6.4
All Directors and Executive
Officers as a Group (10 persons) (8) ...... 4,210,280 70.2 49.6
</TABLE>
- ----------
* less than 1.0%
(1) Unless indicated otherwise, the address of the beneficial owners is, TSII,
c/o Alpine Consolidated, LLC 4701 Sangamore Road, Bethesda, MD 20816.
(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 2,541,667 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 2,541,667 shares of Common Stock held by seven shareholders, all of
which includes 2,133,335 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, 5,963,892 shares of the Common Stock (of which 2,541,667 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 to
which they are entitled to vote, including the election of directors. The
holders of Restricted Common Stock are entitled to one-tenth of one vote for
each share held on all other matters which they are entitled to vote including
the election of directors.
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. Any director, or the entire Board of Directors, may be
removed at any time, with cause, by a majority of the aggregate number of votes
which may be cast by the holders of all of the outstanding shares of Common
Stock and Restricted Common Stock entitled to vote for the election of
directors, except that only the holder of the Restricted Common Stock may remove
the director such holder is entitled to elect.
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)), (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.
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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 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 662|M/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.
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SHARES ELIGIBLE FOR FUTURE SALE
After the Offering, the Company will have outstanding 8,463,892 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 5,963,892 outstanding shares of Common Stock (including
2,541,667 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 5,963,892 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 2,541,667 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
46
<PAGE>
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.
47
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
Montgomery Securities (the "Representative"), have 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 ......
-----------
Total .....................
===========
The Representative has 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 Representative. 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 Underwriter 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
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."
48
<PAGE>
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, 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 Representative has 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
Representative. 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.
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
49
<PAGE>
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.
50
<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 Statement of Income................... F-4
Notes to Unaudited Pro Forma Combined Financial Statements......... F-5
TRAVEL SERVICES INTERNATIONAL, INC.:
Report of Independent Public Accountants........................... F-8
Balance Sheet...................................................... F-9
Notes to Financial Statement....................................... F-10
AUTO-EUROPE, INC. (MAINE):
Report of Independent Public Accountants........................... F-13
Balance Sheets..................................................... F-14
Statements of Operations........................................... F-15
Statements of Changes in Stockholders' Deficit .................... F-16
Statements of Cash Flows........................................... F-17
Notes to Financial Statements...................................... F-18
CRUISES ONLY, INC.:
Report of Independent Public Accountants........................... F-24
Balance Sheets..................................................... F-25
Statements of Income............................................... F-26
Statements of Changes in Stockholders' Equity (Deficit)............ F-27
Statements of Cash Flows........................................... F-28
Notes to Financial Statements...................................... F-29
800-IDEAS, INC.:
Report of Independent Public Accountants........................... F-34
Balance Sheet...................................................... F-35
Statements of Income............................................... F-36
Statements of Changes in Stockholder's Equity...................... F-37
Statements of Cash Flows........................................... F-38
Notes to Financial Statements...................................... F-39
</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.
The unaudited pro forma combined balance sheet gives effect to the
Combinations and the Offering as if they had occurred on December 31, 1996. The
unaudited pro forma combined statement 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 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 pro forma financial statements 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 or
to project 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--DECEMBER 31, 1996
(IN THOUSANDS)
<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 .................... $ -- $ -- $ 235 $ 1,062 $ 674 $ 878 $
Trade and other receivables, net of allowance -- 370 912 1,111 470 175
Other current assets ......................... -- 52 24 188 177 29
Total current assets ........................ -- 422 1,171 2,361 1,321 1,082
PROPERTY AND EQUIPMENT, net ................... -- 4,825 3,866 298 293 31 (144)
GOODWILL ...................................... -- -- -- -- -- -- 35,314
OTHER ASSETS .................................. -- 2,203 44 17 34 -- (2,313)
-------- -------- -------- -------- -------- -------- --------
Total assets ................................ $ -- $ 7,450 $ 5,081 $ 2,676 $ 1,648 $ 1,113 $ 32,857
======== ======== ======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank overdraft ............................... $ $ 672 $ -- $ -- $ -- $ -- $ --
Line of credit and short-term debt ........... 2,300 -- -- -- --
Current maturities of long-term debt ......... 204 375 24 59 --
Trade payables, customer deposits and deferred
income ...................................... 3,564 2,081 296 840 733 (235)
Payable to Founding Companies' Stockholders .. -- -- -- -- -- 22,183
-------- -------- -------- -------- -------- -------- --------
Total current liabilities ................... -- 6,740 2,456 320 899 733 21,948
LONG-TERM DEBT, net of current maturities ..... -- 1,880 3,236 -- -- --
DEFERRED INCOME ............................... -- -- 190 -- -- --
DEFERRED TAXES ................................ -- -- -- -- -- -- 116
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock ................................. 16 41 7 71 -- 37 (112)
Additional paid-in capital ................... (16) 96 -- -- -- -- 12,283
Retained earnings (deficit) .................. -- (1,307 (808) 2,285 749 362 (1,397)
Treasury stock ............................... -- -- -- -- -- (19) 19
-------- -------- -------- -------- -------- -------- --------
Total stockholders' equity (deficit) ........ -- (1,170 (801) 2,356 749 380 10,793
-------- -------- -------- -------- -------- -------- --------
Total liabilities and stockholders' equity
(deficit) .................................. $ -- $ 7,450 $ 5,081 $ 2,676 $ 1,648 $ 1,113 $ 32,857
======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO OFFERING AS
FORMA ADJUSTMENTS ADJUSTED
-------- ----------- --------
(NOTE 3)
-----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ 2,849 $ 3,217 $ 6,066
Trade and other receivables, net of allowance 3,038 3,038
Other current assets ......................... 470 470
Total current assets ........................ 6,357 3,217 9,574
PROPERTY AND EQUIPMENT, net ................... 9,169 9,169
GOODWILL ...................................... 35,314 35,314
OTHER ASSETS .................................. (15) (15)
-------- -------- --------
Total assets ................................ $ 50,825 $ 3,217 $ 54,042
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank overdraft ............................... $ 672 $ $ 672
Line of credit and short-term debt ........... 2,300 2,300
Current maturities of long-term debt ......... 662 662
Trade payables, customer deposits and deferred
income ...................................... 7,279 7,279
Payable to Founding Companies' Stockholders .. 22,183 (22,183) --
-------- -------- --------
Total current liabilities ................... 33,096 (22,183) 10,913
LONG-TERM DEBT, net of current maturities ..... 5,116 5,116
DEFERRED INCOME ............................... 190 190
DEFERRED TAXES ................................ 116 -- 116
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock ................................. 60 25 85
Additional paid-in capital ................... 12,363 25,375 37,738
Retained earnings (deficit) .................. (116) (116)
Treasury stock ............................... -- --
-------- -------- --------
Total stockholders' equity (deficit) ........ 12,307 25,400 37,707
-------- -------- --------
Total liabilities and stockholders' equity
(deficit) .................................. 50,825 $ 3,217 $ 54,042
======== ======== ========
</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 AMOUNTS)
<TABLE>
<CAPTION>
AUTO CRUISES TRAVEL CRUISES, D-FW PRO FORMA PRO
TSII EUROPE ONLY 800 INC. TOURS ADJUSTMENTS FORMA
------- --------- -------- -------- --------- ------- ---------- --------
(NOTE 4)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES ....................... $ -- $ $25,742 $ 7,937 $ 7,789 $ 6,424 $ 5,135 $ -- $ 53,027
OPERATING EXPENSES ................. -- 18,560 2,986 5,202 4,140 2,839 -- 33,727
------- --------- -------- -------- --------- ------- ---------- ----------
Gross profit ...................... -- 7,182 4,951 2,587 2,284 2,296 -- 19,300
GENERAL AND ADMINISTRATIVE
EXPENSES .......................... -- 7,205 4,318 1,238 1,675 2,167 (5,077)(a) 11,526
GOODWILL AMORTIZATION .............. -- -- -- -- -- -- 1,009 (b) 1,009
------- --------- -------- -------- --------- ------- ---------- ----------
Income (loss) from operations ..... -- (23) 633 1,349 609 129 4,068 6,765
INTEREST (EXPENSE) AND OTHER INCOME,
net ............................... -- (221) (243) 31 12 10 -- (411)
------- --------- -------- -------- --------- ------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES .. -- (244) 390 1,380 621 139 4,068 6,354
PROVISION FOR INCOME TAXES ......... -- -- -- -- 254 19 2,560 (c) 2,833
------- --------- -------- -------- --------- ------- ---------- ----------
NET INCOME (LOSS) .................. $ -- $ (244) $ 390 $ 1,380 $ 367 $ 120 $ 1,508 $ 3,521
======= ========= ======== ======== ========= ======= ========== ==========
NET INCOME PER SHARE ............... $ 0.43
SHARES USED IN COMPUTING NET INCOME ==========
PER SHARE (Note 5) ................ 8,195,809
===========
</TABLE>
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
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. GENERAL:
Travel Services International, Inc. (TSII), was formed to create the 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 December 31, 1996, and
for the twelve months ended December 31, 1996, 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
-------------------- -------------------
(DOLLARS IN
THOUSANDS)
Auto Europe .......................... $ 5,000 1,083,334
Cruises Only ......................... 8,100 908,334
Travel 800 ........................... 5,917 902,778
Cruises, Inc. ........................ 2,000 333,334
D-FW Tours ........................... 1,166 194,445
-------------------- --------------
$ 22,183 3,422,225
==================== ==============
F-5
<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):
<TABLE>
<CAPTION>
PRO FORMA
(a) (b) (c) ADJUSTMENTS
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Property and equipment, net ..... $ (144) $ -- $ -- $ (144)
Goodwill ........................ 35,314 35,314
Other assets .................... (2,319) 6 (2,313)
Trade payables................... 235 235
Payable to Founding Companies'
stockholders .................... (22,183) (22,183)
Other long-term liabilities ..... (116) (116)
Common stock .................... 112 112
Additional paid-in capital ...... (12,283) (12,283)
Retained earnings ............... 2,463 (941) (125) 1,397
Treasury stock .................. (19) (19)
--------- ----------- ----------- ----------
$ -- $ -- $ -- $ --
========= =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
OFFERING
(d) (e) ADJUSTMENTS
---------- ----------- -------------
<S> <C> <C> <C>
Cash and cash equivalents................ $ 25,400 $(22,183) $ 3,217
Payable to Founding Companies'
stockholders............................. 22,183 22,183
Common stock............................. (25) (25)
Additional paid-in capital............... (25,375) (25,375)
---------- ----------- -----------
$ -- $ -- $ --
========== =========== ===========
</TABLE>
- ----------
(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, (ii) the issuance of 3,422,225
shares of common stock to the stockholders of the Founding Companies, (iii)
the issuance of 2,541,667 shares of Common Stock to management and founders
of TSII and (iv) the creation of approximately $35,314,000 of goodwill.
(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-6
<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) Adjusts salary and benefits to the level the owners and certain key
employees of the Founding Companies have agreed to receive subsequent to
the Combinations.
(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 for income taxes
on S Corporation income.
5. NET INCOME PER SHARE
The shares used in computing net income per share include (i) 2,541,667 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) 2,231,917 shares to be issued in connection with the
Offering necessary to pay the $22,183,333 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 715,000 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-7
<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-8
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
ASSETS:
Cash.............................................................. $ 30
Total assets..................................................... $ 30
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par, 1,000,000 authorized, none outstanding. $ --
Common stock, $.01 par, 50,000,000 shares authorized, 1,633,335
shares outstanding............................................... 16,333
Additional paid-in capital (deficit).............................. (16,303)
Total liabilities and stockholders' equity....................... $ 30
==========
Reflects a 5,444.45-for-one stock split effective on May 12, 1997.
The accompanying notes are an integral part of this financial statement.
F-9
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. GENERAL:
Travel Services International, Inc., a Delaware Corporation, ("TSII" or the
"Company"), was founded in April 1996 to create the 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,
changes in stockholder's equity and cash flows would not provide meaningful
information and have been omitted. As of December 31, 1996, no costs 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.
2. STOCKHOLDER'S 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 of 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. In October 1996, the Company issued 200 shares additional shares
at $.01 per share to Alpine Consolidated, LLC.
In March and April 1997, the Company issued a total of 75 shares of Common
Stock to management and founders of the Company at a price of $.01 per share. As
a result, the Company will record for financial statement purposes a
non-recurring non-cash compensation charge in 1997 .
RESTRICTED COMMON STOCK
In May 1997, the stockholders exchanged 2,541,667 shares of Common Stock 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 one-tenth of
one vote for each share on all matters.
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.
F-10
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 - (Continued)
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 675,000 shares of Common Stock of the Company will be granted. 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.
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 reflect 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.
F-11
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 - (Continued)
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 approximately $22.2 million in cash and 3,422,225 shares of Common
Stock.
The Company is negotiating to obtain a credit facility which would be available
upon the closing of the Offering. The Company expects this facility to be a
revolving line of credit of at least $20.0 million. 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. See "Risk Factors" included elsewhere in this
Prospectus.
F-12
<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
F-13
<PAGE>
AUTO-EUROPE, INC. (MAINE)
BALANCE SHEETS -- DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................................. $ 14 $ --
Receivables from stockholder and employees............................ 2,391 370
Other current assets.................................................. 19 52
-------- ---------
Total current assets................................................. 2,424 422
PROPERTY AND EQUIPMENT, net............................................ 2,840 4,825
OTHER ASSET............................................................ -- 2,203
-------- ---------
Total assets......................................................... $5,264 $ 7,450
======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft........................................................ $ 105 $ 672
Short-term debt....................................................... 712 2,300
Current maturities of long-term debt.................................. 535 204
Due to travel service providers....................................... 2,967 1,790
Accounts payable and accrued liabilities.............................. 1,788 1,774
-------- ---------
Total current liabilities............................................ 6,107 6,740
LONG-TERM DEBT, net of current maturities.............................. 12 1,880
STOCKHOLDERS' DEFICIT:
Class A voting common stock, no par value; 1,000 authorized shares;
800 shares outstanding .............................................. 1 1
Class B nonvoting common stock, no par value; 50,000 authorized
shares; 40,000 shares outstanding.................................... 40 40
Capital in excess of par value........................................ 96 96
Deficit............................................................... (992) (1,307)
-------- ---------
Total stockholders' deficit.......................................... (855) (1,170)
-------- ---------
Total liabilities and stockholders' deficit.......................... $5,264 $ 7,450
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
AUTO-EUROPE, INC. (MAINE)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
1994 1995 1996
--------- --------- ---------
NET REVENUES....................... $17,156 $21,919 $25,742
OPERATING EXPENSES................. 11,101 15,413 18,560
--------- --------- ---------
Gross profit...................... 6,055 6,506 7,182
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 6,276 6,686 7,205
--------- --------- ---------
Loss from operations.............. (221) (180) (23)
INTEREST EXPENSE................... (28) (81) (221)
--------- --------- ---------
NET LOSS........................... $ (249) $ (261) $ (244)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
AUTO-EUROPE, INC. (MAINE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------- ------------------- CAPITAL
COMMON COMMON IN EXCESS
SHARES STOCK SHARES STOCK OF PAR VALUE DEFICIT TOTAL
-------- --------- --------- --------- ------------ --------- --------
<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)
======== ========= ========= ========= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
AUTO-EUROPE, INC. (MAINE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................... $ (249) $ (261) $ (244)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities-
Depreciation ................................................. 275 382 643
Changes in operating assets and liabilities-
Receivables from stockholder and employees .................. (182) 85 (113)
Other current assets ........................................ -- 22 (33)
Due to travel service providers ............................. 1,134 935 (1,177)
Accounts payable and accrued liabilities and bank overdraft . 329 (29) 553
--------- ---------- ----------
Net cash provided by (used in) operating activities ........ 1,307 1,134 (371)
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................ (1,713) (1,172) (2,707)
Improvements to other asset ................................... -- -- (69)
Proceeds from sale of office equipment and vehicles ........... 23 15 79
--------- ---------- ----------
Net cash used in investing activities ...................... (1,690) (1,157) (2,697)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) short-term debt ............... 300 (350) 1,588
Proceeds from long-term debt .................................. 113 524 2,621
Payments on long-term debt .................................... (55) (79) (1,084)
Capital contributions ......................................... 26 -- --
Distributions to stockholders ................................. (218) (58) (71)
--------- ---------- ----------
Net cash provided by financing activities .................. 166 37 3,054
--------- ---------- ----------
NET INCREASE (DECREASE) IN CASH ................................ (217) 14 (14)
CASH, beginning of year ........................................ 217 -- 14
--------- ---------- ----------
CASH, end of year .............................................. $ -- $ 14 $ --
========= ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ........................................ $ 28 $ 81 $ 197
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 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:
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 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 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.
F-18
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 - (Continued)
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.
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.
F-19
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 - (Continued)
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-20
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 - (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 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
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-21
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 - (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. Payments to satisfy the Company's commitment under these agreements
totalled $50,000 in 1996 and are reflected as a reduction of net revenues. The
Company intends to seek a termination of these agreements prior to the closing
of the Offering.
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 profit sharing 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. The Company received a letter from
the travel service provider stating this agreement expired effective January 1,
1997. The Company is in the process of negotiating the terms of a new agreement
with this travel service provider. Profit sharing payments to satisfy the
Company's commitment under 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
F-22
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 - (Continued)
minimum volume car rental targets and has waived its right to receive
profit-sharing payments through February 1997. The Company intends to seek
termination of the profit sharing and minimum volume car rental target
provisions of this agreement prior to the closing of the Offering.
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 mllion 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.
F-23
<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-24
<PAGE>
CRUISES ONLY, INC.
BALANCE SHEETS -- DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 311 $ 235
Receivables from cruise lines.................................... 791 912
Prepaid expenses and other current assets........................ 165 24
-------- --------
Total current assets............................................ 1,267 1,171
PROPERTY AND EQUIPMENT, net....................................... 2,978 3,866
OTHER ASSETS...................................................... 36 44
-------- --------
Total assets.................................................... $4,281 $5,081
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt............................. $ 128 $ 375
Accounts payable and accrued liabilities......................... 248 729
Customer deposits and deferred income............................ 865 1,044
Other current liabilities........................................ 388 308
-------- --------
Total current liabilities...................................... 1,629 2,456
LONG-TERM DEBT, net of current maturities......................... 2,644 3,236
DEFERRED INCOME................................................... -- 190
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par value; 7,500 shares authorized and
outstanding .................................................... 7 7
Capital in excess of par value................................... 1 --
Deficit.......................................................... -- (808)
-------- --------
8 (801)
-------- --------
Total liabilities and stockholders' equity (deficit)............ $4,281 $5,081
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
CRUISES ONLY, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
1994 1995 1996
-------- -------- --------
NET REVENUES....................... $7,467 $9,078 $7,937
OPERATING EXPENSES................. 3,458 3,675 2,986
-------- -------- --------
Gross profit...................... 4,009 5,403 4,951
GENERAL AND ADMINISTRATIVE
EXPENSES.......................... 2,922 3,929 4,318
-------- -------- --------
Income from operations............ 1,087 1,474 633
INTEREST EXPENSE................... (2) (16) (236)
OTHER INCOME (EXPENSE), net........ 3 (131) (7)
-------- -------- --------
NET INCOME......................... $1,088 $1,327 $ 390
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
CRUISES ONLY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
CAPITAL RETAINED
COMMON IN EXCESS EARNINGS
SHARES STOCK OF PAR VALUE (DEFICIT) TOTAL
-------- -------- -------------- ---------- --------
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)
======== ======== ============== ========== ========
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
CRUISES ONLY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 1,088 $ 1,327 $ 390
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation ............................................ 99 121 213
Loss on retirement of assets............................. -- 181 85
Changes in operating assets and liabilities-
Receivables from cruise lines........................... (694) (58) (121)
Prepaid expenses and other current assets............... -- (166) 141
Other assets............................................ 22 (34) (8)
Accounts payable and accrued liabilities................ (286) (139) 481
Customer deposits and deferred income................... 241 625 69
Other current liabilities............................... 168 (36) (80)
--------- --------- ---------
Net cash provided by operating activities.............. 638 1,821 1,170
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment and capitalized
interest................................................. (1,222) (1,841) (1,186)
Promotion support payment................................. -- -- 300
--------- --------- ---------
Net cash used in investing activities.................. (1,222) (1,841) (886)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. -- 2,775 1,200
Payments on long-term debt................................ (49) (53) (361)
Contributions from stockholders........................... 1,535 912 1,300
Distributions to stockholders............................. (1,350) (3,356) (2,499)
--------- --------- ---------
Net cash used in financing activities.................. 136 (278) (360)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...... (448) 258 (76)
CASH AND CASH EQUIVALENTS, beginning of year............... 501 53 311
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year..................... $ 53 $ 311 $ 235
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-interest.................................... $ 2 $ 61 $ 255
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
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 $700,000, $900,000 and $1.3
million for 1994, 1995 and 1996, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 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.
F-29
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 - (Continued)
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-30
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 - (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 of 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-31
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 - (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-32
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 - (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-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 800-Ideas, Inc.:
We have audited the accompanying balance sheet of 800-Ideas, Inc. (a Nevada
corporation), as of December 31, 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, 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-34
<PAGE>
800-IDEAS, INC.
BALANCE SHEET--DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $1,062
Accounts receivable, net of allowance of $125........ 1,111
Prepaid expenses and other current assets............ 188
--------
Total current assets................................ 2,361
FURNITURE AND EQUIPMENT, net.......................... 298
OTHER ASSETS.......................................... 17
--------
Total assets........................................ $2,676
========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Capital lease obligations............................ $ 24
Accounts payable and accrued liabilities ............ 296
--------
Total current liabilities........................... 320
COMMITMENTS AND CONTINGENCIES ........................
STOCKHOLDER'S EQUITY: ................................
Common stock, no par value; 1,000 shares authorized
and outstanding..................................... 71
Retained earnings.................................... 2,285
--------
Total stockholders' equity.......................... 2,356
--------
Total liabilities and stockholder's equity.......... $2,676
========
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
800-IDEAS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
1995 1996
-------- --------
NET REVENUES....................... $5,930 $7,789
OPERATING EXPENSES................. 3,767 5,202
-------- --------
Gross profit...................... 2,163 2,587
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,107 1,238
-------- --------
Income from operations............ 1,056 1,349
OTHER INCOME, net.................. 15 31
-------- --------
NET INCOME......................... $1,071 $1,380
======== ========
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
800-IDEAS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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
======== =========== =========== ============
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
800-IDEAS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $1,071 $1,380
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization...................................... 67 99
Changes in operating assets and liabilities-
Accounts receivable............................................... (722) (239)
Prepaid expenses and other current assets......................... (184) 27
Other assets...................................................... (3) (14)
Accounts payable and accrued liabilities ......................... 439 (277)
-------- --------
Net cash provided by operating activities........................ 668 976
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment................................. (25) (248)
-------- --------
Net cash used in investing activities............................ (25) (248)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations............................... (117) (24)
Distributions to stockholder........................................ (174) (169)
-------- --------
Net cash used in financing activities............................ (291) (193)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS............................ 352 535
CASH AND CASH EQUIVALENTS, beginning of year......................... 175 527
-------- --------
CASH AND CASH EQUIVALENTS, end of year............................... $ 527 $1,062
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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:
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.
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.
F-39
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 - (Continued)
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
--------------
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-40
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 - (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-41
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 - (Continued)
5. RELATED-PARTY TRANSACTIONS:
Travel 800 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. Travel 800 has agreed to provide long distance telephone
services under the CSNA to certain other entitles which are owned by Travel
800's shareholders.
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.
F-42
<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 2,500,000 SHARES
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.
TRAVEL SERVICES
INTERNATIONAL, INC.
TABLE OF CONTENTS
Page
Prospectus Summary ............ 3
Risk Factors................... 9
The Company.................... 14 COMMON STOCK
Use of Proceeds................ 15
Dividend Policy................ 15
Capitalization................. 16
Dilution....................... 17
Selected Financial Data........ 18
Management's Discussion and
Analysis of Financial Condition ---------------------
and Results of Operations ..... 20
Business....................... 28
Management..................... 36
Certain Transactions........... 41 PROSPECTUS
Principal Stockholders......... 43
Description of Capital Stock .. 44
Shares Eligible for Future --------------------
Sale........................... 46
Underwriting................... 48
Legal Matters.................. 49
Experts........................ 49
Additional Information......... 49
Index to Financial Statements . F-1
MONTGOMERY SECURITIES
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 ,1997
acting as Underwriters and with respect
to their unsold allotments or
subscriptions.
========================================= ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
SEC Registration Fee......................................... $ 10,455
NASD Filing Fee.............................................. 3,950
Nasdaq National Market Listing Fee...........................
Accounting Fees and Expenses.................................
Legal Fees and Expenses......................................
Printing Expenses............................................
Transfer Agent's Fees........................................
Miscellaneous................................................
------------
Total ...................................................... $
============
- ----------
(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 and employees to the fullest
extent permitted by law.
The Company intends to enter into indemnification agreements with each of its
executive officers 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 $1.01. 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 5,444.5 to one stock split.
(b) See "Certain Transactions" for a discussion of the issuance of shares
of Common Stock and options to purchase shares of Common Stock in connection
with and the Combinations.
These transactions were completed without registration under the Securities
Act in reliance on the exemption provided by Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits Exhibit
<TABLE>
<CAPTION>
EXHIBIT
- ----------
<S> <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.
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 -- 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, among Travel Services
International, Inc., _______ and ______.
-- Form of Employment and Non-Competition Agreement dated May , 1997, among Travel Services
International, Inc., _______ and ______.
-- Form of Employment and Non-Competition Agreement dated May , 1997, among Travel Services
International, Inc., _______ and ______.
-- Form of Employment and Non-Competition Agreement dated May , 1997, among Travel Services
International, Inc., _______ and ______.
-- Form of Employment and Non-Competition Agreement dated May , 1997, among Travel Services
International, Inc., _______ and ______.
*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]
*23.1 -- 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.
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.
II-3
<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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this 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 14th day of May, 1997.
TRAVEL SERVICES INTERNATIONAL, INC.
By: /s/ Elan J. Blutinger
---------------------------------
Elan J. Blutinger
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose name and
signature appears below constitutes and appoints Elan J. Blutinger, D. Fraser
Bullock and Leonard A. Potter each of them, his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and any and all Registration Statements filed
pursuant to Rule 462 under the Securities Act, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his or her substitute or substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
TRAVEL SERVICES INTERNATIONAL, INC.
SIGNATURE TITLE DATE
- ----------------------------------- ---------------------------- -------------
/s/ Elan J. Blutinger President, Director May 14, 1997
- -----------------------------------
Elan J. Blutinger
(Principal Executive Officer)
/s/ D. Fraser Bullock Vice President, Director May 14, 1997
- -----------------------------------
D. Fraser Bullock
(Principal Financial Officer and
Principal Accounting Officer)
II-5
<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.
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 -- 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, among Travel Services
International, Inc., _______ and ______.
-- Form of Employment and Non-Competition Agreement dated May , 1997, among Travel Services
International, Inc., _______ and ______.
-- Form of Employment and Non-Competition Agreement dated May , 1997, among Travel Services
International, Inc., _______ and ______.
-- Form of Employment and Non-Competition Agreement dated May , 1997, among Travel Services
International, Inc., _______ and ______.
-- Form of Employment and Non-Competition Agreement dated May , 1997, among Travel Services
International, Inc., _______ and ______.
*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]
*23.1 -- 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.
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.
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 9, 1997
by and among
TRAVEL SERVICES INTERNATIONAL, INC.
AUTO-EUROPE, INC. (MAINE)
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. PURCHASE AND SALE................................................ 3
2. [INTENTIONALLY DELETED].......................................... 3
3. DELIVERY OF CONSIDERATION........................................ 3
4. CLOSING.......................................................... 4
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS..................................................... 6
5.1 Due Organization........................................ 7
5.2 Authorization........................................... 8
5.3 Capital Stock of the COMPANY............................ 8
5.4 Transactions in Capital Stock........................... 9
5.5 No Bonus Shares......................................... 9
5.6 Subsidiaries............................................ 10
5.7 Predecessor Status; etc................................. 10
5.8 Spin-off by the COMPANY................................. 11
5.9 Financial Statements.................................... 11
5.10 Liabilities and Obligations............................. 12
5.11 Accounts and Notes Receivable........................... 13
5.12 Permits and Intangibles................................. 14
5.13 Environmental Matters................................... 15
5.14 Personal Property....................................... 16
5.15 Significant Customers; Material Contracts and
Commitments............................................ 17
5.16 Real Property........................................... 18
5.17 Insurance............................................... 20
5.18 Compensation; Employment Agreements; Organized
Labor Matters.......................................... 20
5.19 Employee Plans.......................................... 21
5.20 Compliance with ERISA................................... 23
5.21 Conformity with Law; Litigation......................... 25
5.22 Taxes................................................... 26
5.23 No Violations........................................... 27
5.24 Government Contracts.................................... 28
5.25 Absence of Changes...................................... 28
5.26 Deposit Accounts; Powers of Attorney.................... 30
5.27 Validity of Obligations................................. 31
5.28 Relations with Governments.............................. 31
5.29 Disclosure.............................................. 31
5.30 Prohibited Activities................................... 33
5.31 Authority; Ownership.................................... 33
5.32 Preemptive Rights....................................... 34
6. REPRESENTATIONS OF TSII.......................................... 34
6.1 Due Organization........................................ 35
6.2 Authorization........................................... 35
-i-
<PAGE>
6.3 Capital Stock of the TSII................................ 35
6.4 Transactions in Capital Stock............................ 36
6.5 Subsidiaries............................................. 36
6.6 Financial Statements..................................... 37
6.7 Liabilities and Obligations.............................. 37
6.8 Conformity with Law; Litigation.......................... 38
6.9 No Violations............................................ 38
6.10 Validity of Obligations.................................. 39
6.11 TSII Stock............................................... 40
6.12 No Side Agreements....................................... 40
6.13 Business; Real Property; Material Agreements............. 40
6.14 Taxes.................................................... 41
6.15 No Intention to Dispose of LLC Interest.................. 42
7. COVENANTS PRIOR TO CLOSING........................................ 42
7.1 Access and Cooperation; Due Diligence.................... 42
7.2 Conduct of Business Pending Closing...................... 43
7.3 Prohibited Activities.................................... 45
7.4 No Shop.................................................. 47
7.5 Notice to Bargaining Agents.............................. 47
7.6 Agreements............................................... 47
7.7 Notification of Certain Matters.......................... 48
7.8 Amendment of Schedules................................... 49
7.9 Cooperation in Preparation of Registration
Statement............................................... 51
7.10 Final Financial Statements............................... 52
7.11 Further Assurances....................................... 53
7.12 Authorized Capital....................................... 53
7.13 Formation of LLC and Transfer of Assets.................. 54
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY........................................................... 55
8.1 Representations and Warranties........................... 55
8.2 Performance of Obligations............................... 55
8.3 No Litigation............................................ 56
8.4 Opinion of Counsel....................................... 56
8.5 Registration Statement................................... 56
8.6 Consents and Approvals................................... 56
8.7 Good Standing Certificates............................... 57
8.8 No Material Adverse Change............................... 57
8.9 Closing of IPO........................................... 57
8.10 Secretary's Certificate.................................. 57
8.11 Employment Agreements.................................... 58
8.12 Directors and Officers Insurance......................... 58
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSII....................... 58
9.1 Representations and Warranties........................... 59
9.2 Performance of Obligations............................... 59
9.3 No Litigation............................................ 59
9.4 Secretary's Certificate.................................. 60
9.5 No Material Adverse Effect............................... 60
9.6 STOCKHOLDERS' Release.................................... 60
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9.7 Termination of Related Party Agreements.................. 61
9.8 Opinion of Counsel....................................... 61
9.9 Consents and Approvals................................... 61
9.10 Good Standing Certificates............................... 61
9.11 Registration Statement................................... 61
9.12 Employment Agreements.................................... 62
9.13 Closing of IPO........................................... 62
9.14 FIRPTA Certificate....................................... 62
10. COVENANTS OF TSII AND THE STOCKHOLDERS AFTER CLOSING.............. 62
10.1 Release From Guarantees; Repayment of Certain
Obligations............................................. 62
10.2 Preservation of Tax and Accounting Treatment............. 63
10.3 Preparation and Filing of Tax Returns.................... 63
10.4 Directors and Officers................................... 65
10.5 Preservation of Employee Benefit Plans................... 65
10.6 Maintenance of Books..................................... 65
11. INDEMNIFICATION................................................... 66
11.1 General Indemnification by COMPANY and
STOCKHOLDERS............................................. 66
11.2 Indemnification by TSII.................................. 67
11.3 Third Person Claims...................................... 68
11.4 Exclusive Remedy......................................... 71
11.5 Limitations on Indemnification........................... 71
12. TERMINATION OF AGREEMENT.......................................... 73
12.1 Termination.............................................. 73
12.2 Liabilities in Event of Termination...................... 74
13. NONCOMPETITION.................................................... 75
13.1 Prohibited Activities.................................... 75
13.2 Damages.................................................. 77
13.3 Reasonable Restraint..................................... 77
13.4 Severability; Reformation................................ 77
13.5 Independent Covenant..................................... 78
13.6 Materiality.............................................. 78
13.7 Limitations.............................................. 78
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION......................... 79
14.1 STOCKHOLDERS............................................. 79
14.2 TSII..................................................... 80
14.3 Damages.................................................. 81
14.4 Survival................................................. 82
15. TRANSFER RESTRICTIONS............................................. 82
15.1 Transfer Restrictions.................................... 82
15.2 Certain Transfers........................................ 83
16. FEDERAL SECURITIES ACT REPRESENTATIONS............................ 83
16.1 Compliance with Law...................................... 84
16.2 Economic Risk; Sophistication............................ 84
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17. REGISTRATION RIGHTS............................................... 85
17.1 Piggyback Registration Rights............................ 85
17.2 Demand Registration Rights............................... 86
17.3 Registration Procedures.................................. 88
17.4 Underwriting Agreement................................... 88
17.5 Availability of Rule 144................................. 89
18. GENERAL........................................................... 89
18.1 Cooperation.............................................. 89
18.2 Successors and Assigns................................... 90
18.3 Entire Agreement......................................... 90
18.4 Counterparts............................................. 90
18.5 Brokers and Agents....................................... 90
18.6 Expenses................................................. 91
18.7 Notices.................................................. 92
18.8 Governing Law............................................ 93
18.9 Exercise of Rights and Remedies.......................... 93
18.10 Time....................................................... 94
18.11 Reformation and Severability............................... 94
18.12 Remedies Cumulative........................................ 94
18.13 Captions................................................... 94
18.14 Amendments and Waivers..................................... 94
18.16 Defined Terms.............................................. 95
ANNEX I
INTENTIONALLY DELETED..................................................... 101
ANNEX II
CERTIFICATE OF INCORPORATION AND BY-LAWS OF TSII.......................... 102
ANNEX III
CONSIDERATION TO BE PAID TO COMPANY....................................... 103
ANNEX IV
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY........................... 104
ANNEX V
STOCKHOLDERS AND STOCK OWNERSHIP OF TSII.................................. 105
ANNEX VI
FORM OF OPINION OF COUNSEL TO TSII........................................ 106
ANNEX VII
FORM OF OPINION OF COUNSEL TO COMPANY AND STOCKHOLDERS.................... 110
ANNEX VIII
FORM OF EMPLOYMENT AGREEMENT.............................................. 114
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
May 9, 1997, by and among TRAVEL SERVICES INTERNATIONAL, INC., a Delaware
corporation ("TSII"), AUTO-EUROPE, INC. (MAINE), a Maine corporation (the
"COMPANY"), 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. Imad Khalidi, Alex Cecil and Wilfred Diller are referred to collectively
herein as the "STOCKHOLDERS."
WHEREAS, the respective Boards of Directors of TSII and the
COMPANY deem it advisable and in the best interests of TSII and the
COMPANY and their respective stockholders that the COMPANY contribute
the ownership of substantially all of its assets to TSII, by
transferring such assets to the LLC and transferring the LLC interest
to TSII, in exchange for stock of TSII and cash pursuant to this
Agreement and in accordance with the applicable provisions of the laws
of the State of Delaware and the State in which the COMPANY is
incorporated;
WHEREAS, TSII is entering into an Agreement and Plan of
Organization (collectively, the "Other Agreements") with Cruises, Inc.,
a New York corporation, Cruises Only, Inc., a Florida corporation, D-FW
Tours, Inc., a Texas corporation, D- FW Travel Arrangements, Inc., a
Texas corporation, and 800- Ideas, Inc., a Nevada corporation, and
their respective
<PAGE>
stockholders in order to acquire additional businesses (the COMPANY,
together with each of the entities with which TSII has entered into the
Other Agreements, are collectively referred to herein as the "Founding
Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO of
TSII Stock constitute the "TSII Plan of Organization;"
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of TSII and each of the Other Founding Companies that are
parties to the Other Agreements have approved and adopted the TSII Plan
of Organization as an integrated plan pursuant to which (1) the
COMPANY, Cruises Only, Inc. and 800-Ideas, Inc. will contribute the
ownership of substantially all of their respective assets to TSII, (2)
the stockholders of Cruises, Inc., D-FW Tours, Inc. and D-FW Travel
Arrangements will transfer the capital stock of such companies to TSII
and (3) the COMPANY, Cruises Only, Inc., 800-Ideas, Inc., the public,
and the STOCKHOLDERS of Cruises, Inc., D-FW Tours, Inc. and D-FW Travel
Arrangements, Inc. will acquire the stock of TSII as a tax-free
transfer of property under Section 351 of the Internal Revenue Code of
1986, as amended; and
WHEREAS, in consideration of the agreements of the Other
Founding Companies pursuant to the Other Agreements, the Board of
Directors of the COMPANY has approved this Agreement as part of the
TSII Plan of Organization in order to transfer the
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ownership of substantially all of the assets of the COMPANY to
TSII.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE
On the Funding and Consummation Date, (a) the COMPANY shall transfer,
convey, assign and deliver to TSII, and TSII shall acquire and accept from the
COMPANY, the LLC Interest, free and clear of all liens, security interests,
pledges, charges, voting trusts, restrictions, encumbrances and claims of every
kind.
2. [INTENTIONALLY DELETED]
3. DELIVERY OF CONSIDERATION
3.1 On the Funding and Consummation Date the COMPANY, which is on that
date the holder of all outstanding certificates representing limited liability
company interests of the LLC, shall, upon surrender of such certificates,
receive the number of shares of TSII Stock and the amount of cash set forth on
Annex III hereto, said cash to be payable by certified check or wire transfer.
3.2 The COMPANY shall deliver to TSII at the Closing the certificates
representing the LLC Interest, duly endorsed in blank by the COMPANY, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the
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COMPANY'S expense, affixed and cancelled. The COMPANY agrees promptly to cure
any deficiencies with respect to the endorsement of the interest certificates or
other documents of conveyance with respect to such LLC Interest or with respect
to the stock powers accompanying the LLC Interest.
3.3 All TSII Stock received by the COMPANY pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all of the other shares of outstanding
TSII Stock by reason of the provisions of the Certificate of Incorporation of
TSII or as otherwise provided by the Delaware GCL. All voting rights of such
TSII Stock received by the COMPANY shall be fully exercisable by the COMPANY and
the COMPANY shall not be deprived nor restricted in exercising those rights. On
the Funding and Consummation Date, TSII shall have no class of capital stock
issued and outstanding other than the TSII Stock and the Restricted Common
Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to prepare to (i) effect the transfer and delivery of the LLC Interest
as contemplated by Section 1 hereof and (ii) effect the delivery of the
consideration referred to in Section 3 hereof; provided, however, that such
actions shall not include the actual completion of the transfer and delivery of
the LLC Interest or the delivery of the consideration by certified check(s) or
wire transfer(s) referred to in Section 3 hereof, each of which actions
4
<PAGE>
shall only be taken upon the Funding and Consummation Date as herein provided.
In the event that there is no Funding and Consummation Date and this Agreement
terminates, TSII hereby covenants and agrees to do all things required by
Delaware law and all things which counsel for the COMPANY advise TSII are
required by applicable laws of the State in which the COMPANY is incorporated in
order to rescind the effects, if any, of the transfer of the Assets to the LLC
as described Section 7.13 and to pay all related costs of the COMPANY directly
associated with such rescission. The taking of the actions described in clauses
(i) and (ii) above (the "Closing") shall take place on the closing date (the
"Closing Date") at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
1333 New Hampshire Avenue, N.W., Washington, D.C. 20036. On the Funding and
Consummation Date (x) all transactions contemplated by this Agreement, including
the delivery of the LLC Interest and the delivery of shares and certified
check(s) or wire transfer(s) in an amount equal to the cash portion of the
consideration which the COMPANY shall be entitled to receive pursuant to Section
3 hereof shall occur and (y) the closing with respect to the IPO shall be
completed. The date on which the actions described in the preceding clauses (x)
and (y) occur shall be referred to as the "Funding and Consummation Date."
Except as provided in Sections 8 and 9 hereof with respect to actions to be
taken on the Funding and Consummation Date, during the period from the Closing
Date to the Funding and Consummation Date this Agreement may only be terminated
by a party if the underwriting
5
<PAGE>
agreement in respect of the IPO is terminated pursuant to the terms of such
agreement. This Agreement shall in any event terminate if the Funding and
Consummation Date has not occurred within 15 business days of the Closing Date.
Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represents and warrants that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date; provided, however, that representations and warranties
relating to the LLC shall be true only at the time of Closing and the Funding
and Consummation Date. Each of the COMPANY and the STOCKHOLDERS agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of two years (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
5.22 hereof shall survive until such time as the limitations period has run for
all Tax periods ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 5.22 and (ii) solely for
purposes of determining whether a claim for indemnification under Section
11.1(iii) hereof has been made on a timely basis, and solely to the extent that
in connection with
6
<PAGE>
the IPO, TSII actually incurs liability under the 1933 Act, the 1934 Act, or any
other federal or state securities laws as a result of a breach of a
representation or warranty by the COMPANY or a STOCKHOLDER, the representations
and warranties set forth herein shall survive until the expiration of any
applicable limitations period, which shall be deemed to be the Expiration Date
for such purposes. For purposes of this Section 5, the term "COMPANY" shall mean
and refer to the COMPANY and all of its Subsidiaries, including the LLC.
5.1 Due Organization. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and the COMPANY is duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on its business in the places and in the manner as now
conducted, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the COMPANY taken as a whole (as used herein with
respect to the COMPANY, or with respect to any other person, a "Material Adverse
Effect"). Schedule 5.1 sets forth the jurisdiction in which the COMPANY is
incorporated and contains a list of all such jurisdictions in which the COMPANY
is authorized or qualified to do business. True, complete and correct copies of
the Certificate of Incorporation and By-laws, each as amended, of the COMPANY
(the "Charter Documents")
7
<PAGE>
are all attached hereto as Schedule 5.1. The stock records of the COMPANY, as
heretofore made available to TSII, are correct and complete in all material
respects. There are no minutes in the possession of the COMPANY or the
STOCKHOLDERS which have not been made available to TSII, and all of such minutes
are correct and complete in all respects. Except as set forth on Schedule 5.1,
the most recent minutes of the COMPANY, which are dated no earlier than ten
business days prior to the date hereof, affirm and ratify all prior acts of the
COMPANY, and of its officers and directors on behalf of the COMPANY.
5.2 Authorization. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the full legal right, power and
authority to enter into and perform this Agreement, and all required approvals
of the shareholders and the Board of Directors of the COMPANY have been
obtained.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV and further, except as set forth on Schedule 5.3,
are owned free and clear of all liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind. All of the
issued and outstanding shares of the capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the
8
<PAGE>
STOCKHOLDERS and further, such shares were offered, issued, sold and delivered
by the COMPANY in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder.
5.4 Transactions in Capital Stock. Except as set forth on Schedule 5.4,
the COMPANY has not acquired any COMPANY Stock since January l, 1994. Except as
set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the COMPANY to issue any of its
authorized but unissued capital stock; (ii) the COMPANY has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure of
the COMPANY nor the relative ownership of shares among any of its respective
stockholders has been altered or changed in contemplation of the transactions
contemplated hereby and/or the TSII Plan of Organization. Schedule 5.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and the material terms of such outstanding
options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
9
<PAGE>
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each
of the COMPANY's subsidiaries, including the LLC (each, a "Subsidiary"), and
sets forth the number and class of the authorized capital stock of each
Subsidiary and the number of shares or interests of each Subsidiary which are
issued and outstanding, all of which shares or interests (except as set forth on
Schedule 5.6) are owned by the COMPANY, free and clear of all liens, security
interests, pledges, voting trusts, equities, restrictions, encumbrances and
claims of every kind. Except as set forth on Schedule 5.6, the COMPANY does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the COMPANY,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity. The COMPANY is the sole owner of all of the issued and
outstanding limited liability company interests of the LLC, free and clear of
all liens, security interests, pledges, voting trusts, equities, restrictions,
encumbrances and claims of every kind.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a listing of
all names of all predecessor companies of the COMPANY, including the names of
any entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary
10
<PAGE>
or division of another corporation or a part of an acquisition which was later
rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY Financial Statements") of the
COMPANY: the COMPANY's audited Consolidated Balance Sheets, if any, as of
December 31, 1996, 1995 and 1994 and Statements of Income, Cash Flows and
Retained Earnings, if any, for each of the years in the three-year period ended
December 31, 1996 (December 31, 1996 being hereinafter referred to as the
"Balance Sheet Date"). Except as set forth on Schedule 5.9, such Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted thereon or on Schedule 5.9). Except as set forth on Schedule
5.9, such Consolidated Balance Sheets as of December 31, 1996, 1995 and 1994
present fairly the financial position of the COMPANY as of the dates indicated
thereon, and such Consolidated Statements of Income, Cash Flows and Retained
Earnings present fairly the results of operations for the periods indicated
thereon.
11
<PAGE>
5.10 Liabilities and Obligations. The COMPANY has delivered to TSII an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
COMPANY Financial Statements at the Balance Sheet Date, (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000) and
(iii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages,
liens, pledges or other security agreements. Except as set forth on Schedule
5.10, since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business. The COMPANY has also delivered to TSII on
Schedule 5.10, in the case of those contingent liabilities related to pending or
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding;
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(ii) the name of each court or agency before which such
claim, suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was
instituted; and
(iv) a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable with respect to
each such liability. If no estimate is provided, the estimate
shall for purposes of this Agreement be deemed to be zero.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to TSII
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. The COMPANY shall also provide to TSII (x) an accurate list of all
receivables obtained subsequent to the Balance Sheet Date up to the Closing Date
and (y) an aging of all accounts and notes receivable showing amounts due in 30
day aging categories (the "A/R Aging Reports"). Except to the extent reflected
on Schedule 5.11 or as disclosed by the COMPANY to TSII in a writing
accompanying the A/R Aging Reports, the accounts, notes and other receivables
shown on Schedule 5.11 and on the A/R Aging Reports are and shall be collectible
in the amounts shown, net of reserves reflected in the balance sheet as of the
Balance Sheet Date with respect to accounts receivable as of the Balance Sheet
Date, and net of reserves
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reflected in the books and records of the COMPANY (consistent with the methods
used for the balance sheet) with respect to accounts receivable of the COMPANY
after the Balance Sheet Date.
5.12 Permits and Intangibles. The COMPANY holds all licenses,
franchises, permits and other governmental authorizations the absence of any of
which could have a Material Adverse Effect on its business, and the COMPANY has
delivered to TSII an accurate list and summary description (which is set forth
on Schedule 5.12) of all such licenses, franchises, permits and other
governmental authorizations, including permits, titles, licenses, franchises,
certificates, trademarks, trade names, patents, patent applications and
copyrights owned or held by the COMPANY (including interests in software or
other technology systems, programs and intellectual property) (it being
understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 5.13). To the knowledge of the
COMPANY, the licenses, franchises, permits and other governmental authorizations
listed on Schedules 5.12 and 5.13 are valid, and the COMPANY has not received
any notice that any governmental authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental authorization.
The COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the licenses,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 and is not in violation of any of the foregoing except where such
noncompliance or violation would not
14
<PAGE>
have a Material Adverse Effect on the COMPANY. Except as specifically provided
on Schedule 5.12, the transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely affect the
rights and benefits afforded to the COMPANY by, any such licenses, franchises,
permits or government authorizations.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i)
the COMPANY has complied with and is in compliance with all federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, permits, judgments, orders and decrees applicable to it or any
of its properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances including petroleum and petroleum products (as such terms
are defined in any applicable Environmental Law); (ii) the COMPANY has obtained
and adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or
15
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otherwise handled; (iii) there have been no releases or threats of releases (as
defined in Environmental Laws) at, from, in or on any property owned or operated
by the COMPANY except as permitted by Environmental Laws; (iv) the COMPANY knows
of no on-site or off-site location to which the COMPANY has transported or
disposed of Hazardous Wastes and Hazardous Substances or arranged for the
transportation of Hazardous Wastes and Hazardous Substances, which site is the
subject of any federal, state, local or foreign enforcement action or any other
investigation which could lead to any claim against the COMPANY or TSII for any
clean-up cost, remedial work, damage to natural resources, property damage or
personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) the COMPANY has no contingent liability in connection with any
release of any Hazardous Waste or Hazardous Substance into the environment.
5.14 Personal Property. The COMPANY has delivered to TSII an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" on the balance sheet of the
COMPANY as of the Balance Sheet Date or that will be included on any balance
sheet of the COMPANY prepared after the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value in excess of $10,000 (i) as
of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z)
all leases and agreements in respect of personal property, including, true,
complete and correct copies
16
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of all such leases and agreements. The COMPANY shall indicate on Schedule 5.14
those assets currently owned, or that were formerly owned, by STOCKHOLDERS,
relatives of STOCKHOLDERS, or Affiliates of the COMPANY. Except as set forth on
Schedule 5.14, (i) all personal property used by the COMPANY in its business is
either owned by the COMPANY or leased by the COMPANY pursuant to a lease
included on Schedule 5.14, (ii) all of the personal property listed on Schedule
5.14 is in good working order and condition, ordinary wear and tear excepted and
(iii) all leases and agreements included on Schedule 5.14 are in full force and
effect and constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
Except for the Excluded Assets listed on Schedule 7.13, the Assets
constitute all of the property and assets used in, and/or necessary to operate,
the business of the COMPANY as it is now being conducted and as contemplated to
be conducted by the LLC on and after the Funding and Consummation Date.
5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to TSII an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers (or persons or entities that are sources of
a significant number of
17
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customers) have cancelled or substantially reduced or, to the knowledge of the
COMPANY, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedules
5.10, 5.14 or 5.16, (a) in existence as of the Balance Sheet Date and (b)
entered into since the Balance Sheet Date, and in each case has delivered true,
complete and correct copies of such agreements to TSII. The COMPANY has complied
with all material commitments and obligations pertaining to it, and is not in
default under any contracts or agreements listed on Schedule 5.15 and no notice
of default under any such contract or agreement has been received. The COMPANY
has also indicated on Schedule 5.15 a summary description of all plans or
projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the COMPANY.
5.16 Real Property. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet
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Date and (ii) acquired since the Balance Sheet Date, and all other property, if
any, used by the COMPANY in the conduct of its business. The COMPANY has good
and insurable title to the real property owned by it, including those reflected
on Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no default exists);
(ii) liens for current Taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the Registry of Deeds for the County
in which the properties, assets and leasehold estates are located which do
not adversely affect the current use of the property.
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to TSII an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased
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by the COMPANY (which copies are attached to Schedule 5.16), and an indication
as to which such properties, if any, are currently owned, or were formerly
owned, by STOCKHOLDERS or business or personal affiliates of the COMPANY or
STOCKHOLDERS. Except as set forth on Schedule 5.16, all of such leases included
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 Insurance. The COMPANY has delivered to TSII, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs and workers compensation claims received for the past three
(3) policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws. All of such insurance
policies are currently in full force and effect and shall remain in full force
and effect through the Funding and Consummation Date. No insurance carried by
the COMPANY has ever been cancelled by the insurer and the COMPANY has never
been unable to obtain insurance coverage for its assets and operations.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to TSII an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and
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key employees of the COMPANY, listing all employment agreements with such
officers, directors and key employees and the rate of compensation (and the
portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons (i) as of the Balance Sheet Date and (ii)
as of the date hereof. The COMPANY has provided to TSII true, complete and
correct copies of any employment agreements for persons listed on Schedule 5.18.
Since the Balance Sheet Date, there have been no increases in the compensation
payable or any special bonuses to any officer, director, key employee or other
employee, except ordinary salary increases implemented on a basis consistent
with past practices, except as set forth on Schedule 5.18.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any arrangement with any labor union, (ii) no employees of the COMPANY are
represented by any labor union or covered by any collective bargaining
agreement, (iii) no campaign to establish such representation is in progress and
(iv) there is no pending or, to the best of the COMPANY's knowledge, threatened
labor dispute involving the COMPANY and any group of its employees nor has the
COMPANY experienced any labor interruptions over the past three years. The
COMPANY believes its relationship with employees to be good.
5.19 Employee Plans. The COMPANY has delivered to TSII an accurate
schedule (Schedule 5.19) showing all employee benefit plans currently sponsored
or maintained or contributed to by, or
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which cover the current or former employees or directors of the COMPANY, all
employment agreements and other agreements or arrangements containing "golden
parachute" or other similar provisions, and all deferred compensation
agreements, together with true, complete and correct copies of such plans,
agreements and any trusts related thereto, and classifications of employees
covered thereby as of the Balance Sheet Date. Except for the employee benefit
plans, if any, described on Schedule 5.19, the COMPANY does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor has the COMPANY any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The COMPANY has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans, agreements, arrangement and trusts set forth on Schedule 5.19, nor is the
COMPANY required to contribute to any retirement plan pursuant to the provisions
of any collective bargaining agreement establishing the terms and conditions or
employment of any of the COMPANY's employees.
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The COMPANY is not now, and cannot as a result of its past activities
become, liable to the Pension Benefit Guaranty Corporation or to any
multiemployer employee pension benefit plan under the provisions of Title IV of
ERISA.
All employee benefit plans, agreements, arrangements and trusts listed
on Schedule 5.19 and the administration thereof are in substantial compliance
with their terms and all applicable provisions of ERISA and the regulations
issued thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.20 Compliance with ERISA. All such plans, agreements, arrangements
and trusts of the COMPANY that are currently maintained or contributed to by the
COMPANY or cover employees or former employees of the COMPANY listed on Schedule
5.19 that are intended to qualify under Section 401(a) of the Code (the
"Qualified Plans") are, and have been so qualified and have been determined by
the Internal Revenue Service to be so qualified, and copies of such
determination letters are included as part of Schedule 5.19 hereof. Except as
disclosed on Schedule 5.19, all reports and other documents required to be filed
with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports,
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audit reports or Tax Returns) have been timely filed or distributed, and copies
thereof for the three most recent plan years are included as part of Schedule
5.19 hereof. Neither STOCKHOLDERS, any such plan listed on Schedule 5.19, nor
the COMPANY has engaged in any transaction prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA. No such plan listed on
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and the COMPANY has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation. The
STOCKHOLDERS further represent that:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no such plan listed on Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed
on Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could
have any direct or indirect liability whatsoever
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(including, but not limited to, any liability to any multiemployer plan
or the Pension Benefit Guaranty Corporation under Title IV of ERISA or
to the Internal Revenue Service for any excise tax or penalty, or being
subject to any Statutory Lien to secure payment of any such liability)
with respect to any plan now or heretofore maintained or contributed to
by any entity other than the COMPANY that is, or at any time was, a
member of a "controlled group" (as defined in Section 412(n)(6)(B) of
the Code) that includes the COMPANY.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedules 5.21 or 5.13, the COMPANY is not in violation of any law or regulation
which would have a Material Adverse Effect, or of any order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over the COMPANY; and
except to the extent set forth on Schedules 5.10 or 5.13, there are no claims,
actions, suits or proceedings, commenced or, to the knowledge of the COMPANY,
threatened, against or affecting the COMPANY, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over the COMPANY
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. The COMPANY has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in applicable federal, state and local
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statutes, ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 5.12 and 5.13, and is not in violation of any
of the foregoing.
5.22 Taxes. The COMPANY has timely filed all requisite federal, state
and other Tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims against the COMPANY for federal, state
and other Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any claim for
Taxes, whether pending or threatened, has been received. All Tax, including
interest and penalties (whether or not shown on any Tax Return) owed by the
COMPANY, any member of an affiliated or consolidated group which includes or
included the COMPANY, or with respect to any payment made or deemed made by the
COMPANY, required to be paid by the date hereof has been paid. The amounts shown
as accruals for Taxes on the COMPANY Financial Statements are sufficient for the
payment of all Taxes of the kinds indicated (including penalties and interest)
for all fiscal periods ended on or before that date. Copies of (i) the federal
and local income tax returns and franchise tax returns of the COMPANY for its
last three (3) fiscal years, or such shorter period of time as the COMPANY shall
have existed, (ii) any Tax examinations commenced or closed or outstanding
during their three (3) most recent fiscal
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years, and (iii) currently outstanding extensions of statutory limitations, are
attached hereto as Schedule 5.22. The COMPANY has a taxable year ended on the
date set forth as such on Schedule 5.22. Except as disclosed on Schedule 5.22,
the COMPANY's methods of accounting have not changed in the past five years. The
COMPANY is not an investment company as defined in Section 351(e)(1) of the
Code.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto, is in default under any lease, instrument, agreement, license or
permit set forth on Schedules 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth on Schedule 5.23, (a) the
rights and benefits of the COMPANY under the Material Documents will not be
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and consummation of the
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transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit. Except as set
forth on Schedule 5.23, none of the Material Documents by its terms prohibits
the use or publication by the COMPANY or TSII of the name of any other party to
such Material Document, and none of the Material Documents prohibits or
restricts the COMPANY from freely providing services to any other customer or
potential customer of the COMPANY, TSII or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Absence of Changes. Since the Balance Sheet Date, except as set
forth on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or
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indirect redemption, purchase or other acquisition of any of the capital
stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by the COMPANY to any of its
officers, directors, STOCKHOLDERS, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the COMPANY to any person,
including, without limitation, the STOCKHOLDERS and their affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY, including without limitation any
indebtedness or obligation of any STOCKHOLDER or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or
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assets outside of the ordinary course of the COMPANY's business;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party;
(xiii) any transaction by the COMPANY outside the ordinary course of
its business;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the COMPANY.
5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered to
TSII an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the Agreement of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 5.26 also sets forth a complete list of the names of each person,
corporation, firm or other entity holding a general or
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special power of attorney from the COMPANY and a description of the terms of
such power.
5.27 Validity of Obligations. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
COMPANY and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of the COMPANY,
enforceable against the Company in accordance with its terms except as limited
by bankruptcy, insolvency or other similar laws of general application relating
to or affecting the enforcement of creditors' rights generally, and the
individual(s) signing this Agreement on behalf of the Company have the legal
power, authority and capacity to bind the Company.
5.28 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to TSII and its representatives
in writing pursuant hereto or thereto, present fairly the business and
operations of
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the COMPANY for the time periods with respect to which such information was
requested. The COMPANY'S rights under the documents delivered pursuant hereto
would not be materially adversely affected by, and no statement made herein
would be rendered untrue in any material respect by, any other document to which
the COMPANY is a party, or to which its properties are subject, or by any other
fact or circumstance regarding the COMPANY (which fact or circumstance was, or
should reasonably, after due inquiry, have been known to the COMPANY) that is
not disclosed pursuant hereto or thereto.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; and (ii) that neither TSII or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all.
(c) The COMPANY does not have any present plan, intention,
commitment, binding agreement or arrangement to dispose of any shares of TSII
Stock received as described in Section 3.1,
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provided that the COMPANY may distribute such shares of TSII Stock to the
STOCKHOLDERS if the STOCKHOLDERS represent and warrant to the COMPANY and TSII
that the STOCKHOLDERS do not have any present plan, intention, commitment,
binding agreement or arrangement to dispose of any such shares of TSII Stock.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30 or as
contemplated by Section 7.13, the COMPANY has not, between the Balance Sheet
Date and the date hereof, taken any of the actions set forth in Section 7.3
(Prohibited Activities).
(B) Representations and Warranties of STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.31 and 5.32 shall survive until the
second anniversary of the Funding and Consummation Date, which shall be the
Expiration Date for purposes of those Sections.
5.31 Authority; Ownership. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
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5.32 Preemptive Rights. Such STOCKHOLDER does not have, or hereby
waives, any preemptive or other right to acquire shares of COMPANY Stock that
such STOCKHOLDER has or may have had on the date hereof other than rights of any
STOCKHOLDER to acquire TSII Stock pursuant to any option granted by TSII.
6. REPRESENTATIONS OF TSII
TSII represents and warrants that all of the following representations
and warranties in this Section 6 are true at the date of this Agreement and,
subject to Section 7.8 hereof, shall be true at the time of Closing and the
Funding and Consummation Date, and that such representations and warranties
shall survive the Funding and Consummation Date for a period of two years (the
last day of such period being the "Expiration Date"), except that (i) the
warranties and representations set forth in Section 6.14 hereof shall survive
until such time as the limitations period has run for all Tax periods ended on
or prior to the Funding and Consummation Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of determining
whether a claim for indemnification under Section 11.2(iv) hereof has been made
on a timely basis, and solely to the extent that in connection with the IPO,
TSII actually incurs liability under the 1933 Act, the 1934 Act, or any other
federal or state securities laws, the representations and warranties set forth
herein shall survive until the expiration of any applicable limitations period,
which shall be deemed to be the Expiration Date for such purposes.
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6.1 Due Organization. TSII is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Certificate of Incorporation
and By-laws, each as amended, of TSII (the "TSII Charter Documents") are all
attached hereto as Annex II.
6.2 Authorization. (i) The representative of TSII executing this
Agreement has the authority to enter into and bind TSII to the terms of this
Agreement and (ii) TSII has the full legal right, power and authority to enter
into and perform this Agreement.
6.3 Capital Stock of the TSII. Immediately prior to the Funding and
Consummation Date, the authorized capital stock of TSII will consist of
50,000,000 shares of TSII Stock, of which the number of issued and outstanding
shares will be as set forth in the Registration Statement, and 1,000,000 shares
of preferred stock, $.01 par value, of which no shares will be issued and
outstanding. All of the issued and outstanding shares of the capital stock of
TSII are owned by the persons set forth on Annex V hereof, in each case, free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. Upon consummation of the
IPO, the number of outstanding shares of TSII will be as set forth in the
Registration
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Statement. All of the issued and outstanding shares of the capital stock of TSII
have been duly authorized and validly issued, are fully paid and nonassessable,
are owned of record and beneficially by the persons set forth on Annex V, and
further, such shares were offered, issued, sold and delivered by TSII in
compliance with all applicable state and federal laws concerning the issuance of
securities. Further, none of such shares was issued in violation of the
preemptive rights of any past or present stockholder of TSII.
6.4 Transactions in Capital Stock. Except for the Other Agreements and
except as set forth on Schedule 6.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates TSII to issue any of its
authorized but unissued capital stock; and (ii) TSII has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of TSII.
6.5 Subsidiaries. TSII has no subsidiaries except for the companies to
become subsidiaries of TSII pursuant to this Agreement and each of the Other
Agreements as of the Funding and Consummation Date. Except as set forth in the
preceding sentence, TSII does not presently own, of record or beneficially, or
control, directly or
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indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
TSII is not, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
6.6 Financial Statements. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "TSII Financial Statements") of TSII,
which reflect the results of its operations from inception: TSII's audited
Balance Sheet as of December 31, 1996 and Statements of Income, Cash Flows and
Retained Earnings for the period from inception through December 31, 1996. Such
TSII Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted thereon or on Schedule 6.6). Except as set
forth on Schedule 6.6, such Balance Sheets as of December 31, 1996 present
fairly the financial position of TSII as of such date, and such statements of
Income, Cash Flows and Retained Earnings present fairly the results of
operations for the period indicated.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
TSII has no material liabilities, contingent or otherwise, except as set forth
in or contemplated by this Agreement and the Other Agreements and except for
fees and expenses incurred in connection with the transactions contemplated
hereby and thereby.
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6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, TSII is not in violation of any law or regulation which would have
a Material Adverse Effect, or of any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over TSII; and except to the extent set
forth on Schedule 6.8, there are no material claims, actions, suits or
proceedings, pending or, to the knowledge of TSII, threatened, against or
affecting TSII, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over TSII and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received.
TSII has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and is not in violation of any of
the foregoing. Assuming the representations and warranties of the COMPANY and
the STOCKHOLDERS contained herein are complete and correct in all respects, this
Agreement does not violate any federal or state securities laws, rules or
regulations.
