As filed with the Securities and Exchange Commission on June 19, 1997.
REGISTRATION NO. 333 -27125
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------
TRAVEL SERVICES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<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.
515 No. Flagler Drive
Suite 300-Pavillion
West Palm Beach, Florida 33401
(561) 802-3396
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C>
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
</TABLE>
----------------
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 $13.00 $37,375,000 $11,326(3)
</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).
(3) Of this amount, $10,455 was previously paid.
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 JUNE 19, 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 $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for listing of the
Common Stock for quotation on the Nasdaq National Market under the symbol
"TRVL."
See "Risk Factors" commencing on page 9 of this Prospectus for a discussion
of certain factors that should be considered by prospective purchasers of the
Common Stock offered hereby.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
---------- -------------- --------------
Per Share ..................... $ $ $
Total (3) ..................... $ $ $
================================================================================
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $2,500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to the Public will total $ , the Underwriting Discount will
total $ and the Proceeds to the Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the office of
Montgomery Securities on or about , 1997.
----------
MONTGOMERY SECURITIES FURMAN SELZ
, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
GLOBE OF THE WORLD
WITH COLLAGE OF PICTURES OF
TRAVEL DESTINATIONS.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
Simultaneously with and as a condition to the closing of the Offering made
by this Prospectus, Travel Services International, Inc. will acquire, in
separate combination transactions (the "Combinations") in exchange for cash and
shares of its Common Stock, all of the common stock and ownership interests of
five specialized distributors of travel services (each, a "Founding Company,"
and collectively, the "Founding Companies"). Unless otherwise indicated, all
references to the "Company" herein include the Founding Companies, and
references herein to TSII mean Travel Services International, Inc. prior to the
consummation of the Combinations. For more information about the Combinations,
see "Certain Transactions."
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes appearing elsewhere in this Prospectus. Unless otherwise
indicated, all share, per share and financial information in this Prospectus:
(i) have been adjusted to give effect to the Combinations; and (ii) assume no
exercise of the Underwriters' over-allotment option. Except as indicated
otherwise, all references to Common Stock include Restricted Common Stock. See
"Description of Capital Stock - Common Stock and Restricted Common Stock."
THE COMPANY
The Company was established to create a leading single source distributor
of specialized leisure travel services to both travel agents and travelers. The
Founding Companies are specialized distributors of travel services providing
airline, cruise or European auto rental reservations. Unlike travel agents,
specialized distributors such as the Founding Companies focus on a single
segment of the travel service industry and thus provide a greater level of
expertise with respect to their segments. Specialized distributors offer travel
providers, such as airlines, cruise lines and auto rental companies, an
alternative distribution channel through which significant amounts of capacity
are sold in return for preferential pricing. Through consolidation of
specialized distributors, the Company will be able to offer both travel agents
and travelers a single source of competitively priced services and extensive
expertise within and across multiple leisure travel segments.
The Founding Companies are specialized distributors of the following
leisure travel services: domestic airline reservations (Travel 800),
international airline reservations (D-FW Tours), cruise vacations (Cruises Only
and Cruises Inc.) and European auto rentals (Auto Europe). As leaders in their
respective segments, the Founding Companies have experienced significant
internal growth, with combined net revenues increasing from $34.0 million in
1994 to $53.0 million in 1996, representing a 24.9% 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 able to
provide travelers with domestic and international airline reservations through
Travel 800 and D-FW Tours. As a result of this cross-selling, the Company
retains the preferential pricing and in-depth expertise with regard to each
segment while providing its customers with the benefits of a broad array of
travel services.
Pursue an Aggressive Acquisition Program. The Company believes that the
travel service industry is highly fragmented with significant opportunities for
consolidation. The Company intends to implement an aggressive acquisition
program targeting other leading specialized distributors. The Company intends to
seek acquisitions within its core airline, cruise line and European auto rental
market segments in order to gain market share. In addition, the Company plans to
acquire companies that specialize in the distribution of travel services
complementary to those currently offered by the Company, such as tour operators
and distributors specializing in hotel and rail reservations. Acquisitions of
this nature will enhance the Company's ability to be a single source of leisure
travel services for its customers. Finally, the Company may also pursue
international acquisitions that will enable the Company to replicate its
business model for domestic and international travel originating in a country
other than the U.S. The Company has reviewed various strategic acquisition
opportunities and has held preliminary discussions with a number of such
acquisition candidates. As of the date of the Prospectus, except for the
Combinations, the Company has no agreement with respect to any acquisition.
The Company has analyzed significant data on the travel service industry
and individual businesses within the industry and believes that it is well
positioned to implement its acquisition program following the Offering. The
Company believes that the experience, reputation and relationships of the
Founding Companies' management will be of significant value in the Company's
attempts to acquire other specialized distributors. In addition, the Company
will rely on the industry experience of its senior management, particularly
Joseph Vittoria, the Chairman and Chief Executive Officer, who is the former
Chief Executive Officer of Avis, Inc. and a founding member of the World Travel
and Tourism Council.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company ..................... 2,500,000 shares
Common Stock to be outstanding after the Offering ...... 8,406,726 shares (1)(2)
Use of proceeds ....................................... To pay the cash portion of the purchase
price for the Founding Companies and for
general corporate purposes, including
future acquisitions. See "Use of
Proceeds." (2)
Proposed Nasdaq National Market symbol .................. TRVL
</TABLE>
- ----------
(1) Excludes 1,000,000 shares of Common Stock reserved for issuance under the
Company's option plans, of which options to purchase 783,900 shares are
expected to be issued concurrently with the Offering. See "Management -
1997 Long- Term Incentive Plan" and "- 1997 Non-Employee Directors' Stock
Plan."
(2) Of the net proceeds, $22.2 million will be used to pay the cash portion of
the purchase price for the Founding Companies of which approximately $21.9
million will be paid to former stockholders of the Founding Companies who
will become officers, directors, key employees or holders of more than 5%
of the Common Stock of the Company. See "Certain Transactions -
Organization of the Company." The Company's executive officers and
directors, and entities affiliated with them and holders of at least 5% of
the outstanding Common Stock will beneficially own shares of Common Stock
representing 63.9% of the total voting power of the Common Stock after
giving effect to the Offering (70.2% if all shares of Restricted Common
Stock were converted into Common Stock). See "Principal Stockholders" and
"Description of Capital Stock -- Common Stock and Restricted Common Stock."
5
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
TSII will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. For financial statement
presentation purposes, however, Auto Europe, one of the Founding Companies, has
been designated as the "accounting acquiror." The following summary unaudited
pro forma combined financial data present certain data for the Company as
adjusted for: (i) the effects of the Combinations on a historical basis; (ii)
the effects of certain pro forma adjustments to the historical financial
statements; and (iii) the consummation of the Offering. See the Unaudited Pro
Forma Combined Financial Statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
-------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED MARCH 31,
DECEMBER 31, 1996 (1) 1996 1997
--------------------- ------------ ------------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues .................................... $ 53,097 $ 11,638 $ 15,126
Operating expenses .............................. 33,727 8,164 9,892
---------- --------- ----------
Gross profit .................................... 19,370 3,474 5,234
General and administrative expenses (2) ......... 11,526 2,319 2,694
Goodwill amortization (3) ........................ 1,079 270 270
---------- --------- ----------
Income from operations ........................... 6,765 885 2,270
Interest and other income (expense), net ......... (411) (69) (99)
---------- --------- ----------
Income before income taxes ...................... 6,354 816 2,171
Net income .................................... $ 3,512 $ 444 $ 1,202
========== ========= ==========
Net income per share ........................... $ 0.43 $ 0.05 $ 0.15
========== ========= ==========
Shares used in computing pro forma net income per
share (4) .................................... 8,138,643 8,138,643 8,138,643
</TABLE>
MARCH 31, 1997
-----------------------------------
PRO FORMA AS
COMBINED (5) ADJUSTED (6)
------------------- -------------
BALANCE SHEET DATA:
Working capital deficit ...... $ (29,345) (7) $ (3,945)
Total assets .................. 55,945 (8) 59,162
Long-term debt ............... 5,059 5,059
Stockholders' equity ......... 12,358 37,758
- ----------
(1) The pro forma combined income statement data assume that the Combinations
and the Offering were consummated on January 1, 1996 and are not
necessarily indicative of the results the Company would have obtained had
these events actually then occurred or of the Company's future results.
During the period presented above, the Founding Companies were not under
common control or management and, therefore, the data presented may not be
comparable to or indicative of post-combination results to be achieved by
the Company. The pro forma combined income statement data are based on
preliminary estimates, available information and certain assumptions that
management deems appropriate and should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus.
(2) The pro forma combined income statement data include pro forma reductions
in salary, bonuses and benefits to the owners and certain key employees of
the Founding Companies to which they have agreed prospectively (the
"Compensation Differential") and does not include the non-recurring,
non-cash compensation charge of $7.1 million recorded in the first quarter
of 1997. For the year ended December 31, 1996 and the three months ended
March 31, 1997, the Compensation Differential was approximately $5.1
million and $921,000, respectively.
6
<PAGE>
(3) Reflects amortization of the goodwill to be recorded as a result of the
Combinations over a 35-year period and computed on the basis described in
the Notes to the Unaudited Pro Forma Combined Financial Statements.
(4) Includes (i) 3,422,225 shares to be issued to owners of the Founding
Companies; (ii) 2,484,501 shares issued to the management and founders of
TSII; and (iii) 2,231,917 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 783,900 shares to be issued
concurrently with the Offering. See "Certain Transactions."
(5) The pro forma combined balance sheet data assume that the Combinations were
consummated on March 31, 1997. The pro forma combined balance sheet data
are based upon preliminary estimates, available information and certain
assumptions that management deems appropriate and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
(6) Adjusted for the sale of 2,500,000 shares of Common Stock offered hereby
(at an initial public offering price of $12.00 per share less estimated
underwriting discounts and commissions and offering expenses) 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 and a $2.1 million reduction for certain working
capital adjustments.
(8) Reflects (i) the creation of approximately $37.8 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>
THREE MONTHS ENDED
------------------
YEARS ENDED DECEMBER 31, (1) MARCH 31, (1)
-------------------------------- -----------------
1994 1995 1996 1996 1997
---------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
AUTO EUROPE:
Net revenues ........................ $ 17,156 $ 21,919 $ 25,742 $ 5,764 $7,820
Operating expenses .................. 11,101 15,413 18,560 4,615 5,723
Gross profit ........................ 6,055 6,506 7,182 1,149 2,097
General and administrative expenses ... 6,276 6,686 7,205 1,721 1,844
-------- -------- -------- ------ -------
Income (loss) from operations ......... (221) (180) (23) (572) 253
CRUISES ONLY:
Net revenues ........................ $ 7,467 $ 9,078 $ 7,937 1,806 $2,213
Operating expenses .................. 3,458 3,675 2,986 666 772
Gross profit ........................ 4,009 5,403 4,951 1,140 1,441
General and administrative expenses ... 2,922 3,929 4,318 764 828
-------- -------- -------- ------ -------
Income from operations ............... 1,087 1,474 633 376 613
TRAVEL 800:
Net revenues ........................ $ 3,504 $ 5,930 $ 7,789 $ 1,649 $2,108
Operating expenses .................. 2,610 3,767 5,202 1,021 1,332
Gross profit ........................ 894 2,163 2,587 628 776
General and administrative expenses ... 1,068 1,107 1,238 221 296
-------- -------- -------- ------ -------
Income (loss) from operations ......... (174) 1,056 1,349 407 480
CRUISES INC.:
Net revenues ........................ $ 3,846 $ 4,996 $ 6,494 1,492 1,714
Operating expenses .................. 2,361 3,681 4,140 1,080 1,034
Gross profit ........................ 1,485 1,315 2,354 412 680
General and administrative expenses ... 1,109 1,332 1,708 387 474
-------- -------- -------- ------ -------
Income from operations ............... 376 17 646 25 206
D-FW TOURS (2):
Net revenues ........................ $ 2,000 $ 2,632 $ 5,135 927 $1,271
Operating expenses .................. 1,067 1,367 2,839 782 1,031
Gross profit ........................ 933 1,265 2,296 145 240
General and administrative expenses ... 872 1,098 2,167 112 173
-------- -------- -------- ------ -------
Income from operations ............... 61 167 129 33 67
</TABLE>
- ----------
(1) General and administrative expenses for the Founding Companies for the
three years ended December 31, 1996 and for the three months ended March
31, 1996 and 1997 do not include a reduction for the Compensation
Differential as indicated below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ --------------
1994 1995 1996 1996 1997
-------- -------- -------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Auto Europe .............................. $3,450 $2,725 $3,158 $770 $742
Cruises Only .............................. 681 862 1,250 88 87
Travel 800 ................................. - 240 341 28 63
Cruises Inc. .............................. - - 33 - 6
D-FW Tours ................................. - 113 328 - 23
Total ................................... $4,131 $3,940 $5,110 $886 $921
======== ======== ======== ====== =====
</TABLE>
(2) Other than the year ended December 31, 1996, the fiscal years presented for
the two companies comprising D-FW Tours are as follows: D-FW Tours, Inc. -
July 31, 1994 and 1995; and D-FW Travel Arrangements, Inc. - October 31,
1994 and 1995.
8
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other information in this
Prospectus, the following risk factors should be considered carefully in
evaluating an investment in the Company. This Prospectus contains certain
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from the results anticipated in these
forward-looking statements as a result of certain of the factors set forth in
the following risk factors and elsewhere in this Prospectus.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
TSII was founded in April 1996 but has conducted no operations and
generated no revenues to date. TSII has entered into agreements to acquire the
Founding Companies simultaneously with and as a condition to the closing of the
Offering. Prior to the consummation of the Offering, the Founding Companies have
operated as separate independent entities. Currently, the Company has no
centralized financial reporting system and will initially rely on the existing
reporting systems of the Founding Companies. There can be no assurance that the
Company will be able to successfully integrate the operations of these
businesses or institute the necessary Company-wide systems and procedures to
successfully manage the combined enterprise on a profitable basis. The Company's
management group has been assembled only recently, and there can be no assurance
that the management group will be able to effectively manage the combined entity
or effectively implement the Company's internal growth strategy and acquisition
program. The combined financial statements of the Founding Companies cover
periods when the Founding Companies and TSII were not under common control or
management and, therefore, may not be indicative of the Company's future
financial or operating results. The inability of the Company to successfully
integrate the Founding Companies would have a material adverse effect on the
Company's business, financial condition and results of operations and would make
it unlikely that the Company's acquisition program will be successful.
A number of the Founding Companies offer different travel services, utilize
different capabilities and technologies and target different client segments.
While the Company believes that there are substantial opportunities to
cross-market and integrate these businesses, these differences increase the risk
inherent in successfully completing such integration. Further, there can be no
assurance that the Company's strategy to be a single source distributor of
specialized travel services will be successful, or that the customers of the
Founding Companies will accept the Company as a distributor of a variety of
specialized travel services. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business - Business
Strategy."
FACTORS AFFECTING INTERNAL GROWTH
The Founding Companies have experienced revenue and earnings growth on a
pro forma basis over the past few years. There can be no assurance that the
Founding Companies will continue to experience internal growth comparable to
these levels, if at all. From time to time, certain of the Founding Companies
have been unable to hire and train as many qualified reservations personnel as
necessary to meet the demands of their businesses. Factors affecting the ability
of the Founding Companies to continue to experience internal growth include, but
are not limited to, the ability to expand the travel services offered, the
continued relationships with certain travel providers and travel agents, the
ability to recruit and retain qualified reservation personnel, continued access
to capital and the ability to cross-sell services between the Founding
Companies. See "Business - Growth Strategy."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company intends to increase its revenues, expand the markets it serves
and increase its service offerings in part through the acquisition of additional
specialized distributors of travel services. There can be no assurance that the
Company will be able to identify, acquire or profitably manage additional
businesses or successfully integrate acquired businesses into the Company
without substantial costs, delays or other operational or financial problems.
Increased competition for acquisition candidates may
9
<PAGE>
develop, in which event there may be fewer acquisition opportunities available
to the Company as well as higher acquisition prices. Further, acquisitions
involve a number of special risks, including possible adverse effects on the
Company's operating results, diversion of management's attention, failure to
retain key personnel, risks associated with unanticipated events or liabilities
and amortization of acquired intangible assets, some or all of which could have
a material adverse effect on the Company's business, financial condition and
results of operations, particularly in the fiscal quarters immediately following
the consummation of such transactions. Customer dissatisfaction or performance
problems at a single acquired company could also have an adverse effect on the
reputation of the Company. In addition, there can be no assurance that the
Founding Companies or other businesses acquired in the future will achieve
anticipated revenues and earnings. The Company has reviewed various strategic
acquisition opportunities and has held preliminary discussions with a number of
such acquisition candidates. As of the date of the Prospectus, except for the
Combinations, the Company has no agreement with respect to any acquisition. See
"Business - Growth Strategy."
RISKS RELATED TO ACQUISITION FINANCING
The Company intends to finance future acquisitions by using shares of its
Common Stock for a substantial portion of the consideration to be paid. In the
event that the Common Stock does not maintain a sufficient market value, or
potential acquisition candidates are otherwise unwilling to accept Common Stock
as part of the consideration for the sale of their businesses, the Company may
be required to utilize more of its cash resources, if available, in order to
initiate and maintain its acquisition program. If the Company has insufficient
cash resources, its growth could be limited unless it is able to obtain
additional capital through debt or equity financings. Although the Company
intends to seek a line of credit prior to completion of the Offering, there can
be no assurance that the Company will be able to obtain this credit line, or
other financing it may need, on terms the Company deems acceptable. If the
Company is unable to obtain financing sufficient for all of its desired
acquisitions, it may be unable to fully implement its acquisition strategy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Combined Liquidity and Capital Resources."
MANAGEMENT OF GROWTH
The Company expects to grow internally and through acquisitions. The
Company expects to expend significant time and effort in expanding existing
businesses and identifying, completing and integrating acquisitions. There can
be no assurance that the Company's systems, procedures and controls will be
adequate to support the Company's operations as they expand. Any future growth
also will impose significant added responsibilities on members of senior
management, including the need to identify, recruit and integrate new senior
level managers and executives. There can be no assurance that such additional
management will be identified and retained by the Company. To the extent that
the Company is unable to manage its growth efficiently and effectively, or is
unable to attract and retain additional qualified management, the Company's
business, financial condition and results of operations could be materially
adversely effected. See "Business - Growth Strategy" and "Management."
RISKS ASSOCIATED WITH THE TRAVEL INDUSTRY; GENERAL ECONOMIC CONDITIONS
The Company's results of operations will be dependent upon factors
affecting the travel industry. The Company's revenues and earnings are
especially sensitive to events that affect domestic and international air
travel, cruise travel and auto rentals in Europe. A number of factors, including
political instability, armed hostilities, international terrorism, extreme
weather conditions, a rise in fuel prices, a decline in the value of the U.S.
dollar, labor disturbances and excessive inflation, could result in an overall
decline in demand for travel. These types of events could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, demand for the Company's travel services may be
significantly related to the general level of economic activity and employment
in the U.S. Therefore, any significant economic downturn or recession in the
U.S. could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Industry Overview."
10
<PAGE>
SEASONALITY AND QUARTERLY FLUCTUATIONS
The domestic and international leisure travel industry is extremely
seasonal. The results of each of the Founding Companies have been subject to
quarterly fluctuations caused primarily by the seasonal variations in the travel
industry, especially the leisure travel segment. Net revenues and net income for
the Founding Companies are generally higher in the second and third quarters.
The Company expects this seasonality to continue in the future on a combined
basis. Several of the Founding Companies experienced an operating loss in the
fourth quarter of 1996. The Company reported an operating loss on a combined
basis for the fourth quarter of 1996 and may continue to experience a loss in
this quarter in the future. The Company's quarterly results of operations may
also be subject to fluctuations as a result of the timing and cost of
acquisitions, fare wars by travel providers, changes in relationships with
certain travel providers, changes in the mix of services offered by the Company,
the timing of the payment of volume bonuses by travel providers, extreme weather
conditions or other factors affecting travel. Unexpected variations in quarterly
results could also adversely affect the price of the Common Stock, which in turn
could limit the ability of the Company to make acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON TRAVEL PROVIDERS
The Company is dependent upon travel providers for access to their
capacity. The Company receives from certain travel providers pricing that is
preferential to published fares and which enables the Company to offer prices
lower than would be generally available to travelers and travel agents. The
Company anticipates that a significant portion of the Company's revenues will be
derived from the sale of capacity for relatively few travel providers. In 1996,
net revenues from (i) two auto rental companies, Avis Europe and Europcar,
represented an aggregate of 38.8%; (ii) two cruise lines represented an
aggregate of 13.7%; 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. The Company
expects that it will integrate these systems but it has not yet established a
timetable or its capital needs for such integration. There can be no assurance
that the contemplated integration of these systems will be successful, completed
without any disruption to the Company's business or that it will result in the
intended cost efficiencies. Furthermore, the Company believes that its current
technologies are a competitive advantage for each of the Founding Companies.
There can be no assurance that the Company will be successful in maintaining
this competitive advantage in the future. See "Business - MIS Technology."
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
11
<PAGE>
resources than the Company. The Company's travel providers may decide to compete
more directly with the Company and restrict the availability of tickets or
services or the ability of the Company to offer tickets or services at a
preferential price. In addition, other distributors may have relationships with
certain travel providers providing better availability or more competitive
pricing than that offered by the Company. Furthermore, some travel agents and
group travel sponsors have a strong presence in their geographic area which may
make it difficult for the Company to attract customers in those areas. See
"Business - Competition."
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the efforts and relationships of
Joseph Vittoria and the other executive officers of TSII as well as the senior
management of the Founding Companies, including Imad Khalidi, Wayne Heller,
Susan Parker, Robert Falcone, and John Przywara. Furthermore, the Company will
likely be dependent on the senior management of any businesses acquired in the
future. If any of these individuals become unable to continue in their role the
Company's business or prospects could be adversely affected. Although the
Company or an operating subsidiary has entered into an employment agreement with
each of the Company's executive officers and the Chief Executive Officer of each
of the Founding Companies, there can be no assurance that such individuals will
continue in their present capacity for any particular period of time. The
Company does not intend to obtain key man life insurance covering any of its
executive officers or other members of senior management. See "Management."
VOTING CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
The Company's executive officers and directors, and entities affiliated
with them and holders of at least 5% of the outstanding Common Stock will
beneficially own shares of Common Stock representing 63.9% of the total voting
power of the Common Stock after giving effect to the Offering (70.2% if all
shares of Restricted Common Stock were converted into Common Stock). These
persons, if acting in concert, will be able to exercise control over the
Company's affairs and are likely to be able to elect the entire Board of
Directors and to control the disposition of any matter submitted to a vote of
stockholders. See "Principal Stockholders" and "Description of Capital Stock
Common Stock and Restricted Common Stock."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
The market price of the Common Stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the Common Stock in the
public market following the Offering. The 2,500,000 shares being sold in the
Offering will be freely tradable unless acquired by affiliates of the Company.
Upon completion of the Offering, the holders of Common Stock who did not
purchase shares in the Offering, will own 5,906,726 shares of Common Stock,
including (i) the stockholders of the Founding Companies who will receive, in
the aggregate, 3,422,225 shares in connection with the Combinations and (ii)
management and founders of TSII who own 2,484,501 shares. These shares have not
been registered under the Securities Act and, therefore, may not be sold unless
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, these
stockholders have agreed with TSII not to sell, transfer or otherwise dispose of
any of these shares for one year following consummation of the Offering. These
stockholders also have certain demand registration rights beginning two years
after the Offering and certain piggyback registration rights with respect to
these shares.
The Company and the holders of all shares outstanding prior to the Offering
(including all officers and directors of the Company and the Founding Companies)
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, or any securities convertible into or exercisable 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
12
<PAGE>
acquisitions and (ii) in the case of all such holders, the exercise of stock
options pursuant to benefit plans described herein and shares of Common Stock
disposed of as bona fide gifts, subject, in each case, to any remaining portion
of the 180-day period applying to any shares so issued or transferred. See
"Shares Eligible for Future Sale" and "Underwriting."
The Company plans to register an additional 3,000,000 shares of its Common
Stock under the Securities Act after completion of the Offering for use by the
Company as consideration for future acquisitions. Upon such registration, these
shares will generally be freely tradable after issuance, unless the resale
thereof is contractually restricted. The piggyback registration rights described
above will not apply to the registration statement to be filed with respect to
these 3,000,000 shares. It is contemplated that the shares issued as
consideration for future acquisitions will be subject to restrictions at least
as restrictive as those described in the preceding paragraph. See "Shares
Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or continue after the Offering. The initial public offering
price for the Common Stock was determined by negotiation between the Company and
the Representatives of the Underwriters and may bear no relationship to the
price at which the Common Stock will trade after the Offering. See
"Underwriting" for the factors considered in determining the initial public
offering price. After the Offering, the market price of the Common Stock may be
subject to significant fluctuations in response to numerous factors, including
variations in the annual or quarterly financial results of the Company or its
competitors, changes by financial research analysts in their estimates of the
earnings of the Company or the failure of the Company to meet such estimates,
conditions in the economy in general or in the travel industry in particular,
unfavorable publicity or changes in applicable laws and regulations (or judicial
or administrative interpretations thereof) affecting the Company or the travel
service industry. From time to time, the stock market experiences significant
price and volume volatility, which may affect the market price of the Common
Stock for reasons unrelated to the Company's performance.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares of $12.00 per share. In the event the Company issues additional
Common Stock in the future, including shares issued in connection with future
acquisitions, purchasers of Common Stock in the Offering may experience further
dilution. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is authorized to issue preferred
stock in one or more series without stockholder action. The Board of Directors
of the Company serve staggered terms. The existence of this "blank-check"
preferred stock and the staggered Board of Directors could render more difficult
or discourage an attempt to obtain control of the Company by means of a tender
offer, merger, proxy contest or otherwise. Certain provisions of the Delaware
General Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. See "Management - Directors and Executive
Officers," "Principal Stockholders" and "Description of Capital Stock."
13
<PAGE>
THE COMPANY
The Company was founded to create the leading single source distributor of
specialized leisure travel services for both travel agencies and travelers.
Although it has conducted no operations to date, TSII has entered into
agreements to acquire, simultaneously with the closing of the Offering, the five
Founding Companies. For a description of the Combinations, see "Certain
Transactions."
AUTO EUROPE. Auto-Europe, Inc. (Maine) ("Auto Europe"), founded in 1986, is
a leading specialized distributor of reservations for leisure auto rentals to
persons traveling from the U.S. and Canada to Europe. Auto Europe is based in
Portland, Maine and operates on a nationwide basis with approximately 90% of its
reservations during 1996 placed through travel agents and approximately 10%
directly to travelers. According to Conde Nast Traveler's 1996 Reader's Choice
Poll, Auto Europe was ranked second among twelve auto rental providers and
reservations companies for overall service quality. In 1996, Auto Europe made
reservations for approximately 195,000 auto rentals from companies such as Alamo
Europe, Avis Europe Limited, EuroDollar and Europcar International S.A. Auto
Europe's net revenues in 1996 were approximately $25.7 million and loss from
operations was approximately $23,000 (including a Compensation Differential of
approximately $3.2 million).
CRUISES ONLY. Cruises Only, Inc. ("Cruises Only"), founded in 1985,
believes that it is the largest specialized distributor of reservations for
cruise vacations to travelers located in the U.S. Cruises Only is based in
Orlando, Florida and operates on a nationwide basis with sales directly to
travelers. Cruises Only offers a low-price guarantee and markets its services
through prominent advertisements in major newspapers and leading consumer and
travel magazines. In 1996, Cruises Only provided reservations for approximately
61,000 passengers on over 45 cruise lines such as Carnival Cruise Lines,
Princess Cruises and Royal Caribbean Cruise Lines. Cruises Only's net revenues
in 1996 were approximately $7.9 million and income from operations was
approximately $633,000 (including a Compensation Differential of approximately
$1.3 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 and income from operations was approximately $1.3
million (including a Compensation Differential of approximately $341,000).
CRUISES INC. Cruises Inc. ("Cruises Inc."), founded in 1982, was one of
the first specialized distributors of reservations for cruise vacations to
travelers located in the U.S. Cruises Inc. is based in Syracuse, New York and
operates on a nationwide basis with sales directly to travelers. Cruises Inc.
utilizes a network of approximately 200 independent licensed agents with
knowledge of the cruise industry to assist each traveler in selecting the most
appropriate cruise. Cruises Inc. 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 $6.5 million and income from operations was approximately
$646,000 (including a Compensation Differential of approximately $33,000).
D-FW TOURS. D-FW Tours, Inc. and D-FW Travel Arrangements, Inc.
(collectively, "D-FW Tours"), founded in 1978, is a specialized distributor of
international airline reservations on regularly scheduled commercial flights.
D-FW Tours is based in Dallas, Texas and operates on a nationwide basis 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
14
<PAGE>
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 and income from operations was
approximately $129,000 (including a Compensation Differential of approximately
$328,000).
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
conditions include, among others, the continuing accuracy on the closing date of
the Combinations of the representations and warranties of the Founding Companies
and of TSII, the performance by each of them of all covenants included in the
agreements relating to the Combinations and the nonexistence of a material
adverse change in the business, results of operations or financial condition of
each Founding Company. See "Certain Transactions."
The Company's executive offices are located at 515 No. Flagler Drive, Suite
300 - Pavillion, West Palm Beach, Florida 33401, and its telephone number is
(561) 802-3396.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby (assuming an initial public offering price of $12.00
per share and after deducting the estimated underwriting discounts and
commissions and offering expenses), are estimated to be approximately $25.4
million ($29.6 million if the Underwriters' over-allotment option is exercised
in full). Of the net proceeds, $22.2 million will be used to pay the cash
portion of the purchase price for the Founding Companies, of which approximately
$21.9 million will be paid to former stockholders of the Founding Companies who
will become officers, directors, key employees or holders of more than 5% of the
Common Stock of the Company. See "Certain Transactions - Organization of the
Company."
The remaining $ 3.2 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 has received a term sheet and is negotiating the definitive
terms of a credit agreement for a $20 million line of credit. There can be no
assurance that the Company will be able to obtain this line of credit, or other
financing it may need, on terms the Company deems acceptable.
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, in the event the Company is
successful in obtaining one or more lines of credit, it is likely that any such
facility will include restrictions on the ability of the Company to pay
dividends without the consent of the lender.
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 March 31,
1997: (i) on a pro forma combined basis to give effect to the Combinations; and
(ii) as further adjusted to give effect to the issuance of the 2,500,000 shares
of Common Stock offered hereby (assuming an initial public offering price of
$12.00 per share and after deducting the estimated underwriting discounts and
commissions and offering expenses) and the application of the estimated net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements of the
Company and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------
PRO FORMA (1) AS ADJUSTED
--------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current maturities of long-term debt (2) ... $ 535 $ 535
======== =======
Long-term debt, less current maturities (2) ........................... $ 5,058 $ 5,058
Stockholders' equity:
Preferred Stock: $0.01 par value, 1,000,000 shares authorized; none
outstanding ......................................................... - -
Common Stock: $0.01 par value, 50,000,000 shares authorized;
5,906,726 shares outstanding, pro forma; and 8,406,726 shares
outstanding, as adjusted (3) ......................................... 58 83
Additional paid-in capital .......................................... 16,113 41,488
Retained earnings (deficit) .......................................... (3,814) (3,814)
-------- --------
Total stockholders' equity .......................................... 12,357 37,757
-------- --------
Total capitalization ............................................. $ 17,415 $ 42,815
======== ========
</TABLE>
- ----------
(1) Combines the respective accounts of TSII and the Founding Companies at
March 31, 1997 and gives effect to the reclassification of the Founding
Companies' common stock as additional paid-in capital.
(2) For a description of the Company's debt, see Notes to the Financial
Statements of Auto Europe and Cruises Only.
(3) Includes 2,484,501 shares of Restricted Common Stock, consisting of 851,166
shares of Common Stock issued to management and 1,633,335 shares of Common
Stock issued to Alpine Consolidated, LLC and Capstone Partners, LLC. See
"Description of Capital Stock - Common Stock and Restricted Common Stock."
Excludes 783,900 shares of Common Stock subject to options to be granted
concurrently with the Offering at an exercise price equal to the initial
public offering price. See "Management - 1997 Long-Term Incentive Plan" and
- "1997 Non-Employee Directors' Stock Plan."