6.9 No Violations. TSII is not violation of any TSII Charter Document.
Neither TSII or, to the knowledge of TSII, any other party thereto, is in
default under any lease, instrument, agreement, license or permit to which TSII
is a party, or by which
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TSII or any of its properties are bound (collectively, the "TSII Documents");
and (a) the rights and benefits of TSII under the TSII Documents will not be
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation or breach or constitute a default under, any of the terms or
provisions of the TSII Documents or the TSII Charter Documents. Except as set
forth on Schedule 6.9, none of the TSII Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
6.10 Validity of Obligations. The execution and delivery of this
Agreement by TSII and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of TSII and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of TSII, enforceable against TSII
in accordance with its terms except as limited by bankruptcy, insolvency or
other similar laws of general application relating to or affecting the
enforcement of creditors' rights generally, and the individual signing this
Agreement on behalf of TSII has the legal power, authority and capacity to bind
TSII.
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6.11 TSII Stock. At the time of issuance thereof, the TSII Stock to be
delivered to the COMPANY pursuant to this Agreement will constitute valid and
legally issued shares of TSII, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all material and substantive respects to the TSII Stock
issued and outstanding as of the date hereof and the TSII Stock to be issued
pursuant to the Other Agreements by reason of the provisions of the Delaware
GCL. The shares of TSII Stock to be issued to the COMPANY pursuant to this
Agreement will not be registered under the 1933 Act, except as provided in
Section 17 hereof.
6.12 No Side Agreements. TSII has not entered and will not enter into
any agreement with any of the Founding Companies or any of the stockholders of
the Founding Companies or TSII other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein, and none of TSII, its equity owners
or its affiliates have received any cash compensation or payments in connection
with this transaction except for reimbursement of out-of-pocket expenses which
are necessary or appropriate to this transaction.
6.13 Business; Real Property; Material Agreements. TSII has not
conducted any operations or business since inception other than activities
related to the TSII Plan of Organization. TSII does not own and has not at any
time owned any real property or any material personal property and is not a
party to any other agreement, except as listed on Schedule 6.13 and except that
TSII is a party to the
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Other Agreements and the agreements contemplated thereby and to such agreements
as will be filed as Exhibits to the Registration Statement.
6.14 Taxes. TSII has timely filed all requisite federal, state and
other Tax returns or extension requests for all fiscal periods ended on or
before the date hereof; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against TSII for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the date hereof, and no notice of any claim for Taxes, whether pending
or threatened, has been received. All Tax, including interest and penalties
(whether or not shown on any Tax return) owed by TSII, any member of an
affiliated or consolidated group which includes or included TSII, or with
respect to any payment made or deemed made by TSII herein has been paid. The
amounts shown as accruals for Taxes on the TSII Financial Statements are
sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Copies of (i) any Tax examinations, (ii) extensions of statutory limitations and
(iii) the federal and local income tax returns and franchise tax returns of TSII
for its last three (3) fiscal years, or such shorter period of time as TSII
shall have existed, are attached hereto as Schedule 5.22. TSII is not an
investment company as defined in Section 351(e)(1) of the Code.
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6.15 No Intention to Dispose of LLC Interest. TSII is acquiring the LLC
Interest pursuant hereto for its own account for investment purposes and does
not have any present plan, intention, commitment, binding agreement, or
arrangement to dispose of the LLC Interest.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of TSII and the Other Founding Companies
access to all of the COMPANY's sites, properties, books and records and will
furnish TSII with such additional financial and operating data and other
information as to the business and properties of the COMPANY as TSII or the
Other Founding Companies may from time to time reasonably request. The COMPANY
will cooperate with TSII and the Other Founding Companies and their respective
representatives, including TSII's auditors and counsel, in the preparation of
any documents or other material (including the Registration Statement) which may
be required in connection with any documents or materials required by this
Agreement. TSII, the STOCKHOLDERS and the COMPANY shall treat all information
obtained in connection with the negotiation and performance of this Agreement or
the due diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Section 14
hereof. In addition, TSII will cause each of the Other
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Founding Companies to enter into a provision similar to this Section 7.1
requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TSII will afford to the officers and authorized representatives of the
COMPANY access to all of TSII's sites, properties, books and records and all due
diligence, agreements, documents and information of or concerning the Founding
Companies and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of TSII
as the COMPANY may from time to time reasonably request. TSII will cooperate
with the COMPANY, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY shall, except (w)
as contemplated by Section 7.13, (x) as set forth on Schedule 7.2, (y) as
requested by TSII or (z) as consented to by TSII (which consent shall not be
unreasonably withheld):
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(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any new method of management, operation or
accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(v) maintain and preserve its business organization intact, use its
best efforts to retain its present key employees and relationships with
suppliers, customers and others having business relations with the COMPANY;
(vi) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, provided that debt and/or lease
instruments may be replaced if such replacement instruments are on terms at
least as favorable to the COMPANY as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents
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except for ordinary and customary bonus and salary increases for employees
in accordance with past practices.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3 or as
contemplated by Section 7.13, between the date hereof and the Funding and
Consummation Date, the COMPANY shall not, without prior written consent of TSII:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except: (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
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cost not in excess of $10,000 necessary or desirable for the conduct of the
businesses of the COMPANY; (2)(A) liens for Taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for which
contested Taxes adequate reserves have been established and are being
maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedules 5.10 and/or 5.16 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the COMPANY, provided that
the COMPANY may negotiate and adjust bills or claims in the ordinary course
of business in a manner consistent with past practice, provided, further,
that such adjustments shall not be deemed to be included on Schedule 5.11
unless specifically listed thereon;
(x) commit a material breach or, except in the ordinary course of
business consistent with past practices, amend or
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terminate any material agreement, permit, license or other right of the
COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 No Shop. None of the STOCKHOLDERS, the COMPANY, or any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
person or entity for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person or entity other than TSII
or its authorized agents relating to any acquisition or purchase of all or
a material amount of the assets of, or any equity interest in, the COMPANY
or a merger, consolidation or business combination of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TSII on Schedule 7.5 with proof that any required notice has been sent.
7.6 Agreements. The STOCKHOLDERS and the COMPANY shall terminate (i)
any stockholders agreements, voting agreements, voting trusts, options, warrants
and employment agreements between
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the COMPANY and any employee listed on Schedule 8.11 hereto and (ii) any
existing agreement between the COMPANY and any STOCKHOLDER, on or prior to the
Funding and Consummation Date. Copies of such termination agreements are listed
on Schedule 7.6 and copies thereof are attached hereto.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to TSII of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any STOCKHOLDER or the COMPANY to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such person hereunder. TSII shall give prompt notice to the COMPANY of (i)
the occurrence or non-occurrence of any event the occurrence or non-occurrence
of which would be likely to cause any representation or warranty of TSII
contained herein to be untrue or inaccurate in any material respect at or prior
to the Closing and (ii) any material failure of TSII to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery of any notice pursuant to this Section 7.7 that is not
accompanied by a proposed amendment or supplement to a schedule pursuant to
Section 7.8 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify
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the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.8 Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the anticipated
effectiveness of the Registration Statement to supplement or amend promptly the
Schedules hereto with respect to any matter hereafter arising or discovered
which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules, provided, however, that
supplements and amendments to Schedules 5.10, 5.11, 5.14, 5.15 and 5.18 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless TSII and
a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a schedule prepared by TSII that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether
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the conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the
Schedules hereto shall be deemed to be the schedules as amended or supplemented
pursuant to this Section 7.8. In the event that one of the Other Founding
Companies seeks to amend or supplement a schedule pursuant to Section 7.8 of one
of the Other Agreements, and such amendment or supplement constitutes or
reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, TSII shall give the COMPANY notice promptly after
it has knowledge thereof. If TSII and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by TSII or any Founding Company if no response is received within 24 hours
following receipt of notice of such amendment or supplement (or sooner if
required by the circumstances under which such consent is requested), but the
COMPANY does not give its consent, the COMPANY may terminate this Agreement
pursuant to Section 12.l(iv) hereof. In the event that the COMPANY seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and TSII and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that TSII seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other
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party if this Agreement shall be terminated pursuant to the provisions of this
Section 7.8.
7.9 Cooperation in Preparation of Registration Statement. The COMPANY
and STOCKHOLDERS shall furnish or cause to be furnished to TSII and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with TSII and the Underwriters in
the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise TSII if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the 1933 Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. TSII will give the
COMPANY and the STOCKHOLDERS an opportunity to review and comment on the
Registration Statement and all amendments thereto prior to filing. Insofar as
the information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
STOCKHOLDER represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact
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required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading and that each
STOCKHOLDER and the COMPANY has had the opportunity to review and approve such
information. If, prior to the 25th day after the date of the final prospectus of
TSII utilized in connection with the IPO, the COMPANY or the STOCKHOLDERS become
aware of any fact or circumstance which would change (or, if after the Funding
and Consummation Date, would have changed) a representation or warranty of the
COMPANY or the STOCKHOLDERS in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to TSII.
However, subject to the provisions of Section 7.8, such notification shall not
relieve either the COMPANY or the STOCKHOLDERS of their respective obligations
under this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of TSII, the truth and accuracy of any and all warranties and
representations of the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS
at the date of this Agreement and on the Closing Date and on the Funding and
Consummation Date, shall be a precondition to the consummation of this
transaction.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Funding and Consummation Date, and TSII shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated
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statement of income, cash flows and retained earnings of the COMPANY for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the COMPANY or the results of its
operations from the financial statements as of the Balance Sheet Date. Except as
set forth on Schedule 7.10, such financial statements shall have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted therein).
Except as noted in such financial statements, all of such financial statements
will present fairly the results of operations of the COMPANY for the periods
indicated thereon and shall be for such dates and time periods as required by
Regulation S-X under the 1933 Act and the 1934 Act.
7.11 Further Assurances. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.12 Authorized Capital. TSII shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the TSII Stock.
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7.13 Formation of LLC and Transfer of Assets.
(i) Prior to the Closing Date, the COMPANY shall have caused
the due formation of a Delaware limited liability company that is a
wholly owned subsidiary of the COMPANY (the "LLC"), and the COMPANY
shall have delivered to TSII true and correct copies of all formation
and organization documents of the LLC.
(ii) Prior to the Closing Date, the COMPANY shall have
transferred, conveyed, assigned and delivered to the LLC, and the LLC
shall have acquired and accepted from the COMPANY: (a) all of the
assets held by the COMPANY and used by or useful to the COMPANY in
connection with the business of the COMPANY except for the Excluded
Assets, all of which assets are set forth on Schedule 7.13 under the
heading "Assets" (the "Assets"); and (b) all of the obligations of the
COMPANY in connection with the business of the COMPANY, all of which
obligations are set forth on Schedule 7.13 under the heading
"Obligations." All of the Excluded Assets are set forth on Schedule
7.13 under the heading "Excluded Assets."
(iii) Prior to the Closing Date, the COMPANY shall have
amended its legal name and fictitious names in all applicable
jurisdictions and shall have provided for the LLC to operate and
conduct business in such jurisdictions under the names currently used
in such jurisdictions by the COMPANY.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of STOCKHOLDERS and the COMPANY with respect to actions
to be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.2, 8.3, 8.8 and 8.9. From and after the Closing Date or, with respect
to the conditions set forth in Sections 8.2, 8.3, 8.8 and 8.9, from and after
the Funding and Consummation Date, all conditions not satisfied shall be deemed
to have been waived, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of TSII contained in Section 6
hereof:
8.1 Representations and Warranties. All representations and warranties
of TSII contained in Section 6 shall be true and correct in all material
respects as of the Closing Date as though such representations and warranties
had been made as of that time; and a certificate to the foregoing effect dated
the Closing Date and signed by the President or any Vice President of TSII shall
have been delivered to the STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by TSII on or
before the Closing Date and the Funding and Consummation Date shall have been
duly complied with and performed
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in all material respects; and certificates to the foregoing effect dated the
Closing Date and the Funding and Consummation Date and signed by the President
or any Vice President of TSII shall have been delivered to the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of the
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 Opinion of Counsel. The COMPANY and the Underwriters shall have
received an opinion from counsel for TSII, dated the Closing Date, in the form
annexed hereto as Annex VI.
8.5 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of TSII Stock to be received by the
STOCKHOLDERS is not less than the Minimum Value set forth on Annex III.
8.6 Consents and Approvals. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made.
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8.7 Good Standing Certificates. TSII shall have delivered to the
COMPANY a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which TSII is authorized to do business, showing that TSII is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for TSII for all periods prior to the Closing have
been filed and paid.
8.8 No Material Adverse Change. No event or circumstance shall have
occurred with respect to TSII which would constitute a Material Adverse Effect,
and TSII shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of TSII to conduct its
business.
8.9 Closing of IPO. The closing of the sale of the TSII Stock to the
Underwriters in the IPO and the acquisitions of the Other Founding Companies
pursuant to the Other Agreements shall have occurred simultaneously with the
Funding and Consummation Date hereunder.
8.10 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TSII, certifying the truth and correctness of attached copies of TSII's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if required,
the
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stockholders of TSII approving TSII's entering into this Agreement and the
consummation of the transactions contemplated hereby. Such certificate or
certificates also shall be addressed to the Underwriters and copies thereof
shall be delivered to the Underwriters.
8.11 Employment Agreements. Each of the persons listed on Schedule 8.11
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 Directors and Officers Insurance. TSII shall have obtained
Directors and Officers Liability Insurance in amounts that are customary and
commercially reasonable.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSII
The obligations of TSII with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TSII with
respect to actions to be taken on the Funding and Consummation Date are subject
to the satisfaction or waiver on or prior to the Funding and Consummation Date
of the conditions set forth in Sections 9.2, 9.3, 9.5 and 9.13. From and after
the Closing Date or, with respect to the conditions set forth in Sections 9.2,
9.3, 9.5 and 9.13, from and after the Funding and Consummation Date, all
conditions not satisfied shall be deemed to have been waived, except that no
such waiver shall be deemed to
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affect the survival of the representations and warranties of the COMPANY
contained in Section 5 hereof.
9.1 Representations and Warranties. All representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects as of the Closing Date and the Funding and
Consummation Date with the same effect as though such representations and
warranties had been made on and as of such date; and the STOCKHOLDERS shall have
delivered to TSII certificates dated the Closing Date and signed by them to such
effect.
9.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before the Closing Date or the Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the STOCKHOLDERS and the COMPANY
shall have delivered to TSII certificates dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of TSII as
a result of which the management of TSII deems it inadvisable to proceed with
the transactions hereunder.
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9.4 Secretary's Certificate. TSII shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby. Such certificate also shall be addressed to
the Underwriters and a copy thereof shall be delivered to the Underwriters.
9.5 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS shall have delivered to
TSII an instrument dated the Closing Date releasing the LLC from (i) any and all
claims of the STOCKHOLDERS against the LLC and (ii) obligations of the LLC to
the STOCKHOLDERS, except for (x) items specifically identified on Schedules 5.10
and 5.16 as being claims of or obligations to the STOCKHOLDERS, (y) continuing
obligations to STOCKHOLDERS relating to their employment by the LLC and (z)
obligations arising under this Agreement or the transactions contemplated
hereby.
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9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
shall have been cancelled effective prior to or as of the Funding and
Consummation Date.
9.8 Opinion of Counsel. TSII shall have received an opinion from
Counsel to the COMPANY and the STOCKHOLDERS, dated the Closing Date,
substantially in the form annexed hereto as Annex VII, and the Underwriters
shall have received a copy of the same opinion addressed to the Underwriters.
9.9 Consents and Approvals. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
TSII a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by TSII, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC.
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9.12 Employment Agreements. Each of the persons listed on Schedule 8.11
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 Closing of IPO. The closing of the sale of the TSII Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to TSII
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 Insurance. TSII shall have been named as an additional insured on
all insurance policies of the LLC and certificates of insurance to that effect
shall have been delivered to TSII.
9.16 Lockup Agreement. The COMPANY shall have signed an agreement with
the Underwriters, in form and substance identical to agreements signed by the
Founding Stockholders in connection with the Other Agreements, by which the
COMPANY covenants to hold all of the TSII Stock acquired hereunder for a period
of at least 180 days after the Funding and Consummation Date.
10. COVENANTS OF TSII AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. TSII
shall, contemporaneously with the Funding and Consummation Date, use its best
efforts to have the STOCKHOLDERS released from any and all guarantees on any
indebtedness that they personally guaranteed and from any and all pledges of
assets that
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they pledged to secure such indebtedness for the benefit of the COMPANY, with
all such guarantees on indebtedness being assumed by TSII. In the event that
TSII cannot obtain such releases from the lenders of any such guaranteed
indebtedness on the Funding and Consummation Date, TSII shall pay off or
otherwise refinance or retire such indebtedness on the Funding and Consummation
Date. TSII shall indemnify and hold harmless STOCKHOLDERS from the payment of
any guaranties on any indebtedness or contractual obligations that STOCKHOLDERS
had incurred prior to the Closing Date provided that such indebtedness or
obligations are related to the business of the COMPANY as being conducted at the
Closing Date.
10.2 Preservation of Tax and Accounting Treatment. Except as
contemplated by this Agreement or the Registration Statement, after the Funding
and Consummation Date, TSII shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the transaction, including:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the TSII Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of the
STOCKHOLDERS.
10.3 Preparation and Filing of Tax Returns.
(i) The COMPANY shall, if possible, file or cause to be filed
all separate Returns of any Acquired Party for all taxable periods that
end on or before the Funding and Consummation Date. Each STOCKHOLDER
shall pay or cause to be
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paid all Tax liabilities (in excess of all amounts already paid with
respect thereto or properly accrued or reserved with respect thereto on
the COMPANY Financial Statements and books and records) shown by such
Returns to be due.
(ii) TSII shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending
after the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by taxing authorities and
relevant records concerning the ownership and Tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis at its cost to
provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party
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required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
(iv) Each of the COMPANY, TSII and each STOCKHOLDER shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a transfer to a controlled corporation under Section
351(a) of the Code.
10.4 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of TSII, as
and to the extent set forth in the Registration Statement, promptly following
the Funding and Consummation Date. TSII shall make arrangements to compensate
each Director for attending meetings of the Board of Directors and to reimburse
them for related expenses.
10.5 Preservation of Employee Benefit Plans. Following the Funding and
Consummation Date, TSII shall not terminate any health insurance, life insurance
or 401(k) plan in effect at the COMPANY until such time as TSII is able to
replace such plan with a plan that is applicable to TSII and all of its then
existing subsidiaries. TSII shall have no obligation to provide replacement
plans that have the same terms and provisions as the existing plans; provided,
however, that any new health insurance plan shall provide for coverage for
preexisting conditions.
10.6 Maintenance of Books. TSII will cause the COMPANY (a) to maintain
the books and records of the COMPANY existing prior to the Closing Date for a
period of six years after the Closing Date and
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(b) to make such books and records available to the STOCKHOLDERS for any
reasonable purpose.
11. INDEMNIFICATION
The COMPANY, STOCKHOLDERS and TSII each make the following covenants
that are applicable to them, respectively:
11.1 General Indemnification by COMPANY and STOCKHOLDERS. The COMPANY
and the STOCKHOLDERS covenant and agree that they, jointly and severally, will
indemnify, defend, protect and hold harmless TSII and the LLC at all times, from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by TSII or
the LLC as a result of or arising from (i) any breach of the representations and
warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other federal
or state law or regulation, at common law or otherwise, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
relating to the COMPANY or the STOCKHOLDERS, and provided to TSII or its counsel
by the COMPANY or the STOCKHOLDERS contained in the Registration Statement or
any prospectus forming a part thereof, or
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any amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading, or (iv) the matters described on Schedule
11.1(iv) (relating to specifically identified matters such as ongoing claims
and/or litigation), which schedule shall be prepared by TSII; provided, however,
(A) that in the case of any indemnity arising pursuant to clause (iii) such
indemnity shall not inure to the benefit of TSII or the LLC to the extent that
such untrue statement (or alleged untrue statement) was made in, or omission (or
alleged omission) occurred in, any preliminary prospectus and the STOCKHOLDERS
provided, in writing, corrected information to TSII counsel and to TSII for
inclusion in the final prospectus, and such information was not so included or
properly delivered, and (B) that no STOCKHOLDER shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other STOCKHOLDER.
11.2 Indemnification by TSII. TSII covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of
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investigation) incurred by the COMPANY or the STOCKHOLDERS as a result of or
arising from (i) any breach by TSII of its representations and warranties set
forth herein or on the schedules or certificates attached hereto, (ii) any
nonfulfillment of any agreement on the part of TSII under this Agreement, (iii)
any liabilities which the COMPANY or the STOCKHOLDERS may incur due to TSII's
failure to be responsible for the liabilities and obligations of the LLC as
provided in Section 1 hereof; (iv) any liability under the 1933 Act, the 1934
Act or other federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to TSII or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to TSII or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading, or (v) the matters described on Schedule 11.2(v)
(relating to specifically identified matters), which schedule shall be prepared
by the STOCKHOLDERS.
11.3 Third Person Claims. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition
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precedent to a claim with respect thereto being made against any party obligated
to provide indemnification pursuant to Section 11.1 or 11.2 hereof (hereinafter
the "Indemnifying Party"), give the Indemnifying Party written notice of such
claim or the commencement of such action or proceeding. Such notice shall state
the nature and the basis of such claim and a reasonable estimate of the amount
thereof. The Indemnifying Party shall have the right to defend and settle (such
settlement to be subject to the consent of the Indemnified Party, as hereinafter
provided), at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same in good faith and diligently, provided
that the Indemnifying Party shall not settle any criminal proceeding without the
written consent of the Indemnified Party. If the Indemnifying Party undertakes
to defend or settle, it shall promptly notify the Indemnified Party of its
intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by the Indemnifying Party, provided that if
counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to
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participate in such matter through counsel of its own choosing and the
Indemnifying Party will reimburse the Indemnified Party for the reasonable
expenses of its counsel. Further, absent a conflict, the Indemnified Party may
select counsel and have such counsel participate in such matter at the sole cost
of the Indemnified Party. After the Indemnifying Party has notified the
Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. If the Indemnifying
Party does not undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the
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Indemnifying Party shall reimburse the Indemnified Party for the amount paid in
such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 Exclusive Remedy. The indemnification provided for in this Section
11 shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided, however, that nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement.
11.5 Limitations on Indemnification. TSII, the LLC and the other
persons or entities indemnified pursuant to Section 11.1 shall not assert any
claim for indemnification hereunder against the COMPANY or the STOCKHOLDERS
until such time as, and solely to the extent that, the aggregate of all claims
which such persons may have against the COMPANY and such STOCKHOLDERS shall
exceed 2.0% of the sum of (i) the cash paid to the COMPANY and (ii) the value of
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the TSII Stock delivered to the COMPANY (the "Indemnification Threshold"),
provided, however, that TSII, the LLC and the other persons or entities
indemnified pursuant to Section 11.1 may assert and shall be indemnified for any
claim under Section 11.l(iv) at any time, regardless of whether the aggregate of
all claims which such persons may have against the COMPANY or any STOCKHOLDER or
all STOCKHOLDERS exceeds the Indemnification Threshold, it being understood that
the amount of any such claim under Section 11.1(iv) shall not be counted towards
the Indemnification Threshold. The COMPANY and the STOCKHOLDERS shall not assert
any claim for indemnification hereunder against TSII until such time as, and
solely to the extent that, the aggregate of all claims which the COMPANY and the
STOCKHOLDERS may have against TSII or the LLC shall exceed $50,000, provided,
however, that the COMPANY and the STOCKHOLDERS and the other persons or entities
indemnified pursuant to Section 11.2 may assert and shall be indemnified for any
claim under Section 11.2(v) at any time, regardless of whether the aggregate of
all claims which such persons may have against TSII exceeds $50,000, it being
understood that the amount of any such claim under Section 11.2(v) shall not be
counted towards such $50,000 amount. No person shall be entitled to
indemnification under this Section 11 if and to the extent that: (a) such
person's claim for indemnification is directly or indirectly related to and
substantially the result of a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement; or (b) such
person receives a tax benefit equal to
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or in excess of the amount of such claim as a result of the claim or loss for
which indemnification is sought.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), none of the COMPANY and the STOCKHOLDERS shall be liable under
this Section 11 for an amount which exceeds the amount of proceeds received by
the COMPANY in connection with the transactions contemplated hereby. Indemnity
obligations hereunder may be satisfied through the payment of cash or the
delivery of TSII Stock, or a combination thereof, at the COMPANY's or the
STOCKHOLDER's election. For purposes of calculating the value of the TSII Stock
received or delivered by the COMPANY or the STOCKHOLDERS (for purposes of
determining the Indemnification Threshold, the limitation on indemnity set forth
in the second preceding sentence and the amount of any indemnity paid), TSII
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. Any indemnification payment made by the COMPANY or the
STOCKHOLDERS pursuant to this Section 11 shall be deemed to be a reduction in
the consideration received by the COMPANY pursuant to Section 3.
12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated by written notice
from the party asserting termination to the other parties at any time prior to
the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TSII and the
COMPANY;
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(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by TSII (acting through its board of directors),
on the other hand, if the transactions contemplated by this Agreement to take
place at the Closing shall not have been consummated by September 30, 1997,
unless the failure of such transactions to be consummated is due to the willful
failure of the party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be performed by it
prior to or on the Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by TSII, on
the other hand, if a material breach or default shall be made by the other party
in the observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein, and the curing of such default shall
not have been made on or before the Funding and Consummation Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses relating to the
transactions contemplated hereby. No party hereto shall be liable
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to any other party if the Agreement is terminated under Sections 12.1(i), (ii)
(except as set forth therein), (iv) or (v).
13. NONCOMPETITION
13.1 Prohibited Activities. Provided that TSII shall have complied with
and performed all of its obligations hereunder and that the COMPANY shall have
received payment in full of the consideration described in Section 3, the
STOCKHOLDERS and the COMPANY shall not, for a period of three (3) years
following the Funding and Consummation Date, for any reason whatsoever, directly
or indirectly, for themselves 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 services business in direct competition
with TSII or any of the subsidiaries thereof, within 100 miles of where
the COMPANY or any of its subsidiaries conducted business prior to the
effectiveness of the Funding and Consummation Date (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSII (including the subsidiaries thereof) in
a sales representative or managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
TSII (including the subsidiaries
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thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is at that time, or
which has been, within one (l) year prior to the Funding and
Consummation Date, a customer of TSII (including the subsidiaries
thereof), of the COMPANY or of any of the Other Founding Companies
within the Territory for the purpose of soliciting or selling products
or services in direct competition with TSII within the Territory;
(iv) call upon any prospective acquisition candidate, on the
COMPANY's or any STOCKHOLDER's own behalf or on behalf of any
competitor in the travel services business, which candidate, to the
actual knowledge of the COMPANY or such STOCKHOLDER after due inquiry,
was called upon by TSII (including the subsidiaries thereof) or for
which, to the actual knowledge of the COMPANY or such STOCKHOLDER after
due inquiry, TSII (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the COMPANY or the LLC to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent that
the COMPANY has in the past disclosed such information to the types of
persons to whom disclosure is then presently contemplated for valid
business reasons.
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Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any STOCKHOLDER 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.
13.2 Damages. Because of the difficulty of measuring economic losses to
TSII as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TSII for which it would
have no other adequate remedy, the COMPANY and each STOCKHOLDER agrees that the
foregoing covenant may be enforced by TSII in the event of breach by the COMPANY
or such STOCKHOLDER, by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
COMPANY and the STOCKHOLDERS in light of the activities and business of TSII
(including the subsidiaries thereof) on the date of the execution of this
Agreement and the current plans of TSII.
13.4 Severability; Reformation. The covenants in this Section 13 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
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extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
13.5 Independent Covenant. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement. It is specifically agreed that the period of three (3) years stated
at the beginning of this Section 13, during which the agreements and covenants
of the COMPANY and each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which the
COMPANY or such STOCKHOLDER is in violation of any provision of this Section 13.
The covenants contained in Section 13 shall have no effect if the transactions
contemplated by this Agreement are not consummated nor may such covenants be
enforced by any party to this Agreement that is in breach of its obligations
hereunder.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that
the covenants in this Section 13 are a material and substantial part of this
transaction.
13.7 Limitations. In the event that any STOCKHOLDER who is employed by
TSII or the LLC pursuant to an employment agreement is terminated without cause
(as defined in such employment agreement), the provisions of this Section 13
shall no longer be valid or enforceable by TSII. If such employment agreement
contains provisions relating to the same subject matter as this Section 13 that
are less restrictive than set forth in this Section 13, the provisions of such
employment agreement shall control.
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14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The COMPANY and the STOCKHOLDERS recognize and
acknowledge that they had in the past, currently have, and in the future may
possibly have, access to certain confidential information of the COMPANY, the
LLC, the Other Founding Companies, and/or TSII, such as operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the COMPANY's, the LLC's, the Other Founding Companies' and/or TSII's respective
businesses. The COMPANY and the STOCKHOLDERS agree that they shall not disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except (a) to authorized
representatives of TSII, (b) following the Closing, such information may be
disclosed by the STOCKHOLDERS as is required in the course of performing their
duties for TSII or the LLC and (c) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such information is or becomes known to the public
generally or to businesses operating in the travel industry through no fault of
the COMPANY and the STOCKHOLDERS, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, however, that
prior to disclosing any information pursuant to this clause (ii), the COMPANY
and the STOCKHOLDERS shall, if possible, give two days' prior written notice
thereof to TSII and provide TSII with the opportunity within such two-day period
to contest such disclosure,
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or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party. In the event of a breach or threatened breach by the COMPANY or any of
the STOCKHOLDERS of the provisions of this Section, TSII shall be entitled to an
injunction restraining the COMPANY and such STOCKHOLDERS from disclosing, in
whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting TSII from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages. In the event the
transactions contemplated by this Agreement are not consummated, the COMPANY and
the STOCKHOLDERS shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the COMPANY.
14.2 TSII. TSII recognizes and acknowledges that TSII had in the past
and currently has access to certain confidential information of the COMPANY,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the COMPANY's business. TSII agrees that, prior to
the Closing, or if the transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided, however, that such advisors (other than
counsel) agree to the confidentiality provisions of this Section 14.2 and (c) to
the
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Other Founding Companies and their representatives pursuant to Section 7.1(a),
unless (i) such information becomes known to the public generally through no
fault of TSII, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, however, that prior to
disclosing any information pursuant to this clause (ii), TSII shall, unless
otherwise required by law or such order, give two days' prior written notice
thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and the
STOCKHOLDERS with the opportunity within such two-day period to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by TSII of the
provisions of this Section, the COMPANY and the STOCKHOLDERS shall be entitled
to an injunction restraining TSII from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
COMPANY and the STOCKHOLDERS from pursuing any other available remedy for as
such breach or threatened breach, including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may
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be enforced against the other parties by injunctions and restraining orders.
14.4 Survival. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of three years from
(a) the Funding and Consummation Date if the transactions contemplated hereby
are consummated or (b) the date hereof if the transactions contemplated hereby
are not consummated.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. Except for transfers to Affiliates of the
COMPANY who agree to be bound by the restrictions set forth in this Section
15.1, for a period of one year from the Funding and Consummation Date, except
pursuant to Section 17 hereof, the COMPANY shall not sell, assign, exchange,
transfer, distribute or otherwise dispose of any shares of TSII Stock received
by the COMPANY as described in Section 3.1. The certificates evidencing the TSII
Stock delivered to the COMPANY pursuant to Section 3 of this Agreement shall
bear a legend substantially in the form set forth below and containing such
other information as TSII may deem necessary or appropriate: THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [first anniversary of Closing Date]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE (AS IT MAY BE REDUCED AS PROVIDED HEREIN).
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15.2 Certain Transfers. Except for transfers to Affiliates of the
COMPANY who agree to bound by the restrictions set forth in Section 15.1 and
except pursuant to Section 17 hereof, regardless of whether transfers of such
shares are restricted pursuant to the terms of this Agreement, during the
two-year period commencing on the Funding and Consummation Date, the COMPANY
shall not sell, assign, exchange, transfer, distribute or otherwise dispose of,
in any transaction or series of transactions involving more than 5,000 shares (a
"Future Sale"), any shares of TSII Stock as described in Section 3.1 received by
the COMPANY in the transaction contemplated hereby except in accordance with
this Section 15.2. If the COMPANY desires to make a Future Sale, the COMPANY
shall first provide written notice thereof to TSII. As soon as practicable after
receipt of such notice by TSII, TSII shall designate in writing to the COMPANY
the names and other pertinent information of two investment banks or market
makers through whom the Future Sale may be made. The COMPANY may not make the
Future Sale except through one of the designated investment banks or market
makers for TSII Stock; provided, however, that the terms of such Future Sale
(including commissions) shall be at least as favorable to the COMPANY as the
COMPANY would have received in the absence of this Section 15.2.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
The COMPANY acknowledges that the shares of TSII Stock to be delivered
to the COMPANY pursuant to this Agreement have not been
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and will not be registered under the 1933 Act and therefore may not be resold
without compliance with the 1933 Act. The TSII Stock to be acquired by the
COMPANY pursuant to this Agreement is being acquired solely for its own account,
for investment purposes only, and with no present intention of distributing,
selling or otherwise disposing of it in connection with a distribution.
16.1 Compliance with Law. Each of the COMPANY and the STOCKHOLDERS
covenants, warrants and represents that none of the shares of TSII Stock issued
to the COMPANY will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All of the TSII Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement: THE SHARES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND
MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE
ACT AND APPLICABLE SECURITIES LAW.
16.2 Economic Risk; Sophistication. The COMPANY is able to bear the
economic risk of an investment in the TSII Stock acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment in the TSII Stock.
The COMPANY and the STOCKHOLDERS have had an adequate opportunity to ask
questions and receive answers from the officers of TSII
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concerning any and all matters relating to the transactions described herein
including, without limitation, the background and experience of the current and
proposed officers and directors of TSII, the plans for the operations of the
business of TSII, the business, operations and financial condition of the
Founding Companies other than the COMPANY, and any plans for additional
acquisitions and the like. The COMPANY and the STOCKHOLDERS have asked any and
all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 Piggyback Registration Rights. At any time following the Funding
and Consummation Date, whenever TSII proposes to register any TSII Stock for its
own or others account under the 1933 Act for a public offering, other than (i)
any shelf registration of shares to be used as consideration for acquisitions of
additional businesses by TSII and (ii) registrations relating to employee
benefit plans, TSII shall give the COMPANY prompt written notice of its intent
to do so. Upon the written request of the COMPANY given within 30 days after
receipt of such notice, TSII shall cause to be included in such registration all
of the TSII Stock issued to the COMPANY pursuant to this Agreement which the
COMPANY requests, provided that TSII shall have the right to reduce the number
of shares included in such registration to the extent that inclusion of such
shares could, in the opinion of tax counsel to TSII or its
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independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if TSII is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by persons other than TSII is greater than the number of such shares
which can be offered without adversely affecting the offering, TSII may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares desired to be sold by such person) to a number deemed
satisfactory by such managing underwriter, provided, that, notwithstanding
Section 15.1 hereof, for each such offering made by TSII after the IPO, such
reduction shall be made first by reducing the number of shares to be sold by
persons other than TSII, the COMPANY and the Other Founding Companies or the
stockholders thereof who receive shares of TSII Stock pursuant to the Other
Agreements (collectively, the COMPANY and the Other Founding Companies or the
stockholders thereof who receive shares of TSII Stock pursuant to the Other
Agreements being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 Demand Registration Rights. At any time after the date two years
after the Closing, the holders of a majority of the shares of TSII Stock issued
to the Founding Stockholders pursuant to this Agreement and the Other Agreements
which have not been
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previously registered or sold and which are not entitled to be sold under Rule
144(k) (or any similar or successor provision) promulgated under the 1933 Act
may request in writing that TSII file a registration statement under the 1933
Act covering the registration of the shares of TSII Stock issued to the COMPANY
pursuant to this Agreement and the Other Agreements then held by such Founding
Stockholders (a "Demand Registration"). Within ten (10) days of the receipt of
such request, TSII shall give written notice of such request to all other
Founding Stockholders and shall, as soon as practicable but in no event later
than 45 days after notice from the COMPANY, file and use its best efforts to
cause to become effective a registration statement covering all such shares.
TSII shall be obligated to effect only one Demand Registration for all Founding
Stockholders.
Notwithstanding the foregoing paragraph, following such a demand a
majority of TSII's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 60 day period.
If at the time of any request by the Founding Stockholders for a Demand
Registration TSII has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TSII
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TSII is no longer proceeding
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diligently to effect such registration; provided that TSII shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
17.3 Registration Procedures. All expenses incurred in connection with
the registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by TSII. In connection with
registrations under Sections 17.1 and 17.2, TSII shall (i) use its best efforts
to prepare and file with the SEC as soon as reasonably practicable, a
registration statement with respect to the TSII Stock and use its best efforts
to cause such registration to promptly become and remain effective for a period
of at least 45 days (or such shorter period during which the Founding
Stockholders shall have sold all TSII Stock which they requested to be
registered); (ii) use its best efforts to register and qualify the TSII Stock
covered by such registration statement under applicable state securities laws as
the holders shall reasonably request for the distribution for the TSII Stock;
and (iii) take such other actions as are reasonable and necessary to comply with
the requirements of the 1933 Act and the regulations thereunder to enable the
Founding Stockholders to sell their shares pursuant thereto.
17.4 Underwriting Agreement. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registration public
offering, TSII and each
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participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions (including
indemnification provisions) as are customary in the securities business for such
an arrangement between such managing underwriters and companies of TSII's size
and investment stature.
17.5 Availability of Rule 144. TSII shall not be obligated to register
shares of TSII Stock held by the COMPANY at any time when the resale provisions
of Rule 144(k) (or any similar or successor provision) promulgated under the
1933 Act are available to the COMPANY.
18. GENERAL
18.1 Cooperation. The COMPANY, STOCKHOLDERS and TSII shall each deliver
or cause to be delivered to the other on the Funding and Consummation Date, and
at such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY shall cooperate and use its reasonable efforts to
have the present officers, directors and the employees of the COMPANY cooperate
with TSII on and after the Funding and Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any tax
return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Funding
and Consummation Date.
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18.2 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of TSII, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 Entire Agreement. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDERS,
the COMPANY and TSII and supersede any prior agreement and understanding
relating to the subject matter of this Agreement, including but not limited to
any letter of intent entered into by any of the parties hereto. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS, the COMPANY and TSII, acting
through their respective officers or trustees, duly authorized by their
respective Boards of Directors.
18.4 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 Brokers and Agents. Except as disclosed on Schedule 18.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damages
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or expense arising out of claims for fees or commission of brokers employed or
alleged to have been employed by such indemnifying party.
18.6 Expenses. Whether or not the transactions herein contemplated
shall be consummated, TSII will pay the fees, expenses and disbursements of TSII
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TSII under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Akin, Gump, Strauss, Hauer & Feld, L.L.P., and
any other person or entity retained by TSII, and the costs of preparing the
Registration Statement. The STOCKHOLDERS shall pay the fees, expenses and
disbursements of the STOCKHOLDERS, the COMPANY and their respective agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by the COMPANY and the STOCKHOLDERS under this Agreement, including
the fees and expenses of accountants and legal counsel to the COMPANY and the
STOCKHOLDERS. Notwithstanding the foregoing, if the transactions contemplated by
this Agreement are consummated, TSII shall reimburse the STOCKHOLDERS for such
reasonable fees, expenses and disbursements upon the closing of the IPO up to
$25,000 plus such additional fees, expenses and disbursements as
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are set forth on Schedule 18.6. In addition, each STOCKHOLDER shall pay all
sales, use, transfer, real property transfer, recording, gains, stock transfer
and other similar taxes and fees ("Transfer Taxes") imposed in connection with
the transactions contemplated hereby, other than Transfer Taxes, if any, imposed
by the State of Delaware. Each STOCKHOLDER shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In addition, each
STOCKHOLDER acknowledges that he or she, and not the COMPANY or TSII, shall pay
all taxes due upon receipt of the consideration payable pursuant to Section 3
hereof, and shall assume all tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 Notices. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party.
(a) If to TSII, addressed to it at:
Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, PL 15
Bethesda, Maryland 20816
Attention: Elan J. Blutinger
with copies to:
Akin, Gump, Strauss, Hauer &
Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Bruce S. Mendelsohn
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(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with
respect to each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Auto Europe
59 Commercial Street
Portland, Maine 04112
Attention: Imad Khalidi
and marked "Personal and Confidential"
with copy to:
John L. Carpenter, Esq.
Bernstein, Shur, Sawyer & Nelson
100 Middle Street
Post Office Box 9729
Portland, Maine 04104-5029
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Delaware.
18.9 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
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18.10 Time. Time is of the essence with respect to this Agreement.
18.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 Remedies Cumulative. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
18.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TSII, the COMPANY and the STOCKHOLDERS. Any amendment or
waiver effected in accordance with this Section 18.14 shall be binding upon each
of the parties hereto, any other person receiving TSII Stock in connection with
the transactions contemplated hereby and each future holder of such TSII Stock.
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18.15 Incorporation by Reference. To the extent that an item is
disclosed in a particular schedule or a subsection of a particular schedule and
such item is readily apparent on its face as being applicable to another
schedule or another subsection of the same schedule, such item shall be deemed
incorporated by reference in such schedule or such other subsection under the
same schedule.
18.16 Defined Terms. Unless the context otherwise requires, capitalized
terms used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of this
Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any Subsidiary and any member of a
Relevant Group.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" has the meaning set forth in the first paragraph hereof.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Assets" has the meaning set forth in Section 7.13.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
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"Code" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" means the capital stock of the COMPANY.
"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 17.2.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"Founding Stockholders" has the meaning set forth in Section 17.1.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"Future Sale" has the meaning set forth in Section 15.2.
"Indemnification Threshold" has the meaning set forth in Section 11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"IPO" means the initial public offering of TSII Stock pursuant to the
Registration Statement.
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"LLC" has the meaning set forth in Section 7.13.
"LLC Interest" means all of the limited liability company interests in
the LLC owned by the COMPANY.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by TSII and the Underwriters
of the public offering price of the shares of TSII Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 covering the shares of TSII Stock to be issued in the IPO.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Restricted Common Stock" means the common stock of TSII, par value
$0.01 per share, having the restricted voting rights and such other rights,
preferences, restrictions and limitations as are set
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forth in the Certificate of Incorporation, as amended, of TSII on the Funding
and Consummation Date.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" has the meaning set forth in Section 5.6.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer Taxes" has the meaning set forth in Section 18.6.
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"TSII" has the meaning set forth in the first paragraph of this
Agreement.
"TSII Charter Documents" has the meaning set forth in Section 6.1.
"TSII Financial Statements" has the meaning set forth in Section 6.6.
"TSII Plan of Organization" has the meaning set forth in the fourth
recital of this Agreement.
"TSII Stock" means the common stock, par value $.01 per share, of TSII.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
[The next page is the signature page]
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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: /s/ Leonard Potter
---------------------------------
Name:
-----------------------------
Title:
----------------------------
AUTO-EUROPE, INC. (MAINE)
By:/s/ Imad Khalidi
-------------------------------
Imad Khalidi
President
STOCKHOLDERS:
/s/ Imad Khalidi
----------------------------------
Imad Khalidi, Individually
/s/ Alex Cecil
----------------------------------
Alex Cecil, Individually
/s/ Wilfred Diller
----------------------------------
Wilfred Diller, as Trustee for
Thurston Cecil
/s/ Wilfred Diller
----------------------------------
Wilfred Diller, as Trustee for
Lila Cecil
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AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 9, 1997
by and among
TRAVEL SERVICES INTERNATIONAL, INC.
CRUISES ONLY, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
Page
1. PURCHASE AND SALE............................................... 3
2. [INTENTIONALLY DELETED]......................................... 3
3. DELIVERY OF CONSIDERATION....................................... 3
4. CLOSING......................................................... 5
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS.................................................... 7
5.1 DUE ORGANIZATION....................................... 8
5.2 AUTHORIZATION.......................................... 9
5.3 CAPITAL STOCK OF THE COMPANY........................... 9
5.4 TRANSACTIONS IN CAPITAL STOCK.......................... 10
5.5 NO BONUS SHARES........................................ 10
5.6 SUBSIDIARIES........................................... 10
5.7 PREDECESSOR STATUS; ETC................................ 11
5.8 SPIN-OFF BY THE COMPANY................................ 11
5.9 FINANCIAL STATEMENTS................................... 12
5.10 LIABILITIES AND OBLIGATIONS............................ 12
5.11 ACCOUNTS AND NOTES RECEIVABLE.......................... 14
5.12 PERMITS AND INTANGIBLES................................ 15
5.13 ENVIRONMENTAL MATTERS.................................. 16
5.14 PERSONAL PROPERTY...................................... 17
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND
COMMITMENTS............................................ 18
5.16 REAL PROPERTY.......................................... 19
5.17 INSURANCE.............................................. 21
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED
LABOR MATTERS.......................................... 21
5.19 EMPLOYEE PLANS......................................... 22
5.20 COMPLIANCE WITH ERISA.................................. 24
5.21 CONFORMITY WITH LAW; LITIGATION........................ 26
5.22 TAXES.................................................. 27
5.23 NO VIOLATIONS.......................................... 28
5.24 GOVERNMENT CONTRACTS................................... 29
5.25 ABSENCE OF CHANGES..................................... 29
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY................... 32
5.27 VALIDITY OF OBLIGATIONS................................ 32
5.28 RELATIONS WITH GOVERNMENTS............................. 33
5.29 DISCLOSURE............................................. 33
5.30 PROHIBITED ACTIVITIES.................................. 34
5.31 AUTHORITY; OWNERSHIP................................... 35
5.32 PREEMPTIVE RIGHTS...................................... 35
6. REPRESENTATIONS OF TSII......................................... 35
6.1 DUE ORGANIZATION....................................... 36
6.2 AUTHORIZATION.......................................... 36
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6.3 CAPITAL STOCK OF THE TSII.............................. 37
6.4 TRANSACTIONS IN CAPITAL STOCK.......................... 37
6.5 SUBSIDIARIES........................................... 38
6.6 FINANCIAL STATEMENTS................................... 38
6.7 LIABILITIES AND OBLIGATIONS............................ 39
6.8 CONFORMITY WITH LAW; LITIGATION........................ 39
6.9 NO VIOLATIONS.......................................... 40
6.10 VALIDITY OF OBLIGATIONS................................ 41
6.11 TSII STOCK............................................. 41
6.12 NO SIDE AGREEMENTS..................................... 42
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS........... 42
6.14 TAXES.................................................. 42
6.15 NO INTENTION TO DISPOSE OF LLC INTEREST................ 43
6.16 COMPLETION OF DUE DILIGENCE............................ 43
7. COVENANTS PRIOR TO CLOSING...................................... 44
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.................. 44
7.2 CONDUCT OF BUSINESS PENDING PRE-CLOSING................ 45
7.3 PROHIBITED ACTIVITIES.................................. 47
7.4 NO SHOP................................................ 49
7.5 NOTICE TO BARGAINING AGENTS............................ 50
7.6 AGREEMENTS............................................. 50
7.7 NOTIFICATION OF CERTAIN MATTERS........................ 50
7.8 AMENDMENT OF SCHEDULES................................. 51
7.9 COOPERATION IN PREPARATION OF REGISTRATION
STATEMENT.............................................. 53
7.10 FINAL FINANCIAL STATEMENTS............................. 55
7.11 FURTHER ASSURANCES..................................... 56
7.12 AUTHORIZED CAPITAL..................................... 56
7.13 FORMATION OF LLC AND TRANSFER OF ASSETS................ 56
7.14 BEST EFFORTS TO CONSUMMATE TRANSACTION................. 57
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY......................................................... 57
8.1 REPRESENTATIONS AND WARRANTIES......................... 58
8.2 PERFORMANCE OF OBLIGATIONS............................. 58
8.3 NO LITIGATION.......................................... 58
8.4 OPINION OF COUNSEL..................................... 59
8.5 REGISTRATION STATEMENT................................. 59
8.6 CONSENTS AND APPROVALS................................. 59
8.7 GOOD STANDING CERTIFICATES............................. 59
8.8 NO MATERIAL ADVERSE CHANGE............................. 60
8.9 CLOSING OF IPO......................................... 60
8.10 SECRETARY'S CERTIFICATE................................ 60
8.11 EMPLOYMENT AGREEMENTS.................................. 61
8.12 DIRECTORS AND OFFICERS INSURANCE....................... 61
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSII..................... 61
9.1 REPRESENTATIONS AND WARRANTIES......................... 61
9.2 PERFORMANCE OF OBLIGATIONS............................. 62
9.3 NO LITIGATION.......................................... 62
9.4 SECRETARY'S CERTIFICATE................................ 62
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9.5 NO MATERIAL ADVERSE EFFECT.............................. 63
9.6 STOCKHOLDERS' RELEASE................................... 63
9.7 TERMINATION OF RELATED PARTY AGREEMENTS................. 63
9.8 OPINION OF COUNSEL...................................... 64
9.9 CONSENTS AND APPROVALS.................................. 64
9.10 GOOD STANDING CERTIFICATES.............................. 64
9.11 REGISTRATION STATEMENT.................................. 64
9.12 EMPLOYMENT AGREEMENTS................................... 64
9.13 CLOSING OF IPO.......................................... 65
9.14 FIRPTA CERTIFICATE...................................... 65
10. COVENANTS OF TSII AND THE STOCKHOLDERS AFTER CLOSING............. 65
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN
OBLIGATIONS............................................. 65
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT............ 66
10.3 PREPARATION AND FILING OF TAX RETURNS................... 66
10.4 DIRECTORS AND OFFICERS.................................. 68
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS.................. 68
10.6 MAINTENANCE OF BOOKS.................................... 68
11. INDEMNIFICATION.................................................. 69
11.1 GENERAL INDEMNIFICATION BY COMPANY AND
STOCKHOLDERS............................................ 69
11.2 INDEMNIFICATION BY TSII................................. 70
11.3 THIRD PERSON CLAIMS..................................... 71
11.4 EXCLUSIVE REMEDY........................................ 74
11.5 LIMITATIONS ON INDEMNIFICATION.......................... 74
12. TERMINATION OF AGREEMENT......................................... 77
12.1 TERMINATION............................................. 77
12.2 LIABILITIES IN EVENT OF TERMINATION..................... 77
13. NONCOMPETITION................................................... 78
13.1 PROHIBITED ACTIVITIES................................... 78
13.2 DAMAGES................................................. 80
13.3 REASONABLE RESTRAINT.................................... 80
13.4 SEVERABILITY; REFORMATION............................... 81
13.5 EFFECTIVENESS........................................... 81
13.6 MATERIALITY............................................. 81
13.7 LIMITATIONS............................................. 81
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION........................ 82
14.1 STOCKHOLDERS............................................ 82
14.2 TSII.................................................... 83
14.3 DAMAGES................................................. 85
14.4 SURVIVAL................................................ 85
15. TRANSFER RESTRICTIONS............................................ 85
15.1 TRANSFER RESTRICTIONS................................... 85
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15.2 CERTAIN TRANSFERS....................................... 86
16. FEDERAL SECURITIES ACT REPRESENTATIONS........................... 87
16.1 COMPLIANCE WITH LAW..................................... 88
16.2 ECONOMIC RISK; SOPHISTICATION........................... 88
17. REGISTRATION RIGHTS.............................................. 89
17.1 PIGGYBACK REGISTRATION RIGHTS........................... 89
17.2 DEMAND REGISTRATION RIGHTS.............................. 90
17.3 REGISTRATION PROCEDURES................................. 92
17.4 UNDERWRITING AGREEMENT.................................. 92
17.5 AVAILABILITY OF RULE 144................................ 93
18. GENERAL.......................................................... 93
18.1 COOPERATION............................................. 93
18.2 SUCCESSORS AND ASSIGNS.................................. 93
18.3 ENTIRE AGREEMENT........................................ 94
18.4 COUNTERPARTS............................................ 94
18.5 BROKERS AND AGENTS...................................... 94
18.6 EXPENSES................................................ 95
18.7 NOTICES................................................. 96
18.8 GOVERNING LAW........................................... 98
18.9 EXERCISE OF RIGHTS AND REMEDIES......................... 98
18.10 TIME...................................................... 98
18.11 REFORMATION AND SEVERABILITY.............................. 98
18.12 REMEDIES CUMULATIVE....................................... 98
18.13 CAPTIONS.................................................. 99
18.14 AMENDMENTS AND WAIVERS.................................... 99
18.15 DEFINED TERMS............................................. 99
ANNEX I
INTENTIONALLY DELETED....................................................105
ANNEX II
CERTIFICATE OF INCORPORATION AND BY-LAWS OF TSII.........................106
ANNEX III
CONSIDERATION TO BE PAID TO COMPANY......................................107
ANNEX IV
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY..........................108
ANNEX V
STOCKHOLDERS AND STOCK OWNERSHIP OF TSII.................................109
ANNEX VI
FORM OF OPINION OF COUNSEL TO TSII.......................................110
ANNEX VII
FORM OF OPINION OF COUNSEL TO COMPANY AND STOCKHOLDERS...................114
ANNEX VIII
FORM OF EMPLOYMENT AGREEMENT.............................................118
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
May 9, 1997, by and among TRAVEL SERVICES INTERNATIONAL, INC., a Delaware
corporation ("TSII"), CRUISES ONLY, INC., a Florida corporation (the "COMPANY"),
WAYNE HELLER, an individual residing in the City of Orlando, Florida, and JUDY
HELLER, an individual residing in the City of Orlando, Florida. Wayne Heller and
Judy Heller are referred to collectively herein as the "STOCKHOLDERS".
WHEREAS, the respective Boards of Directors of TSII and the
COMPANY deem it advisable and in the best interests of TSII and the
COMPANY and their respective stockholders that the COMPANY contribute
the ownership of all of its assets and liabilities not specifically
excluded from transfer in this Agreement to TSII, by transferring such
assets to the LLC and transferring the LLC interest to TSII, in
exchange for stock of TSII and cash pursuant to this Agreement and in
accordance with the applicable provisions of the laws of the State of
Delaware and the State in which the COMPANY is incorporated;
WHEREAS, TSII is entering into an Agreement and Plan of
Organization (collectively, the "Other Agreements") with Auto- Europe,
Inc. (Maine), a Maine corporation, Cruises, Inc., a New York
corporation, the COMPANY, D-FW Tours, Inc., a Texas corporation, D-FW
Travel Arrangements, Inc., a Texas corporation, and 800-Ideas, Inc., a
Nevada corporation, and their respective stockholders in order to
acquire additional businesses (the COMPANY, together with each of the
entities
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with which TSII has entered into the Other Agreements, are
collectively referred to herein as the "Founding Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO of
TSII Stock constitute the "TSII Plan of Organization;"
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of TSII and each of the Other Founding Companies that are
parties to the Other Agreements have approved and adopted the TSII Plan
of Organization as an integrated plan pursuant to which (1)
Auto-Europe, Inc. (Maine), the COMPANY, and 800-Ideas, Inc. will
contribute the ownership of substantially all of their respective
assets to TSII, (2) the stockholders of Cruises, Inc., D-FW Tours, Inc.
and D-FW Travel Arrangements, Inc. will transfer the capital stock of
such companies to TSII and (3) Auto-Europe, Inc. (Maine), the COMPANY,
800-Ideas, Inc., the public, and the Stockholders of Cruises, Inc.,
D-FW Tours, Inc. and D-FW Travel Arrangements, Inc. will acquire the
stock of TSII as a tax-free transfer of property under Section 351 of
the Internal Revenue Code of 1986, as amended; and
WHEREAS, in consideration of the agreements of the Other
Founding Companies pursuant to the Other Agreements (after being
provided and having the opportunity to review such Other Agreements),
the Board of Directors of the COMPANY has approved this Agreement as
part of the TSII Plan of Organization in order to transfer the
ownership of substantially all of the assets of the COMPANY to TSII.
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NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE
On the Funding and Consummation Date, (a) the COMPANY shall transfer,
convey, assign and deliver to TSII, and TSII shall acquire and accept from the
COMPANY, as a contribution to TSII under Section 351 of the Code, the LLC
Interest, free and clear of all liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind.
2. [INTENTIONALLY DELETED]
3. DELIVERY OF CONSIDERATION
3.1 On the Funding and Consummation Date the COMPANY, which is on that
date the holder of all outstanding certificates representing limited liability
company interests of the LLC, shall, upon surrender of such certificates,
receive the number of shares of TSII Stock and the amount of cash set forth on
Annex III hereto, said cash to be payable by wire transfer.
3.2 The COMPANY shall deliver to TSII at the Pre-Closing the
certificates representing the LLC Interest, duly endorsed in blank by the
COMPANY, or accompanied by blank stock powers, and with all necessary transfer
tax and other revenue stamps, acquired at the COMPANY'S expense, affixed and
cancelled. The COMPANY agrees
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promptly to cure any deficiencies with respect to the endorsement of the
interest certificates or other documents of conveyance with respect to such LLC
Interest or with respect to the stock powers accompanying the LLC Interest. TSII
shall pay all transfer and revenue stamps involved in the formation of the LLC
and the transfers to it contemplated by Section 7.13 hereof.
3.3 All TSII Stock received by the COMPANY pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all of the other shares of outstanding
TSII Stock by reason of the provisions of the Certificate of Incorporation of
TSII or as otherwise provided by the Delaware GCL. All voting rights of such
TSII Stock received by the COMPANY shall be fully exercisable by the COMPANY and
the COMPANY shall not be deprived nor restricted in exercising those rights. On
the Funding and Consummation Date, TSII shall have no class of capital stock
issued and outstanding other than the TSII Stock and the Restricted Common
Stock.
3.4 Subject to the consummation of the transactions contemplated by
this Agreement, the COMPANY and the STOCKHOLDERS shall have the right to
designate Wayne Heller as a Director of TSII effective as of the Funding and
Consummation Date, which right shall be implemented by appropriate action of the
Board of Directors of TSII in accordance with its Certificate of Incorporation
and By-Laws.
3.5 TSII agrees to pay and reimburse to the COMPANY and the
STOCKHOLDERS, within 15 days after the Funding and Consummation
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Date, all documented, out-of-pocket costs, including accounting and legal
expenses, or additional taxes of any kind (including without limitation any
additional tax imposed on the COMPANY or imposed on the STOCKHOLDERS resulting
from the change in character of income derived by the STOCKHOLDERS) as the
result of consummating the transactions contemplated by this Agreement in the
form set forth herein rather than as a merger, regardless of where such costs or
taxes may be incurred.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to prepare to (i) effect the transfer and delivery of the LLC Interest
as contemplated by Section 1 hereof and (ii) effect the delivery of the
consideration referred to in Section 3 hereof; provided, however, that such
actions shall not include the actual completion of the transfer and delivery of
the LLC Interest or the delivery of the consideration by wire transfer(s)
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Funding and Consummation Date as herein provided. In the event that there is
no Funding and Consummation Date and this Agreement terminates, TSII hereby
covenants and agrees to do all things required by Delaware law and all things
which counsel for the COMPANY advise TSII are required by applicable laws of the
State in which the COMPANY is incorporated in order to rescind the effects, if
any, of the transfer of the Assets to the LLC as described Section 7.13 and to
pay all related costs of the COMPANY directly
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associated with such rescission. The taking of the actions described in clauses
(i) and (ii) above (the "Pre-Closing") shall take place on the closing date (the
"Pre-Closing Date") at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
1333 New Hampshire Avenue, N.W., Washington, D.C. 20036. On the Funding and
Consummation Date (x) all transactions contemplated by this Agreement, including
the delivery of the LLC Interest and the delivery of shares and wire transfer(s)
in an amount equal to the cash portion of the consideration which the COMPANY
shall be entitled to receive pursuant to Section 3 hereof shall occur and (y)
the closing with respect to the IPO shall be completed. The date on which the
actions described in the preceding clauses (x) and (y) occur shall be referred
to as the "Funding and Consummation Date." Except as provided in Sections 8 and
9 hereof with respect to actions to be taken on the Funding and Consummation
Date, during the period from the Pre-Closing Date to the Funding and
Consummation Date this Agreement may only be terminated by a party if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such agreement. This Agreement shall in any event terminate if the Funding
and Consummation Date has not occurred within 15 business days of the
Pre-Closing Date. Time is of the essence.
From the Pre-Closing Date to the Funding and Consummation Date the law
firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (the "Escrow Agent") shall
hold the certificates, instruments and other documents evidencing the LLC
Interest and the transfer to TSII
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thereof (collectively, the "Escrowed Documents") in escrow at the Escrow Agent's
office at 1333 New Hampshire Avenue, N.W., Washington, D.C. In the event the
Funding and Consummation Date does not occur within 15 days of the Pre-Closing
Date or in the event the stock and cash to be delivered to the Company have not
been actually delivered to the Company within such 15-day period, then the
Escrow Agent shall promptly deliver the Escrowed Documents to the Company. In
the event the Funding and Consummation Date occurs within the 15-day period and
the cash and stock owed to the Company under this Agreement are actually
delivered to the Company within the 15-day period, then the Escrowed Documents
shall be delivered to TSII. The Escrow Agent shall maintain possession of the
Escrowed Documents in a safe and secure manner. The Escrow Agent shall only
deliver the Escrowed Documents to TSII when all shares to be received by the
Company and the cash portion of the funds owed to the Company under this
Agreement have been actually delivered to the Company. "Actually delivered" for
this purpose means: (a) in the case of shares of stock, the actual receipt by
the Company at the Company's offices of duly executed and complete certificates
of all stock; (b) in the case of the cash amount, the crediting, by the
Company's designated bank which received the wire transfer, of the cash amount
available for immediate withdrawal by the Company. The Company shall designate
the Company's bank and bank account for the wire transfer by written notice to
the Escrow Agent prior to the Funding and Consummation Date. The cash amount
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of the consideration owed to the Company shall only be paid by wire transfer to
that account designated in writing by the Company.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represents and warrants that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of Pre-Closing and the Funding and
Consummation Date; provided, however, that representations and warranties
relating to the LLC shall be true only at the time of Pre-Closing and the
Funding and Consummation Date. Each of the COMPANY and the STOCKHOLDERS agrees
that such representations and warranties shall survive the Funding and
Consummation Date for a period of two years (the last day of such period being
the "Expiration Date"), except that (i) the warranties and representations set
forth in Section 5.22 hereof shall survive until such time as the limitations
period has run for all Tax periods ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 11.1(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, TSII actually incurs
liability under the 1933 Act, the 1934 Act, or any other federal or state
securities
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laws as a result of a breach of a representation or warranty by the COMPANY or a
STOCKHOLDER, the representations and warranties set forth herein shall survive
until the expiration of any applicable limitations period, which shall be deemed
to be the Expiration Date for such purposes. For purposes of this Section 5, the
term "COMPANY" shall mean and refer to the COMPANY and all of its Subsidiaries,
including the LLC.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and the COMPANY is duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on its business in Florida, except (i) as set forth on
Schedule 5.1 or (ii) where the failure to be so authorized or qualified would
not have a material adverse effect on the business, operations, affairs,
prospects, properties, assets or condition (financial or otherwise), of the
COMPANY taken as a whole (as used herein with respect to the COMPANY, or with
respect to any other person, a "Material Adverse Effect"). Schedule 5.1 sets
forth the jurisdiction in which the COMPANY is incorporated and contains a list
of all such jurisdictions in which the COMPANY is authorized or qualified to do
business. True, complete and correct copies of the Certificate of Incorporation
and By-laws, each as amended, of the COMPANY (the "Charter Documents") are all
attached hereto as Schedule 5.1. The stock records of the COMPANY, as heretofore
made available to TSII, are correct and complete in all material
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respects. There are no minutes in the possession of the COMPANY or the
STOCKHOLDERS which have not been made available to TSII, and all of such minutes
are correct and complete in all respects. Except as set forth on Schedule 5.1,
the most recent minutes of the COMPANY, which are dated no earlier than ten
business days prior to the date hereof, affirm and ratify all prior acts of the
COMPANY, and of its officers and directors on behalf of the COMPANY.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the full legal right, power and
authority to enter into and perform this Agreement, and all required approvals
of the shareholders and the Board of Directors of the COMPANY have been
obtained.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV and further, except as set forth on Schedule 5.3,
are owned free and clear of all liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind. All of the
issued and outstanding shares of the capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the STOCKHOLDERS and further, such shares were
offered, issued, sold and delivered by the COMPANY in compliance with all
applicable state and federal laws concerning the issuance of securities.
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Further, none of such shares were issued in violation of the preemptive rights
of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4,
the COMPANY has not acquired any COMPANY Stock since January l, 1994. Except as
set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the COMPANY to issue any of its
authorized but unissued capital stock; (ii) the COMPANY has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure of
the COMPANY nor the relative ownership of shares among any of its respective
stockholders has been altered or changed in contemplation of the transactions
contemplated hereby and/or the TSII Plan of Organization. Schedule 5.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and the material terms of such outstanding
options, warrants or other rights.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Schedule 5.6 attached hereto lists the name of each
of the COMPANY's subsidiaries, including the LLC (each, a "Subsidiary"), and
sets forth the number and class of the
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authorized capital stock of each Subsidiary and the number of shares or
interests of each Subsidiary which are issued and outstanding, all of which
shares or interests (except as set forth on Schedule 5.6) are owned by the
COMPANY, free and clear of all liens, security interests, pledges, voting
trusts, equities, restrictions, encumbrances and claims of every kind. Except as
set forth on Schedule 5.6, the COMPANY does not presently own, of record or
beneficially, or control, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the COMPANY, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity. The
COMPANY is the sole owner of all of the issued and outstanding limited liability
company interests of the LLC, free and clear of all liens, security interests,
pledges, voting trusts, equities, restrictions, encumbrances and claims of every
kind.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of
all names of all predecessor companies of the COMPANY, including the names of
any entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of
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material assets of either the COMPANY or any other person or entity that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the COMPANY ("Affiliates") since
January 1, 1994.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY Financial Statements") of the
COMPANY: the COMPANY's audited Consolidated Balance Sheets, if any, as of
December 31, 1996, 1995 and 1994 and Statements of Income, Cash Flows and
Retained Earnings, if any, for each of the years in the three-year period ended
December 31, 1996 (December 31, 1996 being hereinafter referred to as the
"Balance Sheet Date"). Except as set forth on Schedule 5.9, such Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted thereon or on Schedule 5.9). Except as set forth on Schedule
5.9, such Consolidated Balance Sheets as of December 31, 1996, 1995 and 1994
present fairly the financial position of the COMPANY as of the dates indicated
thereon, and such Consolidated Statements of Income, Cash Flows and Retained
Earnings present fairly the results of operations for the periods indicated
thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to TSII an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
COMPANY Financial
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Statements at the Balance Sheet Date, (ii) any material liabilities of the
COMPANY (including all liabilities in excess of $10,000) and (iii) all loan
agreements, indemnity or guaranty agreements, bonds, mortgages, liens, pledges
or other security agreements. Except as set forth on Schedule 5.10, since the
Balance Sheet Date the COMPANY has not incurred any material liabilities of any
kind, character and description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, other than liabilities incurred in the
ordinary course of business. The COMPANY has also delivered to TSII on Schedule
5.10, in the case of those contingent liabilities related to pending or
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
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(iv) a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the estimate shall for
purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to TSII
an accurate list (which is set forth on Schedule 5.11) of (i) all reservations
that have been booked on cruises with a scheduled sailing date after the
Pre-Closing Date and (ii) the accounts and notes receivable of the COMPANY, as
of the Balance Sheet Date, including any such amounts which are not reflected in
the balance sheet as of the Balance Sheet Date, and including receivables from
and advances to employees and the STOCKHOLDERS. Prior to the Pre-Closing Date
the COMPANY shall also provide to TSII (x) an accurate list of all receivables
obtained subsequent to the Balance Sheet Date up to the Pre-Closing Date and (y)
an aging of all accounts and notes receivable showing amounts due in 30 day
aging categories (the "A/R Aging Reports"). Except to the extent reflected on
Schedule 5.11 or as disclosed by the COMPANY to TSII in a writing accompanying
the A/R Aging Reports, the accounts, notes and other receivables shown on
Schedule 5.11 and on the A/R Aging Reports are and shall be collectible in the
amounts shown, net of reserves reflected in the balance sheet as of the Balance
Sheet Date with respect to accounts receivable as of the Balance Sheet Date, and
net of reserves reflected in the books and records of the COMPANY (consistent
with the methods used for the balance
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sheet) with respect to accounts receivable of the COMPANY after the Balance
Sheet Date.
5.12 PERMITS AND INTANGIBLES. The COMPANY holds all licenses,
franchises, permits and other governmental authorizations the absence of any of
which could have a Material Adverse Effect on its business, and the COMPANY has
delivered to TSII an accurate list and summary description (which is set forth
on Schedule 5.12) of all such licenses, franchises, permits and other
governmental authorizations, including permits, titles, licenses, franchises,
certificates, trademarks, trade names, patents, patent applications and
copyrights owned or held by the COMPANY (including interests in software or
other technology systems, programs and intellectual property) (it being
understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 5.13). To the knowledge of the
COMPANY, the licenses, franchises, permits and other governmental authorizations
listed on Schedules 5.12 and 5.13 are valid, and the COMPANY has not received
any notice that any governmental authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental authorization.
The COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the licenses,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 and is not in violation of any of the foregoing except where such
noncompliance or violation would not have a Material Adverse Effect on the
COMPANY. Except as
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specifically provided on Schedule 5.12, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the COMPANY by, any such
licenses, franchises, permits or government authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i)
the COMPANY has complied with and is in compliance with all federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, permits, judgments, orders and decrees applicable to it or any
of its properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances including petroleum and petroleum products (as such terms
are defined in any applicable Environmental Law); (ii) the COMPANY has obtained
and adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of
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releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by the COMPANY except as permitted by Environmental Laws; (iv)
the COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or disposed of Hazardous Wastes and Hazardous Substances or arranged
for the transportation of Hazardous Wastes and Hazardous Substances, which site
is the subject of any federal, state, local or foreign enforcement action or any
other investigation which could lead to any claim against the COMPANY or TSII
for any clean-up cost, remedial work, damage to natural resources, property
damage or personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) the COMPANY has no contingent liability in connection with any
release of any Hazardous Waste or Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to TSII an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" on the balance sheet of the
COMPANY as of the Balance Sheet Date or that will be included on any balance
sheet of the COMPANY prepared after the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value in excess of $10,000 (i) as
of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z)
all leases and agreements in respect of personal property, including, true,
complete and correct copies of all such leases and agreements. The COMPANY shall
indicate on
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Schedule 5.14 those assets currently owned, or that were formerly owned, by
STOCKHOLDERS, relatives of STOCKHOLDERS, or Affiliates of the COMPANY. Except as
set forth on Schedule 5.14, (i) all personal property used by the COMPANY in its
business is either owned by the COMPANY or leased by the COMPANY pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 is in good working order and condition, ordinary wear and tear
excepted and (iii) all leases and agreements included on Schedule 5.14 are in
full force and effect and constitute valid and binding agreements of the parties
(and their successors) thereto in accordance with their respective terms.
Except for the Excluded Assets listed on Schedule 7.13, the Assets
constitute all of the property and assets used in, and/or necessary to operate,
the business of the COMPANY as it is now being conducted and as contemplated to
be conducted by the LLC on the Funding and Consummation Date.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to TSII an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers (or persons or entities that are sources of
a significant number of customers) have cancelled or substantially reduced or,
to the
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knowledge of the COMPANY, are currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedules
5.10, 5.14 or 5.16, (a) in existence as of the Balance Sheet Date and (b)
entered into since the Balance Sheet Date, and in each case has delivered true,
complete and correct copies of such agreements to TSII. The COMPANY has complied
with all material commitments and obligations pertaining to it, and is not in
default under any contracts or agreements listed on Schedule 5.15 and no notice
of default under any such contract or agreement has been received. The COMPANY
has also indicated on Schedule 5.15 a summary description of all plans or
projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other
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property, if any, used by the COMPANY in the conduct of its business. The
COMPANY has good and insurable title to the real property owned by it, including
those reflected on Schedule 5.14, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing
specified liabilities (with respect to which no default exists);
(ii) liens for current Taxes not yet payable and assessments not
in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions
to title shown of record in the office of the County Clerks in which
the properties, assets and leasehold estates are located which do not
adversely affect the current use of the property.
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to TSII an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY (which copies are attached
to Schedule 5.16), and an
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indication as to which such properties, if any, are currently owned, or were
formerly owned, by STOCKHOLDERS or business or personal affiliates of the
COMPANY or STOCKHOLDERS. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The COMPANY has delivered to TSII, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs and workers compensation claims received for the past three
(3) policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws. All of such insurance
policies are currently in full force and effect and shall remain in full force
and effect through the Funding and Consummation Date. No insurance carried by
the COMPANY has ever been cancelled by the insurer and the COMPANY has never
been unable to obtain insurance coverage for its assets and operations.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to TSII an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements
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with such officers, directors and key employees and the rate of compensation
(and the portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons (i) as of the Balance Sheet Date and (ii)
as of the date hereof. The COMPANY has provided to TSII true, complete and
correct copies of any employment agreements for persons listed on Schedule 5.18.
Since the Balance Sheet Date, there have been no increases in the compensation
payable or any special bonuses to any officer, director, key employee or other
employee, except ordinary salary increases implemented on a basis consistent
with past practices, except as set forth on Schedule 5.18.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any arrangement with any labor union, (ii) no employees of the COMPANY are
represented by any labor union or covered by any collective bargaining
agreement, (iii) no campaign to establish such representation is in progress and
(iv) there is no pending or, to the best of the COMPANY's knowledge, threatened
labor dispute involving the COMPANY and any group of its employees nor has the
COMPANY experienced any labor interruptions over the past three years. The
COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The COMPANY has delivered to TSII an accurate
schedule (Schedule 5.19) showing all employee benefit plans (including 401(k)
plans) currently sponsored or maintained or contributed to by, or which cover
the current or former employees
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or directors of the COMPANY, all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and all
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
COMPANY does not sponsor, maintain or contribute to any plan program, fund or
arrangement that constitutes an "employee pension benefit plan," nor has the
COMPANY any obligation to contribute to or accrue or pay any benefits under any
deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA. The
COMPANY has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans, agreements, arrangement and trusts set forth
on Schedule 5.19, nor is the COMPANY required to contribute to any retirement
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of the COMPANY's
employees.
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The COMPANY is not now, and cannot as a result of its past activities
become, liable to the Pension Benefit Guaranty Corporation or to any
multiemployer employee pension benefit plan under the provisions of Title IV of
ERISA.
All employee benefit plans, agreements, arrangements and trusts listed
on Schedule 5.19 and the administration thereof are in substantial compliance
with their terms and all applicable provisions of ERISA and the regulations
issued thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date. At the option of the STOCKHOLDERS, their account in the COMPANY's 401(k)
plan may be distributed in the manner if and as directed by each STOCKHOLDER
prior to or subsequent to the Funding and Consummation Date, including COBRA or
conversion rights under any group insurance or other ERISA plan.
5.20 COMPLIANCE WITH ERISA. All such plans, agreements, arrangements
and trusts of the COMPANY that are currently maintained or contributed to by the
COMPANY or cover employees or former employees of the COMPANY listed on Schedule
5.19 that are intended to qualify under Section 401(a) of the Code (the
"Qualified Plans") are, and have been so qualified and have been determined by
the Internal Revenue Service to be so qualified, and
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copies of such determination letters are included as part of Schedule 5.19
hereof. Except as disclosed on Schedule 5.19, all reports and other documents
required to be filed with any governmental agency or distributed to plan
participants or beneficiaries (including, but not limited to, actuarial reports,
audit reports or Tax Returns) have been timely filed or distributed, and copies
thereof for the three most recent plan years are included as part of Schedule
5.19 hereof. Neither STOCKHOLDERS, any such plan listed on Schedule 5.19, nor
the COMPANY has engaged in any transaction prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA. No such plan listed on
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and the COMPANY has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation. The
STOCKHOLDERS further represent that:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(ii) no such plan listed on Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
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(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed
on Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could
have any direct or indirect liability whatsoever (including, but not
limited to, any liability to any multiemployer plan or the Pension
Benefit Guaranty Corporation under Title IV of ERISA or to the
Internal Revenue Service for any excise tax or penalty, or being
subject to any Statutory Lien to secure payment of any such liability)
with respect to any plan now or heretofore maintained or contributed
to by any entity other than the COMPANY that is, or at any time was, a
member of a "controlled group" (as defined in Section 412(n)(6)(B) of
the Code) that includes the COMPANY.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedules 5.21 or 5.13, the COMPANY is not in violation of any law or regulation
which would have a Material Adverse Effect, or of any order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over the COMPANY; and
except to the extent set forth on Schedules 5.10 or 5.13, there are no claims,
actions, suits or proceedings, commenced or, to the knowledge of the COMPANY,
threatened, against or affecting the COMPANY, at law or in equity, or before or
by any
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federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over the COMPANY and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. The COMPANY has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations, including all such permits,
licenses, orders and other governmental approvals set forth on Schedules 5.12
and 5.13, and is not in violation of any of the foregoing.
5.22 TAXES. The COMPANY has timely filed all requisite federal, state
and other Tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims against the COMPANY for federal, state
and other Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any claim for
Taxes, whether pending or threatened, has been received. All Tax, including
interest and penalties (whether or not shown on any Tax Return) owed by the
COMPANY, any member of an affiliated or consolidated group which includes or
included the COMPANY, or with respect to any payment made or deemed made by the
COMPANY, required to be paid by the date hereof has been paid. The amounts shown
as accruals for Taxes on the COMPANY Financial Statements are
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sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Copies of (i) the federal and local income tax returns and franchise tax returns
of the COMPANY for its last three (3) fiscal years, or such shorter period of
time as the COMPANY shall have existed, (ii) any Tax examinations commenced or
closed or outstanding during their three (3) most recent fiscal years, and (iii)
currently outstanding extensions of statutory limitations, are attached hereto
as Schedule 5.22. The COMPANY has a taxable year ended on the date set forth as
such on Schedule 5.22. Except as disclosed on Schedule 5.22, the COMPANY's
methods of accounting have not changed in the past five years. The COMPANY is
not an investment company as defined in Section 351(e)(1) of the Code.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto, is in default under any lease, instrument, agreement, license or
permit set forth on Schedules 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth on Schedule 5.23, (a) the
rights and benefits of the COMPANY under the Material Documents will not be
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not
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result in any violation or breach or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 5.23, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
with respect to any of the transactions contemplated hereby in order to remain
in full force and effect, and consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit. Except as set forth on Schedule
5.23, none of the Material Documents prohibits the use or publication by the
COMPANY or TSII of the name of any other party to such Material Document, and
none of the Material Documents prohibits or restricts the COMPANY from freely
providing services to any other customer or potential customer of the COMPANY,
TSII or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of
the COMPANY;
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(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business
of the COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the
COMPANY, except as set forth elsewhere in this Agreement;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the COMPANY to any of
its officers, directors, STOCKHOLDERS, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases
for employees in accordance with past practice, except as set forth
elsewhere in this Agreement;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely
affecting the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the COMPANY to any person,
including, without limitation, the STOCKHOLDERS and their affiliates;
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(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the COMPANY, including without limitation
any indebtedness or obligation of any STOCKHOLDER or any affiliate
thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets,
property or rights of the COMPANY or requiring consent of any party to
the transfer and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of the COMPANY's business;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any
contract, agreement, license, permit or other right to which the
COMPANY is a party;
(xiii) any transaction by the COMPANY outside the ordinary course
of its business;
(xiv) any cancellation or termination of a material contract with
a customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the COMPANY.
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5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
TSII an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the Agreement of:
(i) the name of each financial institution in which the COMPANY
has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth a complete list of the names of each person,
corporation, firm or other entity holding a general or special power of attorney
from the COMPANY and a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
COMPANY and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of the COMPANY,
enforceable against the COMPANY in accordance with its terms except as limited
by bankruptcy, insolvency or other similar laws of general application relating
to or affecting the enforcement of creditors' rights generally, and the
individual(s) signing this Agreement on behalf of the COMPANY have the legal
power, authority and capacity to bind the COMPANY.
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5.28 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 DISCLOSURE. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to TSII and its representatives
in writing pursuant hereto or thereto, present fairly the business and
operations of the COMPANY for the time periods with respect to which such
information was requested. The COMPANY'S rights under the documents delivered
pursuant hereto would not be materially adversely affected by, and no statement
made herein would be rendered untrue in any material respect by, any other
document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY (which fact
or circumstance was, or should reasonably, after due inquiry, have been known to
the COMPANY) that is not disclosed pursuant hereto or thereto.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become
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effective or that the IPO pursuant thereto will occur at a particular price or
within a particular range of prices or occur at all; and (ii) that neither TSII
or any of its officers, directors, agents or representatives nor any Underwriter
shall have any liability to the COMPANY, the STOCKHOLDERS or any other person
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all.
(c) The COMPANY does not have any present plan, intention,
commitment, binding agreement or arrangement to dispose of any shares of TSII
stock received as described in Section 3.1, provided that the COMPANY may
distribute such shares of TSII Stock to the STOCKHOLDERS if the STOCKHOLDERS
represent and warrant to the COMPANY and TSII that the STOCKHOLDERS do not have
any present plan, intention, commitment, binding agreement or arrangement to
dispose of any such shares of TSII Stock. This representation shall be true for
such time periods as required by law and is not perpetual.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30 or as
contemplated by Section 7.13 hereof, the COMPANY has not, between the Balance
Sheet Date and the date hereof, taken any of the actions set forth in Section
7.3 (Prohibited Activities).
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of
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the date of this Agreement and, subject to Section 7.8 hereof, shall be true at
the time of Pre-Closing and on the Funding and Consummation Date, and that the
representations and warranties set forth in Sections 5.31 and 5.32 shall survive
until the second anniversary of the Funding and Consummation Date, which shall
be the Expiration Date for purposes of those Sections.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby
waives, any preemptive or other right to acquire shares of COMPANY Stock that
such STOCKHOLDER has or may have had on the date hereof other than rights of any
STOCKHOLDER to acquire TSII stock pursuant to any option granted by TSII.
6. REPRESENTATIONS OF TSII
TSII represents and warrants that all of the following representations
and warranties in this Section 6 are true at the date of this Agreement and,
subject to Section 7.8 hereof, shall be true at the time of Pre-Closing and the
Funding and Consummation Date, and that such representations and warranties
shall survive the Funding and Consummation Date for a period of two years (the
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last day of such period being the "Expiration Date"), except that (i) the
warranties and representations set forth in Section 6.14 hereof shall survive
until such time as the limitations period has run for all Tax periods ended on
or prior to the Funding and Consummation Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of determining
whether a claim for indemnification under Section 11.2(iv) hereof has been made
on a timely basis, and solely to the extent that in connection with the IPO,
TSII actually incurs liability under the 1933 Act, the 1934 Act, or any other
federal or state securities laws, the representations and warranties set forth
herein shall survive until the expiration of any applicable limitations period,
which shall be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. TSII is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Certificate of Incorporation
and By-laws, each as amended, of TSII (the "TSII Charter Documents") are all
attached hereto as Annex III.
6.2 AUTHORIZATION. (i) The representative of TSII executing this
Agreement has the authority to enter into and bind TSII to the
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terms of this Agreement and (ii) TSII has the full legal right, power and
authority to enter into and perform this Agreement.
6.3 CAPITAL STOCK OF THE TSII. Immediately prior to the Funding and
Consummation Date, the authorized capital stock of TSII will consist of
50,000,000 shares of TSII Stock, of which the number of issued and outstanding
shares will be as set forth in the Registration Statement, and 1,000,000 shares
of preferred stock, $.01 par value, of which no shares will be issued and
outstanding. All of the issued and outstanding shares of the capital stock of
TSII are owned by the persons set forth on Annex V hereof, in each case, free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. Upon consummation of the
IPO, the number of outstanding shares of TSII will be as set forth in the
Registration Statement. All of the issued and outstanding shares of the capital
stock of TSII have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the persons set forth on
Annex V, and further, such shares were offered, issued, sold and delivered by
TSII in compliance with all applicable state and federal laws concerning the
issuance of securities. Further, none of such shares was issued in violation of
the preemptive rights of any past or present stockholder of TSII.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and
except as set forth on Schedule 6.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists
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which obligates TSII to issue any of its authorized but unissued capital stock;
and (ii) TSII has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof. Schedule 6.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list, accurate as of the date hereof, of all outstanding
options, warrants or other rights to acquire shares of the stock of TSII.
6.5 SUBSIDIARIES. TSII has no subsidiaries except for the companies to
become subsidiaries of TSII pursuant to this Agreement and each of the Other
Agreements as of the Funding and Consummation Date. Except as set forth in the
preceding sentence, TSII does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity, and TSII is not, directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "TSII Financial Statements") of TSII,
which reflect the results of its operations from inception: TSII's audited
Balance Sheet as of December 31, 1996 and Statements of Income, Cash Flows and
Retained Earnings for the period from inception through December 31, 1996. Such
TSII Financial Statements have been prepared in accordance
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with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted thereon or on Schedule 6.6).
Except as set forth on Schedule 6.6, such Balance Sheets as of December 31, 1996
present fairly the financial position of TSII as of such date, and such
statements of Income, Cash Flows and Retained Earnings present fairly the
results of operations for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
TSII has no material liabilities, contingent or otherwise, except as set forth
in or contemplated by this Agreement and the Other Agreements and except for
fees and expenses incurred in connection with the transactions contemplated
hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, TSII is not in violation of any law or regulation which would have
a Material Adverse Effect, or of any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over TSII; and except to the extent set
forth on Schedule 6.8, there are no material claims, actions, suits or
proceedings, pending or, to the knowledge of TSII, threatened, against or
affecting TSII, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over TSII and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been
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received. TSII has conducted and is conducting its business in compliance with
the requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and is not in violation of any of
the foregoing. TSII and its stockholders (as set forth on Annex V) have not been
involved in any proceeding with the Securities and Exchange Commission or any
other state or federal governmental agency pertaining to any fraud,
misrepresentation or failure to comply with the laws relating to securities,
taxes or other regulatory laws and regulations. This Agreement does not violate
any federal or state securities laws, rules or regulations, except for any
violations arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to the COMPANY or the STOCKHOLDERS, and
provided to TSII or its counsel by the COMPANY or the STOCKHOLDERS contained in
the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading.
6.9 NO VIOLATIONS. TSII is not violation of any TSII Charter Document.
Neither TSII or, to the knowledge of TSII, any other party thereto, is in
default under any lease, instrument, agreement, license or permit to which TSII
is a party, or by which
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TSII or any of its properties are bound (collectively, the "TSII Documents");
and (a) the rights and benefits of TSII under the TSII Documents will not be
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation or breach or constitute a default under, any of the terms or
provisions of the TSII Documents or the TSII Charter Documents. Except as set
forth on Schedule 6.9, none of the TSII Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by TSII and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of TSII and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of TSII, enforceable against TSII
in accordance with its terms except as limited by bankruptcy, insolvency or
other similar laws of general application relating to or affecting the
enforcement of creditors' rights generally, and the individual signing this
Agreement on behalf of TSII has the legal power, authority and capacity to bind
TSII.
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6.11 TSII STOCK. At the time of issuance thereof, the TSII Stock to be
delivered to the COMPANY pursuant to this Agreement will constitute valid and
legally issued shares of TSII, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all material and substantive respects to the TSII Stock
issued and outstanding as of the date hereof and the TSII Stock to be issued
pursuant to the Other Agreements by reason of the provisions of the Delaware
GCL. The shares of TSII Stock to be issued to the COMPANY pursuant to this
Agreement will not be registered under the 1933 Act, except as provided in
Section 17 hereof.
6.12 NO SIDE AGREEMENTS. TSII has not entered and will not enter into
any agreement with any of the Founding Companies or any of the stockholders of
the Founding Companies or TSII other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein, and none of TSII, its equity owners
or its affiliates have received any cash compensation or payments in connection
with this transaction except for reimbursement of out-of-pocket expenses which
are necessary or appropriate to this transaction.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TSII has not
conducted any operations or business since inception other than activities
related to the TSII Plan of Organization. TSII does not own and has not at any
time owned any real property or any material personal property and is not a
party to any other agreement, except as listed on Schedule 6.13 and except that
TSII is a party to the
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Other Agreements and the agreements contemplated thereby and to such agreements
as will be filed as Exhibits to the Registration Statement.
6.14 TAXES. TSII has timely filed all requisite federal, state and
other Tax returns or extension requests for all fiscal periods ended on or
before the date hereof; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against TSII for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the date hereof, and no notice of any claim for Taxes, whether pending
or threatened, has been received. All Tax, including interest and penalties
(whether or not shown on any Tax return) owed by TSII, any member of an
affiliated or consolidated group which includes or included TSII, or with
respect to any payment made or deemed made by TSII herein has been paid. The
amounts shown as accruals for Taxes on the TSII Financial Statements are
sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Copies of (i) any Tax examinations, (ii) extensions of statutory limitations and
(iii) the federal and local income tax returns and franchise tax returns of TSII
for its last three (3) fiscal years, or such shorter period of time as TSII
shall have existed, are attached hereto as Schedule 5.22. TSII is not an
investment company as defined in Section 351(e)(1) of the Code.
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6.15 NO INTENTION TO DISPOSE OF LLC INTEREST. TSII is acquiring the LLC
Interest pursuant hereto for its own account for investment purposes and does
not have any present plan, intention, commitment, binding agreement or
arrangement to dispose of the LLC Interest.
6.16 COMPLETION OF DUE DILIGENCE. TSII has completed its due diligence
as of the date hereof, except for any additional investigation that may be
needed as a result of a notice pursuant to Section 7.7 or an amendment pursuant
to Section 7.8 of this Agreement.
6.17 TAX OPINION MATTERS. TSII will cause to be delivered to the
COMPANY a tax opinion letter from Akin, Gump, Strauss, Hauer & Feld, L.L.P. in
substantially the form attached hereto as Annex IX prior to the Pre-Closing
Date. TSII represents and warrants that all representations by TSII as to
factual matters relied upon by Akin, Gump, Strauss, Hauer & Feld, L.L.P. in the
opinion letter regarding tax results (other than matters represented by the
COMPANY in writing) are true and correct; provided, however, the foregoing
representation and warranty is limited, with respect to factual matters relating
to the Other Founding Companies, to the actual knowledge of TSII.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives
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of TSII and the Other Founding Companies access to all of the COMPANY's sites,
properties, books and records and will furnish TSII with such additional
financial and operating data and other information as to the business and
properties of the COMPANY as TSII or the Other Founding Companies may from time
to time reasonably request. The COMPANY will cooperate with TSII and the Other
Founding Companies and their respective representatives, including TSII's
auditors and counsel, in the preparation of any documents or other material
(including the Registration Statement) which may be required in connection with
any documents or materials required by this Agreement. TSII, the STOCKHOLDERS
and the COMPANY shall treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, TSII will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1 requiring each such Other Founding
Company, its stockholders, directors, officers, representatives, employees and
agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TSII will afford to the officers and authorized representatives of the
COMPANY access to all of TSII's sites, properties, books and records and all due
diligence, agreements, documents and information of or concerning the Founding
Companies
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and will furnish the COMPANY with such additional financial and operating data
and other information as to the business and properties of TSII as the COMPANY
may from time to time reasonably request. TSII will cooperate with the COMPANY,
its representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. TSII will provide complete access to its
operations and key officers and employees to the COMPANY, its representatives
and advisors on a continuing basis through the Funding and Consummation Date.
The COMPANY will cause all information obtained in connection with the
negotiation and performance of this Agreement to be treated as confidential in
accordance with the provisions of Section 14 hereof. Any and all audits, reports
(financial or otherwise) pertaining to the due diligence examination by TSII
relating to the COMPANY shall be delivered to the COMPANY as promptly as
practicable with the receipt thereof by TSII.
7.2 CONDUCT OF BUSINESS PENDING PRE-CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY shall, except (w)
as contemplated by Section 7.13, (x) as set forth on Schedule 7.2, (y) as
requested by TSII or (z) as consented to by TSII (which consent shall not be
unreasonably withheld):
(i) carry on its business in substantially the same manner as it
has heretofore and not introduce any new method of management,
operation or accounting;
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(ii) maintain its properties, facilities and equipment and other
assets as shall be required by the management of the COMPANY to carry
on its business in the same manner as heretofore and in at least as
good working order and condition as at present, ordinary wear and tear
excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) maintain and preserve its business organization intact, use
its best efforts to retain its present key employees and relationships
with suppliers, customers and others having business relations with
the COMPANY;
(vi) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar governmental authorities;
(vii) to the extent possible maintain present debt and lease
instruments and not enter into new or amended debt or lease
instruments, other than in the ordinary course of business and in
accordance with previous operating procedures; notwithstanding these
limitations and any other provision herein to the contrary, however,
any existing indebtedness, capital contributions as herein provided,
and indebtedness guaranteed by the STOCKHOLDERS shall continue to be
paid by
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the COMPANY, in such amounts and in such a manner as may be determined
by the officers of the COMPANY, but in no event shall such payments be
less than normally required in the particular case; and
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents except for ordinary
and customary bonus and salary increases for employees in accordance
with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3 or as
contemplated by Section 7.13, between the date hereof and the Funding and
Consummation Date, the COMPANY shall not, without prior written consent of TSII:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other
than in connection with the exercise of options or warrants listed on
Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares
of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital
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expenditures, except if it is in the normal course of business
(consistent with past practice) or involves an amount not in excess of
$25,000;
(v) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now
owned or hereafter acquired, except: (1) with respect to purchase
money liens incurred in connection with the acquisition of equipment
with an aggregate cost not in excess of $25,000 necessary or desirable
for the conduct of the businesses of the COMPANY; (2)(A) liens for
Taxes either not yet due or being contested in good faith and by
appropriate proceedings (and for which contested Taxes adequate
reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business (the liens set
forth in clause (2) being referred to herein as "Statutory Liens"), or
(3) liens set forth on Schedules 5.10 and/or 5.16 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the
start-up of any new business;
(viii) merge or consolidate or agree to merge or consolidate with
or into any other corporation;
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(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed
to be included on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course
of its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY, or any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person or entity for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person or entity other than
TSII or its authorized agents relating to any acquisition or purchase
of all or a material amount of the assets of, or any equity interest
in, the COMPANY or a merger, consolidation or business combination of
the COMPANY.
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7.5 NOTICE TO BARGAINING AGENTS. Prior to the Pre-Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements, and shall provide TSII on Schedule 7.5 with proof that any required
notice has been sent.
7.6 AGREEMENTS. The STOCKHOLDERS and the COMPANY shall terminate (i)
any stockholders agreements, voting agreements, voting trusts, options, warrants
and employment agreements between the COMPANY and any employee listed on
Schedule 8.11 hereto and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER, on or prior to the Funding and Consummation Date. Copies of such
termination agreements are listed on Schedule 7.6 and copies thereof are
attached hereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to TSII of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the
Pre-Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. TSII shall give prompt notice to the
COMPANY of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of TSII contained herein to be untrue or inaccurate in any material respect
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at or prior to the Pre-Closing and (ii) any material failure of TSII to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 that is not accompanied by a proposed amendment or supplement to a schedule
pursuant to Section 7.8 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the anticipated
effectiveness of the Registration Statement to supplement or amend promptly the
Schedules hereto with respect to any matter hereafter arising or discovered
which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules, provided, however, that
supplements and amendments to Schedules 5.10, 5.11, 5.14, 5.15 and 5.18 shall
only have to be delivered at the Pre- Closing Date, unless such Schedule is to
be amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect
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may be made unless TSII and a majority of the Founding Companies other than the
COMPANY consent to such amendment or supplement; and provided further, that no
amendment or supplement to a Schedule prepared by TSII that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect may be
made unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the schedules as
amended or supplemented pursuant to this Section 7.8. In the event that one of
the Other Founding Companies seeks to amend or supplement a schedule pursuant to
Section 7.8 of one of the Other Agreements, and such amendment or supplement
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on such Other Founding Company, TSII shall give the COMPANY
notice promptly after it has knowledge thereof. If TSII and a majority of the
Founding Companies consent to such amendment or supplement, which consent shall
have been deemed given by TSII or any Founding Company if no response is
received within 24 hours following receipt of notice of such amendment or
supplement (or sooner if required by the circumstances under which such consent
is requested), but the COMPANY does not give its consent, the COMPANY may
terminate this Agreement pursuant to Section 12.l(iv) hereof. In the event that
the COMPANY seeks to amend or supplement a Schedule pursuant to this Section
7.8, and TSII and a majority of
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the Other Founding Companies do not consent to such amendment or supplement,
this Agreement shall be deemed terminated by mutual consent as set forth in
Section 12.1(i) hereof. In the event that TSII seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. No party to
this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. The provisions of
this Section 7.8 shall be contained in the Other Agreements executed in
connection with TSII Plan of Organization.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY
and STOCKHOLDERS shall furnish or cause to be furnished to TSII and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with TSII and the Underwriters in
the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise TSII if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the 1933 Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material
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respect, and to provide the information needed to correct such inaccuracy. TSII
will give the COMPANY and the STOCKHOLDERS an opportunity to review and comment
on the Registration Statement and all amendments thereto prior to filing.
Insofar as the information relates solely to the COMPANY or the STOCKHOLDERS,
the COMPANY represents and warrants as to such information with respect to
itself, and each STOCKHOLDER represents and warrants, as to such information
with respect to the COMPANY and himself or herself, that the Registration
Statement will not include an 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, in light of the circumstances in which they were made, not
misleading and that each STOCKHOLDER and the COMPANY has had the opportunity to
review and approve such information. If, prior to the 25th day after the date of
the final prospectus of TSII utilized in connection with the IPO, the COMPANY or
the STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Funding and Consummation Date, would have changed) a
representation or warranty of the COMPANY or the STOCKHOLDERS in this Agreement
or would affect any document delivered pursuant hereto in any material respect,
the COMPANY and the STOCKHOLDERS shall immediately give notice of such fact or
circumstance to TSII. However, subject to the provisions of Section 7.8, such
notification shall not relieve either the COMPANY or the STOCKHOLDERS of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.8, at the
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sole option of TSII, the truth and accuracy of any and all warranties and
representations of the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS
at the date of this Agreement and on the Pre-Closing Date and on the Funding and
Consummation Date, shall be a precondition to the consummation of this
transaction.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and TSII shall have had sufficient time to
review, the unaudited balance sheets of the COMPANY as of the end of all fiscal
quarters following the Balance Sheet Date that would be required to be disclosed
in the Registration Statement, and the unaudited consolidated statement of
income, cash flows and retained earnings of the COMPANY and its consolidated
subsidiaries for all fiscal quarters ended after the Balance Sheet Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Except as set forth on Schedule 7.10, such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein) and are accompanied by a report of independent public
accountants. Except as noted in such financial statements, all of such financial
statements will present fairly the results of operations of the COMPANY for the
periods indicated thereon and shall be for such dates and time periods as
required by Regulation S-X under the 1933 Act and the 1934 Act.
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7.11 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. TSII shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the TSII Stock.
7.13 FORMATION OF LLC AND TRANSFER OF ASSETS.
(i) Prior to the Pre-Closing Date, the COMPANY shall have
caused the due formation of a Delaware limited liability company that
is a wholly owned subsidiary of the COMPANY (the "LLC"), and the
COMPANY shall have delivered to TSII true and correct copies of all
formation and organization documents of the LLC. To the extent
requested by the COMPANY, TSII will assist with the formation and
organization of the LLC and will bear all reasonable costs associated
therewith.
(ii) Prior to the Pre-Closing Date, the COMPANY shall have
transferred, conveyed, assigned and delivered to the LLC, and the LLC
shall have acquired and accepted from the COMPANY: (a) all of the
assets held by the COMPANY and used by or useful to the COMPANY in
connection with the business of the COMPANY except for the Excluded
Assets, all of which assets
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are set forth on Schedule 7.13 under the heading "Assets" (the
"Assets"); and (b) all of the obligations of the COMPANY in connection
with the business of the COMPANY, all of which obligations are set
forth on Schedule 7.13 under the heading "Obligations." All of the
Excluded Assets are set forth on Schedule 7.13 under the heading
"Excluded Assets."
(iii) Prior to the Closing Date, the COMPANY shall have
amended its legal name and fictitious names in all applicable
jurisdictions and shall have provided for the LLC to operate and
conduct business in such jurisdictions under the names currently used
in such jurisdictions by the COMPANY, and all reasonable costs therefor
shall be borne by TSII.
7.14 BEST EFFORTS TO CONSUMMATE TRANSACTION. TSII agrees to use its
commercially reasonable best efforts to effectuate the acquisition of the
businesses of the Founding Companies pursuant to the Other Agreements, and an
initial public offering pursuant to the Registration Statement of shares of
common stock of TSII.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of STOCKHOLDERS and the COMPANY with respect to actions
to be taken on the Pre-Closing Date are subject to the satisfaction or waiver on
or prior to the Pre-Closing Date of all of the following conditions. The
obligations of the STOCKHOLDERS and the COMPANY with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on
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or prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.2, 8.3, 8.8 and 8.9. From and after the Pre- Closing Date or, with
respect to the conditions set forth in Sections 8.2, 8.3, 8.8 and 8.9, from and
after the Funding and Consummation Date, all conditions not satisfied shall be
deemed to have been waived, except that no such waiver shall be deemed to affect
the survival of the representations and warranties of TSII contained in Section
6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of TSII contained in Section 6 shall be true and correct in all material
respects as of the Pre-Closing Date as though such representations and
warranties had been made as of that time; and a certificate to the foregoing
effect dated the Pre-Closing Date and signed by the President or any Vice
President of TSII shall have been delivered to the STOCKHOLDERS.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by TSII on or
before the Pre-Closing Date and the Funding and Consummation Date shall have
been duly complied with and performed in all material respects; and certificates
to the foregoing effect dated the Pre-Closing Date and the Funding and
Consummation Date and signed by the President or any Vice President of TSII
shall have been delivered to the STOCKHOLDERS.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated
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hereby or the IPO and no governmental agency or body shall have taken any other
action or made any request of the COMPANY as a result of which the management of
the COMPANY deems it inadvisable to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The COMPANY and the Underwriters shall have
received an opinion from counsel for TSII, dated the Pre-Closing Date, in the
forms annexed hereto as Annex VI and IX.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of TSII stock to be received by the
STOCKHOLDERS is not less than the Minimum Value set forth on Annex III.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made.
8.7 GOOD STANDING CERTIFICATES. TSII shall have delivered to the
COMPANY a certificate, dated as of a date no later than ten days prior to the
Pre-Closing Date, duly issued by the Delaware Secretary of State and in each
state in which TSII is authorized to do business, showing that TSII is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for TSII for all periods prior to the Pre-Closing
have been filed and paid.
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8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TSII which would constitute a Material Adverse Effect,
and TSII shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of TSII to conduct its
business.
8.9 CLOSING OF IPO. The closing of the sale of the TSII Stock to the
Underwriters in the IPO and the acquisitions of the Other Founding Companies
pursuant to the Other Agreements shall have occurred simultaneously with the
Funding and Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and signed by the
secretary of TSII, certifying the truth and correctness of attached copies of
TSII's Certificate of Incorporation (including amendments thereto), By-Laws
(including amendments thereto), and resolutions of the board of directors and,
if required, the stockholders of TSII approving TSII's entering into this
Agreement and the consummation of the transactions contemplated hereby. Such
certificate or certificates also shall be addressed to the Underwriters and
copies thereof shall be delivered to the Underwriters.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.11
shall have been afforded the opportunity to enter
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into an employment agreement substantially in the form of Annex VIII hereto.
8.12 DIRECTORS AND OFFICERS INSURANCE. TSII shall have obtained
Directors and Officers Liability Insurance in amounts that are customary and
commercially reasonable.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSII
The obligations of TSII with respect to actions to be taken on the
Pre-Closing Date are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date of all of the following conditions. The obligations of TSII
with respect to actions to be taken on the Funding and Consummation Date are
subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.2, 9.3, 9.5 and
9.13. From and after the Pre-Closing Date or, with respect to the conditions set
forth in Sections 9.2, 9.3, 9.5 and 9.13, from and after the Funding and
Consummation Date, all conditions not satisfied shall be deemed to have been
waived, except that no such waiver shall be deemed to affect the survival of the
representations and warranties of the COMPANY contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects as of the Pre-Closing Date and the Funding
and Consummation Date with the same effect as though such representations and
warranties had been
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made on and as of such date; and the STOCKHOLDERS shall have delivered to TSII
certificates dated the Pre-Closing Date and signed by them to such effect.
9.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before the Pre-Closing Date or the Funding
and Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the STOCKHOLDERS and the COMPANY
shall have delivered to TSII certificates dated the Pre-Closing Date and the
Funding and Consummation Date, respectively, and signed by them to such effect.
9.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of TSII as
a result of which the management of TSII deems it inadvisable to proceed with
the transactions hereunder.
9.4 SECRETARY'S CERTIFICATE. TSII shall have received a certificate,
dated the Pre-Closing Date and signed by the secretary of the COMPANY,
certifying the truth and correctness of attached copies of the COMPANY's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and the
STOCKHOLDERS approving the COMPANY's entering into this Agreement and the
consummation of the transactions contemplated hereby. Such
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certificate also shall be addressed to the Underwriters and a copy thereof shall
be delivered to the Underwriters.
9.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.6 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
TSII an instrument dated the Pre-Closing Date releasing the COMPANY and the LLC
from (i) any and all claims of the STOCKHOLDERS against the COMPANY and the LLC
and (ii) obligations of the COMPANY or the LLC to the STOCKHOLDERS, except for
(x) items specifically identified on Schedules 5.10, 5.11 and 5.16 as being
claims of or obligations to the STOCKHOLDERS, (y) continuing obligations to
STOCKHOLDERS relating to their employment by the COMPANY or the LLC and (z)
obligations arising under this Agreement or the transactions contemplated
hereby.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
shall have been cancelled effective prior to or as of the Funding and
Consummation Date.
9.8 OPINION OF COUNSEL. TSII shall have received an opinion from
Counsel to the COMPANY and the STOCKHOLDERS, dated the Pre- Closing Date,
substantially in the form annexed hereto as Annex
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VII, and the Underwriters shall have received a copy of the same opinion
addressed to the Underwriters.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
TSII a certificate, dated as of a date no earlier than ten days prior to the
Pre-Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by TSII, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Pre-Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.11
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the TSII Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each STOCKHOLDER shall have delivered to TSII
a certificate to the effect that he or she is not
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a foreign person pursuant to Section 1.1445-2(b) of the Treasury regulations.
9.15 INSURANCE. TSII shall have been named as an additional insured on
all insurance policies of the LLC and certificates of insurance to that effect
shall have been delivered to TSII. TSII shall reimburse the LLC for the
incremental cost of having TSII so named as an additional insured.
9.16 LOCKUP AGREEMENT. The COMPANY shall have signed an agreement with
the Underwriters, in form and substance identical to agreements signed by the
Founding Stockholders in connection with the Other Agreements, by which the
COMPANY covenants to hold all of the TSII Stock acquired hereunder for a period
of at least 180 days after the Funding and Consummation Date, which 180-day
period shall run concurrently with the one-year period described in Section
15.1.
10. COVENANTS OF TSII AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TSII
shall, contemporaneously with the Funding and Consummation Date, use its best
efforts to have the STOCKHOLDERS released from any and all guarantees on any
indebtedness and trade credits that they personally guaranteed and from any and
all pledges of assets that they pledged to secure such indebtedness for the
benefit of the COMPANY, with all such guarantees on indebtedness being assumed
by TSII. In the event that TSII cannot obtain such releases from the lenders of
any such guaranteed
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indebtedness on the Funding and Consummation Date, TSII shall pay off or
otherwise refinance or retire such indebtedness on the Funding and Consummation
Date. TSII shall indemnify and hold harmless STOCKHOLDERS from the payment of
any guaranties on any indebtedness or contractual obligations that STOCKHOLDERS
had incurred prior to the Pre-Closing Date provided that such indebtedness or
obligations are related to the business of the COMPANY as being conducted at the
Pre-Closing Date whether or not previously disclosed.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Funding
and Consummation Date, TSII shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the transaction, including:
(a) the retirement or reacquisition, directly or indirectly, of
all or part of the TSII stock issued in connection with the
transactions contemplated hereby; or
(b) the entering into of financial arrangements for the benefit
of the STOCKHOLDERS.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that
end on or before the Funding and Consummation Date. The COMPANY shall
pay or cause to be paid all Tax liabilities (in excess of all amounts
already paid with respect thereto or properly accrued or reserved with
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respect thereto on the COMPANY Financial Statements and books and
records) shown by such Returns to be due, provided, however, that the
STOCKHOLDERS shall pay or cause to be paid all taxes due on Subchapter
S distributions to the STOCKHOLDERS.
(ii) TSII shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending
after the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries
and affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by taxing authorities and relevant records concerning
the ownership and Tax basis of property, which such party may possess.
Each party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents
or information so provided. Subject to the preceding sentence, each
party
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required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
(iv) Each of the COMPANY, TSII and each STOCKHOLDER shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a
transfer to a controlled corporation under Section 351(a) of the Code.
10.4 DIRECTORS AND OFFICERS. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of TSII, as
and to the extent set forth in the Registration Statement, promptly following
the Funding and Consummation Date. TSII shall make arrangements to compensate
each Director for attending meetings of the Board of Directors and to reimburse
them for related expenses. The STOCKHOLDER not appointed as a Director shall be
entitled to attend all meetings of the Board of Directors.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, TSII shall not terminate any health insurance, life insurance
or 401(k) plan in effect at the COMPANY until such time as TSII is able to
replace such plan with a plan that is applicable to TSII and all of its then
existing subsidiaries. TSII shall have no obligation to provide replacement
plans that have the same terms and provisions as the existing plans, except as
required by ERISA; provided, however, that any new health insurance plan shall
provide for coverage for preexisting conditions.
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10.6 MAINTENANCE OF BOOKS. TSII will cause the COMPANY (a) to maintain
the books and records of the COMPANY existing prior to the Pre-Closing Date for
a period of six years after the Pre-Closing Date and (b) to make such books and
records available to the STOCKHOLDERS for any reasonable purpose.
11. INDEMNIFICATION
The COMPANY, STOCKHOLDERS and TSII each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY COMPANY AND STOCKHOLDERS. The COMPANY
and the STOCKHOLDERS covenant and agree that they, jointly and severally, will
indemnify, defend, protect and hold harmless TSII and the LLC at all times, from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by TSII or
the LLC as a result of or arising from (i) any breach of the representations and
warranties of the STOCKHOLDERS or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDERS or the COMPANY under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other federal
or state law or regulation, at common law or otherwise, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
relating
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to the COMPANY or the STOCKHOLDERS, and provided to TSII or its counsel by the
COMPANY or the STOCKHOLDERS contained in the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to the COMPANY or the STOCKHOLDERS
required to be stated therein or necessary to make the statements therein not
misleading, or (iv) the matters described on Schedule 11.1(iv) (relating to
specifically identified matters such as ongoing claims and/or litigation), which
schedule shall be prepared by TSII; provided, however, (A) that in the case of
any indemnity arising pursuant to clause (iii) such indemnity shall not inure to
the benefit of TSII or the LLC to the extent that such untrue statement (or
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and the STOCKHOLDERS provided, in
writing, corrected information to TSII counsel and to TSII for inclusion in the
final prospectus, and such information was not so included or properly
delivered, and (B) that no STOCKHOLDER shall be liable for any indemnification
obligation pursuant to this Section 11.1 to the extent attributable to a breach
of any representation, warranty or agreement made herein individually by any
other STOCKHOLDER.
11.2 INDEMNIFICATION BY TSII. TSII covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims,
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damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the COMPANY or the
STOCKHOLDERS as a result of or arising from (i) any breach by TSII of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any nonfulfillment of any agreement on the
part of TSII under this Agreement, (iii) any liabilities which the COMPANY or
the STOCKHOLDERS may incur due to TSII's failure to be responsible for the
liabilities and obligations of the LLC as provided in Section 1 hereof; (iv) any
liability under the 1933 Act, the 1934 Act or other federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to TSII or any
of the Other Founding Companies contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to TSII
or any of the Other Founding Companies required to be stated therein or
necessary to make the statements therein not misleading, (v) the matters
described on Schedule 11.2(v) (relating to specifically identified matters),
which schedule shall be prepared by the STOCKHOLDERS or (vi) being named as a
party to litigation which relates to actions of TSII or the Other Founding
Companies.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle (such settlement to be subject to the consent of the
Indemnified Party, as hereinafter provided), at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not settle
any criminal proceeding without the written consent of the Indemnified Party. If
the Indemnifying Party undertakes to defend or settle, it shall promptly notify
the Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in the defense thereof and
in any settlement thereof. Such cooperation shall include, but shall not be
limited to, furnishing the Indemnifying Party with any books, records or
information reasonably requested by the Indemnifying Party that are in the
Indemnified Party's possession or control. All Indemnified
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Parties shall use the same counsel, which shall be the counsel selected by the
Indemnifying Party, provided that if counsel to the Indemnifying Party shall
have a conflict of interest that prevents counsel for the Indemnifying Party
from representing the Indemnified Party, the Indemnified Party shall have the
right to participate in such matter through counsel of its own choosing and the
Indemnifying Party will reimburse the Indemnified Party for the reasonable
expenses of its counsel. Further, absent a conflict, the Indemnified Party may
select counsel and have such counsel participate in such matter at the sole cost
of the Indemnified Party. After the Indemnifying Party has notified the
Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. If the
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Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section
11 shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided, however, that nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. The obligations set forth
herein are contingent upon similar obligations being incorporated in connection
with all of the Other Agreements.
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11.5 LIMITATIONS ON INDEMNIFICATION. TSII, the LLC and the other
persons or entities indemnified pursuant to Section 11.1 shall not assert any
claim for indemnification hereunder against the COMPANY or the STOCKHOLDERS
until such time as, and solely to the extent that, the aggregate of all claims
which such persons may have against the COMPANY and such STOCKHOLDERS shall
exceed 2.0% of the sum of (i) the cash paid to the COMPANY and (ii) the value of
the TSII Stock delivered to the COMPANY (the "Indemnification Threshold"),
provided, however, that TSII, the LLC and the other persons or entities
indemnified pursuant to Section 11.1 may assert and shall be indemnified for any
claim under Section 11.l(iv) at any time, regardless of whether the aggregate of
all claims which such persons may have against the COMPANY or any STOCKHOLDER or
all STOCKHOLDERS exceeds the Indemnification Threshold, it being understood that
the amount of any such claim under Section 11.1(iv) shall not be counted towards
the Indemnification Threshold. The COMPANY and the STOCKHOLDERS shall not assert
any claim for indemnification hereunder against TSII until such time as, and
solely to the extent that, the aggregate of all claims which the COMPANY or the
STOCKHOLDERS may have against TSII shall exceed $50,000, provided, however, that
the COMPANY, the STOCKHOLDERS and the other persons or entities indemnified
pursuant to Section 11.2 may assert and shall be indemnified for any claim under
Section 11.2(v) at any time, regardless of whether the aggregate of all claims
which such persons may have against any of TSII or the LLC exceeds $50,000, it
being understood that the amount of any such
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claim under Section 11.2(v) shall not be counted towards such $50,000 amount. No
person shall be entitled to indemnification under this Section 11 if and to the
extent that such person's claim for indemnification is directly or indirectly
related to a breach by such person of any representation, warranty, covenant or
other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), none of the COMPANY or the STOCKHOLDERS shall be liable under
this Section 11 for an amount which exceeds the amount of proceeds received by
the COMPANY in connection with the transactions contemplated hereby, provided
that the COMPANY's and each STOCKHOLDER's indemnification obligations pursuant
to Section 11.1(iv) shall not be limited. Indemnity obligations hereunder may be
satisfied through the payment of cash or the delivery of TSII Stock, or a
combination thereof, at the COMPANY's or the STOCKHOLDER's election. For
purposes of calculating the value of the TSII Stock received or delivered by the
COMPANY or the STOCKHOLDERS (for purposes of determining the Indemnification
Threshold, the limitation on indemnity set forth in the second preceding
sentence and the amount of any indemnity paid), TSII Stock shall be valued at
its initial public offering price as set forth in the Registration Statement.
Any indemnification payment made by the COMPANY or the STOCKHOLDERS pursuant to
this Section 11 shall be deemed to be a reduction in the consideration received
by the COMPANY pursuant to Section 3.
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12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated by written notice
from the party asserting termination to the other parties at any time prior to
the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TSII and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by TSII (acting through its board of directors),
on the other hand, if the transactions contemplated by this Agreement to take
place at the Pre-Closing shall not have been consummated by September 30, 1997,
unless the failure of such transactions to be consummated is due to the willful
failure of the party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be performed by it
prior to or on the Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by TSII, on
the other hand, if a material breach or default shall be made by the other party
in the observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein, and the curing of such default shall
not have been made on or before the Funding and Consummation Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no
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way limit any obligation or liability of any party based on or arising from a
breach or default by such party with respect to any of its representations,
warranties, covenants or agreements contained in this Agreement including, but
not limited to, legal and audit costs and out of pocket expenses relating to the
transactions contemplated hereby specifically relating to the COMPANY. No party
hereto shall be liable to any other party if the Agreement is terminated under
Sections 12.1(i), (ii) (except as set forth therein), (iv) or (v).
12.3 RETURN OF DATA SUBMITTED. Upon termination of this Agreement for
any reason, TSII will cause the return to the COMPANY of all data, and all
copies thereof, submitted to it or its agents pursuant to this Agreement.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Provided that TSII shall have complied with
and performed all of its obligations hereunder and that the COMPANY shall have
received payment in full of the consideration described in Section 3, the
STOCKHOLDERS and the COMPANY shall not, for a period of three (3) years
following the Funding and Consummation Date, for any reason whatsoever, directly
or indirectly, for themselves 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
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as an employee, independent contractor, consultant or advisor, or as a
sales representative, in the same or similar business of the COMPANY on
the Pre-Closing Date in direct competition with TSII or any of the
subsidiaries thereof, in the United States of America (the
"Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSII (including the subsidiaries thereof) in
a sales representative or managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
TSII (including the subsidiaries thereof), provided that each
STOCKHOLDER shall be permitted to call upon and hire any member of his
or her immediate family;
(iii) call upon any person or entity which is at that time, or
which has been, within one (l) year prior to the Funding and
Consummation Date, a customer of TSII (including the subsidiaries
thereof), of the COMPANY or of any of the Other Founding Companies
within the Territory for the purpose of soliciting or selling products
or services in direct competition with TSII within the Territory;
(iv) call upon any prospective acquisition candidate, on the
COMPANY's or any STOCKHOLDER's own behalf or on behalf of any
competitor in the travel services business, which candidate, to the
actual knowledge of the COMPANY or such STOCKHOLDER after due inquiry,
was called upon by TSII (including the subsidiaries thereof) or for
which, to the actual knowledge of the COMPANY or such STOCKHOLDER after
due
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inquiry, TSII (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
COMPANY or the LLC to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent
that the COMPANY has in the past disclosed such information to the
types of persons to whom disclosure is then presently contemplated for
valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any STOCKHOLDER 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.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TSII as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TSII for which it would
have no other adequate remedy, the COMPANY and each STOCKHOLDER agrees that the
foregoing covenant may be enforced by TSII in the event of breach by the COMPANY
or such STOCKHOLDER, by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
COMPANY and the STOCKHOLDERS in light of the activities and business of TSII
(including the subsidiaries
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thereof) on the date of the execution of this Agreement and the current plans of
TSII.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 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 thereby be reformed.
13.5 EFFECTIVENESS. It is specifically agreed that the period of three
(3) years stated at the beginning of this Section 13, during which the
agreements and covenants of the COMPANY and each STOCKHOLDER made in this
Section 13 shall be effective, shall be computed by excluding from such
computation any time during which the COMPANY or such STOCKHOLDER is in
violation of any provision of this Section 13. The covenants contained in
Section 13 shall have no effect if the transactions contemplated by this
Agreement are not consummated nor may such covenants be enforced by any party to
this Agreement that is in breach of its obligations hereunder.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that
the covenants in this Section 13 are a material and substantial part of this
transaction.
13.7 LIMITATIONS. In the event that any STOCKHOLDER who is employed by
TSII pursuant to an employment agreement is terminated
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without cause (as defined in such employment agreement), the provisions of this
Section 13 shall no longer be valid or enforceable by TSII. If such employment
agreement contains provisions relating to the same subject matter as this
Section 13 that are less restrictive than set forth in this Section 13, the
provisions of such employment agreement shall control as long as such employment
is in effect.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The COMPANY and the STOCKHOLDERS recognize and
acknowledge that they had in the past, currently have, and in the future may
possibly have, access to certain confidential information of the COMPANY, the
LLC, the Other Founding Companies, and/or TSII, such as operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the COMPANY's, the LLC's, the Other Founding Companies' and/or TSII's respective
businesses. The COMPANY and the STOCKHOLDERS agree that they shall not disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except (a) to authorized
representatives of TSII, (b) following the Funding and Consummation Date, such
information may be disclosed by the STOCKHOLDERS as is required in the course of
performing their duties for TSII or the LLC and (c) to counsel and other
advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.1, unless (i) such information is
or
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becomes known to the public generally or to businesses operating in the same
industry through no fault of the COMPANY and the STOCKHOLDERS, (ii) disclosure
is required by law or the order of any governmental authority under color of
law, provided, however, that prior to disclosing any information pursuant to
this clause (ii), the COMPANY and the STOCKHOLDERS shall, if possible, give two
days' prior written notice thereof to TSII and provide TSII with the opportunity
within such two-day period to contest such disclosure, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party. In the event of a breach
or threatened breach by the COMPANY or any of the STOCKHOLDERS of the provisions
of this Section, TSII shall be entitled to an injunction restraining the COMPANY
and such STOCKHOLDERS from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting TSII from pursuing
any other available remedy for such breach or threatened breach, including the
recovery of damages. In the event the transactions contemplated by this
Agreement are not consummated, the COMPANY and the STOCKHOLDERS shall have none
of the above-mentioned restrictions on their ability to disseminate confidential
information with respect to the COMPANY or the LLC.
14.2 TSII. TSII recognizes and acknowledges that TSII had in the past
and currently has access to certain confidential information of the COMPANY,
such as operational policies, and pricing and cost policies that are valuable,
special and unique
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assets of the COMPANY's business. TSII agrees that, prior to the Funding and
Consummation Date, or if the transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided, however, that such advisors (other than
counsel) agree to the confidentiality provisions of this Section 14.2 and (c) to
the Other Founding Companies and their representatives pursuant to Section
7.1(a), unless (i) such information becomes known to the public generally
through no fault of TSII, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, however, that prior to
disclosing any information pursuant to this clause (ii), TSII shall, unless
otherwise required by law or such order, give two days' prior written notice
thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and the
STOCKHOLDERS with the opportunity within such two-day period to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. TSII will disclose confidential information relating to the
COMPANY to the Other Founding Companies only if such companies have agreed, in
advance, to treat such information as confidential. In the event of a breach or
threatened breach by TSII of the provisions of this Section, the COMPANY and the
STOCKHOLDERS shall be entitled to an injunction
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restraining TSII from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for as such breach or
threatened breach, including the recovery of damages. All confidential data
shall be returned to the COMPANY and the STOCKHOLDERS as set forth in Section
12.3.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of three years from
(a) the Funding and Consummation Date if the transactions contemplated hereby
are consummated or (b) the date hereof if the transactions contemplated hereby
are not consummated.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to Affiliates of the
COMPANY who agree to be bound by the restrictions set forth in this Section
15.1, for a period of one year from the
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Funding and Consummation Date, except pursuant to Section 17 hereof, the COMPANY
shall not sell, assign, exchange, transfer, distribute or otherwise dispose of
any shares of TSII Stock received by the COMPANY as described in Section 3.1.
The certificates evidencing the TSII Stock delivered to the COMPANY pursuant to
Section 3 of this Agreement shall bear a legend substantially in the form set
forth below and containing such other information as TSII may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO [first anniversary of
Closing Date]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH
THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE (AS IT MAY BE REDUCED AS
PROVIDED HEREIN).
15.2 CERTAIN TRANSFERS. Except for transfers to Affiliates of the
COMPANY who agree to be bound by the restrictions set forth in Section 15.1 and
except pursuant to Section 17 hereof, regardless of whether transfers of such
shares are restricted pursuant to the terms of this Agreement, during the
two-year period commencing on the Funding and Consummation Date, the COMPANY
shall not sell, assign, exchange, transfer, distribute or otherwise dispose of,
in any transaction or series of transactions involving more than 5,000 shares (a
"Future Sale"), any shares of TSII Stock as described in Section 3.1 received by
the COMPANY in the transaction contemplated hereby except in accordance with
this Section 15.2. If the COMPANY desires to make a Future Sale, the COMPANY
shall first provide
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written notice thereof to TSII. As soon as practicable after receipt of such
notice by TSII, TSII shall designate in writing to the COMPANY the names and
other pertinent information of two investment banks or market makers through
whom the Future Sale may be made. The COMPANY may not make the Future Sale
except through one of the designated investment banks or market makers for TSII
Stock; provided, however, that the terms of such Future Sale (including
commissions) shall be at least as favorable to the COMPANY as the COMPANY would
have received in the absence of this Section 15.2. Upon the sale of any
unregistered letter stock of TSII subject to resale volume limitations contained
in federal securities laws, the COMPANY and the STOCKHOLDERS, together with the
other Founding Stockholders, shall have the first priority in the sale of
unregistered letter stock on a prorata basis based on the shares issued and
outstanding to the COMPANY, the STOCKHOLDERS and such Founding Stockholders.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
The COMPANY acknowledges that the shares of TSII Stock to be delivered
to the COMPANY pursuant to this Agreement have not been and will not be
registered under the 1933 Act and therefore may not be resold without compliance
with the 1933 Act. The TSII Stock to be acquired by the COMPANY pursuant to this
Agreement is being acquired solely for its own account, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it in connection with a distribution.
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16.1 COMPLIANCE WITH LAW. Each of the COMPANY and the STOCKHOLDERS
covenants, warrants and represents that none of the shares of TSII Stock issued
to the COMPANY will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All of the TSII Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement: THE SHARES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND
MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE
ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The COMPANY is able to bear the
economic risk of an investment in the TSII Stock acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment in the TSII Stock.
The COMPANY and the STOCKHOLDERS have had an adequate opportunity to ask
questions and receive answers from the officers of TSII concerning any and all
matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of TSII, the plans for the operations of the business of TSII, the
business, operations and financial condition of the Founding Companies other
than the COMPANY, and any plans for additional
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acquisitions and the like. The COMPANY and the STOCKHOLDERS have asked any and
all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. Notwithstanding any provisions of
this Agreement to the contrary other than the provisions of Section 17.5, at any
time following the Funding and Consummation Date, whenever TSII proposes to
register any TSII Stock for its own or others account under the 1933 Act for a
public offering, other than (i) any shelf registration of shares to be used as
consideration for acquisitions of additional businesses by TSII and (ii)
registrations relating to employee benefit plans, TSII shall give the COMPANY
prompt written notice of its intent to do so. Upon the written request of the
COMPANY given within 30 days after receipt of such notice, TSII shall cause to
be included in such registration all of the TSII Stock issued to the COMPANY
pursuant to this Agreement which the COMPANY requests, provided that TSII shall
have the right to reduce the number of shares included in such registration to
the extent that inclusion of such shares could, in the written opinion of tax
counsel to TSII or its independent auditors, jeopardize the status of the
transactions contemplated hereby and by the Registration Statement as a tax-free
organization. In addition, if TSII is advised in writing in good faith by any
managing underwriter of an underwritten offering of
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the securities being offered pursuant to any registration statement under this
Section 17.1 that the number of shares to be sold by persons other than TSII is
greater than the number of such shares which can be offered without adversely
affecting the offering, TSII may reduce pro rata the number of shares offered
for the accounts of such persons (based upon the number of shares desired to be
sold by such person) to a number deemed satisfactory by such managing
underwriter, provided, that, notwithstanding Section 15.1 hereof, for each such
offering made by TSII after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than TSII, the COMPANY
and the Other Founding Companies or the stockholders thereof who receive shares
of TSII Stock pursuant to the Other Agreements (collectively, the COMPANY and
the Other Founding Companies or the stockholders thereof who receive shares of
TSII Stock pursuant to the Other Agreements being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Pre-Closing, the holders of a majority of the shares of TSII Stock
issued to the Founding Stockholders pursuant to this Agreement and the Other
Agreements which have not been previously registered or sold and which are not
entitled to be sold under Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act may request in writing that TSII file a
registration statement under the 1933 Act covering the
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registration of the shares of TSII Stock issued to the COMPANY pursuant to this
Agreement and the Other Agreements then held by such Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
TSII shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from the COMPANY, file and use its best efforts to cause to
become effective a registration statement covering all such shares. TSII shall
be obligated to effect only one Demand Registration for all Founding
Stockholders.
Notwithstanding the foregoing paragraph, following such a demand a
majority of TSII's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 60 day period.
If at the time of any request by the Founding Stockholders for a Demand
Registration TSII has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TSII
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TSII is no longer proceeding
diligently to effect such registration; provided that TSII shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
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17.3 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by TSII. In connection with
registrations under Sections 17.1 and 17.2, TSII shall (i) use its best efforts
to prepare and file with the SEC as soon as reasonably practicable, a
registration statement with respect to the TSII Stock and use its best efforts
to cause such registration to promptly become and remain effective for a period
of at least 45 days (or such shorter period during which the Founding
Stockholders shall have sold all TSII Stock which they requested to be
registered); (ii) use its best efforts to register and qualify the TSII Stock
covered by such registration statement under applicable state securities laws as
the holders shall reasonably request for the distribution for the TSII Stock;
and (iii) take such other actions as are reasonable and necessary to comply with
the requirements of the 1933 Act and the regulations thereunder to enable the
Founding Stockholders to sell their shares pursuant thereto.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registration public
offering, TSII and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions (including indemnification provisions) as are customary
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in the securities business for such an arrangement between such managing
underwriters and companies of TSII's size and investment stature.