16
<PAGE>
DILUTION
The deficit in pro forma net tangible book value of the Company as of March
31, 1997, was approximately $25.4 million, or approximately $(4.30) per share of
Common Stock, after giving effect to the Combinations . The deficit in pro forma
net tangible book value per share represents the amount by which the Company's
pro forma total liabilities exceeds the Company's pro forma net tangible assets
divided by the number of shares of Common Stock to be outstanding after giving
effect to the Combinations. After giving effect to the sale of the 2,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share and after deducting the estimated underwriting
discounts and commissions and offering expenses, the Company's deficit in pro
forma net tangible book value at March 31, 1997 would have been approximately
$3,000. This represents an immediate increase in pro forma net tangible book
value of approximately $4.30 per share to existing stockholders and an immediate
dilution of approximately $12.00 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 ......... $12.00
-------
Pro forma deficit in net tangible book value per
share before Offering ........................... $(4.30)
Increase in pro forma net tangible book value per
share attributable to new investors ............ 4.30
--------
Pro forma net tangible book value per share after
Offering ....................................... 0.00
-------
Dilution per share to new investors ............... $12.00
=======
</TABLE>
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by existing stockholders (after giving effect to the
Combinations) and the new investors purchasing shares of Common Stock from the
Company in the Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED AVERAGE
----------------------- PRICE
NUMBER PERCENT TOTAL CONSIDERATION (1) PER SHARE
----------- --------- ----------------------- ----------
<S> <C> <C> <C> <C>
Existing stockholders ...... 5,906,726 70.3% $(25,403,000) $ (4.30)
New investors ............... 2,500,000 29.7 30,000,000 12.00
---------- ------- -------------- --------
Total ..................... 8,406,726 100.0% $ 4,597,000
========== ======= ==============
</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) the payment of the working
capital adjustment of approximately $2.1 million in cash as part of the
consideration for the Combinations. 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
following selected historical financial data of Auto Europe as of December 31,
1995 and 1996 and for each of the three years in the periods ended December 31,
1994, 1995 and 1996 have been derived from the audited financial statements of
Auto Europe included elsewhere in this Prospectus. The following selected
historical financial data for Auto Europe as of December 31, 1992, 1993 and 1994
and as of March 31, 1997, for the years ended December 31, 1992 and 1993 and for
the three months ended March 31, 1996 and 1997 have been derived from unaudited
financial statements of Auto Europe, which have been prepared on the same basis
as the audited financial statements and, in the opinion of Auto Europe, reflect
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of such data. The selected unaudited pro forma combined
financial data present data for the Company, adjusted for (i) the effects of the
Combinations; (ii) the effects of certain pro forma adjustments to the
historical financial statements described below; and (iii) the consummation of
this Offering and the application of the net proceeds therefrom. See the
Unaudited Pro Forma Combined Financial Statements and the Notes thereto and the
historical Financial Statements of Auto Europe and certain of the Founding
Companies and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
AUTO EUROPE:
Net revenues .................. $ 10,894 $ 12,208 $ 17,156 $ 21,919 $ 25,742 $ 5,764 $ 7,820
Operating expenses ............ 7,523 8,469 11,101 15,413 18,560 4,615 5,723
------- ------- -------- -------- -------- ------ -------
Gross profit .................. 3,371 3,739 6,055 6,506 7,182 1,149 2,097
General and administrative
expenses ..................... 3,577 3,986 6,276 6,686 7,205 1,721 1,844
------- ------- -------- -------- -------- ------ -------
Income (loss) from operations (206) (247) (221) (180) (23) (572) 253
Interest expense, net ......... - (19) (28) (81) (221) (42) (74)
------- ------- -------- -------- -------- ------ -------
Net income (loss) ............ $ (206) $ (266) $ (249) $ (261) $ (244) $ (614) $ 179
======= ======= ======== ======== ======== ====== =======
</TABLE>
<TABLE>
<S> <C> <C> <C>
PRO FORMA COMBINED (1):
Net revenues ................................................ $ 53,097 $ 11,638 $ 15,126
Operating expenses .......................................... 33,727 8,164 9,892
---------- --------- ----------
Gross profit ................................................ 19,370 3,474 5,234
General and administrative expenses (2) ..................... 11,526 2,319 2,694
Goodwill amortization (3) .................................... 1,079 270 270
---------- --------- ----------
Income from operations ....................................... 6,765 885 2,270
Interest income (expense) and other income, net ............ (411) (69) (99)
Net income ................................................... $ 3,512 $ 444 $ 1,202
========== ========= ==========
Net income per share ....................................... $ 0.43 $ 0.05 $ 0.15
========== ========= ==========
Shares used in computing pro forma net income per share (4)... 8,138,643 8,138,643 8,138,643
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AUTO EUROPE COMBINED COMPANIES
------------------------------------------------------------------ ----------------------------
MARCH 31, 1997
DECEMBER 31, MARCH 31, AS
1992 1993 1994 1995 1996 1997 PRO FORMA (5) ADJUSTED (6)
---------- ---------- ---------- ---------- ---------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital deficit (7) . $ (691) $ (891) $ (2,729) $ (3,683) $ (6,318) $ (6,433) $(29,345) $ (3,945)
Total assets (8) ............ 1,555 3,307 4,689 5,264 7,450 9,443 55,945 59,162
Long-term debt ............... - 17 48 12 1,880 1,880 5,059 5,059
Stockholders' equity
(deficit) .................. 243 (95) (536) (855) (1,170) (1,129) 12,358 37,758
</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 periods presented above, the Founding Companies were not under
18
<PAGE>
common control or management and, therefore, the data presented may not be
comparable to or indicative of post- combination results to be achieved by
the Company. The pro forma combined income statement data is based on
preliminary estimates, available information and certain assumptions that
management deems appropriate and should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus.
(2) Pro forma general and administrative expenses for 1996 and the three months
ended March 31, 1996, and 1997 include a reduction of approximately $5.1
million, $886,000 and $921,000, respectively, for the Compensation
Differential. Pro forma general and administration expenses for the three
months ended March 31, 1997 does not include the non-recurring, non-cash
compensation change of $7.1 million recorded in such period.
(3) Reflects amortization of the goodwill to be recorded as a result of the
Combinations over a 35-year period and computed on the basis described in
the Notes to the Unaudited Pro Forma Combined Financial Statements.
(4) Includes (i) 3,422,225 shares to be issued to owners of the Founding
Companies, (ii) 2,484,501 shares issued to the management and founders of
TSII, and (iii) 2,231,917 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 783,900 shares to be
granted upon consummation of the Offering. See "Certain Transactions."
(5) The pro forma combined balance sheet data assume that the Combinations were
consummated on March 31, 1997. The pro forma combined balance sheet data
are based upon preliminary estimates, available information and certain
assumptions that management deems appropriate and should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.
(6) Adjusted for the sale of 2,500,000 shares of Common Stock offered hereby
(at an assumed initial public offering price of $12.00 per share less
estimated underwriting discounts and commission and offering expenses) 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 and $2.1 million payable for certain working
capital adjustments.
(8) Reflects (i) the creation of approximately $37.8 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 was formed in April 1996 and
has conducted no operations to date. The Company will succeed to the operations
of the five Founding Companies upon consummation of the Offering.
The Company's revenue is derived primarily from the sale of travel related
services, including airline tickets, cruise berths and auto rentals. The Company
recognizes as net revenues only the commissions and other related payments it
receives from travel providers and not the total cost of the travel services
sold. Net revenues include commissions, volume bonuses (overrides) and rebates
received from travel service providers for the sale of travel services. The
Company recognized $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 salary,
bonuses and benefits in connection with the Combinations (the "Compensation
Differential"). The Compensation Differentials for 1996 and for the three months
ended March 31, 1996 and 1997 were $5.1 million, $886,000, and $921,000,
respectively, and have been reflected as a pro forma adjustment in the Unaudited
Pro Forma Combined Statement of Income. The Unaudited Pro Forma Combined
Statement of Income includes a provision for income tax as if the Company was
taxed as a C Corporation.
Following the Combinations, the Company expects to realize certain savings
as a result of (i) consolidation of telecommunications, advertising, courier and
other operating expenses; (ii) 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
20
<PAGE>
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.
In the first quarter of 1997, TSII sold an aggregate of 851,166 shares of
Common Stock to management at a price of $.01 per share and recorded (for
financial statement presentation purposes) a non-recurring, non-cash
compensation charge of $7.1 million.
In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 ("SAB 97") relating to business combinations
immediately prior to an initial public offering. SAB 97 requires that these
combinations be accounted for using the purchase method of acquisition
accounting. Under the purchase method, Auto Europe has been designated as the
accounting acquiror. For the remaining Founding Companies, $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 Company will incur
incremental costs related to its new corporate management and the costs of being
a public company; and (iii) the combined data do not reflect potential benefits
and cost savings the Company expects to realize when operating as a combined
entity.
The following table sets forth the combined results of operations of the
Founding Companies on a historical basis and as a percentage of net revenues for
the period indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------- ----------------------------------------------
1995 1996 1996 1997
--------------------- --------------------- --------------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues ............ $44,672 100.0% $53,027 100.0% $11,639 100.0% $15,128 100.0%
Operating expenses ...... 27,904 62.5 33,727 63.6 8,156 70.0 9,876 65.3
-------- ------- -------- ------- -------- ------- -------- -------
Gross profit ............ $16,768 37.5% $19,300 36.4% $ 3,473 30.0% $ 5,252 34.7%
======== ======= ======== ======= ======== ======= ======== =======
</TABLE>
COMBINED RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1996
Net Revenues. Net revenues increased approximately $3.5 million, or 30.2%,
from $11.6 million in 1996 to $15.1 million in 1997. This increase is primarily
attributable to increased sales of travel services by the Company, including an
increase in the number of flight reservations made from 52,000 in 1996 to 60,000
in 1997, an increase in the number of car rental reservations made from 43,000
in 1996 to 60,000 in 1997, and an increase in the number of cruise reservations
made from 11,000 in 1996 to 14,000 in 1997. Increases in average commissions
were also realized at Travel 800 and Cruises Inc.
21
<PAGE>
Operating Expenses. Operating expenses increased approximately $1.7
million, or 20.7%, from $8.2 million in 1996 to $9.9 million in 1997. As a
percentage of net revenues, operating expenses decreased from 70.1% in 1996 to
65.4% in 1997, primarily due to lower commission rates paid at Auto Europe,
Cruises Inc. and D-FW Tours.
COMBINED RESULTS FOR 1996 COMPARED TO 1995
Net Revenues. Net revenues increased approximately $8.4 million, or 18.6%,
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".
Operating Expenses. Operating expenses increased approximately $5.8
million, or 20.8%, 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.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company that conducts all of its operations
through its subsidiaries. Accordingly, the primary internal source of the
Company's liquidity is the cash flow of its subsidiaries. After the consummation
of the Combinations and the Offering, the Company will have approximately $8.8
million in cash and approximately $5.6 million of indebtedness outstanding,
other than the line of credit discussed below. Certain assets, including real
estate, personal property, receivables and cash, that are not used in the
operations of certain Founding Companies will be excluded from the Combinations
and retained by the respective stockholders of such Founding Companies. As of
March 31, 1997, the aggregate book value of these excluded assets was
approximately $2.5 million. These exclusions have been reflected in the pro
forma balance sheet of the Company as of March 31, 1997.
The Company has received a term sheet and is negotiating the definitive
terms of a credit agreement for a $20 million line of credit. It is anticipated
that the line of credit will require the Company to comply with various loan
covenants including (i) maintenance of certain financial ratios, (ii)
restrictions on additional indebtedness, and (iii) restrictions on liens,
guarantees, advances and dividends. The facility is intended to be used for
acquisitions, capital expenditures, refinancing of Founding Company debt, if
necessary, and for general corporate purposes.
The Company anticipates that its cash flow from operations will provide
cash in excess of the Company's normal working capital needs, debt service
requirements and planned capital expenditures. The Company made capital
expenditures of $4.4 million in 1996 and $395,000 in the three months ended
March 31, 1997. Each of the Founding Companies has made significant upgrades to
their technology systems within the past few years. As a result, the Company
does not expect to have significant capital expenditures in the next two years,
other than as may be required to integrate the systems of the Founding Companies
and to upgrade and integrate companies that are acquired in the future. 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
22
<PAGE>
facility, as well as issuances of additional equity. The Company plans to
register an additional 3,000,000 shares of its Common Stock under the Securities
Act after completion of the Offering for use by the Company as consideration for
future acquisitions.
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:
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1994 1995
----------------------- -----------------------
(DOLLARS IN THOUSANDS)
Net revenues ............ $ 17,156 100.0 % $ 21,919 100.0%
Operating expenses ...... 11,101 64.7 15,413 70.3
-------- --------- -------- ---------
Gross profit ............ 6,055 35.3 6,506 29.7
General and administrative
expenses ............... 6,276 36.6 6,686 30.5
-------- --------- -------- ---------
Income (loss) from opera-
tions ................... $ (221) (1.3)% $ (180) (0.8)%
======== ========= ======== =========
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------ ---------------------------------------
1996 1996 1997
------------------------ ---------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues ............ $ 25,742 100.0% $ 5,764 100.0% $7,820 100.0%
Operating expenses ...... 18,560 72.1 4,615 80.1 5,723 73.2
-------- --------- ------ --------- ------- -------
Gross profit ............ 7,182 27.9 1,149 19.9 2,097 26.8
General and administrative
expenses ............... 7,205 28.0 1,721 29.9 1,844 23.6
-------- --------- ------ --------- ------- -------
Income (loss) from opera-
tions .................... $ (23) (0.1)% $ (572) (9.9)% $ 253 3.2%
======== ========= ====== ========= ======= =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1996 - AUTO EUROPE
Net Revenues. Net revenues increased $2.1 million, or 35.7%, from $5.8
million to $7.8 million, primarily due to an increase in the number of auto
rental reservations from approximately 43,000 to approximately 60,000.
Operating Expenses. Operating expenses increased approximately $1.1
million, or 24.0%, from $4.6 million to $5.7 million. As a percentage of net
revenues, operating expenses decreased from 80.0% to 73.2%, primarily due to a
decrease in the commission rate paid to travel agents.
General and Administrative Expenses. General and administrative expenses
increased $123,000, or 7.1%, from $1.7 million to $1.8 million. As a percentage
of net revenues, general and administrative expenses decreased from 29.9% to
23.6%. Excluding Compensation Differential of $770,000 and $742,000 in the first
quarter of 1996 and 1997, respectively, general and administrative expenses as a
percentage of net revenues decreased from 16.5% to 14.1%. This decrease as a
percentage of net revenues was due to spreading the Company's overhead costs
over a larger revenue base.
RESULTS FOR 1996 COMPARED TO 1995 - AUTO EUROPE
Net Revenues. Net revenues increased $3.8 million, or 17.4%, from $21.9
million in 1995 to $25.7 million in 1996, primarily due to an increase in the
number of auto rental reservations made by Auto Europe from approximately
175,000 in 1995 to approximately 195,000 in 1996. This increase in the number of
cars rented was a result of the continuing growth in the number of travelers
from the United States to Europe and increased rentals by Auto Europe to
Canadians traveling to Europe. The percentage of revenue attributable to
Canadian travelers was approximately 10.0% and 6.4% in 1996 and 1995,
respectively. To a lesser extent, Auto Europe's net revenues increased due to
higher commission rates received. Continuing the trend that began in 1995,
European auto rental companies increased the commission rates to be paid to
travel agents. These increased commission rates received by Auto Europe were
passed along to travel agents.
23
<PAGE>
Operating Expenses. Operating expenses increased approximately $3.1
million, or 20.4%, from $15.4 million in 1995 to $18.5 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
15.6%. 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 $4.8 million, or 27.8%, from $17.1
million in 1994 to $21.9 million in 1995 due to an increase in the number of
auto rental reservations made by Auto Europe from approximately 142,000 in 1994
to approximately 175,000 in 1995. This increase was due to higher commission
rates provided by European auto rental companies to be paid to travel agents for
booking rentals. These increased commission rates were passed along to travel
agents by Auto Europe. The revenue growth was also a result of Auto Europe's
expanded efforts to target Canadians travelling to Europe.
Operating Expenses. Operating expenses increased approximately $4.3
million, or 38.8%, from $11.1 million in 1994 to $15.4 million in 1995. As a
percentage of net revenues, operating expenses increased from 64.7% in 1994 to
70.3% in 1995, primarily as a result of (i) increases in salaries and benefits
for sales personnel and the hiring of a new vice president of sales and
marketing in order to accommodate Auto Europe's continuing growth and (ii)
increased telephone expenses related to the introduction of toll free customer
service lines from Europe to Auto Europe's headquarters and higher international
telephone rates related to the growth of Auto Europe's Canadian operations. In
addition, the increase was due to increases in commissions paid to travel
agents. These higher commissions did not impact the average revenue per car
(after commissions) recognized by Auto Europe, but resulted in higher commission
expenses as a percentage of net revenues.
General and Administrative Expenses. General and administrative expenses
increased $410,000, or 6.5%, from $6.3 million in 1994 to $6.7 million in 1995.
As a percentage of net revenues, general and administrative expenses decreased
from 36.6% in 1994 to 30.5% in 1995. Excluding Compensation Differential of $3.5
million and $2.7 million in 1994 and 1995, respectively, general and
administrative expenses as a percentage of net revenues increased from 16.2% to
18.2%. This increase primarily was due to an increase in salaries and benefits
related to the hiring of additional personnel to accommodate Auto Europe's
continuing growth.
LIQUIDITY AND CAPITAL RESOURCES - AUTO EUROPE
Auto Europe used $938,000 in net cash from operating activities in 1996. In
the three months ended March 31, 1997, $4.9 million of cash was provided by
operating activities primarily due to an increase in payables. Net cash used in
investing activities was approximately $2.7 million in 1996 and $347,000 in the
three months ended March 31, 1997, principally for the construction of Auto
Europe's new headquarters and purchases of computer equipment. Net cash provided
by financing activities was $3.6 million in 1996, including the incurrence of
(i) $2.6 million in long-term debt which was used to acquire and renovate Auto
Europe's new headquarters and (ii) $2.2 million in short-term debt which was
used for working capital purposes, and the repayment of $1.1 million of
long-term debt. In the three months ended March 31, 1997, net cash used in
financing activities was $2.5 million, primarily as a result of the paydown of
short-term debt. At March 31, 1997, Auto Europe had a working capital deficit of
$6.4 million, and had $1.9 million of long-term debt outstanding.
24
<PAGE>
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, THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------- ---------------------------------------
1994 1995 1996 1996 1997
------------------ ------------------ ------------------ ------------------ --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues ............... $7,467 100.0% $9,078 100.0% $7,937 100.0% $1,806 100.0% $2,213 100.0%
Operating expenses ......... 3,458 46.3 3,675 40.5 2,986 37.6 666 36.9 772 34.9
------- ------- ------- -------- ------- ------- ------- ------- ------- -------
Gross profit ............... 4,009 53.7 5,403 59.5 4,951 62.4 1,140 63.1 1,441 65.1
General and administrative
expenses .................. 2,922 39.1 3,929 43.3 4,318 54.4 764 42.3 828 37.4
------- ------- ------- -------- ------- ------- ------- ------- ------- -------
Income from operations ...... $1,087 14.6% $1,474 16.2% $ 633 8.0% $ 376 20.8% $ 613 27.7%
======= ======= ======= ======== ======= ======= ======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1996 - CRUISES ONLY
Net Revenues. Net revenues increased $407,000, or 22.5%, from $1.8 million
to $2.2 million due to a 30% increase in the number of cruise reservations. Net
revenues in 1996 were adversely affected by telephone system problems
experienced by Cruises Only. This increase was partially offset by a 3% decline
in the average commission per reservation.
Operating Expenses. Operating expenses increased $106,000, or 15.9%, from
$666,000 to $772,000. As a percentage of net revenues, operating expenses
decreased from 36.9% to 34.9% primarily due to reductions in communication
expenses as a percentage of net revenues as a result of the new telephone system
installed in July 1996. The decrease as a percentage of net revenues was also
due to more efficient utilization of sales personnel.
General and Administrative Expenses. General and administrative expenses
increased approximately $64,000, or 8.4%, from $764,000 to $828,000. As a
percentage of net revenues, general and administrative expenses decreased from
42.3% to 37.4%. Excluding Compensation Differential of $87,500 in the first
quarter of each of 1996 and 1997, general and administrative expenses as a
percentage of net revenues decreased from 37.5% to 33.5%. This decrease as a
percentage of net revenues was primarily due to spreading personnel costs over a
larger revenue base.
RESULTS FOR 1996 COMPARED TO 1995 - CRUISES ONLY
Net Revenues. Net revenues decreased $1.1 million, or 12.6%, from $9.0
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.
25
<PAGE>
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
38.0%, but stayed relatively constant at $3.0 million.
RESULTS FOR 1995 COMPARED TO 1994 - CRUISES ONLY
Net Revenues. Net revenues increased $1.6 million, or 21.6%, from $7.4
million in 1994 to $9.0 million in 1995 due to an increase in the number of
cruise reservations made by Cruises Only from approximately 61,000 in 1994 to
approximately 67,000 in 1995 and an increase in commissions per cabin received
by Cruises Only of 5.4%.
Operating Expenses. Operating expenses increased approximately $217,000, or
6.3%, from $3.5 million in 1994 to $3.7 million in 1995. As a percentage of net
revenues, operating expenses decreased from 46.3% in 1994 to 40.5% in 1995.
Operating expenses decreased as a percentage of net revenues due to reductions
in net advertising expenses and increased operating leverage.
General and Administrative Expenses. General and administrative expenses
increased $1.0 million, or 34.5%, from $2.9 million in 1994 to $3.9 million in
1995. As a percentage of net revenues, general and administrative expenses
increased from 39.1% to 43.3%. Excluding Compensation Differential of $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 net cash from operating activities of $1.5 million
in 1996 and $1.0 million in the three months ended March 31, 1997. Net cash used
in investing activities was approximately $1.2 million in 1996, principally for
purchases of the replacement phone system and a new personal computer network.
Net cash used in financing activities was $360,000 in 1996, including net
proceeds from long-term debt incurred of $839,000 and net distributions to
stockholders of $1.2 million. In the three months ended March 31, 1997, net cash
used in financing activities was $626,000, primarily as a result of
distributions to stockholders. At March 31, 1997, Cruises Only had a working
capital deficit of $1.3 million, including $378,000 of current portion of
long-term debt, and had $3.1 million of long-term debt outstanding.
RESULTS OF OPERATIONS - TRAVEL 800
Travel 800 provides domestic airline reservations on most major domestic
airlines. Travel 800's net revenues are primarily derived from sales of airline
tickets, including commissions and certain volume bonuses received from the
airlines based on sales volume. Additional sources of net revenues include
service and shipping and handling charges on ticket sales, as well as segment
payments from System One, a central reservations service.
The following table sets forth certain selected financial data of Travel
800 on a historical basis and as a percentage of net revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------- --------------------------------------
1995 1996 1996 1997
------------------ ------------------ ----------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues .............................. $5,930 100.0% $7,789 100.0% $1,649 100.0% $2,108 100.0%
Operating expenses ........................ 3,767 63.5 5,202 66.8 1,021 61.9 1,332 63.2
------- ------- ------- ------- ------- ------- ------- -------
Gross profit .............................. 2,163 36.5 2,587 33.2 628 38.1 776 36.8
General and administrative expenses ...... 1,107 18.7 1,238 15.9 221 13.4 296 14.0
------- ------- ------- ------- ------- ------- ------- -------
Income from operations .................. $1,056 17.8% $1,349 17.3% $ 407 24.7% $ 480 22.8%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
26
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1996 - TRAVEL 800
Net Revenues. Net revenues increased $459,000, or 27.8%, from $1.6 million
in 1996 to $2.1 million in 1997. This increase was due to a 12% increase in
tickets sold accompanied by increases in the average commission and volume
bonuses.
Operating Expenses. Operating expenses increased $311,000, or 30.5%, from
$1.0 million to $1.3 million. As a percentage of net revenues, operating
expenses increased from 61.9% to 63.2%. This increase was primarily due to an
increase in commission expense, partially offset by a decline in communication
expense as a percentage of net revenues.
General and Administrative Expenses. General and administrative expenses
increased $75,000, or 33.9%, from $221,000 to $296,000. As a percentage of net
revenues, general and administrative expenses increased from 13.4% to 14.0%.
Excluding Compensation Differential of $28,000 in the first quarter of 1996 and
$63,000 in the first quarter of 1997, general and administrative expenses
decreased as a percentage of net revenues from 11.7% to 11.1%.
RESULTS FOR 1996 COMPARED TO 1995 - TRAVEL 800
Net Revenues. Net revenues increased $1.9 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 of approximately $695,000 in 1996.
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.
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 net cash from operating activities of $976,000 in 1996
and $821,000 in the three months ended March 31, 1997. Net cash used in
investing activities was approximately $248,000 in 1996, principally for
purchases of furniture and equipment. Net cash used in financing activities was
$193,000 in 1996, of which $169,000 was distributed to the sole shareholder of
Travel 800, and $899,000 in the three months ended March 31, 1997, all of which
was distributed to the sole stockholder of Travel 800. At March 31, 1997, Travel
800 had working capital of $1.6 million and no debt outstanding.
RESULTS OF OPERATIONS - CRUISES INC.
Cruises Inc. provides reservations for cruise vacations. Cruises Inc.'s
revenues are primarily derived from sales of cruise reservations, including
commissions and certain volume bonuses and rebates received from the cruise
lines based on sales volumes.
27
<PAGE>
The following table sets forth certain selected financial data of Cruises
Inc. on a historical basis and as a percentage of net revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------- -------------------------------------------
1996 1996 1997
------------------- ------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues ........................ $6,494 100.0% $1,492 100.0% $1,714 100.0%
Operating expenses .................. 4,140 63.8% 1,080 72.4% 1,034 60.3%
------- ------- ------- ------- ------- -------
Gross profit ........................ 2,354 36.2% $ 412 27.6% $ 680 39.7%
General and administrative expenses . 1,708 26.3% 387 25.9% 474 27.7%
------- ------- ------- ------- ------- -------
Income from operations ............... $ 646 9.9% $ 25 1.7% $ 206 12.0%
======= ======= ======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
- - CRUISES INC.
Net Revenues. Net revenues increased $222,000, or 14.9%, from $1.5 million
to $1.7 million. This increase was due to an 11% increase in the number of
cruise reservations, accompanied by a small increase in the average commission
per reservation.
Operating Expenses. Operating expenses were approximately the same in both
periods. As a percentage of net revenues, operating expenses declined from 72.4%
to 60.3%. This decrease was primarily due to a relatively constant dollar level
of salaries, commissions and net advertising expenses during these periods while
net revenues were increasing.
General and Administrative Expenses. General and administrative expenses
increased $87,000, or 22.5%, from $387,000 to $474,000. As a percentage of net
revenues, general and administrative expenses increased from 25.9% to 27.7%, due
to an increase in salaries and benefits.
LIQUIDITY AND CAPITAL RESOURCES - CRUISES INC.
Cruises Inc. generated net cash from operating activities of $588,000 in
1996 and $691,000 in the three months ended March 31, 1997. Net cash used in
investing activities was approximately $167,000 in 1996 for the purchase of
property and equipment. Net cash used in financing activities was $46,000 in
1996 for the payment of long-term debt. At March 31, 1997, Cruises Inc. had
working capital of $680,000 and $39,000 of long-term debt.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The domestic and international leisure travel industry is extremely
seasonal. The results of each of the Founding Companies have been subject to
quarterly fluctuations caused primarily by the seasonal variations in the travel
industry, especially the leisure travel segment. The net revenues and net income
for the Founding Companies are generally higher in the second and third
quarters. The Company expects this seasonality to continue in the future on a
combined basis. Several of the Founding Companies experienced an operating loss
in the fourth quarter of 1996. The Company reported an operating loss on a pro
forma combined basis for the fourth quarter of 1996 and may continue to
experience a loss in this quarter in the future. The Company's quarterly results
of operations may also be subject to fluctuations as a result of the timing and
cost of acquisitions, fare wars by travel providers, changes in relationships
with certain travel providers, changes in the mix of services offered, the
timing of the payment of volume bonuses, extreme weather conditions or other
factors affecting travel.
INFLATION
Inflation did not have a significant effect on the results of operations of
the combined Founding Companies for 1994, 1995 or 1996.
28
<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 as the number of travel options
continues to expand. Specifically, specialized distributors are becoming
increasingly important in the air travel, cruise vacation and European auto
rental markets.
29
<PAGE>
During 1996, commercial airlines carried approximately 500 million
passengers and posted domestic and international passenger growth of 7% and 6%,
respectively . Airlines rely heavily on travel agents and specialized
distributors to supplement their own internal marketing efforts. Given their
focus on air travel and their corresponding large volumes of reservations,
specialized distributors often receive preferential pricing from domestic
airlines. In addition, international airlines also offer specialized
distributors controlled access to capacity at deeply discounted prices and
typically utilize a limited number of specialized distributors in order to
increase capacity utilization without disrupting their overall pricing strategy.
These specialized distributors are then able to offer non-published discounted
fares for international flights to both travel agents and travelers.
The number of North American cruise passengers increased to 4.6 million in
1996 from 1.4 million in 1980, representing an 8.3% compound growth rate. The
character of a cruise varies significantly among the different cruise lines and
cruise ships. In addition, a cruise, which consists of lodging, entertainment,
dining and travel, typically represents a large portion of a traveler's vacation
budget. As a result, cruise sales require significant marketing time and effort
in comparison with other travel services. Cruise lines traditionally have relied
primarily on third party distributors to sell virtually all of their berth
capacity. While travel agents remain an important channel of distribution for
cruise lines, specialized cruise vacation distributors have become an
increasingly significant source of capacity utilization and, accordingly, are
given preferential pricing and access to preferred berth locations. In contrast
to travel agents, specialized cruise vacation distributors offer travelers
extensive knowledge of cruise options available and are able to provide more
detailed information with respect to daily excursions and other amenities.
The European auto rental market, both for business and leisure, was
estimated to be approximately $5.0 billion in 1996. According to a survey by the
European Travel Commission, there were over 9.0 million U.S. tourists visiting
Europe in 1996, a 6.5% increase from 1995. Unlike domestic auto rental providers
which, to a large extent, market directly to travelers in the U.S., European
auto rental providers rely heavily on third party distributors to market to U.S.
customers traveling abroad. As in the U.S., European auto rental providers focus
on the business traveler segment which peaks in the spring and fall seasons. As
a result, specialized distributors in the U.S. serve an important role to these
European auto rental providers by supplementing their sales efforts during
non-peak periods. In addition, these specialized distributors serve as a
centralized and efficient source of information on pricing and availability of
reservations to travel agents in the U.S.
The market for specialized distributors of leisure travel services is
fragmented, with numerous companies offering services in a single travel
segment. These specialized distributors generally have made little investment in
technology to improve their efficiency and access to information. Furthermore,
most of these companies lack the scale necessary to obtain preferential pricing
from travel providers. The Company believes significant opportunities are
available to a well capitalized company providing a broad offering of
specialized travel services with a high level of customer service.
BUSINESS STRATEGY
The Company's objective is to become the leading single source distributor
of specialized leisure travel services for both travel agents and travelers. In
order to achieve this goal, the Company has a focused business strategy based
upon the following key principles:
Provide Extensive Expertise in Specific Travel Segments. Each of the
Founding Companies is a specialist in a particular travel segment. By leveraging
the expertise of the Founding Companies and future acquisitions, the Company
will provide a higher level of expertise and information for a broader array of
travel services than may be available through traditional distribution channels.
For example, the Company's cruise reservation agents represent virtually every
cruise line and focus exclusively on selling cruises. In order to enhance their
knowledge, these agents are given periodic cruise vacations and have access to
proprietary reviews on most cruises. As a result, the Company believes that it
is better able to assist customers in choosing the specific cruise vacation that
best suits their needs. The Company believes that providing expertise in
multiple travel segments will help differentiate its services and be a
significant competitive advantage.
30
<PAGE>
Maintain and Enhance Strong Strategic Relationships with Travel Providers.
The Company believes that the strategic relationships with its travel providers
have been and will continue to be integral to its success. As leaders in their
respective segments, the Founding Companies have negotiated with many travel
providers for pricing that is preferential to published fares and preferred
access to capacity. These strategic relationships enable the Company to provide
a comprehensive service offering within each travel segment and to offer prices
that are lower than would be generally available to travelers and travel
agents.
Offer High Levels of Customer Service. The Company believes that
maintaining high levels of customer service is critical to its ability to
generate significant repeat business. In addition to the Company's competitive
prices, customer service is an important differentiating factor to both the
leisure traveler who is making a significant investment in a vacation and the
travel agent who is seeking attractive commission structures and the ability to
make travel arrangements with greater ease. In addition to its expertise with
respect to the travel service offered, each of the Founding Companies has a
dedicated customer service department. For example, Auto Europe maintains
24-hour toll-free numbers connected directly to its customer service department
in the U.S. from which its customers in Europe can obtain emergency assistance.
These toll-free numbers provide the customer with an English speaking contact
with access to the appropriate emergency roadside assistance in the relevant
foreign location. Other customer service initiatives offered by the Company
include fax vouchers, extended weekday and weekend hours, proprietary cruise
ship reviews and a commitment to minimize telephone waiting time.