17.5 AVAILABILITY OF RULE 144. TSII shall not be obligated to register
shares of TSII Stock held by the COMPANY at any time and only at such time when
the resale provisions of Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act are available to the COMPANY.
18. GENERAL
18.1 COOPERATION. The COMPANY, STOCKHOLDERS and TSII shall each deliver
or cause to be delivered to the other on the Funding and Consummation Date, and
at such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY shall cooperate and use its reasonable efforts to
have the present officers, directors and the employees of the COMPANY cooperate
with TSII on and after the Funding and Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any tax
return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Funding
and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of
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the parties hereto, the successors of TSII, and the heirs and legal
representatives of the STOCKHOLDERS.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDERS,
the COMPANY and TSII and supersede any prior agreement and understanding
relating to the subject matter of this Agreement, including but not limited to
any letter of intent entered into by any of the parties hereto. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS, the COMPANY and TSII, acting
through their respective officers or trustees, duly authorized by their
respective Boards of Directors.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damages or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying party.
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18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, TSII will pay the fees, expenses and disbursements of TSII
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TSII under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Akin, Gump, Strauss, Hauer & Feld, L.L.P., and
any other person or entity retained by TSII, and the costs of preparing the
Registration Statement and the COMPANY and the STOCKHOLDERS shall have no
responsibility for the payment of any such monies associated with such services,
except as set forth herein. The COMPANY shall pay the fees, expenses and
disbursements of the STOCKHOLDERS, the COMPANY and their respective agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by the COMPANY and the STOCKHOLDERS under this Agreement, including
the fees and expenses of accountants and legal counsel to the COMPANY and the
STOCKHOLDERS, except as provided herein. Notwithstanding the foregoing, if the
transactions contemplated by this Agreement are consummated, TSII shall
reimburse the STOCKHOLDERS for such reasonable attorneys' fees and accounting
fees upon the closing of the IPO up to $25,000 plus such additional fees,
expenses and disbursements as are
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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. Subject to the foregoing, each
STOCKHOLDER shall pay all sales, use, transfer, gains, stock transfer and other
similar taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby, other than Transfer Taxes, if any, imposed by
the State of Delaware. In addition, if the transactions described in this
Agreement do not close other than by reason of the COMPANY's or any
STOCKHOLDER's breach of this Agreement, then TSII shall reimburse the COMPANY
for all documented expenses and costs of dissolving the LLC and transferring the
Assets back to the COMPANY, including without limitation Florida documentary
stamp of deeds, and for present and future costs described on Schedule 18.6.
Each STOCKHOLDER shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges that he or
she, and not the COMPANY or TSII, shall pay all taxes due upon receipt of the
consideration payable pursuant to Section 3 hereof, and shall assume all tax
risks and liabilities of such STOCKHOLDER in connection with the transactions
contemplated hereby, provided, however, the foregoing shall not in any way
prejudice the ability of the STOCKHOLDERS and the COMPANY to rely upon the
opinions contained in the opinion letter referenced in Annex IX. In the event
that the COMPANY or the STOCKHOLDERS terminate this Agreement otherwise than
pursuant to Section 12.1(i), (ii), (iv) or (v), the
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COMPANY shall reimburse TSII for all documented fees and expenses incurred by
TSII that are directly associated with the acquisition of the LLC Interest as
contemplated by this Agreement.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party.
(a) If to TSII, addressed to it at:
Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, PL 15
Bethesda, Maryland 20816
Attention: Elan J. Blutinger
with copies to:
Akin, Gump, Strauss, Hauer &
Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Bruce S. Mendelsohn
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with
respect to each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Cruises Only, Inc.
1011 East Colonial Drive
Orlando, Florida 32083
Attention: Wayne Heller
and marked "Personal and Confidential"
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with copies to:
Mr. Mel Robinson
424 Wilderness Drive
Longwood, Florida 32779
and
Thomas P. Moran, Esq.
Moran & Shams, P.A.
111 North Orange Avenue-Suite 1200
Orlando, Florida 32801
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Florida, and any all proceedings pertaining to
this Agreement shall be filed in the Circuit Court in and for Orange County,
Florida.
18.9 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.10 TIME. Time is of the essence with respect to this Agreement.
18.11 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it
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shall, to the extent possible, be modified in such manner as to be valid, legal
and enforceable but so as to most nearly retain the intent of the parties, and
if such modification is not possible, such provision shall be severed from this
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
18.12 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
18.13 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TSII, the COMPANY and the STOCKHOLDERS. Any amendment or
waiver effected in accordance with this Section 18.14 shall be binding upon each
of the parties hereto, any other person receiving TSII Stock in connection with
the transactions contemplated hereby and each future holder of such TSII Stock.
18.15 DEFINED TERMS. Unless the context otherwise requires, capitalized
terms used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of this
Agreement:
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"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any Subsidiary and any member of a
Relevant Group.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" has the meaning set forth in the first paragraph hereof.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Assets" has the meaning set forth in Section 7.13.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" means the capital stock of the COMPANY.
"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 17.2.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
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"Founding Stockholders" has the meaning set forth in Section 17.1.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"Future Sale" has the meaning set forth in Section 15.2.
"Indemnification Threshold" has the meaning set forth in Section 11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"IPO" means the initial public offering of TSII Stock pursuant to the
Registration Statement.
"LLC" has the meaning set forth in Section 7.13.
"LLC Interest" means all of the limited liability company interests in
the LLC owned by the COMPANY.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pre-Closing" has the meaning set forth in Section 4.
"Pre-Closing Date" has the meaning set forth in Section 4.
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"Pricing" means the date of determination by TSII and the Underwriters
of the public offering price of the shares of TSII Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Pre-Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 covering the shares of TSII Stock to be issued in the IPO.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Restricted Common Stock" means the common stock of TSII, par value
$0.01 per share, having the restricted voting rights and such other rights,
preferences, restrictions and limitations as are set forth in the Certificate of
Incorporation, as amended, of TSII on the Funding and Consummation Date.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
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"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" has the meaning set forth in Section 5.6.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"TSII" has the meaning set forth in the first paragraph of this
Agreement.
"TSII Charter Documents" has the meaning set forth in Section 6.1.
"TSII Financial Statements" has the meaning set forth in Section 6.6.
"TSII Plan of Organization" has the meaning set forth in the fourth
recital of this Agreement.
"TSII Stock" means the common stock, par value $.01 per share, of TSII.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
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[THE NEXT PAGE IS THE SIGNATURE PAGE]
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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: /s/ Leonard Potter
--------------------------------
Name:__________________________
Title:_________________________
CRUISES ONLY, INC.
By: /s/ Wayne Heller
-------------------------------
Wayne Heller
President
STOCKHOLDERS:
/s/ Wayne Heller
----------------------------------
Wayne Heller, Individually
/s/ Judy Heller
----------------------------------
Judy Heller, Individually
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AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 9, 1997
by and among
TRAVEL SERVICES INTERNATIONAL, INC.
800-IDEAS, INC.
and
the STOCKHOLDER named herein
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TABLE OF CONTENTS
Page
1. PURCHASE AND SALE................................................. 3
2. [INTENTIONALLY DELETED]........................................... 3
3. DELIVERY OF CONSIDERATION......................................... 3
4. CLOSING........................................................... 4
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDER...................................................... 6
5.1 DUE ORGANIZATION......................................... 7
5.2 AUTHORIZATION............................................ 8
5.3 CAPITAL STOCK OF THE COMPANY............................. 8
5.4 TRANSACTIONS IN CAPITAL STOCK............................ 9
5.5 NO BONUS SHARES.......................................... 9
5.6 SUBSIDIARIES............................................. 9
5.7 PREDECESSOR STATUS; ETC.................................. 10
5.8 SPIN-OFF BY THE COMPANY.................................. 11
5.9 FINANCIAL STATEMENTS..................................... 11
5.10 LIABILITIES AND OBLIGATIONS.............................. 11
5.11 ACCOUNTS AND NOTES RECEIVABLE............................ 13
5.12 PERMITS AND INTANGIBLES.................................. 14
5.13 ENVIRONMENTAL MATTERS.................................... 15
5.14 PERSONAL PROPERTY........................................ 16
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND
COMMITMENTS............................................. 17
5.16 REAL PROPERTY............................................ 18
5.17 INSURANCE................................................ 20
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED
LABOR MATTERS........................................... 20
5.19 EMPLOYEE PLANS........................................... 21
5.20 COMPLIANCE WITH ERISA.................................... 23
5.21 CONFORMITY WITH LAW; LITIGATION.......................... 25
5.22 TAXES.................................................... 26
5.23 NO VIOLATIONS............................................ 27
5.24 GOVERNMENT CONTRACTS..................................... 28
5.25 ABSENCE OF CHANGES....................................... 28
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY..................... 30
5.27 VALIDITY OF OBLIGATIONS.................................. 31
5.28 RELATIONS WITH GOVERNMENTS............................... 31
5.29 DISCLOSURE............................................... 31
5.30 PROHIBITED ACTIVITIES.................................... 33
5.31 AUTHORITY; OWNERSHIP..................................... 33
5.32 PREEMPTIVE RIGHTS........................................ 34
6. REPRESENTATIONS OF TSII........................................... 34
6.1 DUE ORGANIZATION......................................... 35
6.2 AUTHORIZATION............................................ 35
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6.3 CAPITAL STOCK OF THE TSII............................... 35
6.4 TRANSACTIONS IN CAPITAL STOCK........................... 36
6.5 SUBSIDIARIES............................................ 36
6.6 FINANCIAL STATEMENTS.................................... 37
6.7 LIABILITIES AND OBLIGATIONS............................. 37
6.8 CONFORMITY WITH LAW; LITIGATION......................... 38
6.9 NO VIOLATIONS........................................... 38
6.10 VALIDITY OF OBLIGATIONS................................. 39
6.11 TSII STOCK.............................................. 39
6.12 NO SIDE AGREEMENTS...................................... 40
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS............ 40
6.14 TAXES................................................... 41
6.15 NO INTENTION TO DISPOSE OF LLC INTEREST................. 41
7. COVENANTS PRIOR TO CLOSING....................................... 42
7.1 ACCESS AND COOPERATION; DUE DILIGENCE................... 42
7.2 CONDUCT OF BUSINESS PENDING CLOSING..................... 43
7.3 PROHIBITED ACTIVITIES................................... 45
7.4 NO SHOP................................................. 47
7.5 NOTICE TO BARGAINING AGENTS............................. 47
7.6 AGREEMENTS.............................................. 47
7.7 NOTIFICATION OF CERTAIN MATTERS......................... 48
7.8 AMENDMENT OF SCHEDULES.................................. 49
7.9 COOPERATION IN PREPARATION OF REGISTRATION
STATEMENT............................................... 51
7.10 FINAL FINANCIAL STATEMENTS.............................. 52
7.11 FURTHER ASSURANCES...................................... 53
7.12 AUTHORIZED CAPITAL...................................... 53
7.13 FORMATION OF LLC AND TRANSFER OF ASSETS................. 53
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND
COMPANY.......................................................... 54
8.1 REPRESENTATIONS AND WARRANTIES.......................... 55
8.2 PERFORMANCE OF OBLIGATIONS.............................. 55
8.3 NO LITIGATION........................................... 56
8.4 OPINION OF COUNSEL...................................... 56
8.5 REGISTRATION STATEMENT.................................. 56
8.6 CONSENTS AND APPROVALS.................................. 56
8.7 GOOD STANDING CERTIFICATES.............................. 56
8.8 NO MATERIAL ADVERSE CHANGE.............................. 57
8.9 CLOSING OF IPO.......................................... 57
8.10 SECRETARY'S CERTIFICATE................................. 57
8.11 EMPLOYMENT AGREEMENTS................................... 58
8.12 DIRECTORS AND OFFICERS INSURANCE........................ 58
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSII...................... 58
9.1 REPRESENTATIONS AND WARRANTIES.......................... 58
9.2 PERFORMANCE OF OBLIGATIONS.............................. 59
9.3 NO LITIGATION........................................... 59
9.4 SECRETARY'S CERTIFICATE................................. 59
9.5 NO MATERIAL ADVERSE EFFECT.............................. 60
9.6 STOCKHOLDER'S RELEASE................................... 60
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9.7 TERMINATION OF RELATED PARTY AGREEMENTS.................. 60
9.8 OPINION OF COUNSEL....................................... 60
9.9 CONSENTS AND APPROVALS................................... 61
9.10 GOOD STANDING CERTIFICATES............................... 61
9.11 REGISTRATION STATEMENT................................... 61
9.12 EMPLOYMENT AGREEMENTS.................................... 61
9.13 CLOSING OF IPO........................................... 61
9.14 FIRPTA CERTIFICATE....................................... 62
10. COVENANTS OF TSII AND THE STOCKHOLDER AFTER CLOSING............... 62
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN
OBLIGATIONS............................................. 62
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT............. 63
10.3 PREPARATION AND FILING OF TAX RETURNS.................... 63
10.4 DIRECTORS AND OFFICERS................................... 65
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS................... 65
10.6 MAINTENANCE OF BOOKS..................................... 65
11. INDEMNIFICATION................................................... 65
11.1 GENERAL INDEMNIFICATION BY COMPANY AND
STOCKHOLDER.............................................. 66
11.2 INDEMNIFICATION BY TSII.................................. 67
11.3 THIRD PERSON CLAIMS...................................... 68
11.4 EXCLUSIVE REMEDY......................................... 71
11.5 LIMITATIONS ON INDEMNIFICATION........................... 71
12. TERMINATION OF AGREEMENT.......................................... 73
12.1 TERMINATION.............................................. 73
12.2 LIABILITIES IN EVENT OF TERMINATION...................... 74
13. NONCOMPETITION.................................................... 74
13.1 PROHIBITED ACTIVITIES.................................... 74
13.2 DAMAGES.................................................. 76
13.3 REASONABLE RESTRAINT..................................... 77
13.4 SEVERABILITY; REFORMATION................................ 77
13.5 INDEPENDENT COVENANT..................................... 77
13.6 MATERIALITY.............................................. 78
13.7 LIMITATIONS.............................................. 78
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION......................... 78
14.1 STOCKHOLDER.............................................. 78
14.2 TSII..................................................... 80
14.3 DAMAGES.................................................. 81
14.4 SURVIVAL................................................. 81
15. TRANSFER RESTRICTIONS............................................. 82
15.1 TRANSFER RESTRICTIONS.................................... 82
15.2 CERTAIN TRANSFERS........................................ 82
16. FEDERAL SECURITIES ACT REPRESENTATIONS............................ 83
16.1 COMPLIANCE WITH LAW...................................... 83
16.2 ECONOMIC RISK; SOPHISTICATION............................ 84
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17. REGISTRATION RIGHTS............................................... 85
17.1 PIGGYBACK REGISTRATION RIGHTS............................ 85
17.2 DEMAND REGISTRATION RIGHTS............................... 86
17.3 REGISTRATION PROCEDURES.................................. 87
17.4 UNDERWRITING AGREEMENT................................... 88
17.5 AVAILABILITY OF RULE 144................................. 88
18. GENERAL........................................................... 89
18.1 COOPERATION.............................................. 89
18.2 SUCCESSORS AND ASSIGNS................................... 89
18.3 ENTIRE AGREEMENT......................................... 89
18.4 COUNTERPARTS............................................. 90
18.5 BROKERS AND AGENTS....................................... 90
18.6 EXPENSES................................................. 90
18.7 NOTICES.................................................. 92
18.8 GOVERNING LAW............................................ 93
18.9 EXERCISE OF RIGHTS AND REMEDIES.......................... 93
18.10 TIME..................................................... 93
18.11 REFORMATION AND SEVERABILITY............................. 93
18.12 REMEDIES CUMULATIVE...................................... 94
18.13 CAPTIONS................................................. 94
18.14 AMENDMENTS AND WAIVERS................................... 94
18.15 INCORPORATION BY REFERENCE............................... 94
18.16 DEFINED TERMS............................................ 94
ANNEX I
INTENTIONALLY DELETED..................................................... 101
ANNEX II
CERTIFICATE OF INCORPORATION AND BY-LAWS OF TSII.......................... 102
ANNEX III
CONSIDERATION TO BE PAID TO COMPANY....................................... 103
ANNEX IV
STOCKHOLDER AND STOCK OWNERSHIP OF THE COMPANY............................ 104
ANNEX V
STOCKHOLDERS AND STOCK OWNERSHIP OF TSII.................................. 105
ANNEX VI
FORM OF OPINION OF COUNSEL TO TSII........................................ 106
ANNEX VII
FORM OF OPINION OF COUNSEL TO COMPANY AND STOCKHOLDER..................... 110
ANNEX VIII
FORM OF EMPLOYMENT AGREEMENT.............................................. 114
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
May 9, 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. Susan
Parker is referred to herein as the "STOCKHOLDER".
WHEREAS, the respective Boards of Directors of TSII and the
COMPANY deem it advisable and in the best interests of TSII and the
COMPANY and their respective stockholders that the COMPANY contribute
the ownership of substantially all of its assets to TSII, by
transferring such assets to the LLC and transferring the LLC Interest
to TSII, in exchange for stock of TSII and cash pursuant to this
Agreement and in accordance with the applicable provisions of the laws
of the State of Delaware and the State in which the COMPANY is
incorporated;
WHEREAS, TSII is entering into an Agreement and Plan of
Organization (collectively, the "Other Agreements") with Auto- Europe,
Inc. (Maine), a Maine corporation, Cruises, Inc., a New York
corporation, Cruises Only, Inc., a Florida corporation, D-FW Tours,
Inc., a Texas corporation, D-FW Travel Arrangements, Inc., a Texas
corporation, and their respective stockholders in order to acquire
additional businesses (the COMPANY, together with each of the entities
with which TSII has entered into the Other Agreements, are collectively
referred to herein as the "Founding Companies");
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WHEREAS, this Agreement, the Other Agreements and the IPO of
TSII Stock constitute the "TSII Plan of Organization;"
WHEREAS, the STOCKHOLDER and the Boards of Directors and the
stockholders of TSII and each of the Other Founding Companies that are
parties to the Other Agreements have approved and adopted the TSII Plan
of Organization as an integrated plan pursuant to which (1)
Auto-Europe, Inc. (Maine), Cruises Only, Inc. and the COMPANY, will
contribute the ownership of substantially all of their respective
assets to TSII, (2) the stockholders of Cruises, Inc., D-FW Tours, Inc.
and D-FW Travel Arrangements, Inc. will transfer the capital stock of
such companies to TSII and (3) Auto-Europe, Inc. (Maine), Cruises Only,
Inc., the COMPANY, the public, and the stockholders of Cruises, Inc.,
D-FW Tours, Inc. and D-FW Travel Arrangements, Inc. will acquire the
stock of TSII as a tax-free transfer of property under Section 351 of
the Internal Revenue Code of 1986, as amended; and
WHEREAS, in consideration of the agreements of the Other
Founding Companies pursuant to the Other Agreements, the Board of
Directors of the COMPANY has approved this Agreement as part of the
TSII Plan of Organization in order to transfer the ownership of
substantially all of the assets of the COMPANY to TSII.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and
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covenants herein contained, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE
On the Funding and Consummation Date, (a) the COMPANY shall transfer,
convey, assign and deliver to TSII, and TSII shall acquire and accept from the
COMPANY, as a contribution to TSII under Section 351 of the Code, the LLC
Interest, free and clear of all liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind.
2. [INTENTIONALLY DELETED]
3. DELIVERY OF CONSIDERATION
3.1 On the Funding and Consummation Date the COMPANY, which is on that
date the holder of all outstanding certificates representing limited liability
company interests of the LLC, shall, upon surrender of such certificates,
receive the number of shares of TSII Stock and the amount of cash set forth on
Annex III hereto, said cash to be payable by certified check or wire transfer.
3.2 The COMPANY shall deliver to TSII at the Closing the certificates
representing the LLC Interest, duly endorsed in blank by the COMPANY, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the COMPANY'S expense, affixed and cancelled. The
COMPANY agrees promptly to cure any deficiencies with respect to the endorsement
of the interest certificates or other documents of conveyance with
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respect to such LLC Interest or with respect to the stock powers accompanying
the LLC Interest.
3.3 All TSII Stock received by the COMPANY pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all of the other shares of outstanding
TSII Stock by reason of the provisions of the Certificate of Incorporation of
TSII or as otherwise provided by the Delaware GCL. All voting rights of such
TSII Stock received by the COMPANY shall be fully exercisable by the COMPANY and
the COMPANY shall not be deprived nor restricted in exercising those rights. On
the Funding and Consummation Date, TSII shall have no class of capital stock
issued and outstanding other than the TSII Stock and the Restricted Common
Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to prepare to (i) effect the transfer and delivery of the LLC Interest
as contemplated by Section 1 hereof and (ii) effect the delivery of the
consideration referred to in Section 3 hereof; provided, however, that such
actions shall not include the actual completion of the transfer and delivery of
the LLC Interest or the delivery of the consideration by certified check(s) or
wire transfer(s) referred to in Section 3 hereof, each of which actions shall
only be taken upon the Funding and Consummation Date as herein provided. In the
event that there is no Funding and Consummation Date and this Agreement
terminates, TSII hereby
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covenants and agrees to do all things required by Delaware law and all things
which counsel for the COMPANY advise TSII are required by applicable laws of the
State in which the COMPANY is incorporated in order to rescind the effects, if
any, of the transfer of the Assets to the LLC as described Section 7.13 and to
pay all related costs of the COMPANY directly associated with such rescission.
The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue,
N.W., Washington, D.C. 20036. On the Funding and Consummation Date (x) all
transactions contemplated by this Agreement, including the delivery of the LLC
Interest and the delivery of shares and certified check(s) or wire transfer(s)
in an amount equal to the cash portion of the consideration which the COMPANY
shall be entitled to receive pursuant to Section 3 hereof shall occur and (y)
the closing with respect to the IPO shall be completed. The date on which the
actions described in the preceding clauses (x) and (y) occur shall be referred
to as the "Funding and Consummation Date." Except as provided in Sections 8 and
9 hereof with respect to actions to be taken on the Funding and Consummation
Date, during the period from the Closing Date to the Funding and Consummation
Date this Agreement may only be terminated by a party if the underwriting
agreement in respect of the IPO is terminated pursuant to the terms of such
agreement. This Agreement shall in any event terminate if
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the Funding and Consummation Date has not occurred within 15 business days of
the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDER
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDER.
Each of the COMPANY and the STOCKHOLDER jointly and severally
represents and warrants that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date; provided, however, that representations and warranties
relating to the LLC shall be true only at the time of Closing and the Funding
and Consummation Date. Each of the COMPANY and the STOCKHOLDER agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of two years (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
5.22 hereof shall survive until such time as the limitations period has run for
all Tax periods ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 5.22 and (ii) solely for
purposes of determining whether a claim for indemnification under Section
11.1(iii) hereof has been made on a timely basis, and solely to the extent that
in connection with the IPO, TSII actually incurs liability under the 1933 Act,
the 1934 Act, or any other federal or state securities laws as a result
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of a breach of a representation or warranty by the COMPANY or the STOCKHOLDER,
the representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes. For purposes of this Section 5, the term
"COMPANY" shall mean and refer to the COMPANY and all of its Subsidiaries,
including the LLC.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and the COMPANY is duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on its business in the places and in the manner as now
conducted, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the COMPANY taken as a whole (as used herein with
respect to the COMPANY, or with respect to any other person, a "Material Adverse
Effect"). Schedule 5.1 sets forth the jurisdiction in which the COMPANY is
incorporated and contains a list of all such jurisdictions in which the COMPANY
is authorized or qualified to do business. True, complete and correct copies of
the Certificate of Incorporation and By-laws, each as amended, of the COMPANY
(the "Charter Documents") are all attached hereto as Schedule 5.1. The stock
records of the COMPANY, as heretofore made available to TSII, are correct and
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complete in all material respects. There are no minutes in the possession of the
COMPANY or the STOCKHOLDER which have not been made available to TSII, and all
of such minutes are correct and complete in all respects. Except as set forth on
Schedule 5.1, the most recent minutes of the COMPANY, which are dated no earlier
than ten business days prior to the date hereof, affirm and ratify all prior
acts of the COMPANY, and of its officers and directors on behalf of the COMPANY.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the full legal right, power and
authority to enter into and perform this Agreement, and all required approvals
of the shareholders and the Board of Directors of the COMPANY have been
obtained.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDER in the
amounts set forth in Annex IV and further, except as set forth on Schedule 5.3,
are owned free and clear of all liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind. All of the
issued and outstanding shares of the capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the STOCKHOLDER and further, such shares were
offered, issued, sold and delivered by the COMPANY in compliance with all
applicable state
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and federal laws concerning the issuance of securities. Further, none of such
shares were issued in violation of the preemptive rights of any past or present
stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4,
the COMPANY has not acquired any COMPANY Stock since January l, 1994. Except as
set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the COMPANY to issue any of its
authorized but unissued capital stock; (ii) the COMPANY has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure of
the COMPANY nor the relative ownership of shares among any of its respective
stockholders has been altered or changed in contemplation of the transactions
contemplated hereby and/or the TSII Plan of Organization. Schedule 5.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and the material terms of such outstanding
options, warrants or other rights.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Schedule 5.6 attached hereto lists the name of each
of the COMPANY's subsidiaries, including the LLC
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(each, a "Subsidiary"), and sets forth the number and class of the authorized
capital stock of each Subsidiary and the number of shares or interests of each
Subsidiary which are issued and outstanding, all of which shares or interests
(except as set forth on Schedule 5.6) are owned by the COMPANY, free and clear
of all liens, security interests, pledges, voting trusts, equities,
restrictions, encumbrances and claims of every kind. Except as set forth on
Schedule 5.6, the COMPANY does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity nor is the COMPANY, directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity. The COMPANY is the
sole owner of all of the issued and outstanding limited liability company
interests of the LLC, free and clear of all liens, security interests, pledges,
voting trusts, equities, restrictions, encumbrances and claims of every kind.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of
all names of all predecessor companies of the COMPANY, including the names of
any entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
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5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY Financial Statements") of the
COMPANY: the COMPANY's audited Consolidated Balance Sheets, if any, as of
December 31, 1996, 1995 and 1994 and Statements of Income, Cash Flows and
Retained Earnings, if any, for each of the years in the three-year period ended
December 31, 1996 (December 31, 1996 being hereinafter referred to as the
"Balance Sheet Date"). Except as set forth on Schedule 5.9, such Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted thereon or on Schedule 5.9). Except as set forth on Schedule
5.9, such Consolidated Balance Sheets as of December 31, 1996, 1995 and 1994
present fairly the financial position of the COMPANY as of the dates indicated
thereon, and such Consolidated Statements of Income, Cash Flows and Retained
Earnings present fairly the results of operations for the periods indicated
thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to TSII an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY
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which are not reflected on the balance sheet of the COMPANY at the Balance Sheet
Date or otherwise reflected in the COMPANY Financial Statements at the Balance
Sheet Date, (ii) any material liabilities of the COMPANY (including all
liabilities in excess of $10,000) and (iii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, liens, pledges or other security
agreements. Except as set forth on Schedule 5.10, since the Balance Sheet Date
the COMPANY has not incurred any material liabilities of any kind, character and
description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The COMPANY has also delivered to TSII on Schedule 5.10, in the case of those
contingent liabilities related to pending or threatened litigation, or other
liabilities which are not fixed or are being contested, the following
information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit or
proceeding;
(ii) the name of each court or agency before which such claim, suit or
proceeding is pending; and
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(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability.
If no estimate is provided, the estimate shall for purposes of this
Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to TSII
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDER. The COMPANY shall also provide to TSII (x) an accurate list of all
receivables obtained subsequent to the Balance Sheet Date up to the Closing Date
and (y) an aging of all accounts and notes receivable showing amounts due in 30
day aging categories (the "A/R Aging Reports"). Except to the extent reflected
on Schedule 5.11 or as disclosed by the COMPANY to TSII in a writing
accompanying the A/R Aging Reports, the accounts, notes and other receivables
shown on Schedule 5.11 and on the A/R Aging Reports are and shall be collectible
in the amounts shown, net of reserves reflected in the balance sheet as of the
Balance Sheet Date with respect to accounts receivable as of the Balance Sheet
Date, and net of reserves reflected in the books and records of the COMPANY
(consistent with
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the methods used for the balance sheet) with respect to accounts receivable of
the COMPANY after the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The COMPANY holds all licenses,
franchises, permits and other governmental authorizations the absence of any of
which could have a Material Adverse Effect on its business, and the COMPANY has
delivered to TSII an accurate list and summary description (which is set forth
on Schedule 5.12) of all such licenses, franchises, permits and other
governmental authorizations, including permits, titles, licenses, franchises,
certificates, trademarks, trade names, patents, patent applications and
copyrights owned or held by the COMPANY (including interests in software or
other technology systems, programs and intellectual property) (it being
understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 5.13). To the knowledge of the
COMPANY, the licenses, franchises, permits and other governmental authorizations
listed on Schedules 5.12 and 5.13 are valid, and the COMPANY has not received
any notice that any governmental authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental authorization.
The COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the licenses,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 and is not in violation of any of the foregoing except where such
noncompliance or violation would not have a Material Adverse Effect on the
COMPANY. Except as
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specifically provided on Schedule 5.12, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the COMPANY by, any such
licenses, franchises, permits or government authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i)
the COMPANY has complied with and is in compliance with all federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, permits, judgments, orders and decrees applicable to it or any
of its properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances including petroleum and petroleum products (as such terms
are defined in any applicable Environmental Law); (ii) the COMPANY has obtained
and adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of
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releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by the COMPANY except as permitted by Environmental Laws; (iv)
the COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or disposed of Hazardous Wastes and Hazardous Substances or arranged
for the transportation of Hazardous Wastes and Hazardous Substances, which site
is the subject of any federal, state, local or foreign enforcement action or any
other investigation which could lead to any claim against the COMPANY or TSII
for any clean-up cost, remedial work, damage to natural resources, property
damage or personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) the COMPANY has no contingent liability in connection with any
release of any Hazardous Waste or Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to TSII an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" on the balance sheet of the
COMPANY as of the Balance Sheet Date or that will be included on any balance
sheet of the COMPANY prepared after the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value in excess of $10,000 (i) as
of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z)
all leases and agreements in respect of personal property, including, true,
complete and correct copies of all such leases and agreements. The COMPANY shall
indicate on
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Schedule 5.14 those assets currently owned, or that were formerly owned, by
STOCKHOLDER, relatives of STOCKHOLDER, or Affiliates of the COMPANY. Except as
set forth on Schedule 5.14, (i) all personal property used by the COMPANY in its
business is either owned by the COMPANY or leased by the COMPANY pursuant to a
lease included on Schedule 5.14, (ii) all of the personal property listed on
Schedule 5.14 is in good working order and condition, ordinary wear and tear
excepted and (iii) all leases and agreements included on Schedule 5.14 are in
full force and effect and constitute valid and binding agreements of the parties
(and their successors) thereto in accordance with their respective terms.
Except for the Excluded Assets listed on Schedule 7.13, the Assets
constitute all of the property and assets used in, and/or necessary to operate,
the business of the COMPANY as it is now being conducted and as contemplated to
be conducted by the LLC on and after the Funding and Consummation Date.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to TSII an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers (or persons or entities that are sources of
a significant number of customers) have cancelled or substantially reduced or,
to the
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knowledge of the COMPANY, are currently attempting or threatening to cancel a
contract or substantially reduce utilization of the services provided by the
COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedules
5.10, 5.14 or 5.16, (a) in existence as of the Balance Sheet Date and (b)
entered into since the Balance Sheet Date, and in each case has delivered true,
complete and correct copies of such agreements to TSII. The COMPANY has complied
with all material commitments and obligations pertaining to it, and is not in
default under any contracts or agreements listed on Schedule 5.15 and no notice
of default under any such contract or agreement has been received. The COMPANY
has also indicated on Schedule 5.15 a summary description of all plans or
projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other
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property, if any, used by the COMPANY in the conduct of its business. The
COMPANY has good and insurable title to the real property owned by it, including
those reflected on Schedule 5.14, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no default exists);
(ii) liens for current Taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not adversely
affect the current use of the property.
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to TSII an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY (which copies are attached
to Schedule 5.16), and an
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indication as to which such properties, if any, are currently owned, or were
formerly owned, by STOCKHOLDER or business or personal affiliates of the COMPANY
or STOCKHOLDER. Except as set forth on Schedule 5.16, all of such leases
included on Schedule 5.16 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.17 INSURANCE. The COMPANY has delivered to TSII, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs and workers compensation claims received for the past three
(3) policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws. All of such insurance
policies are currently in full force and effect and shall remain in full force
and effect through the Funding and Consummation Date. No insurance carried by
the COMPANY has ever been cancelled by the insurer and the COMPANY has never
been unable to obtain insurance coverage for its assets and operations.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to TSII an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements
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with such officers, directors and key employees and the rate of compensation
(and the portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons (i) as of the Balance Sheet Date and (ii)
as of the date hereof. The COMPANY has provided to TSII true, complete and
correct copies of any employment agreements for persons listed on Schedule 5.18.
Since the Balance Sheet Date, there have been no increases in the compensation
payable or any special bonuses to any officer, director, key employee or other
employee, except ordinary salary increases implemented on a basis consistent
with past practices, except as set forth on Schedule 5.18.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any arrangement with any labor union, (ii) no employees of the COMPANY are
represented by any labor union or covered by any collective bargaining
agreement, (iii) no campaign to establish such representation is in progress and
(iv) there is no pending or, to the best of the COMPANY's knowledge, threatened
labor dispute involving the COMPANY and any group of its employees nor has the
COMPANY experienced any labor interruptions over the past three years. The
COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The COMPANY has delivered to TSII an accurate
schedule (Schedule 5.19) showing all employee benefit plans currently sponsored
or maintained or contributed to by, or which cover the current or former
employees or directors of the
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COMPANY, all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and all deferred
compensation agreements, together with true, complete and correct copies of such
plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date. Except for the employee
benefit plans, if any, described on Schedule 5.19, the COMPANY does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor has the COMPANY any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The COMPANY has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans, agreements, arrangement and trusts set forth on Schedule 5.19, nor is the
COMPANY required to contribute to any retirement plan pursuant to the provisions
of any collective bargaining agreement establishing the terms and conditions or
employment of any of the COMPANY's employees.
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The COMPANY is not now, and cannot as a result of its past activities
become, liable to the Pension Benefit Guaranty Corporation or to any
multiemployer employee pension benefit plan under the provisions of Title IV of
ERISA.
All employee benefit plans, agreements, arrangements and trusts listed
on Schedule 5.19 and the administration thereof are in substantial compliance
with their terms and all applicable provisions of ERISA and the regulations
issued thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.20 COMPLIANCE WITH ERISA. All such plans, agreements, arrangements
and trusts of the COMPANY that are currently maintained or contributed to by the
COMPANY or cover employees or former employees of the COMPANY listed on Schedule
5.19 that are intended to qualify under Section 401(a) of the Code (the
"Qualified Plans") are, and have been so qualified and have been determined by
the Internal Revenue Service to be so qualified, and copies of such
determination letters are included as part of Schedule 5.19 hereof. Except as
disclosed on Schedule 5.19, all reports and other documents required to be filed
with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports,
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audit reports or Tax Returns) have been timely filed or distributed, and copies
thereof for the three most recent plan years are included as part of Schedule
5.19 hereof. Neither STOCKHOLDER, any such plan listed on Schedule 5.19, nor the
COMPANY has engaged in any transaction prohibited under the provisions of
Section 4975 of the Code or Section 406 of ERISA. No such plan listed on
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and the COMPANY has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation. The
STOCKHOLDER further represents that:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval
by the Internal Revenue Service;
(ii) no such plan listed on Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to any such plan
listed on Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section
4062 of ERISA; and
(v) no circumstances exist pursuant to which the COMPANY
could have any direct or indirect liability whatsoever
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(including, but not limited to, any liability to any multiemployer plan
or the Pension Benefit Guaranty Corporation under Title IV of ERISA or
to the Internal Revenue Service for any excise tax or penalty, or being
subject to any Statutory Lien to secure payment of any such liability)
with respect to any plan now or heretofore maintained or contributed to
by any entity other than the COMPANY that is, or at any time was, a
member of a "controlled group" (as defined in Section 412(n)(6)(B) of
the Code) that includes the COMPANY.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedules 5.21 or 5.13, the COMPANY is not in violation of any law or regulation
which would have a Material Adverse Effect, or of any order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over the COMPANY; and
except to the extent set forth on Schedules 5.10 or 5.13, there are no claims,
actions, suits or proceedings, commenced or, to the knowledge of the COMPANY,
threatened, against or affecting the COMPANY, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over the COMPANY
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. The COMPANY has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in applicable federal, state and local
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statutes, ordinances, permits, licenses, orders, approvals, variances, rules and
regulations, including all such permits, licenses, orders and other governmental
approvals set forth on Schedules 5.12 and 5.13, and is not in violation of any
of the foregoing.
5.22 TAXES. The COMPANY has timely filed all requisite federal, state
and other Tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims against the COMPANY for federal, state
and other Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any claim for
Taxes, whether pending or threatened, has been received. All Tax, including
interest and penalties (whether or not shown on any Tax Return) owed by the
COMPANY, any member of an affiliated or consolidated group which includes or
included the COMPANY, or with respect to any payment made or deemed made by the
COMPANY, required to be paid by the date hereof has been paid. The amounts shown
as accruals for Taxes on the COMPANY Financial Statements are sufficient for the
payment of all Taxes of the kinds indicated (including penalties and interest)
for all fiscal periods ended on or before that date. Copies of (i) the federal
and local income tax returns and franchise tax returns of the COMPANY for its
last three (3) fiscal years, or such shorter period of time as the COMPANY shall
have existed, (ii) any Tax examinations commenced or closed or outstanding
during their three (3) most recent fiscal
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years, and (iii) currently outstanding extensions of statutory limitations, are
attached hereto as Schedule 5.22. The COMPANY has a taxable year ended on the
date set forth as such on Schedule 5.22. Except as disclosed on Schedule 5.22,
the COMPANY's methods of accounting have not changed in the past five years. The
COMPANY is not an investment company as defined in Section 351(e)(1) of the
Code.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto, is in default under any lease, instrument, agreement, license or
permit set forth on Schedules 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth on Schedule 5.23, (a) the
rights and benefits of the COMPANY under the Material Documents will not be
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and consummation of the
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transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit. Except as set
forth on Schedule 5.23, none of the Material Documents prohibits the use or
publication by the COMPANY or TSII of the name of any other party to such
Material Document, and none of the Material Documents prohibits or restricts the
COMPANY from freely providing services to any other customer or potential
customer of the COMPANY, TSII or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or
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indirect redemption, purchase or other acquisition of any of the capital
stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by the COMPANY to any of its
officers, directors, STOCKHOLDER, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the COMPANY to any person,
including, without limitation, the STOCKHOLDER and her affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY, including without limitation any
indebtedness or obligation of the STOCKHOLDER or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or
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assets outside of the ordinary course of the COMPANY's business;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party;
(xiii) any transaction by the COMPANY outside the ordinary course of
its business;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the COMPANY.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
TSII an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the Agreement of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 5.26 also sets forth a complete list of the names of each person,
corporation, firm or other entity holding a general or
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special power of attorney from the COMPANY and a description of the terms of
such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
COMPANY and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of the COMPANY,
enforceable against the Company in accordance with its terms except as limited
by bankruptcy, insolvency or other similar laws of general application relating
to or affecting the enforcement of creditors' rights generally, and the
individual(s) signing this Agreement on behalf of the Company have the legal
power, authority and capacity to bind the Company.
5.28 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 DISCLOSURE. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to TSII and its representatives
in writing pursuant hereto or thereto, present fairly the business and
operations of
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the COMPANY for the time periods with respect to which such information was
requested. The COMPANY'S rights under the documents delivered pursuant hereto
would not be materially adversely affected by, and no statement made herein
would be rendered untrue in any material respect by, any other document to which
the COMPANY is a party, or to which its properties are subject, or by any other
fact or circumstance regarding the COMPANY (which fact or circumstance was, or
should reasonably, after due inquiry, have been known to the COMPANY) that is
not disclosed pursuant hereto or thereto.
(b) The COMPANY and the STOCKHOLDER acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; and (ii) that neither TSII or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDER or any other person affiliated or associated with the COMPANY for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or within a particular range of prices or to occur at all.
(c) The COMPANY does not have any present plan, intention,
commitment, binding agreement or arrangement to dispose of any shares of TSII
Stock received as described in Section 3.1,
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provided that the COMPANY may distribute such shares of TSII Stock to the
STOCKHOLDER if the STOCKHOLDER represents and warrants to the COMPANY and TSII
that the STOCKHOLDER does not have any present plan, intention, commitment,
binding agreement or arrangement to dispose of any such shares of TSII Stock.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30 or as
contemplated by Section 7.13, the COMPANY has not, between the Balance Sheet
Date and the date hereof, taken any of the actions set forth in Section 7.3
(Prohibited Activities).
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
The STOCKHOLDER represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.31 and 5.32 shall survive until the
second anniversary of the Funding and Consummation Date, which shall be the
Expiration Date for purposes of those Sections.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the COMPANY Stock identified on
Annex IV as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such COMPANY Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
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5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby
waives, any preemptive or other right to acquire shares of COMPANY Stock that
such STOCKHOLDER has or may have had on the date hereof other than rights of any
STOCKHOLDER to acquire TSII Stock pursuant to any option granted by TSII.
6. REPRESENTATIONS OF TSII
TSII represents and warrants that all of the following representations
and warranties in this Section 6 are true at the date of this Agreement and,
subject to Section 7.8 hereof, shall be true at the time of Closing and the
Funding and Consummation Date, and that such representations and warranties
shall survive the Funding and Consummation Date for a period of two years (the
last day of such period being the "Expiration Date"), except that (i) the
warranties and representations set forth in Section 6.14 hereof shall survive
until such time as the limitations period has run for all Tax periods ended on
or prior to the Funding and Consummation Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of determining
whether a claim for indemnification under Section 11.2(iv) hereof has been made
on a timely basis, and solely to the extent that in connection with the IPO,
TSII actually incurs liability under the 1933 Act, the 1934 Act, or any other
federal or state securities laws, the representations and warranties set forth
herein shall survive until the expiration of any applicable limitations period,
which shall be deemed to be the Expiration Date for such purposes.
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6.1 DUE ORGANIZATION. TSII is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Certificate of Incorporation
and By-laws, each as amended, of TSII (the "TSII Charter Documents") are all
attached hereto as Annex III.
6.2 AUTHORIZATION. (i) The representative of TSII executing this
Agreement has the authority to enter into and bind TSII to the terms of this
Agreement and (ii) TSII has the full legal right, power and authority to enter
into and perform this Agreement.
6.3 CAPITAL STOCK OF THE TSII. Immediately prior to the Funding and
Consummation Date, the authorized capital stock of TSII will consist of
50,000,000 shares of TSII Stock, of which the number of issued and outstanding
shares will be as set forth in the Registration Statement, and 1,000,000 shares
of preferred stock, $.01 par value, of which no shares will be issued and
outstanding. All of the issued and outstanding shares of the capital stock of
TSII are owned by the persons set forth on Annex V hereof, in each case, free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. Upon consummation of the
IPO, the number of outstanding shares of TSII will be as set forth in the
Registration
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Statement. All of the issued and outstanding shares of the capital stock of TSII
have been duly authorized and validly issued, are fully paid and nonassessable,
are owned of record and beneficially by the persons set forth on Annex V, and
further, such shares were offered, issued, sold and delivered by TSII in
compliance with all applicable state and federal laws concerning the issuance of
securities. Further, none of such shares was issued in violation of the
preemptive rights of any past or present stockholder of TSII.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and
except as set forth on Schedule 6.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates TSII to issue any of its
authorized but unissued capital stock; and (ii) TSII has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of TSII.
6.5 SUBSIDIARIES. TSII has no subsidiaries except for the companies to
become subsidiaries of TSII pursuant to this Agreement and each of the Other
Agreements as of the Funding and Consummation Date. Except as set forth in the
preceding sentence, TSII does not presently own, of record or beneficially, or
control, directly or
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indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
TSII is not, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "TSII Financial Statements") of TSII,
which reflect the results of its operations from inception: TSII's audited
Balance Sheet as of December 31, 1996 and Statements of Income, Cash Flows and
Retained Earnings for the period from inception through December 31, 1996. Such
TSII Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted thereon or on Schedule 6.6). Except as set
forth on Schedule 6.6, such Balance Sheets as of December 31, 1996 present
fairly the financial position of TSII as of such date, and such statements of
Income, Cash Flows and Retained Earnings present fairly the results of
operations for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
TSII has no material liabilities, contingent or otherwise, except as set forth
in or contemplated by this Agreement and the Other Agreements and except for
fees and expenses incurred in connection with the transactions contemplated
hereby and thereby.
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6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, TSII is not in violation of any law or regulation which would have
a Material Adverse Effect, or of any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over TSII; and except to the extent set
forth on Schedule 6.8, there are no material claims, actions, suits or
proceedings, pending or, to the knowledge of TSII, threatened, against or
affecting TSII, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over TSII and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received.
TSII has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and is not in violation of any of
the foregoing.
6.9 NO VIOLATIONS. TSII is not violation of any TSII Charter Document.
Neither TSII or, to the knowledge of TSII, any other party thereto, is in
default under any lease, instrument, agreement, license or permit to which TSII
is a party, or by which TSII or any of its properties are bound (collectively,
the "TSII Documents"); and (a) the rights and benefits of TSII under the TSII
Documents will not be adversely affected by the transactions
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contemplated hereby and (b) the execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under, any of the terms or provisions of the TSII Documents or the TSII
Charter Documents. Except as set forth on Schedule 6.9, none of the TSII
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect and consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by TSII and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of TSII and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of TSII, enforceable against TSII
in accordance with its terms except as limited by bankruptcy, insolvency or
other similar laws of general application relating to or affecting the
enforcement of creditors' rights generally, and the individual signing this
Agreement on behalf of TSII has the legal power, authority and capacity to bind
TSII.
6.11 TSII STOCK. At the time of issuance thereof, the TSII Stock to be
delivered to the COMPANY pursuant to this Agreement will constitute valid and
legally issued shares of TSII, fully paid
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and nonassessable, and with the exception of restrictions upon resale set forth
in Sections 15 and 16 hereof, will be identical in all material and substantive
respects to the TSII Stock issued and outstanding as of the date hereof and the
TSII Stock to be issued pursuant to the Other Agreements by reason of the
provisions of the Delaware GCL. The shares of TSII Stock to be issued to the
COMPANY pursuant to this Agreement will not be registered under the 1933 Act,
except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. TSII has not entered and will not enter into
any agreement with any of the Founding Companies or any of the stockholders of
the Founding Companies or TSII other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein, and none of TSII, its equity owners
or its affiliates have received any cash compensation or payments in connection
with this transaction except for reimbursement of out-of-pocket expenses which
are necessary or appropriate to this transaction.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TSII has not
conducted any operations or business since inception other than activities
related to the TSII Plan of Organization. TSII does not own and has not at any
time owned any real property or any material personal property and is not a
party to any other agreement, except as listed on Schedule 6.13 and except that
TSII is a party to the Other Agreements and the agreements contemplated thereby
and to such agreements as will be filed as Exhibits to the Registration
Statement.
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6.14 TAXES. TSII has timely filed all requisite federal, state and
other Tax returns or extension requests for all fiscal periods ended on or
before the date hereof; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against TSII for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the date hereof, and no notice of any claim for Taxes, whether pending
or threatened, has been received. All Tax, including interest and penalties
(whether or not shown on any Tax return) owed by TSII, any member of an
affiliated or consolidated group which includes or included TSII, or with
respect to any payment made or deemed made by TSII herein has been paid. The
amounts shown as accruals for Taxes on the TSII Financial Statements are
sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Copies of (i) any Tax examinations, (ii) extensions of statutory limitations and
(iii) the federal and local income tax returns and franchise tax returns of TSII
for its last three (3) fiscal years, or such shorter period of time as TSII
shall have existed, are attached hereto as Schedule 5.22. TSII is not an
investment company as defined in Section 351(e)(1) of the Code.
6.15 NO INTENTION TO DISPOSE OF LLC INTEREST. TSII is acquiring the LLC
Interest pursuant hereto for its own account for investment purposes and does
not have any present plan, intention,
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commitment, binding agreement, or arrangement to dispose of the LLC Interest.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of TSII and the Other Founding Companies
access to all of the COMPANY's sites, properties, books and records and will
furnish TSII with such additional financial and operating data and other
information as to the business and properties of the COMPANY as TSII or the
Other Founding Companies may from time to time reasonably request. The COMPANY
will cooperate with TSII and the Other Founding Companies and their respective
representatives, including TSII's auditors and counsel, in the preparation of
any documents or other material (including the Registration Statement) which may
be required in connection with any documents or materials required by this
Agreement. TSII, the STOCKHOLDER and the COMPANY shall treat all information
obtained in connection with the negotiation and performance of this Agreement or
the due diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Section 14
hereof. In addition, TSII will cause each of the Other Founding Companies to
enter into a provision similar to this Section 7.1 requiring each such Other
Founding Company, its stockholders, directors, officers, representatives,
employees and
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agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TSII will afford to the officers and authorized representatives of the
COMPANY access to all of TSII's sites, properties, books and records and all due
diligence, agreements, documents and information of or concerning the Founding
Companies and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of TSII
as the COMPANY may from time to time reasonably request. TSII will cooperate
with the COMPANY, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY shall, except (w)
as contemplated by Section 7.13, (x) as set forth on Schedule 7.2, (y) as
requested by TSII or (z) as consented to by TSII (which consent shall not be
unreasonably withheld):
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any new method of management, operation or
accounting;
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(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(v) maintain and preserve its business organization intact, use its
best efforts to retain its present key employees and relationships with
suppliers, customers and others having business relations with the COMPANY;
(vi) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, provided that debt and/or lease
instruments may be replaced if such replacement instruments are on terms at
least as favorable to the COMPANY as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
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7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3 or as
contemplated by Section 7.13, between the date hereof and the Funding and
Consummation Date, the COMPANY shall not, without prior written consent of TSII:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an
amount not in excess of $10,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except: (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of the
businesses of the COMPANY; (2)(A) liens for
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Taxes either not yet due or being contested in good faith and by
appropriate proceedings (and for which contested Taxes adequate reserves
have been established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens arising
in the ordinary course of business (the liens set forth in clause (2) being
referred to herein as "Statutory Liens"), or (3) liens set forth on
Schedules 5.10 and/or 5.16 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included
on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
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7.4 NO SHOP. None of the STOCKHOLDER, the COMPANY, or any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
person or entity for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person or entity other than TSII
or its authorized agents relating to any acquisition or purchase of all or
a material amount of the assets of, or any equity interest in, the COMPANY
or a merger, consolidation or business combination of the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TSII on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The STOCKHOLDER and the COMPANY shall terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the COMPANY and any employee listed on Schedule
8.11 hereto and (ii) any existing agreement between the COMPANY and the
STOCKHOLDER, on or prior to the Funding and Consummation Date.
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Copies of such termination agreements are listed on Schedule 7.6 and copies
thereof are attached hereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDER and the COMPANY
shall give prompt notice to TSII of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDER contained herein to
be untrue or inaccurate in any material respect at or prior to the Closing and
(ii) any material failure of any STOCKHOLDER or the COMPANY to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
such person hereunder. TSII shall give prompt notice to the COMPANY of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty of TSII contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of TSII to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery of any notice pursuant to this Section 7.7 that is not
accompanied by a proposed amendment or supplement to a schedule pursuant to
Section 7.8 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
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7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the anticipated
effectiveness of the Registration Statement to supplement or amend promptly the
Schedules hereto with respect to any matter hereafter arising or discovered
which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules, provided, however, that
supplements and amendments to Schedules 5.10, 5.11, 5.14, 5.15 and 5.18 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless TSII and
a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a schedule prepared by TSII that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the schedules as amended
or supplemented pursuant to this Section 7.8. In the
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event that one of the Other Founding Companies seeks to amend or supplement a
schedule pursuant to Section 7.8 of one of the Other Agreements, and such
amendment or supplement constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on such Other Founding Company, TSII shall
give the COMPANY notice promptly after it has knowledge thereof. If TSII and a
majority of the Founding Companies consent to such amendment or supplement,
which consent shall have been deemed given by TSII or any Founding Company if no
response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the COMPANY does not give its consent, the
COMPANY may terminate this Agreement pursuant to Section 12.l(iv) hereof. In the
event that the COMPANY seeks to amend or supplement a Schedule pursuant to this
Section 7.8, and TSII and a majority of the Other Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that TSII seeks to amend or supplement a Schedule pursuant to this Section
7.8 and a majority of the Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. No party to this Agreement shall be liable to
any other party if this Agreement shall be terminated pursuant to the provisions
of this Section 7.8.
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7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY
and STOCKHOLDER shall furnish or cause to be furnished to TSII and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDER
required for inclusion in, and will cooperate with TSII and the Underwriters in
the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDER agree
promptly to advise TSII if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the 1933 Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDER becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. TSII will give the
COMPANY and the STOCKHOLDER an opportunity to review and comment on the
Registration Statement and all amendments thereto prior to filing. Insofar as
the information relates solely to the COMPANY or the STOCKHOLDER, the COMPANY
represents and warrants as to such information with respect to itself, and the
STOCKHOLDER represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement will not include
an 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, in light of
the circumstances in which they were made, not
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misleading and that the STOCKHOLDER and the COMPANY has had the opportunity to
review and approve such information. If, prior to the 25th day after the date of
the final prospectus of TSII utilized in connection with the IPO, the COMPANY or
the STOCKHOLDER becomes aware of any fact or circumstance which would change
(or, if after the Funding and Consummation Date, would have changed) a
representation or warranty of the COMPANY or the STOCKHOLDER in this Agreement
or would affect any document delivered pursuant hereto in any material respect,
the COMPANY and the STOCKHOLDER shall immediately give notice of such fact or
circumstance to TSII. However, subject to the provisions of Section 7.8, such
notification shall not relieve either the COMPANY or the STOCKHOLDER of their
respective obligations under this Agreement, and, subject to the provisions of
Section 7.8, at the sole option of TSII, the truth and accuracy of any and all
warranties and representations of the COMPANY, or on behalf of the COMPANY and
of STOCKHOLDER at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and TSII shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date,
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disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Except as set forth on Schedule 7.10, such financial statements
shall have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein). Except as noted in such financial statements, all of
such financial statements will present fairly the results of operations of the
COMPANY for the periods indicated thereon and shall be for such dates and time
periods as required by Regulation S-X under the 1933 Act and the 1934 Act.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. TSII shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the TSII Stock.
7.13 FORMATION OF LLC AND TRANSFER OF ASSETS.
(i) Prior to the Closing Date, the COMPANY shall have caused the due
formation of a Delaware limited liability company that is a wholly owned
subsidiary of the COMPANY (the
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"LLC"), and the COMPANY shall have delivered to TSII true and correct
copies of all formation and organization documents of the LLC.
(ii) Prior to the Closing Date, the COMPANY shall have transferred,
conveyed, assigned and delivered to the LLC, and the LLC shall have
acquired and accepted from the COMPANY: (a) all of the assets held by the
COMPANY and used by or useful to the COMPANY in connection with the
business of the COMPANY except for the Excluded Assets, all of which assets
are set forth on Schedule 7.13 under the heading "Assets" (the "Assets");
and (b) all of the obligations of the COMPANY in connection with the
business of the COMPANY, all of which obligations are set forth on Schedule
7.13 under the heading "Obligations." All of the Excluded Assets are set
forth on Schedule 7.13 under the heading "Excluded Assets."
(iii) Prior to the Closing Date, the COMPANY shall have amended its
legal name and fictitious names in all applicable jurisdictions and shall
have provided for the LLC to operate and conduct business in such
jurisdictions under the names currently used in such jurisdictions by the
COMPANY.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND COMPANY
The obligations of STOCKHOLDER and the COMPANY with respect to actions
to be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the STOCKHOLDER and
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the COMPANY with respect to actions to be taken on the Funding and Consummation
Date are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 8.2, 8.3, 8.8 and 8.9.
From and after the Closing Date or, with respect to the conditions set forth in
Sections 8.2, 8.3, 8.8 and 8.9, from and after the Funding and Consummation
Date, all conditions not satisfied shall be deemed to have been waived, except
that no such waiver shall be deemed to affect the survival of the
representations and warranties of TSII contained in Section 6 hereof:
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of TSII contained in Section 6 shall be true and correct in all material
respects as of the Closing Date as though such representations and warranties
had been made as of that time; and a certificate to the foregoing effect dated
the Closing Date and signed by the President or any Vice President of TSII shall
have been delivered to the STOCKHOLDER.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by TSII on or
before the Closing Date and the Funding and Consummation Date shall have been
duly complied with and performed in all material respects; and certificates to
the foregoing effect dated the Closing Date and the Funding and Consummation
Date and signed by the President or any Vice President of TSII shall have been
delivered to the STOCKHOLDER.
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8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of the
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The COMPANY and the Underwriters shall have
received an opinion from counsel for TSII, dated the Closing Date, in the form
annexed hereto as Annex VI.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of TSII Stock to be received by the
STOCKHOLDER is not less than the Minimum Value set forth on Annex III.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made.
8.7 GOOD STANDING CERTIFICATES. TSII shall have delivered to the
COMPANY a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which TSII is authorized to do business, showing that TSII is in good
standing and authorized
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to do business and that all state franchise and/or income tax returns and taxes
for TSII for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TSII which would constitute a Material Adverse Effect,
and TSII shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of TSII to conduct its
business.
8.9 CLOSING OF IPO. The closing of the sale of the TSII Stock to the
Underwriters in the IPO and the acquisitions of the Other Founding Companies
pursuant to the Other Agreements shall have occurred simultaneously with the
Funding and Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TSII, certifying the truth and correctness of attached copies of TSII's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if required,
the stockholders of TSII approving TSII's entering into this Agreement and the
consummation of the transactions contemplated hereby. Such certificate or
certificates also shall be addressed to the Underwriters and copies thereof
shall be delivered to the Underwriters.
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8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.11
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 DIRECTORS AND OFFICERS INSURANCE. TSII shall have obtained
Directors and Officers Liability Insurance in amounts that are customary and
commercially reasonable.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSII
The obligations of TSII with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TSII with
respect to actions to be taken on the Funding and Consummation Date are subject
to the satisfaction or waiver on or prior to the Funding and Consummation Date
of the conditions set forth in Sections 9.2, 9.3, 9.5 and 9.13. From and after
the Closing Date or, with respect to the conditions set forth in Sections 9.2,
9.3, 9.5 and 9.13, from and after the Funding and Consummation Date, all
conditions not satisfied shall be deemed to have been waived, except that no
such waiver shall be deemed to affect the survival of the representations and
warranties of the COMPANY contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of the STOCKHOLDER and the COMPANY contained in this Agreement shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date with the
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same effect as though such representations and warranties had been made on and
as of such date; and the STOCKHOLDER shall have delivered to TSII certificates
dated the Closing Date and signed by them to such effect.
9.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the STOCKHOLDER
and the COMPANY on or before the Closing Date or the Funding and Consummation
Date, as the case may be, shall have been duly performed or complied with in all
material respects; and the STOCKHOLDER and the COMPANY shall have delivered to
TSII certificates dated the Closing Date and the Funding and Consummation Date,
respectively, and signed by them to such effect.
9.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of TSII as
a result of which the management of TSII deems it inadvisable to proceed with
the transactions hereunder.
9.4 SECRETARY'S CERTIFICATE. TSII shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the STOCKHOLDER
approving the COMPANY's entering into this Agreement and the consummation of
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the transactions contemplated hereby. Such certificate also shall be addressed
to the Underwriters and a copy thereof shall be delivered to the Underwriters.
9.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.6 STOCKHOLDER'S RELEASE. The STOCKHOLDER shall have delivered to TSII
an instrument dated the Closing Date releasing the COMPANY and the LLC from (i)
any and all claims of the STOCKHOLDER against the COMPANY and the LLC and (ii)
obligations of the COMPANY or the LLC to the STOCKHOLDER, except for (x) items
specifically identified on Schedules 5.10 and 5.16 as being claims of or
obligations to the STOCKHOLDER, (y) continuing obligations to STOCKHOLDER
relating to her employment by the COMPANY or the LLC and (z) obligations arising
under this Agreement or the transactions contemplated hereby.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDER
shall have been cancelled effective prior to or as of the Funding and
Consummation Date.
9.8 OPINION OF COUNSEL. TSII shall have received an opinion from
Counsel to the COMPANY and the STOCKHOLDER, dated the Closing
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Date, substantially in the form annexed hereto as Annex VII, and the
Underwriters shall have received a copy of the same opinion addressed to the
Underwriters.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
TSII a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by TSII, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.11
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the TSII Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
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9.14 FIRPTA CERTIFICATE. The STOCKHOLDER shall have delivered to TSII a
certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 INSURANCE. TSII shall have been named as an additional insured on
all insurance policies of the LLC and certificates of insurance to that effect
shall have been delivered to TSII.
9.16 LOCKUP AGREEMENT. The COMPANY shall have signed an agreement with
the Underwriters, in form and substance identical to agreements signed by the
Founding Stockholders in connection with the Other Agreements, by which the
COMPANY covenants to hold all of the TSII Stock acquired hereunder for a period
of at least 180 days after the Funding and Consummation Date.
10. COVENANTS OF TSII AND THE STOCKHOLDER AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TSII
shall, contemporaneously with the Funding and Consummation Date, use its best
efforts to have the STOCKHOLDER released from any and all guarantees on any
indebtedness that they personally guaranteed and from any and all pledges of
assets that they pledged to secure such indebtedness for the benefit of the
COMPANY, with all such guarantees on indebtedness being assumed by TSII. In the
event that TSII cannot obtain such releases from the lenders of any such
guaranteed indebtedness on the Funding and Consummation Date, TSII shall pay off
or otherwise refinance or retire such indebtedness on the Funding and
Consummation Date. TSII shall indemnify and hold harmless STOCKHOLDER from the
payment
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of any guaranties on any indebtedness or contractual obligations that
STOCKHOLDER had incurred prior to the Closing Date provided that such
indebtedness or obligations are related to the business of the COMPANY as being
conducted at the Closing Date.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Funding
and Consummation Date, TSII shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the transaction, including:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the TSII Stock issued in connection with the transactions
contemplated hereby; or
(b) the entering into of financial arrangements for the benefit of the
STOCKHOLDER.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Funding and Consummation Date. The STOCKHOLDER shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already paid
with respect thereto or properly accrued or reserved with respect thereto
on the COMPANY Financial Statements and books and records) shown by such
Returns to be due.
(ii) TSII shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all
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taxable periods ending after the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any Return,
amended Return or claim for refund, determining a liability for Taxes or a
right to refund of Taxes or in conducting any audit or other proceeding in
respect of Taxes. Such cooperation and information shall include providing
copies of all relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by taxing authorities and
relevant records concerning the ownership and Tax basis of property, which
such party may possess. Each party shall make its employees reasonably
available on a mutually convenient basis at its cost to provide explanation
of any documents or information so provided. Subject to the preceding
sentence, each party required to file Returns pursuant to this Agreement
shall bear all costs of filing such Returns.
(iv) Each of the COMPANY, TSII and the STOCKHOLDER shall comply with
the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a
transfer to a controlled corporation under Section 351(a) of the Code.
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10.4 DIRECTORS AND OFFICERS. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of TSII, as
and to the extent set forth in the Registration Statement, promptly following
the Funding and Consummation Date. TSII shall make arrangements to compensate
each Director for attending meetings of the Board of Directors and to reimburse
them for related expenses.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, TSII shall not terminate any health insurance, life insurance
or 401(k) plan in effect at the COMPANY until such time as TSII is able to
replace such plan with a plan that is applicable to TSII and all of its then
existing subsidiaries. TSII shall have no obligation to provide replacement
plans that have the same terms and provisions as the existing plans; provided,
however, that any new health insurance plan shall provide for coverage for
preexisting conditions.
10.6 MAINTENANCE OF BOOKS. TSII will cause the COMPANY (a) to maintain
the books and records of the COMPANY existing prior to the Closing Date for a
period of six years after the Closing Date and (b) to make such books and
records available to the STOCKHOLDER for any reasonable purpose.
11. INDEMNIFICATION
The COMPANY, STOCKHOLDER and TSII each make the following covenants
that are applicable to them, respectively:
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11.1 GENERAL INDEMNIFICATION BY COMPANY AND STOCKHOLDER. The COMPANY
and the STOCKHOLDER covenant and agree that they, jointly and severally, will
indemnify, defend, protect and hold harmless TSII and the LLC at all times, from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by TSII or
the LLC as a result of or arising from (i) any breach of the representations and
warranties of the STOCKHOLDER or the COMPANY set forth herein or on the
schedules or certificates delivered in connection herewith, (ii) any breach of
any agreement on the part of the STOCKHOLDER or the COMPANY under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other federal
or state law or regulation, at common law or otherwise, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
relating to the COMPANY or the STOCKHOLDER, and provided to TSII or its counsel
by the COMPANY or the STOCKHOLDER contained in the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to the COMPANY or the STOCKHOLDER
required to be stated therein or necessary to make the statements therein not
misleading, or (iv) the matters described on Schedule 11.1(iv) (relating to
specifically identified matters such as ongoing claims
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and/or litigation), which schedule shall be prepared by TSII; provided, however,
that in the case of any indemnity arising pursuant to clause (iii) such
indemnity shall not inure to the benefit of TSII or the LLC to the extent that
such untrue statement (or alleged untrue statement) was made in, or omission (or
alleged omission) occurred in, any preliminary prospectus and the STOCKHOLDER
provided, in writing, corrected information to TSII counsel and to TSII for
inclusion in the final prospectus, and such information was not so included or
properly delivered.
11.2 INDEMNIFICATION BY TSII. TSII covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDER at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the COMPANY or the STOCKHOLDER as a result of or arising from (i)
any breach by TSII of its representations and warranties set forth herein or on
the schedules or certificates attached hereto, (ii) any nonfulfillment of any
agreement on the part of TSII under this Agreement, (iii) any liabilities which
the COMPANY or the STOCKHOLDER may incur due to TSII's failure to be responsible
for the liabilities and obligations of the LLC as provided in Section 1 hereof;
(iv) any liability under the 1933 Act, the 1934 Act or other federal or state
law or regulation, at common law or otherwise, arising out of
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or based upon any untrue statement or alleged untrue statement of a material
fact relating to TSII or any of the Other Founding Companies contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to TSII or any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading, or (v) the
matters described on Schedule 11.2(v) (relating to specifically identified
matters), which schedule shall be prepared by the STOCKHOLDER.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle (such settlement to be subject to the consent of the
Indemnified Party, as hereinafter provided), at its own expense and by its own
counsel, any such matter so long as the Indemnifying
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Party pursues the same in good faith and diligently, provided that the
Indemnifying Party shall not settle any criminal proceeding without the written
consent of the Indemnified Party. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records or information reasonably requested
by the Indemnifying Party that are in the Indemnified Party's possession or
control. All Indemnified Parties shall use the same counsel, which shall be the
counsel selected by the Indemnifying Party, provided that if counsel to the
Indemnifying Party shall have a conflict of interest that prevents counsel for
the Indemnifying Party from representing the Indemnified Party, the Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and the Indemnifying Party will reimburse the Indemnified Party for
the reasonable expenses of its counsel. Further, absent a conflict, the
Indemnified Party may select counsel and have such counsel participate in such
matter at the sole cost of the Indemnified Party. After the Indemnifying Party
has notified the Indemnified Party of its intention to undertake to defend or
settle any such asserted liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall not be liable for
any additional legal expenses incurred by the
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Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. If the Indemnifying Party does not undertake to
defend such matter to which the Indemnified Party is entitled to indemnification
hereunder, or fails diligently to pursue such defense, the Indemnified Party may
undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in
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determining the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section
11 shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided, however, that nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. TSII, the LLC and the other
persons or entities indemnified pursuant to Section 11.1 shall not assert any
claim for indemnification hereunder against the COMPANY or the STOCKHOLDER until
such time as, and solely to the extent that, the aggregate of all claims which
such persons may have against the COMPANY or such STOCKHOLDER shall exceed 2.0%
of the sum of (i) the cash paid to the COMPANY and (ii) the value of the TSII
Stock delivered to the COMPANY (the "Indemnification Threshold"), provided,
however, that TSII, the LLC and the other persons or entities indemnified
pursuant to Section 11.1 may assert and shall be indemnified for any claim under
Section 11.l(iv) at any time, regardless of whether the aggregate of all claims
which such persons may have against the COMPANY and the STOCKHOLDER exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) shall not be counted towards the Indemnification
Threshold. The COMPANY and the STOCKHOLDER shall not assert any claim for
indemnification
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hereunder against TSII until such time as, and solely to the extent that, the
aggregate of all claims which the STOCKHOLDER may have against TSII shall exceed
$50,000, provided, however, that the COMPANY and the STOCKHOLDER and the other
persons or entities indemnified pursuant to Section 11.2 may assert and shall be
indemnified for any claim under Section 11.2(v) at any time, regardless of
whether the aggregate of all claims which such persons may have against any of
TSII exceeds $50,000, it being understood that the amount of any such claim
under Section 11.2(v) shall not be counted towards such $50,000 amount. No
person shall be entitled to indemnification under this Section 11 if and to the
extent that: (a) such person's claim for indemnification is directly or
indirectly related to and substantially a result of a breach by such person of
any representation, warranty, covenant or other agreement set forth in this
Agreement; or (b) such person receives a tax benefit as a result of the claim or
loss for which indemnification is sought.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), the COMPANY and the STOCKHOLDER shall not be liable under this
Section 11 for an amount which exceeds the amount of proceeds received by the
COMPANY in connection with the transactions contemplated hereby, provided that
the COMPANY's and the STOCKHOLDER's indemnification obligations pursuant to
Section 11.1(iv) shall not be limited. Indemnity obligations hereunder may be
satisfied through the payment of cash or the delivery of TSII Stock, or a
combination thereof, at the COMPANY's or the
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STOCKHOLDER's election. For purposes of calculating the value of the TSII Stock
received or delivered by the COMPANY or the STOCKHOLDER (for purposes of
determining the Indemnification Threshold, the limitation on indemnity set forth
in the second preceding sentence and the amount of any indemnity paid), TSII
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. Any indemnification payment made by the COMPANY or the
STOCKHOLDER pursuant to this Section 11 shall be deemed to be a reduction in the
consideration received by the COMPANY pursuant to Section 3.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated by written notice
from the party asserting termination to the other parties at any time prior to
the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TSII and the
COMPANY;
(ii) by the STOCKHOLDER or the COMPANY (acting through its board of
directors), on the one hand, or by TSII (acting through its board of directors),
on the other hand, if the transactions contemplated by this Agreement to take
place at the Closing shall not have been consummated by September 30, 1997,
unless the failure of such transactions to be consummated is due to the willful
failure of the party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required
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to be performed by it prior to or on the Funding and Consummation Date;
(iii) by the STOCKHOLDER or COMPANY, on the one hand, or by TSII, on
the other hand, if a material breach or default shall be made by the other party
in the observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein, and the curing of such default shall
not have been made on or before the Funding and Consummation Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses relating to the
transactions contemplated hereby. No party hereto shall be liable to any other
party if the Agreement is terminated under Sections 12.1(i), (ii) (except as set
forth therein), (iv) or (v).
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Provided that TSII shall have complied with
and performed all of its obligations hereunder and that the COMPANY shall have
received payment in full of the consideration described in Section 3, the
STOCKHOLDER and the
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COMPANY shall not, for a period of three (3) years following the Funding and
Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves 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 services business in direct competition
with TSII or any of the subsidiaries thereof, within miles of where
the COMPANY or any of its subsidiaries conducted business prior to the
effectiveness of the Funding and Consummation Date (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSII (including the subsidiaries thereof) in
a sales representative or managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
TSII (including the subsidiaries thereof), provided that the
STOCKHOLDER shall be permitted to call upon and hire any member of his
or her immediate family;
(iii) call upon any person or entity which is at that time, or
which has been, within one (l) year prior to the Funding and
Consummation Date, a customer of TSII (including the subsidiaries
thereof), of the COMPANY or of any of the Other Founding Companies
within the Territory for the purpose
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of soliciting or selling products or services in direct competition
with TSII within the Territory;
(iv) call upon any prospective acquisition candidate, on the
COMPANY's or the STOCKHOLDER's own behalf or on behalf of any
competitor in the travel services business, which candidate, to the
actual knowledge of the COMPANY or such STOCKHOLDER after due inquiry,
was called upon by TSII (including the subsidiaries thereof) or for
which, to the actual knowledge of the COMPANY or such STOCKHOLDER after
due inquiry, TSII (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the COMPANY or the LLC to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever except to the extent that
the COMPANY has in the past disclosed such information to the types of
persons to whom disclosure is then presently contemplated for valid
business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit the STOCKHOLDER 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.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TSII as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be
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caused to TSII for which it would have no other adequate remedy, the COMPANY and
the STOCKHOLDER agree that the foregoing covenant may be enforced by TSII in the
event of breach by the COMPANY or such STOCKHOLDER, by injunctions and
restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
COMPANY and the STOCKHOLDER in light of the activities and business of TSII
(including the subsidiaries thereof) on the date of the execution of this
Agreement and the current plans of TSII.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 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 thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement. It is specifically agreed that the period of three (3) years stated
at the beginning of this Section 13, during which the agreements and covenants
of the COMPANY and the STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any
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time during which the COMPANY or such STOCKHOLDER is in violation of any
provision of this Section 13. The covenants contained in Section 13 shall have
no effect if the transactions contemplated by this Agreement are not consummated
nor may such covenants be enforced by any party to this Agreement that is in
breach of its obligations hereunder.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDER hereby agree that the
covenants in this Section 13 are a material and substantial part of this
transaction.
13.7 LIMITATIONS. In the event that the STOCKHOLDER who is employed by
TSII or the LLC pursuant to an employment agreement is terminated without cause
(as defined in such employment agreement), the provisions of this Section 13
shall no longer be valid or enforceable by TSII. If such employment agreement
contains provisions relating to the same subject matter as this Section 13 that
are less restrictive than set forth in this Section 13, the provisions of such
employment agreement shall control.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDER. The COMPANY and the STOCKHOLDER recognize and
acknowledge that they had in the past, currently have, and in the future may
possibly have, access to certain confidential information of the COMPANY, the
LLC, the Other Founding Companies, and/or TSII, such as operational policies,
and pricing and cost policies that are valuable, special and unique assets of
the COMPANY's, the LLC's, the Other Founding Companies' and/or TSII's
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respective businesses. The COMPANY and the STOCKHOLDER agree that they shall not
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of TSII, (b) following the Closing, such information
may be disclosed by the STOCKHOLDER as is required in the course of performing
their duties for TSII or the LLC and (c) to counsel and other advisers, provided
that such advisers (other than counsel) agree to the confidentiality provisions
of this Section 14.1, unless (i) such information is or becomes known to the
public generally or to businesses operating in the travel industry through no
fault of the COMPANY and the STOCKHOLDER, (ii) disclosure is required by law or
the order of any governmental authority under color of law, provided, however,
that prior to disclosing any information pursuant to this clause (ii), the
COMPANY and the STOCKHOLDER shall, if possible, give two days' prior written
notice thereof to TSII and provide TSII with the opportunity within such two-day
period to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by the COMPANY or the STOCKHOLDER of the provisions of this Section, TSII
shall be entitled to an injunction restraining the COMPANY and such STOCKHOLDER
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting TSII from pursuing any other
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available remedy for such breach or threatened breach, including the recovery of
damages. In the event the transactions contemplated by this Agreement are not
consummated, the COMPANY and the STOCKHOLDER shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the COMPANY.
14.2 TSII. TSII recognizes and acknowledges that TSII had in the past
and currently has access to certain confidential information of the COMPANY,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the COMPANY's business. TSII agrees that, prior to
the Closing, or if the transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided, however, that such advisors (other than
counsel) agree to the confidentiality provisions of this Section 14.2 and (c) to
the Other Founding Companies and their representatives pursuant to Section
7.1(a), unless (i) such information becomes known to the public generally
through no fault of TSII, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, however, that prior to
disclosing any information pursuant to this clause (ii), TSII shall, unless
otherwise required by law or such order, give two days' prior written notice
thereof to the COMPANY and the STOCKHOLDER and
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provide the COMPANY and the STOCKHOLDER with the opportunity within such two-day
period to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by TSII of the provisions of this Section, the COMPANY and the
STOCKHOLDER shall be entitled to an injunction restraining TSII from disclosing,
in whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting the COMPANY and the STOCKHOLDER from pursuing any other
available remedy for as such breach or threatened breach, including the recovery
of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of three years from
(a) the Funding and Consummation Date if the transactions contemplated hereby
are consummated or (b) the date hereof if the transactions contemplated hereby
are not consummated.
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15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to Affiliates of the
COMPANY who agree to be bound by the restrictions set forth in this Section
15.1, for a period of one year from the Funding and Consummation Date, except
pursuant to Section 17 hereof, the COMPANY shall not sell, assign, exchange,
transfer, distribute or otherwise dispose of any shares of TSII Stock received
by the COMPANY as described in Section 3.1. The certificates evidencing the TSII
Stock delivered to the COMPANY pursuant to Section 3 of this Agreement shall
bear a legend substantially in the form set forth below and containing such
other information as TSII may deem necessary or appropriate: THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [first anniversary of Closing Date]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE (AS IT MAY BE REDUCED AS PROVIDED HEREIN).
15.2 CERTAIN TRANSFERS. Except for transfers to Affiliates of the
COMPANY who agree to bound by the restrictions set forth in Section 15.1 and
except pursuant to Section 17 hereof, regardless of whether transfers of such
shares are restricted pursuant to the terms of this Agreement, during the
two-year period commencing on the Funding and Consummation Date, the COMPANY
shall not sell, assign, exchange, transfer, distribute or otherwise dispose of,
in any transaction or series of transactions involving more than 5,000 shares (a
"Future Sale"), any shares of TSII Stock as described in
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Section 3.1 received by the COMPANY in the transaction contemplated hereby
except in accordance with this Section 15.2. If the COMPANY desires to make a
Future Sale, the COMPANY shall first provide written notice thereof to TSII. As
soon as practicable after receipt of such notice by TSII, TSII shall designate
in writing to the COMPANY the names and other pertinent information of two
investment banks or market makers through whom the Future Sale may be made. The
COMPANY may not make the Future Sale except through one of the designated
investment banks or market makers for TSII Stock; provided, however, that the
terms of such Future Sale (including commissions) shall be at least as favorable
to the COMPANY as the COMPANY would have received in the absence of this Section
15.2.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
The COMPANY acknowledges that the shares of TSII Stock to be delivered
to the COMPANY pursuant to this Agreement have not been and will not be
registered under the 1933 Act and therefore may not be resold without compliance
with the 1933 Act. The TSII Stock to be acquired by the COMPANY pursuant to this
Agreement is being acquired solely for its own account, for investment purposes
only, and with no present intention of distributing, selling or otherwise
disposing of it in connection with a distribution.
16.1 COMPLIANCE WITH LAW. Each of the COMPANY and the STOCKHOLDER
covenants, warrants and represents that none of the shares of TSII Stock issued
to the COMPANY will be offered, sold,
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assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC. All of the TSII Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED
IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The COMPANY is able to bear the
economic risk of an investment in the TSII Stock acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment in the TSII Stock.
The COMPANY and the STOCKHOLDER have had an adequate opportunity to ask
questions and receive answers from the officers of TSII concerning any and all
matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of TSII, the plans for the operations of the business of TSII, the
business, operations and financial condition of the Founding Companies other
than the COMPANY, and any plans for additional acquisitions and the like. The
COMPANY and the STOCKHOLDER have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
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17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding
and Consummation Date, whenever TSII proposes to register any TSII Stock for its
own or others account under the 1933 Act for a public offering, other than (i)
any shelf registration of shares to be used as consideration for acquisitions of
additional businesses by TSII and (ii) registrations relating to employee
benefit plans, TSII shall give the COMPANY prompt written notice of its intent
to do so. Upon the written request of the COMPANY given within 30 days after
receipt of such notice, TSII shall cause to be included in such registration all
of the TSII Stock issued to the COMPANY pursuant to this Agreement which the
COMPANY requests, provided that TSII shall have the right to reduce the number
of shares included in such registration to the extent that inclusion of such
shares could, in the opinion of tax counsel to TSII or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization. In addition, if TSII is
advised in writing in good faith by any managing underwriter of an underwritten
offering of the securities being offered pursuant to any registration statement
under this Section 17.1 that the number of shares to be sold by persons other
than TSII is greater than the number of such shares which can be offered without
adversely affecting the offering, TSII may reduce pro rata the number of shares
offered for the accounts of such persons (based upon the number of shares
desired to be sold by such person) to a number deemed satisfactory by such
managing
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underwriter, provided, that, notwithstanding Section 15.1 hereof, for each such
offering made by TSII after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than TSII, the COMPANY
and the Other Founding Companies or the stockholders thereof who receive shares
of TSII Stock pursuant to the Other Agreements (collectively, the COMPANY and
the Other Founding Companies or the stockholders thereof who receive shares of
TSII Stock pursuant to the Other Agreements being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Closing, the holders of a majority of the shares of TSII Stock issued
to the Founding Stockholders pursuant to this Agreement and the Other Agreements
which have not been previously registered or sold and which are not entitled to
be sold under Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act may request in writing that TSII file a registration
statement under the 1933 Act covering the registration of the shares of TSII
Stock issued to the COMPANY pursuant to this Agreement and the Other Agreements
then held by such Founding Stockholders (a "Demand Registration"). Within ten
(10) days of the receipt of such request, TSII shall give written notice of such
request to all other Founding Stockholders and shall, as soon as practicable but
in no event later than 45 days after notice from the COMPANY, file and use its
best efforts to
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cause to become effective a registration statement covering all such shares.
TSII shall be obligated to effect only one Demand Registration for all Founding
Stockholders.
Notwithstanding the foregoing paragraph, following such a demand a
majority of TSII's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 60 day period.
If at the time of any request by the Founding Stockholders for a Demand
Registration TSII has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TSII
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TSII is no longer proceeding
diligently to effect such registration; provided that TSII shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
17.3 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by TSII. In connection with
registrations under Sections 17.1 and 17.2, TSII shall (i) use its best efforts
to prepare and file with the SEC as soon as reasonably practicable, a
registration statement with respect to the TSII
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Stock and use its best efforts to cause such registration to promptly become and
remain effective for a period of at least 45 days (or such shorter period during
which the Founding Stockholders shall have sold all TSII Stock which they
requested to be registered); (ii) use its best efforts to register and qualify
the TSII Stock covered by such registration statement under applicable state
securities laws as the holders shall reasonably request for the distribution for
the TSII Stock; and (iii) take such other actions as are reasonable and
necessary to comply with the requirements of the 1933 Act and the regulations
thereunder to enable the Founding Stockholders to sell their shares pursuant
thereto.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registration public
offering, TSII and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions (including indemnification provisions) as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of TSII's size and investment stature.
17.5 AVAILABILITY OF RULE 144. TSII shall not be obligated to register
shares of TSII Stock held by the COMPANY at any time when the resale provisions
of Rule 144(k) (or any similar or successor provision) promulgated under the
1933 Act are available to the COMPANY.
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18. GENERAL
18.1 COOPERATION. The COMPANY, STOCKHOLDER and TSII shall each deliver
or cause to be delivered to the other on the Funding and Consummation Date, and
at such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY shall cooperate and use its reasonable efforts to
have the present officers, directors and the employees of the COMPANY cooperate
with TSII on and after the Funding and Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any tax
return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Funding
and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of TSII, and the heirs and legal representatives of the STOCKHOLDER.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDER,
the COMPANY and TSII and supersede any prior agreement and understanding
relating to the subject matter of this Agreement, including but not limited to
any letter of intent entered into by any of the parties hereto. This
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Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the STOCKHOLDER, the COMPANY
and TSII, acting through their respective officers or trustees, duly authorized
by their respective Boards of Directors.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damages or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, TSII will pay the fees, expenses and disbursements of TSII
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TSII under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Akin, Gump, Strauss, Hauer & Feld, L.L.P., and
any other person or entity
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retained by TSII, and the costs of preparing the Registration Statement. The
STOCKHOLDER and the COMPANY shall pay the fees, expenses and disbursements of
the STOCKHOLDER, the COMPANY and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by the
COMPANY and the STOCKHOLDER under this Agreement, including the fees and
expenses of accountants and legal counsel to the COMPANY and the STOCKHOLDER.
Notwithstanding the foregoing, if the transactions contemplated by this
Agreement are consummated, TSII shall reimburse the COMPANY and the STOCKHOLDER
for such reasonable fees, expenses and disbursements upon the closing of the IPO
up to $25,000 plus such additional fees, expenses and disbursements as are set
forth on Schedule 18.6. In addition, the STOCKHOLDER shall pay all sales, use,
transfer, real property transfer, recording, gains, stock transfer and other
similar taxes and fees ("Transfer Taxes") imposed in connection with the
transactions contemplated hereby, other than Transfer Taxes, if any, imposed by
the State of Delaware. The STOCKHOLDER shall file all necessary documentation
and Returns with respect to such Transfer Taxes. In addition, the STOCKHOLDER
acknowledges that he or she, and not the COMPANY or TSII, shall pay all taxes
due upon receipt of the consideration payable pursuant to Section 3 hereof, and
shall assume all tax risks and liabilities of such
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STOCKHOLDER in connection with the transactions contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party.
(a) If to TSII, addressed to it at:
Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, PL 15
Bethesda, Maryland 20816
Attention: Elan J. Blutinger
with copies to:
Akin, Gump, Strauss, Hauer &
Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Bruce S. Mendelsohn
(b) If to the STOCKHOLDER, addressed to her at her address set forth on
Annex IV, with copies to such counsel as is set forth with respect to
the STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Travel 800
3530 Camino Del Rio Norte
Suite 300
San Diego, California 92108
Attention: Susan Parker
and marked "Personal and Confidential"
with copy to:
Kenneth E. Bonus, Esq.
Branton, Wilson & Muns
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701 B Street
Suite 1255
San Diego, California 92101-8187
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware.
18.9 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.10 TIME. Time is of the essence with respect to this Agreement.
18.11 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
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18.12 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
18.13 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TSII, the COMPANY and the STOCKHOLDER. Any amendment or
waiver effected in accordance with this Section 18.14 shall be binding upon each
of the parties hereto, any other person receiving TSII Stock in connection with
the transactions contemplated hereby and each future holder of such TSII Stock.
18.15 INCORPORATION BY REFERENCE. To the extent that an item is
disclosed in a particular schedule or a subsection of a particular schedule and
such item is readily apparent on its face as being applicable to another
schedule or another subsection of the same schedule, such item shall be deemed
incorporated by reference in such schedule or such other subsection under the
same schedule.
18.16 DEFINED TERMS. Unless the context otherwise requires, capitalized
terms used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of this
Agreement:
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"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any Subsidiary and any member of a
Relevant Group.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" has the meaning set forth in the first paragraph hereof.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Assets" has the meaning set forth in Section 7.13.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" means the capital stock of the COMPANY.
"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 17.2.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A).
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"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"Founding Stockholders" has the meaning set forth in Section 17.1.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"Future Sale" has the meaning set forth in Section 15.2.
"Indemnification Threshold" has the meaning set forth in Section 11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"IPO" means the initial public offering of TSII Stock pursuant to the
Registration Statement.
"LLC" has the meaning set forth in Section 7.13.
"LLC Interest" means all of the limited liability company interests in
the LLC owned by the COMPANY.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
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"Pricing" means the date of determination by TSII and the Underwriters
of the public offering price of the shares of TSII Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 covering the shares of TSII Stock to be issued in the IPO.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Restricted Common Stock" means the common stock of TSII, par value
$0.01 per share, having the restricted voting rights and such other rights,
preferences, restrictions and limitations as are set forth in the Certificate of
Incorporation, as amended, of TSII on the Funding and Consummation Date.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
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"STOCKHOLDER" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" has the meaning set forth in Section 5.6.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"TSII" has the meaning set forth in the first paragraph of this
Agreement.
"TSII Charter Documents" has the meaning set forth in Section 6.1.
"TSII Financial Statements" has the meaning set forth in Section 6.6.
"TSII Plan of Organization" has the meaning set forth in the fourth
recital of this Agreement.
"TSII Stock" means the common stock, par value $.01 per share, of TSII.
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"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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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: /s/ Leonard Potter
----------------------------------------
Name:
Title:
800-IDEAS, INC.
By: /s/ Susan Parker
----------------------------------------
Susan Parker
President
STOCKHOLDER:
/s/ Susan Parker
----------------------------------
Susan Parker, Individually
100
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 9, 1997
by and among
TRAVEL SERVICES INTERNATIONAL, INC.
CRUISES, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. PURCHASE AND SALE................................................. 3
2. [INTENTIONALLY DELETED]........................................... 3
3. DELIVERY OF CONSIDERATION......................................... 3
4. CLOSING........................................................... 4
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS...................................................... 6
5.1 Due Organization......................................... 7
5.2 Authorization............................................ 8
5.3 Capital Stock of the COMPANY............................. 8
5.4 Transactions in Capital Stock............................ 9
5.5 No Bonus Shares.......................................... 9
5.6 Subsidiaries............................................. 9
5.7 Predecessor Status; etc.................................. 10
5.8 Spin-off by the COMPANY.................................. 10
5.9 Financial Statements..................................... 10
5.10 Liabilities and Obligations.............................. 11
5.11 Accounts and Notes Receivable............................ 12
5.12 Permits and Intangibles.................................. 13
5.13 Environmental Matters.................................... 14
5.14 Personal Property........................................ 16
5.15 Significant Customers; Material Contracts and
Commitments.............................................. 17
5.16 Real Property............................................ 18
5.17 Insurance................................................ 19
5.18 Compensation; Employment Agreements; Organized
Labor Matters............................................ 20
5.19 Employee Plans........................................... 21
5.20 Compliance with ERISA.................................... 23
5.21 Conformity with Law; Litigation.......................... 24
5.22 Taxes.................................................... 25
5.23 No Violations............................................ 26
5.24 Government Contracts..................................... 27
5.25 Absence of Changes....................................... 27
5.26 Deposit Accounts; Powers of Attorney..................... 30
5.27 Validity of Obligations.................................. 30
5.28 Relations with Governments............................... 31
5.29 Disclosure............................................... 31
5.30 Prohibited Activities.................................... 32
5.31 Authority; Ownership..................................... 32
5.32 Preemptive Rights........................................ 33
5.33 No Intention to Dispose of TSII Stock.................... 33
6. REPRESENTATIONS OF TSII........................................... 33
6.1 Due Organization......................................... 34
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6.2 Authorization............................................ 34
6.3 Capital Stock of the TSII................................ 34
6.4 Transactions in Capital Stock............................ 35
6.5 Subsidiaries............................................. 36
6.6 Financial Statements..................................... 36
6.7 Liabilities and Obligations.............................. 37
6.8 Conformity with Law; Litigation.......................... 37
6.9 No Violations............................................ 38
6.10 Validity of Obligations.................................. 38
6.11 TSII Stock............................................... 39
6.12 No Side Agreements....................................... 39
6.13 Business; Real Property; Material Agreements............. 40
6.14 Taxes.................................................... 40
6.15 No Intention to Dispose of Shares........................ 41
7. COVENANTS PRIOR TO CLOSING........................................ 41
7.1 Access and Cooperation; Due Diligence.................... 41
7.2 Conduct of Business Pending Closing...................... 43
7.3 Prohibited Activities.................................... 44
7.4 No Shop.................................................. 46
7.5 Notice to Bargaining Agents.............................. 47
7.6 Agreements............................................... 47
7.7 Notification of Certain Matters.......................... 47
7.8 Amendment of Schedules................................... 48
7.9 Cooperation in Preparation of Registration
Statement............................................... 50
7.10 Final Financial Statements............................... 52
7.11 Further Assurances....................................... 52
7.12 Authorized Capital....................................... 53
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY........................................................... 53
8.1 Representations and Warranties........................... 53
8.2 Performance of Obligations............................... 54
8.3 No Litigation............................................ 54
8.4 Opinion of Counsel....................................... 54
8.5 Registration Statement................................... 54
8.6 Consents and Approvals................................... 55
8.7 Good Standing Certificates............................... 55
8.8 No Material Adverse Change............................... 55
8.9 Closing of IPO........................................... 55
8.10 Secretary's Certificate.................................. 56
8.11 Employment Agreements.................................... 56
8.12 Directors and Officers Insurance......................... 56
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSII....................... 56
9.1 Representations and Warranties........................... 57
9.2 Performance of Obligations............................... 57
9.3 No Litigation............................................ 57
9.4 Secretary's Certificate.................................. 58
9.5 No Material Adverse Effect............................... 58
9.6 STOCKHOLDERS' Release.................................... 58
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9.7 Termination of Related Party Agreements................... 59
9.8 Opinion of Counsel........................................ 59
9.9 Consents and Approvals.................................... 59
9.10 Good Standing Certificates................................ 59
9.11 Registration Statement.................................... 60
9.12 Employment Agreements..................................... 60
9.13 Closing of IPO............................................ 60
9.14 FIRPTA Certificate........................................ 60
10. COVENANTS OF TSII AND THE STOCKHOLDERS AFTER CLOSING............... 61
10.1 Release From Guarantees; Repayment of Certain
Obligations............................................... 61
10.2 Preservation of Tax and Accounting Treatment.............. 61
10.3 Preparation and Filing of Tax Returns..................... 62
10.4 Directors and Officers.................................... 63
10.5 Preservation of Employee Benefit Plans.................... 63
10.6 Maintenance of Books...................................... 64
11. INDEMNIFICATION.................................................... 64
11.1 General Indemnification by STOCKHOLDERS................... 64
11.2 Indemnification by TSII................................... 66
11.3 Third Person Claims....................................... 67
11.4 Exclusive Remedy.......................................... 69
11.5 Limitations on Indemnification............................ 70
12. TERMINATION OF AGREEMENT........................................... 72
12.1 Termination............................................... 72
12.2 Liabilities in Event of Termination....................... 72
13. NONCOMPETITION..................................................... 73
13.1 Prohibited Activities..................................... 73
13.2 Damages................................................... 75
13.3 Reasonable Restraint...................................... 75
13.4 Severability; Reformation................................. 75
13.5 Independent Covenant...................................... 76
13.6 Materiality............................................... 76
13.7 Limitations............................................... 76
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.......................... 77
14.1 STOCKHOLDERS.............................................. 77
14.2 TSII...................................................... 78
14.3 Damages................................................... 79
14.4 Survival.................................................. 80
15. TRANSFER RESTRICTIONS.............................................. 80
15.1 Transfer Restrictions..................................... 80
15.2 Certain Transfers............................................. 81
16. FEDERAL SECURITIES ACT REPRESENTATIONS............................. 82
16.1 Compliance with Law....................................... 82
16.2 Economic Risk; Sophistication............................. 82
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17. REGISTRATION RIGHTS............................................... 83
17.1 Piggyback Registration Rights............................ 83
17.2 Demand Registration Rights............................... 85
17.3 Registration Procedures.................................. 86
17.4 Underwriting Agreement................................... 87
17.5 Availability of Rule 144................................. 87
18. GENERAL........................................................... 87
18.1 Cooperation.............................................. 87
18.2 Successors and Assigns................................... 88
18.3 Entire Agreement......................................... 88
18.4 Counterparts............................................. 88
18.5 Brokers and Agents....................................... 89
18.6 Expenses................................................. 89
18.7 Notices.................................................. 90
18.8 Governing Law............................................ 91
18.9 Exercise of Rights and Remedies.......................... 91
18.10 Time..................................................... 92
18.11 Reformation and Severability............................. 92
18.12 Remedies Cumulative...................................... 92
18.13 Captions................................................. 92
18.14 Amendments and Waivers................................... 93
18.15 Incorporation by Reference............................... 93
18.16 Defined Terms............................................ 93
ANNEX I
INTENTIONALLY DELETED...................................................... 99
ANNEX II
CERTIFICATE OF INCORPORATION AND BY-LAWS OF TSII.......................... 100
ANNEX III
CONSIDERATION TO BE PAID TO STOCKHOLDERS.................................. 101
ANNEX IV
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY........................... 102
ANNEX V
STOCKHOLDERS AND STOCK OWNERSHIP OF TSII.................................. 103
ANNEX VI
FORM OF OPINION OF COUNSEL TO TSII........................................ 104
ANNEX VII
FORM OF OPINION OF COUNSEL TO COMPANY AND STOCKHOLDERS.................... 108
ANNEX VIII
FORM OF EMPLOYMENT AGREEMENT.............................................. 112
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<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
May 9, 1997, by and among TRAVEL SERVICES INTERNATIONAL, INC., a Delaware
corporation ("TSII"), CRUISES, INC., a New York corporation (the "COMPANY"),
ROBERT G. FALCONE, an individual residing in Bridgeport, New York, JUDITH A.
FALCONE, an individual residing in Bridgeport, New York, and PAMELA C. COLE, an
individual residing in Manlius, New York. Robert G. Falcone, Judith A. Falcone
and Pamela C. Cole are referred to collectively herein as the "STOCKHOLDERS."
WHEREAS, the respective Boards of Directors of TSII and the
COMPANY and the STOCKHOLDERS deem it advisable and in the best
interests of TSII and the COMPANY and their respective stockholders
that the STOCKHOLDERS contribute all of the COMPANY Stock owned by the
STOCKHOLDERS to TSII in exchange for stock of TSII and cash pursuant to
this Agreement and in accordance with the applicable provisions of the
laws of the State of Delaware and the State in which the COMPANY is
incorporated;
WHEREAS, TSII is entering into an Agreement and Plan of
Organization (collectively, the "Other Agreements") with Auto- Europe,
Inc. (Maine), a Maine corporation, Cruises Only, Inc., a Florida
corporation, D-FW Tours, Inc., a Texas corporation, D-FW Travel
Arrangements, Inc., a Texas corporation, and 800- Ideas, Inc., a Nevada
corporation, and their respective stockholders in order to acquire
additional businesses (the COMPANY, together with each of the entities
with which TSII
<PAGE>
has entered into the Other Agreements, are collectively referred to
herein as the "Founding Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO of
TSII Stock constitute the "TSII Plan of Organization;"
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of TSII and each of the Other Founding Companies that are
parties to the Other Agreements have approved and adopted the TSII Plan
of Organization as an integrated plan pursuant to which (1)
Auto-Europe, Inc., Cruises Only, Inc. and 800-Ideas, Inc. will
contribute the ownership of substantially all of their respective
assets to TSII, (2) the stockholders of the COMPANY, D-FW Tours, Inc.
and D-FW Travel Arrangements, Inc. will transfer the capital stock of
such companies to TSII and (3) Auto-Europe, Inc. (Maine), Cruises Only,
Inc., 800-Ideas, Inc., the public, and the stockholders of the COMPANY,
D-FW Tours, Inc. and D-FW Travel Arrangements, Inc. will acquire the
stock of TSII as a tax-free transfer of property under Section 351 of
the Internal Revenue Code of 1986, as amended; and
WHEREAS, in consideration of the agreements of the Other
Founding Companies pursuant to the Other Agreements, the STOCKHOLDERS
and the Board of Directors of the COMPANY have approved this Agreement
as part of the TSII Plan of Organization in order to transfer the
ownership of all of the outstanding COMPANY Stock to TSII.
2
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NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE
On the Funding and Consummation Date, (a) each of the STOCKHOLDERS
shall transfer, convey, assign and deliver to TSII, and TSII shall acquire and
accept from the STOCKHOLDERS, as a contribution to TSII under Section 351 of the
Code, all of the shares of COMPANY Stock owned by each of the STOCKHOLDERS (the
"Shares"), free and clear of all liens, security interests, pledges, charges,
voting trusts, restrictions, encumbrances and claims of every kind.
2. [INTENTIONALLY DELETED]
3. DELIVERY OF CONSIDERATION
3.1 On the Funding and Consummation Date the STOCKHOLDERS, who are on
that date the holders of all outstanding certificates representing shares of
COMPANY Stock, shall, upon surrender of such certificates, receive the number of
shares of TSII Stock and the amount of cash set forth on Annex III hereto, said
cash to be payable by certified check or wire transfer.
3.2 The STOCKHOLDERS shall deliver to TSII at the Closing the
certificates representing all of the Shares, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, and with
3
<PAGE>
all necessary transfer tax and other revenue stamps, acquired at the
STOCKHOLDERS' expense, affixed and cancelled. The STOCKHOLDERS agree promptly to
cure any deficiencies with respect to the endorsement of the stock certificates
or other documents of conveyance with respect to such Shares or with respect to
the stock powers accompanying the Shares.
3.3 All TSII Stock received by the STOCKHOLDERS pursuant to this
Agreement shall, except for restrictions on resale or transfer described in
Sections 15 and 16 hereof, have the same rights as all of the other shares of
outstanding TSII Stock by reason of the provisions of the Certificate of
Incorporation of TSII or as otherwise provided by the Delaware GCL. All voting
rights of such TSII Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. On the Funding and Consummation Date,
TSII shall have no class of capital stock issued and outstanding other than the
TSII Stock and the Restricted Common Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to prepare to (i) effect the transfer and delivery of the Shares as
contemplated by Section 1 hereof and (ii) effect the delivery of the
consideration referred to in Section 3 hereof; provided, however, that such
actions shall not include the actual completion of the transfer and delivery of
the Shares or the
4
<PAGE>
delivery of the consideration by certified check(s) or wire transfer(s) referred
to in Section 3 hereof, each of which actions shall only be taken upon the
Funding and Consummation Date as herein provided. The taking of the actions
described in clauses (i) and (ii) above (the "Closing") shall take place on the
closing date (the "Closing Date") at the offices of Akin, Gump, Strauss, Hauer &
Feld, L.L.P., 1333 New Hampshire Avenue, N.W., Washington, D.C. 20036. On the
Funding and Consummation Date (x) all transactions contemplated by this
Agreement, including the delivery of the Shares and the delivery of shares of
TSII Stock and certified check(s) or wire transfer(s) in an amount equal to the
cash portion of the consideration which the STOCKHOLDERS shall be entitled to
receive pursuant to Section 3 hereof shall occur and (y) the closing with
respect to the IPO shall be completed. The date on which the actions described
in the preceding clauses (x) and (y) occur shall be referred to as the "Funding
and Consummation Date." Except as provided in Sections 8 and 9 hereof with
respect to actions to be taken on the Funding and Consummation Date, during the
period from the Closing Date to the Funding and Consummation Date this Agreement
may only be terminated by a party if the underwriting agreement in respect of
the IPO is terminated pursuant to the terms of such agreement. This Agreement
shall in any event terminate if the Funding and Consummation Date has not
occurred within 15 business days of the Closing Date. Time is of the essence.
5
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and
STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represents and warrants that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date. Each of the COMPANY and the STOCKHOLDERS agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of two years (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
5.22 hereof shall survive until such time as the limitations period has run for
all Tax periods ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 5.22 and (ii) solely for
purposes of determining whether a claim for indemnification under Section
11.1(iii) hereof has been made on a timely basis, and solely to the extent that
in connection with the IPO, TSII actually incurs liability under the 1933 Act,
the 1934 Act, or any other federal or state securities laws as a result of a
breach of a representation or warranty by the COMPANY or a STOCKHOLDER, the
representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such
6
<PAGE>
purposes. For purposes of this Section 5, the term "COMPANY" shall mean and
refer to the COMPANY and all of its Subsidiaries.
5.1 Due Organization. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and the COMPANY is duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on its business in the places and in the manner as now
conducted, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the COMPANY taken as a whole (as used herein with
respect to the COMPANY, or with respect to any other person, a "Material Adverse
Effect"). Schedule 5.1 sets forth the jurisdiction in which the COMPANY is
incorporated and contains a list of all such jurisdictions in which the COMPANY
is authorized or qualified to do business. True, complete and correct copies of
the Certificate of Incorporation and By-laws, each as amended, of the COMPANY
(the "Charter Documents") are all attached hereto as Schedule 5.1. The stock
records of the COMPANY, as heretofore made available to TSII, are correct and
complete in all material respects. There are no minutes in the possession of the
COMPANY or the STOCKHOLDERS which have not been made available to TSII, and all
of such minutes are correct and complete in all respects. Except as set forth on
Schedule 5.1, the most recent minutes of the COMPANY, which are dated no earlier
than
7
<PAGE>
ten business days prior to the date hereof, affirm and ratify all prior acts of
the COMPANY, and of its officers and directors on behalf of the COMPANY.
5.2 Authorization. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the full legal right, power and
authority to enter into and perform this Agreement, and all required approvals
of the shareholders and the Board of Directors of the COMPANY have been
obtained.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. The Shares, which are all of the issued
and outstanding shares of the capital stock of the COMPANY, are owned by the
STOCKHOLDERS in the amounts set forth in Annex IV and further, except as set
forth on Schedule 5.3, are owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind. All of the issued and outstanding shares of the capital
stock of the COMPANY have been duly authorized and validly issued, are fully
paid and nonassessable, are owned of record and beneficially by the STOCKHOLDERS
and further, such shares were offered, issued, sold and delivered by the COMPANY
in compliance with all applicable state and federal laws concerning the issuance
of securities. Further, none of such shares were issued in violation of the
preemptive rights of any past or present stockholder.
8
<PAGE>
5.4 Transactions in Capital Stock. Except as set forth on Schedule 5.4,
the COMPANY has not acquired any COMPANY Stock since January l, 1994. Except as
set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the COMPANY to issue any of its
authorized but unissued capital stock; (ii) the COMPANY has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure of
the COMPANY nor the relative ownership of shares among any of its respective
stockholders has been altered or changed in contemplation of the transactions
contemplated hereby and/or the TSII Plan of Organization. Schedule 5.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and the material terms of such outstanding
options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each
of the COMPANY's subsidiaries (each, a "Subsidiary"), and sets forth the number
and class of the authorized capital stock of each Subsidiary and the number of
shares or interests of each Subsidiary which are issued and outstanding, all of
which shares
9
<PAGE>
(except as set forth on Schedule 5.6) are owned by the COMPANY, free and clear
of all liens, security interests, pledges, voting trusts, equities,
restrictions, encumbrances and claims of every kind. Except as set forth on
Schedule 5.6, the COMPANY does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity nor is the COMPANY, directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a listing of
all names of all predecessor companies of the COMPANY, including the names of
any entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY
10
<PAGE>
Financial Statements") of the COMPANY: the COMPANY's unaudited Consolidated
Balance Sheets, if any, as of September 30, 1996, 1995 and 1994 and Statements
of Income, Cash Flows and Retained Earnings, if any, for each of the years in
the three-year period ended September 30, 1996 (September 30, 1996 being
hereinafter referred to as the "Balance Sheet Date"). Except as set forth on
Schedule 5.9, such Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted thereon or on Schedule 5.9).
Except as set forth on Schedule 5.9, such Consolidated Balance Sheets as of
September 30, 1996, 1995 and 1994 present fairly the financial position of the
COMPANY as of the dates indicated thereon, and such Consolidated Statements of
Income, Cash Flows and Retained Earnings present fairly the results of
operations for the periods indicated thereon.
5.10 Liabilities and Obligations. The COMPANY has delivered to TSII an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
COMPANY Financial Statements at the Balance Sheet Date, (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000) and
(iii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages,
liens, pledges or other security agreements. Except as set forth on Schedule
5.10, since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind,
11
<PAGE>
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The COMPANY has also delivered to TSII on Schedule 5.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed or are being contested, the
following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit or
proceeding;
(ii) the name of each court or agency before which such claim, suit or
proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability.
If no estimate is provided, the estimate shall for purposes of this
Agreement be deemed to be zero.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to TSII
an accurate list (which is set forth on Schedule 5.11) of
12
<PAGE>
the accounts and notes receivable of the COMPANY, as of the Balance Sheet Date,
including any such amounts which are not reflected in the balance sheet as of
the Balance Sheet Date, and including receivables from and advances to employees
and the STOCKHOLDERS. The COMPANY shall also provide to TSII (x) an accurate
list of all receivables obtained subsequent to the Balance Sheet Date up to the
Closing Date and (y) an aging of all accounts and notes receivable showing
amounts due in 30 day aging categories (the "A/R Aging Reports"). Except to the
extent reflected on Schedule 5.11 or as disclosed by the COMPANY to TSII in a
writing accompanying the A/R Aging Reports, the accounts, notes and other
receivables shown on Schedule 5.11 and on the A/R Aging Reports are and shall be
collectible in the amounts shown, net of reserves reflected in the balance sheet
as of the Balance Sheet Date with respect to accounts receivable as of the
Balance Sheet Date, and net of reserves reflected in the books and records of
the COMPANY (consistent with the methods used for the balance sheet) with
respect to accounts receivable of the COMPANY after the Balance Sheet Date.
5.12 Permits and Intangibles. The COMPANY holds all licenses,
franchises, permits and other governmental authorizations the absence of any of
which could have a Material Adverse Effect on its business, and the COMPANY has
delivered to TSII an accurate list and summary description (which is set forth
on Schedule 5.12) of all such licenses, franchises, permits and other
governmental authorizations, including permits, titles, licenses, franchises,
certificates, trademarks, trade names, patents, patent applications
13
<PAGE>
and copyrights owned or held by the COMPANY (including interests in software or
other technology systems, programs and intellectual property) (it being
understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 5.13). To the knowledge of the
COMPANY, the licenses, franchises, permits and other governmental authorizations
listed on Schedules 5.12 and 5.13 are valid, and the COMPANY has not received
any notice that any governmental authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental authorization.
The COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the licenses,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 and is not in violation of any of the foregoing except where such
noncompliance or violation would not have a Material Adverse Effect on the
COMPANY. Except as specifically provided on Schedule 5.12, the transactions
contemplated by this Agreement will not result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
COMPANY by, any such licenses, franchises, permits or government authorizations.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i)
the COMPANY has complied with and is in compliance with all federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, permits, judgments, orders and decrees applicable to any of them
or any of
14
<PAGE>
their respective properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes and Hazardous Substances including petroleum and petroleum products (as
such terms are defined in any applicable Environmental Law); (ii) the COMPANY
has obtained and adhered to all necessary permits and other approvals necessary
to treat, transport, store, dispose of and otherwise handle Hazardous Wastes and
Hazardous Substances, a list of all of which permits and approvals is set forth
on Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY or TSII for any clean-up cost, remedial work, damage to
natural resources, property damage or
15
<PAGE>
personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) the COMPANY has no contingent liability in connection with any
release of any Hazardous Waste or Hazardous Substance into the environment.
5.14 Personal Property. The COMPANY has delivered to TSII an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" on the balance sheet of the
COMPANY as of the Balance Sheet Date or that will be included on any balance
sheet of the COMPANY prepared after the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value in excess of $10,000 (i) as
of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z)
all leases and agreements in respect of personal property, including, true,
complete and correct copies of all such leases and agreements. The COMPANY shall
indicate on Schedule 5.14 those assets currently owned, or that were formerly
owned, by STOCKHOLDERS, relatives of STOCKHOLDERS, or Affiliates of the COMPANY.
Except as set forth on Schedule 5.14, (i) all personal property used by the
COMPANY in its business is either owned by the COMPANY or leased by the COMPANY
pursuant to a lease included on Schedule 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted and (iii) all leases and agreements included on Schedule 5.14
are in full force and effect and constitute valid
16
<PAGE>
and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to TSII an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers (or persons or entities that are sources of
a significant number of customers) have cancelled or substantially reduced or,
to the knowledge of the COMPANY, are currently attempting or threatening to
cancel a contract or substantially reduce utilization of the services provided
by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedules
5.10, 5.14 or 5.16, (a) in existence as of the Balance Sheet Date and (b)
entered into since the Balance Sheet Date, and in each case has delivered true,
complete and correct copies of such agreements to TSII. The COMPANY has
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complied with all material commitments and obligations pertaining to it, and is
not in default under any contracts or agreements listed on Schedule 5.15 and no
notice of default under any such contract or agreement has been received. The
COMPANY has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the COMPANY.
5.16 Real Property. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other property, if any, used by
the COMPANY in the conduct of its business. The COMPANY has good and insurable
title to the real property owned by it, including those reflected on Schedule
5.14, subject to no mortgage, pledge, lien, conditional sales agreement,
encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no default exists);
(ii) liens for current Taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the
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County Clerks in which the properties, assets and leasehold estates are
located which do not adversely affect the current use of the property.
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to TSII an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY (which copies are attached
to Schedule 5.16), and an indication as to which such properties, if any, are
currently owned, or were formerly owned, by STOCKHOLDERS or business or personal
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule 5.16,
all of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
5.17 Insurance. The COMPANY has delivered to TSII, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs and workers compensation claims received for the past three
(3) policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all
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of the insurance that the COMPANY is required to carry pursuant to all of its
contracts and other agreements and pursuant to all applicable laws. All of such
insurance policies are currently in full force and effect and shall remain in
full force and effect through the Funding and Consummation Date. No insurance
carried by the COMPANY has ever been cancelled by the insurer and the COMPANY
has never been unable to obtain insurance coverage for its assets and
operations.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to TSII an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons (i) as of the
Balance Sheet Date and (ii) as of the date hereof. The COMPANY has provided to
TSII true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices, except as set forth on
Schedule 5.18.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any arrangement with any labor union, (ii)
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no employees of the COMPANY are represented by any labor union or covered by any
collective bargaining agreement, (iii) no campaign to establish such
representation is in progress and (iv) there is no pending or, to the best of
the COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 Employee Plans. The COMPANY has delivered to TSII an accurate
schedule (Schedule 5.19) showing all employee benefit plans currently sponsored
or maintained or contributed to by, or which cover the current or former
employees or directors of the COMPANY, all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and all deferred compensation agreements, together with true,
complete and correct copies of such plans, agreements and any trusts related
thereto, and classifications of employees covered thereby as of the Balance
Sheet Date. Except for the employee benefit plans, if any, described on Schedule
5.19, the COMPANY does not sponsor, maintain or contribute to any plan program,
fund or arrangement that constitutes an "employee pension benefit plan," nor has
the COMPANY any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning
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of Section 3(36) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or any non-qualified deferred compensation arrangement). For
the purposes of this Agreement, the term "employee pension benefit plan" shall
have the same meaning as is given that term in Section 3(2) of ERISA. The
COMPANY has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans, agreements, arrangement and trusts set forth
on Schedule 5.19, nor is the COMPANY required to contribute to any retirement
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of the COMPANY's
employees.
The COMPANY is not now, and cannot as a result of its past activities
become, liable to the Pension Benefit Guaranty Corporation or to any
multiemployer employee pension benefit plan under the provisions of Title IV of
ERISA.
All employee benefit plans, agreements, arrangements and trusts listed
on Schedule 5.19 and the administration thereof are in substantial compliance
with their terms and all applicable provisions of ERISA and the regulations
issued thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
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5.20 Compliance with ERISA. All such plans, agreements, arrangements
and trusts of the COMPANY that are currently maintained or contributed to by the
COMPANY or cover employees or former employees of the COMPANY listed on Schedule
5.19 that are intended to qualify under Section 401(a) of the Code (the
"Qualified Plans") are, and have been so qualified and have been determined by
the Internal Revenue Service to be so qualified, and copies of such
determination letters are included as part of Schedule 5.19 hereof. Except as
disclosed on Schedule 5.19, all reports and other documents required to be filed
with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audit reports
or Tax Returns) have been timely filed or distributed, and copies thereof for
the three most recent plan years are included as part of Schedule 5.19 hereof.
Neither STOCKHOLDERS, any such plan listed on Schedule 5.19, nor the COMPANY has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA. No such plan listed on Schedule 5.19 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and the COMPANY has not incurred any liability
for excise tax or penalty due to the Internal Revenue Service nor any liability
to the Pension Benefit Guaranty Corporation. The STOCKHOLDERS further represent
that:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such
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Qualified Plan intended to qualify under Section 401(a) of the Code without
notice to and approval by the Internal Revenue Service;
(ii) no such plan listed on Schedule 5.19 subject to the provisions of
Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed on
Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited to,
any liability to any multiemployer plan or the Pension Benefit Guaranty
Corporation under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any Statutory Lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the COMPANY that is,
or at any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedules 5.21 or 5.13, the COMPANY is not in violation of any law or regulation
which would have a Material Adverse Effect, or of any order of any court or
federal, state, municipal or other governmental department, commission, board,
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bureau, agency or instrumentality having jurisdiction over the COMPANY; and
except to the extent set forth on Schedules 5.10 or 5.13, there are no claims,
actions, suits or proceedings, commenced or, to the knowledge of the COMPANY,
threatened, against or affecting the COMPANY, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over the COMPANY
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. The COMPANY has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in applicable federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, and is not in violation of any of the foregoing.
5.22 Taxes. The COMPANY has timely filed all requisite federal, state
and other Tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims against the COMPANY for federal, state
and other Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any claim for
Taxes, whether pending or threatened, has been received. All Tax, including
interest and penalties (whether or not shown on
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any Tax Return) owed by the COMPANY, any member of an affiliated or consolidated
group which includes or included the COMPANY, or with respect to any payment
made or deemed made by the COMPANY, required to be paid by the date hereof has
been paid. The amounts shown as accruals for Taxes on the COMPANY Financial
Statements are sufficient for the payment of all Taxes of the kinds indicated
(including penalties and interest) for all fiscal periods ended on or before
that date. Copies of (i) the federal and local income tax returns and franchise
tax returns of the COMPANY for its last three (3) fiscal years, or such shorter
period of time as the COMPANY shall have existed, (ii) any Tax examinations
commenced or closed or outstanding during their three (3) most recent fiscal
years, and (iii) currently outstanding extensions of statutory limitations, are
attached hereto as Schedule 5.22. The COMPANY has a taxable year ended on the
date set forth as such on Schedule 5.22. Except as disclosed on Schedule 5.22,
the COMPANY's methods of accounting have not changed in the past five years. The
COMPANY is not an investment company as defined in Section 351(e)(1) of the
Code.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto, is in default under any lease, instrument, agreement, license or
permit set forth on Schedules 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth on
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Schedule 5.23, (a) the rights and benefits of the COMPANY under the Material
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any violation or breach or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 5.23, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
with respect to any of the transactions contemplated hereby in order to remain
in full force and effect, and consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit. Except as set forth on Schedule
5.23, none of the Material Documents prohibits the use or publication by the
COMPANY or TSII of the name of any other party to such Material Document, and
none of the Material Documents prohibits or restricts the COMPANY from freely
providing services to any other customer or potential customer of the COMPANY,
TSII or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Absence of Changes. Since the Balance Sheet Date, except as set
forth on Schedule 5.25, there has not been:
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(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by the COMPANY to any of its
officers, directors, STOCKHOLDERS, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the
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COMPANY to any person, including, without limitation, the STOCKHOLDERS and
their affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY, including without limitation any
indebtedness or obligation of any STOCKHOLDER or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of the COMPANY's business;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party;
(xiii) any transaction by the COMPANY outside the ordinary course of
its business;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
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(xv) any other distribution of property or assets by the COMPANY.
5.26 Deposit Accounts; Powers of Attorney. The COMPANY has delivered to
TSII an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the Agreement of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 5.26 also sets forth a complete list of the names of each person,
corporation, firm or other entity holding a general or special power of attorney
from the COMPANY and a description of the terms of such power.
5.27 Validity of Obligations. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
COMPANY and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of the COMPANY,
enforceable against the Company in accordance with its terms except as limited
by bankruptcy, insolvency or other similar laws of general application relating
to or affecting the enforcement of creditors' rights generally, and the
individual(s)
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signing this Agreement on behalf of the Company have the legal power, authority
and capacity to bind the Company.
5.28 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to TSII and its representatives
in writing pursuant hereto or thereto, present fairly the business and
operations of the COMPANY for the time periods with respect to which such
information was requested. The COMPANY'S rights under the documents delivered
pursuant hereto would not be materially adversely affected by, and no statement
made herein would be rendered untrue in any material respect by, any other
document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY (which fact
or circumstance was, or should reasonably, after due inquiry, have been known to
the COMPANY) that is not disclosed pursuant hereto or thereto.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement,
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or promise or other assurance of any kind, whether express or implied, oral or
written, that a Registration Statement will become effective or that the IPO
pursuant thereto will occur at a particular price or within a particular range
of prices or occur at all; and (ii) that neither TSII or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated or
associated with the COMPANY for any failure of the Registration Statement to
become effective, the IPO to occur at a particular price or within a particular
range of prices or to occur at all.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3 (Prohibited Activities).
(B) Representations and Warranties of STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and on the Funding and Consummation Date, and that the representations
and warranties set forth in Sections 5.31, 5.32 and 5.33 shall survive until the
second anniversary of the Funding and Consummation Date, which shall be the
Expiration Date for purposes of those Sections.
5.31 Authority; Ownership. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement.
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Such STOCKHOLDER owns beneficially and of record all of the shares of the
COMPANY Stock identified on Annex IV as being owned by such STOCKHOLDER, and,
except as set forth on Schedule 5.31, such COMPANY Stock is owned free and clear
of all liens, encumbrances and claims of every kind.
5.32 Preemptive Rights. Such STOCKHOLDER does not have, or hereby
waives, any preemptive or other right to acquire shares of COMPANY Stock or TSII
Stock that such STOCKHOLDER has or may have had on the date hereof other than
rights of any STOCKHOLDER to acquire TSII Stock pursuant to any option granted
by TSII.
5.33 No Intention to Dispose of TSII Stock. The STOCKHOLDERS do not
have any present plan, intention, commitment, binding agreement or arrangement
to dispose of any shares of TSII Stock received as described in Section 3.1.
6. REPRESENTATIONS OF TSII
TSII represents and warrants that all of the following representations
and warranties in this Section 6 are true at the date of this Agreement and,
subject to Section 7.8 hereof, shall be true at the time of Closing and the
Funding and Consummation Date, and that such representations and warranties
shall survive the Funding and Consummation Date for a period of two years (the
last day of such period being the "Expiration Date"), except that (i) the
warranties and representations set forth in Section 6.14 hereof shall survive
until such time as the limitations period has run for all Tax periods ended on
or prior to the Funding and Consummation
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Date, which shall be deemed to be the Expiration Date for Section 6.14 and (ii)
solely for purposes of determining whether a claim for indemnification under
Section 11.2(iv) hereof has been made on a timely basis, and solely to the
extent that in connection with the IPO, TSII actually incurs liability under the
1933 Act, the 1934 Act, or any other federal or state securities laws, the
representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes.
6.1 Due Organization. TSII is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Certificate of Incorporation
and By-laws, each as amended, of TSII (the "TSII Charter Documents") are all
attached hereto as Annex III.
6.2 Authorization. (i) The representative of TSII executing this
Agreement has the authority to enter into and bind TSII to the terms of this
Agreement and (ii) TSII has the full legal right, power and authority to enter
into and perform this Agreement.
6.3 Capital Stock of the TSII. Immediately prior to the Funding and
Consummation Date, the authorized capital stock of TSII will consist of
50,000,000 shares of TSII Stock, of which the
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number of issued and outstanding shares will be as set forth in the Registration
Statement, [_________________] shares of Restricted Common Stock, of which the
number of issued and outstanding shares will be as set forth in the Registration
Statement, and 1,000,000 shares of preferred stock, $.01 par value, of which no
shares will be issued and outstanding. All of the issued and outstanding shares
of the capital stock of TSII are owned by the persons set forth on Annex V
hereof, in each case, free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
Upon consummation of the IPO, the number of outstanding shares of TSII will be
as set forth in the Registration Statement. All of the issued and outstanding
shares of the capital stock of TSII have been duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the persons set forth on Annex V, and further, such shares were offered,
issued, sold and delivered by TSII in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder of TSII.
6.4 Transactions in Capital Stock. Except for the Other Agreements and
except as set forth on Schedule 6.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates TSII to issue any of its
authorized but unissued capital stock; and (ii) TSII has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
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equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of TSII.
6.5 Subsidiaries. TSII has no subsidiaries except for the companies to
become subsidiaries of TSII pursuant to this Agreement and each of the Other
Agreements as of the Funding and Consummation Date. Except as set forth in the
preceding sentence, TSII does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity, and TSII is not, directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity.
6.6 Financial Statements. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "TSII Financial Statements") of TSII,
which reflect the results of its operations from inception: TSII's audited
Balance Sheet as of December 31, 1996 and Statements of Income, Cash Flows and
Retained Earnings for the period from inception through December 31, 1996. Such
TSII Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted thereon or on Schedule 6.6). Except as set
forth on Schedule 6.6,
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such Balance Sheets as of December 31, 1996 present fairly the financial
position of TSII as of such date, and such statements of Income, Cash Flows and
Retained Earnings present fairly the results of operations for the period
indicated.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
TSII has no material liabilities, contingent or otherwise, except as set forth
in or contemplated by this Agreement and the Other Agreements and except for
fees and expenses incurred in connection with the transactions contemplated
hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, TSII is not in violation of any law or regulation which would have
a Material Adverse Effect, or of any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over TSII; and except to the extent set
forth on Schedule 6.8, there are no material claims, actions, suits or
proceedings, pending or, to the knowledge of TSII, threatened, against or
affecting TSII, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over TSII and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received.
TSII has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local
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statutes, ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing.
6.9 No Violations. TSII is not violation of any TSII Charter Document.
Neither TSII or, to the knowledge of TSII, any other party thereto, is in
default under any lease, instrument, agreement, license or permit to which TSII
is a party, or by which TSII or any of its properties are bound (collectively,
the "TSII Documents"); and (a) the rights and benefits of TSII under the TSII
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any violation or breach or constitute a default under, any of the
terms or provisions of the TSII Documents or the TSII Charter Documents. Except
as set forth on Schedule 6.9, none of the TSII Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
6.10 Validity of Obligations. The execution and delivery of this
Agreement by TSII and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of TSII and this
Agreement has been duly and
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validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of TSII, enforceable against TSII in accordance with its
terms except as limited by bankruptcy, insolvency or other similar laws of
general application relating to or affecting the enforcement of creditors'
rights generally, and the individual signing this Agreement on behalf of TSII
has the legal power, authority and capacity to bind TSII.
6.11 TSII Stock. At the time of issuance thereof, the TSII Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement will constitute valid
and legally issued shares of TSII, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all material and substantive respects to the TSII Stock
issued and outstanding as of the date hereof and the TSII Stock to be issued
pursuant to the Other Agreements by reason of the provisions of the Delaware
GCL. The shares of TSII Stock to be issued to the STOCKHOLDERS pursuant to this
Agreement will not be registered under the 1933 Act, except as provided in
Section 17 hereof.
6.12 No Side Agreements. TSII has not entered and will not enter into
any agreement with any of the Founding Companies or any of the stockholders of
the Founding Companies or TSII other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein, and none of TSII, its equity owners
or its affiliates have received any cash compensation or payments in connection
with this
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transaction except for reimbursement of out-of-pocket expenses which are
necessary or appropriate to this transaction.
6.13 Business; Real Property; Material Agreements. TSII has not
conducted any operations or business since inception other than activities
related to the TSII Plan of Organization. TSII does not own and has not at any
time owned any real property or any material personal property and is not a
party to any other agreement, except as listed on Schedule 6.13 and except that
TSII is a party to the Other Agreements and the agreements contemplated thereby
and to such agreements as are described in the draft Registration Statement
provided to the STOCKHOLDERS.
6.14 Taxes. TSII has timely filed all requisite federal, state and
other Tax returns or extension requests for all fiscal periods ended on or
before the date hereof; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against TSII for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the date hereof, and no notice of any claim for Taxes, whether pending
or threatened, has been received. All Tax, including interest and penalties
(whether or not shown on any Tax return) owed by TSII, any member of an
affiliated or consolidated group which includes or included TSII, or with
respect to any payment made or deemed made by TSII herein has been paid. The
amounts shown as accruals for Taxes on the TSII Financial Statements are
sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods
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ended on or before that date. Copies of (i) any Tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income tax
returns and franchise tax returns of TSII for its last three (3) fiscal years,
or such shorter period of time as TSII shall have existed, are attached hereto
as Schedule 5.22. TSII is not an investment company as defined in Section
351(e)(1) of the Code.