Leverage and Expand Technology Infrastructure. A key element of the
Company's strategy will be to capitalize on the technology investments made by
the Founding Companies and to continue to invest in state-of-the-art information
and telecommunications technology. The Founding Companies have made significant
investments in technology over the past few years and, in most cases, have
developed proprietary software that enables them to access information about
pricing and capacity availability on a more timely and efficient basis. By
leveraging the telecommunications investment of the Founding Companies, the
Company expects to be able to increase the efficiency of its reservation agents,
minimize the telephone waiting time for its customers and more effectively
manage its telephone expenses. Similarly, continued investment in technology
will enable the Company to: (i) facilitate cross-marketing opportunities and the
transfer of knowledge across travel service segments; (ii) build a centralized
database of information on travelers that can be utilized for highly targeted
marketing campaigns; and (iii) achieve operating leverage to support its growth.
Operate with a Decentralized Management Structure. The Company believes
that the experienced local management teams at the Founding Companies have an
in-depth understanding of their respective markets and businesses and have built
strong relationships with their travel providers and customers. Accordingly, as
the Company implements "best practices" and the necessary systems to effect
cross-selling and achieve economies of scale, each of the Founding Companies
will continue to operate on a decentralized basis as a separate profit center
and local management will remain empowered to make most of the day-to-day
operating decisions. The Company intends to utilize stock ownership as well as
appropriate incentive compensation to ensure that the objectives of local
management are aligned with those of the Company.
GROWTH STRATEGY
The Company plans to achieve its goal of becoming the leading single source
distributor of specialized leisure travel services by implementing its internal
growth strategy and pursuing an aggressive acquisition program.
Implement Internal Growth Strategy. While the Company intends to continue
to acquire specialized distributors of leisure travel services, strong internal
revenue growth remains the core of the Company's growth strategy. From 1994 to
1996, the Founding Companies on a combined basis experienced revenue growth of
24.9% 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:
31
<PAGE>
Cross-Selling. The Company believes that significant cross-selling
opportunities exist that will further enhance the Company's revenue growth.
Each of the Founding Companies specializes in one segment of the travel
market. Consolidation of these companies enables the Company to offer
"one-stop shopping" for a variety of travel services. For example, Travel
800, which currently focuses on domestic air travel, has begun to satisfy
international air travel requests through D-FW Tours and offer international
travelers a European auto rental option through Auto Europe. Travel 800 and
D-FW Tours plan to establish an electronic link by mid-1997 that will enable
Travel 800 reservation agents to make reservations for international airline
capacity offered by D-FW Tours. D-FW Tours, which specializes in
international airline ticket sales to travel agents, has installed software
from Auto Europe and is able to book European auto rentals as well.
Similarly, Cruises Only and Cruises Inc., which focus on cruise line
reservations, are expected to be able to provide travelers with domestic and
international airline reservations through Travel 800 and D-FW Tours.
Best Practices. The Company has identified certain best practices at each of
the Founding Companies that can be implemented at the other Founding
Companies in order to generate incremental revenue and enhance profitability.
For example, due to the importance of technology and access to complete,
accurate and current information, the Company expects to identify the best
applications among the software and information technology systems of each of
the Founding Companies. In addition, the Founding Companies have begun to
cross-implement such programs as travel insurance, third party credit cards
and cooperative marketing.
Economies of Scale. The Company believes that it can achieve significant
economies of scale through the combination of the Founding Companies and
future acquisitions and that its size and relationships with travel providers
will be a key competitive advantage in gaining market share and enhancing
revenue opportunities. The Company should benefit from greater purchasing
power in such key expense areas as telecommunications, advertising,
insurance, courier expenses and employee benefits. The Company believes that
it can substantially reduce the total operating expenses of the Founding
Companies and other acquired businesses by eliminating or consolidating
certain duplicative administrative functions.
Pursue an Aggressive Acquisition Program. The 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.
32
<PAGE>
The Company has analyzed significant data on the travel service industry
and individual businesses within the industry and believes that it is well
positioned to implement its acquisition program following the Offering. The
Company believes that the experience, reputation and relationships of the
Founding Companies' management will be of significant value in the Company's
attempts to acquire other specialized distributors of travel services. In
addition, the Company will rely on the industry experience of its senior
management, particularly Joseph Vittoria, the Chairman and Chief Executive
Officer, who is the former Chief Executive Officer of Avis, Inc. and a founding
member of the World Travel and Tourism Council, a global organization of the
chief executive officers of companies engaged in all sectors of the travel and
tourism industry. The Company has reviewed various strategic acquisition
opportunities and has held preliminary discussions with a number of acquisition
candidates. Other than the Agreements with the Founding Companies, the Company
is not a party to any agreements regarding any acquisitions.
As consideration for future acquisitions, the Company intends to use
various combinations of Common Stock, cash and notes. The Company plans to
register an additional 3,000,000 shares of its Common Stock under the Securities
Act for use by the Company as all or a portion of the consideration to be paid
in future acquisitions.
SERVICES
The Company, through the Founding Companies, distributes leisure travel
services primarily for domestic and international air travel, cruises and
European auto rentals. The Company provides its services nationwide through the
use of toll-free telephone numbers. Typically, potential customers call the
Company, often in response to an advertisement or other promotion. The Company's
reservation agents assist potential customers, whether travel agents or
travelers, in selecting the appropriate travel arrangement and making the
reservation.
Air Travel. The Company provides reservations for domestic airline flights
through Travel 800 and for international flights through D-FW Tours. Through
strategic relationships with most major airlines, both Travel 800 and D-FW Tours
are generally able to offer fares below published rates and have developed
software that enable their reservation agents to identify low price ticket
alternatives. Travel 800 sells primarily to travelers and relies primarily on
its reputation and mnemonic telephone numbers such as 1-800-FLY-CHEAP and
1-800-LOW-FARE to attract business. In 1996, Travel 800 received approximately
2.3 million calls and sold tickets to approximately 182,000 passengers. D-FW
Tours sells primarily to travel agents utilizing multiple fax distribution
technology to advise travel agents of special fares and promotions. D-FW Tours
estimates that in 1996 it received over 1.0 million calls and sold tickets to
approximately 41,900 passengers. Travel 800 is open 19 hours per day Monday
through Friday and 12 hours per day on Saturday and Sunday, and D-FW Tours is
open 11 hours per day Monday through Friday and six hours on Saturday.
Cruise. The Company, through Cruises Only and Cruises Inc., provides
reservations for cruises on all major cruise lines. Typically, the Company books
berths on behalf of its customers at specified discounts from the published
prices. In addition, the Company is permitted to reserve more desirable berths
on a number of cruises, which gives the Company an "exclusive" right to sell
these berths for a period of time. If the Company does not sell these reserved
berths, they are returned to the cruise lines at a specified time, usually 60 or
90 days prior to sailing, at no cost to the Company. Virtually all of the
Company's customers for its cruise services are travelers. The Company also has
established a marketing division focused on advising large groups, such as
affinity groups, corporate groups and business seminars, in selecting the
appropriate cruise. The Company advises travelers and assists them in selecting
the cruise that best fits their particular needs and desires. This requires the
Company's sales personnel to have extensive knowledge about the character of the
various cruise lines and the differences in their ships and cruises offered. The
Company's personnel undergo extensive in-house training, participate in frequent
seminars conducted by cruise lines and often receive complementary passes for
cruises. These sales personnel endeavor to develop relationships with travelers
in order to encourage repeat business. The Company provides extensive services
to its cruise customers in the form of periodic mailings of information, reviews
of various cruises and ships, advice regarding planning for the specific cruise
and assistance in preparing the necessary travel documents. In addition to
reserving a berth on a cruise,
33
<PAGE>
reservation agents can give customers information about the activities,
shopping, sightseeing and restaurants available at the various ports at which
the cruise stops and can make reservations for these activities. In 1996,
Cruises Only and Cruises Inc. provided reservations for approximately 98,000
passengers on over 45 cruise lines. Cruises Only is open 14 hours per day seven
days a week. Cruises Inc.'s independent agents are available to answer calls
24-hours a day, seven days a week.
European Auto Rental. The Company, through Auto Europe, provides
reservations in the U.S. and Canada for auto rentals in Europe. The Company has
agreements with a number of auto rental companies that operate in Europe, such
as Alamo Europe, Avis Europe Limited, EuroDollar and Europcar International
S.A., which provide automobiles to the Company for rental. Approximately 90% of
Auto Europe's customers are travel agents, and the remaining 10% are travelers.
The Company's field representatives establish and maintain the Company's
relationships with a majority of the travel agents located in the U.S. Recently,
Auto Europe established a site on the World Wide Web to more effectively target
travelers directly. Auto rentals in Europe pose a number of challenges for a
U.S. traveler. In addition to costs such as drop off fees and airport levies,
travelers run the risk of additional costs associated with currency fluctuations
and rate changes if they do not pre-pay in U.S. dollars. Travelers are also
faced with age restrictions, lack of flexibility in drop off and pick up and
insurance complications. Further, the difficulty obtaining air conditioned,
automatic transmission cars makes the European auto rental process difficult for
travelers. Auto Europe is able to simplify the process and overcome many of
these challenges for travel agents and travelers. The Company maintains 24-hour
toll-free numbers connected directly to its customer service department in the
U.S. from which its customers in Europe can obtain emergency assistance. These
toll-free numbers provides the customer with an English speaking contact with
access to the appropriate emergency roadside assistance in the relevant foreign
location. In 1996, Auto Europe made reservations for approximately 195,000 auto
rentals.
MIS TECHNOLOGY
Technology is critical to providing the most complete, accurate and current
information and to maximizing the efficiency of the Company's reservation
agents. The Company's strategy is to capitalize on the technology investments
made by its Founding Companies and to continue to invest in state-of- the-art
information and telecommunications technology. During 1995 and 1996, the
Founding Companies expended in excess of $3.0 million dollars for the
development and implementation of new technology. The Company operates its basic
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. has completed testing of Cruise Director, a
computerized reservation system developed for cruise lines by SABRE to increase
the efficiency of the reservation process, and is in the process of making this
system available to its independent agents.
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
34
<PAGE>
customers to talk to the reservations computer to retrieve price and schedule
information. The Company expects that this new system will increase the
efficiency of the Company's reservation agents by minimizing the average length
of a telephone call.
The Company expects to increase the utilization of its existing systems by
making them available to other Founding Companies and at companies to be
acquired in the future. Investment in technology will enable the Company to: (i)
facilitate cross-marketing opportunities and the transfer of knowledge across
travel service segments; (ii) build a centralized database of information on
travelers that can be utilized for highly targeted direct mail advertising
campaigns; and (iii) achieve operating leverage to support its growth.
TRAVEL PROVIDER RELATIONSHIPS
The Founding Companies have negotiated arrangements with many major
airline, cruise line and European auto rental companies. In 1996, net revenues
from (i) two auto rental companies, Avis Europe and Europcar, represented an
aggregate of 38.8%; (ii) two cruise lines represented an aggregate of 13.7%; 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:
Cruise Lines Airlines European 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 from certain travel providers pricing that is
preferential to published fares which enables the Company to offer prices lower
than would be generally available to travelers and travel agents. The Company's
agreements with its travel providers can generally be cancelled or modified by
the travel provider upon relatively short notice.
SALES AND MARKETING
The Company engages in different marketing and advertising programs
depending on whether the customers are primarily travel agents or travelers and
the particular travel service. The Company markets domestic air travel service
through the use of various toll-free numbers, such as 1-800-FLY-CHEAP and
1-800-LOW-FARE. The Company markets its other services to travelers in numerous
ways, principally through newspaper and magazine advertisements highlighting
toll-free numbers and special travel offers. Cruises Inc. is also currently the
exclusive provider of cruise line information services for Travelocity, a
popular travel site on the Internet and a service of the SABRE Group. In many
cases, the travel providers contribute to the cost of the advertising and
marketing. To market directly to travel agents, the Company uses dedicated
salespeople, direct mailings and multiple fax distribution technology. Most of
the Founding Companies have sites on the World Wide Web for use by travel agents
and travelers. The Company believes it will be able to significantly increase
its revenue base by offering travel agents and travelers a broader range of
travel services through a single telephone call to any of the Company's
locations. In addition, the Company will focus on increasing its revenues from
its existing customers by cross-selling its services and broadening its service
offerings.
COMPETITION
The travel service industry is extremely competitive and has low barriers
to entry. The Company competes with other distributors of travel services, its
travel providers, travel agents, tour operators and group travel sponsors, some
of which have more experience, brand name recognition and/or financial resources
than the Company. The Company competes for customers based upon service,
price and specialized in-depth knowledge and, in addition, with respect to
travel agents, attractive commission structures. The Company's travel providers
may decide to compete more directly with the
35
<PAGE>
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.
EMPLOYEES
As of March 31, 1997, the Company had 722 full-time employees, of whom 275
were employed in connection with auto rental services, 219 were employed in
connection with cruise services and 228 were employed in connection with air
services. In addition, the Company has contracts with 251 independent agents and
uses temporary employees as required to meet the needs of seasonal demand. The
Company believes that its relations with its employees are good.
FACILITIES
As of March 31, 1997, the Company had five facilities, two of which it owns
and three of which are leased. Auto Europe owns one facility which is located in
Portland, Maine and is approximately 45,000 square feet. Cruises Only owns one
facility which is located in Orlando, Florida and is approximately 37,600 square
feet. Cruises Inc. leases one facility which is located in Syracuse, New York
and includes approximately 10,600 square feet. The lease will expire on February
28, 2006 and contains a five year renewal option. Travel 800 leases one facility
which is located in San Diego, California and includes approximately 12,800
square feet. The lease will expire on March 31, 1998. D-FW Tours leases one
facility which is located in Dallas, Texas and includes approximately 9,000
square feet. The lease will expire on August 31, 1998. The Company's corporate
headquarters are located in temporary facilities in West Palm Beach, Florida.
The Company intends to relocate to permanent headquarters in Florida after the
consummation of the Offering.
LEGAL PROCEEDINGS
On June 29, 1995, the U.S. Department of Labor filed suit against Cruises
Only, Wayne Heller and Judy Heller in the U.S. District Court of the Middle
District of Florida, the Orlando Division, alleging that Cruises Only failed to
pay overtime to employees in violation of the Fair Labor Standards Act of 1938.
The complaint did not specify a dollar amount of relief sought. 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.
36
<PAGE>
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
Jill M. Vales ...... 39 Chief Financial Officer of the Company
Robert G. Falcone ... 56 CEO-Cruises Inc.; Director
Wayne Heller ......... 40 CEO-Cruises Only; Director
Imad Khalidi ......... 45 Vice President, European Operations of the Company; CEO-Auto Eu-
rope, Director
Susan Parker ......... 49 CEO-Travel 800; Director
John W. Przywara ... 46 CEO-D-FW Tours; Director
Elan J. Blutinger ... 42 Director
D. Fraser Bullock ... 42 Director
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 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).
Jill M. Vales will become the Chief Financial Officer of the Company upon
the consummation of the Offering. From November 1996 until May 1997 Ms. Vales
served as the Chief Operating Officer of Gunster, Yoakley, Valdes-Fauli &
Stewart, P.A., a law firm. From June 1990 until July 1996, Ms. Vales held
various positions at Certified Vacations, an affiliate of Alamo Rent A Car,
including Senior Vice President and Chief Financial Officer (1994-1996), Vice
President of Finance and Operations (1992-1994) and Senior Director of Finance
and Operations and Controller (1990- 1992). From 1979 to 1990, Ms. Vales held
various positions at KPMG Peat Marwick. Ms. Vales is a certified public
accountant.
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
37
<PAGE>
Airline Reporting Corporation ("ARC"), the Travel Council of the World
(Environmental Group), the American Society of Travel Agents ("ASTA"), Cruise
Lines International Association ("CLIA") and is the co-founder of the Society of
Elite Agents, a trade association of leading cruise specialists ("SEA").
Wayne Heller will become a director of the Company after the consummation
of the Offering. Mr. Heller has served as the Chief Executive Officer of
Cruises Only since its founding in 1985 and was previously employed with
Norwegian Caribbean Cruise Lines from 1980 to 1984. Mr. Heller is a member of
ASTA, NACOA and CLIA.
Imad Khalidi will become the Vice President, European Operations, of the
Company and a director of the Company after the consummation of the Offering.
Mr. Khalidi has been President of Auto Europe since 1992. In 1990, he joined
Auto Europe as Executive Vice President of Marketing and Sales. From 1983 to
1990, Mr. Khalidi served as an International Travel Trade Manager and an
International Licensee Manager with Europcar International S.A., an auto rental
company in France. Mr. Khalidi is a member of the Association of Retail Travel
Agencies ("ARTA"), ASTA and CLIA.
Susan Parker will become a director of the Company after the consummation
of the Offering. Ms. Parker has served as the President of Travel 800 since its
founding in 1989. From 1984 to 1989, Ms. Parker was President of Continental
Travel, an incentive travel company. Ms. Parker is a member of ASTA, CLIA and
the International Airlines Travel Agent Network ("IATAN").
John W. Przywara will become a director of the Company after the
consummation of the Offering. Mr. Przywara has served as President of D-FW
Tours since its founding in 1978. Mr. Przywara is a member of the ARC, CLIA and
IATAN.
Elan J. Blutinger has been a director of the Company since October 1996.
Mr. Blutinger is a Managing Director of Alpine Consolidated LLC, a consolidator
of highly fragmented businesses. From 1987 to 1995, he was the Chief Executive
Officer of Shoppers Express, Inc., an electronic retailing service, which he
founded. Mr. Blutinger is currently the Vice Chairman of Shoppers Express, Inc.
From 1983 to 1986, Mr. Blutinger was the Chairman and Chief Executive Officer of
DSI, a wholesale distributor for the personal computer industry until its
acquisition in 1986 by Independent Distribution Incorporated.
D. Fraser Bullock has been a director of the Company since October 1996.
Mr. Bullock is a Managing Director of Alpine Consolidated LLC, and was most
recently the President and Chief Operating Officer of VISA Interactive, a
wholly-owned subsidiary of VISA International from its inception in 1994 to
1996. In 1993, Mr. Bullock became the President and Chief Operating Officer of
U.S. Order, Inc., a provider of remote electronic transaction processing, until
it was acquired by VISA International in 1994. From 1991 to 1992, Mr. Bullock
was the Senior Vice President of U.S. Order, Inc. From 1986 to 1991, he was the
Chief Financial Officer and Executive Vice President of World Corp., Inc., a
holding company with various operating subsidiaries including World Airways,
Inc. Mr. Bullock was a founding partner of Bain Capital, a Manager of Bain and
Company, and a founder of MediVision, Inc., a consolidation of eye surgery
centers.
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 served as a director of the Company from its formation
until May 1997. After the Offering, he will be an Advisory Director to the
Board. Mr. Potter is a co-founder and Managing Director of Capstone Partners,
LLC, a venture firm specializing in consolidation transactions. Capstone
Partners, LLC was a co-sponsor of the Staffmark, Inc. consolidation and initial
public offering in September 1996. Prior to forming Capstone Partners, LLC in
April 1996 Mr. Potter was an attorney at Morgan, Lewis & Bockius,
38
<PAGE>
LLP for more than five years practicing in the areas of mergers and acquisitions
and securities law. While at Morgan, Lewis & Bockius he represented a number of
public companies in connection with 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
directors whose terms are expiring. Directors whose terms expire in 1998 are:
Elan J. Blutinger, D. Fraser Bullock and Tommasso Zanzotto; directors whose
terms expire in 1999 are: Imad Khalidi, John W. Przywara and Joseph V. Vittoria;
directors whose terms expire in 2000 are: Robert G. Falcone, Wayne Heller and
Susan Parker. The Company expects that the Board of Directors will establish an
Audit Committee, a Compensation Committee, and such other committees as the
Board may determine. The members of each committee are expected to be determined
at the first meeting of the Board of Directors following the consummation of the
Combinations.
The Advisory Director will attend meetings of the Board of Directors,
consult with officers and directors of the Company and provide guidance (but not
direction) concerning management and operation of the Company's business. The
Advisory Director is not a director of the Company and accordingly will not have
a right to vote as a director.
All officers serve at the discretion of the Board of Directors.
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
do not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries receives a fee
of $2,000 for attendance at each Board of Directors' meeting and $1,000 for 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 has entered into an employment agreement with the Company
providing for an annual base salary of $200,000. Mr. Moriarty has entered into
an employment agreement with the Company providing for an annual base salary of
$150,000 plus a guaranteed minimum bonus of $75,000. Ms. Vales has entered 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, except Mr.
Falcone's, is or will be effective upon the consummation of the Offering for a
term of three years. Mr. Falcone's employment agreement will be effective upon
the consummation of the Offering for a term of five years. 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
39
<PAGE>
geographic areas in which the Company or its subsidiaries does business; (ii)
enticing a managerial employee of the Company away from the Company; (iii)
calling upon any person or entity which is, or has been, within one year prior
to the date of termination, a customer of the Company; or (iv) calling upon a
prospective acquisition candidate which the employee knew was approached or
analyzed by the Company, for the purpose of acquiring the entity. The Covenant
may be enforced by injunctions or restraining orders and shall be construed in
accordance with the changing activities, business and location of the
Company.
Each of these employment agreements will provide that, in the event of a
termination of employment by the Company without cause during the 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 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.
40
<PAGE>
In connection with the Offering, NQSOs to purchase a total of 743,900
shares of Common Stock will be granted. Of this amount, options to purchase
400,000 shares of Common Stock will be granted to management of the Company,
including 100,000 options to Mr. Vittoria, 75,000 options to Mr. Moriarty and
50,000 options to Ms. Vales, and an aggregate of 343,900 options will be granted
to certain employees of the Founding Companies. The grants of all of the
foregoing options will be effective as of the date of the Offering and each
option will have an exercise price equal to the initial public offering price
per share in the Offering. These options will vest at the rate of 25% per year
commencing on the first anniversary of the grant, and will expire 10 years from
the date of grant or three months following termination of employment.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
THE COMPANY'S 1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN (THE "DIRECTORS'
PLAN"), WHICH WAS ADOPTED by the Board of Directors and approved by the
Company's stockholders in 1997, provides for: (i) the automatic grant to each
non-employee director and Advisory Director (a "Participant") serving at the
commencement of the Offering of an option to purchase 10,000 shares; and
thereafter (ii) the automatic grant to each Participant of an option to purchase
10,000 shares upon such person's initial election as a director or appointment
as an Advisory Director. In addition, the Directors' Plan provides for an
automatic annual grant to each Participant of an option to purchase 5,000 shares
at each annual meeting of stockholders following the Offering; provided,
however, that if the first annual meeting of stockholders following a person's
initial election as a non-employee director or appointment by the Board as an
Advisory Director is within three months of the date of such election or
appointment, such person will not be granted an option to purchase 5,000 shares
of Common Stock at such annual meeting. These options will have an exercise
price per share equal to the fair market value of a share at the date of grant.
Options granted under the Directors' Plan will expire at the earlier of 10 years
from the date of grant or one year after termination of service as a director or
advisor, and options will be immediately exercisable. In addition, the
Directors' Plan permits Participants 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.
41
<PAGE>
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
The Company was formed in April 1996. The Company was initially capitalized
by Alpine Consolidated, LLC, a consolidator of highly fragmented businesses, of
which Elan Blutinger and D. Fraser Bullock, Directors of the Company, are
Managing Directors, and Capstone Partners, LLC, a venture firm specializing in
consolidation transactions, of which Leonard Potter, who will be an Advisory
Director to the Board, is a Managing Director. As a result of a 5,444.45 for one
stock split effective on May 14, 1997, the 300 shares of Common Stock initially
issued by the Company to its founders will total 1,633,335 shares on the
consummation of the Offering.
TSGI Funding, LLC ("TSGI"), a Delaware limited liability company, will lend
to TSII from time to time an amount equal to the legal, accounting and other
transactional costs, expenses and disbursements incurred by TSII in connection
with the Combinations and the Offering. The member managers of TSGI are Alpine
Consolidated, LLC and Capstone Partners, LLC. Any amounts loaned by TSGI to TSII
will be repaid without interest by the Company. As of June 15, 1997, TSGI had
loaned $725,000 to TSII.
The aggregate consideration to be paid by TSII in the Combinations consists
of approximately $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 ..................... 1,166 194,445
--------- ----------
Total ........................ $ 22,183 3,422,225
========= ==========
The purchase price of certain of the Founding Companies will be increased
by working capital adjustments based on cash and receivable balances as of June
30, 1997 of the respective Founding Companies. In addition, certain
non-operating assets with a net book value of approximately $2.5 million will be
excluded from the Combinations and retained by certain stockholders of the
Founding Companies.
The consideration to be paid for the Founding Companies was determined
through arm's-length negotiations between TSII and representatives of each
Founding Company. The factors considered by the parties in determining the
consideration to be paid include, among others, the historical operating
results, the net worth, the levels and type of indebtedness and the future
prospects of the Founding Companies. Each Founding Company was represented by
independent counsel in the negotiation of the terms and conditions of the
Combinations.
The consummation of each Combination is subject to customary conditions.
These conditions include, among others, the continuing accuracy on the closing
date of the Combinations of the representations and warranties of the Founding
Companies and of TSII, consummation of the Offering, receipt of all necessary
consents and approvals, delivery of certain opinions of counsel, the performance
of all covenants included in the agreements relating to the Combinations, and
the nonexistence of a material adverse change in the business, results of
operations or financial condition of each Founding Company.
Pursuant to the agreements entered into in connection with the
Combinations, the stockholders of the Founding Companies agreed not to compete
with the Company for three years, commencing on the date of consummation of the
Offering.
Prior to the Offering, substantially all of the indebtedness of the
Founding Companies was personally guaranteed by their respective stockholders or
by entities controlled by such stockholders. The Company will assume all
remaining payment obligations of such indebtedness, primarily consisting of real
estate mortgages, following consummation of the Offering.
42
<PAGE>
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 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 February 28, 2006.
Prior to the Offering, Travel 800 entered into a Custom Network Service
Arrangement ("CNSA") with Sprint Communications Company LP for long distance
telephone services which provides for a minimum monthly commitment of $120,000
and certain minimum monthly usages. This contract will not be transferred as
part of the Combinations, but will be retained by a Company owned by Susan
Parker, Chief Executive Officer of Travel 800. After the Combinations, Travel
800 will utilize long distance telephone services under the CNSA and has agreed
to pay for its portion of usage under the CNSA.
During 1995, Cruises Only leased office space from Heller Properties, an
entity wholly owned by Wayne Heller, the President of Cruises Only, and Judy
Heller, the Senior Vice President of Cruises Only, pursuant to an oral agreement
on a month to month basis for rent plus the payment of operating expenses and
property taxes. In 1992, Cruises Only guaranteed a mortgage note in principal
amount of $620,000 on such property. The note was repaid and the guarantee was
released in April, 1997. The rent ranged from $6,165 per month to $6,835 per
month. The oral agreement was terminated on December 31, 1995. Thereafter,
Cruises Only moved into office space that is wholly-owned by Cruises Only.
Jacqueline Duffort Cecil, the wife of Alex Cecil, the Chief Executive
Officer of Auto Europe prior to the Offering, loaned $300,000 to Auto Europe on
December 31, 1995 and 1996 at an interest rate of prime plus 1%. Auto Europe
repaid these respective loans in March and February of the following years.
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 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.
43
<PAGE>
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> <C>
Joseph V. Vittoria ........................ 245,000 4.1% 2.9%
Michael Moriarty ........................... 40,833 * *
Jill M. Vales .............................. 40,833 * *
Robert G. Falcone (2) ..................... 300,000 5.1 3.6
Wayne Heller (3) ........................... 908,334 15.4 10.8
Imad Khalidi .............................. 500,000 8.5 5.9
Susan Parker .............................. 902,778 15.3 10.7
John W. Przywara ........................... 194,445 3.3 2.3
Elan J. Blutinger (4) ..................... 1,098,890 18.6 13.1
D. Fraser Bullock (4) ..................... 1,098,890 18.6 13.1
Tommasso Zanzatto (5) ..................... 10,000 * *
Alex Cecil (6) .............................. 1,083,334 18.3 12.9
Alpine Consolidated, LLC .................. 1,088,890 18.4 13.0
Capstone Partners, LLC (7) .................. 544,445 9.2 6.5
All Directors and Executive
Officers as a Group (11 persons) (8) ...... 4,251,113 71.6 50.4
</TABLE>
- ----------
* less than 1.0%
(1) Unless indicated otherwise, the address of the beneficial owners is, TSII,
515 No. Flagler Drive, Suite 300 - Pavillion, West Palm Beach, Florida
33401.
(2) Includes 150,000 shares owned by Judith A. Falcone, his spouse.
(3) Includes 454,167 shares owned by Judy Heller, his spouse.
(4) Includes for each of Messrs. Blutinger and Bullock 10,000 shares which may
be acquired upon the exercise of options and 1,088,890 shares held by
Alpine Consolidated, LLC. Elan J. Blutinger and D. Fraser Bullock are
Managing Directors of Alpine Consolidated, LLC.
(5) Includes 10,000 shares which may be acquired upon the exercise of options.
(6) Mr. Cecil's address is Auto Europe, 39 Commercial Street, Portland, ME
04112.
(7) Leonard A. Potter, an Advisory Director, is a Managing Director of Capstone
Partners, LLC.
(8) Includes 30,000 shares which may be acquired upon the exercise of options.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 51,000,000 shares of
capital stock, par value $.01 per share, consisting of 50,000,000 shares of
Common Stock, of which 2,484,501 shares shall be designated restricted common
stock (the "Restricted Common Stock") and 1,000,000 shares of preferred stock,
par value $.01 per share (the "Preferred Stock"). Without giving effect to the
issuance of shares in the Combinations or this Offering, the Company has
outstanding 2,484,501 shares of Common Stock held by seven shareholders, all of
which are shares of Restricted Common Stock, and no shares of Preferred Stock.
COMMON STOCK AND RESTRICTED COMMON STOCK
After giving effect to the Combinations but without giving effect to the
Offering, 5,906,726 shares of the Common Stock (of which 2,484,501 are shares of
Restricted Common Stock) were issued and outstanding and were held by 15
stockholders.
All of the rights, privileges and obligations of the Common Stock and
Restricted Common Stock are the same, except for voting rights. The holders of
the Common Stock are entitled to one vote for each share held on all matters.
The holders of Restricted Common Stock are entitled to four-tenths of one vote
for each share held on all matters.
Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of the Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. Holders of Common Stock are entitled to share ratably in the
net assets of the Company upon liquidation after payment or provision for all
liabilities and any preferential liquidation rights of any Preferred Stock then
outstanding. The holders of Common Stock have no preemptive rights to purchase
shares of stock of the Company. Shares of Common Stock are not subject to any
redemption provisions and are not convertible into any other securities of the
Company. All outstanding shares of Common Stock are, and the shares of Common
Stock to be issued pursuant to this Prospectus will be upon payment therefor,
fully paid and nonassessable.
The Board of Directors is classified into three classes as nearly equal in
number as possible, with the term of each class expiring on a staggered basis.
See "Management - Board of Directors." The classification of the Board of
Directors may make it more difficult to change the composition of the Board of
Directors and thereby may discourage or make more difficult an attempt by a
person or group to obtain control of the Company. Cumulative voting for the
election of directors is not permitted, enabling holders of a majority of the
outstanding Common Stock to elect all members of the class of directors whose
terms are then expiring.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share for share basis: (a) in the event of a disposition of such
share of Restricted Common Stock by the holder thereof (other than a disposition
which is a distribution by a holder to its partners or beneficial owners or a
transfer to a related party of such holder (as defined in Section 267, 707, 318,
and/or 4946 of the Internal Revenue Code of 1986, as amended)), (b) in the event
any person acquires beneficial ownership of 15% or more of the outstanding
shares of Common Stock of the Company, (c) in the event any person offers to
acquire 15% or more of the outstanding shares of Common Stock of the Company, or
(d) in the event a majority of the aggregate number of votes which may be voted
by the holders of outstanding shares of Common Stock and Restricted Common Stock
entitled to vote and approve such conversion. After December 31, 1999, the
Company may elect to convert any outstanding shares of Restricted Common Stock
into shares of Common Stock in the event 80% or more of the outstanding shares
of Restricted Common Stock have been converted into shares of Common Stock.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the
45
<PAGE>
number of shares and to change the number of shares constituting any series and
to provide for or change the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATIONS PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 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.
SHARES ELIGIBLE FOR FUTURE SALE
After the Offering, the Company will have outstanding 8,406,726 shares of
Common Stock. The 2,500,000 shares being sold in the Offering are, freely
tradable without restriction unless acquired by affiliates of the Company. None
of the remaining 5,906,726 outstanding shares of Common Stock
46
<PAGE>
(including 2,484,501 shares of Restricted Common Stock beneficially owned by the
Company's officers, directors and certain other stockholders) has been
registered under the Securities Act, which means that they may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from either the Company or any affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three-month period commencing 90
days after the date of the Prospectus relating to the Offering, a number of
shares that does not exceed the greater of one percent of the then outstanding
shares of the Common Stock, or the average weekly trading volume of the Common
Stock on the Nasdaq National Market during the four calendar weeks preceding the
date on which notice of the proposed sale is sent to the Commission. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the later of the date of the
acquisition of restricted shares of Common Stock from the Company or any
affiliate of the Company, a person who is not deemed to have been an affiliate
of the Company at any time for 90 days preceding a sale would be entitled to
sell such shares under Rule 144 without regard to the volume limitations, manner
of sale provisions or notice requirements.