6.15 No Intention to Dispose of Shares. TSII is acquiring the Shares
pursuant hereto for its own account for investment purposes and does not have
any present plan, intention, commitment, binding agreement, or arrangement to
dispose of the Shares.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of TSII and the Other Founding Companies
access to all of the COMPANY's sites, properties, books and records and will
furnish TSII with such additional financial and operating data and other
information as to the business and properties of the COMPANY as TSII or the
Other Founding Companies may from time to time reasonably request. The COMPANY
will cooperate with TSII and the Other Founding Companies and their respective
representatives, including TSII's auditors and counsel, in the preparation of
any documents or other material (including the Registration Statement) which may
be required in connection with any documents or materials
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required by this Agreement. TSII, the STOCKHOLDERS and the COMPANY shall treat
all information obtained in connection with the negotiation and performance of
this Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, TSII will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
such Other Founding Company, its stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TSII will afford to the officers and authorized representatives of the
COMPANY access to all of TSII's sites, properties, books and records and all due
diligence, agreements, documents and information of or concerning the Founding
Companies and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of TSII
as the COMPANY may from time to time reasonably request. TSII will cooperate
with the COMPANY, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as
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confidential in accordance with the provisions of Section 14
hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY shall, except (x)
as set forth on Schedule 7.2, (y) as requested by TSII or (z) as consented to by
TSII (which consent shall not be unreasonably withheld):
(i) carry on its business in substantially the same
manner as it has heretofore and not introduce any new method
of management, operation or accounting;
(ii) maintain its properties and facilities, including those
held under leases, in as good working order and condition as at
present, ordinary wear and tear excepted;
(iii) perform in all material respects its obligations
under agreements relating to or affecting its assets,
properties or rights;
(iv) keep in full force and effect present insurance
policies or other comparable insurance coverage;
(v) maintain and preserve its business organization intact,
use its best efforts to retain its present key employees and
relationships with suppliers, customers and others having business
relations with the COMPANY;
(vi) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
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(vii) maintain present debt and lease instruments and not
enter into new or amended debt or lease instruments, provided that debt
and/or lease instruments may be replaced if such replacement
instruments are on terms at least as favorable to the COMPANY as the
instruments being replaced; and
(viii) maintain or reduce present salaries and commission
levels for all officers, directors, employees and agents except for
ordinary and customary bonus and salary increases for employees in
accordance with past practices.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the COMPANY shall not,
without prior written consent of TSII:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital
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expenditures, except if it is in the normal course of business (consistent
with past practice) or involves an amount not in excess of $10,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except: (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of the
businesses of the COMPANY; (2)(A) liens for Taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for which
contested Taxes adequate reserves have been established and are being
maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedules 5.10 and/or 5.16 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
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(ix) waive any material rights or claims of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included
on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 No Shop. None of the STOCKHOLDERS, the COMPANY, or any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
person or entity for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person or entity other than TSII
or its authorized agents relating to any acquisition or purchase of all or
a material amount of the assets of, or any equity interest in, the COMPANY
or a merger, consolidation or business combination of the COMPANY.
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7.5 Notice to Bargaining Agents. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TSII on Schedule 7.5 with proof that any required notice has been sent.
7.6 Agreements. The STOCKHOLDERS and the COMPANY shall terminate (i)
any stockholders agreements, voting agreements, voting trusts, options, warrants
and employment agreements between the COMPANY and any employee listed on
Schedule 8.11 hereto and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER, on or prior to the Funding and Consummation Date. Copies of such
termination agreements are listed on Schedule 7.6 and copies thereof are
attached hereto.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to TSII of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of any STOCKHOLDER or the COMPANY to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such person hereunder. TSII shall give prompt notice to the COMPANY of (i)
the occurrence or non-occurrence of any event the occurrence or non-occurrence
of which would be likely to cause any representation or warranty of TSII
contained herein to be untrue or inaccurate in any material respect
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at or prior to the Closing and (ii) any material failure of TSII to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder. The delivery of any notice pursuant to this Section 7.7 that is
not accompanied by a proposed amendment or supplement to a schedule pursuant to
Section 7.8 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 Amendment of Schedules. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the anticipated
effectiveness of the Registration Statement to supplement or amend promptly the
Schedules hereto with respect to any matter hereafter arising or discovered
which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules, provided, however, that
supplements and amendments to Schedules 5.10, 5.11, 5.14, 5.15 and 5.18 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect
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may be made unless TSII and a majority of the Founding Companies other than the
COMPANY consent to such amendment or supplement; and provided further, that no
amendment or supplement to a schedule prepared by TSII that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect may be
made unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the schedules as
amended or supplemented pursuant to this Section 7.8. In the event that one of
the Other Founding Companies seeks to amend or supplement a schedule pursuant to
Section 7.8 of one of the Other Agreements, and such amendment or supplement
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on such Other Founding Company, TSII shall give the COMPANY
notice promptly after it has knowledge thereof. If TSII and a majority of the
Founding Companies consent to such amendment or supplement, which consent shall
have been deemed given by TSII or any Founding Company if no response is
received within 24 hours following receipt of notice of such amendment or
supplement (or sooner if required by the circumstances under which such consent
is requested), but the COMPANY does not give its consent, the COMPANY may
terminate this Agreement pursuant to Section 12.l(iv) hereof. In the event that
the COMPANY seeks to amend or supplement a Schedule pursuant to this Section
7.8, and TSII and a majority of
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the Other Founding Companies do not consent to such amendment or supplement,
this Agreement shall be deemed terminated by mutual consent as set forth in
Section 12.1(i) hereof. In the event that TSII seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. No party to
this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8.
7.9 Cooperation in Preparation of Registration Statement. The COMPANY
and STOCKHOLDERS shall furnish or cause to be furnished to TSII and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with TSII and the Underwriters in
the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise TSII if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the 1933 Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. TSII will give the
COMPANY and the STOCKHOLDERS an
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opportunity to review and comment on the Registration Statement and all
amendments thereto prior to filing. Insofar as the information relates solely to
the COMPANY or the STOCKHOLDERS, the COMPANY represents and warrants as to such
information with respect to itself, and each STOCKHOLDER represents and
warrants, as to such information with respect to the COMPANY and himself or
herself, that the draft Registration Statement provided to the STOCKHOLDERS will
not include an 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,
in light of the circumstances in which they were made, not misleading and that
each STOCKHOLDER and the COMPANY has had the opportunity to review and approve
such information. If, prior to the 25th day after the date of the final
prospectus of TSII utilized in connection with the IPO, the COMPANY or the
STOCKHOLDERS become aware of any fact or circumstance which would change (or, if
after the Funding and Consummation Date, would have changed) a representation or
warranty of the COMPANY or the STOCKHOLDERS in this Agreement or would affect
any document delivered pursuant hereto in any material respect, the COMPANY and
the STOCKHOLDERS shall immediately give notice of such fact or circumstance to
TSII. However, subject to the provisions of Section 7.8, such notification shall
not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of TSII, the truth and accuracy of any and all warranties and
representations of the COMPANY, or on behalf of the
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COMPANY and of STOCKHOLDERS at the date of this Agreement and on the Closing
Date and on the Funding and Consummation Date, shall be a precondition to the
consummation of this transaction.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Funding and Consummation Date, and TSII shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations from the financial statements as of the Balance Sheet
Date. Except as set forth on Schedule 7.10, such financial statements shall have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein). Except as noted in such financial statements, all of such financial
statements will present fairly the results of operations of the COMPANY for the
periods indicated thereon and shall be for such dates and time periods as
required by Regulation S-X under the 1933 Act and the 1934 Act.
7.11 Further Assurances. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
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7.12 Authorized Capital. TSII shall maintain its authorized capital
stock as set forth in the draft Registration Statement furnished to the
STOCKHOLDERS except for such changes in authorized capital stock as are made to
respond to comments made by the SEC or requirements of any exchange or automated
trading system for which application is made to register the TSII Stock.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of STOCKHOLDERS and the COMPANY with respect to actions
to be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.2, 8.3, 8.8 and 8.9. From and after the Closing Date or, with respect
to the conditions set forth in Sections 8.2, 8.3, 8.8 and 8.9, from and after
the Funding and Consummation Date, all conditions not satisfied shall be deemed
to have been waived, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of TSII contained in Section 6
hereof:
8.1 Representations and Warranties. All representations and warranties
of TSII contained in Section 6 shall be true and correct in all material
respects as of the Closing Date as though such representations and warranties
had been made as of that time; and
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a certificate to the foregoing effect dated the Closing Date and signed by the
President or any Vice President of TSII shall have been delivered to the
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by TSII on or
before the Closing Date and the Funding and Consummation Date shall have been
duly complied with and performed in all material respects; and certificates to
the foregoing effect dated the Closing Date and the Funding and Consummation
Date and signed by the President or any Vice President of TSII shall have been
delivered to the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of the
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 Opinion of Counsel. The COMPANY and the Underwriters shall have
received an opinion from counsel for TSII, dated the Closing Date, in the form
annexed hereto as Annex VI.
8.5 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number
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of shares of TSII Stock to be received by the STOCKHOLDERS is not less than the
Minimum Value set forth on Annex III.
8.6 Consents and Approvals. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made.
8.7 Good Standing Certificates. TSII shall have delivered to the
COMPANY a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which TSII is authorized to do business, showing that TSII is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for TSII for all periods prior to the Closing have
been filed and paid.
8.8 No Material Adverse Change. No event or circumstance shall have
occurred with respect to TSII which would constitute a Material Adverse Effect,
and TSII shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of TSII to conduct its
business.
8.9 Closing of IPO. The closing of the sale of the TSII Stock to the
Underwriters in the IPO and the acquisitions of the Other Founding Companies
pursuant to the Other Agreements shall have occurred simultaneously with the
Funding and Consummation Date hereunder.
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8.10 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TSII, certifying the truth and correctness of attached copies of TSII's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if required,
the stockholders of TSII approving TSII's entering into this Agreement and the
consummation of the transactions contemplated hereby. Such certificate or
certificates also shall be addressed to the Underwriters and copies thereof
shall be delivered to the Underwriters.
8.11 Employment Agreements. Each of the persons listed on Schedule 8.11
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 Directors and Officers Insurance. TSII shall have obtained
Directors and Officers Liability Insurance in amounts that are customary and
commercially reasonable.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSII
The obligations of TSII with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TSII with
respect to actions to be taken on the Funding and Consummation Date are subject
to the satisfaction or waiver on or prior to the Funding and Consummation Date
of the
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conditions set forth in Sections 9.2, 9.3, 9.5 and 9.13. From and after the
Closing Date or, with respect to the conditions set forth in Sections 9.2, 9.3,
9.5 and 9.13, from and after the Funding and Consummation Date, all conditions
not satisfied shall be deemed to have been waived, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the COMPANY contained in Section 5 hereof.
9.1 Representations and Warranties. All representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects as of the Closing Date and the Funding and
Consummation Date with the same effect as though such representations and
warranties had been made on and as of such date; and the STOCKHOLDERS shall have
delivered to TSII certificates dated the Closing Date and signed by them to such
effect.
9.2 Performance of Obligations. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before the Closing Date or the Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the STOCKHOLDERS and the COMPANY
shall have delivered to TSII certificates dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated
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hereby or the IPO and no governmental agency or body shall have taken any other
action or made any request of TSII as a result of which the management of TSII
deems it inadvisable to proceed with the transactions hereunder.
9.4 Secretary's Certificate. TSII shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby. Such certificate also shall be addressed to
the Underwriters and a copy thereof shall be delivered to the Underwriters.
9.5 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS shall have delivered to
TSII an instrument dated the Closing Date releasing the COMPANY from (i) any and
all claims of the STOCKHOLDERS against the COMPANY and (ii) obligations of the
COMPANY to the STOCKHOLDERS, except for (x) items specifically identified on
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Schedules 5.10 and 5.16 as being claims of or obligations to the STOCKHOLDERS,
(y) continuing obligations to STOCKHOLDERS relating to their employment by the
COMPANY and (z) obligations arising under this Agreement or the transactions
contemplated hereby.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
shall have been cancelled effective prior to or as of the Funding and
Consummation Date.
9.8 Opinion of Counsel. TSII shall have received an opinion from
Counsel to the COMPANY and the STOCKHOLDERS, dated the Closing Date,
substantially in the form annexed hereto as Annex VII, and the Underwriters
shall have received a copy of the same opinion addressed to the Underwriters.
9.9 Consents and Approvals. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
TSII a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by TSII, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
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income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC.
9.12 Employment Agreements. Each of the persons listed on Schedule 8.11
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 Closing of IPO. The closing of the sale of the TSII Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to TSII
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 Insurance. TSII shall have been named as an additional insured on
all insurance policies of the COMPANY and certificates of insurance to that
effect shall have been delivered to TSII.
9.16 Lockup Agreement. The STOCKHOLDERS shall have signed an agreement
with the Underwriters, in form and substance identical to agreements signed by
the Founding Stockholders in connection with the Other Agreements, by which the
STOCKHOLDERS covenant to hold all of the TSII Stock acquired hereunder for a
period of at least 180 days after the Funding and Consummation Date.
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10. COVENANTS OF TSII AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. TSII
shall, contemporaneously with the Funding and Consummation Date, use its best
efforts to have the STOCKHOLDERS released from any and all guarantees on any
indebtedness that they personally guaranteed and from any and all pledges of
assets that they pledged to secure such indebtedness for the benefit of the
COMPANY, with all such guarantees on indebtedness being assumed by TSII. In the
event that TSII cannot obtain such releases from the lenders of any such
guaranteed indebtedness on the Funding and Consummation Date, TSII shall pay off
or otherwise refinance or retire such indebtedness on the Funding and
Consummation Date. TSII shall indemnify and hold harmless STOCKHOLDERS from the
payment of any guaranties on any indebtedness or contractual obligations that
STOCKHOLDERS had incurred prior to the Closing Date provided that such
indebtedness or obligations are related to the business of the COMPANY as being
conducted at the Closing Date.
10.2 Preservation of Tax and Accounting Treatment. Except as
contemplated by this Agreement or the Registration Statement, after the Funding
and Consummation Date, TSII shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the transaction, including:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the TSII Stock issued in connection with the transactions
contemplated hereby; or
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(b) the entering into of financial arrangements for the benefit of the
STOCKHOLDERS.
10.3 Preparation and Filing of Tax Returns.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Funding and Consummation Date. Each STOCKHOLDER shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already paid
with respect thereto or properly accrued or reserved with respect thereto
on the COMPANY Financial Statements and books and records) shown by such
Returns to be due.
(ii) TSII shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any Return,
amended Return or claim for refund, determining a liability for Taxes or a
right to refund of Taxes or in conducting any audit or other proceeding in
respect of Taxes. Such cooperation and information shall include providing
copies of all relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by
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taxing authorities and relevant records concerning the ownership and Tax
basis of property, which such party may possess. Each party shall make its
employees reasonably available on a mutually convenient basis at its cost
to provide explanation of any documents or information so provided. Subject
to the preceding sentence, each party required to file Returns pursuant to
this Agreement shall bear all costs of filing such Returns.
(iv) Each of the COMPANY, TSII and each STOCKHOLDER shall comply with
the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a
transfer to a controlled corporation under Section 351(a) of the Code.
10.4 Directors and Officers. The persons named in the draft
Registration Statement furnished to the STOCKHOLDERS shall be appointed as
directors and elected as officers of TSII, as and to the extent set forth in the
Registration Statement, promptly following the Funding and Consummation Date,
provided that the transaction contemplated by this Agreement is consummated.
TSII shall make arrangements to compensate each Director for attending meetings
of the Board of Directors and to reimburse them for related expenses.
10.5 Preservation of Employee Benefit Plans. Following the Funding and
Consummation Date, TSII shall not terminate any health insurance, life insurance
or 401(k) plan in effect at the COMPANY until such time as TSII is able to
replace such plan with a plan
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that is applicable to TSII and all of its then existing subsidiaries. TSII shall
have no obligation to provide replacement plans that have the same terms and
provisions as the existing plans; provided, however, that any new health
insurance plan shall provide for coverage for preexisting conditions.
10.6 Maintenance of Books. TSII will cause the COMPANY (a) to maintain
the books and records of the COMPANY existing prior to the Closing Date for a
period of six years after the Closing Date and (b) to make such books and
records available to the STOCKHOLDERS for any reasonable purpose.
11. INDEMNIFICATION
The COMPANY, STOCKHOLDERS and TSII each make the following covenants
that are applicable to them, respectively:
11.1 General Indemnification by STOCKHOLDERS. The STOCKHOLDERS covenant
and agree that they, jointly and severally, will indemnify, defend, protect and
hold harmless TSII and the COMPANY at all times, from and after the date of this
Agreement until the Expiration Date, from and against all claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and expenses of investigation) incurred by TSII as a result of or arising
from (i) any breach of the representations and warranties of the STOCKHOLDERS or
the COMPANY set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the part
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of the STOCKHOLDERS or the COMPANY under this Agreement, (iii) any liability
under the 1933 Act, the 1934 Act or other federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to the COMPANY or the
STOCKHOLDERS, and provided to TSII or its counsel by the COMPANY or the
STOCKHOLDERS contained in the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to the COMPANY or the STOCKHOLDERS required to be stated therein or
necessary to make the statements therein not misleading, or (iv) the matters
described on Schedule 11.1(iv) (relating to specifically identified matters such
as ongoing claims and/or litigation), which schedule shall be prepared by TSII;
provided, however, (A) that in the case of any indemnity arising pursuant to
clause (iii) such indemnity shall not inure to the benefit of TSII to the extent
that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
STOCKHOLDERS provided, in writing, corrected information to TSII counsel and to
TSII for inclusion in the final prospectus, and such information was not so
included or properly delivered, and (B) that no STOCKHOLDER shall be liable for
any indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other STOCKHOLDER.
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11.2 Indemnification by TSII. TSII covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS at all times from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
STOCKHOLDERS as a result of or arising from (i) any breach by TSII of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any nonfulfillment of any agreement on the
part of TSII under this Agreement, (iii) any liabilities which the STOCKHOLDERS
may incur due to TSII's failure to be responsible for the liabilities and
obligations of the COMPANY pursuant to this Agreement; (iv) any liability under
the 1933 Act, the 1934 Act or other federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to TSII or any of the Other
Founding Companies contained in any preliminary prospectus, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to TSII or any of the Other
Founding Companies required to be stated therein or necessary to make the
statements therein not misleading, or (v) the matters described on Schedule
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11.2(v) (relating to specifically identified matters), which schedule shall be
prepared by the STOCKHOLDERS.
11.3 Third Person Claims. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle (such settlement to be subject to the consent of the
Indemnified Party, as hereinafter provided), at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not settle
any criminal proceeding without the written consent of the Indemnified Party. If
the Indemnifying Party undertakes to defend or settle, it shall promptly notify
the Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in the defense thereof and
in any settlement thereof. Such cooperation shall include, but shall not be
limited to, furnishing the Indemnifying Party with any books, records or
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information reasonably requested by the Indemnifying Party that are in the
Indemnified Party's possession or control. All Indemnified Parties shall use the
same counsel, which shall be the counsel selected by the Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest that prevents counsel for the Indemnifying Party from representing the
Indemnified Party, the Indemnified Party shall have the right to participate in
such matter through counsel of its own choosing and the Indemnifying Party will
reimburse the Indemnified Party for the reasonable expenses of its counsel.
Further, absent a conflict, the Indemnified Party may select counsel and have
such counsel participate in such matter at the sole cost of the Indemnified
Party. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim and the Indemnified Party refuses to
consent to such settlement, then the Indemnifying Party's liability under this
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Section with respect to such Third Person claim shall be limited to the amount
so offered in settlement by said Third Person. If the Indemnifying Party does
not undertake to defend such matter to which the Indemnified Party is entitled
to indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 Exclusive Remedy. The indemnification provided for in this Section
11 shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided, however, that nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement.
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11.5 Limitations on Indemnification. TSII, the COMPANY and the other
persons or entities indemnified pursuant to Section 11.1 shall not assert any
claim for indemnification hereunder against the STOCKHOLDERS until such time as,
and solely to the extent that, the aggregate of all claims which such persons
may have against such STOCKHOLDERS shall exceed 2.0% of the sum of (i) the cash
paid to the STOCKHOLDERS and (ii) the value of the TSII Stock delivered to the
STOCKHOLDERS (the "Indemnification Threshold"), provided, however, that TSII,
the COMPANY and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 may assert and shall be indemnified for any claim under Section
11.l(iv) at any time, regardless of whether the aggregate of all claims which
such persons may have against any STOCKHOLDER or all STOCKHOLDERS exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) shall not be counted towards the Indemnification
Threshold. The STOCKHOLDERS shall not assert any claim for indemnification
hereunder against TSII until such time as, and solely to the extent that, the
aggregate of all claims which the STOCKHOLDERS may have against TSII shall
exceed $50,000, provided, however, that the STOCKHOLDERS and the other persons
or entities indemnified pursuant to Section 11.1 or 11.2 may assert and shall be
indemnified for any claim under Section 11.2(v) at any time, regardless of
whether the aggregate of all claims which such persons may have against any of
TSII exceeds $50,000, it being understood that the amount of any such claim
under Section 11.2(v) shall not be counted towards such
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$50,000 amount. No person shall be entitled to indemnification under this
Section 11 if and to the extent that: (a) such person's claim for
indemnification is directly or indirectly related to and substantially the
result of a breach by such person of any representation, warranty, covenant or
other agreement set forth in this Agreement; or (b) such person receives a tax
benefit as a result of the claim or loss for which indemnification is sought.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), none of the STOCKHOLDERS shall be liable under this Section 11
for an amount which exceeds the amount of proceeds received by the STOCKHOLDERS
in connection with the transactions contemplated hereby, provided that each
STOCKHOLDER's indemnification obligations pursuant to Section 11.1(iv) shall not
be limited. Indemnity obligations hereunder may be satisfied through the payment
of cash or the delivery of TSII Stock, or a combination thereof, at the
STOCKHOLDER's election. For purposes of calculating the value of the TSII Stock
received or delivered by a STOCKHOLDER (for purposes of determining the
Indemnification Threshold, the limitation on indemnity set forth in the second
preceding sentence and the amount of any indemnity paid), TSII Stock shall be
valued at its initial public offering price as set forth in the Registration
Statement. Any indemnification payment made by a STOCKHOLDER pursuant to this
Section 11 shall be deemed to be a reduction in the consideration received by
the STOCKHOLDER pursuant to Section 3.
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12. TERMINATION OF AGREEMENT
12.1 Termination. This Agreement may be terminated by written notice
from the party asserting termination to the other parties at any time prior to
the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TSII and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by TSII (acting through its board of directors),
on the other hand, if the transactions contemplated by this Agreement to take
place at the Closing shall not have been consummated by September 30, 1997,
unless the failure of such transactions to be consummated is due to the willful
failure of the party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be performed by it
prior to or on the Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by TSII, on
the other hand, if a material breach or default shall be made by the other party
in the observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein, and the curing of such default shall
not have been made on or before the Funding and Consummation Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no
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way limit any obligation or liability of any party based on or arising from a
breach or default by such party with respect to any of its representations,
warranties, covenants or agreements contained in this Agreement including, but
not limited to, legal and audit costs and out of pocket expenses relating to the
transactions contemplated hereby. No party hereto shall be liable to any other
party if the Agreement is terminated under Sections 12.1(i), (ii) (except as set
forth therein), (iv) or (v).
13. NONCOMPETITION
13.1 Prohibited Activities. Provided that TSII shall have complied with
and performed all of its obligations hereunder and that the STOCKHOLDERS shall
have received payment in full of the consideration described in Section 3, the
STOCKHOLDERS shall not, for a period of three (3) years following the Funding
and Consummation Date, for any reason whatsoever, directly or indirectly, for
themselves 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 services business in direct competition
with TSII or any of the subsidiaries thereof, within 100 miles of where
the COMPANY or any of its
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subsidiaries conducted business prior to the effectiveness of
the Funding and Consummation Date (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSII (including the subsidiaries thereof) in
a sales representative or managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
TSII (including the subsidiaries thereof), provided that each
STOCKHOLDER shall be permitted to call upon and hire any member of his
or her immediate family;
(iii) call upon any person or entity which is at that time, or
which has been, within one (l) year prior to the Funding and
Consummation Date, a customer of TSII (including the subsidiaries
thereof), of the COMPANY or of any of the Other Founding Companies
within the Territory for the purpose of soliciting or selling products
or services in direct competition with TSII within the Territory;
(iv) call upon any prospective acquisition candidate, on the
STOCKHOLDER's own behalf or on behalf of any competitor in the travel
services business, which candidate, to the actual knowledge of such
STOCKHOLDER after due inquiry, was called upon by TSII (including the
subsidiaries thereof) or for which, to the actual knowledge of such
STOCKHOLDER after due inquiry, TSII (or any subsidiary thereof) made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed,
of the COMPANY to any person, firm, partnership,
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corporation or business for any reason or purpose whatsoever except to
the extent that the COMPANY has in the past disclosed such information
to the types of persons to whom disclosure is then presently
contemplated for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit any STOCKHOLDER 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.
13.2 Damages. Because of the difficulty of measuring economic losses to
TSII as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TSII for which it would
have no other adequate remedy, each STOCKHOLDER agrees that the foregoing
covenant may be enforced by TSII in the event of breach by such STOCKHOLDER, by
injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of TSII (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of TSII.
13.4 Severability; Reformation. The covenants in this Section 13 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
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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 thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement. It is specifically agreed that the period of three (3) years stated
at the beginning of this Section 13, during which the agreements and covenants
of each STOCKHOLDER made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall have no effect if the transactions contemplated by
this Agreement are not consummated nor may such covenants be enforced by any
party to this Agreement that is in breach of its obligations hereunder.
13.6 Materiality. The STOCKHOLDERS hereby agree that the covenants in
this Section 13 are a material and substantial part of this transaction.
13.7 Limitations. In the event that any STOCKHOLDER who is employed by
TSII or the COMPANY pursuant to an employment agreement is terminated without
cause (as defined in such employment agreement), the provisions of this Section
13 shall no longer be valid or enforceable by TSII. If such employment agreement
contains provisions relating to the same subject matter as this
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Section 13 that are less restrictive than set forth in this Section 13, the
provisions of such employment agreement shall control.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Other Founding Companies,
and/or TSII, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or TSII's respective businesses. The STOCKHOLDERS agree that they
shall not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of TSII, (b) following the Closing,
such information may be disclosed by the STOCKHOLDERS as is required in the
course of performing their duties for TSII and (c) to counsel and other
advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.1, unless (i) such information is
or becomes known to the public generally or to businesses operating in the
travel industry through no fault of the STOCKHOLDERS, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, however, that prior to disclosing any information pursuant to this
clause (ii), the STOCKHOLDERS shall, if possible, give two days' prior written
notice thereof to TSII and provide
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TSII with the opportunity within such two-day period to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party. In the event of a breach or threatened breach by any of the STOCKHOLDERS
of the provisions of this Section, TSII shall be entitled to an injunction
restraining such STOCKHOLDERS from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting TSII
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated by
this Agreement are not consummated, the STOCKHOLDERS shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the COMPANY.
14.2 TSII. TSII recognizes and acknowledges that TSII had in the past
and currently has access to certain confidential information of the COMPANY,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the COMPANY's business. TSII agrees that, prior to
the Closing, or if the transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided, however, that such advisors (other than
counsel) agree to the confidentiality provisions of this Section 14.2 and (c) to
the
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Other Founding Companies and their representatives pursuant to Section 7.1(a),
unless (i) such information becomes known to the public generally through no
fault of TSII, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, however, that prior to
disclosing any information pursuant to this clause (ii), TSII shall, unless
otherwise required by law or such order, give two days' prior written notice
thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and the
STOCKHOLDERS with the opportunity within such two-day period to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by TSII of the
provisions of this Section, the COMPANY and the STOCKHOLDERS shall be entitled
to an injunction restraining TSII from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
COMPANY and the STOCKHOLDERS from pursuing any other available remedy for as
such breach or threatened breach, including the recovery of damages.
14.3 Damages. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may
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be enforced against the other parties by injunctions and restraining orders.
14.4 Survival. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of three years from
(a) the Funding and Consummation Date if the transactions contemplated hereby
are consummated or (b) the date hereof if the transactions contemplated hereby
are not consummated.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or family members, the trustees
of which so agree), for a period of one year from the Funding and Consummation
Date, except pursuant to Section 17 hereof, the STOCKHOLDERS shall not sell,
assign, exchange, transfer, distribute or otherwise dispose of any shares of
TSII Stock received by the STOCKHOLDERS as described in Section 3.1. The
certificates evidencing the TSII Stock delivered to the STOCKHOLDERS pursuant to
Section 3 of this Agreement shall bear a legend substantially in the form set
forth below and containing such other information as TSII may deem necessary or
appropriate: THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO [first anniversary of
Closing Date]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER
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PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE (AS IT MAY BE
REDUCED AS PROVIDED HEREIN).
15.2 Certain Transfers. Except for transfers to family members who
agree to bound by the restrictions set forth in Section 15.1 (or trusts for the
benefit of the STOCKHOLDERS or family members, the trustees of which so agree)
and except pursuant to Section 17 hereof, regardless of whether transfers of
such shares are restricted pursuant to the terms of this Agreement, during the
two-year period commencing on the Funding and Consummation Date, none of the
STOCKHOLDERS shall sell, assign, exchange, transfer, distribute or otherwise
dispose of, in any transaction or series of transactions involving more than
5,000 shares (a "Future Sale"), any shares of TSII Stock as described in Section
3.1 received by the STOCKHOLDERS in the transaction contemplated hereby except
in accordance with this Section 15.2. If any STOCKHOLDER desires to make a
Future Sale, the STOCKHOLDER shall first provide written notice thereof to TSII.
As soon as practicable after receipt of such notice by TSII, TSII shall
designate in writing to the STOCKHOLDER the names and other pertinent
information of two investment banks or market makers through whom the Future
Sale may be made. The STOCKHOLDER may not make the Future Sale except through
one of the designated investment banks or market makers for TSII Stock;
provided, however, that the terms of such Future Sale (including commissions)
shall be at least as favorable to the COMPANY as the COMPANY would have received
in the absence of this Section 15.2.
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16. FEDERAL SECURITIES ACT REPRESENTATIONS
The STOCKHOLDERS acknowledge that the shares of TSII Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold without
compliance with the 1933 Act. The TSII Stock to be acquired by the STOCKHOLDERS
pursuant to this Agreement is being acquired solely for their own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution.
16.1 Compliance with Law. Each of the STOCKHOLDERS covenants, warrants
and represents that none of the shares of TSII Stock issued to the STOCKHOLDERS
will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All of the TSII Stock
shall bear the following legend in addition to the legend required under Section
15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES
LAW.
16.2 Economic Risk; Sophistication. Each STOCKHOLDER is able to bear
the economic risk of an investment in the TSII Stock acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and has such
knowledge and experience
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in financial and business matters that he or she it is capable of evaluating the
merits and risks of the proposed investment in the TSII Stock. The STOCKHOLDERS
have had an adequate opportunity to ask questions and receive answers from the
officers of TSII concerning any and all matters relating to the transactions
described herein including, without limitation, the background and experience of
the current and proposed officers and directors of TSII, the plans for the
operations of the business of TSII, the business, operations and financial
condition of the Founding Companies other than the COMPANY, and any plans for
additional acquisitions and the like. The STOCKHOLDERS have asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 Piggyback Registration Rights. At any time following the Funding
and Consummation Date, whenever TSII proposes to register any TSII Stock for its
own or others account under the 1933 Act for a public offering, other than (i)
any shelf registration of shares to be used as consideration for acquisitions of
additional businesses by TSII and (ii) registrations relating to employee
benefit plans, TSII shall give each of the STOCKHOLDERS prompt written notice of
its intent to do so. Upon the written request of any of the STOCKHOLDERS given
within 30 days after receipt of such notice, TSII shall cause to be included in
such registration all of the TSII Stock issued to such STOCKHOLDER pursuant to
this
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Agreement which any such STOCKHOLDER requests, provided that TSII shall have the
right to reduce the number of shares included in such registration to the extent
that inclusion of such shares could, in the opinion of tax counsel to TSII or
its independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if TSII is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by persons other than TSII is greater than the number of such shares
which can be offered without adversely affecting the offering, TSII may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares desired to be sold by such person) to a number deemed
satisfactory by such managing underwriter, provided, that, notwithstanding
Section 15.1 hereof, for each such offering made by TSII after the IPO, such
reduction shall be made first by reducing the number of shares to be sold by
persons other than TSII, the STOCKHOLDERS and the Other Founding Companies or
the stockholders thereof who receive shares of TSII Stock pursuant to the Other
Agreements (collectively, the COMPANY and the Other Founding Companies or the
stockholders thereof who receive shares of TSII Stock pursuant to the Other
Agreements being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
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17.2 Demand Registration Rights. At any time after the date two years
after the Closing, the holders of a majority of the shares of TSII Stock issued
to the Founding Stockholders pursuant to this Agreement and the Other Agreements
which have not been previously registered or sold and which are not entitled to
be sold under Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act may request in writing that TSII file a registration
statement under the 1933 Act covering the registration of the shares of TSII
Stock issued to the STOCKHOLDERS pursuant to this Agreement and the Other
Agreements then held by such Founding Stockholders (a "Demand Registration").
Within ten (10) days of the receipt of such request, TSII shall give written
notice of such request to all other Founding Stockholders and shall, as soon as
practicable but in no event later than 45 days after notice from any
STOCKHOLDER, file and use its best efforts to cause to become effective a
registration statement covering all such shares. TSII shall be obligated to
effect only one Demand Registration for all Founding Stockholders.
Notwithstanding the foregoing paragraph, following such a demand a
majority of TSII's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 60 day period.
If at the time of any request by the Founding Stockholders for a Demand
Registration TSII has fixed plans to file within 60 days after such request a
registration statement covering the sale of
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any of its securities in a public offering under the 1933 Act, no registration
of the Founding Stockholders' TSII Stock shall be initiated under this Section
17.2 until 90 days after the effective date of such registration unless TSII is
no longer proceeding diligently to effect such registration; provided that TSII
shall provide the Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 17.1 hereof.
17.3 Registration Procedures. All expenses incurred in connection with
the registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by TSII. In connection with
registrations under Sections 17.1 and 17.2, TSII shall (i) use its best efforts
to prepare and file with the SEC as soon as reasonably practicable, a
registration statement with respect to the TSII Stock and use its best efforts
to cause such registration to promptly become and remain effective for a period
of at least 45 days (or such shorter period during which the Founding
Stockholders shall have sold all TSII Stock which they requested to be
registered); (ii) use its best efforts to register and qualify the TSII Stock
covered by such registration statement under applicable state securities laws as
the holders shall reasonably request for the distribution for the TSII Stock;
and (iii) take such other actions as are reasonable and necessary to comply with
the requirements of the 1933 Act and the regulations thereunder to
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enable the Founding Stockholders to sell their shares pursuant thereto.
17.4 Underwriting Agreement. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registration public
offering, TSII and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions (including indemnification provisions) as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of TSII's size and investment stature.
17.5 Availability of Rule 144. TSII shall not be obligated to register
shares of TSII Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such STOCKHOLDER.
18. GENERAL
18.1 Cooperation. The COMPANY, the STOCKHOLDERS and TSII shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The COMPANY shall cooperate and use its reasonable
efforts to have the present officers, directors and the employees of the COMPANY
cooperate with TSII on and after the Funding and
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Consummation Date in furnishing information, evidence, testimony and other
assistance in connection with any tax return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Funding and Consummation Date.
18.2 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of TSII, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 Entire Agreement. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDERS,
the COMPANY and TSII and supersede any prior agreement and understanding
relating to the subject matter of this Agreement, including but not limited to
any letter of intent entered into by any of the parties hereto. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS, the COMPANY and TSII, acting
through their respective officers or trustees, duly authorized by their
respective Boards of Directors.
18.4 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be
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deemed an original and all of which together shall constitute but one and the
same instrument.
18.5 Brokers and Agents. Except as disclosed on Schedule 18.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damages or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying party.
18.6 Expenses. Whether or not the transactions herein contemplated
shall be consummated, TSII will pay the fees, expenses and disbursements of TSII
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TSII under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Akin, Gump, Strauss, Hauer & Feld, L.L.P., and
any other person or entity retained by TSII, and the costs of preparing the
Registration Statement. The STOCKHOLDERS shall pay the fees, expenses and
disbursements of the STOCKHOLDERS, the COMPANY and their respective agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by the COMPANY and the STOCKHOLDERS under this Agreement, including
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the fees and expenses of accountants and legal counsel to the COMPANY and the
STOCKHOLDERS. Notwithstanding the foregoing, if the transactions contemplated by
this Agreement are consummated, TSII shall reimburse the STOCKHOLDERS for such
reasonable fees, expenses and disbursements upon the closing of the IPO up to
$25,000. In addition, each STOCKHOLDER shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar taxes and
fees ("Transfer Taxes") imposed in connection with the transactions contemplated
hereby, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each STOCKHOLDER shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges that he or
she, and not the COMPANY or TSII, shall pay all taxes due upon receipt of the
consideration payable pursuant to Section 3 hereof, and shall assume all tax
risks and liabilities of such STOCKHOLDER in connection with the transactions
contemplated hereby.
18.7 Notices. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party.
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(a) If to TSII, addressed to it at:
Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, PL 15
Bethesda, Maryland 20816
Attention: Elan J. Blutinger
with copies to:
Akin, Gump, Strauss, Hauer &
Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Bruce S. Mendelsohn
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with
respect to each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Cruises, Inc.
5000 Campus Wood Drive
Syracuse, New York 13057
Attention: Robert G. Falcone and
Judith A. Falcone
and marked "Personal and Confidential"
with copy to:
Ronald C. Berger, Esq.
Bond Schoeneck & King
One Lincoln Center
Syracuse, New York 13202
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Delaware.
18.9 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any
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right, power or remedy accruing to any party as a result of any breach or
default by any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed as a waiver of or acquiescence in any
such breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default occurring before or after that waiver.
18.10 Time. Time is of the essence with respect to this Agreement.
18.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 Remedies Cumulative. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
18.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
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18.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TSII, the COMPANY and the STOCKHOLDERS. Any amendment or
waiver effected in accordance with this Section 18.14 shall be binding upon each
of the parties hereto, any other person receiving TSII Stock in connection with
the transactions contemplated hereby and each future holder of such TSII Stock.
18.15 Incorporation by Reference. To the extent that an item is
disclosed in a particular schedule or a subsection of a particular schedule and
such item is readily apparent on its face as being applicable to another
schedule or another subsection of the same schedule, such item shall be deemed
incorporated by reference in such schedule or such other subsection under the
same schedule.
18.16 Defined Terms. Unless the context otherwise requires, capitalized
terms used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of this
Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any Subsidiary and any member of a
Relevant Group.
"Affiliates" has the meaning set forth in Section 5.8.
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"Agreement" has the meaning set forth in the first paragraph hereof.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Assets" has the meaning set forth in Section 7.13.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" means the capital stock of the COMPANY.
"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 17.2.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"Founding Stockholders" has the meaning set forth in Section 17.1.
"Funding and Consummation Date" has the meaning set forth in Section 4.
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"Future Sale" has the meaning set forth in Section 15.2.
"Indemnification Threshold" has the meaning set forth in Section 11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"IPO" means the initial public offering of TSII Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by TSII and the Underwriters
of the public offering price of the shares of TSII Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 covering the shares of TSII Stock to be issued in the IPO.
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"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Restricted Common Stock" means the common stock of TSII, par value
$0.01 per share, having the restricted voting rights and such other rights,
preferences, restrictions and limitations as are set forth in the Certificate of
Incorporation, as amended, of TSII on the Funding and Consummation Date.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Shares" has the meaning set forth in Section 1.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" has the meaning set forth in Section 5.6.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on
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minimum, environmental or other taxes, assessments, duties, fees, levies or
other governmental charges of any nature whatever, whether disputed or not,
together with any interest, penalties, additions to tax or additional amounts
with respect thereto.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"TSII" has the meaning set forth in the first paragraph of this
Agreement.
"TSII Charter Documents" has the meaning set forth in Section 6.1.
"TSII Financial Statements" has the meaning set forth in Section 6.6.
"TSII Plan of Organization" has the meaning set forth in the fourth
recital of this Agreement.
"TSII Stock" means the common stock, par value $.01 per share, of TSII.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
[The next page is the signature page]
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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: /s/ Leonard Potter
---------------------------------
Name:
Title:
CRUISES, INC.
By: /s/ Robert G. Falcone
-------------------------------------
Robert G. Falcone
Chairman and Chief Executive Officer
STOCKHOLDERS:
/s/ Robert G. Falcone
----------------------------------
Robert G. Falcone, Individually
/s/ Judith A. Falcone
----------------------------------
Judith A. Falcone, Individually
/s/ Pamela C. Cole
----------------------------------
Pamela C. Cole, Individually
98
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AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 9, 1997
by and among
TRAVEL SERVICES INTERNATIONAL, INC.
D-FW TOURS, INC.
D-FW TRAVEL ARRANGEMENTS, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
Page
1. PURCHASE AND SALE............................................... 3
2. [INTENTIONALLY DELETED]......................................... 3
3. DELIVERY OF CONSIDERATION....................................... 3
4. CLOSING......................................................... 4
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS.................................................... 6
5.1 DUE ORGANIZATION....................................... 7
5.2 AUTHORIZATION.......................................... 8
5.3 CAPITAL STOCK OF THE COMPANY........................... 8
5.4 TRANSACTIONS IN CAPITAL STOCK.......................... 9
5.5 NO BONUS SHARES........................................ 9
5.6 SUBSIDIARIES........................................... 9
5.7 PREDECESSOR STATUS; ETC................................ 10
5.8 SPIN-OFF BY THE COMPANY................................ 10
5.9 FINANCIAL STATEMENTS................................... 10
5.10 LIABILITIES AND OBLIGATIONS............................ 11
5.11 ACCOUNTS AND NOTES RECEIVABLE.......................... 12
5.12 PERMITS AND INTANGIBLES................................ 13
5.13 ENVIRONMENTAL MATTERS.................................. 14
5.14 PERSONAL PROPERTY...................................... 16
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND
COMMITMENTS........................................... 17
5.16 REAL PROPERTY.......................................... 18
5.17 INSURANCE.............................................. 19
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED
LABOR MATTERS.......................................... 20
5.19 EMPLOYEE PLANS......................................... 21
5.20 COMPLIANCE WITH ERISA.................................. 23
5.21 CONFORMITY WITH LAW; LITIGATION........................ 24
5.22 TAXES.................................................. 25
5.23 NO VIOLATIONS.......................................... 26
5.24 GOVERNMENT CONTRACTS................................... 27
5.25 ABSENCE OF CHANGES..................................... 27
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY................... 30
5.27 VALIDITY OF OBLIGATIONS................................ 30
5.28 RELATIONS WITH GOVERNMENTS............................. 31
5.29 DISCLOSURE............................................. 31
5.30 PROHIBITED ACTIVITIES.................................. 32
5.31 AUTHORITY; OWNERSHIP................................... 32
5.32 PREEMPTIVE RIGHTS...................................... 33
5.33 NO INTENTION TO DISPOSE OF TSII STOCK.................. 33
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6. REPRESENTATIONS OF TSII......................................... 33
6.1 DUE ORGANIZATION....................................... 34
6.2 AUTHORIZATION.......................................... 34
6.3 CAPITAL STOCK OF THE TSII.............................. 34
6.4 TRANSACTIONS IN CAPITAL STOCK.......................... 35
6.5 SUBSIDIARIES........................................... 36
6.6 FINANCIAL STATEMENTS................................... 36
6.7 LIABILITIES AND OBLIGATIONS............................ 37
6.8 CONFORMITY WITH LAW; LITIGATION........................ 37
6.9 NO VIOLATIONS.......................................... 38
6.10 VALIDITY OF OBLIGATIONS................................ 38
6.11 TSII STOCK............................................. 39
6.12 NO SIDE AGREEMENTS..................................... 39
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS........... 40
6.14 TAXES.................................................. 40
6.15 NO INTENTION TO DISPOSE OF SHARES...................... 41
7. COVENANTS PRIOR TO CLOSING...................................... 41
7.1 ACCESS AND COOPERATION; DUE DILIGENCE.................. 41
7.2 CONDUCT OF BUSINESS PENDING CLOSING.................... 43
7.3 PROHIBITED ACTIVITIES.................................. 44
7.4 NO SHOP................................................ 46
7.5 NOTICE TO BARGAINING AGENTS............................ 47
7.6 AGREEMENTS............................................. 47
7.7 NOTIFICATION OF CERTAIN MATTERS........................ 47
7.8 AMENDMENT OF SCHEDULES................................. 48
7.9 COOPERATION IN PREPARATION OF REGISTRATION
STATEMENT............................................. 50
7.10 FINAL FINANCIAL STATEMENTS............................. 52
7.11 FURTHER ASSURANCES..................................... 52
7.12 AUTHORIZED CAPITAL..................................... 53
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY......................................................... 53
8.1 REPRESENTATIONS AND WARRANTIES......................... 53
8.2 PERFORMANCE OF OBLIGATIONS............................. 54
8.3 NO LITIGATION.......................................... 54
8.4 OPINION OF COUNSEL..................................... 54
8.5 REGISTRATION STATEMENT................................. 54
8.6 CONSENTS AND APPROVALS................................. 55
8.7 GOOD STANDING CERTIFICATES............................. 55
8.8 NO MATERIAL ADVERSE CHANGE............................. 55
8.9 CLOSING OF IPO......................................... 55
8.10 SECRETARY'S CERTIFICATE................................ 56
8.11 EMPLOYMENT AGREEMENTS.................................. 56
8.12 DIRECTORS AND OFFICERS INSURANCE....................... 56
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSII..................... 56
9.1 REPRESENTATIONS AND WARRANTIES......................... 57
9.2 PERFORMANCE OF OBLIGATIONS............................. 57
9.3 NO LITIGATION.......................................... 57
9.4 SECRETARY'S CERTIFICATE................................ 58
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9.5 NO MATERIAL ADVERSE EFFECT.............................. 58
9.6 STOCKHOLDERS' RELEASE................................... 58
9.7 TERMINATION OF RELATED PARTY AGREEMENTS................. 59
9.8 OPINION OF COUNSEL...................................... 59
9.9 CONSENTS AND APPROVALS.................................. 59
9.10 GOOD STANDING CERTIFICATES.............................. 59
9.11 REGISTRATION STATEMENT.................................. 60
9.12 EMPLOYMENT AGREEMENTS................................... 60
9.13 CLOSING OF IPO.......................................... 60
9.14 FIRPTA CERTIFICATE...................................... 60
10. COVENANTS OF TSII AND THE STOCKHOLDERS AFTER CLOSING............. 61
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN
OBLIGATIONS............................................. 61
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT............ 61
10.3 PREPARATION AND FILING OF TAX RETURNS................... 62
10.4 DIRECTORS AND OFFICERS.................................. 63
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS.................. 63
10.6 MAINTENANCE OF BOOKS.................................... 64
11. INDEMNIFICATION.................................................. 64
11.1 GENERAL INDEMNIFICATION BY STOCKHOLDERS................. 64
11.2 INDEMNIFICATION BY TSII................................. 65
11.3 THIRD PERSON CLAIMS..................................... 67
11.4 EXCLUSIVE REMEDY........................................ 69
11.5 LIMITATIONS ON INDEMNIFICATION.......................... 70
12. TERMINATION OF AGREEMENT......................................... 72
12.1 TERMINATION............................................. 72
12.2 LIABILITIES IN EVENT OF TERMINATION..................... 72
13. NONCOMPETITION................................................... 73
13.1 PROHIBITED ACTIVITIES................................... 73
13.2 DAMAGES................................................. 75
13.3 REASONABLE RESTRAINT.................................... 75
13.4 SEVERABILITY; REFORMATION............................... 75
13.5 INDEPENDENT COVENANT.................................... 76
13.6 MATERIALITY............................................. 76
13.7 LIMITATIONS............................................. 76
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION........................ 77
14.1 STOCKHOLDERS............................................ 77
14.2 TSII.................................................... 78
14.3 DAMAGES................................................. 79
14.4 SURVIVAL................................................ 80
15. TRANSFER RESTRICTIONS............................................ 80
15.1 TRANSFER RESTRICTIONS................................... 80
15.2 CERTAIN TRANSFERS....................................... 81
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16. FEDERAL SECURITIES ACT REPRESENTATIONS.......................... 82
16.1 COMPLIANCE WITH LAW.................................... 82
16.2 ECONOMIC RISK; SOPHISTICATION.......................... 82
17. REGISTRATION RIGHTS............................................. 83
17.1 PIGGYBACK REGISTRATION RIGHTS.......................... 83
17.2 DEMAND REGISTRATION RIGHTS............................. 85
17.3 REGISTRATION PROCEDURES................................ 86
17.4 UNDERWRITING AGREEMENT................................. 87
17.5 AVAILABILITY OF RULE 144............................... 87
18. GENERAL......................................................... 87
18.1 COOPERATION............................................ 87
18.2 SUCCESSORS AND ASSIGNS................................. 88
18.3 ENTIRE AGREEMENT....................................... 88
18.4 COUNTERPARTS........................................... 88
18.5 BROKERS AND AGENTS..................................... 89
18.6 EXPENSES............................................... 89
18.7 NOTICES................................................ 90
18.8 GOVERNING LAW.......................................... 91
18.9 EXERCISE OF RIGHTS AND REMEDIES........................ 91
18.10 TIME................................................... 92
18.11 REFORMATION AND SEVERABILITY........................... 92
18.12 REMEDIES CUMULATIVE.................................... 92
18.13 CAPTIONS............................................... 92
18.14 AMENDMENTS AND WAIVERS................................. 92
18.15 INCORPORATION BY REFERENCE............................. 93
18.16 DEFINED TERMS.......................................... 93
ANNEX I
INTENTIONALLY DELETED.................................................... 99
ANNEX II
CERTIFICATE OF INCORPORATION AND BY-LAWS OF TSII........................ 100
ANNEX III
CONSIDERATION TO BE PAID TO STOCKHOLDERS................................ 101
ANNEX IV
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY......................... 102
ANNEX V
STOCKHOLDERS AND STOCK OWNERSHIP OF TSII................................ 103
ANNEX VI
FORM OF OPINION OF COUNSEL TO TSII...................................... 104
ANNEX VII
FORM OF OPINION OF COUNSEL TO COMPANY AND STOCKHOLDERS.................. 108
ANNEX VIII
FORM OF EMPLOYMENT AGREEMENT............................................ 112
-iv-
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
May 9, 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"), 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. John W.
Przywara and Sharon Scott Przywara are collectively referred to herein as the
"STOCKHOLDERS".
WHEREAS, the respective Boards of Directors of TSII and the
COMPANY and the STOCKHOLDERS deem it advisable and in the best
interests of TSII and the COMPANY and their respective stockholders
that the STOCKHOLDERS contribute all of the COMPANY Stock owned by the
STOCKHOLDERS to TSII in exchange for stock of TSII and cash pursuant to
this Agreement and in accordance with the applicable provisions of the
laws of the State of Delaware and the State in which the COMPANY is
incorporated;
WHEREAS, TSII is entering into an Agreement and Plan of
Organization (collectively, the "Other Agreements") with Auto- Europe,
Inc. (Maine), a Maine corporation, Cruises, Inc., a New York
Corporation, Cruises Only, Inc., a Florida corporation, and 800-Ideas,
Inc., a Nevada corporation, and their respective stockholders in order
to acquire additional businesses (the COMPANY, together with each of
the entities
<PAGE>
with which TSII has entered into the Other Agreements, are
collectively referred to herein as the "Founding Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO of
TSII Stock constitute the "TSII Plan of Organization;"
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of TSII and each of the Other Founding Companies that are
parties to the Other Agreements have approved and adopted the TSII Plan
of Organization as an integrated plan pursuant to which (1)
Auto-Europe, Inc., Cruises Only, Inc. and 800-Ideas, Inc. will
contribute the ownership of substantially all of their respective
assets to TSII, (2) the stockholders of Cruises, Inc. and the COMPANY,
a Texas corporation, will transfer the capital stock of such companies
to TSII and (3) Auto-Europe, Inc. (Maine), Cruises Only, Inc.,
800-Ideas, Inc., the public, and the stockholders of Cruises, Inc. and
the COMPANY will acquire the stock of TSII as a tax-free transfer of
property under Section 351 of the Internal Revenue Code of 1986, as
amended; and
WHEREAS, in consideration of the agreements of the Other
Founding Companies pursuant to the Other Agreements, the STOCKHOLDERS
and the Board of Directors of the COMPANY have approved this Agreement
as part of the TSII Plan of Organization in order to transfer the
ownership of all of the outstanding COMPANY Stock to TSII.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and
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<PAGE>
covenants herein contained, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE
On the Funding and Consummation Date, (a) the STOCKHOLDERS shall
transfer, convey, assign and deliver to TSII, and TSII shall acquire and accept
from the STOCKHOLDERS, as a contribution to TSII under Section 351 of the Code,
all of the shares of COMPANY Stock owned by the STOCKHOLDERS (the "Shares"),
free and clear of all liens, security interests, pledges, charges, voting
trusts, restrictions, encumbrances and claims of every kind.
2. [INTENTIONALLY DELETED]
3. DELIVERY OF CONSIDERATION
3.1 On the Funding and Consummation Date the STOCKHOLDERS, who are on
that date the holders of all outstanding certificates representing shares of
COMPANY Stock, shall, upon surrender of such certificates, receive the number of
shares of TSII Stock and the amount of cash set forth on Annex III hereto, said
cash to be payable by certified check or wire transfer.
3.2 The STOCKHOLDERS shall deliver to TSII at the Closing the
certificates representing all of the Shares, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and cancelled. The STOCKHOLDERS agree promptly to cure any deficiencies
with respect to the
3
<PAGE>
endorsement of the stock certificates or other documents of conveyance with
respect to such Shares or with respect to the stock powers accompanying the
Shares.
3.3 All TSII Stock received by the STOCKHOLDERS pursuant to this
Agreement shall, except for restrictions on resale or transfer described in
Sections 15 and 16 hereof, have the same rights as all of the other shares of
outstanding TSII Stock by reason of the provisions of the Certificate of
Incorporation of TSII or as otherwise provided by the Delaware GCL. All voting
rights of such TSII Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. On the Funding and Consummation Date,
TSII shall have no class of capital stock issued and outstanding other than the
TSII Stock and the Restricted Common Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions
necessary to prepare to (i) effect the transfer and delivery of the Shares as
contemplated by Section 1 hereof and (ii) effect the delivery of the
consideration referred to in Section 3 hereof; provided, however, that such
actions shall not include the actual completion of the transfer and delivery of
the Shares or the delivery of the consideration by certified check(s) or wire
transfer(s) referred to in Section 3 hereof, each of which actions shall only be
taken upon the Funding and Consummation Date as
4
<PAGE>
herein provided. The taking of the actions described in clauses (i) and (ii)
above (the "Closing") shall take place on the closing date (the "Closing Date")
at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire
Avenue, N.W., Washington, D.C. 20036. On the Funding and Consummation Date (x)
all transactions contemplated by this Agreement, including the delivery of the
Shares and the delivery of shares of TSII Stock and certified check(s) or wire
transfer(s) in an amount equal to the cash portion of the consideration which
the STOCKHOLDERS shall be entitled to receive pursuant to Section 3 hereof shall
occur and (y) the closing with respect to the IPO shall be completed. The date
on which the actions described in the preceding clauses (x) and (y) occur shall
be referred to as the "Funding and Consummation Date." Except as provided in
Sections 8 and 9 hereof with respect to actions to be taken on the Funding and
Consummation Date, during the period from the Closing Date to the Funding and
Consummation Date this Agreement may only be terminated by a party if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such agreement. This Agreement shall in any event terminate if the Funding
and Consummation Date has not occurred within 15 business days of the Closing
Date. Time is of the essence.
5
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF COMPANY AND
STOCKHOLDERS.
Each of the COMPANY and the STOCKHOLDERS jointly and severally
represents and warrants that all of the following representations and warranties
in this Section 5(A) are true at the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date. Each of the COMPANY and the STOCKHOLDERS agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of two years (the last day of such period being the "Expiration
Date"), except that (i) the warranties and representations set forth in Section
5.22 hereof shall survive until such time as the limitations period has run for
all Tax periods ended on or prior to the Funding and Consummation Date, which
shall be deemed to be the Expiration Date for Section 5.22 and (ii) solely for
purposes of determining whether a claim for indemnification under Section
11.1(iii) hereof has been made on a timely basis, and solely to the extent that
in connection with the IPO, TSII actually incurs liability under the 1933 Act,
the 1934 Act, or any other federal or state securities laws as a result of a
breach of a representation or warranty by the COMPANY or the STOCKHOLDERS, the
representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such
6
<PAGE>
purposes. For purposes of this Section 5, the term "COMPANY" shall mean and
refer to the COMPANY and all of its Subsidiaries.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and the COMPANY is duly authorized and qualified to do business
under all applicable laws, regulations, ordinances and orders of public
authorities to carry on its business in the places and in the manner as now
conducted, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the COMPANY taken as a whole (as used herein with
respect to the COMPANY, or with respect to any other person, a "Material Adverse
Effect"). Schedule 5.1 sets forth the jurisdiction in which the COMPANY is
incorporated and contains a list of all such jurisdictions in which the COMPANY
is authorized or qualified to do business. True, complete and correct copies of
the Certificate of Incorporation and By-laws, each as amended, of the COMPANY
(the "Charter Documents") are all attached hereto as Schedule 5.1. The stock
records of the COMPANY, as heretofore made available to TSII, are correct and
complete in all material respects. There are no minutes in the possession of the
COMPANY or the STOCKHOLDERS which have not been made available to TSII, and all
of such minutes are correct and complete in all respects. Except as set forth on
Schedule 5.1, the most recent minutes of the COMPANY, which are dated no earlier
than
7
<PAGE>
ten business days prior to the date hereof, affirm and ratify all prior acts of
the COMPANY, and of its officers and directors on behalf of the COMPANY.
5.2 AUTHORIZATION. (i) The representatives of the COMPANY executing
this Agreement have the authority to enter into and bind the COMPANY to the
terms of this Agreement and (ii) the COMPANY has the full legal right, power and
authority to enter into and perform this Agreement, and all required approvals
of the shareholders and the Board of Directors of the COMPANY have been
obtained.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. The Shares, which are all of the issued
and outstanding shares of the capital stock of the COMPANY, are owned by the
STOCKHOLDERS in the amounts set forth in Annex IV and further, except as set
forth on Schedule 5.3, are owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind. All of the issued and outstanding shares of the capital
stock of the COMPANY have been duly authorized and validly issued, are fully
paid and nonassessable, are owned of record and beneficially by the STOCKHOLDERS
and further, such shares were offered, issued, sold and delivered by the COMPANY
in compliance with all applicable state and federal laws concerning the issuance
of securities. Further, none of such shares were issued in violation of the
preemptive rights of any past or present stockholder.
8
<PAGE>
5.4 TRANSACTIONS IN CAPITAL STOCK. Except as set forth on Schedule 5.4,
the COMPANY has not acquired any COMPANY Stock since January l, 1994. Except as
set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the COMPANY to issue any of its
authorized but unissued capital stock; (ii) the COMPANY has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure of
the COMPANY nor the relative ownership of shares among any of its respective
stockholders has been altered or changed in contemplation of the transactions
contemplated hereby and/or the TSII Plan of Organization. Schedule 5.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's stock and the material terms of such outstanding
options, warrants or other rights.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Schedule 5.6 attached hereto lists the name of each
of the COMPANY's subsidiaries (each, a "Subsidiary"), and sets forth the number
and class of the authorized capital stock of each Subsidiary and the number of
shares or interests of each Subsidiary which are issued and outstanding, all of
which shares
9
<PAGE>
(except as set forth on Schedule 5.6) are owned by the COMPANY, free and clear
of all liens, security interests, pledges, voting trusts, equities,
restrictions, encumbrances and claims of every kind. Except as set forth on
Schedule 5.6, the COMPANY does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity nor is the COMPANY, directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of
all names of all predecessor companies of the COMPANY, including the names of
any entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements (the "COMPANY
10
<PAGE>
Financial Statements") of the COMPANY: the COMPANY's audited Consolidated
Balance Sheets, if any, as of September 30, 1996, 1995 and 1994 and Statements
of Income, Cash Flows and Retained Earnings, if any, for each of the years in
the three-year period ended September 30, 1996 (September 30, 1996 being
hereinafter referred to as the "Balance Sheet Date"). Except as set forth on
Schedule 5.9, such Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted thereon or on Schedule 5.9).
Except as set forth on Schedule 5.9, such Consolidated Balance Sheets as of
September 30, 1996, 1995 and 1994 present fairly the financial position of the
COMPANY as of the dates indicated thereon, and such Consolidated Statements of
Income, Cash Flows and Retained Earnings present fairly the results of
operations for the periods indicated thereon.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to TSII an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
COMPANY Financial Statements at the Balance Sheet Date, (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000) and
(iii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages,
liens, pledges or other security agreements. Except as set forth on Schedule
5.10, since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind,
11
<PAGE>
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The COMPANY has also delivered to TSII on Schedule 5.10, in the
case of those contingent liabilities related to pending or threatened
litigation, or other liabilities which are not fixed or are being contested, the
following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit or
proceeding;
(ii) the name of each court or agency before which such claim, suit or
proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each such liability.
If no estimate is provided, the estimate shall for purposes of this
Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to TSII
an accurate list (which is set forth on Schedule 5.11) of
12
<PAGE>
the accounts and notes receivable of the COMPANY, as of the Balance Sheet Date,
including any such amounts which are not reflected in the balance sheet as of
the Balance Sheet Date, and including receivables from and advances to employees
and the STOCKHOLDERS. The COMPANY shall also provide to TSII (x) an accurate
list of all receivables obtained subsequent to the Balance Sheet Date up to the
Closing Date and (y) an aging of all accounts and notes receivable showing
amounts due in 30 day aging categories (the "A/R Aging Reports"). Except to the
extent reflected on Schedule 5.11 or as disclosed by the COMPANY to TSII in a
writing accompanying the A/R Aging Reports, the accounts, notes and other
receivables shown on Schedule 5.11 and on the A/R Aging Reports are and shall be
collectible in the amounts shown, net of reserves reflected in the balance sheet
as of the Balance Sheet Date with respect to accounts receivable as of the
Balance Sheet Date, and net of reserves reflected in the books and records of
the COMPANY (consistent with the methods used for the balance sheet) with
respect to accounts receivable of the COMPANY after the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The COMPANY holds all licenses,
franchises, permits and other governmental authorizations the absence of any of
which could have a Material Adverse Effect on its business, and the COMPANY has
delivered to TSII an accurate list and summary description (which is set forth
on Schedule 5.12) of all such licenses, franchises, permits and other
governmental authorizations, including permits, titles, licenses, franchises,
certificates, trademarks, trade names, patents, patent applications
13
<PAGE>
and copyrights owned or held by the COMPANY (including interests in software or
other technology systems, programs and intellectual property) (it being
understood and agreed that a list of all environmental permits and other
environmental approvals is set forth on Schedule 5.13). To the knowledge of the
COMPANY, the licenses, franchises, permits and other governmental authorizations
listed on Schedules 5.12 and 5.13 are valid, and the COMPANY has not received
any notice that any governmental authority intends to cancel, terminate or not
renew any such license, franchise, permit or other governmental authorization.
The COMPANY has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the licenses,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 and is not in violation of any of the foregoing except where such
noncompliance or violation would not have a Material Adverse Effect on the
COMPANY. Except as specifically provided on Schedule 5.12, the transactions
contemplated by this Agreement will not result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
COMPANY by, any such licenses, franchises, permits or government authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i)
the COMPANY has complied with and is in compliance with all federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, permits, judgments, orders and decrees applicable to any of them
or any of
14
<PAGE>
their respective properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes and Hazardous Substances including petroleum and petroleum products (as
such terms are defined in any applicable Environmental Law); (ii) the COMPANY
has obtained and adhered to all necessary permits and other approvals necessary
to treat, transport, store, dispose of and otherwise handle Hazardous Wastes and
Hazardous Substances, a list of all of which permits and approvals is set forth
on Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY or TSII for any clean-up cost, remedial work, damage to
natural resources, property damage or
15
<PAGE>
personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) the COMPANY has no contingent liability in connection with any
release of any Hazardous Waste or
Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY. The COMPANY has delivered to TSII an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" on the balance sheet of the
COMPANY as of the Balance Sheet Date or that will be included on any balance
sheet of the COMPANY prepared after the Balance Sheet Date, (y) all other
personal property owned by the COMPANY with a value in excess of $10,000 (i) as
of the Balance Sheet Date and (ii) acquired since the Balance Sheet Date and (z)
all leases and agreements in respect of personal property, including, true,
complete and correct copies of all such leases and agreements. The COMPANY shall
indicate on Schedule 5.14 those assets currently owned, or that were formerly
owned, by STOCKHOLDERS, relatives of STOCKHOLDERS, or Affiliates of the COMPANY.
Except as set forth on Schedule 5.14, (i) all personal property used by the
COMPANY in its business is either owned by the COMPANY or leased by the COMPANY
pursuant to a lease included on Schedule 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted and (iii) all leases and agreements included on Schedule 5.14
are in full force and effect and constitute valid
16
<PAGE>
and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to TSII an accurate list (which is set forth on Schedule
5.15) of (i) all significant customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers (or persons or entities that are sources of
a significant number of customers) have cancelled or substantially reduced or,
to the knowledge of the COMPANY, are currently attempting or threatening to
cancel a contract or substantially reduce utilization of the services provided
by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedules
5.10, 5.14 or 5.16, (a) in existence as of the Balance Sheet Date and (b)
entered into since the Balance Sheet Date, and in each case has delivered true,
complete and correct copies of such agreements to TSII. The COMPANY has
17
<PAGE>
complied with all material commitments and obligations pertaining to it, and is
not in default under any contracts or agreements listed on Schedule 5.15 and no
notice of default under any such contract or agreement has been received. The
COMPANY has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other property, if any, used by
the COMPANY in the conduct of its business. The COMPANY has good and insurable
title to the real property owned by it, including those reflected on Schedule
5.14, subject to no mortgage, pledge, lien, conditional sales agreement,
encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no default exists);
(ii) liens for current Taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the
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County Clerks in which the properties, assets and leasehold estates are
located which do not adversely affect the current use of the property.