Upon completion of the Offering, the holders of Common Stock who did not
purchase shares in the Offering will own 5,906,726 shares of Common Stock,
including the stockholders of the Founding Companies who will receive, in the
aggregate, 3,422,225 shares in connection with the Combinations and management
and founders of TSII who own 2,484,501 shares. These shares have not been
registered under the Securities Act and, therefore, may not be sold unless
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, these
stockholders have agreed with TSII not to sell, transfer or otherwise dispose of
any of these shares for one year following consummation of the Offering. These
stockholders also have certain demand registration rights beginning two years
after the Offering and certain piggyback registration rights with respect to
these shares.
The Company and the holders of all shares outstanding prior to the Offering
(including all officers and directors of the Company and the Founding Companies)
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of Montgomery Securities except
for: (i) in the case of the Company, Common Stock issued pursuant to any
employee or director plan described herein or in connection with acquisitions;
and (ii) in the case of all such holders, the exercise of stock options pursuant
to benefit plans described herein and shares of Common Stock disposed of as bona
fide gifts, subject, in each case, to any remaining portion of the 180-day
period applying to any shares so issued or transferred. In evaluating any
request for a waiver of the 180-day lock-up period, Montgomery Securities will
consider, in accordance with their customary practice, all relevant facts and
circumstances at the time of the request, including, without limitation, the
recent trading market for the Common Stock, the size of the request and, with
respect to a request by the Company to issue additional equity securities, the
purpose of such an issuance. See "Underwriting."
The 3,000,000 shares of Common Stock to be registered pursuant to the
Company's shelf registration statement will be, upon issuance thereof, freely
tradable unless acquired by parties to the acquisition or affiliates of such
parties, other than the issuer, in which case they may be sold pursuant to Rule
145 under the Securities Act. Rule 145 permits such persons to resell
immediately securities acquired in transactions covered under the Rule, provided
such securities are resold in accordance with the public information, volume
limitations and manner of sale requirements of Rule 144. If a period of one year
has elapsed since the date such securities were acquired in such transaction and
if the issuer meets the public information requirements of Rule 144, Rule 145
permits a person who is not an affiliate of the issuer to freely resell such
securities. The Company intends to contractually restrict the sale of shares
issued in connection with future acquisitions. The piggyback registration rights
described above do not apply to such shelf registration statement.
Sales, or the availability for sale of, substantial amounts of the Common
Stock in the public market could adversely affect prevailing market prices and
the ability of the Company to raise equity capital in the future.
47
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
Montgomery Securities and Furman Selz LLC (the "Representatives"), have
severally agreed, subject to the terms and conditions in the underwriting
agreement (the "Underwriting Agreement") by and between the Company and the
Underwriters, to purchase from the Company the number of shares of Common Stock
indicated below opposite its name, at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of the shares of Common Stock, if they purchase any.
NUMBER OF
UNDERWRITERS SHARES
------------ ----------
Montgomery Securities ........................
Furman Selz LLC ..............................
----------
Total .................................... 2,500,000
==========
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share; and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to certain
other dealers. After the initial public offering, the public offering price and
other selling terms may be changed by the Representatives. The Common Stock is
offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 375,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise such over-allotment
option, the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the 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
48
<PAGE>
Securities will consider, in accordance with their customary practice, all
relevant facts and circumstances at the time of the request, including, without
limitation, the recent trading market for the Common Stock, the size of the
request and, with respect to a request by the Company to issue additional equity
securities, the purpose of such an issuance. See "Shares Eligible for Future
Sale."
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities and Exchange Act of 1934,
pursuant to which such persons may bid for or purchase Common Stock for the
purpose of stabilizing its market price. The Underwriters also may create a
short position for the account of the Underwriters by selling more Common Stock
in connection with the Offering than they are committed to purchase from the
Company and, in such case, may purchase Common Stock in the open market
following completion of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 375,000 shares of Common Stock, by exercising the Underwriters'
over-allotment option referred to above. In addition, Montgomery Securities, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the offering) for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of the number of
shares of Common Stock offered hereby.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company and the
Representatives. Among the factors considered in such negotiations were the
results of operations of the Founding Companies in recent periods, the prospects
for the Company and the industry in which the Company competes, an assessment of
the Company's management, its financial condition, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of the economy and the securities markets at the time of the
Offering and the market prices of and demand for publicly traded common stock of
comparable companies in recent periods.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Akin, Gump, Strauss, Hauer &
Feld, L.L.P., Washington, D.C. Certain legal matters related to the Offering
will be passed upon for the Underwriters by Fulbright & Jaworski L.L.P., New
York, New York.
EXPERTS
The audited financial statements included elsewhere in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
49
<PAGE>
ADDITIONAL INFORMATION
Upon completion of the Offering, the Company will be subject to the
information requirements of the Exchange Act, and in accordance therewith will
file reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza
Building, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and its
regional offices located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained from the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of that site
is http:// www.sec.gov.
The Company's Common Stock is traded on the Nasdaq National Market.
Reports, proxy statements and other information concerning the Company can also
be inspected at the offices of the Nasdaq National Market, 1735 K Street,
Washington, D.C. 20006.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
HISTORICAL FINANCIAL STATEMENTS
PAGE
------
TRAVEL SERVICES INTERNATIONAL, INC. PRO FORMA:
Introduction to Unaudited Pro Forma Combined Financial Statements ... F-2
Unaudited Pro Forma Combined Balance Sheet ........................... F-3
Unaudited Pro Forma Combined Statements of Income ..................... F-4
Notes to Unaudited Pro Forma Combined Financial Statements ............ F-7
TRAVEL SERVICES INTERNATIONAL, INC.:
Report of Independent Public Accountants .............................. F-10
Balance Sheets ...................................................... F-11
Statement of Operations ............................................. F-12
Statement of Changes in Stockholders' Equity ........................ F-13
Statement of Cash Flows ............................................. F-14
Notes to Financial Statements ....................................... F-15
AUTO-EUROPE, INC. (MAINE):
Report of Independent Public Accountants .............................. F-18
Balance Sheets ...................................................... F-19
Statements of Operations ............................................. F-20
Statements of Changes in Stockholders' Deficit ..................... F-21
Statements of Cash Flows ............................................. F-22
Notes to Financial Statements ....................................... F-23
CRUISES ONLY, INC.:
Report of Independent Public Accountants .............................. F-29
Balance Sheets ...................................................... F-30
Statements of Income ................................................ F-31
Statements of Changes in Stockholders' Equity (Deficit) ............... F-32
Statements of Cash Flows ............................................. F-33
Notes to Financial Statements ....................................... F-34
800-IDEAS, INC.:
Report of Independent Public Accountants .............................. F-39
Balance Sheets ...................................................... F-40
Statements of Income ................................................ F-41
Statements of Changes in Stockholders' Equity ........................ F-42
Statements of Cash Flows ............................................. F-43
Notes to Financial Statements ....................................... F-44
CRUISES INC.:
Report of Independent Public Accountants .............................. F-48
Balance Sheets ...................................................... F-49
Statements of Income ................................................ F-50
Statements of Changes in Stockholders' Equity ........................ F-51
Statements of Cash Flows ............................................. F-52
Notes to Financial Statements ....................................... F-53
F-1
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Travel Services International, Inc. (TSII or the
Company), of the outstanding capital stock of Cruises Inc. (Cruises Inc.), and
D-FW Tours, Inc., and D-FW Travel Arrangements, Inc. (collectively, D-FW Tours),
and substantially all of the assets of Auto-Europe, Inc. (Maine) (Auto Europe),
Cruises Only, Inc. (Cruises Only), and 800-Ideas, Inc. (Travel 800) (together,
the Founding Companies). These acquisitions (the Combinations) will occur
simultaneously with the closing of TSII's initial public offering (the Offering)
and will be accounted for using the purchase method of accounting. Auto Europe,
one of the Founding Companies, has been designated as the accounting acquiror
for financial statement presentation purposes. Auto Europe has been designated
the accounting acquiror in accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. 97 which states that the combining company which
receives the largest portion of voting rights in the combined corporation is
presumed to be the acquiror for accounting purposes.
The unaudited pro forma combined balance sheet gives effect to the
Combinations and the Offering as if they had occurred on March 31, 1997. The
unaudited pro forma combined statements of income gives effect to these
transactions as if they had occurred on January 1, 1996.
The Company has preliminarily analyzed the savings that it expects to be
realized by consolidating certain operational and general and administrative
functions. To the extent the owners and certain key employees of the Founding
Companies have agreed prospectively to reductions in salary and benefits, these
reductions have been reflected in the unaudited pro forma combined statement of
income. With respect to other potential cost savings, the Company has not and
cannot quantify these savings until completion of the combination of the
Founding Companies. It is anticipated that these savings will be partially
offset by the costs of being a publicly held company and the incremental
increase in costs related to the Company's new management. However, these costs,
like the savings that they offset, cannot be quantified accurately. Neither the
anticipated savings nor the anticipated costs have been included in the pro
forma combined financial information of TSII.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The unaudited pro forma financial data do not purport to
represent what the Company's financial position or results of operations would
actually have been if such transactions in fact had occurred on those dates and
are not necessarily representative of the Company's financial position or
results of operations for any future period. Since the Founding Companies were
not under common control or management, historical combined results may not be
comparable to, or indicative of, future performance. The unaudited pro forma
combined financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
See "Risk Factors" included elsewhere herein.
F-2
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET - MARCH 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
AUTO CRUISES TRAVEL CRUISES
TSII EUROPE ONLY 800 INC.
----------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ - $ 2,061 $ 604 $ 970 $1,611
Trade and other receivables, net of allowance ...............
- 123 773 831 87
Other current assets ....................................... 136 75 261 132 337
Total current assets ....................................... 136 2,259 1,638 1,933 2,035
PROPERTY AND EQUIPMENT, net ................................. - 4,981 3,800 287 286
GOODWILL ................................................... - - - - -
OTHER ASSETS ................................................ - 2,203 43 85 31
-------- -------- ------- ------- -------
Total assets ............................................. $ 136 $ 9,443 $ 5,481 $2,305 $2,352
======== ======== ======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank overdraft ............................................. $ - $ - $ - $ - $ -
Line of credit and short-term debt ........................ - - - - 17
Current maturities of long-term debt ........................ - 123 378 17 -
Trade payables, customer deposits and deferred income 127 8,569 2,561 333 1,360
Payable to Founding Companies' Stockholders ............... - - - - -
-------- -------- ------- ------- -------
Total current liabilities ................................. 127 8,692 2,939 350 1,377
LONG-TERM DEBT, net of current maturities .................. - 1,880 3,139 - 39
DEFERRED INCOME ............................................. - - 175 - -
DEFERRED TAXES ............................................. - - - - -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock (2,484,501 shares outstanding (TSII),
5,906,726 shares outstanding (pro forma combined),
8,406,726 shares outstanding (pro forma as adjusted). 25 41 7 71 -
Additional paid in capital ................................. 7,125 96 - - -
Retained earnings (deficit) ................................. (7,141) (1,266) (779) 1,884 936
Treasury stock ............................................. - - - - -
-------- -------- ------- ------- -------
Total stockholders' equity (deficit) ..................... 9 (1,129) (772) 1,955 936
-------- -------- ------- ------- -------
Total liabilities and stockholders' equity (deficit) ...... $ 136 $ 9,443 $ 5,481 $2,305 $2,352
======== ======== ======= ======= =======
<CAPTION>
D-FW PRO FORMA PRO OFFERING AS
TOURS ADJUSTMENTS FORMA ADJUSTMENTS ADJUSTED
---------- ----------- ------ ----------- --------
(NOTE 3) (NOTE 3)
-------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 2,426 $ (2,074) $ 5,598 $ 3,217 $ 8,815
Trade and other receivables, net of allowance ...............
518 - 2,332 - 2,332
Other current assets ....................................... 17 6 964 - 964
Total current assets ....................................... 2,961 (2,068) 8,894 3,217 12,111
PROPERTY AND EQUIPMENT, net ................................. 38 (144) 9,248 - 9,248
GOODWILL ................................................... - 37,760 37,760 - 37,760
OTHER ASSETS ................................................ - (2,319) 43 - 43
------- -------- -------- -------- --------
Total assets ............................................. $ 2,999 $ 33,229 $ 55,945 $ 3,217 $ 59,162
======= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank overdraft ............................................. $ - $ - $ - $ - $ -
Line of credit and short-term debt ........................ - - 17 - 17
Current maturities of long-term debt ........................ - - 518 - 518
Trade payables, customer deposits and deferred income 2,571 - 15,521 - 15,521
Payable to Founding Companies' Stockholders ............... - 22,183 22,183 (22,183) -
------- -------- -------- -------- --------
Total current liabilities ................................. 2,571 22,183 38,239 (22,183) 16,056
LONG-TERM DEBT, net of current maturities .................. - 5,058 - 5,058
DEFERRED INCOME ............................................. - - 175 - 175
DEFERRED TAXES ............................................. - 116 116 - 116
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock (2,484,501 shares outstanding (TSII),
5,906,726 shares outstanding (pro forma combined),
8,406,726 shares outstanding (pro forma as adjusted). 37 (123) 58 25 83
Additional paid in capital ................................. - 8,892 16,113 25,375 41,488
Retained earnings (deficit) ................................. 410 2,142 (3,814) - (3,814)
Treasury stock ............................................. (19) 19 - - -
------- -------- -------- -------- --------
Total stockholders' equity (deficit) ..................... 428 10,964 12,357 25,400 37,757
------- -------- -------- -------- --------
Total liabilities and stockholders' equity (deficit) ...... $ 2,999 $ 33,229 $ 55,945 $ 3,217 $ 59,162
======= ======== ======== ======== ========
</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 $6,494 $5,135 $ - $ 53,097
OPERATING EXPENSES ..................... - 18,560 2,986 5,202 4,140 2,839 - 33,727
--- -------- ------- ------- ------- ------- ---------- ----------
Gross profit ........................... - 7,182 4,951 2,587 2,354 2,296 - 19,370
GENERAL AND ADMINISTRATIVE
EXPENSES .............................. - 7,205 4,318 1,238 1,708 2,167 (5,110)(a) 11,526
GOODWILL AMORTIZATION .................. - - - - - - 1,079 (b) 1,079
--- -------- ------- ------- ------- ------- ---------- ----------
Income (loss) from operations ......... - (23) 633 1,349 646 129 4,031 6,765
INTEREST (EXPENSE) AND OTHER INCOME,
net .................................... - (221) (243) 31 12 10 - (411)
--- -------- ------- ------- ------- ------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES ...... - (244) 390 1,380 658 139 4,031 6,354
PROVISION FOR INCOME TAXES ............ - - - - 263 19 2,560 (c) 2,842
--- -------- ------- ------- ------- ------- ---------- ----------
NET INCOME (LOSS) ..................... $- $ (244) $ 390 $1,380 $ 395 $ 120 $ 1,471 $ 3,512
=== ======== ======= ======= ======= ======= ========== ==========
NET INCOME PER SHARE .................. $ 0.43
==========
SHARES USED IN COMPUTING NET INCOME
PER SHARE (Note 5) ..................... 8,138,643
==========
</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
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT - MARCH 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 ........................... $- $ 5,764 $ 1,806 $1,649 $1,492 $927 $ - $11,638
OPERATING EXPENSES ..................... - 4,615 666 1,021 1,080 782 - 8,164
--- ------ ------- ------- ------- ----- -------- ---------
Gross profit ........................... - 1,149 1,140 628 412 145 - 3,474
GENERAL AND ADMINISTRATIVE
EXPENSES .............................. - 1,721 764 221 387 112 (886)(a) 2,319
GOODWILL AMORTIZATION .................. - - - - - - 270 (b) 270
--- ------ ------- ------- ------- ----- -------- ---------
Income (loss) from operations ......... - (572) 376 407 25 33 616 885
INTEREST (EXPENSE) AND OTHER INCOME,
net .................................... - (42) (34) 4 - 3 - (69)
--- ------ ------- ------- ------- ----- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ...... - (614) 342 411 25 36 616 816
PROVISION FOR INCOME TAXES ............ - - - - 10 14 348 (c) 372
--- ------ ------- ------- ------- ----- -------- ---------
NET INCOME (LOSS) ..................... $- $ (614) $ 342 $ 411 $ 15 $ 22 $ 268 $ 444
=== ====== ======= ======= ======= ===== ======== =========
NET INCOME PER SHARE .................. $ 0.05
=========
SHARES USED IN COMPUTING NET INCOME
PER SHARE (Note 5) ..................... 8,138,643
=========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-5
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT - MARCH 31, 1997
(In Thousands, Except Share 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 ........................... $ - $ 7,820 $ 2,213 $2,108 1,714 $1,271 $ - $ 15,126
OPERATING EXPENSES ..................... - 5,723 772 1,332 1,034 1,031 - 9,892
-------- ------- ------- ------- ------- ------- ---------- ----------
Gross profit ........................... - 2,097 1,441 776 680 240 - 5,234
GENERAL AND ADMINISTRATIVE (921)(a)
EXPENSES .............................. 7,141 1,844 828 296 474 173 (7,141)(d) 2,694
GOODWILL AMORTIZATION .................. - - - - - - 270 (b) 270
-------- ------- ------- ------- ------- ------- ---------- ----------
Income (loss) from operations ......... (7,141) 253 613 480 206 67 7,792 2,270
INTEREST (EXPENSE) AND OTHER INCOME,
net .................................... - (74) (52) 18 5 4 - (99)
-------- ------- ------- ------- ------- ------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES ...... (7,141) 179 561 498 211 71 7,792 2,171
PROVISION FOR INCOME TAXES ............ - - - - 84 28 857 (c) 969
-------- ------- ------- ------- ------- ------- ---------- ----------
NET INCOME (LOSS) ..................... $ (7,141) $ 179 $ 561 $ 498 $ 127 $ 43 $ 6,935 $ 1,202
======== ======= ======= ======= ======= ======= ========== ==========
NET INCOME PER SHARE .................. $ 0.15
SHARES USED IN COMPUTING NET INCOME ==========
PER SHARE (Note 5) .....................
8,138,643
==========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-6
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. GENERAL:
Travel Services International, Inc. (TSII), was formed to create a leading
single source distributor of specialized leisure travel services to both travel
agents and travelers. TSII has conducted no operations to date and will acquire
substantially all of the assets of the Founding Companies concurrently with the
consummation of the Offering.
The historical financial statements reflect the financial position and results
of operations of TSII and the Founding Companies as of March 31, 1997, and for
the twelve months ended December 31, 1996, and the three months ended March 31,
1996 and 1997, and were derived from the respective TSII and Founding Company
financial statements where indicated. The audited historical financial
statements included elsewhere herein have been included in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 80.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrent with the closing of the Offering, TSII will acquire all of the
outstanding capital stock of Cruises Inc. and D-FW Tours and substantially all
of the assets of Auto Europe, Cruises Only and Travel 800. The Combinations will
be accounted for using the purchase method of accounting with Auto Europe being
designated as the accounting acquiror.
The following table sets forth the consideration to be paid (a) in cash and (b)
in shares of Common Stock to the stockholders of each of the Founding Companies.
For purposes of computing the estimated purchase price for accounting purposes,
the value of the shares is determined using an estimated fair value of $9.00 per
share, which represents a discount of 25 percent from the assumed initial public
offering price of $12.00 per share due to restrictions on the sale and
transferability of the shares issued. The estimated purchase price for the
acquisitions is based upon preliminary estimates.
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
--------------- -------------
(In Thousands)
<S> <C> <C>
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
======== ==========
</TABLE>
F-7
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS - (CONTINUED )
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
The following table summarizes unaudited pro forma combined balance sheet
adjustments (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
(a) (b) (c) ADJUSTMENTS
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents ........................ - (2,074) - (2,074)
Other current assets .............................. - - 6 6
Property and equipment, net ..................... $ (144) $ - $ - $ (144)
Goodwill .......................................... 37,760 37,760
Other assets .................................... (2,319) - (2,319)
Payable to Founding Companies' stockholders ...... (22,183) (22,183)
Other long-term liabilities ..................... (116) (116)
Common stock .................................... 123 123
Additional paid-in capital ........................ (8,892) (8,892)
Retained earnings ................................. 2,463 (4,715) 110 (2,142)
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 of $22,183,000, (ii) certain
working capital adjustments estimated at March 31, 1997 of approximately
$2,074,000, (iii) the issuance of 3,422,225 shares of common stock to the
stockholders of the Founding Companies at $9.00 per share (or $30.8
million), (iv) the creation of approximately $37,760,000 of goodwill and
(v) reflects the reduction in compensation expenses relating to the
non-recurring, non-cash compensation charge of $7.1 million recorded in the
first quarter of 1997 related to Common Stock issued to management. See
Note 2.
(c) Reflects the deferred income tax liability attributable to the temporary
differences between financial reporting and income tax bases of assets and
liabilities currently held in S Corporations.
(d) Reflects the proceeds from the issuance of 2,500,000 shares of common
stock, net of estimated offering costs (based on an assumed initial public
offering price of $12.00 per share). Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and
printing expenses.
(e) Reflects the cash portion of the consideration to be paid to the Founding
Companies in connection with the Combinations.
F-8
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS - (CONTINUED )
4. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS :
(a) Reflects a reduction in salaries, bonuses and benefits derived from
contractual agreements which establish the compensation of the owners and
certain key employees of the Founding Companies subsequent to the Offering.
(b) Reflects the amortization of goodwill using a 35-year estimated life.
(c) Reflects the incremental provision for federal and state income taxes
relating to the other statement of income adjustments and to reflect income
taxes on S Corporation income.
(d) Reflects the reduction in compensation expense in the three months ended
March 31, 1997, relating to the non-recurring, non-cash compensation charge
of $7.1 million related to Common Stock issued to management.
5. NET INCOME PER SHARE
The shares used in computing net income per share include (i) 2,484,501 shares
issued to management of and founders of TSII, (ii) 3,422,225 shares to be issued
to the stockholders of the Founding Companies in connection with the
Combinations and (iii) 2,231,917 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 783,900 shares
of Common Stock subject to options to be granted concurrently with the Offering
at an exercise price equal to the initial public offering price.
F-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Travel Services International, Inc.:
We have audited the accompanying balance sheet of Travel Services International,
Inc., as of December 31, 1996. This financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Travel Services International,
Inc., as of December 31, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Houston, Texas
May 13, 1997
F-10
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS ............................................. $ - $ -
DEFERRED OFFERING COSTS ................................................ - 136
----- -------
Total assets ......................................................... $ - $ 136
===== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE TO TSGI FUND-
ING, LLC ............................................................. $ - $ 127
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par, 1,000,000 authorized, none outstanding...... - -
Common stock, $.01 par, 50,000,000 shares authorized, 1,633,335 and
2,484,501 shares outstanding, respectively ........................... 16 25
Additional paid in capital .......................................... (16) 7,125
Retained deficit ...................................................... - (7,141)
----- --------
Total stockholders' equity .......................................... - 9
----- --------
Total liabilities and stockholders' equity ........................... $ - $ 136
===== ========
</TABLE>
Reflects a 5,445.45-for-one stock split effective on May 12, 1997.
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
NET REVENUES ....................................... $ -
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ...... 7,141
---------
LOSS BEFORE INCOME TAXES ........................... (7,141)
INCOME TAX BENEFIT ................................. -
---------
NET LOSS .......................................... $ (7,141)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 25, 1996)
THROUGH MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- -------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
Initial Capitalization ............ 1,633,335 $16 $ (16) $ - $ -
---------- ---- ------- --------- --------
BALANCE, December 31, 1996 ......... 1,633,335 16 (16) - -
Issuance of Management Shares
(unaudited) ..................... 851,166 9 7,141 - 7,150
Net loss (unaudited) ............ - - - (7,141) (7,141)
---------- ---- ------- --------- --------
BALANCE, March 31, 1997 (unaudited) 2,484,501 $25 $ 7,125 $ (7,141) $ 9
========== ==== ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ..................................................................... $ (7,141)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities -
Compensation expense related to issuance of management shares ............... 7,141
Changes in assets and liabilities -
Increase in deferred offering costs ....................................... (136)
Increase in accrued liabilities and amounts due to TSGI Funding, LLC ...... 127
---------
Net cash used in operating activities .................................... (9)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of stock ............................................................ 9
---------
Net cash provided by financing activities ................................. 9
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................................... -
CASH AND CASH EQUIVALENTS, beginning of period .............................. -
---------
CASH AND CASH EQUIVALENTS, end of period .................................... $ -
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL:
Travel Services International, Inc., a Delaware Corporation, ("TSII" or the
"Company"), was founded in April 1996 to create a leading single source
distributor of specialized leisure travel services to both travel agents and
travelers. TSII intends to acquire substantially all of the assets of five
companies (the "Founding Companies") (the "Combinations") and complete an
initial public offering (the "Offering") of its common stock.
TSII has not conducted any operations, and all activities to date have related
to the Offering and the Combinations. Cash of $30 was provided from the initial
capitalization of the Company (see Note 2). All other expenditures will be
funded by TSGI Funding, LLC, a Delaware limited liability company whose member
managers are owners of the Company. Accordingly, statements of operations and
cash flows for this period would not provide meaningful information and have
been omitted. As of March 31, 1997 and December 31, 1996, costs of approximately
$136,000 (unaudited) and $0, respectively, have been incurred by TSGI Funding,
LLC in connection with the Offering. The Company is dependent upon the Offering
to execute the pending Combinations. There is no assurance that the pending
Combinations will be completed or that TSII will be able to generate future
operating revenues.
2. STOCKHOLDERS' EQUITY:
COMMON STOCK AND PREFERRED STOCK
TSII effected a 5,444.45 -for-one stock split on May 12, 1997 for each share of
common stock (the Company "Common Stock") then outstanding. In addition, the
Company increased the number of authorized shares of Common Stock to 50,000,000
and authorized 1,000,000 shares of $.01 par value preferred stock. The effects
of Common Stock split and the increase in the shares of authorized Common Stock
have been retroactively reflected in the balance sheet and the accompanying
notes.
In connection with the organization and initial capitalization of TSII, the
Company issued 100 shares of common stock at $.01 per share to Capstone
Partners, LLC. In October 1996, the Company issued 200 additional shares at $.01
per share to Alpine Consolidated, LLC.
In the first quarter of 1997, the Company issued a total of 851,166 shares of
Common Stock to management of the Company at a price of $.01 per share. As a
result, the Company recorded for financial statement purposes a non-recurring
non-cash compensation charge of $7.1 million (unaudited) in the first quarter of
1997, representing the difference between the amount paid for the shares and the
estimated fair value of the shares on the date of sale.
RESTRICTED COMMON STOCK
In May 1997, the stockholders exchanged 2,484,501 (851,166 management, and
1,633,335 Alpine/ Capstone) 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 four-tenths 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-15
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (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 743,900 shares of Common Stock of the Company. The grants of all of the
foregoing options will be effective as of the closing of the Offering and each
will have an exercise price equal to the initial public offering price per share
in the Offering. These options will vest at the rate of 25% per year and will
expire 10 years from the date of grant or three months following termination of
employment.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1997 Non-Employee Directors' Stock Plan (the "Directors' Plan"),
which was adopted by the Board of Directors and approved by the Company's
stockholders in 1997, provides for: (i) the automatic grant to each non-employee
director and advisory director (a "Participant") serving at the commencement of
the Offering of an option to purchase 10,000 shares; and thereafter (ii) the
automatic grant to each Participant of an option to purchase 10,000 shares upon
such person's initial election as a director. In addition, the Directors' Plan
generally provides for an automatic annual grant to each Participant of an
option to purchase 5,000 shares at each annual meeting of stockholders following
the Offering . These options will have an exercise price per share equal to the
fair market value of a share at the date of grant. Options granted under the
Directors' Plan will expire at the earlier of 10 years from the date of grant or
one year after termination of service as a director or advisor, and options will
be immediately exercisable. In addition, the Directors' Plan permits
Participants to elect to receive, in lieu of cash directors' fees, shares or
credits representing "deferred shares" that may be settled at future dates, as
elected by the Participants. The number of shares or deferred shares received
will be equal to the number of shares which, at the date the fees would
otherwise be payable, will have an aggregate fair market value equal to the
amount of such fees. The Company has reserved 100,000 shares of Common Stock for
issuance under the Directors' Plan.
3. STOCK BASED COMPENSATION:
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," allows entities to choose between a new fair value
based method of accounting for employee stock options or similar equity
instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Companies electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosure of net income and earnings per share as if the fair value
method of accounting had been applied. The Company will provide pro forma
disclosure of net income and net income per share, as applicable, in the notes
to future consolidated financial statements.
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-16
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS - (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, subject to working capital adjustments, 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. An investment in shares of Common Stock offered by this
Prospectus involves a high degree of risk, including, among others, absence of a
combined operating history, risks relating to the Company's acquisition
strategy, risks relating to acquisition financing, reliance on key personnel and
a substantial portion of the proceeds from the offering payable to affiliates of
the Founding Companies. See "Risk Factors" included elsewhere in this
Prospectus.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Auto-Europe, Inc. (Maine):
We have audited the accompanying balance sheets of Auto-Europe, Inc. (Maine) (a
Maine corporation), as of December 31, 1995 and 1996, and the related statements
of operations, changes in stockholders' deficit and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Auto-Europe, Inc. (Maine), as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 23, 1997
F-18
<PAGE>
AUTO-EUROPE, INC. (MAINE)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ......................................................... $ 14 $ - $ 2,061
Receivables from stockholder and employees ..................... 2,391 370 123
Other current assets .......................................... 19 52 75
------- -------- -------
Total current assets .......................................... 2,424 422 2,259
PROPERTY AND EQUIPMENT, net .................................... 2,840 4,825 4,981
OTHER ASSET ................................................... - 2,203 2,203
------- -------- -------
Total assets ................................................ $ 5,264 $ 7,450 $ 9,443
======= ======== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft ................................................ $ 105 $ 672 $ -
Short-term debt ................................................ 712 2,300 -
Current maturities of long-term debt ........................... 535 204 123
Due to travel service providers .............................. 2,967 1,790 4,455
Accounts payable and accrued liabilities ..................... 1,788 1,774 4,114
------- -------- -------
Total current liabilities .................................... 6,107 6,740 8,692
LONG-TERM DEBT, net of current maturities ..................... 12 1,880 1,880
STOCKHOLDERS' DEFICIT:
Class A voting common stock, no par value; 1,000 authorized
shares; 800 shares outstanding .............................. 1 1 1
Class B nonvoting common stock, no par value; 50,000 authorized
shares; 40,000 shares outstanding ........................... 40 40 40
Capital in excess of par value ................................. 96 96 96
Deficit ...................................................... (992) (1,307) (1,266)
------- -------- --------
Total stockholders' deficit ................................. (855) (1,170) (1,129)
------- -------- --------
Total liabilities and stockholders' deficit .................. $ 5,264 $ 7,450 $ 9,443
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
AUTO-EUROPE, INC. (MAINE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES .............................. $ 17,156 $ 21,919 $ 25,742 5,764 7,820
OPERATING EXPENSES ........................ 11,101 15,413 18,560 4,615 5,723
-------- -------- -------- ------- ------
Gross profit ........................... 6,055 6,506 7,182 1,149 2,097
GENERAL AND ADMINISTRATIVE EXPENSES ...... 6,276 6,686 7,205 1,721 1,844
-------- -------- -------- ------- ------
Income (Loss) from operations ............ (221) (180) (23) (572) 253
INTEREST EXPENSE ........................ (28) (81) (221) (42) (74)
-------- -------- -------- ------- ------
NET INCOME (LOSS) ........................ $ (249) $ (261) $ (244) $ (614) $ 179
======== ======== ======== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
AUTO-EUROPE, INC. (MAINE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------- ----------------- CAPITAL
COMMON COMMON IN EXCESS
SHARES STOCK SHARES STOCK OF PAR VALUE DEFICIT TOTAL
-------- ------- -------- -------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 ...... 800 $1 40,000 $40 $70 $ (206) $ (95)
Net loss ........................ - - - - - (249) (249)
Contributions .................. - - - - 26 - 26
Distributions .................. - - - - - (218) (218)
---- --- ------- ---- ----- --------- ---------
BALANCE, December 31, 1994 ...... 800 1 40,000 40 96 (673) (536)
Net loss ........................ - - - - - (261) (261)
Distributions .................. - - - - - (58) (58)
---- --- ------- ---- ----- --------- ---------
BALANCE, December 31, 1995 ...... 800 1 40,000 40 96 (992) (855)
Net loss ........................ - - - - - (244) (244)
Distributions .................. - - - - - (71) (71)
---- --- ------- ---- ----- --------- ---------
BALANCE, December 31, 1996 ...... 800 $1 40,000 $40 $96 $ (1,307) $ (1,170)
---- --- ------- ---- ----- --------- ---------
Net Income (unaudited) ......... - - - - - 179 179
Contributions (unaudited) ...... - - - - - - -
Distributions (unaudited) ...... - - - - - (138) (138)
---- --- ------- ---- ----- --------- ---------
BALANCE, March 31, 1997 (unaudit-
ed) ............................ 800 $1 40,000 $40 $96 $ (1,266) $ (1,129)
==== === ======= ==== ===== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
AUTO-EUROPE, INC. (MAINE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) ................................................... $ (249) $ (261) $ (244) $ (614) $ 179
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities-
Depreciation ...................................................... 275 382 643 160 190
Changes in operating assets and liabilities-
Receivables from stockholder and employees ........................ (182) 85 (113) (491) 247
Other current assets ............................................. - 22 (33) (62) (23)
Due to travel service providers ................................. 1,134 935 (1,177) 65 2,665
Accounts payable and accrued liabilities ........................ 40 146 (14) 1,088 1,669
------- ------- ------- ------- --------
Net cash provided by (used in) operating activities ............ 1,018 1,309 (938) 146 4,927
------- ------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................................. (1,713) (1,172) (2,707) (1,121) (377)
Improvements to other asset ....................................... - - (69) - -
Proceeds from sale of office equipment and vehicles ............... 23 15 79 13 30
------- ------- ------- ------- --------
Net cash used in investing activities ........................... (1,690) (1,157) (2,697) (1,108) (347)
------- ------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) short-term debt and bank over-
draft .............................................................. 589 (245) 2,155 (700) (2,300)
Proceeds from long-term debt ....................................... 113 524 2,621 1,819 -
Payments on long-term debt .......................................... (55) (79) (1,084) - (81)
Capital contributions ............................................. 26 - - - -
Distributions to stockholders ....................................... (218) (58) (71) (71) (138)
------- ------- ------- ------- --------
Net cash provided by (used in) financing activities ............ 455 (138) 3,621 1,048 (2,519)
------- ------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH .................................... (217) 14 (14) 86 2,061
CASH, beginning of period .......................................... 217 - 14 14 -
------- ------- ------- ------- --------
CASH, end of period ................................................ $ - $ 14 $ - $ 100 $ 2,061
======= ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMA-
TION:
Cash paid for interest ............................................. $ 28 $ 81 $ 197 43 97
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Auto-Europe, Inc. (Maine) (the Company), is a Maine corporation headquartered in
Portland, Maine. The Company is a specialized distributor of reservations for
leisure auto rentals to persons traveling primarily from the United States and
Canada to Europe. The Company's operations are seasonal, with a peak during the
second and third quarters of the year.
The Company had working capital deficits at December 31, 1995 and 1996. The
Company has funded its operations with cash flows from operations and short-term
borrowings from lenders. Management expects that operations will generate
sufficient cash flows from operations to meet the Company's working capital
needs during 1997.
The Company and its stockholders intend to enter into a definitive agreement
with Travel Services International, Inc. (TSII), pursuant to which all of the
operating assets of the Company and related liabilities will be exchanged for
cash and shares of TSII common stock concurrent with the consummation of the
initial public offering (the Offering) of the common stock of TSII. In addition,
the owner and certain key employees have agreed to reductions in salary and
benefits which would have reduced general and administrative expenses by
approximately $3.5 million, $2.7 million and $3.2 million for 1994, 1995 and
1996, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of March 31, 1997, and for the three months
ended March 31, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Revenue Recognition
The Company records net revenues when earned, which is at the time a reservation
is booked and ticketed. Revenues primarily consist of commissions on travel
services and volume bonuses from travel service providers. The Company provides
a reserve for cancellations, reservation changes and currency exchange
guarantees, and provisions for such amounts are reflected in net revenues.
The 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
F-23
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS - (Continued)
these contracts generally offset losses and gains on the liabilities being
hedged. Due to the nature of the liabilities being hedged, the typical maturity
of these purchase contracts is 30 days. The risk of loss on the unhedged
liabilities is not significant. At December 31, 1996, the Company had
approximately $687,000 of outstanding foreign currency purchase contracts. At
December 31, 1995, the Company had no open foreign currency contracts.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of operations.
Other Asset
Other asset represents an investment in real estate of an island off the coast
of Maine and related improvements transferred to the Company during 1996 by a
stockholder in satisfaction of a portion of the receivable due from the
stockholder. The island is valued at the cost to the stockholder which is
estimated by management to be at least equal to its net realizable value. The
island is not used in the operations of the Company; accordingly, no
depreciation expense has been recorded. The island will be excluded from the
assets transferred in connection with the consummation of the transactions
discussed in Note 1.
Rental Coupons
As part of its marketing campaigns, the Company regularly issues to its travel
agent customers a rental coupon per transaction booked. Each coupon represents a
value equal to one free day of car rental at certain Western Europe destinations
based upon the rate charged for the smallest car available in the applicable
area of service. The Company's policy is to accrue expense for anticipated
coupon redemptions in the year such coupons are issued. The coupon redemption
accruals are estimated based upon historical usage patterns, and such estimates
could vary significantly based upon changes in economic and political conditions
that impact leisure travel patterns. The reserve for coupon redemptions totaled
approximately $219,000 and $329,000 at December 31, 1995 and 1996, respectively,
and is included in accrued liabilities.
Income Taxes
The Company has elected S Corporation status as defined by the Internal Revenue
Code, whereby the Company is not subject to taxation for federal purposes. Under
S Corporation status, the stockholders report their share of the Company's
taxable earnings or losses in their personal tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-24
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS - (Continued)
New Accounting Standard
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that
facts and circumstances indicate that property and equipment and intangible or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value is necessary. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
Concentrations of Risk
Travel Service Providers-The Company markets and sells the services of global,
national and local rental car agencies in various foreign countries. Two auto
rental companies accounted for approximately 90% of the Company's total auto
rentals in 1994, 82% of the Company's total auto rentals in 1995 and 80% of the
Company's total auto rentals in 1996.
Geographical-The percentage of total auto rentals during the three years ended
December 31, 1996, occurred in the destinations noted below:
1994 1995 1996
------ ------ -----
Germany ........................... 22% 21% 19%
United Kingdom ..................... 18 19 19
France .............................. 19 16 17
Italy .............................. 12 13 14
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment as of December 31, 1995 and 1996, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS 1995 1996
------------- ----------- ---------
<S> <C> <C> <C>
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
======== =======
</TABLE>
F-25
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS - (Continued)
Accounts payable and accrued liabilities as of December 31, 1995 and 1996,
consisted of the following (in thousands):
1995 1996
-------- ------
Accrued compensation and benefits ........................ $ 415 $ 285
Accounts payable and other accrued liabilities ...... 1,373 1,489
------- ------
Total accounts payable and accrued liabilities ..... $1,788 $1,774
======= ======
4. DEBT:
The Company had a $2,000,000 revolving line-of-credit with Key Bank of Maine
(Key Bank) which bears interest, payable monthly, at prime plus 1% (9.25% at
December 31, 1996) and expires in July 1997. The line of credit is secured by a
first security interest in all business assets. At December 31, 1995 and 1996,
borrowings outstanding under the line of credit were approximately $412,000 and
$2,000,000, respectively.
At both December 31, 1995 and 1996, the Company had a loan payable of $300,000
to a related party, bearing interest at prime plus 1%. The Company repaid the
respective loans in March and February of the following years.
Long-term debt consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- --------
<S> <C> <C>
Mortgage note payable to Key Bank, bearing interest at prime plus 1%, due in
monthly principal installments of $7 plus accrued interest, matures 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 Octo-
ber 2016. Secured by second mortgage on the Company's office building and
personally guaranteed by a stockholder ........................................ - 745
Term loan to Key Bank, bearing interest at prime plus 1% with monthly interest-
only payments. The Company repaid the note in May 1996 ......................... 500 -
Notes payable to various automobile lenders, bearing interest ranging from 7.90%
to 11.90%, maturing at various dates through 2001 and secured by automobiles. 47 110
------ -------
547 2,084
Less- Current maturities ...................................................... (535) (204)
------ -------
$ 12 $1,880
====== =======
</TABLE>
The line-of-credit and mortgage note agreements include various affirmative and
negative covenants, including a cross-default clause in the line-of-credit
agreement related to the Company's mortgage note with Key Bank. Among these
covenants, the Company is required to maintain certain minimum tangible net
worth, debt-to-net-worth and cash-flow-to-debt-service ratios. At December 31,
1995 and 1996, the Company did not meet such financial ratio requirements and
has obtained the necessary waivers through the term of the revolving
line-of-credit agreement and through January 1, 1998, for the mortgage note
payable, regarding such noncompliance.
F-26
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS - (Continued)
Certain covenants of the SBA note require the Company to obtain SBA approval
prior to transferring or issuing additional capital, becoming party to a
reorganization, merger or consolidation, changing ownership or selling any
assets.
At December 31, 1996, maturities of long-term debt were as follows (in
thousands):
Year ending December 31,
1997 .................. $ 204
1998 .................. 140
1999 .................. 118
2000 .................. 112
2001 .................. 112
Thereafter ............ 1,398
-------
$2,084
=======
5. COMMITMENTS AND CONTINGENCIES:
Operator Agreements
The Company regularly enters into agreements with its significant travel service
providers. Among other things, these agreements generally provide for negotiated
rates to the Company and bonuses to the Company based upon sales volume. Such
agreements also generally require letters of credit to be issued in favor of the
travel service provider to secure performance by the Company. No such letters of
credit are outstanding at December 31, 1996.
Also, from time-to-time the Company enters into dedicated fleet agreements with
certain travel service providers. These agreements generally require the Company
to pay for a minimum number of auto rentals for a stated period of time usually
not exceeding six to nine months if minimal volume requirements are not
achieved. 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. This agreement was terminated
effective January 1, 1997. The Company is in the process of negotiating the
terms of a new agreement with this travel service provider. 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 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.
F-27
<PAGE>
AUTO-EUROPE, INC. (MAINE)
NOTES TO FINANCIAL STATEMENTS - (Continued)
Litigation
The Company is involved in various legal actions arising in the ordinary course
of business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
results of operations.
Insurance
The Company carries a broad range of insurance coverage, including general and
business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statements.
Benefit Plans
The Company's 401(k) retirement plan, as amended, is available to substantially
all of the Company's employees. The Company's contribution to the plan is based
upon a percentage of employee contributions. The cost of this plan was
approximately $11,000 in 1994, $18,000 in 1995 and $21,000 in 1996.
6. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments," and SFAS
No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," require the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. The carrying
value of the Company's financial instruments approximates fair value.
7. RELATED PARTIES:
During 1996, the Company purchased $477,000 of computer equipment from an entity
owned and controlled by an officer and certain employees of the Company at the
original cost of the equipment to the entity.
During 1995, the Company advanced $2.1 million to a shareholder who used the
advance to purchase an island off the coast of Maine. The island was later
contributed to the Company in return for the cancellation of his obligations on
the advance. This island will not be included in the assets of the Company
acquired by the TSII.
8. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
The Company and its stockholders have entered into a definitive agreement with
TSII providing for the acquisition of substantially all of the assets and
liabilities of the Company by TSII.
In connection with the Offering, certain non-operating assets with a net book
value of $2,438,000 will be retained by the stockholders. Had this transaction
been recorded at March 31, 1997, the effect on the accompanying balance sheet
would be a decrease in assets and a decrease in stockholders' equity of
$2,438,000.
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cruises Only, Inc.:
We have audited the accompanying balance sheets of Cruises Only, Inc. (a Florida
corporation), as of December 31, 1995 and 1996, and the related statements of
income, changes in stockholders' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cruises Only, Inc., as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 28, 1997
F-29
<PAGE>
CRUISES ONLY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- ------------
1995 1996 1997
-------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 311 $ 235 $ 604
Receivables from cruise lines .................................... 791 912 773
Prepaid expenses and other current assets ........................ 165 24 261
------- ------- -------
Total current assets .......................................... 1,267 1,171 1,638
PROPERTY AND EQUIPMENT, net ....................................... 2,978 3,866 3,800
OTHER ASSETS ...................................................... 36 44 43
------- ------- -------
Total assets ................................................... $4,281 $ 5,081 $ 5,481
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt ........................... $ 128 $ 375 $ 378
Accounts payable and accrued liabilities ........................ 248 729 995
Customer deposits and deferred income ........................... 865 1,044 1,275
Other current liabilities ....................................... 388 308 291
------- ------- -------
Total current liabilities ....................................... 1,629 2,456 2,939
LONG-TERM DEBT, net of current maturities ........................ 2,644 3,236 3,139
DEFERRED INCOME ................................................... - 190 175
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par value; 7,500 shares
authorized and outstanding ....................................... 7 7 7
Capital in excess of par value ................................. 1 - -
Deficit ......................................................... - (808) (779)
------- ------- -------
Total stockholders' equity (deficit) ........................... 8 (801) (772)
------- ------- -------
Total liabilities and stockholders' equity (deficit) ............ $4,281 $ 5,081 $ 5,481
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
CRUISES ONLY, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES .............................. $ 7,467 $ 9,078 $ 7,937 $ 1,806 $ 2,213
OPERATING EXPENSES ........................ 3,458 3,675 2,986 666 772
------ ------ ------- ------- -------
Gross profit ........................... 4,009 5,403 4,951 1,140 1,441
GENERAL AND ADMINISTRATIVE EXPENSES ...... 2,922 3,929 4,318 764 828
------ ------ ------- ------- -------
Income from operations .................. 1,087 1,474 633 376 613
INTEREST EXPENSE ........................ (2) (16) (236) (50) (71)
OTHER INCOME (EXPENSE), net ............... 3 (131) (7) 16 19
------ ------ ------- ------- -------
NET INCOME .............................. $ 1,088 $ 1,327 $ 390 $ 342 $ 561
====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
CRUISES ONLY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAPITAL RETAINED
COMMON IN EXCESS EARNINGS
SHARES STOCK OF PAR VALUE (DEFICIT) TOTAL
-------- -------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 ............... 7,500 $7 $ (155) $ - $ (148)
Net income .............................. - - - 1,088 1,088
Contributions ........................... - - 1,535 - 1,535
Distributions ........................... - - (262) (1,088) (1,350)
------ --- -------- -------- --------
BALANCE, December 31, 1994 ............... 7,500 7 1,118 - 1,125
Net income .............................. - - - 1,327 1,327
Contributions ........................... - - 912 - 912
Distributions ........................... - - (2,029) (1,327) (3,356)
------ --- -------- -------- --------
BALANCE, December 31, 1995 ............... 7,500 7 1 - 8
Net income .............................. - - - 390 390
Contributions ........................... - - 1,300 - 1,300
Distributions ........................... - - (1,301) (1,198) (2,499)
------ --- -------- -------- --------
BALANCE, December 31, 1996 ............... 7,500 $7 $ - $ (808) $ (801)
====== === ======== ======== ========
Net income (unaudited) .................. - - - 561 561
Contributions (unaudited) ............... - - - - -
Distributions (unaudited) ............... - - - (532) (532)
------ --- -------- -------- --------
BALANCE, March 31, 1997 (unaudited) ...... 7,500 $7 $ - $ (779) $ (772)
====== === ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
CRUISES ONLY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 1,088 $ 1,327 $ 390 $ 342 $ 561
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation ................................................ 99 121 213 53 75
Deferred income ............................................. - - - 235 (15)
Loss on retirement of assets ................................. - 181 85 - -
Capitalized interest ....................................... - (45) (19) (19) -
Changes in operating assets and liabilities-
Receivables from cruise lines .............................. (694) (58) (121) 296 139
Prepaid expenses and other current assets .................. - (166) 141 100 (237)
Other assets ............................................. 22 (34) (8) 7 -
Accounts payable and accrued liabilities .................. (286) (139) 481 440 266
Customer deposits and deferred income ..................... 241 625 69 509 231
Other current liabilities ................................. 168 (36) (80) (30) (18)
------- ------- -------- -------- ------
Promotion support payment ................................. - - 300 - -
------- ------- -------- -------- ------
Net cash provided by operating activities ............... 638 1,776 1,451 1,933 1,002
------- ------- -------- -------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................... (1,222) (1,796) (1,167) (226) (7)
------- ------- -------- -------- ------
Net cash used in investing activities ..................... (1,222) (1,796) (1,167) (226) (7)
------- ------- -------- -------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ................................. - 2,775 1,200 - -
Payments on long-term debt .................................... (49) (53) (361) (39) (94)
Contributions from stockholders .............................. 1,535 912 1,300 - -
Distributions to stockholders ................................. (1,350) (3,356) (2,499) (1,500) (532)
------- ------- -------- -------- ------
Net cash provided by (used in) financing activities ...... 136 278 (360) (1,539) (626)
------- ------- -------- -------- ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................... (448) 258 (76) 168 369
CASH AND CASH EQUIVALENTS, beginning of year .................. 501 53 311 311 235
------- ------- -------- -------- ------
CASH AND CASH EQUIVALENTS, end of year ........................ $ 53 $ 311 $ 235 $ 479 $ 604
======= ======= ======== ======== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW IN-
FORMATION:
Cash paid for-interest ....................................... $ 2 $ 61 $ 255 $ 50 $ 71
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Cruises Only, Inc. (the Company), a Florida corporation, is a specialized
distributor of reservations for cruise vacations to travelers located in the
United States. It offers cruises to its clients on over 45 cruise lines
traveling to the Caribbean and other destinations around the world. The
Company's operations are seasonal with a peak during the second and third
quarter of the year.
The Company had working capital deficits at December 31, 1995 and 1996.
Management expects that operations will generate sufficient cash flows from
operations to meet the Company's working capital needs during 1997.
The Company and its stockholders intend to enter into a definitive agreement
with Travel Services International, Inc. (TSII), pursuant to which all of the
assets and liabilities of the Company will be exchanged for cash and shares of
TSII common stock concurrent with the consummation of the initial public
offering (the Offering) of the common stock of TSII. In addition, the owners
have agreed to reductions in salary and benefits which would have reduced
general and administrative expenses by approximately $700,000, $900,000 and $1.3
million for 1994, 1995 and 1996, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of March 31, 1997, and for the three months
ended March 31, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
Property and Equipment
Property and equipment are stated at cost, including the net amount of interest
cost associated with significant capital additions. Capitalized interest was
approximately $45,000 in 1995 and $19,000 in 1996. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the life of the related
asset or life of the lease.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of income.
Customer Deposits and Deferred Income
Customer deposits represent the cost of cruises for cash sales which have not
yet been remitted to the cruise lines. Deferred income generally includes
commissions collected more than 60 days prior to the sail date. Deferred income
also includes the unearned portion of a $300,000 promotion support payment
received by the Company during 1996 from a supplier. In the event the Company
breaches the agreement
F-34
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
during the 60-month term, the promotion support payment must be refunded. The
promotional support payment is being amortized to income using the straight-line
method over the 60-month agreement term. Approximately $50,000 of this amount
has been included in other income for the year ended December 31, 1996.
Income Taxes
The Company has elected S Corporation status as defined by the Internal Revenue
Code, whereby the Company is not subject to taxation for federal purposes. Under
S Corporation status, the stockholders report their share of the Company's
taxable earnings or losses in their personal tax returns.
Revenue Recognition
The Company recognizes net revenues when the customer is no longer entitled to a
full refund of the cost of the cruise, which is generally 45 to 90 days prior to
the sail date. Net revenues primarily consist of commissions and year-end volume
bonuses from the cruise lines.
Operating Expenses
Operating expenses include sales persons' commissions, salaries, communication,
advertising, credit card fees and other costs associated with the selling and
processing of cruise reservations.
Advertising Costs
All advertising and promotion costs are expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Standard
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that
facts and circumstances indicate that property and equipment and intangible or
other assets may be impaired, an evaluation of recoverabililty would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value is necessary. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
Concentrations of Risk
Cruise Lines-Net revenues from the sales of cruises on behalf of two cruise
lines represented approximately 32% and 12%, respectively, of net revenues in
1994, and 35% and 11%, respectively, of net revenues in 1995. Three cruise lines
accounted for 42%, 12% and 12%, respectively, of net revenues in 1996.
F-35
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment as of December 31, 1995 and 1996, consist of the
following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS 1995 1996
------------- --------- ---------
<S> <C> <C> <C>
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
======= =======
</TABLE>
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-36
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Future maturities of long-term obligations as of December 31, 1996, are as
follows (in thousands):
Year ending December 31,
1997 .................. $ 375
1998 .................. 387
1999 .................. 400
2000 .................. 414
2001 .................. 210
Thereafter ............ 1,825
-------
$3,611
=======
Since October 1995, the Company has had a line of credit available in the amount
of $500,000, with a stated interest rate of prime, as defined, secured by the
Company's receivables and payable on demand. As of December 31, 1996, the
Company had not drawn any funds under this credit arrangement. The credit
facility expires June 30, 1997.
5. RELATED-PARTY TRANSACTIONS:
During 1994 and 1995, the Company leased office space from an affiliate,
pursuant to an oral agreement on a month to month basis for rent plus the
payment of operating expenses and property taxes. Total rents for 1994 and 1995
were approximately $155,000 and $79,000, respectively. The oral agreement was
terminated on December 31, 1995.
The Company employs a small number of individuals related to the stockholders at
wages commensurate with their experience and level of responsibility.
6. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in various legal actions arising in the ordinary course
of business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
results of operations.
Insurance
The Company carries a broad range of insurance coverage, including general and
business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statements.
401(k) Plan
The Company adopted a defined contribution 401(k) savings and retirement plan
effective August 1, 1994. Employees are eligible to participate after completing
one year of service and attaining age 21. Participants may contribute 1% to 15%
of their gross compensation subject to certain limitations. The Company may make
discretionary contributions as a percentage of each participant's elective
deferral. During 1995, the Company made discretionary contributions of $50,000.
No contributions were made by the Company during 1994 or 1996.
F-37
<PAGE>
CRUISES ONLY, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
7. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments," and SFAS
No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," require the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. The carrying
value of the Company's financial instruments approximates fair value.
8. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
The Company and its stockholders have entered into a definitive agreement with
TSII providing for the acquisition of all of the assets and liabilities of the
Company by TSII.
F-38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 800-Ideas, Inc.:
We have audited the accompanying balance sheet of 800-Ideas, Inc. (a Nevada
corporation), as of December 31, 1995 and 1996, and the related statements of
income, changes in stockholder's equity and cash flows for each of the two years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 800-Ideas, Inc., as of December
31, 1995 and 1996, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 20, 1997
F-39
<PAGE>
800-IDEAS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------- ------------
1995 1996 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 527 $1,062 $ 970
Accounts receivable, net of allowance of $125 ......... 873 1,111 831
Prepaid expenses and other current assets ............ 216 188 132
------- ------- -------
Total current assets ................................. 1,616 2,361 1,933
FURNITURE AND EQUIPMENT, net ........................... 148 298 287
OTHER ASSETS .......................................... 3 17 85
------- ------- -------
Total assets .......................................... $1,767 $2,676 $2,305
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Capital lease obligations .............................. $ 33 $ 24 $ 17
Accounts payable and accrued liabilities ............ 565 296 333
------- ------- -------
Total current liabilities ........................... 598 320 350
LONG-TERM DEBT, net of current maturities ............... 24 - -
STOCKHOLDER'S EQUITY: .................................
Common stock, no par value; 1,000 shares authorized and
outstanding .......................................... 71 71 71
Retained earnings .................................... 1,074 2,285 1,884
------- ------- -------
Total stockholders' equity ........................... 1,145 2,356 1,955
------- ------- -------
Total liabilities and stockholder's equity ............ $1,767 $2,676 $2,305
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
800-IDEAS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------- ------------------
1995 1996 1996 1997
-------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES ........................ $5,930 $7,789 $1,649 $2,108
OPERATING EXPENSES .................. 3,767 5,202 1,021 1,332
------- ------- ------- -------
Gross profit ..................... 2,163 2,587 628 776
GENERAL AND ADMINISTRATIVE EXPENSES. 1,107 1,238 221 296
------- ------- ------- -------
Income from operations ............ 1,056 1,349 407 480
OTHER INCOME, net .................. 15 31 4 18
------- ------- ------- -------
NET INCOME ........................ $1,071 $1,380 $ 411 $ 498
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
800-IDEAS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994 ............... 1,000 $71 $ 177 $ 248
Net income .............................. - - 1,071 1,071
Distributions ........................... - - (174) (174)
------ ---- ------- -------
BALANCE, December 31, 1995 ............... 1,000 71 1,074 1,145
Net income .............................. - - 1,380 1,380
Distributions ........................... - - (169) (169)
------ ---- ------- -------
BALANCE, December 31, 1996 ............... 1,000 $71 $ 2,285 $ 2,356
------ ---- ------- -------
Net income (unaudited) .................. - - 498 498
Distributions (unaudited) ............... - - (899) (899)
------ ---- ------- -------
BALANCE, March 31, 1997 (unaudited) ...... 1,000 $71 $ 1,884 $ 1,955
====== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
800-IDEAS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER ENDED
31, MARCH 31,
------------------- --------------------
1995 1996 1996 1997
-------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 1,071 $1,380 $ 411 $ 498
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization ..................... 67 99 26 25
Changes in operating assets and liabilities-
Accounts receivable .............................. (722) (239) (119) 281
Prepaid expenses and other current assets ...... (184) 27 75 44
Other assets .................................... (3) (14) (8) (57)
Accounts payable and accrued liabilities ...... 439 (277) (281) 30
------- ------- ------ ------
Net cash provided by operating activities ...... 668 976 104 821
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment ............... (25) (248) (185) (14)
------- ------- ------ ------
Net cash used in investing activities ......... (25) (248) (185) (14)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt ................................. - - 39 -
Payments on capital lease obligations ............... (117) (24) - -
Distributions to stockholder ........................ (174) (169) (148) (899)
------- ------- ------ ------
Net cash used in financing activities ......... (291) (193) (109) (899)
------- ------- ------ ------
NET INCREASE IN CASH AND CASH
EQUIVALENTS ....................................... 352 535 (190) (92)
CASH AND CASH EQUIVALENTS, beginning of
year ................................................ 175 527 527 1,062
------- ------- ------ ------
CASH AND CASH EQUIVALENTS, end of year ............... $ 527 $1,062 $ 337 $ 970
======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
800-Ideas, Inc. (the Company), a Nevada corporation, which operates under the
trade name "Travel 800", is a specialized distributor of domestic airline
reservations. The Company's operations are seasonal with a peak during the
second and third quarters of the year.
The Company and its stockholder intend to enter into a definitive agreement with
Travel Services International, Inc. (TSII), pursuant to which all of the
operating assets and related liabilities of the Company related to its travel
services (substantially all of the assets and liabilities of the Company) will
be contributed to a subsidiary limited liability corporation. The subsidiary
entity's member interest will subsequently be exchanged for cash and shares of
TSII common stock concurrent with the consummation of the initial public
offering (the Offering) of the common stock of TSII.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of March 31, 1997, and for the three months
ended March 31, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
Furniture and Equipment
Furniture and equipment are stated at cost, and depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Equipment under capital lease is amortized over the shorter of the life of the
related asset or the life of the lease.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of furniture and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of income.
Income Taxes
The Company has elected S Corporation status as defined by the Internal Revenue
Code, whereby the Company is not subject to taxation for federal purposes. Under
S Corporation status, the stockholder reports the Company's taxable earnings or
losses in her personal tax return.
Revenue Recognition
The Company recognizes net revenue when earned, which is at the time the
reservation is booked and ticketed. Net revenues primarily include commissions
on travel services, volume bonuses, ticket processing fees and delivery fees.
The Company provides a reserve for cancellations, reservation changes and lost
ticket charges, and provisions for such amounts are reflected in net revenues.
F-44
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Operating Expenses
Operating expenses include travel agent commissions, salaries, communication,
advertising, credit card fees and other costs associated with selling and
processing air travel reservations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Standard
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Accordingly, in the event that
facts and circumstances indicate that property and equipment and intangible or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value is necessary. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.
Concentrations of Risk
Travel Service Providers-The Company primarily markets and sells the services of
various United States domestic airlines. Two airlines accounted for 34% and 12%,
respectively, of net revenues in 1995 and 25% and 11%, respectively, of net
revenues in 1996.
Credit-Substantially all of the tickets sold by the Company and the related
processing and delivery fees are paid for by credit card; the cost of the
airline ticket is billed directly to the customer by Airline Reporting
Corporation (ARC), and the Company's net commission is subsequently remitted by
the ARC. Generally, credit card payments are processed and collection is assured
prior to the final delivery of the airline ticket to the customer.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Furniture and equipment as of December 31, 1996, consist of the following (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS
-------------
<S> <C> <C>
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
======
</TABLE>
F-45
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
DECEMBER 31,
--------------
1995 1996
------ -----
Balance at beginning of year .................. $125 $125
Additions charged to expense .................. 42 -
Deduction for uncollectible receivables written
off and recoveries ........................... (42) -
----- -----
$125 $125
===== =====
Accounts payable and accrued expenses as of December 31, 1996, consist of the
following (in thousands):
Accounts payable ........................ $ 32
Accrued compensation and benefits ...... 264
-----
$296
=====
4. LEASES:
Capital Leases
The Company leases hardware and software under noncancelable capital leases
which expire in October 1997 at which time there is a combined bargain purchase
option of $1. Minimum payments under these leases for the year ending December
31, 1997, total approximately $27,000.
Operating Lease Agreements
The Company conducts a portion of its operations in a leased facility classified
as an operating lease. Minimum future rental payments under the noncancelable
operating lease as of December 31, 1996, are as follows (in thousands):
Year ending December 31,
1997 .................. $143
1998 .................. 41
-----
$184
=====
The lease provides for the payment of taxes and other expenses by the Company.
Rent expense for the operating lease was approximately $122,000 and $149,000 in
1995 and 1996, respectively.
F-46
<PAGE>
800-IDEAS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
5. RELATED-PARTY TRANSACTIONS:
The Company has entered into a custom Network Service Arrangement ("CSNA") with
Sprint Communications Company L.P. for long distance telephone service which
provides for a minimum monthly commitment of $120,000 and certain minimum
monthly usages. This agreement will not be transferred to TSII as part of the
Offering. The Company has agreed to provide long distance telephone services
under the CSNA to TSII for a period of four to six months subsequent to the
Offering and TSII has agreed to pay for its portion of usage under the CNSA.
6. COMMITMENTS AND CONTINGENCIES:
Insurance
The Company carries a broad range of insurance coverage, including general and
business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statements.
Service Contract
On October 3, 1995, the Company entered into a five-year service contract for
the use of an automated reservations system. According to the contract, the
Company must pay a monthly rental fee of approximately $42,000, unless waived
based upon a minimum monthly volume of reservation transactions. Historically,
the Company has met this requirement, and the monthly rental fee has been
waived.
Under this service contract, the Company receives volume bonuses based on the
number of flown segments sold by the Company. During 1995 and 1996, the Company
received volume bonuses totaling approximately $881,000 and $901,000,
respectively.
7. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments," and SFAS
No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," require the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. The carrying
value of the Company's financial instruments approximates fair value.
8. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
The Company and its stockholder have entered into a definitive agreement with
TSII, providing for the acquisition of substantially all of the assets and
liabilities of the Company by TSII.
In connection with the Offering, certain non-operating assets with a net book
value of $25,000 will be retained by the stockholders. Had this transaction been
recorded at March 31, 1997, the effect on the accompanying balance sheet would
be a decrease in assets and a decrease in stockholders' equity of $25,000.
F-47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cruises Inc.:
We have audited the accompanying balance sheet of Cruises Inc. (a New York
corporation), as of December 31, 1996, and the related statements of income,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cruises Inc., as of December
31, 1996, the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 30, 1997
F-48
<PAGE>
CRUISES INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------- ------------
1996 1997
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 937 $1,611
Receivables from cruise lines .................................... 419 87
Prepaid expenses and other current assets ........................ 206 337
------- -------
Total current assets ............................................. 1,562 2,035
PROPERTY AND EQUIPMENT, net ....................................... 293 286
OTHER ASSETS ...................................................... 34 31
------- -------
Total assets ................................................... $1,889 $2,352
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt .............................. $ 15 $ 17
Accounts payable and accrued liabilities ........................ 624 622
Customer deposits and deferred income ........................... 375 716
------- -------
Total current liabilities ....................................... 1,014 1,355
DEFERRED INCOME TAXES ............................................. 22 22
LONG-TERM DEBT, net of current maturities ........................ 44 39
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 200 shares authorized; 100 shares out-
standing ......................................................... - -
Retained earnings ................................................ 809 936
------- -------
809 936
------- -------
Total liabilities and stockholders' equity ..................... $1,889 $2,352
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
CRUISES INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------- -------------------
1996 1996 1997
-------------- --------- -------
(UNAUDITED)
<S> <C> <C> <C>
NET REVENUES .............................. $ 6,494 $ 1,492 $1,714
OPERATING EXPENSES ........................ 4,140 1,080 1,034
------- ------- -------
Gross profit ........................... 2,354 412 680
GENERAL AND ADMINISTRATIVE EXPENSES ...... 1,708 387 474
------- ------- -------
Income from operations .................. 646 25 206
INTEREST INCOME, net ..................... 16 2 3
OTHER INCOME (EXPENSE) net ............... (4) (2) 2
------- ------- -------
INCOME BEFORE TAXES ..................... 658 25 211
INCOME TAX PROVISION ..................... 263 10 84
------- ------- -------
NET INCOME .............................. $ 395 $ 15 $ 127
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
CRUISES INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RETAINED
SHARES EARNINGS
-------- ---------
<S> <C> <C>
BALANCE, December 31, 1995 ............... 100 $414
Net income .............................. - 395
---- -----
BALANCE, December 31, 1996 ............... 100 $809
Net income (unaudited) .................. - 127
BALANCE, March 31, 1997 (unaudited) ...... 100 $936
==== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
CRUISES INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------- -------------------
1996 1996 1997
-------------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 395 $ 15 $ 127
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation ...................................................... 83 17 21
Changes in operating assets and liabilities-
Receivables from cruise lines .................................... (248) 35 332
Prepaid expenses and other current assets ........................ 92 22 (131)
Other assets ...................................................... 28 39 3
Accounts payable and accrued liabilities ........................ 130 (8) (2)
Customer deposits and deferred income ........................... 112 327 341
Other current liabilities ....................................... (4) (4) -
Net cash provided by operating activities ..................... 588 443 691
------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment and capitalized interest ......... (167) (51) (14)
------ ------ -------
Net cash used in investing activities ........................ (167) (51) (14)
------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt .......................................... (46) (32) (3)
------ ------ -------
Net cash used in financing activities ........................ (46) (32) (3)
------ ------ -------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................... 375 360 674
CASH AND CASH EQUIVALENTS, beginning of year ........................ 562 562 937
------ ------ -------
CASH AND CASH EQUIVALENTS, end of year .............................. $ 937 $ 922 $ 1,611
====== ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................. $ 2 $ 3 $ 1
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
CRUISES INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Cruises Inc. (the Company), a New York corporation, is a specialized distributor
of reservations for cruise vacations to travelers located throughout the United
States. It offers cruises to its clients on over 25 cruise lines traveling to
the Caribbean and other destinations around the world.