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to TSII an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY (which copies are attached
to Schedule 5.16), and an indication as to which such properties, if any, are
currently owned, or were formerly owned, by STOCKHOLDERS or business or personal
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule 5.16,
all of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
5.17 INSURANCE. The COMPANY has delivered to TSII, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs and workers compensation claims received for the past three
(3) policy years and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all
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of the insurance that the COMPANY is required to carry pursuant to all of its
contracts and other agreements and pursuant to all applicable laws. All of such
insurance policies are currently in full force and effect and shall remain in
full force and effect through the Funding and Consummation Date. No insurance
carried by the COMPANY has ever been cancelled by the insurer and the COMPANY
has never been unable to obtain insurance coverage for its assets and
operations.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to TSII an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons (i) as of the
Balance Sheet Date and (ii) as of the date hereof. The COMPANY has provided to
TSII true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices, except as set forth on
Schedule 5.18.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any arrangement with any labor union, (ii)
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no employees of the COMPANY are represented by any labor union or covered by any
collective bargaining agreement, (iii) no campaign to establish such
representation is in progress and (iv) there is no pending or, to the best of
the COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 EMPLOYEE PLANS. The COMPANY has delivered to TSII an accurate
schedule (Schedule 5.19) showing all employee benefit plans currently sponsored
or maintained or contributed to by, or which cover the current or former
employees or directors of the COMPANY, all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and all deferred compensation agreements, together with true,
complete and correct copies of such plans, agreements and any trusts related
thereto, and classifications of employees covered thereby as of the Balance
Sheet Date. Except for the employee benefit plans, if any, described on Schedule
5.19, the COMPANY does not sponsor, maintain or contribute to any plan program,
fund or arrangement that constitutes an "employee pension benefit plan," nor has
the COMPANY any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning
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of Section 3(36) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or any non-qualified deferred compensation arrangement). For
the purposes of this Agreement, the term "employee pension benefit plan" shall
have the same meaning as is given that term in Section 3(2) of ERISA. The
COMPANY has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans, agreements, arrangement and trusts set forth
on Schedule 5.19, nor is the COMPANY required to contribute to any retirement
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of the COMPANY's
employees.
The COMPANY is not now, and cannot as a result of its past activities
become, liable to the Pension Benefit Guaranty Corporation or to any
multiemployer employee pension benefit plan under the provisions of Title IV of
ERISA.
All employee benefit plans, agreements, arrangements and trusts listed
on Schedule 5.19 and the administration thereof are in substantial compliance
with their terms and all applicable provisions of ERISA and the regulations
issued thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
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5.20 COMPLIANCE WITH ERISA. All such plans, agreements, arrangements
and trusts of the COMPANY that are currently maintained or contributed to by the
COMPANY or cover employees or former employees of the COMPANY listed on Schedule
5.19 that are intended to qualify under Section 401(a) of the Code (the
"Qualified Plans") are, and have been so qualified and have been determined by
the Internal Revenue Service to be so qualified, and copies of such
determination letters are included as part of Schedule 5.19 hereof. Except as
disclosed on Schedule 5.19, all reports and other documents required to be filed
with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audit reports
or Tax Returns) have been timely filed or distributed, and copies thereof for
the three most recent plan years are included as part of Schedule 5.19 hereof.
Neither STOCKHOLDERS, any such plan listed on Schedule 5.19, nor the COMPANY has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA. No such plan listed on Schedule 5.19 has
incurred an accumulated funding deficiency, as defined in Section 412(a) of the
Code and Section 302(1) of ERISA; and the COMPANY has not incurred any liability
for excise tax or penalty due to the Internal Revenue Service nor any liability
to the Pension Benefit Guaranty Corporation. The STOCKHOLDERS further represent
that:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such
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Qualified Plan intended to qualify under Section 401(a) of the Code without
notice to and approval by the Internal Revenue Service;
(ii) no such plan listed on Schedule 5.19 subject to the provisions of
Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed on
Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited to,
any liability to any multiemployer plan or the Pension Benefit Guaranty
Corporation under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any Statutory Lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the COMPANY that is,
or at any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedules 5.21 or 5.13, the COMPANY is not in violation of any law or regulation
which would have a Material Adverse Effect, or of any order of any court or
federal, state, municipal or other governmental department, commission, board,
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bureau, agency or instrumentality having jurisdiction over the COMPANY; and
except to the extent set forth on Schedules 5.10 or 5.13, there are no claims,
actions, suits or proceedings, commenced or, to the knowledge of the COMPANY,
threatened, against or affecting the COMPANY, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over the COMPANY
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. The COMPANY has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in applicable federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, and is not in violation of any of the foregoing.
5.22 TAXES. The COMPANY has timely filed all requisite federal, state
and other Tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims against the COMPANY for federal, state
and other Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any claim for
Taxes, whether pending or threatened, has been received. All Tax, including
interest and penalties (whether or not shown on
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any Tax Return) owed by the COMPANY, any member of an affiliated or consolidated
group which includes or included the COMPANY, or with respect to any payment
made or deemed made by the COMPANY, required to be paid by the date hereof has
been paid. The amounts shown as accruals for Taxes on the COMPANY Financial
Statements are sufficient for the payment of all Taxes of the kinds indicated
(including penalties and interest) for all fiscal periods ended on or before
that date. Copies of (i) the federal and local income tax returns and franchise
tax returns of the COMPANY for its last three (3) fiscal years, or such shorter
period of time as the COMPANY shall have existed, (ii) any Tax examinations
commenced or closed or outstanding during their three (3) most recent fiscal
years, and (iii) currently outstanding extensions of statutory limitations, are
attached hereto as Schedule 5.22. The COMPANY has a taxable year ended on the
date set forth as such on Schedule 5.22. Except as disclosed on Schedule 5.22,
the COMPANY's methods of accounting have not changed in the past five years. The
COMPANY is not an investment company as defined in Section 351(e)(1) of the
Code.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto, is in default under any lease, instrument, agreement, license or
permit set forth on Schedules 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth on
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Schedule 5.23, (a) the rights and benefits of the COMPANY under the Material
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any violation or breach or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 5.23, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
with respect to any of the transactions contemplated hereby in order to remain
in full force and effect, and consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit. Except as set forth on Schedule
5.23, none of the Material Documents prohibits the use or publication by the
COMPANY or TSII of the name of any other party to such Material Document, and
none of the Material Documents prohibits or restricts the COMPANY from freely
providing services to any other customer or potential customer of the COMPANY,
TSII or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.25, there has not been:
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(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by the COMPANY to any of its
officers, directors, STOCKHOLDERS, employees, consultants or agents, except
for ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the
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COMPANY to any person, including, without limitation, the STOCKHOLDERS and
their respective affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY, including without limitation any
indebtedness or obligation of the STOCKHOLDERS or any affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the
ordinary course of the COMPANY's business;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party;
(xiii) any transaction by the COMPANY outside the ordinary course of
its business;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
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(xv) any other distribution of property or assets by the COMPANY.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
TSII an accurate schedule (which is set forth on Schedule 5.26) as of the date
of the Agreement of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 5.26 also sets forth a complete list of the names of each person,
corporation, firm or other entity holding a general or special power of attorney
from the COMPANY and a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of the
COMPANY and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of the COMPANY,
enforceable against the Company in accordance with its terms except as limited
by bankruptcy, insolvency or other similar laws of general application relating
to or affecting the enforcement of creditors' rights generally, and the
individual(s)
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signing this Agreement on behalf of the Company have the legal power, authority
and capacity to bind the Company.
5.28 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 DISCLOSURE. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to TSII and its representatives
in writing pursuant hereto or thereto, present fairly the business and
operations of the COMPANY for the time periods with respect to which such
information was requested. The COMPANY'S rights under the documents delivered
pursuant hereto would not be materially adversely affected by, and no statement
made herein would be rendered untrue in any material respect by, any other
document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY (which fact
or circumstance was, or should reasonably, after due inquiry, have been known to
the COMPANY) that is not disclosed pursuant hereto or thereto.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement,
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or promise or other assurance of any kind, whether express or implied, oral or
written, that a Registration Statement will become effective or that the IPO
pursuant thereto will occur at a particular price or within a particular range
of prices or occur at all; and (ii) that neither TSII or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person affiliated or
associated with the COMPANY for any failure of the Registration Statement to
become effective, the IPO to occur at a particular price or within a particular
range of prices or to occur at all.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions set forth in Section 7.3 (Prohibited Activities).
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
The STOCKHOLDERS represent and warrant that the representations and
warranties set forth below are true as of the date of this Agreement and,
subject to Section 7.8 hereof, shall be true at the time of Closing and on the
Funding and Consummation Date, and that the representations and warranties set
forth in Sections 5.31, 5.32 and 5.33 shall survive until the second anniversary
of the Funding and Consummation Date, which shall be the Expiration Date for
purposes of those Sections.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement.
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Such STOCKHOLDER owns beneficially and of record all of the shares of the
COMPANY Stock identified on Annex IV as being owned by such STOCKHOLDER, and,
except as set forth on Schedule 5.31, such COMPANY Stock is owned free and clear
of all liens, encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby
waives, any preemptive or other right to acquire shares of COMPANY Stock or TSII
Stock that such STOCKHOLDER has or may have had on the date hereof other than
rights of the STOCKHOLDER to acquire TSII Stock pursuant to any option granted
by TSII.
5.33 NO INTENTION TO DISPOSE OF TSII STOCK. The STOCKHOLDER does not
have any present plan, intention, commitment, binding agreement or arrangement
to dispose of any shares of TSII Stock received as described in Section 3.1.
6. REPRESENTATIONS OF TSII
TSII represents and warrants that all of the following representations
and warranties in this Section 6 are true at the date of this Agreement and,
subject to Section 7.8 hereof, shall be true at the time of Closing and the
Funding and Consummation Date, and that such representations and warranties
shall survive the Funding and Consummation Date for a period of two years (the
last day of such period being the "Expiration Date"), except that (i) the
warranties and representations set forth in Section 6.14 hereof shall survive
until such time as the limitations period has run for all Tax periods ended on
or prior to the Funding and Consummation
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Date, which shall be deemed to be the Expiration Date for Section 6.14 and (ii)
solely for purposes of determining whether a claim for indemnification under
Section 11.2(iv) hereof has been made on a timely basis, and solely to the
extent that in connection with the IPO, TSII actually incurs liability under the
1933 Act, the 1934 Act, or any other federal or state securities laws, the
representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes.
6.1 DUE ORGANIZATION. TSII is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Certificate of Incorporation
and By-laws, each as amended, of TSII (the "TSII Charter Documents") are all
attached hereto as Annex II.
6.2 AUTHORIZATION. (i) The representative of TSII executing this
Agreement has the authority to enter into and bind TSII to the terms of this
Agreement and (ii) TSII has the full legal right, power and authority to enter
into and perform this Agreement.
6.3 CAPITAL STOCK OF THE TSII. Immediately prior to the Funding and
Consummation Date, the authorized capital stock of TSII will consist of
50,000,000 shares of TSII Stock, of which the
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number of issued and outstanding shares will be as set forth in the Registration
Statement, and 1,000,000 shares of preferred stock, $.01 par value, of which no
shares will be issued and outstanding. All of the issued and outstanding shares
of the capital stock of TSII are owned by the persons set forth on Annex V
hereof, in each case, free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
Upon consummation of the IPO, the number of outstanding shares of TSII will be
as set forth in the Registration Statement. All of the issued and outstanding
shares of the capital stock of TSII have been duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the persons set forth on Annex V, and further, such shares were offered,
issued, sold and delivered by TSII in compliance with all applicable state and
federal laws concerning the issuance of securities. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder of TSII.
6.4 TRANSACTIONS IN CAPITAL STOCK. Except for the Other Agreements and
except as set forth on Schedule 6.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates TSII to issue any of its
authorized but unissued capital stock; and (ii) TSII has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
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equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of TSII.
6.5 SUBSIDIARIES. TSII has no subsidiaries except for the companies to
become subsidiaries of TSII pursuant to this Agreement and each of the Other
Agreements as of the Funding and Consummation Date. Except as set forth in the
preceding sentence, TSII does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity, and TSII is not, directly or indirectly, a participant in any
joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "TSII Financial Statements") of TSII,
which reflect the results of its operations from inception: TSII's audited
Balance Sheet as of December 31, 1996 and Statements of Income, Cash Flows and
Retained Earnings for the period from inception through December 31, 1996. Such
TSII Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted thereon or on Schedule 6.6). Except as set
forth on Schedule 6.6,
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such Balance Sheets as of December 31, 1996 present fairly the financial
position of TSII as of such date, and such statements of Income, Cash Flows and
Retained Earnings present fairly the results of operations for the period
indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
TSII has no material liabilities, contingent or otherwise, except as set forth
in or contemplated by this Agreement and the Other Agreements and except for
fees and expenses incurred in connection with the transactions contemplated
hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, TSII is not in violation of any law or regulation which would have
a Material Adverse Effect, or of any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over TSII; and except to the extent set
forth on Schedule 6.8, there are no material claims, actions, suits or
proceedings, pending or, to the knowledge of TSII, threatened, against or
affecting TSII, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over TSII and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received.
TSII has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local
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statutes, ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing.
6.9 NO VIOLATIONS. TSII is not violation of any TSII Charter Document.
Neither TSII or, to the knowledge of TSII, any other party thereto, is in
default under any lease, instrument, agreement, license or permit to which TSII
is a party, or by which TSII or any of its properties are bound (collectively,
the "TSII Documents"); and (a) the rights and benefits of TSII under the TSII
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any violation or breach or constitute a default under, any of the
terms or provisions of the TSII Documents or the TSII Charter Documents. Except
as set forth on Schedule 6.9, none of the TSII Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by TSII and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of TSII and this
Agreement has been duly and
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validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of TSII, enforceable against TSII in accordance with its
terms except as limited by bankruptcy, insolvency or other similar laws of
general application relating to or affecting the enforcement of creditors'
rights generally, and the individual signing this Agreement on behalf of TSII
has the legal power, authority and capacity to bind TSII.
6.11 TSII STOCK. At the time of issuance thereof, the TSII Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement will constitute valid
and legally issued shares of TSII, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all material and substantive respects to the TSII Stock
issued and outstanding as of the date hereof and the TSII Stock to be issued
pursuant to the Other Agreements by reason of the provisions of the Delaware
GCL. The shares of TSII Stock to be issued to the STOCKHOLDERS pursuant to this
Agreement will not be registered under the 1933 Act, except as provided in
Section 17 hereof.
6.12 NO SIDE AGREEMENTS. TSII has not entered and will not enter into
any agreement with any of the Founding Companies or any of the stockholders of
the Founding Companies or TSII other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein, and none of TSII, its equity owners
or its affiliates have received any cash compensation or payments in connection
with this
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transaction except for reimbursement of out-of-pocket expenses which are
necessary or appropriate to this transaction.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TSII has not
conducted any operations or business since inception other than activities
related to the TSII Plan of Organization. TSII does not own and has not at any
time owned any real property or any material personal property and is not a
party to any other agreement, except as listed on Schedule 6.13 and except that
TSII is a party to the Other Agreements and the agreements contemplated thereby
and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES. TSII has timely filed all requisite federal, state and
other Tax returns or extension requests for all fiscal periods ended on or
before the date hereof; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against TSII for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the date hereof, and no notice of any claim for Taxes, whether pending
or threatened, has been received. All Tax, including interest and penalties
(whether or not shown on any Tax return) owed by TSII, any member of an
affiliated or consolidated group which includes or included TSII, or with
respect to any payment made or deemed made by TSII herein has been paid. The
amounts shown as accruals for Taxes on the TSII Financial Statements are
sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods
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ended on or before that date. Copies of (i) any Tax examinations, (ii)
extensions of statutory limitations and (iii) the federal and local income tax
returns and franchise tax returns of TSII for its last three (3) fiscal years,
or such shorter period of time as TSII shall have existed, are attached hereto
as Schedule 6.14. TSII is not an investment company as defined in Section
351(e)(1) of the Code.
6.15 NO INTENTION TO DISPOSE OF SHARES. TSII is acquiring the Shares
pursuant hereto for its own account for investment purposes and does not have
any present plan, intention, commitment, binding agreement, or arrangement to
dispose of the Shares.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of TSII and the Other Founding Companies
access to all of the COMPANY's sites, properties, books and records and will
furnish TSII with such additional financial and operating data and other
information as to the business and properties of the COMPANY as TSII or the
Other Founding Companies may from time to time reasonably request. The COMPANY
will cooperate with TSII and the Other Founding Companies and their respective
representatives, including TSII's auditors and counsel, in the preparation of
any documents or other material (including the Registration Statement) which may
be required in connection with any documents or materials
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required by this Agreement. TSII, the STOCKHOLDERS and the COMPANY shall treat
all information obtained in connection with the negotiation and performance of
this Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, TSII will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
such Other Founding Company, its stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TSII will afford to the officers and authorized representatives of the
COMPANY access to all of TSII's sites, properties, books and records and all due
diligence, agreements, documents and information of or concerning the Founding
Companies and will furnish the COMPANY with such additional financial and
operating data and other information as to the business and properties of TSII
as the COMPANY may from time to time reasonably request. TSII will cooperate
with the COMPANY, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as
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confidential in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY shall, except (x)
as set forth on Schedule 7.2, (y) as requested by TSII or (z) as consented to by
TSII (which consent shall not be unreasonably withheld):
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any new method of management, operation or
accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or other
comparable insurance coverage;
(v) maintain and preserve its business organization intact, use its
best efforts to retain its present key employees and relationships with
suppliers, customers and others having business relations with the COMPANY;
(vi) maintain compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities;
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(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, provided that debt and/or lease
instruments may be replaced if such replacement instruments are on terms at
least as favorable to the COMPANY as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the COMPANY shall not,
without prior written consent of TSII:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in respect
of its stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital
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expenditures, except if it is in the normal course of business (consistent
with past practice) or involves an amount not in excess of $10,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except: (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $10,000 necessary or desirable for the conduct of the
businesses of the COMPANY; (2)(A) liens for Taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for which
contested Taxes adequate reserves have been established and are being
maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedules 5.10 and/or 5.16 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
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(ix) waive any material rights or claims of the COMPANY, provided that
the COMPANY may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included
on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY, or any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
person or entity for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person or entity other than TSII
or its authorized agents relating to any acquisition or purchase of all or
a material amount of the assets of, or any equity interest in, the COMPANY
or a merger, consolidation or business combination of the COMPANY.
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7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TSII on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The STOCKHOLDERS and the COMPANY shall terminate (i)
any stockholders agreements, voting agreements, voting trusts, options, warrants
and employment agreements between the COMPANY and any employee listed on
Schedule 8.11 hereto and (ii) any existing agreement between the COMPANY and the
STOCKHOLDERS, on or prior to the Funding and Consummation Date. Copies of such
termination agreements are listed on Schedule 7.6 and copies thereof are
attached hereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to TSII of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any material failure of the STOCKHOLDERS or the COMPANY to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by such person hereunder. TSII shall give prompt notice to the COMPANY of (i)
the occurrence or non-occurrence of any event the occurrence or non-occurrence
of which would be likely to cause any representation or warranty of TSII
contained herein to be untrue or inaccurate in any material respect
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at or prior to the Closing and (ii) any material failure of TSII to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder. The delivery of any notice pursuant to this Section 7.7 that is
not accompanied by a proposed amendment or supplement to a schedule pursuant to
Section 7.8 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the anticipated
effectiveness of the Registration Statement to supplement or amend promptly the
Schedules hereto with respect to any matter hereafter arising or discovered
which, if existing or known at the date of this Agreement, would have been
required to be set forth or described in the Schedules, provided, however, that
supplements and amendments to Schedules 5.10, 5.11, 5.14, 5.15 and 5.18 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect
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may be made unless TSII and a majority of the Founding Companies other than the
COMPANY consent to such amendment or supplement; and provided further, that no
amendment or supplement to a schedule prepared by TSII that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect may be
made unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the schedules as
amended or supplemented pursuant to this Section 7.8. In the event that one of
the Other Founding Companies seeks to amend or supplement a schedule pursuant to
Section 7.8 of one of the Other Agreements, and such amendment or supplement
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect on such Other Founding Company, TSII shall give the COMPANY
notice promptly after it has knowledge thereof. If TSII and a majority of the
Founding Companies consent to such amendment or supplement, which consent shall
have been deemed given by TSII or any Founding Company if no response is
received within 24 hours following receipt of notice of such amendment or
supplement (or sooner if required by the circumstances under which such consent
is requested), but the COMPANY does not give its consent, the COMPANY may
terminate this Agreement pursuant to Section 12.l(iv) hereof. In the event that
the COMPANY seeks to amend or supplement a Schedule pursuant to this Section
7.8, and TSII and a majority of
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the Other Founding Companies do not consent to such amendment or supplement,
this Agreement shall be deemed terminated by mutual consent as set forth in
Section 12.1(i) hereof. In the event that TSII seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. No party to
this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY
and STOCKHOLDERS shall furnish or cause to be furnished to TSII and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with TSII and the Underwriters in
the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise TSII if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the 1933 Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. TSII will give the
COMPANY and the STOCKHOLDERS an
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opportunity to review and comment on the Registration Statement and all
amendments thereto prior to filing. Insofar as the information relates solely to
the COMPANY or the STOCKHOLDERS, the COMPANY represents and warrants as to such
information with respect to itself, and the STOCKHOLDERS represents and
warrants, as to such information with respect to the COMPANY and himself or
herself, that the Registration Statement will not include an 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, in light of the circumstances in
which they were made, not misleading and that the STOCKHOLDERS and the COMPANY
has had the opportunity to review and approve such information. If, prior to the
25th day after the date of the final prospectus of TSII utilized in connection
with the IPO, the COMPANY or the STOCKHOLDERS become aware of any fact or
circumstance which would change (or, if after the Funding and Consummation Date,
would have changed) a representation or warranty of the COMPANY or the
STOCKHOLDERS in this Agreement or would affect any document delivered pursuant
hereto in any material respect, the COMPANY and the STOCKHOLDERS shall
immediately give notice of such fact or circumstance to TSII. However, subject
to the provisions of Section 7.8, such notification shall not relieve either the
COMPANY or the STOCKHOLDERS of their respective obligations under this
Agreement, and, subject to the provisions of Section 7.8, at the sole option of
TSII, the truth and accuracy of any and all warranties and representations of
the COMPANY, or on behalf of the
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COMPANY and of STOCKHOLDERS at the date of this Agreement and on the Closing
Date and on the Funding and Consummation Date, shall be a precondition to the
consummation of this transaction.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and TSII shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations from the financial statements as of the Balance Sheet
Date. Except as set forth on Schedule 7.10, such financial statements shall have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein). Except as noted in such financial statements, all of such financial
statements will present fairly the results of operations of the COMPANY for the
periods indicated thereon and shall be for such dates and time periods as
required by Regulation S-X under the 1933 Act and the 1934 Act.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
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7.12 AUTHORIZED CAPITAL. TSII shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the TSII Stock.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of STOCKHOLDERS and the COMPANY with respect to actions
to be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the STOCKHOLDERS and the COMPANY with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.2, 8.3, 8.8 and 8.9. From and after the Closing Date or, with respect
to the conditions set forth in Sections 8.2, 8.3, 8.8 and 8.9, from and after
the Funding and Consummation Date, all conditions not satisfied shall be deemed
to have been waived, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of TSII contained in Section 6
hereof:
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of TSII contained in Section 6 shall be true and correct in all material
respects as of the Closing Date as though such representations and warranties
had been made as of that time; and
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a certificate to the foregoing effect dated the Closing Date and signed by the
President or any Vice President of TSII shall have been delivered to the
STOCKHOLDERS.
8.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by TSII on or
before the Closing Date and the Funding and Consummation Date shall have been
duly complied with and performed in all material respects; and certificates to
the foregoing effect dated the Closing Date and the Funding and Consummation
Date and signed by the President or any Vice President of TSII shall have been
delivered to the STOCKHOLDERS.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby or the IPO and no governmental
agency or body shall have taken any other action or made any request of the
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The COMPANY and the Underwriters shall have
received an opinion from counsel for TSII, dated the Closing Date, in the form
annexed hereto as Annex VI.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number
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of shares of TSII Stock to be received by the STOCKHOLDERS is not less than the
Minimum Value set forth on Annex III.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made.
8.7 GOOD STANDING CERTIFICATES. TSII shall have delivered to the
COMPANY a certificate, dated as of a date no later than ten days prior to the
Closing Date, duly issued by the Delaware Secretary of State and in each state
in which TSII is authorized to do business, showing that TSII is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for TSII for all periods prior to the Closing have
been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TSII which would constitute a Material Adverse Effect,
and TSII shall not have suffered any material loss or damages to any of its
properties or assets, whether or not covered by insurance, which change, loss or
damage materially affects or impairs the ability of TSII to conduct its
business.
8.9 CLOSING OF IPO. The closing of the sale of the TSII Stock to the
Underwriters in the IPO and the acquisitions of the Other Founding Companies
pursuant to the Other Agreements shall have occurred simultaneously with the
Funding and Consummation Date hereunder.
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8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TSII, certifying the truth and correctness of attached copies of TSII's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the board of directors and, if required,
the stockholders of TSII approving TSII's entering into this Agreement and the
consummation of the transactions contemplated hereby. Such certificate or
certificates also shall be addressed to the Underwriters and copies thereof
shall be delivered to the Underwriters.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.11
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 DIRECTORS AND OFFICERS INSURANCE. TSII shall have obtained
Directors and Officers Liability Insurance in amounts that are customary and
commercially reasonable.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TSII
The obligations of TSII with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TSII with
respect to actions to be taken on the Funding and Consummation Date are subject
to the satisfaction or waiver on or prior to the Funding and Consummation Date
of the
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conditions set forth in Sections 9.2, 9.3, 9.5 and 9.13. From and after the
Closing Date or, with respect to the conditions set forth in Sections 9.2, 9.3,
9.5 and 9.13, from and after the Funding and Consummation Date, all conditions
not satisfied shall be deemed to have been waived, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the COMPANY contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects as of the Closing Date and the Funding and
Consummation Date with the same effect as though such representations and
warranties had been made on and as of such date; and the STOCKHOLDERS shall have
delivered to TSII certificates dated the Closing Date and signed by them to such
effect.
9.2 PERFORMANCE OF OBLIGATIONS. All of the terms, covenants and
conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before the Closing Date or the Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the STOCKHOLDERS and the COMPANY
shall have delivered to TSII certificates dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by them to such effect.
9.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated
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hereby or the IPO and no governmental agency or body shall have taken any other
action or made any request of TSII as a result of which the management of TSII
deems it inadvisable to proceed with the transactions hereunder.
9.4 SECRETARY'S CERTIFICATE. TSII shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of the COMPANY's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby. Such certificate also shall be addressed to
the Underwriters and a copy thereof shall be delivered to the Underwriters.
9.5 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the COMPANY
to conduct its business.
9.6 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
TSII an instrument dated the Closing Date releasing the COMPANY from (i) any and
all claims of the STOCKHOLDERS against the COMPANY and (ii) obligations of the
COMPANY to the STOCKHOLDERS, except for (x) items specifically identified on
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Schedules 5.10 and 5.16 as being claims of or obligations to the STOCKHOLDERS,
(y) continuing obligations to STOCKHOLDERS relating to his employment by the
COMPANY and (z) obligations arising under this Agreement or the transactions
contemplated hereby.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7, all existing agreements between the COMPANY and the STOCKHOLDERS
shall have been cancelled effective prior to or as of the Funding and
Consummation Date.
9.8 OPINION OF COUNSEL. TSII shall have received an opinion from
Counsel to the COMPANY and the STOCKHOLDERS, dated the Closing Date,
substantially in the form annexed hereto as Annex VII, and the Underwriters
shall have received a copy of the same opinion addressed to the Underwriters.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
TSII a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by TSII, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and that all state franchise and/or
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income tax returns and taxes for the COMPANY for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 8.11
shall have entered into an employment agreement substantially in the form of
Annex VIII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the TSII Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. The STOCKHOLDERS shall have delivered to TSII
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
9.15 INSURANCE. TSII shall have been named as an additional insured on
all insurance policies of the COMPANY and certificates of insurance to that
effect shall have been delivered to TSII.
9.16 LOCKUP AGREEMENT. The STOCKHOLDERS shall have signed an agreement
with the Underwriters, in form and substance identical to agreements signed by
the Founding Stockholders in connection with the Other Agreements, by which the
STOCKHOLDERS covenant to hold all of the TSII Stock acquired hereunder for a
period of at least 180 days after the Funding and Consummation Date.
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10. COVENANTS OF TSII AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TSII
shall, contemporaneously with the Funding and Consummation Date, use its best
efforts to have the STOCKHOLDERS released from any and all guarantees on any
indebtedness that they personally guaranteed and from any and all pledges of
assets that they pledged to secure such indebtedness for the benefit of the
COMPANY, with all such guarantees on indebtedness being assumed by TSII. In the
event that TSII cannot obtain such releases from the lenders of any such
guaranteed indebtedness on the Funding and Consummation Date, TSII shall pay off
or otherwise refinance or retire such indebtedness on the Funding and
Consummation Date. TSII shall indemnify and hold harmless STOCKHOLDERS from the
payment of any guaranties on any indebtedness or contractual obligations that
STOCKHOLDERS had incurred prior to the Closing Date provided that such
indebtedness or obligations are related to the business of the COMPANY as being
conducted at the Closing Date.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as
contemplated by this Agreement or the Registration Statement, after the Funding
and Consummation Date, TSII shall not and shall not permit any of its
subsidiaries to undertake any act that would jeopardize the tax-free status of
the transaction, including:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the TSII Stock issued in connection with the transactions
contemplated hereby; or
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(b) the entering into of financial arrangements for the benefit of the
STOCKHOLDERS.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed
all separate Returns of any Acquired Party for all taxable periods that
end on or before the Funding and Consummation Date. The STOCKHOLDERS
shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or
reserved with respect thereto on the COMPANY Financial Statements and
books and records) shown by such Returns to be due.
(ii) TSII shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending
after the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its
subsidiaries and affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may
request in filing any Return, amended Return or claim for refund,
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant
accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by
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taxing authorities and relevant records concerning the ownership and
Tax basis of property, which such party may possess. Each party shall
make its employees reasonably available on a mutually convenient basis
at its cost to provide explanation of any documents or information so
provided. Subject to the preceding sentence, each party required to
file Returns pursuant to this Agreement shall bear all costs of filing
such Returns.
(iv) Each of the COMPANY, TSII and the STOCKHOLDERS shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a transfer to a controlled corporation under Section
351(a) of the Code.
10.4 DIRECTORS AND OFFICERS. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of TSII, as
and to the extent set forth in the Registration Statement, promptly following
the Funding and Consummation Date. TSII shall make arrangements to compensate
each Director for attending meetings of the Board of Directors and to reimburse
them for related expenses.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, TSII shall not terminate any health insurance, life insurance
or 401(k) plan in effect at the COMPANY until such time as TSII is able to
replace such plan with a plan that is applicable to TSII and all of its then
existing subsidiaries. TSII shall have no obligation to provide replacement
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plans that have the same terms and provisions as the existing plans; provided,
however, that any new health insurance plan shall provide for coverage for
preexisting conditions.
10.6 MAINTENANCE OF BOOKS. TSII will cause the COMPANY (a) to maintain
the books and records of the COMPANY existing prior to the Closing Date for a
period of six years after the Closing Date and (b) to make such books and
records available to the STOCKHOLDERS for any reasonable purpose.
11. INDEMNIFICATION
The COMPANY, STOCKHOLDERS and TSII each make the following covenants
that are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY STOCKHOLDERS. The STOCKHOLDERS covenant
and agree that they will indemnify, defend, protect and hold harmless TSII and
the COMPANY at all times, from and after the date of this Agreement until the
Expiration Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by TSII as a result of or arising from (i) any breach of
the representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of the STOCKHOLDERS or the COMPANY
under this Agreement, (iii) any liability under the 1933 Act, the 1934 Act or
other federal or state law or regulation, at
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common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to the COMPANY or the
STOCKHOLDERS, and provided to TSII or its counsel by the COMPANY or the
STOCKHOLDERS contained in the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to the COMPANY or the STOCKHOLDERS required to be stated therein or
necessary to make the statements therein not misleading, or (iv) the matters
described on Schedule 11.1(iv) (relating to specifically identified matters such
as ongoing claims and/or litigation), which schedule shall be prepared by TSII;
provided, however, (A) that in the case of any indemnity arising pursuant to
clause (iii) such indemnity shall not inure to the benefit of TSII or the
COMPANY to the extent that such untrue statement (or alleged untrue statement)
was made in, or omission (or alleged omission) occurred in, any preliminary
prospectus and the STOCKHOLDERS provided, in writing, corrected information to
TSII counsel and to TSII for inclusion in the final prospectus, and such
information was not so included or properly delivered, and (B) that the
STOCKHOLDERS shall not be liable for any indemnification obligation pursuant to
this Section 11.1 to the extent attributable to a breach of any representation,
warranty or agreement made herein individually by any other STOCKHOLDER.
11.2 INDEMNIFICATION BY TSII. TSII covenants and agrees that it will
indemnify, defend, protect and hold harmless the
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STOCKHOLDERS at all times from and after the date of this Agreement until the
Expiration Date, from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by the STOCKHOLDERS as a result of or arising from (i)
any breach by TSII of its representations and warranties set forth herein or on
the schedules or certificates attached hereto, (ii) any nonfulfillment of any
agreement on the part of TSII under this Agreement, (iii) any liabilities which
the STOCKHOLDERS may incur due to TSII's failure to be responsible for the
liabilities and obligations of the COMPANY pursuant to this Agreement; (iv) any
liability under the 1933 Act, the 1934 Act or other federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to TSII or any
of the Other Founding Companies contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to TSII
or any of the Other Founding Companies required to be stated therein or
necessary to make the statements therein not misleading, or (v) the matters
described on Schedule 11.2(v) (relating to specifically identified matters),
which schedule shall be prepared by the STOCKHOLDERS.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle (such settlement to be subject to the consent of the
Indemnified Party, as hereinafter provided), at its own expense and by its own
counsel, any such matter so long as the Indemnifying Party pursues the same in
good faith and diligently, provided that the Indemnifying Party shall not settle
any criminal proceeding without the written consent of the Indemnified Party. If
the Indemnifying Party undertakes to defend or settle, it shall promptly notify
the Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in the defense thereof and
in any settlement thereof. Such cooperation shall include, but shall not be
limited to, furnishing the Indemnifying Party with any books, records or
information reasonably requested by the Indemnifying Party that are in the
Indemnified Party's possession or control. All Indemnified
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Parties shall use the same counsel, which shall be the counsel selected by the
Indemnifying Party, provided that if counsel to the Indemnifying Party shall
have a conflict of interest that prevents counsel for the Indemnifying Party
from representing the Indemnified Party, the Indemnified Party shall have the
right to participate in such matter through counsel of its own choosing and the
Indemnifying Party will reimburse the Indemnified Party for the reasonable
expenses of its counsel. Further, absent a conflict, the Indemnified Party may
select counsel and have such counsel participate in such matter at the sole cost
of the Indemnified Party. After the Indemnifying Party has notified the
Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. If the
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Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section
11 shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party relating to this Agreement or the
preparation of the Registration Statement and the IPO, provided, however, that
nothing herein shall be construed to limit the right of a party, in a proper
case, to seek injunctive relief for a breach of this Agreement.
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11.5 LIMITATIONS ON INDEMNIFICATION. TSII, the COMPANY and the other
persons or entities indemnified pursuant to Section 11.1 shall not assert any
claim for indemnification hereunder against the STOCKHOLDERS until such time as,
and solely to the extent that, the aggregate of all claims which such persons
may have against the STOCKHOLDERS shall exceed 2.0% of the sum of (i) the cash
paid to the STOCKHOLDERS and (ii) the value of the TSII Stock delivered to the
STOCKHOLDERS (the "Indemnification Threshold"), provided, however, that TSII,
the COMPANY and the other persons or entities indemnified pursuant to Section
11.1 may assert and shall be indemnified for any claim under Section 11.l(iv) at
any time, regardless of whether the aggregate of all claims which such persons
may have against the STOCKHOLDERS exceeds the Indemnification Threshold, it
being understood that the amount of any such claim under Section 11.1(iv) shall
not be counted towards the Indemnification Threshold. The STOCKHOLDERS shall not
assert any claim for indemnification hereunder against TSII until such time as,
and solely to the extent that, the aggregate of all claims which the
STOCKHOLDERS may have against TSII shall exceed $50,000, provided, however, that
the STOCKHOLDERS and the other persons or entities indemnified pursuant to
Section 11.2 may assert and shall be indemnified for any claim under Section
11.2(v) at any time, regardless of whether the aggregate of all claims which
such persons may have against any of TSII exceeds $50,000, it being understood
that the amount of any such claim under Section 11.2(v) shall not be counted
towards such $50,000 amount. No person shall
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be entitled to indemnification under this Section 11 if and to the extent that:
(a) such person's claim for indemnification is directly or indirectly related to
and substantially a result of a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement; or (b) such
person receives a tax benefit as a result of the claim or loss for which
indemnification is sought.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), the STOCKHOLDERS shall not be liable under this Section 11 for
an amount which exceeds the amount of proceeds received by the STOCKHOLDERS in
connection with the transactions contemplated hereby, provided that the
STOCKHOLDERS' indemnification obligations pursuant to Section 11.1(iv) shall not
be limited. Indemnity obligations hereunder may be satisfied through the payment
of cash or the delivery of TSII Stock, or a combination thereof, at the
STOCKHOLDERS' election. For purposes of calculating the value of the TSII Stock
received or delivered by the STOCKHOLDERS (for purposes of determining the
Indemnification Threshold, the limitation on indemnity set forth in the second
preceding sentence and the amount of any indemnity paid), TSII Stock shall be
valued at its initial public offering price as set forth in the Registration
Statement. Any indemnification payment made by the STOCKHOLDERS pursuant to this
Section 11 shall be deemed to be a reduction in the consideration received by
the STOCKHOLDERS pursuant to Section 3.
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12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated by written notice
from the party asserting termination to the other parties at any time prior to
the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TSII and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by TSII (acting through its board of directors),
on the other hand, if the transactions contemplated by this Agreement to take
place at the Closing shall not have been consummated by September 30, 1997,
unless the failure of such transactions to be consummated is due to the willful
failure of the party seeking to terminate this Agreement to perform any of its
obligations under this Agreement to the extent required to be performed by it
prior to or on the Funding and Consummation Date;
(iii) by the STOCKHOLDERS or COMPANY, on the one hand, or by TSII, on
the other hand, if a material breach or default shall be made by the other party
in the observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein, and the curing of such default shall
not have been made on or before the Funding and Consummation Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no
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way limit any obligation or liability of any party based on or arising from a
breach or default by such party with respect to any of its representations,
warranties, covenants or agreements contained in this Agreement including, but
not limited to, legal and audit costs and out of pocket expenses relating to the
transactions contemplated hereby. No party hereto shall be liable to any other
party if the Agreement is terminated under Sections 12.1(i), (ii) (except as set
forth therein), (iv) or (v).
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Provided that TSII shall have complied with
and performed all of its obligations hereunder and that the STOCKHOLDERS shall
have received payment in full of the consideration described in Section 3, each
of the STOCKHOLDERS shall not, for a period of three (3) years following the
Funding and Consummation Date, for any reason whatsoever, directly or
indirectly, for themselves 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 services business in direct competition
with TSII or any of the subsidiaries thereof, within 100 miles of where
the COMPANY or any of its
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subsidiaries conducted business prior to the effectiveness of the
Funding and Consummation Date (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSII (including the subsidiaries thereof) in
a sales representative or managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
TSII (including the subsidiaries thereof), provided that the
STOCKHOLDERS shall be permitted to call upon and hire any member of his
or her immediate family;
(iii) call upon any person or entity which is at that time, or
which has been, within one (l) year prior to the Funding and
Consummation Date, a customer of TSII (including the subsidiaries
thereof), of the COMPANY or of any of the Other Founding Companies
within the Territory for the purpose of soliciting or selling products
or services in direct competition with TSII within the Territory;
(iv) call upon any prospective acquisition candidate, on the
STOCKHOLDER's own behalf or on behalf of any competitor in the travel
services business, which candidate, to the actual knowledge of such
STOCKHOLDER after due inquiry, was called upon by TSII (including the
subsidiaries thereof) or for which, to the actual knowledge of such
STOCKHOLDER after due inquiry, TSII (or any subsidiary thereof) made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of
the COMPANY to any person, firm, partnership,
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corporation or business for any reason or purpose whatsoever except to
the extent that the COMPANY has in the past disclosed such information
to the types of persons to whom disclosure is then presently
contemplated for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit the STOCKHOLDERS 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.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TSII as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TSII for which it would
have no other adequate remedy, each STOCKHOLDER agrees that the foregoing
covenant may be enforced by TSII in the event of breach by such STOCKHOLDER, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of TSII (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of TSII.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 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
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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 thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13
shall be construed as an agreement independent of any other provision in this
Agreement. It is specifically agreed that the period of three (3) years stated
at the beginning of this Section 13, during which the agreements and covenants
of the STOCKHOLDERS made in this Section 13 shall be effective, shall be
computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall have no effect if the transactions contemplated by
this Agreement are not consummated nor may such covenants be enforced by any
party to this Agreement that is in breach of its obligations hereunder.
13.6 MATERIALITY. The STOCKHOLDERS hereby agree that the covenants in
this Section 13 are a material and substantial part of this transaction.
13.7 LIMITATIONS. In the event that the STOCKHOLDER who is employed by
TSII or the COMPANY pursuant to an employment agreement is terminated without
cause (as defined in such employment agreement), the provisions of this Section
13 shall no longer be valid or enforceable by TSII. If such employment agreement
contains provisions relating to the same subject matter as this
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Section 13 that are less restrictive than set forth in this Section 13, the
provisions of such employment agreement shall control.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Other Founding Companies,
and/or TSII, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or TSII's respective businesses. The STOCKHOLDERS agree that they
shall not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of TSII, (b) following the Closing,
such information may be disclosed by the STOCKHOLDERS as is required in the
course of performing their duties for TSII and (c) to counsel and other
advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.1, unless (i) such information is
or becomes known to the public generally or to businesses operating in the
travel industry through no fault of the STOCKHOLDERS, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, however, that prior to disclosing any information pursuant to this
clause (ii), the STOCKHOLDERS shall, if possible, give two days' prior written
notice thereof to TSII and provide
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TSII with the opportunity within such two-day period to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party. In the event of a breach or threatened breach by any STOCKHOLDER of the
provisions of this Section, TSII shall be entitled to an injunction restraining
such STOCKHOLDER from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting TSII from pursuing
any other available remedy for such breach or threatened breach, including the
recovery of damages. In the event the transactions contemplated by this
Agreement are not consummated, the STOCKHOLDERS shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the COMPANY.
14.2 TSII. TSII recognizes and acknowledges that TSII had in the past
and currently has access to certain confidential information of the COMPANY,
such as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the COMPANY's business. TSII agrees that, prior to
the Closing, or if the transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided, however, that such advisors (other than
counsel) agree to the confidentiality provisions of this Section 14.2 and (c) to
the
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Other Founding Companies and their representatives pursuant to Section 7.1(a),
unless (i) such information becomes known to the public generally through no
fault of TSII, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, however, that prior to
disclosing any information pursuant to this clause (ii), TSII shall, unless
otherwise required by law or such order, give two days' prior written notice
thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and the
STOCKHOLDERS with the opportunity within such two-day period to contest such
disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by TSII of the
provisions of this Section, the COMPANY and the STOCKHOLDERS shall be entitled
to an injunction restraining TSII from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
COMPANY and the STOCKHOLDERS from pursuing any other available remedy for as
such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may
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be enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the termination of this Agreement for a period of three years from
(a) the Funding and Consummation Date if the transactions contemplated hereby
are consummated or (b) the date hereof if the transactions contemplated hereby
are not consummated.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or family members, the trustees
of which so agree), for a period of one year from the Funding and Consummation
Date, except pursuant to Section 17 hereof, the STOCKHOLDERS shall not sell,
assign, exchange, transfer, distribute or otherwise dispose of any shares of
TSII Stock received by the STOCKHOLDERS as described in Section 3.1. The
certificates evidencing the TSII Stock delivered to the STOCKHOLDERS pursuant to
Section 3 of this Agreement shall bear a legend substantially in the form set
forth below and containing such other information as TSII may deem necessary or
appropriate: THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO
ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO [first anniversary of
Closing Date]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER
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PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE (AS IT MAY BE
REDUCED AS PROVIDED HEREIN).
15.2 CERTAIN TRANSFERS. Except for transfers to family members who
agree to bound by the restrictions set forth in Section 15.1 (or trusts for the
benefit of the STOCKHOLDERS or family members, the trustees of which so agree)
and except pursuant to Section 17 hereof, regardless of whether transfers of
such shares are restricted pursuant to the terms of this Agreement, during the
two-year period commencing on the Funding and Consummation Date, the
STOCKHOLDERS shall not sell, assign, exchange, transfer, distribute or otherwise
dispose of, in any transaction or series of transactions involving more than
5,000 shares (a "Future Sale"), any shares of TSII Stock as described in Section
3.1 received by the STOCKHOLDERS in the transaction contemplated hereby except
in accordance with this Section 15.2. If any STOCKHOLDER desires to make a
Future Sale, the STOCKHOLDER shall first provide written notice thereof to TSII.
As soon as practicable after receipt of such notice by TSII, TSII shall
designate in writing to the STOCKHOLDER the names and other pertinent
information of two investment banks or market makers through whom the Future
Sale may be made. The STOCKHOLDER may not make the Future Sale except through
one of the designated investment banks or market makers for TSII Stock;
provided, however, that the terms of such Future Sale (including commissions)
shall be at least as favorable to the COMPANY as the COMPANY would have received
in the absence of this Section 15.2.
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16. FEDERAL SECURITIES ACT REPRESENTATIONS
The STOCKHOLDERS acknowledge that the shares of TSII Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold without
compliance with the 1933 Act. The TSII Stock to be acquired by the STOCKHOLDERS
pursuant to this Agreement is being acquired solely for their own account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution.
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS covenant, warrant and
represent that none of the shares of TSII Stock issued to the STOCKHOLDERS will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All of the TSII Stock
shall bear the following legend in addition to the legend required under Section
15 of this Agreement: THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES
LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDERS are able to bear
the economic risk of an investment in the TSII Stock acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and has such
knowledge and experience
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in financial and business matters that he or she it is capable of evaluating the
merits and risks of the proposed investment in the TSII Stock. The STOCKHOLDERS
have had an adequate opportunity to ask questions and receive answers from the
officers of TSII concerning any and all matters relating to the transactions
described herein including, without limitation, the background and experience of
the current and proposed officers and directors of TSII, the plans for the
operations of the business of TSII, the business, operations and financial
condition of the Founding Companies other than the COMPANY, and any plans for
additional acquisitions and the like. The STOCKHOLDERS have asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding
and Consummation Date, whenever TSII proposes to register any TSII Stock for its
own or others account under the 1933 Act for a public offering, other than (i)
any shelf registration of shares to be used as consideration for acquisitions of
additional businesses by TSII and (ii) registrations relating to employee
benefit plans, TSII shall give the STOCKHOLDERS prompt written notice of its
intent to do so. Upon the written request of the STOCKHOLDERS given within 30
days after receipt of such notice, TSII shall cause to be included in such
registration all of the TSII Stock issued to such STOCKHOLDERS pursuant to this
Agreement
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which any such STOCKHOLDER requests, provided that TSII shall have the right to
reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the opinion of tax counsel to TSII or its
independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if TSII is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by persons other than TSII is greater than the number of such shares
which can be offered without adversely affecting the offering, TSII may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares desired to be sold by such person) to a number deemed
satisfactory by such managing underwriter, provided, that, notwithstanding
Section 15.1 hereof, for each such offering made by TSII after the IPO, such
reduction shall be made first by reducing the number of shares to be sold by
persons other than TSII, the STOCKHOLDERS and the Other Founding Companies or
the stockholders thereof who receive shares of TSII Stock pursuant to the Other
Agreements (collectively, the COMPANY and the Other Founding Companies or the
stockholders thereof who receive shares of TSII Stock pursuant to the Other
Agreements being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
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17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Closing, the holders of a majority of the shares of TSII Stock issued
to the Founding Stockholders pursuant to this Agreement and the Other Agreements
which have not been previously registered or sold and which are not entitled to
be sold under Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act may request in writing that TSII file a registration
statement under the 1933 Act covering the registration of the shares of TSII
Stock issued to the STOCKHOLDERS pursuant to this Agreement and the Other
Agreements then held by such Founding Stockholders (a "Demand Registration").
Within ten (10) days of the receipt of such request, TSII shall give written
notice of such request to all other Founding Stockholders and shall, as soon as
practicable but in no event later than 45 days after notice from the
STOCKHOLDERS, file and use its best efforts to cause to become effective a
registration statement covering all such shares. TSII shall be obligated to
effect only one Demand Registration for all Founding Stockholders.
Notwithstanding the foregoing paragraph, following such a demand a
majority of TSII's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for a 60 day period.
If at the time of any request by the Founding Stockholders for a Demand
Registration TSII has fixed plans to file within 60 days after such request a
registration statement covering the sale of
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any of its securities in a public offering under the 1933 Act, no registration
of the Founding Stockholders' TSII Stock shall be initiated under this Section
17.2 until 90 days after the effective date of such registration unless TSII is
no longer proceeding diligently to effect such registration; provided that TSII
shall provide the Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 17.1 hereof.
17.3 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts), shall be borne by TSII. In connection with
registrations under Sections 17.1 and 17.2, TSII shall (i) use its best efforts
to prepare and file with the SEC as soon as reasonably practicable, a
registration statement with respect to the TSII Stock and use its best efforts
to cause such registration to promptly become and remain effective for a period
of at least 45 days (or such shorter period during which the Founding
Stockholders shall have sold all TSII Stock which they requested to be
registered); (ii) use its best efforts to register and qualify the TSII Stock
covered by such registration statement under applicable state securities laws as
the holders shall reasonably request for the distribution for the TSII Stock;
and (iii) take such other actions as are reasonable and necessary to comply with
the requirements of the 1933 Act and the regulations thereunder to
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enable the Founding Stockholders to sell their shares pursuant thereto.
17.4 UNDERWRITING AGREEMENT. In connection with each registration
pursuant to Sections 17.1 and 17.2 covering an underwritten registration public
offering, TSII and each participating holder agree to enter into a written
agreement with the managing underwriters in such form and containing such
provisions (including indemnification provisions) as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of TSII's size and investment stature.
17.5 AVAILABILITY OF RULE 144. TSII shall not be obligated to register
shares of TSII Stock held by the STOCKHOLDERS at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such STOCKHOLDERS.
18. GENERAL
18.1 COOPERATION. The COMPANY, the STOCKHOLDERS and TSII shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The COMPANY shall cooperate and use its reasonable
efforts to have the present officers, directors and the employees of the COMPANY
cooperate with TSII on and after the Funding and
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Consummation Date in furnishing information, evidence, testimony and other
assistance in connection with any tax return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of TSII, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules,
exhibits and annexes attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the STOCKHOLDERS,
the COMPANY and TSII and supersede any prior agreement and understanding
relating to the subject matter of this Agreement, including but not limited to
any letter of intent entered into by any of the parties hereto. This Agreement,
upon execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the STOCKHOLDERS, the COMPANY and TSII, acting
through their respective officers or trustees, duly authorized by their
respective Boards of Directors.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be
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deemed an original and all of which together shall constitute but one and the
same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each
party represents and warrants that it employed no broker or agent in connection
with this transaction and agrees to indemnify the other parties hereto against
all loss, cost, damages or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated
shall be consummated, TSII will pay the fees, expenses and disbursements of TSII
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TSII under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Akin, Gump, Strauss, Hauer & Feld, L.L.P., and
any other person or entity retained by TSII, and the costs of preparing the
Registration Statement. The STOCKHOLDERS shall pay the fees, expenses and
disbursements of the STOCKHOLDERS, the COMPANY and their respective agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by the COMPANY and the STOCKHOLDERS under this Agreement, including
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the fees and expenses of accountants and legal counsel to the COMPANY and the
STOCKHOLDERS. Notwithstanding the foregoing, if the transactions contemplated by
this Agreement are consummated, TSII shall reimburse the STOCKHOLDERS for such
reasonable fees, expenses and disbursements upon the closing of the IPO up to
$25,000. In addition, the STOCKHOLDERS shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar taxes and
fees ("Transfer Taxes") imposed in connection with the transactions contemplated
hereby, other than Transfer Taxes, if any, imposed by the State of Delaware. The
STOCKHOLDERS shall file all necessary documentation and Returns with respect to
such Transfer Taxes. In addition, the STOCKHOLDERS acknowledges that he or she,
and not the COMPANY or TSII, shall pay all taxes due upon receipt of the
consideration payable pursuant to Section 3 hereof, and shall assume all tax
risks and liabilities of such STOCKHOLDER in connection with the transactions
contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party.
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(a) If to TSII, addressed to it at:
Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, PL 15
Bethesda, Maryland 20816
Attention: Elan J. Blutinger
with copies to:
Akin, Gump, Strauss, Hauer &
Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Bruce S. Mendelsohn
(b) If to the STOCKHOLDERS, addressed to them at their respective
addresses set forth on Annex IV, with copies to such counsel as is set
forth with respect to the STOCKHOLDERS on such Annex IV;
(c) If to the COMPANY, addressed to it at:
D-FW Tours, Inc.
7616 LBJ Freeway
Suite 524
Dallas, Texas 75251
Attention: John Przywara
and marked "Personal and Confidential"
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware.
18.9 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed
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as a waiver of or acquiescence in any such breach or default, or of any similar
breach or default occurring later; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default occurring before or
after that waiver.
18.10 TIME. Time is of the essence with respect to this Agreement.
18.11 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
18.13 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TSII, the COMPANY and the STOCKHOLDERS. Any amendment or
waiver effected in accordance with
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this Section 18.14 shall be binding upon each of the parties hereto, any other
person receiving TSII Stock in connection with the transactions contemplated
hereby and each future holder of such TSII Stock.
18.15 INCORPORATION BY REFERENCE. To the extent that an item is
disclosed in a particular schedule or a subsection of a particular schedule and
such item is readily apparent on its face as being applicable to another
schedule or another subsection of the same schedule, such item shall be deemed
incorporated by reference in such schedule or such other subsection under the
same schedule.
18.16 DEFINED TERMS. Unless the context otherwise requires, capitalized
terms used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of this
Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any Subsidiary and any member of a
Relevant Group.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" has the meaning set forth in the first paragraph hereof.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Assets" has the meaning set forth in Section 7.13.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
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"Charter Documents" has the meaning set forth in Section 5.1.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Stock" means the capital stock of the COMPANY.
"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 17.2.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" has the meaning set forth in the third recital of
this Agreement.
"Founding Stockholders" has the meaning set forth in Section 17.1.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"Future Sale" has the meaning set forth in Section 15.2.
"Indemnification Threshold" has the meaning set forth in Section 11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
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"Indemnifying Party" has the meaning set forth in Section 11.3.
"IPO" means the initial public offering of TSII Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" means all of the Founding Companies other
than the Company.
"Plans" has the meaning set forth in Section 5.19.
"Pricing" means the date of determination by TSII and the Underwriters
of the public offering price of the shares of TSII Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 covering the shares of TSII Stock to be issued in the IPO.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Restricted Common Stock" means the common stock of TSII, par value
$0.01 per share, having the restricted voting rights and such
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other rights, preferences, restrictions and limitations as are set forth in the
Certificate of Incorporation, as amended, of TSII on the Funding and
Consummation Date.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference
the relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties and
covenants.
"SEC" means the United States Securities and Exchange Commission.
"Shares" has the meaning set forth in Section 1.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" has the meaning set forth in Section 5.6.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Territory" has the meaning set forth in Section 13.1.
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"Third Person" has the meaning set forth in Section 11.3.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"TSII" has the meaning set forth in the first paragraph of this
Agreement.
"TSII Charter Documents" has the meaning set forth in Section 6.1.
"TSII Financial Statements" has the meaning set forth in Section 6.6.
"TSII Plan of Organization" has the meaning set forth in the fourth
recital of this Agreement.
"TSII Stock" means the common stock, par value $.01 per share, of TSII.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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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: /s/ Leonard Potter
--------------------------------
Name:
Title:
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 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.
98
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/11/1997
971077959-2617116
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INTERNET VENTURES, INC.
The undersigned corporation, in order to amend its Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is:
Internet Ventures, Inc.
SECOND: The corporation hereby amends its Certificate of Incorporation as
follows:
Paragraph FIRST of the Certificate of Incorporation, relating to the
corporate title of the corporation, is hereby amended to read as follows:
"FIRST: The name of the corporation is
TRAVEL SERVICES GROUP INTERNATIONAL, INC."
THIRD: The amendment effected herein was authorized by the consent in
writing, setting for the action so taken, unanimously signed by the holders of
all the outstanding shares entitled to vote thereon pursuant to Sections 228 and
242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, I hereunto sign my name and affirm that the statements
made herein are true under the penalties of perjury, this 4th day of March,
1997.
/s/ LEONARD A. POTTER
Leonard A. Potter, Vice President
1
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 04/25/1996
960120683-2617116
CERTIFICATE OF INCORPORATION
OF
INTERNET VENTURES, INC.
The undersigned, being of legal age, in order to form a corporation under
and pursuant to the laws of the State of Delaware, does hereby set forth as
follows:
FIRST: The name of the corporation is
INTERNET VENTURES, INC.
SECOND: The address of the initial registered and principal office of this
corporation in this state is c/o United Corporate Services, Inc., 15 East North
Street, in the City of Dover, County of Kent, State of Delaware 19901 and the
name of the registered agent at said address is United Corporate services, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the corporation laws of
the State of Delaware.
FOURTH: The corporation shall be authorized to issue the following shares:
Class Number of Shares Par Value
-------- ------------------- -----------
COMMON 3,000 $.01
FIFTH: The name and address of the incorporator are as follows:
NAME ADDRESS
------------- ------------------------------
Ray A. Barr 10 Bank Street
White Plains, New York 10606
2
<PAGE>
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the corporation, and for further
definition, limitation and regulation of the powers of the corporation and of
its directors and stockholders:
(1) The number of directors of the corporation shall be such as from time
to time shall be fixed by, or in the manner provided in the by-laws. Election
of directors need not be by ballot unless the by-laws so provide.
(2)The Board of Directors shall have power without the assent or vote of
the stockholders:
(a) To make, alter, amend, change, add to or repeal the By-Laws of the
corporation; to fix and vary the amount to be reserved for any proper
purpose; to authorize and cause to be executed mortgages and liens upon
all or any part of the property of the corporation; to determine the use
and disposition of any surplus or net profits; and to fix the times for
the declaration and payment of dividends.
(b) To determine from time to time whether, and to what times and
places, and under what conditions and accounts and books of the
corporation (other than the stock ledger) or any of them, shall be open
to the inspection of the stockholders.
(3) The directors in their discretion may submit any contract or act for
approval or ratification at any annual meeting of the stockholders, at any
meeting of the stockholders called for the purpose of considering any such
act or contract, or through a written consent in lieu of a meeting in
accordance with the requirements of the General Corporation law of Delaware
as amended from time to time, and any contract or act that shall be so
approved or be so ratified by the vote of the holders of a majority of the
stock of the corporation which is represented in person or by proxy at such
meeting, (or by written consent whether received directly or through a proxy)
and entitled to vote thereon (provided that a lawful quorum of stockholders
be their representative in person or by proxy) shall be as valid and as
binding upon the corporation and upon all the stockholders as though it had
been approved, ratified, or consented to by every stockholder of the
corporation, whether or not the contract or act would otherwise be open to
legal attack because of directors' interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done
by the corporation; subject, nevertheless, to the provision of the statutes
of Delaware, of this certificate, and to any by-laws from time to time made
by the stockholders; provided, however, that no by-laws so made shall
invalidate any prior act of the directors which would have been valid of such
by-law had not been made.
3
<PAGE>
SEVENTH: 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 of
which involve intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the Delaware General Corporation Law 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 for its stockholders to the fullest
extent permitted by Section 102(b)(7) of the Delaware General Corporation Law,
as amended from time to time. The corporation shall indemnify to the fullest
extent permitted by sections 102(b)(7) and 145 of the Delaware General
Corporation Law, as amended from time to time, each person that such Sections
grant the corporation the power to indemnify.
EIGHT: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 Title 8 of the Delaware
Code order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any comprise or arrangement and to any
reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
4
<PAGE>
NINTH: The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation in the manner now
or hereafter prescribed by law, and all rights and powers conferred herein on
stockholders, directors and officers are subject to this reserved power.
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under the penalties of perjury
this twenty-fifth day of April, 1996.
/s/RAY A BARR
-----------------------------
Ray A. Barr, Incorporator
5
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TRAVEL SERVICES GROUP INTERNATIONAL, INC.
The undersigned, Leonard A. Potter, Vice President of Travel Services Group
International, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is:
Travel Services Group International, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed in the
Office of the Secretary of State of the State of Delaware on April 25, 1996.
THIRD: This Amended and Restated Certificate of Incorporation was duly adopted
in accordance with the provisions of Sections 242 and 245 of the Delaware
General Corporation Law, the Board of Directors having duly adopted resolutions
setting forth and declaring advisable this Amended and Restated Certificate of
Incorporation, and in lieu of a meeting of the stockholders, written consent to
this Amended and Restated Certificate of Incorporation having been given by the
holders of a majority of the outstanding stock of the Corporation in accordance
with Section 228 of the General Corporation Law of the State of Delaware.
FOURTH: This Amended and Restated Certificate of Incorporation is being filed
pursuant to Sections 242 and 245 of the Delaware General Corporation Law in
order to restate the Certificate of Incorporation of the Corporation as amended
to date, and also to amend further the Certificate of Incorporation to (i)
increase the authorized capital stock of the Corporation, (ii) authorize the
issuance of preferred stock and restricted voting common stock, (iii) to provide
for the classification of the Board of Directors of the Corporation, and (iv) to
change the name of the Corporation.
FIFTH: The Certificate of Incorporation of the Corporation is hereby amended and
restated in its entirety as follows:
FIRST: The name of the corporation is Travel Services International, Inc.
(the "Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805.
The name of its registered agent at such address is The Corporation Service
Company.
<PAGE>
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 51,000,000 shares of stock, of
which 1,000,000 shares, designated as preferred stock, shall have a par value of
One Cent ($.01) per share (the "Preferred Stock"), and 50,000,000 shares,
designated as common stock, shall have a par value of One Cent ($.01) per share
(the "Common Stock"). 2,541,667 of such shares of Common Stock shall be
designated as Restricted Voting Common Stock (the "Restricted Voting Common
Stock").
A statement of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of each class of stock of the
Corporation is as follows:
Preferred Stock. The Preferred Stock may be issued from time to time by the
Board of Directors as shares of one or more classes or series. Subject to the
provisions of this Certificate of Incorporation and the limitations prescribed
by law, the Board of Directors is expressly authorized by adopting resolutions
to issue the shares, fix the number of shares and 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 (and whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), a redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
class or series of the Preferred Stock, without any further action or vote by
the stockholders.
Common Stock. 1. Dividends. Subject to the preferred rights of the holders of
shares of any class or series of Preferred Stock as provided by the Board of
Directors with respect to any such class or series of Preferred Stock, the
holders of the Common Stock (including Restricted Common Stock) shall be
entitled to receive, as and when declared by the Board of Directors out of the
funds of the Corporation legally available therefor, such dividends (payable in
cash, stock or otherwise) as the Board of Directors may from time to time
determine, payable to stockholders of record on such dates, not exceeding 60
days preceding the dividend payment dates, as shall be fixed for such purpose by
the Board of Directors in advance of payment of each particular dividend. All
dividends on Common Stock shall be paid pari passu with dividends on Restricted
Voting Common Stock.
2
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2. Liquidation. In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, after the distribution or
payment to the holders of shares of any class or series of Preferred Stock as
provided by the Board of Directors with respect to any such class or series of
Preferred Stock, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among and paid to the holders
of Common Stock and Restricted Voting Common Stock ratably in proportion to the
number of shares of Common Stock and Restricted Voting Common Stock held by them
respectively.
3. Voting Rights. Except as otherwise required by law, each holder of
shares of Common Stock shall be entitled to one vote for each share of Common
stock standing in such holder's name on the books of the Corporation. Except as
otherwise required by law, each holder of shares of Restricted Voting Common
Stock shall be entitled to one-tenth of a vote for each share of Restricted
Voting Common Stock standing in such holder's name on the books of the
Corporation. The holders of shares of Restricted Voting Common Stock shall have
no right to vote separately as a class except as specifically required by the
General Corporation Law of Delaware.