The Company and its stockholders have entered into a definitive agreement with
Travel Services International, Inc. (TSII), pursuant to which all outstanding
stock of the Company will be exchanged for cash and shares of TSII common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of TSII.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of March 31, 1997, and for the three months
ended March 31, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
Property and Equipment
Property and equipment are stated at cost, including the net amount of interest
cost associated with significant capital additions. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the life of the related
asset or life of the lease.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of income.
Customer Deposits and Deferred Income
Customer deposits represent the cost of cruises for cash sales which have not
yet been remitted to the cruise lines. Deferred income generally includes
commissions collected more than 60 days prior to the sail date.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax assets and liabilities for expected future
tax consequences of events that have been recognized in the financial statements
or tax returns. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statement carrying
amounts and the tax bases of assets and liabilities using enacted tax rates and
laws in effect in the years in which the differences are expected to reverse.
F-53
<PAGE>
CRUISES INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Revenue Recognition
The Company recognizes revenue when the customer is no longer entitled to a full
refund of the cost of the cruise, which is generally 45 to 90 days prior to the
sail date. Net revenues primarily consist of commissions and year-end volume
bonuses from cruise lines.
Operating Expenses
Operating expenses include sales persons' commissions, salaries, communication,
advertising, credit card fees and other costs associated with the selling and
processing of cruise reservations.
Advertising Costs
All advertising and promotion costs are expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Standard
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Accordingly, in the event that facts and circumstances indicate that property
and equipment and intangible or other assets may be impaired, an evaluation of
recoverabililty would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if a write-down to market value is
necessary. Adoption of this standard did not have a material effect on the
financial position or results of operations of the Company.
Concentrations of Risk
Cruise Lines - Net revenues from the sales of cruises on behalf of two cruise
lines represented approximately 27% and 17%, respectively, of net revenues in
1996.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment as of December 31, 1996, consist of the following (in
thousands):
ESTIMATED
USEFUL LIVES
IN YEARS
-------------
Leasehold improvements ............... 7 $ 10
Office equipment ..................... 5-7 454
Furniture and fixtures ............... 7 99
------
563
Less-Accumulated depreciation ...... (270)
------
Property and equipment, net ...... $ 293
======
F-54
<PAGE>
CRUISES INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Accounts payable and accrued expenses as of December 31, 1996, consist of the
following (in thousands):
Accounts payable ........................ $106
Accrued compensation and benefits ...... 508
Other accrued expenses .................. 159
-----
$773
=====
4. INCOME TAXES:
The income tax expense consisted of the following components for the year ended
December 31, 1996 (in thousands):
Current ........................ $228
Deferred ..................... 35
-----
Total income tax expense ...... $263
=====
For the year ended December 31, 1996, the primary difference between the
Company's effective tax rate and the statutory rate is due to state income
taxes.
Deferred tax assets and liabilities include the following as of December 31,
1996 (in thousands):
<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
--------- ------------ ---------
<S> <C> <C> <C>
Tax assets-
Accrued expenses ........................ $ 178 $ - $ 178
------ ------ ------
Tax liability-
Accounts receivable ..................... (149) - (149)
Depreciation and amortization ......... - (22) (22)
------ ------ ------
Net deferred tax asset (liability) ...... 29 (22) 7
Less-Valuation allowance ............... - - -
------ ------ ------
$ 29 $ (22) $ 7
====== ====== ======
</TABLE>
5. DEBT:
Long-term debt as of December 31, 1996, consists of the following (in
thousands):
<TABLE>
<S> <C>
Note payable to a bank, bearing interest at the bank's base rate plus 1% (9.25% at
December 31, 1996) and monthly payments of $2 through maturity in May 2000.
Secured by substantially all assets of the Company .............................. $ 59
Less-Current maturities ......................................................... (15)
-----
$ 44
=====
</TABLE>
Future maturities of long-term obligations as of December 31, 1996, are as
follows (in thousands):
Year ending December 31,
1997 .................. $15
1998 .................. 17
1999 .................. 18
2000 .................. 9
---
$59
===
F-55
<PAGE>
CRUISES INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
The Company has a bank line-of-credit agreement with a $100,000 credit line.
Borrowings on the line of credit bear interest at the bank's base rate plus 1%
(9.25% at December 31, 1996) and are personally guaranteed by certain
stockholders. There were no borrowings outstanding on the line of credit as of
December 31, 1996.
6. RELATED-PARTY TRANSACTIONS:
The Company employs a small number of individuals related to the stockholders at
wages commensurate with their experience and level of responsibility.
7. COMMITMENTS AND CONTINGENCIES:
INSURANCE
The Company carries a broad range of insurance coverage, including general and
business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statements.
401(k) Plan
The Company adopted a defined contribution 401(k) savings and retirement plan
effective January 1, 1994. Employees are eligible to participate after
completing one year of service and attaining age 21. Participants may contribute
1% to 20% of their gross compensation. The Company matches 25%, to a maximum of
4% of an employee's gross compensation. Employees vest in the Company's
contribution over a five-year period. During 1996, the Company made
contributions of approximately $7,000.
Operating Leases
The Company leases a building under an operating lease agreement expiring in
February 2006. Additionally, the Company leases office equipment under various
operating lease agreements expiring between 1997 and 2001.
Minimum future lease payments under noncancelable operating leases having
remaining terms in excess of one year as of December 31, 1996, are summarized as
follows:
Year ending December 31-
1997 .................. $ 234,978
1998 .................. 215,432
1999 .................. 211,943
2000 .................. 180,008
2001 .................. 168,315
Thereafter ............ 701,312
-----------
$1,711,988
===========
8. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS NO. 107, "DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS," AND SFAS
NO. 119, "DISCLOsures About Derivative Financial Instruments and Fair Value of
Financial Instruments," require the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value. The carrying
value of the Company's financial instruments approximates fair value.
F-56
<PAGE>
<TABLE>
<S> <C>
=========================================== ===========================================
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 2,500,000 SHARES
this Prospectus, and, if given or made,
such information or representations must
not be relied upon as having been
authorized by the Company or the
Underwriters. This Prospectus does not
constitute an offer to sell or a
solicitation of any offer to buy any
securities other than the shares of Common
Stock to which it relates or an offer to,
or a solicitation of, any person in any
jurisdiction where such an offer or
solicitation would be unlawful. Neither
the delivery of this Prospectus nor any
sale made hereunder shall, under any TRAVEL SERVICES
circumstances, create implication that INTERNATIONAL, INC.
there has been no change in the affairs of
the Company or that the information
contained herein is correct as of any time
subsequent to the date hereof.
--------------------
TABLE OF CONTENTS COMMON STOCK
--------------------
Page
-----
Prospectus Summary ............... 3
Risk Factors ..................... 9 ----------------
The Company ........................ 14
Use of Proceeds .................. 15 PROSPECTUS
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 ........................... 29
Management ........................ 37
Certain Transactions ............... 42
Principal Stockholders ............ 44
Description of Capital Stock ...... 45 MONTGOMERY SECURITIES
Shares Eligible for Future Sale ... 46
Underwriting ..................... 48
Legal Matters ..................... 49
Experts ........................... 49
Additional Information ............ 50 FURMAN SELZ
Index to Financial Statements ...... F-1
Until , 1997 (25 days after the date of
this Prospectus), all dealers effecting
transactions in the registered securities
offered hereby, whether or not
participating in this distribution, may be
required to deliver a Prospectus. This is , 1997
in addition to the obligation of dealers
to deliver a Prospectus when acting as
Underwriters and with respect to their
unsold allotments or subscriptions.
=========================================== ===========================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
SEC Registration Fee ..................... $ 11,326
NASD Filing Fee ........................ 4,238
Nasdaq National Market Listing Fee ...... 38,660
Accounting Fees and Expenses ............ 1,200,000
Legal Fees and Expenses .................. 800,000
Printing Expenses ........................ 300,000
Transfer Agent's Fees .................. 3,500
Miscellaneous ........................... 142,276
-----------
Total ................................. $2,500,000
===========
- ----------
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware (the "DGCL") empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section 145
in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided for by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers the
corporation to purchase and maintain insurance on
II-1
<PAGE>
behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director: (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from
which the director derived an improper personal benefit.
Article Seventh of the Company's Certificate of Incorporation, as amended,
states that:
"No director shall be liable to the corporation or any of its stockholders
for monetary damages for breach of fiduciary duty as a director, except with
respect to: (1) a breach of the director's duty of loyalty to the corporation or
its stockholders; (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) liability under
Section 174 of the DGCL; or (4) a transaction from which the director derived an
improper personal benefit, it being the intention of the foregoing provision to
eliminate the liability of the corporation's directors to the corporation or its
stockholders to the fullest extent permitted by Section 102(b)(7) of the DGCL,
as amended from time to time. The corporation shall indemnify to the fullest
extent permitted by Sections 102(b)(7) and 145 of the DGCL, as amended from time
to time, each person that such Sections grant the corporation the power to
indemnify."
In addition, Article VII of the Company's Bylaws further provides that the
Company shall indemnify its officers, directors, advisory directors and
employees to the fullest extent permitted by law.
The Company intends to enter into indemnification agreements with each of
its executive officers, advisory directors and directors which indemnifies such
person to the fullest extent permitted by its Amended and Restated Certificate
of Incorporation, its Bylaws and the DGCL. The Company also intends to obtain
directors and officers liability insurance.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under certain
conditions, the Company against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information concerning all sales of securities
by the Company during the past three years that were not registered under the
Securities Act.
(a) TSII was organized in April 1996 and issued 100 and 200 shares of its
Common Stock to its Founders, Capstone Partners LLC and Alpine Consolidated,
LLC, respectively, at a per share price of $.01. The offer and sale of these
shares was exempt from registration under the Securities Act of 1933 in reliance
on Section 4(2) thereof because the offers and sales were made to sophisticated
investors who had access to information about TSII and were able to bear the
risk of loss of their investment. On May 14, 1997, the number of these shares
were increased by a 5,444.45 to one stock split.
(b) During the first quarter of 1997, 851,166 shares of Common Stock were
issued to persons who will become officers, directors, key employees, or holders
of more than 5% of the stock of the Company at a per share price of $.01. The
offers and sales of these shares were exempt from registration under the
Securities Act of 1933 in reliance on Section 4(2) thereof because the offers
and sales were made to sophisticated investors or executive officers or
directors of the Company who had access to the information about the Company and
were able to bear the risk of loss of their investment.
Although the issuances of Common Stock to senior executives and to former
stockholders of the Founding Companies may be integrated among themselves, in
reliance on the safe harbor provided by Rule 152 under the Securities Act of
1933 for transactions not involving any public offering even if the
II-2
<PAGE>
issuer subsequently files a registration statement, such Common Stock should not
be integrated with the issuance of Common Stock in the registered public
offering.
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- Form of Registration Rights Agreement, dated as of .
*5.1- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to the legality of the securities
being registered.
10.1- Form of Employment and Non-Competition Agreement dated May , 1997, between
Travel Services International, Inc. and Joseph Vittoria.
- Form of Employment and Non-Competition Agreement dated May , 1997, between
Travel Services International, Inc. and Jill M. Vales.
- Form of Employment and Non-Competition Agreement dated May , 1997, between
Travel Services International, Inc. and Michael J. Moriarty.
- Form of Employment and Non-Competition Agreement dated May , 1997, between
Travel Services International, Inc. and Mel Robinson.
II-3
<PAGE>
- Form of Employment and Non-Competition Agreement dated , 1997, among
Travel Services International, Inc., Auto Europe, LLC and Imad Khalidi.
- Form of Employment and Non-Competition Agreement dated , 1997, among
Travel Services International, Inc., Auto Europe, LLC and Alex Cecil.
- Form of Employment and Non-Competition Agreement dated , 1997, among
Travel Services International, Inc., Cruises Inc. and Robert Falcone.
- Form of Employment and Non-Competition Agreement dated , 1997, among
Travel Services International, Inc., Cruises Inc. and Judith Falcone.
- Form of Employment and Non-Competition Agreement dated , 1997, among
Travel Services International, Inc., Cruises Inc. and Holley Christen.
- Form of Employment and Non-Competition Agreement dated , 1997, among
Travel Services International, Inc., Cruises Only, LLC and Wayne Heller.
- Form of Employment and Non-Competition Agreement dated , 1997, among
Travel Services International, Inc., Cruises Only LLC and Judy Heller.
- Form of Employment and Non-Competition Agreement dated , 1997, among
Travel Services International, Inc., D-FW Tours, Inc. and John Przywara.
- Form of Employment and Non-Competition Agreement dated , 1997, among
Travel Services International, Inc., Travel 800, LLC and Susan Parker.
10.2- Form of Officer and Director Indemnification Agreement.
**10.3- Form of 1997 Long-Term Incentive Plan.
**10.4- Form of 1997 Non-Employee Directors' Stock Plan.
10.5- Note from TSGI Funding, LLC to TSII.
*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.
23.5- Consent to Become Advisory Director.
**24.1- Powers of Attorney (included in signature page).
27 - Financial Data Schedule.
</TABLE>
- ----------
* To be filed by amendment. All other exhibits are filed herewith.
** Previously filed on May 14, 1997.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That for the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State of
New York, on the 18th day of June, 1997.
TRAVEL SERVICES INTERNATIONAL, INC.
By: /s/ ELAN J. BLUTINGER
----------------------------------
Elan J. Blutinger
President
Pursuant to the requirements of the Securities Act, this amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
TRAVEL SERVICES INTERNATIONAL, INC.
SIGNATURE TITLE DATE
- ---------------------------------- -------------------------- --------------
/s/ ELAN J. BLUTINGER President, Director June 18, 1997
-------------------------
Elan J. Blutinger
(Principal Executive Officer)
/s/ D. FRASER BULLOCK Vice President, Director June 18, 1997
-------------------------
D. Fraser Bullock
(Principal Financial Officer and
Principal Accounting Officer)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- -------------- ---------------------------------------------------------------------------- ------------
<S> <C> <C> <C>
*1.1- Form of Underwriting Agreement.
**2.1- Agreement and Plan of Organization, dated as of May 9, 1997,
among Travel Services International, Inc., Auto-Europe, Inc.
(Maine), Imad Khalidi, Alex Cecil and Wilfred Diller, as
trustee for Thurston Cecil and Lila Cecil.
**2.2- Agreement and Plan of Organization, dated as of May 9, 1997, among Travel
Services International, Inc., Cruises Only, Inc., Wayne Heller and Judy
Heller.
**2.3- Agreement and Plan of Organization, dated as of May 9, 1997, among Travel
Services International, Inc., 800-Ideas, Inc. and Susan Parker.
**2.4- Agreement and Plan of Organization, dated as of May 9, 1997, among Travel
Services International, Inc., Cruises, Inc., Robert G. Falcone, Judith A.
Falcone
and Pamela C. Cole.
**2.5- Agreement and Plan of Organization, dated as of May 9, 1997, among Travel
Services International, Inc., D-FW Tours, Inc., D-FW Travel Arrangements,
Inc., John W. Przywara and Sharon S. Przywara.
**3.1- Certificate of Incorporation, as amended.
**3.2- Amended and Restated Certificate of Incorporation.
**3.3- Bylaws.
*4.1- Specimen Common Stock Certificate.
4.2- Form of Registration Rights Agreement dated as of .
*5.1- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to the legality of
the securities being registered.
10.1- Form of Employment and Non-Competition Agreement dated May , 1997,
between Travel Services International, Inc. and Joseph Vittoria.
- Form of Employment and Non-Competition Agreement dated May , 1997,
between Travel Services International, Inc. and Jill M. Vales.
- Form of Employment and Non-Competition Agreement dated May , 1997,
between Travel Services International, Inc. and Michael J. Moriarty.
- Form of Employment and Non-Competition Agreement dated May , 1997,
between Travel Services International, Inc. and Mel Robinson.
- Form of Employment and Non-Competition Agreement dated , 1997,
among Travel Services International, Inc., Auto Europe, LLC and Imad
Khalidi.
- Form of Employment and Non-Competition Agreement dated , 1997,
among Travel Services International, Inc., Auto Europe, LLC and Alex Cecil.
- Form of Employment and Non-Competition Agreement dated , 1997,
among Travel Services International, Inc., Cruises, Inc. and Robert Falcone.
- Form of Employment and Non-Competition Agreement dated , 1997,
among Travel Services International, Inc., Cruises, Inc. and Judith Falcone.
- Form of Employment and Non-Competition Agreement dated , 1997,
among Travel Services International, Inc., Cruises, Inc. and Holley Christen.
- Form of Employment and Non-Competition Agreement dated , 1997,
among Travel Services International, Inc., Cruises Only, LLC and Wayne
Heller.
<PAGE>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ---------------- --------------------------------------------------------------------------- ------------
<S> <C> <C> <C>
- Form of Employment and Non-Competition Agreement dated , 1997,
among Travel Services International, Inc., Cruises Only LLC and Judy Heller.
- Form of Employment and Non-Competition Agreement dated , 1997,
among Travel Services International, Inc., D-FW Tours, Inc. and John
Przywara.
- Form of Employment and Non-Competition Agreement dated , 1997,
among Travel Services International, Inc., Travel 800, LLC and Susan Parker.
10.2- Form of Officer and Director Indemnification Agreement.
**10.3- Form of 1997 Long-Term Incentive Plan.
**10.4- Form of 1997 Non-Employee Directors' Stock Plan.
10.5- Note from TSGI Funding, LLC to TSII.
*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.
23.5- Consent to Become Advisory Director.
**24.1- Powers of Attorney (included in signature page).
27 - Financial Data Schedule.
</TABLE>
- ----------
* To be filed by amendment. All other exhibits are filed herewith.
** Previously filed on May 14, 1997.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of _____ 1997 (the
"Agreement"), between Travel Services International, Inc., a Delaware
corporation ("TSII") and _______________________________, a Delaware corporation
(the "Company").
WHEREAS, Company has made significant capital contributions to
TSII and currently owns a large portion of the issued and outstanding shares of
common stock, $.01 par value, of TSII (the "Common Stock"); and
WHEREAS, in connection with the proposed initial public
offering (the "Initial Public Offering") of the Common Stock, TSII wishes to
grant to the Company certain registration rights with respect to the shares of
Common Stock that the Company currently owns or may acquire in the future, as
provided further herein.
NOW THEREFORE, in consideration of the capital contributions
made by the Company to TSII and of the promises herein contained, the parties
hereto agree as follows:
1. Definitions.
-----------
As used in this Agreement:
(i) the terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
(ii) the term "Registrable Securities" means (A) all shares of
Common Stock owned by the Company as of the date hereof, (B) any additional
shares of Common Stock acquired by the Company and (C) any capital stock of TSII
issued as a dividend or other distribution with respect to, or in exchange for
or in replacement of, the shares of Common Stock referred to in clause (A) or
(B) above;
(iii) the term "Holder" shall mean the Company or any other
holder of Registrable Securities to whom the rights under this Agreement have
been assigned and the term "Holders" shall mean all such Holders collectively;
(iv) the term "Initiating Holders" shall mean any Holder or
Holders who in the aggregate are Holders of a majority of the Registrable
Securities issued to the Founding Stockholders;
(v) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Act;
<PAGE>
(vi) "Registration Expenses" shall mean all third-party
expenses incurred by TSII in compliance with Sections 2 and 3 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for TSII and the underwriters, if any, blue sky
fees and expenses and the third-party expenses of any special audits incident to
or required by any such registration (but excluding the compensation of regular
employees of TSII, which shall be paid in any event by TSII);
(vii) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for each of the Holders;
(viii) "Act" shall mean the Securities Act of 1933, as
amended; and
(ix) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
2. Requested Registration.
----------------------
(i) Request for Registration. If TSII shall receive from an
Initiating Holder, no sooner that two years following the completion of the
Initial Public Offering, a written request that TSII effect any registration
with respect to all or a part of the Registrable Securities, TSII will:
(A) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(B) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution
of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws
and appropriate compliance with applicable regulations issued under the
Act) as may be so requested and as would permit or facilitate the sale
and distribution as soon as is practicable of all or such portion of
such Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request
received by TSII within 10 business days after written notice from TSII
is given under Section 2(i) (A) above; provided that TSII shall not be
obligated to effect, or take any action to effect, any such
registration pursuant to this Section 2:
(x) In any particular jurisdiction in which TSII
would be required to execute a general consent to service
2
<PAGE>
of process in effecting such registration, qualification or
compliance, unless TSII is already subject to service in such
jurisdiction and except as may be required by the Act or
applicable rules or regulations thereunder;
(y) After TSII has effected three (3) such
registrations pursuant to this Section 2 and such
registrations have been declared or ordered effective and the
sales of such Registrable Securities shall have closed; or
(z) If the Registrable Securities requested by all
Holders to be registered pursuant to such request do not have
an anticipated aggregate public offering price (before any
underwriting discounts and commissions) of not less than
$[10,000,000].
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 2(ii) below,
include other securities of TSII which are held by officers or directors of
TSII, or which are held by persons who, by virtue of agreements with TSII are
entitled to include their securities in any such registration, but TSII shall
have no absolute right to include any of its securities in any such
registration.
The registration rights set forth in this Section 2 shall be
assignable, in whole or in part, to any transferee of Common Stock (who shall be
bound by all obligations of this Section 2).
(ii) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise TSII as a part of their request made pursuant
to Section 2.
If officers or directors of TSII holding other securities of
TSII shall request inclusion in any registration pursuant to Section 2, or if
holders of securities of TSII other than Registrable Securities who are
entitled, by contract with TSII or otherwise, to have securities included in
such a registration (the "Other Stockholders") request such inclusion, the
Holders shall offer to include the securities of such officers, directors and
Other Stockholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 2. The Holders
whose shares are to be included in such registration and TSII shall (together
with all officers, directors and Other Stockholders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the representative of the underwriter or underwriters
selected for such underwriting by the initiating Holders and reasonably
acceptable to TSII. Notwithstanding any other provision of this Section 2, if
the representative advises
3
<PAGE>
the Holders in writing that marketing factors require a limitation on the number
of shares to be underwritten, the securities of TSII held by officers or
directors of TSII and the securities held by Other Stockholders shall be
excluded from such registration to the extent so required by such limitation.
If, after the exclusion of such shares, further reductions are still required,
the number of shares included in the registration by each Holder shall be
reduced on a pro rata basis (based on the number of shares proposed to be sold
by such Holder), by such minimum number of shares as is necessary to comply with
such request. No Registrable Securities or any other securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any officer, director or Other Stockholder who
has requested inclusion in such registration as provided above disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to TSII, the underwriter and the Initiating Holders. The
securities so withdrawn shall also be withdrawn from registration. If the
underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, TSII may include its securities for its own
account in such registration if the representative so agrees and if the number
of Registrable Securities and other securities which would otherwise have been
included in such registration and underwriting will not thereby be limited.
(iii) Notwithstanding the foregoing, if TSII shall furnish to
Holders requesting the filing of a registration statement pursuant to Section 2
(i), a certificate signed by the president or Chief Executive Officer of TSII
stating that in the good faith judgment of the Board of Directors of TSII, it
would be seriously detrimental to TSII and its stockholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, then TSII shall have the right to defer
such filing for a period of not more than 60 days after receipt of the request
of the Initiating Holders; provided, however, that TSII may not utilize this
right more than once in any twelve (12) month period.
3. TSII Registration.
-----------------
(i) If TSII shall determine to register any of its equity
securities either for its own account or for the account of a security holder or
holders exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales or does not include
substantiallY the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, TSII will:
(A) promptly give to each of the Holders a written
4
<PAGE>
notice thereof (which shall include a list of the jurisdictions in
which TSII intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws); and
(B) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified
in a written request or requests, made by the Holders within fifteen
(15) days after receipt of the written notice from TSII described in
clause (i) above, except as set forth in section 2(ii) below. Such
written request may specify all or a part of the Holders' Registrable
Securities.
(ii) Underwriting. If the registration of which TSII gives
notice is for a registered public offering involving an underwriting, TSII shall
so advise each of the Holders as a part of the written notice given pursuant to
Section 3(i)(A). In such event, the right of each of the Holders to registration
pursuant to this Section 3 shall be conditioned upon such Holders' participation
in such underwriting and the inclusion of such Holders' Registrable Securities
in the underwriting to the extent provided herein. The Holders whose shares are
to be included in such registration shall (together with TSII and the Other
Stockholders distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for underwriting by TSII. Notwithstanding
any other provision of this Section 3, if the representative determines that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the allocation priority set
forth below) limit the number of Registrable Securities to be included in the
registration and underwriting. TSII shall so advise all holders of securities
requesting registration, and the number of shares of securities that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner: The securities of TSII held by officers, directors and
Other Stockholders of TSII (other than securities held by holders who by
contractual right initiated the demand for such registration ("Demanding
Holders")) shall be excluded from such registration and underwriting to the
extent required by such limitation, and, if a limitation on the number of shares
is still required, the number of shares that may be included in the registration
and underwriting by each of the Holders and Demanding Holders shall be reduced,
on a pro rata basis (based on the number of shares proposed to be sold by such
Holder or Demanding Holder), by such minimum number of shares as is necessary to
comply with such limitation. If any of the Holders or Demanding Holders or any
officer, director or Other Stockholder disapproves of the terms of any such
underwriting, he may elect to withdraw there from by written notice to TSII and
the underwriter. Any Registrable Securities or other securities excluded or
withdrawn
5
<PAGE>
from such underwriting shall be withdrawn from such registration.
(iii) Number and Transferability. Each of the Holders shall be
entitled to have its shares included in an unlimited number of registrations
pursuant to this Section 3. The registration rights granted pursuant to this
Section 3 shall be assignable, in whole or in part, to any transferee of the
Common Stock (who shall be bound by all obligations of this Section 3).
4. Expenses of Registration. All Registration Expenses and
Selling Expenses incurred in connection with any registration, qualification or
compliance pursuant to Section 2 of this Agreement shall be borne by the Holders
of the securities so registered pro rata on the basis of the number of shares so
registered. Without limiting the generality of the foregoing, in the event TSII
includes shares in any registration, qualification or compliance pursuant to
Section 2 of this Agreement, TSII shall pay the Registration Expenses in
proportion to TSII's share of the total number of shares included in such
registration. All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 3 of this
Agreement shall be borne by TSII, and all Selling Expenses incurred in
connection with any such registration, qualification or compliance shall be
borne by the Holders of securities so registered pro rata on the basis of the
number of shares so registered.
5. Registration procedures. In the case of each registration
effected by TSII pursuant to this Agreement, TSII will keep the Holders, as
applicable, advised in writing as to the initiation of each registration and as
to the completion thereof. TSII will:
(i) keep such registration effective for a period of one
hundred eighty (180) days or until the Holders, as applicable, have
completed the distribution described in the registration statement
relating thereto, whichever first occurs; provided, however, that (A)
such 180-day period shall be extended for a period of time equal to the
period during which the Holders, as applicable, refrain from selling
any securities included in such registration in accordance with
provisions in Section 9 hereof; and (B) in the case of any registration
of Registrable Securities on Form S-3 which are intended to be offered
on a continuous or delayed basis, such 180-day period shall be extended
until all such Registrable Securities are sold, provided that Rule 418,
or any successor rule under the Act, permits an offering on a
continuous or delayed basis, and provided further that applicable rules
under the Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment which
(y) includes any prospectus required by Section 10(a) of the Act or
reflects facts or events representing a material or fundamental change
in the information set forth in the
6
<PAGE>
registration statement, the incorporation by reference of information
required to be included in (y) and (z) above to be contained in
periodic reports filed pursuant to Section 12 or 15(d) of the Exchange
Act in the registration statement; and
(ii) furnish such number of prospectuses and other documents
incident thereto as each of the Holders, as applicable, from time to
time may reasonably request;
provided, however, that the Holders, pro rata on the basis of the number of
their shares so included in such registration, reimburse TSII for expenses
incurred in performing its obligations under this Section 5.
6. Indemnification.
---------------
(i) TSII will indemnify each of the Holders, as applicable,
each of its officers, directors and partners, and each person controlling each
of the Holders, with respect to each registration which has been effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by TSII of the Act or
any rule or regulation thereunder applicable to TSII and relating to action or
inaction required of TSII in connection with any such registration,
qualification or compliance, and will reimburse each of the Holders, each of its
officers, directors and partners, and each person controlling each of the
Holders, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that TSII will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises out of
or is based on any untrue statement or omission based upon written information
furnished to TSII by the Holders or underwriter and stated to be specifically
for use therein.
(ii) Each of the Holders will, if Registrable Securities held
by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify TSII, each of its
directors and officers and each underwriter, if any, of TSII's securities
covered by such a registration statement, each person who controls TSII or such
underwriter within the meaning of the Act and the rules and
7
<PAGE>
regulations thereunder, each Other Stockholder and each of their officers,
directors, and partners, and each person controlling such Other Stockholder
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document made by such Holder, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements by such Holder therein not
misleading, and will reimburse TSII and such Other Stockholders, directors,
officers, partners, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to TSII by such Holder and
stated to be specifically for use therein; provided, however, that the
obligations of each of the Holders hereunder shall be limited to an amount equal
to the net proceeds to such Holder of securities sold as contemplated herein.
(iii) Each party entitled to indemnification under this
Section 6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld) and the Indemnified Party
may participate in such defense at such party's expense (unless the Indemnified
Party shall have reasonably concluded that there may be a conflict of interest
between the Indemnifying Party and the Indemnified Party in such action, in
which case the fees and expenses of counsel shall be at the expense of the
Indemnifying Party), and provided further that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 6 unless the Indemnifying Party is
materially prejudiced thereby. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably
8
<PAGE>
required in connection with the defense of such claim and litigation resulting
therefrom.
(iv) If the indemnification provided for in this Section 6 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(v) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with any underwritten public offering
contemplated by this Agreement are in conflict with the foregoing provisions,
the provisions in such underwriting agreement shall be controlling.
(vi) The foregoing indemnity agreement of TSII and Holders is
subject to the condition that, insofar as they relate to any loss, claim,
liability or damage made in a preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the Commission at the time the
registration statement in question becomes effective or the amended prospectus
filed with the Commission pursuant to Commission Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
underwriter if a copy of the Final Prospectus was furnished to the underwriter
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Act.
7. Information by the Holders. Each of the Holders and each
Other Stockholder holding securities included in any registration, shall furnish
to TSII such information regarding such Holder or Other Stockholder and the
distribution opposed by such Holder or Other Stockholder as TSII may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
9
<PAGE>
8. Rule 144 Reporting.
------------------
With a view to making available the benefits of certain rules
and regulations of the Commission which may permit the sale of restricted
securities to the public without registration, TSII agrees to:
(i) make and keep public information available as those terms
are understood and defined in Rule 144, at all times from and after
ninety (90) days following the effective date of the first registration
under the Act filed by TSII for an offering of its securities to the
general public;
(ii) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of TSII under
the Act and the Exchange Act at any time after it has become subject to
such reporting requirements; and
(iii) so long as the Holder owns any Registrable Securities,
furnish to the Holder upon request, a written statement by TSII as to
its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety (90) days following the effective date of the
first registration statement filed by TSII for an offering of its
securities to the general public), and of the Act and the Exchange Act
(at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
TSII, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without
registration.