4. Conversion of the Restricted Voting Common Stock. Each share of
Restricted Voting Common Stock will automatically convert into 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), (b) in the event any person acquires
beneficial ownership of 15% or more of the outstanding shares of Common Stock of
the Corporation, (c) in the event any person offers to acquire 15% or more of
the outstanding shares of Common Stock of the Corporation, 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
approve such conversion. After December 31, 1999, the Corporation may elect to
convert any outstanding shares of Restricted Voting Common Stock into shares of
Common Stock in the event 80% or more of the outstanding shares of Restricted
Voting Common Stock has been converted into shares of Common Stock.
FIFTH: 1. Board of Directors. The Directors shall be classified with
respect to the time for which they shall severally hold office into three
classes as nearly equal in number as possible. The Class I Directors shall be
elected to hold office for an initial term expiring at the 1998 annual meeting
of stockholders, the Class II Directors shall be elected to hold office for an
initial term expiring at the 1999 annual meeting of stockholders and the Class
III Directors shall be elected to hold office for an initial term expiring at
the 2000 annual meeting of stockholders, with the members of each class of
director to hold
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office until their successors have been duly elected and qualified. At each
annual meeting of stockholders, the successors to the class of directors whose
term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election and until their successors have been duly elected and
qualified. At each annual meeting of stockholders at which a quorum is present,
the persons receiving a plurality of the votes cast shall be directors. No
director or class of directors may be removed from office by a vote of the
stockholders at any time except for cause. Election of directors need not be by
written ballot unless the Bylaws of the Corporation so provide.
2. Vacancies. Any vacancy on the Board of Directors resulting from death,
retirement, resignation, disqualification or removal from office or other cause,
as well as any vacancy resulting from an increase in the number of directors
which occurs between annual meetings of the stockholders at which directors are
elected, shall be filled only by a majority vote of the remaining directors then
in office, though less than a quorum, except that those vacancies resulting from
removal from office by a vote of the stockholders may be filled by a vote of the
stockholders at the same meeting at which such removal occurs. The directors
chosen to fill vacancies shall hold office for a term expiring at the end of the
next annual meeting of stockholders at which the term of the class to which they
have been elected expires. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
Notwithstanding the foregoing, whenever the holders of one or more classes or
series of Preferred Stock shall have the right, voting separately as a class or
series, to elect directors, the election, term of office, filing of vacancies,
removal and other features of such directorships shall be governed by the terms
of the resolution or resolutions adopted by the Board of Directors pursuant to
ARTICLE FOURTH applicable thereto, and each director so elected shall not be
subject to the provisions of this ARTICLE FIFTH unless otherwise provided
therein.
3. Power to Make, Alter and Repeal Bylaws. In furtherance and not in
limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to make, alter and repeal the Bylaws of the Corporation.
4. Amendment and Repeal of Article Five. Nothwithstanding any provision of
this Certificate of Incorporation and of the Bylaws, and notwithstanding the
fact that a lesser percentage may be specified by Delaware law, unless such
action has been approved by a majority vote of the full Board of Directors, the
affirmative vote of 66 2/3 percent of the Corporation's shareholders would be
entitled to vote thereon, voting together as a single class, shall be required
to amend or repal any provisions of this ARTICLE FIFTH
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or to adopt any provision inconsistent with this ARTICLE FIFTH. In the event
such action has been previously approved by a majority vote of the full Board of
Directors, the affirmative vote of a majority of the outstanding stock entitled
to vote thereon shall be sufficient to amend or repeal any provision of this
ARTICLE FIFTH or adopt any provision inconsistent with this ARTICLE FIFTH.
SIXTH: The Corporation reserves the right to amend, alter, change or repeal
any provision in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute.
SEVENTH: No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (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 Delaware General Corporation Law or (iv) for
any transaction from which the director derived an improper personal benefit.
EIGHTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as amended from
time to time, indemnify all persons whom it may indemnify pursuant thereto.
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IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated
Certificate of Incorporation on behalf of the Corporation and does verify and
affirm, under penalty of perjury, that this Amended and Restated Certificate of
Incorporation is the act and deed of the Corporation and that the facts stated
herein are true as of this 12th day of May, 1997.
Travel Services Group
International, Inc.
By: /s/ Leonard A. Potter
--------------------------------------------
Name: Leonard A. Potter
Title: Vice President
TRAVEL SERVICES GROUP INTERNATIONAL, INC.
------
AMENDED AND RESTATED BYLAWS
------
ARTICLE I
OFFICES
Section 1.01. Registered Office. The registered office of Travel
Services Group International, Inc. (hereinafter referred to as the
"Corporation") shall be in the City of Wilmington, County of New Castle, State
of Delaware.
Section 1.02. Additional Offices. The Corporation may also have offices
at such other places, both within and outside the State of Delaware, as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01. Time and Place. All meetings of stockholders for the
election of Directors shall be held at such time and place, either within or
outside the State of Delaware, as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice of the meeting. Meetings of stockholders for any other purpose
may be held at such time and place either within or
<PAGE>
outside the State of Delaware as shall be stated in the notice of the meeting or
in a duly executed waiver of notice of the meeting.
Section 2.02. Annual Meeting. Annual meetings of stockholders shall be
held for the purpose of electing a Board of Directors and transacting such other
business as may properly be brought before the meeting.
Section 2.03. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and time of such annual meeting, shall be given
to each stockholder entitled to vote at such meeting not less than ten (10)
(unless a longer period is required by law) nor more than sixty (60) days prior
to the meeting.
Section 2.04. Special Meeting. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, if
any, or, if the Chairman is not present (or, if there is none), by the President
and shall be called by the President or Secretary at the request in writing of a
majority of the Board of Directors, or at the request in writing of the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at such meeting. Such request shall
state
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the purpose or purposes of the proposed meeting. The person calling such meeting
shall cause notice of the meeting to be given in accordance with the provisions
of Section 2.05 of this Article II and of Article V.
Section 2.05. Notice of Special Meeting. Written notice of a special
meeting, stating the place, date and time of such special meeting and the
purpose or purposes for which the meeting is called, shall be delivered either
personally or mailed to his last address to each stockholder not less than ten
(10) (unless a longer period is required by law) nor more than sixty (60) days
prior to the meeting.
Section 2.06. List of Stockholders. The officer in charge of the stock
ledger of the Corporation or the transfer agent shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting, at
a place within the city where the meeting is to be held. Such place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced
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and kept at the time and place of the meeting during the whole time of the
meeting and may be inspected by any stockholder who is present.
Section 2.07. Presiding Officer. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or if the Chairman is not
present (or if there is none), by the President, or, if the President is not
present, by a Vice President, or, if a Vice President is not present, by such
person who may have been chosen by the Board of Directors, or, if none of such
persons is present, by a Chairman to be chosen by the stockholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy. The Secretary of the Corporation, or, if the Secretary is
not present, an Assistant Secretary, or, if an Assistant Secretary is not
present, such person as may be chosen by the Board of Directors, shall act as
secretary of meetings of stockholders, or, if none of such persons is present,
the stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy shall choose any person present to
act as secretary of the meeting.
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Section 2.08. Quorum and Adjournments. The holders of a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote at stockholders meetings, present in person or represented by proxy,
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. The stockholders present or in
person or represented by proxy at a duly organized meeting may continue to do
business until final adjournment of such meeting whether on the same day or on a
later day, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum. If a meeting cannot be organized because a quorum has not
attended, or even if a quorum shall be present or represented at any meeting of
the stockholders, the stockholders entitled to vote at such meeting present in
person or represented by proxy may adjourn the meeting from time to time;
provided however, that if the holders of any class of stock of the Corporation
are entitled to vote separately as a class upon any matter at such meeting, any
adjournment of the meeting in respect of action of such class upon such matter
shall be determined by the holders of a majority of the shares of such class
present in person or represented by proxy and entitled to vote at such meeting,
until a quorum shall be present or represented. Notice of the adjourned meeting
need not be given if the time and place of the adjourned meeting are announced
at the meeting at which the adjournment is taken. At any adjourned meeting at
which a
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quorum is present in person or represented by proxy of any class of stock
entitled to vote separately as a class, as the case may be, any business may be
transacted which might have been transacted at the meeting as originally called.
If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at such meeting.
Section 2.09. Voting.
(a) At any meeting of stockholders, every stockholder having
the right to vote shall be entitled to vote in person or by proxy, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. Except as otherwise provided by law or
the Certificate of Incorporation, each stockholder of record shall be entitled
to one (1) vote for each share of capital stock registered in his name on the
books of the Corporation.
(b) At a meeting at which a quorum is present, all elections
of Directors shall be determined by a plurality vote, and, except as otherwise
provided by law or the Certificate of Incorporation, all other matters shall be
determined by a vote of a majority of the shares present in person or
represented by proxy and entitled to vote on such other matters.
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Section 2.10. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
Section 2.11. Consent. Unless otherwise provided in the Certificate of
Incorporation, any action required or permitted by law or the Certificate of
Incorporation to be taken at any meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a written
consent, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present or represented by proxy and voted.
Such written consent shall be filed with the minutes of meetings of
stockholders. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent
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shall be given to those stockholders who have not so consented in writing.
ARTICLE III
DIRECTORS
Section 3.01. Number and Tenure. There shall be such number of
Directors, no fewer than one (1), as shall from time to time be fixed by the
Board of Directors at the annual meeting or at any special meeting called for
such purpose. The Directors shall be elected at the annual meeting of the
stockholders, except for initial Directors named in the Certificate of
Incorporation or elected by the incorporator, and except as provided in Section
3.02 of this Article, and each Director elected shall hold office until his
successor is elected and shall qualify or until their earlier resignation or
removal. Directors need not be stockholders.
Section 3.02. Vacancies. If any vacancies occur on the Board of
Directors, or if any new Directorships are created, they shall be filled by a
majority of the Directors then in office, though less than a quorum, or by a
sole remaining Director. Each Director so chosen shall hold office until the
next annual election of Directors and until his successor is duly elected and
shall qualify. If there are no Directors in office, any officer or stockholder
may call a special meeting of stockholders in accordance with the provisions of
the Certificate of Incorpora-
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tion or these Bylaws, at which meeting such vacancies shall be filled.
Section 3.03. Resignation. Any Director may resign at any time by
giving written notice to the Chairman of the Board, the President or the
Secretary of the Corporation, or, in the absence of all of the foregoing, by
notice to any other Director or officer of the Corporation. Unless otherwise
specified in such written notice, a resignation shall take effect upon delivery
to the designated Director or officer. It shall not be necessary for a
resignation to be accepted before it becomes effective.
Section 3.04. Place of Meetings. The Board of Directors may hold
meetings, both regular and special, either within or outside the State of
Delaware.
Section 3.05. Annual Meeting. Unless otherwise agreed by the newly
elected Directors, the annual meeting of each newly elected Board of Directors
shall be held immediately following the annual meeting of stockholders, and no
notice of such meeting to either incumbent or newly elected Directors shall be
necessary.
Section 3.06. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice, at such time and place as may from time to
time be determined by the Board of
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Directors. A copy of every resolution fixing or changing the time or place of
regular meetings shall be mailed to every Director at least five days before the
first meeting held in pursuance thereof.
Section 3.07. Special Meetings. Special Meetings of the Board of
Directors may be called by the Chairman of the Board or the President on at
least (1) day actual notice to each Director, if such Special Meeting is to be
conducted by means of conference telephone or similar communications equipment
in accordance with Section 3.11, and otherwise, upon two (2) days' actual notice
if such notice is delivered personally or sent by telegram. Special Meetings
shall be called by the Chairman of the Board or the President in like manner and
on like notice on the written request of one-half or more of the Directors then
in office. The purpose of a Special Meeting of the Board of Directors need not
be stated in the notice of such meeting. Any and all business other than an
amendment of these Bylaws may be transacted at any special meeting, and an
amendment of these Bylaws may be acted upon if the notice of the meeting shall
have stated that the amendment of these Bylaws is one of the purposes of the
meeting. At any meeting at which every Director shall be present, even though
without any notice, any business may be transacted, including the amendment of
these Bylaws.
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Section 3.08. Quorum and Adjournments. Unless otherwise provided by the
Certificate of Incorporation, at all meetings of the Board of Directors,
one-half of the total number of Directors shall constitute a quorum for the
transaction of business; provided, however, that when the Board of Directors
consists of one (1) Director, then one (1) Director shall constitute a quorum.
If a quorum is not present at any meeting of the Board of Directors, the
Directors present may adjourn the meeting, from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
Section 3.09. Presiding Officer. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board of Directors, if any, or if
the Chairman is not present (or if there is none), by the President, or, if the
President is not present, by such person as the Board of Directors may appoint
for the purpose of presiding at the meeting from which the President is absent.
Section 3.10. Action by Consent. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings
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of the Board of Directors or committee. Such consent shall have the same force
and effect as the unanimous vote of the Board of Directors.
Section 3.11. Telephone Meetings. Members of the Board of Directors, or
any committee designated by the Board of Directors, may participate in a meeting
of the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 3.12. Compensation. The Board of Directors, by the affirmative
vote of a majority of the Directors then in office and irrespective of the
personal interest of any Director, shall have authority to establish reasonable
compensation for Directors for their services as such and may, in addition,
authorize reimbursement of any reasonable expenses incurred by Directors in
connection with their duties.
ARTICLE IV
COMMITTEES
Section 4.01. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
(1) or more committees, each committee to consist of one (1) or more Directors
of the
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Corporation. The Board of Directors may designate one (1) or more persons who
are not Directors as additional members of any committee, but such persons shall
be nonvoting members of such committee. The Board of Directors may designate one
(1) or more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not such member or members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have
power or authority to amend the Certificate of Incorporation, adopt an agreement
of merger or consolidation, recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution, elect or remove officers or Directors, or amend these Bylaws
of the Corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provides, no such
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committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 4.02. Minutes of Committee Meetings. Unless otherwise provided
in the resolution of the Board of Directors establishing such committee, each
committee shall keep minutes of action taken by it and file the same with the
Secretary of the Corporation.
Section 4.03. Quorum. A majority of the number of Directors
constituting any committee shall constitute a quorum for the transaction of
business, and the affirmative vote of such Directors present at the meeting
shall be required for any action of the committee; provided, however, that, when
a committee of one (1) member is authorized under the provisions of Section 4.01
of this Article, such one (1) member shall constitute a quorum.
Section 4.04. Vacancies, Changes and Discharge. The Board of Directors
shall have the power at any time to fill vacancies in, to change the membership
of and to discharge any committee.
Section 4.05. Compensation. The Board of Directors, by the affirmative
vote of a majority of the Directors then in office
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and irrespective of the personal interest of any Director, shall have authority
to establish reasonable compensation for committee members for their services as
such and may, in addition, authorize reimbursement of any reasonable expenses
incurred by committee members in connection with their duties.
ARTICLE V
NOTICES
Section 5.01. Form and Delivery.
(a) Whenever, under the provisions of law, the Certificate of
Incorporation or these Bylaws, notice is required to be given to any
stockholder, it shall not be construed to mean personal notice unless otherwise
specifically provided, but such notice may be given in writing, by mail,
telecopy, telegram or messenger addressed to such stockholder, at his address as
it appears on the records of the Corporation. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, with postage
prepaid.
(b) Whenever, under the provisions of law, the Certificate of
Incorporation, or these Bylaws, notice is required to be given to any Director,
it shall not be construed to mean personal notice unless otherwise specifically
provided, but such notice may be given in writing, by mail, telecopy, telegram
or messenger addressed to such Director at the usual place of residence or
business of such Director as in the discretion of the person giving such notice
will be likely to be received most
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expeditiously by such Director. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, with postage prepaid.
Section 5.02. Waiver. Whenever any notice is required to be given under
the provisions of law, the Certificate of Incorporation or these Bylaws, a
written waiver of notice, signed by the person or persons entitled to said
notice, whether before or after the time for the meeting stated in such notice,
shall be deemed equivalent to such notice.
ARTICLE VI
OFFICERS
Section 6.01. Designations. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President and a Secretary. The
Board of Directors may also choose a Chairman of the Board, one (1) or more Vice
Presidents, a Treasurer, one (1) or more Assistant Secretaries and one (1) or
more Assistant Treasurers and other officers and agents as it shall deem
necessary or appropriate. Any officer of the Corporation shall have the
authority to affix the seal of the Corporation and to attest the affixing of the
seal by his signature. All officers and agents of the Corporation shall exercise
such powers and perform such duties as shall from time to time be determined by
the Board of Directors.
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Section 6.02. Term of Office and Removal. The Board of Directors at its
annual meeting after each annual meeting of stockholders or at a special meeting
called for that purpose shall choose officers and agents, if any, in accordance
with the provisions of Section 6.01. Each officer of the Corporation shall hold
office until his successor is elected and shall qualify. Any officer or agent
elected or appointed by the Board of Directors may be removed, with or without
cause, at any time by the affirmative vote of a majority of the Directors then
in office. Any vacancy occurring in any office of the Corporation may be filled
for the unexpired portion of the term by the Board of Directors.
Section 6.03. Compensation. The salaries of all officers and agents, if
any, of the Corporation shall be fixed from time to time by the Board of
Directors, and no officer or agent shall be prevented from receiving such salary
by reason of the fact that he is also a Director of the Corporation.
Section 6.04. Chairman of the Board and the President. The Chairman of
the Board shall be the chief executive officer of the Corporation. If there is
no Chairman of the Board, the President shall be the chief executive officer of
the Corporation. The duties of the Chairman of the Board, and of the President
at the direction of the Chairman of the Board, shall be the following:
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(i) Subject to the direction of the Board of
Directors, to have general charge of the business, affairs and property
of the Corporation and general supervision over its other officers and
agents and, in general, to perform all duties incident to the office of
Chairman of the Board (or President, as the case may be) and to see
that all orders and resolutions of the Board of Directors are carried
into effect.
(ii) Unless otherwise prescribed by the Board of
Directors, to have full power and authority on behalf of the
Corporation to attend, act and vote at any meeting of security holders
of other Corporations in which the Corporation may hold securities. At
such meeting the Chairman of the Board (or the President, as the case
may be) shall possess and may exercise any and all rights and powers
incident to the ownership of such securities that the Corporation might
have possessed and exercised if it had been present. The Board of
Directors may from time to time confer like powers upon any other
person or persons.
(iii) To preside over meetings of the stockholders
and of the Board of Directors, to call special meetings of
stockholders, to be an ex-officio member of all committees of the Board
of Directors, and to have such other duties as may from time to time be
prescribed by the Board of Directors.
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Section 6.05. The Vice President. The Vice President, if any (or in the
event there be more than one (1), the Vice Presidents in the order designated,
or in the absence of any designation, in the order of their election), shall, in
the absence of the President or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the President and shall generally
assist the President and perform such other duties and have such other powers as
may from time to time be prescribed by the Board of Directors.
Section 6.06. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all votes and
the proceedings of the meetings in a book to be kept for that purpose and shall
perform like duties for any committees of the Board of Directors, if requested
by such committee. The Secretary shall give, or cause to be given, notice of all
meetings of stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may from time to time be prescribed by the
Board of Directors or the President, under whose supervision he shall act. The
Secretary shall have custody of the seal of the Corporation, and, or an
Assistant Secretary, shall have authority to affix the same to any instrument
requiring it, and, when so affixed, the seal may be attested by the signature of
the Secretary or by the signature of such Assistant Secretary.
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Section 6.07. The Assistant Secretary. The Assistant Secretary, if any
(or in the event there be more than one (1), the Assistant Secretaries in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 6.08. The Treasurer. The Treasurer, if any, shall have the
custody of the corporate funds and other valuable effects, including securities,
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may from time to time be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at regular meetings of the board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation.
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Section 6.09. The Assistant Treasurer. The Assistant Treasurer, if any,
(or in the event there be more than one (1), the Assistant Treasurers in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 6.10. Transfer of Authority. In case of the absence of any
officer or for any other reason that the Board of Directors deems sufficient,
the Board of Directors may transfer the powers or duties of that officer to any
other officer or to any Director or employee of the Corporation, provided a
majority of the full Board of Directors concurs.
Section 6.11. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
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ARTICLE VII
STOCK CERTIFICATES
Section 7.01. Form and Signatures. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation, by the Chairman of the Board, the President or a Vice President
and the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Corporation, certifying the number and class (and series, if
any) of shares owned by him, and bearing the seal of the Corporation. Such seal
and any or all of the signatures on the certificate may be a facsimile. In case
any officer, transfer agent, or registrar who has signed, or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 7.02. Registration of Transfer. Upon surrender to the
Corporation or any transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or its transfer
agent to issue a new certificate to the person entitled thereto, to cancel the
old certificate and to record the transaction upon its books.
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Section 7.03. Registered Stockholders. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person who is registered on its books as the owner of shares of its capital
stock to receive dividends or other distributions, to vote as such owner, and to
hold liable for calls and assessments a person who is registered on its books as
the owner of shares of its capital stock. The Corporation shall not be bound to
recognize any equitable, legal or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
Section 7.04. Issuance of Certificates. No certificate shall be issued
for any share until (i) consideration for such share in the form of cash,
services rendered, personal or real property, leases of real property or a
combination thereof in an amount not less than the par value or stated capital
of such share has been received by the Corporation and (ii) the Corporation has
received a binding obligation of the subscriber or purchaser to pay the balance
of the subscription or purchase price.
Section 7.05. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making
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of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as it shall require, and to give the Corporation a bond in such sum, or other
security in such form as it may direct, as indemnity against any claim that may
be made against the Corporation on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 7.06. Dividends. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Directors, Officers, Employees or Agents.
(a) The Corporation shall 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
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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. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or a proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall 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 he is or was a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the
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Corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise 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 and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged 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.
(c) To the extent that a Director, officer, employee or agent
of the Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of this
Article VIII, or in 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.
(d) Any indemnification under subsections (a) and (b) of this
Article VIII (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a
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determination that indemnification of the Director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b) of this Article VIII. Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of Directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion or (3) by the stockholders.
(e) Expenses incurred by an officer or Director in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such Director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided
by these Bylaws shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested Directors or otherwise, both as
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to action in his official capacity and as to action in another capacity while
holding such office.
(g) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article 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 the heirs,
executors and administrators of such a person.
(h) The Corporation may purchase and maintain insurance on
behalf of any person who 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 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 liability under this Article.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Fiscal Year. The fiscal year of the Corporation shall be
as determined from time to time by the Board of Directors.
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Section 9.02. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Delaware." The seal or any facsimile thereof may be, but need not be,
unless required by law, impressed or affixed to any instrument executed by an
officer of the Corporation.
Section 9.03. Checks, Notes, Etc.. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptance notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
Section 9.04. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company, or
other institution or from any firm, corporation, or individual,
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and for such other evidences of indebtedness of the Corporation. When authorized
so to do, any officer or agent of the Corporation may pledge, hypothecate or
transfer, as security for the payment of any and all loans, advances,
indebtedness and liabilities of the Corporation, and any and all stocks,
securities and other personal property at any time held by the Corporation, and
to that end may endorse, assign and deliver the same. Such authority may be
general or confined to specific instances.
Section 9.05. Contracts. Except as otherwise provided in these Bylaws
or as otherwise directed by the Board of Directors, the President or any Vice
President shall be authorized to execute and deliver, in the name and on behalf
of the Corporation, all agreements, bonds, contracts, deeds, mortgages, and
other instruments, either for the Corporation's own account or in a fiduciary or
other capacity, and the seal of the Corporation, if appropriate, shall be
affixed thereto by any of such officers or the Secretary or an Assistant
Secretary. The Board of Directors, the President or any Vice President
designated by the Board of Directors may authorize any other officer, employee
or agent to execute and deliver, in the name and on behalf of the Corporation,
agreements, bonds, contracts, deeds, mortgages, and other instruments, either
for the Corporation's own account or in a fiduciary or other capacity and, if
appropriate, to affix the seal of the Corporation
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thereto. The grant of such authority by the Board or any such officer may be
general or confined to specific instances.
ARTICLE X
AMENDMENTS
Section 10.01. These Bylaws may be altered, amended or repealed or new
Bylaws may be adopted by the stockholders or by the Board of Directors, to the
extent that such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such proposed alteration, amendment, repeal or
adoption of new Bylaws be contained in the notice of such special meeting.
31
TRAVEL SERVICES INTERNATIONAL, INC.
LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of the Long Term Incentive Plan (the "Plan") of
Travel Services International, Inc., a Delaware corporation (the "Company"), is
to advance the interests of the Company and its stockholders by providing a
means to attract, retain and reward executive officers, employee directors and
other key employees and consultants of and service providers to the Company and
its subsidiaries (including consultants and others providing services of
substantial value) and to enable such persons to acquire or increase a
proprietary interest in the Company, thereby promoting a closer identity of
interests between such persons and the Company's stockholders.
2. DEFINITIONS. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards are set forth in Section 6 of the Plan. Such awards, together
with any other right or interest granted to a Participant under the Plan, are
termed "Awards." For purposes of the Plan, the following additional terms shall
be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan of
the Company, acquires directly or indirectly the Beneficial Ownership (as
defined in Section 13(d) of the Exchange Act) of any voting security of the
Company and immediately after such acquisition such Person is, directly or
indirectly, the Beneficial Owner of voting securities representing 50 percent or
more of the total voting power of all of the then-outstanding voting securities
of the Company;
(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 the
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
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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);
(iii) the stockholders of the Company approve a merger, consolidation,
recapitalization or reorganization of the Company, or 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 percent 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 percent of the holders of
outstanding voting securities of the Company 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 the Company shall approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or a substantial portion of the Company's assets (i.e., 50
percent or more of the total assets of the Company).
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(f) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan;
PROVIDED, HOWEVER, that, to the extent necessary to comply with Rule 16b-3, the
Committee shall consist of two or more directors, each of whom is a
"non-employee director" within the meaning of Rule 16b-3.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act shall
be deemed to include rules thereunder and successor provisions and rules
thereto.
(h) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, PROVIDED, HOWEVER, that (i) if the Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
Fair Market Value of such Stock on a given date shall be based upon the last
sales price or, if unavailable, the average of the closing bid and asked prices
per share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on the next preceding date on which there was trading or
quotation) as reported in the WALL STREET JOURNAL (or other reporting service
approved by the Committee), (ii) the "Fair Market Value" of Stock subject to
Options granted effective upon
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commencement of the Initial Public Offering shall be the Initial Public Offering
price of the shares so issued and sold in the Initial Public Offering, as set
forth in the first final prospectus used in such offering (the provisions of
clause (i) notwithstanding) and (iii) the "Fair Market Value" of Stock prior to
the date of the Initial Public Offering shall be as determined by the Board of
Directors.
(i) "Initial Public Offering" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the Securities
and Exchange Commission in compliance with the provisions of the Securities Act
of 1933, as amended.
(j) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(k) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(l) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(m) "Stock" means the Common Stock, $.01 par value, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
such person;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of any
Award granted under the Plan (including, but not limited to, any exercise price,
grant price or purchase price, any restriction or condition, any schedule for
lapse of restrictions or conditions relating to transferability or forfeiture,
exercisability or settlement of an Award, and waivers or accelerations thereof,
performance conditions relating to an Award (including performance conditions
relating to Awards not intended to be governed by Section 7(f) and waivers and
modifications thereof), based in each case on such considerations as the
Committee shall determine), and all other matters to be determined in connection
with an Award;
(iv) to determine whether, to what extent and under what circumstances
an Award may be settled, or the exercise price of an Award may be paid, in cash,
Stock, other Awards, or other property, or an Award may be cancelled, forfeited,
or surrendered;
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(v) to determine whether, to what extent and under what circumstances
cash, Stock, other Awards or other property payable with respect to an Award
will be deferred either automatically, at the election of the Committee or at
the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any Award,
rules and regulations, Award Agreement or other instrument hereunder; and
(ix) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or advisable
for the administration of the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Committee shall
have sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, subsidiaries of the Company, Participants, any
person claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action not consistent with, its prior action. If not specified in
the Plan, the time at which the Committee must or may make any determination
shall be determined by the Committee, and any such determination may thereafter
be modified by the Committee (subject to Section 8(e)). The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee. The
Committee may delegate to officers or managers of the Company or any subsidiary
of the Company the authority, subject to such terms as the Committee shall
determine, to perform administrative functions and, with respect to Participants
not subject to Section 16 of the Exchange Act, to perform such other functions
as the Committee may determine, to the extent permitted under Rule 16b-3, if
applicable, and other applicable law.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any
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officer or employee of the Company acting on its behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company with respect
to any such action, determination or interpretation.
4. STOCK SUBJECT TO PLAN.
(a) AMOUNT OF STOCK RESERVED. The total amount of Stock that may be
subject to outstanding awards, determined immediately after the grant of any
Award, shall not exceed the greater of _________ shares of Stock or __% of the
total number of shares of Stock outstanding at the time of such grant.
Notwithstanding the foregoing, the number of shares that may be delivered upon
the exercise of ISOs shall not exceed [_________], subject in each case to
adjustment as provided in Section 4(c), and the number of shares that may be
delivered as Deferred Stock (other than pursuant to an Award granted under
Section 7(f)) shall not in the aggregate exceed [_________], provided, however,
that shares subject to ISOs, Restricted Stock or Deferred Stock Awards shall not
be deemed delivered if such Awards are forfeited, expire or otherwise terminate
without delivery of shares to the Participant. If an Award valued by reference
to Stock may only be settled in cash, the number of shares to which such Award
relates shall be deemed to be Stock subject to such Award for purposes of this
Section 4(a). Any shares of Stock delivered pursuant to an Award may consist, in
whole or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's Account.
(b) ANNUAL PER-PARTICIPANT LIMITATIONS. During any calendar year, no
Participant may be granted Awards that may be settled by delivery of more than
[___________] shares of Stock, subject to adjustment as provided in Section
4(c). In addition, with respect to Awards that may be settled in cash (in whole
or in part), no Participant may be paid during any calendar year cash amounts
relating to such Awards that exceed the greater of the Fair Market Value of the
number of shares of Stock set forth in the preceding sentence at the date of
grant or the date of settlement of Award. This provision sets forth two separate
limitations, so that Awards that may be settled solely by delivery of Stock will
not operate to reduce the amount of cash-only Awards, and vice versa;
nevertheless, Awards that may be settled in Stock or cash must not exceed either
limitation.
(c) ADJUSTMENTS. In the event that the Committee shall determine that
any dividend or other distribution (whether in the form of cash, Stock or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, liquidation, dissolution, or other similar corporate transaction or
event, affects the Stock such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of Participants under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number and kind of shares of Stock reserved and available for
Awards under Section 4(a), including shares reserved for the ISOs and Restricted
and Deferred Stock, (ii) the number and kind of shares of Stock specified in the
Annual Per-Participant Limitations under Section 4(b), (iii) the number and kind
of shares of outstanding Restricted Stock or other outstanding Award in
connection with which shares have been issued, (iv) the number and kind of
shares that may be issued in respect of other outstanding Awards and (v) the
exercise
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price, grant price or purchase price relating to any Award (or, if deemed
appropriate, the Committee may make provision for a cash payment with respect to
any outstanding Award). In addition, the Committee is authorized to make
adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or nonrecurring events (including, without limitation,
events described in the preceding sentence) affecting the Company or any
subsidiary or the financial statements of the Company or any subsidiary, or in
response to changes in applicable laws, regulations, or accounting principles.
The foregoing notwithstanding, no adjustments shall be authorized under this
Section 4(c) with respect to ISOs or SARs in tandem therewith to the extent that
such authority would cause the Plan to fail to comply with Section 422(b)(1) of
the Code, and no such adjustment shall be authorized with respect to Options,
SARs or other Awards subject to Section 7(f) to the extent that such authority
would cause such Awards to fail to qualify as "qualified performance-based
compensation" under Section 162(m)(4)(C) of the Code.
5. ELIGIBILITY. Executive officers and other key employees of the
Company and its subsidiaries, including any director or officer who is also such
an employee, [any non-employee director] and persons who provide consulting or
other services to the Company deemed by the Committee to be of substantial value
to the Company, are eligible to be granted Awards under the Plan. In addition, a
person who has been offered employment by the Company or its subsidiaries is
eligible to be granted an Award under the Plan, provided that such Award shall
be cancelled if such person fails to commence such employment, and no payment of
value may be made in connection with such Award until such person has commenced
such employment. The foregoing notwithstanding, no member of the Committee shall
be eligible to be granted Awards under the Plan.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as provided in Section 6(f), 6(h), or 7(a),
or to the extent required to comply with requirements of the Delaware General
Corporation Law that lawful consideration be paid for Stock, only services may
be required as consideration for the grant (but not the exercise) of any Award.
(b) OPTIONS. The Committee is authorized to grant Options (including
"reload" options automatically granted to offset specified exercises of Options)
on the following terms and conditions ("Options"):
(i) EXERCISE PRICE. The exercise price per share of Stock purchasable
under an Option shall be determined by the Committee; PROVIDED, HOWEVER, that,
except as provided in Section 7(a), such exercise price shall be not less than
the Fair Market Value of a share on the date of grant of such Option.
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(ii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the form
of such payment, including, without limitation, cash, Stock, other Awards or
awards granted under other Company plans or other property (including notes or
other contractual obligations of Participants to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by which Stock will be delivered or deemed
to be delivered to Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall comply in
all respects with the provisions of Section 422 of the Code, including but not
limited to the requirement that no ISO shall be granted more than ten years
after the effective date of the Plan. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs shall be interpreted,
amended, or altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify either the Plan or any ISO under Section
422 of the Code, unless requested by the affected Participant.
(iv) TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee, upon termination of a Participant's employment with the Company and
its subsidiaries, such Participant may exercise any Options during the
three-month period following such termination of employment, but only to the
extent such Option was exercisable immediately prior to such termination of
employment. Notwithstanding the foregoing, if the Committee determines that such
termination is for cause, all Options held by the Participant shall terminate as
of the termination of employment.
(c) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant
SARs on the following terms and conditions ("SARs"):
(i) RIGHT TO PAYMENT. An SAR shall confer on the Participant to whom it
is granted a right to receive, upon exercise thereof, the excess of (A) the Fair
Market Value of one share of Stock on the date of exercise (or, if the Committee
shall so determine in the case of any such right other than one related to an
ISO, the Fair Market Value of one share at any time during a specified period
before or after the date of exercise), over (B) the grant price of the SAR as
determined by the Committee as of the date of grant of the SAR, which, except as
provided in Section 7(a), shall be not less than the Fair Market Value of one
share of Stock on the date of grant.
(ii) OTHER TERMS. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method by
which Stock will be delivered or deemed to be delivered to Participants, whether
or not an SAR shall be in tandem with any other Award, and any other terms and
conditions of any SAR. Limited SARs that may only be exercised upon the
occurrence of a Change in Control may be granted on such terms, not inconsistent
with this Section 6(c), as the Committee may determine. Limited SARs may be
either freestanding or in tandem with other Awards.
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<PAGE>
(d) RESTRICTED STOCK. The Committee is authorized to grant Restricted
Stock on the following terms and conditions ("Restricted Stock"):
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions, if any, as the Committee
may impose, which restrictions may lapse separately or in combination at such
times, under such circumstances, in such installments, or otherwise, as the
Committee may determine. Except to the extent restricted under the terms of the
Plan and any Award Agreement relating to the Restricted Stock, a Participant
granted Restricted Stock shall have all of the rights of a stockholder
including, without limitation, the right to vote Restricted Stock or the right
to receive dividends thereon.
(ii) FORFEITURE. Except as otherwise determined by the Committee, upon
termination of employment or service (as determined under criteria established
by the Committee) during the applicable restriction period, Restricted Stock
that is at that time subject to restrictions shall be forfeited and reacquired
by the Company; PROVIDED, HOWEVER, that the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in any individual case,
that restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of termination resulting from specified
causes.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates may bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Restricted Stock, the
Company may retain physical possession of the certificate, and the Participant
shall have delivered a stock power to the Company, endorsed in blank, relating
to the Restricted Stock.
(iv) DIVIDENDS. Dividends paid on Restricted Stock shall be either paid
at the dividend payment date in cash or in shares of unrestricted Stock having a
Fair Market Value equal to the amount of such dividends, or the payment of such
dividends shall be deferred and/or the amount or value thereof automatically
reinvested in additional Restricted Stock, other Awards, or other investment
vehicles, as the Committee shall determine or permit the Participant to elect.
Stock distributed in connection with a Stock split or Stock dividend, and other
property distributed as a dividend, shall be subject to restrictions and a risk
of forfeiture to the same extent as the Restricted Stock with respect to which
such Stock or other property has been distributed, unless otherwise determined
by the Committee.
(e) DEFERRED STOCK. The Committee is authorized to grant Deferred Stock
subject to the following terms and conditions ("Deferred Stock"):
(i) AWARD AND RESTRICTIONS. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock by
the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such restrictions
as the Committee may impose, if any, which restrictions may
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<PAGE>
lapse at the expiration of the deferral period or at earlier specified times,
separately or in combination, in installments or otherwise, as the Committee may
determine.
(ii) FORFEITURE. Except as otherwise determined by the Committee, upon
termination of employment or service (as determined under criteria established
by the Committee) during the applicable deferral period or portion thereof to
which forfeiture conditions apply (as provided in the Award Agreement evidencing
the Deferred Stock), all Deferred Stock that is at that time subject to such
forfeiture conditions shall be forfeited; PROVIDED, HOWEVER, that the Committee
may provide, by rule or regulation or in any Award Agreement, or may determine
in any individual case, that restrictions or forfeiture conditions relating to
Deferred Stock will be waived in whole or in part in the event of termination
resulting from specified causes.
(f) BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The
Committee is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of Company obligations to pay cash under other plans or
compensatory arrangements. Stock or Awards granted hereunder shall be subject to
such other terms as shall be determined by the Committee.
(g) DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents entitling the Participant to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock ("Dividend Equivalents"). Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
(h) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries ("Other Stock Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock issued
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
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<PAGE>
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with or in substitution for any other
Award granted under the Plan or any award granted under any other plan of the
Company, any subsidiary or any business entity to be acquired by the Company or
a subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Awards granted in addition to or in tandem with other
Awards or awards may be granted either as of the same time as or a different
time from the grant of such other Awards or awards.
(b) TERM OF AWARDS. The term of each Award shall be for such period as
may be determined by the Committee; PROVIDED, HOWEVER, that in no event shall
the term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a
subsidiary upon the grant, exercise or settlement of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards or other property, and may be made in a single payment
or transfer, in installments or on a deferred basis. Such payments may include,
without limitation, provisions for the payment or crediting of reasonable
interest on installment or deferred payments or the grant or crediting of
Dividend Equivalents in respect of installment or deferred payments denominated
in Stock.
(d) LOAN PROVISIONS. With the consent of the Committee, and subject at
all times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a loan
or loans to a Participant with respect to the exercise of any Option or other
payment in connection with any Award, including the payment by a Participant of
any or all federal, state or local income or other taxes due in connection with
any Award. Subject to such limitations, the Committee shall have full authority
to decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the loan
is to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(e) PERFORMANCE-BASED AWARDS. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of performance conditions as a performance-based Award subject to
this Section 7(e), in order to qualify such Award as "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. The performance objectives for an Award subject to this
Section 7(e) shall consist of one or more business criteria and a targeted level
or levels of performance with respect to such criteria, as specified by the
Committee but subject to this Section 7(e). Performance objectives shall be
objective and shall otherwise meet the requirements of Section 162(m)(4)(C) of
the Code. Business criteria
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<PAGE>
used by the Committee in establishing performance objectives for Awards subject
to this Section 7(e) shall be selected exclusively from among the following:
(1) Annual return on capital;
(2) Annual earnings per share;
(3) Annual cash flow provided by operations;
(4) Changes in annual revenues; and/or
(5) Strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market penetration, geographic
business expansion goals, cost targets, and goals relating to acquisitions or
divestitures.
The levels of performance required with respect to such business criteria may be
expressed in absolute or relative levels. Achievement of performance objectives
with respect to such Awards shall be measured over a period of not less than one
year nor more than five years, as the Committee may specify. Performance
objectives may differ for such Awards to different Participants. The Committee
shall specify the weighting to be given to each performance objective for
purposes of determining the final amount payable with respect to any such Award.
The Committee may, in its discretion, reduce the amount of a payout otherwise to
be made in connection with an Award subject to this Section 7(e), but may not
exercise discretion to increase such amount, and the Committee may consider
other performance criteria in exercising such discretion. All determinations by
the Committee as to the achievement of performance objectives shall be in
writing. The Committee may not delegate any responsibility with respect to an
Award subject to this Section 7(e).
(f) ACCELERATION UPON A CHANGE OF CONTROL. Notwithstanding anything
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and restrictions relating to an Award,
including limitations on exercisability, risks of forfeiture and conditions and
restrictions requiring the continued performance of services or the achievement
of performance objectives with respect to the exercisability or settlement of
such Award, shall immediately lapse upon a Change in Control.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system or
any other law, regulation or contractual obligation of the Company until
11
<PAGE>
the Company is satisfied that such laws, regulations, and other obligations of
the Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) LIMITATIONS ON TRANSFERABILITY. Awards and other rights under the
Plan will not be transferable by a Participant except by will or the laws of
descent and distribution or to a Beneficiary in the event of the Participant's
death, and, if exercisable, shall be exercisable during the lifetime of a
Participant only by such Participant or his guardian or legal representative.
Notwithstanding the foregoing, the Committee may, in its discretion, authorize
all or a portion of the Award (other than an ISO) to be granted to a Particpant
to be on terms which permit transfer by such Participant to (i) the spouse,
children or grandchildren of such Partipant ("Immediate Family Members"), (ii) a
trust or trusts for exclusive benefit of such Immediate Family Members, or (iii)
a partnership in which such Immediate Family Members are the only partners,
provided that (x) there may be no consideration for any such transfer, (y) the
Award agreement pursuant to which such Awards are granted must be approved by
the Committee and must expressly provide for transferability in a manner
consistent with this Section, and (z) subsequent transfers of transferred Awards
shall be prohibited except those occurring by laws of descent and distribution.
Following transfer, any such Awards shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided
that for purposes of the Plan, the term Participant shall be deemed to refer to
the transferee. The events of termination of employment set forth in Section 6
hereof shall continue to be applied with respect to the original Participant,
following which the options shall be exercisable by the transferee only to the
extent and for the periods specified in Section 6. Awards and other rights under
the Plan may not be pledged, mortgaged, hypothecated or otherwise encumbered,
and shall not be subject to the claims of creditors.
(c) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee or other
person the right to be retained in the employ or service of the Company or any
of its subsidiaries, nor shall it interfere in any way with the right of the
Company or any of its subsidiaries to terminate any employee's employment or
other person's service at any time.
(d) TAXES. The Company and any subsidiary is authorized to withhold
from any Award granted or to be settled, any delivery of Stock in connection
with an Award, any other payment relating to an Award or any payroll or other
payment to a Participant amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an Award, and
to take such other action as the Committee may deem advisable to enable the
Company and Participants to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This authority shall
include authority to withhold or receive Stock or other property and to make
cash payments in respect thereof in satisfaction of a Participant's tax
obligations.
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<PAGE>
(e) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter,
suspend, discontinue or terminate the Plan or the Committee's authority to grant
Awards under the Plan without the consent of stockholders or Participants,
except that any such action shall be subject to the approval of the Company's
stockholders at or before the next annual meeting of stockholders for which the
record date is after such Board action if such stockholder approval is required
by any federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to
him. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any Award
Agreement relating thereto; PROVIDED, HOWEVER, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under such Award.
(f) NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. No Participant or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Participants and employees. No
Award shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
PROVIDED, HOWEVER, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
(i) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
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(j) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the
Company that employee Options, SARs and other Awards designated as Awards
subject to Section 7(e) shall constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m). Accordingly, if any
provision of the Plan or any Award Agreement relating to such an Award does not
comply or is inconsistent with the requirements of Code Section 162(m), such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements, and no provision shall be deemed to confer upon
the Committee or any other person discretion to increase the amount of
compensation otherwise payable in connection with any such Award upon attainment
of the performance objectives.
(k) GOVERNING LAW. The validity, construction and effect of the Plan,
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable federal law.
(l) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective
as of the date of its adoption by the Board, subject to stockholder approval
prior to the commencement of the Initial Public Offering, and shall continue in
effect until terminated by the Board.
14
TRAVEL SERVICES INTERNATIONAL, INC.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. PURPOSE. The purpose of this Non-Employee Directors' Stock Plan (the
"Plan") of TRAVEL SERVICES INTERNATIONAL, INC. a Delaware corporation (the
"Company"), is to advance the interests of the Company and its stockholders by
providing a means to attract and retain highly qualified persons to serve as
non-employee directors and advisory directors of the Company and to enable such
persons to acquire or increase a proprietary interest in the Company, thereby
promoting a closer identity of interests between such persons and the Company's
stockholders.
2. DEFINITIONS. In addition to terms defined elsewhere in the Plan, the
following are defined terms under the Plan:
(a) "Code" means the Internal Revenue Code of 1986, as amended
from time to time. References to any provision of the Code shall be deemed to
include regulations thereunder and successor provisions and regulations thereto.
(b) "Deferred Share" means a credit to a Participant's
deferral account under Section 7 which represents the right to receive one Share
upon settlement of the deferral account. Deferral accounts, and Deferred Shares
credited thereto, are maintained solely as bookkeeping entries by the Company
evidencing unfunded obligations of the Company.
(c) "Exchange Act" means the Securities Exchange Act of 1934,
as amended. References to any provision of the Exchange Act shall be deemed to
include rules thereunder and successor provisions and rules thereto.
(d) "Fair Market Value" of a Share on a given date means the
last sales price or, if last sales information is generally unavailable, the
average of the closing bid and asked prices per Share on such date (or, if there
was no trading or quotation in the stock on such date, on the next preceding
date on which there was trading or quotation) as reported in the WALL STREET
JOURNAL; PROVIDED, HOWEVER, that the "Fair Market Value" of a Share subject to
Options granted effective on the date on which the Company commences an Initial
Public Offering shall be the price of the shares so issued and sold, as set
forth in the first final prospectus used in such Initial Public Offering.
(e) "Initial Public Offering" means an initial public offering
of shares in a firm commitment underwriting register with the Securities and
Exchange Commission in compliance with the provisions of the Securities Act of
1933, as amended.
(f) "Option" means the right, granted to a director under
Section 6, to purchase a specified number of Shares at the specified exercise
price for a specified period of time under the Plan.
All Options will be non-qualified stock options.
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(g) "Participant" means a person who, as a non-employee
director or advisory director of the Company, has been granted an Option or
Deferred Shares which remain outstanding or who has elected to be paid fees in
the form of Shares or Deferred Shares under the Plan.
(h) "Rule 16b-3" means Rule 16b-3, as from time to time in
effect and applicable to the Plan and Participants, promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange Act.
(i) "Share" means a share of common stock, $.01 par value, of
the Company and such other securities as may be substituted for such Share or
such other securities pursuant to Section 8.
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided
in Section 8, the total number of Shares reserved and available for issuance
under the Plan is [_________]. Such Shares may be authorized but unissued
Shares, treasury Shares, or Shares acquired in the market for the account of the
Participant. For purposes of the Plan, Shares that may be purchased upon
exercise of an Option or delivered in settlement of Deferred Shares will not be
considered to be available after such Option has been granted or Deferred Share
credited, except for purposes of issuance in connection with such Option or
Deferred Share; PROVIDED, HOWEVER, that, if an Option expires for any reason
without having been exercised in full, the Shares subject to the unexercised
portion of such Option will again be available for issuance under the Plan.
4. ADMINISTRATION OF THE PLAN. The Plan will be administered by the
Board of Directors of the Company; PROVIDED, HOWEVER, that any action by the
Board relating to the Plan will be taken only if, in addition to any other
required vote, such action is approved by the affirmative vote of a majority of
the directors who are not then eligible to participate in the Plan.
5. ELIGIBILITY. Each director or advisory director of the Company who,
on any date on which an Option is to be granted under Section 6 or on which fees
are to be paid which could be received in the form of Shares or deferred in the
form of Deferred Shares under Section 7, is not an employee of the Company or
any subsidiary of the Company will be eligible, at such date, to be granted an
Option under Section 6 or receive fees in the form of Shares or defer fees in
the form of Deferred Shares under Section 7. No person other than those
specified in this Section 5 will be eligible to participate in the Plan.
6. OPTIONS. An Option to purchase ______ Shares, subject to adjustment
as provided in Section 8, will be automatically granted, (i) at the commencement
of the Initial Public Offering, to each person who is serving as a director or
advisory director of the Company at that time or who becomes a director or
advisory director of the Company at that time and who is eligible under Section
5 at that time, and thereafter (ii) at the effective date of initial election to
the Board of Directors, to each person so elected or appointed who is eligible
under Section 5 at that date. In addition, an Option to purchase _____ Shares,
subject to adjustment as provided in Section 8, will be automatically granted,
at the close of business of each annual meeting of stockholders of the Company,
to each member of the Board of Directors or advisory director who is eligible
under Section 5 at the close of business of such annual meeting. Notwithstanding
the foregoing, any person who was automatically granted an Option to purchase
_______ Shares at the effective date of initial election or to the Board of
Directors or appointment as an advisory director shall not be automatically
granted an Option to purchase
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_____ shares at the first annual meeting of stockholders following such initial
election if such annual meeting takes place within three months of the effective
date of such person's initial election to the Board of Directors.
(a) EXERCISE PRICE. The exercise price per Share purchasable
upon exercise of an Option will be equal to 100% of the Fair Market Value of a
Share on the date of grant of the Option.
(b) OPTION EXPIRATION. A Participant's Option will expire at
the earlier of (i) 10 years after the date of grant or (ii) one year after the
date the Participant ceases to serve as a director of the Company for any
reason.
(c) EXERCISABILITY. Each Option may be exercised commencing
immediately upon its grant.
(d) METHOD OF EXERCISE. A Participant may exercise an Option,
in whole or in part, at such time as it is exercisable and prior to its
expiration, by giving written notice of exercise to the Secretary of the
Company, specifying the Option to be exercised and the number of Shares to be
purchased, and paying in full the exercise price in cash (including by check) or
by surrender of Shares already owned by the Participant (except for Shares
acquired from the Company by exercise of an option less than six months before
the date of surrender) having a Fair Market Value at the time of exercise equal
to the exercise price, or by a combination of cash and Shares.
7. RECEIPT OF SHARES OR DEFERRED SHARES IN LIEU OF FEES. Each director
or advisory director of the Company may elect to be paid fees, in his or her
capacity as a director or advisory director (including annual retainer fees for
service on the Board, fees for service on a Board committee, fees for service as
chairman of a Board committee, and any other fees paid to directors) in the form
of Shares or Deferred Shares in lieu of cash payment of such fees, if such
director is eligible to do so under Section 5 at the date any such fee is
otherwise payable. If so elected, payment of fees in the form of Shares or
Deferred Shares shall be made in accordance with this Section 7.
(a) ELECTIONS. Each director or advisory director who elects
to be paid fees for a given calendar year in the form of Shares or to defer such
payment of fees in the form of Deferred Shares for such year must file an
irrevocable written election with the Secretary of the Company no later than
December 31 of the year preceding such calendar year; PROVIDED, that any newly
elected or appointed director may file an election for any year not later than
30 days after the date such person first became a director or advisory director,
and a director may file an election for the year in which the Plan became
effective not later than 30 days after the date of effectiveness. An election by
a director or advisory director shall be deemed to be continuing and therefore
applicable to subsequent Plan years unless the director or advisory director
revokes or changes such election by filing a new election form by the due date
for such form specified in this Section 7(a). The election must specify the
following:
(i) A percentage of fees to be received in the form
of Shares or deferred in the form of Deferred Shares under the Plan; and
(ii) In the case of a deferral, the period or periods
during which settlement of Deferred Shares will be deferred (subject to such
limitations as may be specified by counsel to the
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Company). Certain elections may not result in receipt of Shares or deferral of
fees as Deferred Shares for a six-month period, as provided in Section 7(g).
(b) PAYMENT OF FEES IN THE FORM OF SHARES. At any date on
which fees are payable to a Participant who has elected to receive such fees in
the form of Shares, the Company will issue to such Participant, or to a
designated third party for the account of such Participant, a number of Shares
having an aggregate Fair Market Value at that date equal to the fees, or as
nearly as possible equal to the fees (but in no event greater than the fees),
that would have been payable at such date but for the Participant's election to
receive Shares in lieu thereof. If the Shares are to be credited to an account
maintained by the Participant and to the extent reasonably practicable without
requiring the actual issuance of fractional Shares, the Company shall cause
fractional Shares to be credited to the Participant's account. If fractional
Shares are not so credited, any part of the Participant's fees not paid in the
form of whole Shares will be payable in cash to the Participant (either paid
separately or included in a subsequent payment of fees, including a subsequent
payment of fees subject to an election under this Section 7).
(c) DEFERRAL OF FEES IN THE FORM OF DEFERRED SHARES. The
Company will establish a deferral account for each Participant who elects to
defer fees in the form of Deferred Shares under this Section 7. At any date on
which fees are payable to a Participant who has elected to defer fees in the
form of Deferred Shares, the Company will credit such Participant's deferral
account with a number of Deferred Shares equal to the number of Shares having an
aggregate Fair Market Value at that date equal to the fees that otherwise would
have been payable at such date but for the Participant's election to defer
receipt of such fees in the form of Deferred Shares. The amount of Deferred
Shares so credited shall include fractional Shares calculated to at least three
decimal places.
(d) CREDITING OF DIVIDEND EQUIVALENTS. Whenever dividends are
paid or distributions made with respect to Shares, a Participant to whom
Deferred Shares are then credited in a deferral account shall be entitled to
receive, as dividend equivalents, an amount equal in value to the amount of the
dividend paid or property distributed on a single Share multiplied by the number
of Deferred Shares (including any fractional Share) credited to his or her
deferral account as of the record date for such dividend or distribution. Such
dividend equivalents shall be credited to the Participant's deferral account as
a number of Deferred Shares determined by dividing the aggregate value of such
dividend equivalents by the Fair Market Value of a Share at the payment date of
the dividend or distribution.
(e) SETTLEMENT OF DEFERRED SHARES. The Company will settle the
Participant's deferral account by delivering to the Participant (or his or her
beneficiary) a number of Shares equal to the number of whole Deferred Shares
then credited to his or her deferral account (or a specified portion in the
event of any partial settlement), together with cash in lieu of any fractional
Share remaining at a time that less than one whole Deferred Share is credited to
such deferral account. Such settlement shall be made at the time or times
specified in the Participant's election filed in accordance with Section 7(a);
PROVIDED, HOWEVER, that a Participant may further defer settlement of Deferred
Shares if counsel to the Company determines that such further deferral likely
would be effective under applicable federal income tax laws and regulations.
4
<PAGE>
(f) NONFORFEITABILITY. The interest of each Participant in any
fees paid in the form of Shares or Deferred Shares (and any deferral account
relating thereto) at all times will be nonforfeitable.
8. ADJUSTMENT PROVISIONS.
(a) CORPORATE TRANSACTIONS AND EVENTS. In the event any
dividend or other distribution (whether in the form of cash, Shares or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, exchange of Shares or other
securities of the Company, extraordinary dividend (whether in the form of cash,
Shares, or other property), liquidation, dissolution, or other similar corporate
transaction or event affects the Shares such that an adjustment is appropriate
in order to prevent dilution or enlargement of each Participant's rights under
the Plan, then an adjustment shall be made, in a manner that is proportionate to
the change to the Shares and otherwise equitable, in (i) the number and kind of
Shares remaining reserved and available for issuance under Section 3, (ii) the
number and kind of Shares to be subject to each automatic grant of an Option
under Section 6, (iii) the number and kind of Shares issuable upon exercise of
outstanding Options, and/or the exercise price per Share thereof (provided that
no fractional Shares will be issued upon exercise of any Option), (iv) the kind
of Shares to be issued in lieu of fees under Section 7, and (v) the number and
kind of Shares to be issued upon settlement of Deferred Shares under Section 7.
In addition, the Board of Directors is authorized to make such adjustments in
recognition of unusual or non-recurring events (including, without limitation,
events described in the preceding sentence) affecting the Company or any
subsidiary or the financial statements of the Company or any subsidiary, or in
response to changes in applicable laws, regulations or accounting principles.
The foregoing notwithstanding, no adjustment may be made hereunder except as
will be necessary to maintain the proportionate interest of the Participant
under the Plan and to preserve, without exceeding, the value of outstanding
Options and potential grants of Options and the value of outstanding Deferred
Shares.
(b) INSUFFICIENT NUMBER OF SHARES. If at any date an
insufficient number of Shares are available under the Plan for the automatic
grant of Options or the receipt of fees in the form of Shares or deferral of
fees in the form of Deferred Shares at that date, Options will first be
automatically granted proportionately to each eligible director, to the extent
Shares are then available (provided that no fractional Shares will be issued
upon exercise of any Option) and otherwise as provided under Section 6, and
then, if any Shares remain available, fees shall be paid in the form of Shares
or deferred in the form of Deferred Shares proportionately among directors then
eligible to participate to the extent Shares are then available and otherwise as
provided under Section 7.
9. CHANGES TO THE PLAN. The Board of Directors may amend, alter,
suspend, discontinue, or terminate the Plan or authority to grant Options or pay
fees in the form of Shares or Deferred Shares under the Plan without the consent
of stockholders or Participants, except that any amendment or alteration will be
subject to the approval of the Company's stockholders at or before the next
annual meeting of stockholders for which the record date is after the date of
such Board action if such stockholder approval is required by any federal or
state law or regulation or the rules of any stock exchange or automated
quotation system as then in effect, and the Board may otherwise determine to
submit other such amendments or alterations to stockholders for approval;
PROVIDED, HOWEVER, that, without the consent of an affected Participant, no such
action may materially impair the rights of
5
<PAGE>
such Participant with respect to any previously granted Option or any previous
payment of fees in the form of Shares or Deferred Shares.
10. GENERAL PROVISIONS.
(a) AGREEMENTS. Options, Deferred Shares, and any other right
or obligation under the Plan may be evidenced by agreements or other documents
executed by the Company and the Participant incorporating the terms and
conditions set forth in the Plan, together with such other terms and conditions
not inconsistent with the Plan, as the Board of Directors may from time to time
approve.
(b) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company will not
be obligated to issue or deliver Shares in connection with any Option, in
payment of any directors' fees, or in settlement of Deferred Shares in a
transaction subject to the registration requirements of the Securities Act of
1933, as amended, or any other federal or state securities law, any requirement
under any listing agreement between the Company and any stock exchange or
automated quotation system, or any other law, regulation, or contractual
obligation of the Company, until the Company is satisfied that such laws,
regulations, and other obligations of the Company have been complied with in
full. Certificates representing Shares issued under the Plan will be subject to
such stop-transfer orders and other restrictions as may be applicable under such
laws, regulations, and other obligations of the Company, including any
requirement that a legend or legends be placed thereon.
(c) LIMITATIONS ON TRANSFERABILITY. Options, Deferred Shares,
and any other right under the Plan will not be transferable by a Participant
except by will or the laws of descent and distribution or to a Beneficiary in
the event of the Participant's death, and, if exercisable, shall be exercisable
during the lifetime of a Participant only by such Participant or his guardian or
legal representative. Notwithstanding the foregoing, the Committee may, in its
discretion, authorize all or a portion of the Options, Deferred Shares or other
right under the Plan granted to a Particpant to be on terms which permit
transfer by such Participant to (i) the spouse, children or grandchildren of
such Partipant ("Immediate Family Members"), (ii) a trust or trusts for
exclusive benefit of such Immediate Family Members, or (iii) a partnership in
which such Immediate Family Members are the only partners, provided that (x)
there may be no consideration for any such transfer, (y) the Option, Deferred
Share or other right agreement pursuant to which such awards are granted must be
approved by the Committee and must expressly provide for transferability in a
manner consistent with this Section, and (z) subsequent transfers of transferred
Options, Deferred Shares or other rights shall be prohibited except those
occurring by laws of descent and distribution. Following transfer, any such
awards shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that for purposes of the
Plan, the term Participant shall be deemed to refer to the transferee. Options,
Deferred Shares, and any other right under the Plan may not be pledged,
mortgaged, hypothecated or otherwise encumbered, and shall not be subject to the
claims of creditors.
(d) NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in
the Plan or any agreement hereunder will confer upon any Participant any right
to continue to serve as a director or advisory director of the Company.
(e) NO STOCKHOLDER RIGHTS CONFERRED. Nothing contained in the
Plan or any agreement hereunder will confer upon any Participant (or any person
or entity claiming rights by or
6
<PAGE>
through a Participant) any rights of a stockholder of the Company unless and
until Shares are in fact issued to such Participant (or person) or, in the case
an Option, such Option is validly exercised in accordance with Section 6.
(f) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the
Plan by the Board of Directors nor its submission to the stockholders of the
Company for approval shall be construed as creating any limitations on the power
of the Board to adopt such other compensatory arrangements for directors as it
may deem desirable.
(g) GOVERNING LAW. The validity, construction, and effect of
the Plan and any agreement hereunder will be determined in accordance with the
laws of the State of [Delaware], without giving effect to principles of
conflicts of laws, and applicable federal law.
11. STOCKHOLDER APPROVAL, EFFECTIVE DATE, AND PLAN
TERMINATION. The Plan will be effective as of the date of its adoption by the
Board, subject to stockholder approval prior to the commencement of the Initial
Public Offering, and, unless earlier terminated by action of the Board of
Directors, shall terminate at such time as no Shares remain available for
issuance under the Plan and the Company and Participants have no further rights
or obligations under the Plan.
7
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: May 14, 1997
/s/ Arthur Andersen LLP
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Securities Act"), I hereby consent to the use of my name and any references to
me as a person nominated to become a director of Travel Services International,
Inc. ("TSII") in the Prospectus constituting a part of TSII's Registration
Statement on Form S-1 to be filed with the Securities and Exchange Commission
pursuant to the Securities Act.
Dated: May 13, 1997
/s/ Robert G. Falcone
-----------------------
Robert G. Falcone
1
<PAGE>
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Securities Act"), I hereby consent to the use of my name and any references to
me as a person nominated to become a director of Travel Services International,
Inc. ("TSII") in the Prospectus constituting a part of TSII's Registration
Statement on Form S-1 to be filed with the Securities and Exchange Commission
pursuant to the Securities Act.
Dated: May 13, 1997
/s/ Wayne A. Heller
-------------------------
Wayne A. Heller
2
<PAGE>
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Securities Act"), I hereby consent to the use of my name and any references to
me as a person nominated to become a director of Travel Services International,
Inc. ("TSII") in the Prospectus constituting a part of TSII's Registration
Statement on Form S-1 to be filed with the Securities and Exchange Commission
pursuant to the Securities Act.
Dated: May 9, 1997
/s/ Imad Khalidi
---------------------
Imad Khalidi
3
<PAGE>
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Securities Act"), I hereby consent to the use of my name and any references to
me as a person nominated to become a director of Travel Services International,
Inc. ("TSII") in the Prospectus constituting a part of TSII's Registration
Statement on Form S-1 to be filed with the Securities and Exchange Commission
pursuant to the Securities Act.
Dated: May 10, 1997
/s/ Susan Parker
--------------------------
Susan Parker
4
<PAGE>
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Securities Act"), I hereby consent to the use of my name and any references to
me as a person nominated to become a director of Travel Services International,
Inc. ("TSII") in the Prospectus constituting a part of TSII's Registration
Statement on Form S-1 to be filed with the Securities and Exchange Commission
pursuant to the Securities Act.
Dated: May 13, 1997
/s/ John Przywara
------------------
John Przywara
5
<PAGE>
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Securities Act"), I hereby consent to the use of my name and any references to
me as a person nominated to become a director of Travel Services International,
Inc. ("TSII") in the Prospectus constituting a part of TSII's Registration
Statement on Form S-1 to be filed with the Securities and Exchange Commission
pursuant to the Securities Act.
Dated: May 14, 1997
______________________________
Tommasso Zanzotto
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Travel Services International, Inc., and Founding Companies Unaudited Pro
Forma Combined Financial Statements for the Year Ended December 31, 1996 (In
Thousands)
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1<F1>
<CASH> 6,066
<SECURITIES> 0
<RECEIVABLES> 3,038
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,769
<PP&E> 9,169
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,042
<CURRENT-LIABILITIES> 10,913
<BONDS> 5,422
0
0
<COMMON> 85
<OTHER-SE> 37,622
<TOTAL-LIABILITY-AND-EQUITY> 54,042
<SALES> 53,027
<TOTAL-REVENUES> 53,027
<CGS> 33,727
<TOTAL-COSTS> 33,727
<OTHER-EXPENSES> 11,526
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,420
<INCOME-PRETAX> 6,354
<INCOME-TAX> 2,833
<INCOME-CONTINUING> 3,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,521
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
<FN>
<F1>
The above numbers should only be read in conjunction with TSII's financial
statements and accompanying footnotes, for the period ended December 31, 1996.
</FN>
</TABLE>