9. "Market Stand-off" Agreement. The Company agrees, if
requested by TSII and an underwriter of Common Stock (or other securities) of
TSII, not to sell or otherwise transfer or dispose of any Common Stock (or other
securities) of TSII held by such Holder during the 180 day period following the
effective date of the initial registration statement of TSII filed under the Act
and during the 90 day period following any subsequent registration statement
filed under the Act, provided that all executive officers and directors of TSII
enter into similar agreements.
If requested by the underwriters, the Holders shall execute a
separate agreement to the foregoing effect. TSII may impose stop-transfer
instructions with respect to the shares (or securities) subject to the foregoing
restriction until the end of such period. The provisions of this Section 9 shall
be binding upon any transferee who acquires Registrable Securities, whether or
not such transferee is entitled to the registration rights provided hereunder.
10
<PAGE>
10. Termination. The registration rights set forth in this
Agreement shall not be available to any Holder if, in the opinion of counsel to
TSII, all of the Registrable Securities then owned by such Holder could be sold
in any 90-day period pursuant to Rule 144 under the Act (without giving effect
to the provisions of Rule 144 (k)).
11. Notices. All communications provided for hereunder shall
be sent by first-class mail and (a) if addressed to the Company, addressed to
the Company, at _____________________________, Attention: _____________________,
or at such other address as such party shall have furnished to TSII in writing,
or if addressed to any other Holder of Registrable Securities, at the address
that such Holder shall have furnished to TSII in writing, or, until any such
other Holder so furnishes to the company an address, then to and at the address
of the last Holder of such Registrable Securities who has furnished an address
to TSII, or (c) if addressed to TSII, at 515 N. Flagler Drive, Suite 300, West
Palm Beach, Florida 33401-4321, Attention: President, or at such other address,
or to the attention of such other officer, as TSII shall have furnished to each
Holder of Registrable Securities at the time outstanding.
12. Assignment. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and, with respect to
TSII, its respective successors and assigns and, with respect to the Company,
any Holder of any Registrable Securities, subject to the provisions respecting
the minimum numbers or percentages of shares of Registrable Securities required
in order to be entitled to certain rights, or take certain actions, contained
herein.
13. Descriptive Headings. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
14. Governing Law. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of Delaware.
15. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute one and the same
instrument.
16. Other Registration Rights. For so long as the Company
holds at least 20% of the Registrable Shares, TSII shall not, without the prior
written consent of the Company, enter into any agreement, understanding or
arrangement pursuant to which TSII grants registration or other similar rights
to any shareholder unless the Holders shall be entitled to have included in any
11
<PAGE>
registration effected pursuant to Section 3 hereof all Registrable Shares
requested by them to be so included prior to the inclusion of any securities
requested to be registered by the shareholders entitled to any such other
registration or other similar rights.
IN WITNESS WHEREOF, the parties have caused this agreement to
be executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By
--------------------------------
Name:
Title:
[Company]
By
--------------------------------
Name:
Title:
12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and among Travel
Services International, Inc., a Delaware corporation ("TSI"), and Joseph
Vittoria ("Employee"), is hereby entered into as of this ____ day of ______,
1997, and shall be effective as of the date (the "Effective Date") of the
consummation of the initial public offering of the common stock of TSI (the
"IPO").
R E C I T A L S
A. As of the date of this Agreement, TSI is engaged primarily in the business of
providing travel services.
B. Employee is employed hereunder by TSI in a confidential relationship wherein
Employee, in the course of Employee's employment with TSI, has and will continue
to become familiar with and aware of information as to TSI's customers, specific
manner of doing business, including the processes, techniques and trade secrets
utilized by TSI, and future plans with respect thereto, all of which has been
and will be established and maintained at great expense to TSI; this information
is a trade secret and constitutes the valuable goodwill of TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) TSI hereby employs Employee as Chairman and Chief Executive Officer
of TSI. As such, Employee shall have responsibilities, duties and authority
reasonably accorded to and expected of a Chairman and Chief Executive Officer of
TSI and will report directly to the Board of Directors of TSI (the "Board").
Employee hereby accepts this employment upon the terms and conditions herein
contained and, subject to paragraph 1(c) hereof, agrees to devote Employee's
time, attention and efforts to promote and further the business of TSI.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board.
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 4 hereof.
<PAGE>
2. COMPENSATION.
For all services rendered by Employee, TSI shall compensate Employee as
follows:
(a) Base Salary. The base salary payable to Employee shall be $200,000
per year, payable on a regular basis in accordance with TSI's standard payroll
procedures but not less than monthly. On at least an annual basis, the Board
will review Employee's performance and may make increases to such base salary
if, in its discretion, any such increase is warranted. Such recommended increase
would, in all likelihood, require approval by the Board or a duly constituted
committee thereof.
(b) Incentive Bonus Plan. For 1997 and subsequent years, it is TSI's
intent to develop, as soon as practicable after the Effective Date, a written
Incentive Bonus Plan setting forth the criteria and performance standards under
which Employee and other officers and key employees will be eligible to receive
year-end bonus awards. TSI contemplates that the maximum bonus for which
Employee may be eligible will be 100% of Employee's base salary.
(c) Executive Perquisites, Benefits, and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from TSI in
such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that TSI may have in
effect from time to time.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with TSI's expense reporting
policy.
(iii) TSI shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board and participation in all other TSI-wide employee benefits
as available from time to time.
3. OPTIONS.
At the Effective Date, TSI shall grant to Employee options to acquire
100,000 shares of TSI common stock at the price per share at which such stock is
offered to the public in the IPO. Such options shall vest in installments of
25,000 shares on each of the first, second, third and fourth anniversaries of
the Effective Date.
4. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
TSI, and for a period of two (2) years immediately following the termination of
Employee's employment under this Agreement, for any reason whatsoever, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
2
<PAGE>
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor or as a sales
representative, in any travel service business in direct competition
with TSI or any subsidiary of TSI, within the United States or within
100 miles of any other geographic area in which TSI or any of TSI's
subsidiaries conducts business, including any territory serviced by TSI
or any of its subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSI (including the subsidiaries thereof) in a
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of TSI (including the
subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of TSI (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services
in direct competition with TSI or any subsidiary of TSI within the
Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by TSI (including the respective subsidiaries thereof) or for
which TSI made an acquisition analysis, for the purpose of acquiring
such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than one percent
(1%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to TSI as a
result of a breach of the foregoing covenant, and because of the immediate and
irreparable damage that could be caused to TSI for which it would have no other
adequate remedy, Employee agrees that the foregoing covenant may be enforced by
TSI in the event of breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 4 impose a reasonable restraint on Employee in light of the activities
and business of TSI (including TSI's subsidiaries) on the date of the execution
of this Agreement and the current plans of TSI (including TSI's subsidiaries);
but it is also the intent of TSI and Employee that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of TSI (including TSI's subsidiaries) throughout the term of this Agreement,
whether before or after the date of termination of the employment of Employee.
For example, if, during the term of this Agreement, TSI (including TSI's
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with TSI (including TSI's
subsidiaries), or similar activities, or business in locations the operation of
which, under such circumstances, does not violate clause (i) of this paragraph
4, and in any event such new business, activities or location are not in
violation of this paragraph 4 or of employee's obligations under this
3
<PAGE>
paragraph 4, if any, Employee shall not be chargeable with a violation of this
paragraph 4 if TSI (including TSI's subsidiaries) shall thereafter enter the
same, similar or a competitive (i) business, (ii) course of activities or (iii)
location, as applicable.
(d) The covenants in this paragraph 4 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
(e) All of the covenants in this paragraph 4 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against TSI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TSI of such covenants. It is specifically agreed that the period
of two (2) years following termination of employment stated at the beginning of
this paragraph 4, during which the agreements and covenants of Employee made in
this paragraph 4 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 4.
5. PLACE OF PERFORMANCE.
(a) Employee understands that he may be requested by the Board to
relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement. In such event, TSI will pay all actual reasonable relocation
costs to move Employee, Employee's immediate family and their personal property
and effects. Such costs may include, but are not limited to, moving expenses,
temporary lodging expenses prior to moving into a new permanent residence; all
closing costs on the purchase of a residence (comparable to Employee's present
residence) in the new location. The general intent of the foregoing is that
Employee shall not personally bear any out-of-pocket cost as a result of the
relocation, with an understanding that Employee will use Employee's best efforts
to incur only those costs which are reasonable and necessary to effect a smooth,
efficient and orderly relocation with minimal disruption to the business affairs
of TSI and the personal life of Employee and Employee's family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 6(c).
6. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for three (3) years (the "Term"), and, unless terminated sooner as herein
provided, shall continue thereafter on a year-to-year basis on the same terms
and conditions contained herein in effect as of the time of renewal. This
Agreement and Employee's employment may be terminated in any one of the
followings ways:
(a) Death. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
4
<PAGE>
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's full-time
duties hereunder for four (4) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
four (4) month period, but which shall not be effective earlier than the last
day of such four (4) month period), TSI may terminate Employee's employment
hereunder provided Employee is unable to resume Employee's full-time duties at
the conclusion of such notice period. Also, Employee may terminate Employee's
employment hereunder if his or her health should become impaired to an extent
that makes the continued performance of Employee's duties hereunder hazardous to
Employee's physical or mental health or life, provided that Employee shall have
furnished TSI with a written statement from a qualified doctor to such effect
and provided, further, that, at TSI's request made within thirty (30) days of
the date of such written statement, Employee shall submit to an examination by a
doctor selected by TSI who is reasonably acceptable to Employee or Employee's
doctor and such doctor shall have concurred in the conclusion of Employee's
doctor. In the event this Agreement is terminated as a result of Employee's
disability, Employee shall receive from TSI, in a lump-sum payment due within
ten (10) days of the effective date of termination, the base salary at the rate
then in effect for whatever time period is remaining under the Term of this
Agreement or for one (1) year, whichever amount is greater.
(c) Good Cause. TSI may terminate the Agreement ten (10) days after
delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure) of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud or misconduct with respect to the business or affairs
of TSI which materially and adversely affects the operations or reputation of
TSI; (4) Employee's conviction of a felony crime; or (5) chronic alcohol abuse
or illegal drug abuse by Employee. In the event of a termination for good cause,
as enumerated above, Employee shall have no right to any severance compensation.
(d) Without Cause. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to TSI. Employee may
only be terminated without cause by TSI during the Term hereof if such
termination is approved by at least two-thirds of the members of the Board.
Should Employee be terminated by TSI without cause during the Term, Employee
shall receive from TSI, in a lump-sum payment due on the effective date of
termination, the base salary at the rate then in effect for whatever time period
is remaining under the Term of this Agreement or for one (1) year, whichever
amount is greater. Should Employee be terminated by TSI without cause at any
time after the Term, Employee shall receive from TSI, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
TSI shall operate to shorten the period set forth in paragraph 4(a) and during
which the terms of paragraph 4 apply to one (1) year from the date of
termination of employment. If Employee resigns or otherwise terminates
Employee's employment without cause pursuant to this paragraph 6(d), Employee
shall receive no severance compensation.
(e) Change in Control of TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 13 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 13 hereof. All
5
<PAGE>
other rights and obligations of TSI and Employee under this Agreement shall
cease as of the effective date of termination, except that TSI's obligations
under paragraph 10 hereof and Employee's obligations under paragraphs 4, 7, 8, 9
and 11 hereof shall survive such termination in accordance with their terms.
If termination of Employee's employment arises out of TSI's failure to
pay Employee on a timely basis the amounts to which he is entitled under this
Agreement or as a result of any other breach of this Agreement by TSI, as
determined by a court of competent jurisdiction or pursuant to the provisions of
paragraph 17 below, TSI shall pay all amounts and damages to which Employee may
be entitled as a result of such breach, including interest thereon and all
reasonable legal fees and expenses and other costs incurred by Employee to
enforce Employee's rights hereunder. Further, none of the provisions of
paragraph 4 hereof shall apply in the event this Agreement is terminated as a
result of a breach by TSI.
7. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists and other property delivered to or compiled by
Employee by or on behalf of TSI, or its representatives, vendors or customers
which pertain to the business of TSI shall be and remain the property of TSI,
and be subject at all times to its discretion and control. Likewise, all
correspondence, reports, records, charts, advertising materials, and other
similar data pertaining to the business, activities or future plans of TSI which
is collected by Employee shall be delivered promptly to TSI without request by
it upon termination of Employee's employment.
8. INVENTIONS.
Employee shall disclose promptly to TSI any and all significant
conceptions and ideas for inventions, improvements and valuable discoveries,
whether patentable or not, which are conceived or made by Employee, solely or
jointly with another, during the period of employment or within one (1) year
thereafter, and which are directly related to the business or activities of TSI
and which Employee conceives as a result of Employee's employment by TSI.
Employee hereby assigns and agrees to assign all of Employee's interests therein
to TSI or its nominee. Whenever requested to do so by TSI, Employee shall
execute any and all applications, assignments or other instruments that TSI
shall deem necessary to apply for and obtain Letters Patent of the United States
or any foreign country or to otherwise protect TSI's interest therein.
9. TRADE SECRETS.
Employee agrees that he will not, during or after the Term of this
Agreement with TSI, disclose the specific terms of TSI's or its subsidiaries'
relationships or agreements with its significant vendors or customers or any
other significant and material trade secret of TSI or its subsidiaries, whether
in existence or proposed, to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever.
10. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by TSI against Employee), by reason of the
fact that Employee is or was performing services under this Agreement, then TSI
shall indemnify Employee against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, as actually and reasonably
incurred by Employee in connection therewith. In the event that both Employee
and TSI are made a party to the same third-party action, complaint, suit or
6
<PAGE>
proceeding, TSI agrees to engage competent legal representation, and Employee
agrees to use the same representation, provided that if counsel selected by TSI
shall have a conflict of interest that prevents such counsel from representing
Employee, Employee may engage separate counsel and TSI shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use Employee's best efforts to faithfully discharge his or her duties under
3this Agreement, Employee cannot be held liable to TSI for errors or omissions
made in good faith where Employee has not exhibited gross, willful or wanton
negligence or misconduct or performed criminal and fraudulent acts which
materially damage the business of TSI.
11. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to TSI that the execution of
this Agreement by Employee and his employment by TSI and the performance of
Employee's duties hereunder will not violate or be a breach of any agreement
with a former employer, client or any other person or entity. Further, Employee
agrees to indemnify TSI for any claim, including but not limited to attorneys'
fees and expenses of investigation, by any such third party that such third
party may now have or may hereafter come to have against TSI based upon or
arising out of any noncompetition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
12. ASSIGNMENT; BINDING EFFECT.
Employee understands that he has been selected for employment by TSI on
the basis of Employee's personal qualifications, experience and skills.
Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 13 below, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.
13. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that TSI may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of TSI hereunder or that TSI
may undergo another type of Change in Control. In the event such a merger or
consolidation or other Change in Control is initiated prior to the end of the
Term, then the provisions of this paragraph 13 shall be applicable.
(b) In the event of a pending Change in Control wherein TSI and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of TSI's business
and/or assets that such successor is willing as of the closing to assume and
agree to perform TSI's obligations under this Agreement in the same manner and
to the same extent that TSI is hereby required to perform, then such Change in
Control shall be deemed to be a termination of this Agreement by TSI without
cause during the Term and the applicable portions of paragraph 6(d) will apply;
however, under such circumstances, the amount of the lump-sum severance payment
due to Employee shall be triple the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall not apply.
7
<PAGE>
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to TSI at least five (5) business
days prior to the anticipated closing of the transaction giving rise to the
Change in Control. In such case, the applicable provisions of paragraph 6(d)
will apply as though TSI had terminated the Agreement without cause during the
Term; however, under such circumstances, the amount of the lump-sum severance
payment due to Employee shall be double the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall all apply
for a period of two (2) years from the effective date of termination.
(d) For purposes of applying paragraph 6 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by TSI at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase TSI Common Stock, including any options
with accelerated vesting under the provisions of TSI's 1997 Long-Term Incentive
Plan, such that Employee may convert the options to shares of TSI Common Stock
at or prior to the closing of the transaction giving rise to the Change in
Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than TSI or an employee
benefit plan of TSI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of TSI and immediately
after such acquisition such person or entity is, directly or
indirectly, the Beneficial Owner of voting securities representing 50%
or more of the total voting power of all of the then-outstanding voting
securities of TSI, unless the transaction pursuant to which such
acquisition is made is approved by at least two-thirds (2/3) of the
Board;
(ii) the following individuals no longer constitute a majority
of the members of the Board: (A) the individuals who, as of the closing
date of TSI's initial public offering, constitute the Board (the
"Original Directors"); (B) the individuals who thereafter are elected
to the Board and whose election, or nomination for election, to the
Board was approved by a vote of at least two-thirds (2/3) of the
Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election);
and (C) the individuals who are elected to the Board and whose
election, or nomination for election, to the Board was approved by a
vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election).
(iii) the stockholders of TSI shall approve a merger,
consolidation, recapitalization or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
8
<PAGE>
(f) Employee must be notified in writing by TSI at any time that TSI or
any member of its Board anticipates that a Change in Control may take place.
(g) Employee shall be reimbursed by TSI or its successor for any excise
taxes that Employee incurs under Section 4999 of the Internal Revenue Code of
1986, as a result of any Change in Control. Such amount will be due and payable
by TSI or its successor within ten (10) days after Employee delivers a written
request for reimbursement accompanied by a copy of Employee's tax return(s)
showing the excise tax actually incurred by Employee.
14. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, between TSI
and Employee, and Employee has no oral representations, understandings or
agreements with TSI or any of its officers, directors or representatives
covering the same subject matter as this Agreement.
This written Agreement is the final, complete and exclusive statement
and expression of the agreement between TSI and Employee and of all the terms of
this Agreement, and it cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of TSI and Employee, and no term of this
Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
15. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To TSI: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: Joseph Vittoria
1616 South Ocean Blvd.
Palm Beach, Florida 33480
9
<PAGE>
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 15.
16. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Washington, D.C., in accordance with
the rules of the American Arbitration Association then in effect. The
arbitrators shall not have the authority to add to, detract from or modify any
provision hereof nor to award punitive damages to any injured party. The
arbitrators shall have the authority to order back-pay, severance compensation,
vesting of options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this Agreement, and
interest thereon in the event the arbitrators determine that Employee was
terminated without disability or good cause, as defined in paragraphs 6(b) and
6(c) hereof, respectively, or that TSI has otherwise materially breached this
Agreement. A decision by a majority of the arbitration panel shall be final and
binding. Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The direct expense of any arbitration proceeding shall be borne by
TSI.
18. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware.
19. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: ____________________________
Name:__________________________
Title:___________________________
-------------------------------
Joseph Vittoria, Individually
11
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and among Travel
Services Group International, Inc., a Delaware corporation ("TSGI"), and Jill M.
Vales ("Employee"), is hereby entered into as of this ____ day of May, 1997, and
shall be effective as of the date (the "Effective Date") of the consummation of
the initial public offering of the common stock of TSGI (the "IPO").
R E C I T A L S
A. As of the date of this Agreement, TSGI is engaged primarily in the business
of providing travel services.
B. Employee is employed hereunder by TSGI in a confidential relationship wherein
Employee, in the course of Employee's employment with TSGI, has and will
continue to become familiar with and aware of information as to TSGI's
customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by TSGI, and future plans with respect
thereto, all of which has been and will be established and maintained at great
expense to TSGI; this information is a trade secret and constitutes the valuable
goodwill of TSGI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) TSGI hereby employs Employee as Chief Financial Officer of TSGI. As
such, Employee shall have responsibilities, duties and authority reasonably
accorded to and expected of a Chief Financial Officer of TSGI and will report
directly to the President of TSGI. Employee hereby accepts this employment upon
the terms and conditions herein contained and, subject to paragraph 1(c) hereof,
agrees to devote Employee's time, attention and efforts to promote and further
the business of TSGI.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board of Directors of TSGI (the "Board").
(c) Employee shall not, during the term of her employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 4 hereof.
<PAGE>
2. COMPENSATION.
For all services rendered by Employee, TSGI shall compensate Employee
as follows:
(a) Base Salary. The base salary payable to Employee shall be $150,000
per year, payable on a regular basis in accordance with TSGI's standard payroll
procedures but not less than monthly. On at least an annual basis, the Board
will review Employee's performance and may make increases to such base salary
if, in its discretion, any such increase is warranted. Such recommended increase
would, in all likelihood, require approval by the Board or a duly constituted
committee thereof.
(b) Incentive Bonus Plan. For 1997 and subsequent years, it is TSGI's
intent to develop, as soon as practicable after the Effective Date, a written
Incentive Bonus Plan setting forth the criteria and performance standards under
which Employee and other officers and key employees will be eligible to receive
year-end bonus awards. TSGI contemplates that the maximum bonus for which
Employee may be eligible will be 50% of Employee's base salary.
(c) Executive Perquisites, Benefits, and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from TSGI in
such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that TSGI will have
in effect. Reimbursement for COBRA payments for coverage for Employee
and Employee's dependent family members in the event that TSGI is
unable to provide insurance coverage at the Effective Date.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with TSGI's expense reporting
policy.
(iii) TSGI shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board and participation in all other TSGI-wide employee benefits
as available from time to time, including vacation benefits in
accordance with TSGI's established policies.
(iv) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee at TSGI's
request in connection with the activities of TSGI prior to the IPO.
3. RIGHT TO PURCHASE STOCK; OPTIONS.
(a) Subject to the following sentence, prior to or on the Effective
Date Employee shall have the right to purchase shares of TSGI common stock
constituting 0.5% of the total issued and outstanding common stock of TSGI prior
to the IPO, at a price per share of $0.01, before any stock split of such
shares. All such shares shall be subject to such normal restrictions and
limitations as shall be designated by TSGI.
2
<PAGE>
(b) At the Effective Date, TSGI shall grant to Employee options to
acquire 50,000 shares of TSGI common stock at the price per share at which such
stock is offered to the public in the IPO. Such options shall vest in
installments of 12,500 shares on each of the first, second, third and fourth
anniversaries of the Effective Date.
4. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
TSGI, and for a period of two (2) years immediately following the termination of
Employee's employment under this Agreement, for any reason whatsoever, directly
or indirectly, for herself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor or as a sales
representative, in any travel service business in direct competition
with TSGI or any subsidiary of TSGI, within the United States or within
100 miles of any other geographic area in which TSGI or any of TSGI's
subsidiaries conducts business, including any territory serviced by
TSGI or any of its subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSGI (including the subsidiaries thereof) in
a managerial capacity for the purpose or with the intent of enticing
such employee away from or out of the employ of TSGI (including the
subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of TSGI (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services
in direct competition with TSGI or any subsidiary of TSGI within the
Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by TSGI (including the respective subsidiaries thereof) or for
which TSGI made an acquisition analysis, for the purpose of acquiring
such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than one percent
(1%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to TSGI as a
result of a breach of the foregoing covenant, and because of the immediate and
irreparable damage that could be caused to TSGI for which it would have no other
adequate remedy, Employee agrees that the foregoing covenant may be enforced by
TSGI in the event of breach by her, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 4 impose a reasonable restraint on Employee in light of the activities
and business of TSGI (including TSGI's subsidiaries) on the date of the
execution of this Agreement and the current plans of TSGI (including TSGI's
subsidiaries); but it is also the intent of TSGI and Employee that such
covenants be construed and enforced in accordance with the changing activities,
business and locations of TSGI (including TSGI's subsidiaries) throughout the
term of this Agreement, whether before or after the date of termination of the
employment of Employee. For example, if, during the term of this Agreement, TSGI
(including TSGI's
3
<PAGE>
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with TSGI (including TSGI's
subsidiaries), or similar activities, or business in locations the operation of
which, under such circumstances, does not violate clause (i) of this paragraph
4, and in any event such new business, activities or location are not in
violation of this paragraph 4 or of employee's obligations under this paragraph
4, if any, Employee shall not be chargeable with a violation of this paragraph 4
if TSGI (including TSGI's subsidiaries) shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 4 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
(e) All of the covenants in this paragraph 4 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against TSGI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TSGI of such covenants. It is specifically agreed that the period
of two (2) years following termination of employment stated at the beginning of
this paragraph 4, during which the agreements and covenants of Employee made in
this paragraph 4 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 4.
5. PLACE OF PERFORMANCE.
(a) Employee understands that she may be requested by the Board to
relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement. In such event, TSGI will pay all actual reasonable relocation
costs to move Employee, Employee's immediate family and their personal property
and effects. Such costs may include, but are not limited to, moving expenses,
temporary lodging expenses prior to moving into a new permanent residence; all
closing costs on the purchase of a residence (comparable to Employee's present
residence) in the new location. The general intent of the foregoing is that
Employee shall not personally bear any out-of-pocket cost as a result of the
relocation, with an understanding that Employee will use Employee's best efforts
to incur only those costs which are reasonable and necessary to effect a smooth,
efficient and orderly relocation with minimal disruption to the business affairs
of TSGI and the personal life of Employee and Employee's family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 6(c).
4
<PAGE>
6. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for three (3) years (the "Term"), and, unless terminated sooner as herein
provided, shall continue thereafter on a year-to-year basis on the same terms
and conditions contained herein in effect as of the time of renewal. This
Agreement and Employee's employment may be terminated in any one of the
followings ways:
(a) Death. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's full-time
duties hereunder for four (4) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
four (4) month period, but which shall not be effective earlier than the last
day of such four (4) month period), TSGI may terminate Employee's employment
hereunder provided Employee is unable to resume Employee's full-time duties at
the conclusion of such notice period. Also, Employee may terminate Employee's
employment hereunder if his or her health should become impaired to an extent
that makes the continued performance of Employee's duties hereunder hazardous to
Employee's physical or mental health or life, provided that Employee shall have
furnished TSGI with a written statement from a qualified doctor to such effect
and provided, further, that, at TSGI's request made within thirty (30) days of
the date of such written statement, Employee shall submit to an examination by a
doctor selected by TSGI who is reasonably acceptable to Employee or Employee's
doctor and such doctor shall have concurred in the conclusion of Employee's
doctor. In the event this Agreement is terminated as a result of Employee's
disability, Employee shall receive from TSGI, in a lump-sum payment due within
ten (10) days of the effective date of termination, the base salary at the rate
then in effect for whatever time period is remaining under the Term of this
Agreement or for one (1) year, whichever amount is greater.
(c) Good Cause. TSGI may terminate the Agreement ten (10) days after
delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure) of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud or misconduct with respect to the business or affairs
of TSGI which materially and adversely affects the operations or reputation of
TSGI; (4) Employee's conviction of a felony crime; or (5) chronic alcohol abuse
or illegal drug abuse by Employee. In the event of a termination for good cause,
as enumerated above, Employee shall have no right to any severance compensation.
(d) Without Cause. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to TSGI. Employee
may only be terminated without cause by TSGI during the Term hereof if such
termination is approved by at least two-thirds of the members of the Board.
Should Employee be terminated by TSGI without cause during the Term, Employee
shall receive from TSGI, in a lump-sum payment due on the effective date of
termination, the base salary at the rate then in effect for whatever time period
is remaining under the Term of this Agreement or for one (1) year, whichever
amount is greater. Should Employee be terminated by TSGI without cause at any
time after the Term, Employee shall receive from TSGI, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
TSGI shall operate to shorten the period set forth in paragraph 4(a) and during
which the terms of paragraph 4 apply to one (1) year from the date of
termination of employment. If Employee resigns or
5
<PAGE>
otherwise terminates Employee's employment without cause pursuant to this
paragraph 6(d), Employee shall receive no severance compensation.
(e) Change in Control of TSGI. In the event of a "Change in Control of
TSGI" (as defined below) during the Term, refer to paragraph 13 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 13 hereof. All other rights and obligations of TSGI and Employee under
this Agreement shall cease as of the effective date of termination, except that
TSGI's obligations under paragraphs 10 and 17 hereof and Employee's obligations
under paragraphs 4, 7, 8, 9 and 11 hereof shall survive such termination in
accordance with their terms.
If termination of Employee's employment arises out of TSGI's failure to
pay Employee on a timely basis the amounts to which she is entitled under this
Agreement or as a result of any other breach of this Agreement by TSGI, as
determined by a court of competent jurisdiction or pursuant to the provisions of
paragraph 17 below, TSGI shall pay all amounts and damages to which Employee may
be entitled as a result of such breach, including interest thereon and all
reasonable legal fees and expenses and other costs incurred by Employee to
enforce Employee's rights hereunder. Further, none of the provisions of
paragraph 4 hereof shall apply in the event this Agreement is terminated as a
result of a breach by TSGI.
7. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists and other property delivered to or compiled by
Employee by or on behalf of TSGI, or its representatives, vendors or customers
which pertain to the business of TSGI shall be and remain the property of TSGI,
and be subject at all times to its discretion and control. Likewise, all
correspondence, reports, records, charts, advertising materials, and other
similar data pertaining to the business, activities or future plans of TSGI
which is collected by Employee shall be delivered promptly to TSGI without
request by it upon termination of Employee's employment.
8. INVENTIONS.
Employee shall disclose promptly to TSGI any and all significant
conceptions and ideas for inventions, improvements and valuable discoveries,
whether patentable or not, which are conceived or made by Employee, solely or
jointly with another, during the period of employment or within one (1) year
thereafter, and which are directly related to the business or activities of TSGI
and which Employee conceives as a result of Employee's employment by TSGI.
Employee hereby assigns and agrees to assign all of Employee's interests therein
to TSGI or its nominee. Whenever requested to do so by TSGI, Employee shall
execute any and all applications, assignments or other instruments that TSGI
shall deem necessary to apply for and obtain Letters Patent of the United States
or any foreign country or to otherwise protect TSGI's interest therein.
6
<PAGE>
9. TRADE SECRETS.
Employee agrees that she will not, during or after the Term of this
Agreement with TSGI, disclose the specific terms of TSGI's or its subsidiaries'
relationships or agreements with its significant vendors or customers or any
other significant and material trade secret of TSGI or its subsidiaries, whether
in existence or proposed, to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever.
10. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by TSGI against Employee), by reason of the
fact that Employee is or was performing services under this Agreement, then TSGI
shall indemnify Employee against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, as actually and reasonably
incurred by Employee in connection therewith. In the event that both Employee
and TSGI are made a party to the same third-party action, complaint, suit or
proceeding, TSGI agrees to engage competent legal representation, and Employee
agrees to use the same representation, provided that if counsel selected by TSGI
shall have a conflict of interest that prevents such counsel from representing
Employee, Employee may engage separate counsel and TSGI shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use Employee's best efforts to faithfully discharge his or her duties under
this Agreement, Employee cannot be held liable to TSGI for errors or omissions
made in good faith where Employee has not exhibited gross, willful or wanton
negligence or misconduct or performed criminal and fraudulent acts which
materially damage the business of TSGI.
11. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to TSGI that the execution of
this Agreement by Employee and her employment by TSGI and the performance of
Employee's duties hereunder will not violate or be a breach of any agreement
with a former employer, client or any other person or entity. Further, Employee
agrees to indemnify TSGI for any claim, including but not limited to attorneys'
fees and expenses of investigation, by any such third party that such third
party may now have or may hereafter come to have against TSGI based upon or
arising out of any noncompetition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
12. ASSIGNMENT; BINDING EFFECT.
Employee understands that she has been selected for employment by TSGI
on the basis of Employee's personal qualifications, experience and skills.
Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 13 below, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.
7
<PAGE>
13. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that TSGI may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of TSGI hereunder or that
TSGI may undergo another type of Change in Control. In the event such a merger
or consolidation or other Change in Control is initiated prior to the end of the
Term, then the provisions of this paragraph 13 shall be applicable.
(b) In the event of a pending Change in Control wherein TSGI and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of TSGI's business
and/or assets that such successor is willing as of the closing to assume and
agree to perform TSGI's obligations under this Agreement in the same manner and
to the same extent that TSGI is hereby required to perform, then such Change in
Control shall be deemed to be a termination of this Agreement by TSGI without
cause during the Term and the applicable portions of paragraph 6(d) will apply;
however, under such circumstances, the amount of the lump-sum severance payment
due to Employee shall be triple the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to TSGI at least five (5) business
days prior to the anticipated closing of the transaction giving rise to the
Change in Control. In such case, the applicable provisions of paragraph 6(d)
will apply as though TSGI had terminated the Agreement without cause during the
Term; however, under such circumstances, the amount of the lump-sum severance
payment due to Employee shall be double the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall all apply
for a period of two (2) years from the effective date of termination.
(d) For purposes of applying paragraph 6 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by TSGI at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase TSGI Common Stock, including any options
with accelerated vesting under the provisions of TSGI's 1997 Long-Term Incentive
Plan, such that Employee may convert the options to shares of TSGI Common Stock
at or prior to the closing of the transaction giving rise to the Change in
Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than TSGI or an employee
benefit plan of TSGI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of TSGI and immediately
after such acquisition such person or entity is, directly or
indirectly, the Beneficial Owner of voting securities representing 50%
or more of the total voting power of all of the then-outstanding voting
securities of TSGI, unless the transaction pursuant to which such
acquisition is made is approved by at least two-thirds (2/3) of the
Board;
(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 TSGI's initial public offering, constitute
8
<PAGE>
the Board (the "Original Directors"); (B) the individuals who
thereafter are elected to the Board and whose election, or nomination
for election, to the Board was approved by a vote of at least
two-thirds (2/3) of the Original Directors then still in office (such
directors becoming "Additional Original Directors" immediately
following their election); and (C) the individuals who are elected to
the Board and whose election, or nomination for election, to the Board
was approved by a vote of at least two-thirds (2/3) of the Original
Directors and Additional Original Directors then still in office (such
directors also becoming "Additional Original Directors" immediately
following their election).
(iii) the stockholders of TSGI shall approve a merger,
consolidation, recapitalization or reorganization of TSGI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSGI 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 TSGI shall approve a plan of complete
liquidation of TSGI or an agreement for the sale or disposition by TSGI
of all or a substantial portion of TSGI's assets (i.e., 50% or more of
the total assets of TSGI).
(f) Employee must be notified in writing by TSGI at any time that TSGI
or any member of its Board anticipates that a Change in Control may take place.
(g) Employee shall be reimbursed by TSGI or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by TSGI or its successor within ten (10) days after Employee delivers a
written request for reimbursement accompanied by a copy of Employee's tax
return(s) showing the excise tax actually incurred by Employee.
14. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, between TSGI
and Employee, and Employee has no oral representations, understandings or
agreements with TSGI or any of its officers, directors or representatives
covering the same subject matter as this Agreement.
This written Agreement is the final, complete and exclusive statement
and expression of the agreement between TSGI and Employee and of all the terms
of this Agreement, and it cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of TSGI and Employee, and no term of this
Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
9
<PAGE>
15. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To TSGI: Travel Services Group International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: Jill M. Vales
8734 Indian River Run South
Boynton Beach, Florida 33437
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 15.
16. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Washington, D.C., in accordance with
the rules of the American Arbitration Association then in effect. The
arbitrators shall not have the authority to add to, detract from or modify any
provision hereof nor to award punitive damages to any injured party. The
arbitrators shall have the authority to order back-pay, severance compensation,
vesting of options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this Agreement, and
interest thereon in the event the arbitrators determine that Employee was
terminated without disability or good cause, as defined in paragraphs 6(b) and
6(c) hereof, respectively, or that TSGI has otherwise materially breached this
Agreement. A decision by a majority of the arbitration panel shall be final and
binding. Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The direct expense of any arbitration proceeding shall be borne by
TSGI.
18. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware.
19. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TRAVEL SERVICES GROUP INTERNATIONAL, INC.
By: _____________________________
Name:____________________________
Title:___________________________
--------------------------------
Jill M. Vales
11
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and among Travel
Services International, Inc., a Delaware corporation ("TSI"), and Michael J.
Moriarty ("Employee"), is hereby entered into as of this ____ day of ______,
1997, and shall be effective as of the date (the "Effective Date") of the
consummation of the initial public offering of the common stock of TSI (the
"IPO").
R E C I T A L S
A. As of the date of this Agreement, TSI is engaged primarily in the
business of providing travel services.
B. Employee is employed hereunder by TSI in a confidential relationship
wherein Employee, in the course of Employee's employment with TSI, has and will
continue to become familiar with and aware of information as to TSI's customers,
specific manner of doing business, including the processes, techniques and trade
secrets utilized by TSI, and future plans with respect thereto, all of which has
been and will be established and maintained at great expense to TSI; this
information is a trade secret and constitutes the valuable goodwill of TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) TSI hereby employs Employee as President and Chief Operating
Officer of TSI. As such, Employee shall have responsibilities, duties and
authority reasonably accorded to and expected of a President and Chief Operating
Officer and will report directly to the Chief Executive Officer of TSI. Employee
hereby accepts this employment upon the terms and conditions herein contained
and, subject to paragraph 1(c) hereof, agrees to devote Employee's time,
attention and efforts to promote and further the business of TSI.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board of Directors of TSI (the "Board").
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 4 hereof.
<PAGE>
2. COMPENSATION.
For all services rendered by Employee, TSI shall compensate Employee as
follows:
(a) BASE SALARY. The base salary payable to Employee shall be $150,000
per year, payable on a regular basis in accordance with TSI's standard payroll
procedures but not less than monthly. On at least an annual basis, the Board
will review Employee's performance and may make increases to such base salary
if, in its discretion, any such increase is warranted. Such recommended increase
would, in all likelihood, require approval by the Board or a duly constituted
committee thereof.
(b) INCENTIVE BONUS PLAN. For 1997 and subsequent years, it is TSI's
intent to develop, as soon as practicable after the Effective Date, a written
Incentive Bonus Plan setting forth the criteria and performance standards under
which Employee and other officers and key employees will be eligible to receive
year-end bonus awards. During the first year of this Agreement, the minimum
bonus that Employee shall receive hereunder shall be $75,000, payable in two
equal installments on the six- and twelve-month anniversaries of the Effective
Date. TSI contemplates that the maximum bonus for which Employee may be eligible
will be 100% of Employee's base salary.
(c) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee
shall be entitled to receive additional benefits and compensation from TSI in
such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that TSI may have in
effect from time to time.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with TSI's expense reporting
policy.
(iii) TSI shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Chief Executive Officer or the Board and participation in all
other TSI-wide employee benefits as available from time to time.
3. OPTIONS.
At the Effective Date, TSI shall grant to Employee options to acquire
75,000 shares of TSI common stock at the price per share at which such stock is
offered to the public in the IPO. Such options shall vest in installments of
18,750 shares on each of the first, second, third and fourth anniversaries of
the Effective Date.
4. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
TSI, and for a period of two (2) years immediately following the termination of
Employee's employment under this
2
<PAGE>
Agreement, for any reason whatsoever, directly or indirectly, for himself or on
behalf of or in conjunction with any other person, persons, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any travel service business (except a hospitality
service business) in direct competition with TSI or any subsidiary of
TSI, within the United States or within 100 miles of any other
geographic area in which TSI or any of TSI's subsidiaries conducts
business, including any territory serviced by TSI or any of its
subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSI (including the subsidiaries thereof) in a
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of TSI (including the
subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of TSI (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services
in direct competition with TSI or any subsidiary of TSI within the
Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by TSI (including the respective subsidiaries thereof) or for
which TSI made an acquisition analysis, for the purpose of acquiring
such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than one percent
(1%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to TSI as a
result of a breach of the foregoing covenant, and because of the immediate and
irreparable damage that could be caused to TSI for which it would have no other
adequate remedy, Employee agrees that the foregoing covenant may be enforced by
TSI in the event of breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 4 impose a reasonable restraint on Employee in light of the activities
and business of TSI (including TSI's subsidiaries) on the date of the execution
of this Agreement and the current plans of TSI (including TSI's subsidiaries);
but it is also the intent of TSI and Employee that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of TSI (including TSI's subsidiaries) throughout the term of this Agreement,
whether before or after the date of termination of the employment of Employee.
For example, if, during the term of this Agreement, TSI (including TSI's
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with TSI
3
<PAGE>
(including TSI's subsidiaries), or similar activities, or business in locations
the operation of which, under such circumstances, does not violate clause (i) of
this paragraph 4, and in any event such new business, activities or location are
not in violation of this paragraph 4 or of employee's obligations under this
paragraph 4, if any, Employee shall not be chargeable with a violation of this
paragraph 4 if TSI (including TSI's subsidiaries) shall thereafter enter the
same, similar or a competitive (i) business, (ii) course of activities or (iii)
location, as applicable.
(d) The covenants in this paragraph 4 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
(e) All of the covenants in this paragraph 4 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against TSI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TSI of such covenants. It is specifically agreed that the period
of two (2) years following termination of employment stated at the beginning of
this paragraph 4, during which the agreements and covenants of Employee made in
this paragraph 4 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 4.
5. PLACE OF PERFORMANCE.
Employee understands that he may be requested by the Board to relocate
from Employee's present residence to another geographic location in order to
more efficiently carry out Employee's duties and responsibilities under this
Agreement. TSI will pay all actual reasonable relocation costs, not to exceed
$30,000, to move Employee, Employee's immediate family and their personal
property and effects. Such costs may include, but are not limited to, moving
expenses, temporary lodging expenses prior to moving into a new permanent
residence (such expenses not to exceed lodging beyond a period of 180 days), and
all closing costs on the purchase of a residence (comparable to Employee's
present residence) in the new location. Employee will use Employee's best
efforts to incur only those costs which are reasonable and necessary to effect a
smooth, efficient and orderly relocation with minimal disruption to the business
affairs of TSI and the personal life of Employee and Employee's family.
6. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the Effective Date and
continue for three (3) years (the "Term"), and, unless terminated sooner as
herein provided, shall continue thereafter on a year-to-year basis on the same
terms and conditions contained herein in effect as of the time of renewal. This
Agreement and Employee's employment may be terminated in any one of the
followings ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's full-time
duties hereunder for four (4) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
four (4) month period, but which shall not be effective earlier than the last
day of such four (4) month period), TSI may terminate Employee's employment
hereunder provided Employee is unable
4
<PAGE>
to resume Employee's full-time duties at the conclusion of such notice period.
Also, Employee may terminate Employee's employment hereunder if his health
should become impaired to an extent that makes the continued performance of
Employee's duties hereunder hazardous to Employee's physical or mental health or
life, provided that Employee shall have furnished TSI with a written statement
from a qualified doctor to such effect and provided, further, that, at TSI's
request made within thirty (30) days of the date of such written statement,
Employee shall submit to an examination by a doctor selected by TSI who is
reasonably acceptable to Employee or Employee's doctor and such doctor shall
have concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated as a result of Employee's disability, Employee shall
receive from TSI, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect for
whatever time period is remaining under the Term of this Agreement or for one
(1) year, whichever amount is greater.
(c) GOOD CAUSE. TSI may terminate the Agreement ten (10) days after
delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days (after receipt of written notice of need to cure)
of any of Employee's material duties and responsibilities hereunder; (3)
Employee's willful dishonesty, fraud or misconduct with respect to the business
or affairs of TSI which materially and adversely affects the operations or
reputation of TSI; (4) Employee's conviction of a felony crime; or (5) chronic
alcohol abuse or illegal drug abuse by Employee. In the event of a termination
for good cause, as enumerated above, Employee shall have no right to any
severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to TSI. Employee may
only be terminated without cause by TSI during the Term hereof if such
termination is approved by at least two-thirds of the members of the Board.
Should Employee be terminated by TSI without cause during the Term, Employee
shall receive from TSI, in a lump-sum payment due on the effective date of
termination, the base salary at the rate then in effect for whatever time period
is remaining under the Term of this Agreement or for one (1) year, whichever
amount is greater. Should Employee be terminated by TSI without cause at any
time after the Term, Employee shall receive from TSI, in a lump-sum payment due
on the effective date of termination, the base salary rate then in effect
equivalent to one (1) year of salary. Further, any termination without cause by
TSI shall operate to shorten the period set forth in paragraph 4(a) and during
which the terms of paragraph 4 apply to one (1) year from the date of
termination of employment. If Employee resigns or otherwise terminates
Employee's employment without cause pursuant to this paragraph 6(d), Employee
shall receive no severance compensation.
(e) CHANGE IN CONTROL OF TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 13 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 13 hereof. All other rights and obligations of TSI and Employee under
this Agreement shall cease as of the effective date of termination, except that
TSI's obligations under paragraph 10 hereof and Employee's obligations under
paragraphs 4, 7, 8, 9 and 11 hereof shall survive such termination in accordance
with their terms.
5
<PAGE>
If termination of Employee's employment arises out of TSI's failure to
pay Employee on a timely basis the amounts to which he is entitled under this
Agreement or as a result of any other breach of this Agreement by TSI, as
determined by a court of competent jurisdiction or pursuant to the provisions of
paragraph 17 below, TSI shall pay all amounts and damages to which Employee may
be entitled as a result of such breach, including interest thereon and all
reasonable legal fees and expenses and other costs incurred by Employee to
enforce Employee's rights hereunder. Further, none of the provisions of
paragraph 4 hereof shall apply in the event this Agreement is terminated as a
result of a breach by TSI.
7. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists and other property delivered to or compiled by
Employee by or on behalf of TSI, or its representatives, vendors or customers
which pertain to the business of TSI shall be and remain the property of TSI,
and be subject at all times to its discretion and control. Likewise, all
correspondence, reports, records, charts, advertising materials and other
similar data pertaining to the business, activities or future plans of TSI which
is collected by Employee shall be delivered promptly to TSI without request by
it upon termination of Employee's employment.
8. INVENTIONS.
Employee shall disclose promptly to TSI any and all significant
conceptions and ideas for inventions, improvements and valuable discoveries,
whether patentable or not, which are conceived or made by Employee, solely or
jointly with another, during the period of employment, and which are directly
related to the business or activities of TSI and which Employee conceives as a
result of Employee's employment by TSI. Employee hereby assigns and agrees to
assign all of Employee's interests therein to TSI or its nominee. Whenever
requested to do so by TSI, Employee shall execute any and all applications,
assignments or other instruments that TSI shall deem necessary to apply for and
obtain Letters Patent of the United States or any foreign country or to
otherwise protect TSI's interest therein.
9. TRADE SECRETS.
Employee agrees that he will not, during or after the Term of this
Agreement with TSI, disclose the specific terms of TSI's or its subsidiaries'
relationships or agreements with its significant vendors or customers or any
other significant and material trade secret of TSI or its subsidiaries, whether
in existence or proposed, to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever.
10. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by TSI against Employee), by reason of the
fact that Employee is or was performing services under this Agreement, then TSI
shall indemnify Employee against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, as actually and reasonably
incurred by Employee in connection therewith. In the event that both Employee
and TSI are made a party to the same third-party action, complaint, suit or
proceeding, TSI agrees to engage competent legal representation, and Employee
agrees to use the same representation, provided that if counsel selected by TSI
shall have a conflict of interest that prevents such counsel from representing
Employee, Employee may engage separate counsel and TSI shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use
6
<PAGE>
Employee's best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to TSI for errors or omissions made in good faith
where Employee has not exhibited gross, willful or wanton negligence or
misconduct or performed criminal and fraudulent acts which materially damage the
business of TSI.
11. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to TSI that the execution of
this Agreement by Employee and his employment by TSI and the performance of
Employee's duties hereunder will not violate or be a breach of any agreement
with a former employer, client or any other person or entity. Further, Employee
agrees to indemnify TSI for any claim, including but not limited to attorneys'
fees and expenses of investigation, by any such third party that such third
party may now have or may hereafter come to have against TSI based upon or
arising out of any noncompetition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
12. ASSIGNMENT; BINDING EFFECT.
Employee understands that he has been selected for employment by TSI on
the basis of Employee's personal qualifications, experience and skills.
Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 13 below, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective heirs, legal representatives, successors and assigns.
13. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that TSI may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of TSI hereunder or that TSI
may undergo another type of Change in Control. In the event such a merger or
consolidation or other Change in Control is initiated prior to the end of the
Term, then the provisions of this paragraph 13 shall be applicable.
(b) In the event of a pending Change in Control wherein TSI and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of TSI's business
and/or assets that such successor is willing as of the closing to assume and
agree to perform TSI's obligations under this Agreement in the same manner and
to the same extent that TSI is hereby required to perform, then such Change in
Control shall be deemed to be a termination of this Agreement by TSI without
cause during the Term and the applicable portions of paragraph 6(d) will apply;
however, under such circumstances, the amount of the lump-sum severance payment
due to Employee shall be triple the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to TSI at least five (5) business
days prior to the anticipated closing of the transaction giving rise to the
Change in Control. In such case, the applicable provisions of paragraph 6(d)
will apply as though TSI had terminated the Agreement without cause during the
Term; however, under such circumstances, the amount of the lump-sum severance
payment due to Employee shall be
7
<PAGE>
double the amount calculated under the terms of paragraph 6(d) and the
noncompetition provisions of paragraph 4 shall all apply for a period of two (2)
years from the effective date of termination.
(d) For purposes of applying paragraph 6 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by TSI at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase TSI Common Stock, including any options
with accelerated vesting under the provisions of TSI's 1997 Long-Term Incentive
Plan, such that Employee may convert the options to shares of TSI Common Stock
at or prior to the closing of the transaction giving rise to the Change in
Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than TSI or an employee
benefit plan of TSI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of TSI and immediately
after such acquisition such person or entity is, directly or
indirectly, the Beneficial Owner of voting securities representing 50%
or more of the total voting power of all of the then-outstanding voting
securities of TSI, unless the transaction pursuant to which such
acquisition is made is approved by at least two-thirds (2/3) of the
Board;
(ii) the following individuals no longer constitute a majority
of the members of the Board: (A) the individuals who, as of the closing
date of TSI's initial public offering, constitute the Board (the
"Original Directors"); (B) the individuals who thereafter are elected
to the Board and whose election, or nomination for election, to the
Board was approved by a vote of at least two-thirds (2/3) of the
Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election);
and (C) the individuals who are elected to the Board and whose
election, or nomination for election, to the Board was approved by a
vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election).
(iii) the stockholders of TSI shall approve a merger,
consolidation, recapitalization or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by TSI at any time that TSI or
any member of its Board anticipates that a Change in Control may take place.
8
<PAGE>
(g) Employee shall be reimbursed by TSI or its successor for any excise
taxes that Employee incurs under Section 4999 of the Internal Revenue Code of
1986, as a result of any Change in Control. Such amount will be due and payable
by TSI or its successor within ten (10) days after Employee delivers a written
request for reimbursement accompanied by a copy of Employee's tax return(s)
showing the excise tax actually incurred by Employee.
14. COMPLETE AGREEMENT.
To the extent the IPO may not occur, this Agreement is not a promise of
future employment. This Agreement supersedes any other agreements or
understandings, written or oral, between TSI and Employee, and Employee has no
oral representations, understandings or agreements with TSI or any of its
officers, directors or representatives covering the same subject matter as this
Agreement.
This written Agreement is the final, complete and exclusive statement
and expression of the agreement between TSI and Employee and of all the terms of
this Agreement, and it cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of TSI and Employee, and no term of this
Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
15. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To TSI: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: Michael J. Moriarty
10701 Wynkoop Drive
Great Falls, Virginia 22066
Notice shall be deemed given and effective three (3) days
after the deposit in the U.S. mail of a writing addressed as above and
sent first class mail, certified, return receipt requested, or when
actually received. Either party may change the address for notice by
notifying the other party of such change in accordance with this
paragraph 15.
9
<PAGE>
16. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Washington, D.C., in accordance with
the rules of the American Arbitration Association then in effect. The
arbitrators shall not have the authority to add to, detract from, or modify any
provision hereof nor to award punitive damages to any injured party. The
arbitrators shall have the authority to order back-pay, severance compensation,
vesting of options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this Agreement, and
interest thereon in the event the arbitrators determine that Employee was
terminated without disability or good cause, as defined in paragraphs 6(b) and
6(c) hereof, respectively, or that TSI has otherwise materially breached this
Agreement. A decision by a majority of the arbitration panel shall be final and
binding. Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The direct expense of any arbitration proceeding shall be borne by
TSI.
18. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware.
19. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: ____________________________
Name:__________________________
Title:___________________________
-------------------------------
Michael J. Moriarty
11
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and between Travel
Services International, Inc., a Delaware corporation ("TSI"), and Mel Robinson
("Employee"), is hereby entered into as of this ____ day of ______, 1997, and
shall be effective as of a date (the "Effective Date") to be agreed upon by the
parties hereto as soon as practicable after the consummation of the initial
public offering of the common stock of TSI (the "IPO").
R E C I T A L S
A. As of the date of this Agreement, TSI is engaged primarily in the business of
providing travel services.
B. Employee is employed hereunder by TSI in a confidential relationship wherein
Employee, in the course of Employee's employment with TSI, has and will continue
to become familiar with and aware of information as to TSI's customers, specific
manner of doing business, including the processes, techniques and trade secrets
utilized by TSI, and future plans with respect thereto, all of which has been
and will be established and maintained at great expense to TSI; this information
is a trade secret and constitutes the valuable goodwill of TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) TSI hereby employs Employee as a Vice President of Development of
TSI. As such, Employee shall have responsibilities, duties and authority
reasonably accorded to and expected of a Vice President of Development of TSI
and will report directly to the Chief Executive Officer of TSI or such other
representative as he shall designate. Employee acknowledges that TSI is a
start-up company and that Employee's responsibilities may extend beyond the
traditional responsibilities of a Vice President of Development. Employee hereby
accepts this employment upon the terms and conditions herein contained and,
subject to paragraph 1(c) hereof, agrees to devote Employee's full business
time, attention and efforts to promote and further the business of TSI.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board of Directors of TSI (the "Board").
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 4 hereof.
<PAGE>
2. COMPENSATION.
For all services rendered by Employee, TSI shall compensate Employee as
follows:
(a) Base Salary. The base salary payable to Employee shall be $125,000
per year, payable on a regular basis in accordance with TSI's standard payroll
procedures but not less than monthly. On at least an annual basis, the Board
will review Employee's performance and may make increases to such base salary
if, in its discretion, any such increase is warranted. Such recommended increase
would, in all likelihood, require approval by the Board or a duly constituted
committee thereof. In no event shall Employee's base salary be reduced.
(b) Incentive Bonus Plan. For 1997 and subsequent years, TSI shall
develop, as soon as practicable after the Effective Date, a written Incentive
Bonus Plan setting forth the criteria and performance standards under which
Employee and other officers and key employees will be eligible to receive
year-end bonus awards. During the Term of this Agreement (as defined below), TSI
shall pay to Employee a guaranteed minimum bonus in the amount of 25% of the
base salary (being a total of $31,250 per year) payable annually at the time
bonuses are paid. TSI contemplates that the maximum bonus for which Employee may
be eligible will be 50% of Employee's base salary.
(c) Executive Perquisites, Benefits, and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from TSI in
such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that TSI may have in
effect from time to time; reimbursement for COBRA payments for coverage
and premiums on any gap insurance for Employee and Employee's dependent
family members in the event that TSI is unable to provide insurance
coverage at the Effective Date.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with TSI's expense reporting
policy.
(iii) TSI shall provide Employee with other executive
perquisites as may be available to senior management of TSI and
participation in all other TSI-wide employee benefits as available from
time to time, including vacation benefits in accordance with TSI's
established policies.
3. OPTIONS.
At the date of the IPO, TSI shall grant to Employee options to acquire
50,000 shares of TSI common stock at the price per share at which such stock is
offered to the public in the IPO, subject to forfeiture if Employee does not
commence employment with TSI. Such options shall vest in installments of 12,500
shares on each of the first, second, third and fourth anniversaries of the
Effective Date. When issued, such options shall contain, among other things, a
provision for full and immediate vesting of all shares covered by the options
(whether already vested or not) in the event of a Change in Control, as
described in Section 13(e) of this Agreement.
2
<PAGE>
4. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
TSI, and for a period of two (2) years immediately following the termination of
Employee's employment under this Agreement, for any reason whatsoever, directly
or indirectly, for himself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature (other than a subsidiary or affiliate of TSI):
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor or as a sales
representative, in any travel service business in direct competition
with TSI or any subsidiary of TSI, within the United States or within
100 miles of any other geographic area in which TSI or any of TSI's
subsidiaries conducts business, including any territory serviced by TSI
or any of its subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSI (including the subsidiaries thereof) in a
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of TSI (including the
subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of TSI (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services
in direct competition with TSI or any subsidiary of TSI within the
Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by TSI (including the respective subsidiaries thereof) or for
which TSI made an acquisition analysis, for the purpose of acquiring
such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter. Additionally, none of the
above restrictions in Section 4(a) subsections (i) through (iv), shall apply to
Employee's endeavors relating to companies which are either suppliers to the
Company or any of its subsidiaries (such as airlines, cruise lines, hotel
operators, etc.) or customers of the Company or any of its subsidiaries,
inasmuch as suppliers and customers of TSI are not deemed by the Company to be
in direct competition with TSI or its subsidiaries.
(b) Because of the difficulty of measuring economic losses to TSI as a
result of a breach of the foregoing covenant, and because of the immediate and
irreparable damage that could be caused to TSI for which it would have no other
adequate remedy, Employee agrees that the foregoing covenant may be enforced by
TSI in the event of breach by his, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 4 impose a reasonable restraint on Employee in light of the activities
and business of TSI (including TSI's subsidiaries) on the date of the execution
of this Agreement and the current plans of TSI (including TSI's subsidiaries);
but it is also the intent of TSI and Employee that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of TSI (including TSI's subsidiaries)
3
<PAGE>
throughout the term of this Agreement. For example, if, during the term of this
Agreement, TSI (including TSI's subsidiaries) engages in new and different
activities, enters a new business or establishes new locations for its current
activities or business in addition to or other than the activities or business
enumerated under the Recitals above or the locations currently established
therefor, then Employee will be precluded from soliciting the customers or
employees of such new activities or business or from such new location and from
directly competing with such new business within 100 miles of its
then-established operating location(s) through the term of this Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with TSI (including TSI's
subsidiaries), or similar activities, or business in locations the operation of
which, under such circumstances, does not violate clause (i) of this paragraph
4, and in any event such new business, activities or location are not in
violation of this paragraph 4 or of employee's obligations under this paragraph
4, if any, Employee shall not be chargeable with a violation of this paragraph 4
if TSI (including TSI's subsidiaries) shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 4 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
All of the covenants in this paragraph 4 shall be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of Employee against TSI, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by TSI
of such covenants. It is specifically agreed that the period of two (2) years
following termination of employment stated at the beginning of this paragraph 4,
during which the agreements and covenants of Employee made in this paragraph 4
shall be effective, shall be computed by excluding from such computation any
time during which Employee is in violation of any provision of this paragraph 4.
5. PLACE OF PERFORMANCE.
(a) Employee understands that he shall relocate from Employee's present
residence to another geographic location near TSI's headquarters in Palm Beach
in order to more efficiently carry out Employee's duties and responsibilities
under this Agreement. TSI will, for the initial year of the Term (as defined
below) hereof, pay all actual reasonable relocation costs to move Employee,
Employee's immediate family and their personal property and effects. Such costs
may include, but are not limited to, moving expenses, air fare, temporary
lodging expenses prior to moving into a new permanent residence and other
associated expenses; provided, the maximum total amount to be paid by TSI
hereunder shall be $20,000.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 6(c).
4
<PAGE>
6. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for three (3) years, and, unless terminated sooner as herein provided, shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein in effect as of the time of renewal. As used herein, the word
"Term" shall mean (i) during the three year period referred to in the preceding
sentence, such three year period, and (ii) during any one year renewal pursuant
to the terms hereof, such one year period. This Agreement and Employee's
employment may be terminated in any one of the following ways:
(a) Death. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, as reasonably determined by Employee's physician, Employee
shall have been absent from Employee's full-time duties hereunder for four (4)
consecutive months, then thirty (30) days after receiving written notice (which
notice may occur before or after the end of such four (4) month period, but
which shall not be effective earlier than the last day of such four (4) month
period), TSI may terminate Employee's employment hereunder provided Employee is
unable to resume Employee's full-time duties at the conclusion of such notice
period. Also, Employee may terminate Employee's employment hereunder if his
health should become impaired to an extent that makes the continued performance
of Employee's duties hereunder hazardous to Employee's physical or mental health
or life, provided that Employee shall have furnished TSI with a written
statement from a qualified doctor to such effect and provided, further, that, at
TSI's request made within thirty (30) days of the date of such written
statement, Employee shall submit to an examination by a doctor selected by TSI
who is reasonably acceptable to Employee or Employee's doctor and such doctor
shall have concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated by either party as a result of Employee's disability,
Employee shall receive from TSI, in a lump-sum payment due within ten (10) days
of the effective date of termination, the base salary at the rate then in
effect, plus the guaranteed minimum annual bonus described in Section 2(b)
herein, for whatever time period is remaining under the Term of this Agreement
or for one (1) year, whichever amount is greater.
(c) Good Cause. TSI may terminate the Agreement ten (10) days after
delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to cure)
of any of Employee's material duties and responsibilities hereunder; (3)
Employee's willful dishonesty, fraud or misconduct with respect to the business
or affairs of TSI which materially and adversely affects the operations or
reputation of TSI; (4) Employee's conviction of a felony crime; or (5) chronic
alcohol abuse or illegal drug abuse by Employee. In the event of a termination
for good cause, as enumerated above, Employee shall have no right to any
severance compensation.
(d) Without Cause. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to TSI. Employee may
only be terminated without cause by TSI during the Term hereof if such
termination is approved by at least two-thirds of the members of the Board.
Should Employee's employment be terminated by TSI without cause during the Term,
Employee shall receive from TSI, in a lump-sum payment due on the effective date
of termination, the base salary at the rate then in effect for whatever time
period is remaining under the Term of this Agreement or for one (1) year,
whichever amount is greater, plus any accrued salary, guaranteed minimum annual
bonus per Section
5
<PAGE>
2(b), and declared but unpaid bonus and reimbursement of expenses. Should
Employee's employment be terminated by TSI without cause at any time after the
Term, Employee shall receive from TSI, in a lump-sum payment due on the
effective date of termination, the base salary rate then in effect equivalent to
one (1) year of salary, plus any accrued salary, guaranteed minimum annual bonus
per Section 2(b), and declared but unpaid bonus and reimbursement of expenses.
Further, any termination without cause by TSI shall operate to shorten the
period set forth in paragraph 4(a) and during which the terms of paragraph 4
apply to one (1) year from the date of termination of employment. If Employee
resigns or otherwise terminates Employee's employment without cause pursuant to
this paragraph 6(d), Employee shall receive no severance compensation.
(e) Change in Control of TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 13 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 13 hereof. All other rights and obligations of TSI and Employee under
this Agreement shall cease as of the effective date of termination, except that
TSI's obligations under paragraph 10 hereof and Employee's obligations under
paragraphs 4, 7, 8, 9 and 11 hereof shall survive such termination in accordance
with their terms.
If termination of Employee's employment arises out of TSI's failure to
pay Employee on a timely basis the amounts to which he is entitled under this
Agreement or as a result of any other material breach of this Agreement by TSI
(including but not limited to a material reduction in Employee's
responsibilities hereunder), as mutually agreed to by Employee and TSI or as
determined by a court of competent jurisdiction or pursuant to the provisions of
paragraph 17 below, such termination shall be deemed a termination without
cause, and TSI shall pay to Employee severance compensation pursuant to the
applicable provisions of paragraph 6(d) and all amounts and damages to which
Employee may be entitled as a result of such breach, including interest thereon
and all reasonable legal fees and expenses and other costs incurred by Employee
to enforce Employee's rights hereunder. Further, none of the provisions of
paragraph 4 hereof shall apply in the event this Agreement is terminated as a
result of a breach by TSI.
In the event of any termination of Employee's employment for any reason
provided above, Employee shall be under no obligation to seek other employment
and there shall be no offset against any amounts due to Employee under this
Agreement on account of any remuneration attributable to any subsequent
employment that Employee may obtain. Any amounts due under this paragraph 6 are
in the nature of severance payments, or liquidated damages, or both, and are not
in the nature of a penalty.
7. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists and other property delivered to or compiled by
Employee by or on behalf of TSI, or its representatives, vendors or customers
which pertain to the business of TSI shall be and remain the property of TSI,
and be subject at all times to its discretion and control. Likewise, all
correspondence, reports, records, charts, advertising materials, and other
similar data pertaining to the business, activities or future plans of TSI which
is collected by Employee shall be delivered promptly to TSI without request by
it upon termination of Employee's employment.
6
<PAGE>
8. INVENTIONS.
Employee shall disclose promptly to TSI any and all significant
conceptions and ideas for inventions, improvements and valuable discoveries,
whether patentable or not, which are conceived or made by Employee, solely or
jointly with another, during the period of employment, and which are directly
related to the business or activities of TSI and which Employee conceives as a
result of Employee's employment by TSI. Employee hereby assigns and agrees to
assign all of Employee's interests therein to TSI or its nominee. Whenever
requested to do so by TSI, Employee shall execute any and all applications,
assignments or other instruments that TSI shall deem necessary to apply for and
obtain Letters Patent of the United States or any foreign country or to
otherwise protect TSI's interest therein.
9. TRADE SECRETS.
Employee agrees that he will not, other than as required by court
order, during or after the Term of this Agreement with TSI, disclose the
confidential terms of TSI's or its subsidiaries' relationships or agreements
with its significant vendors or customers or any other significant and material
trade secret of TSI or its subsidiaries, whether in existence or proposed, to
any person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
10. INDEMNIFICATION.
In connection with any threatened, pending or completed claim, demand,
liability, action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by TSI against Employee), by reason of
the fact that Employee is or was performing services (including an act, omission
or failure to act) under this Agreement, TSI shall indemnify and hold harmless,
to the maximum extent permitted by law, Employee against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, as actually
and reasonably incurred by Employee in connection therewith. In the event that
both Employee and TSI are made a party to the same third-party action,
complaint, suit or proceeding, TSI agrees to engage competent legal
representation reasonably acceptable to Employee, and Employee agrees to use the
same representation, provided that if counsel selected by TSI shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to TSI for errors or omissions made in good faith
where Employee has not exhibited gross, willful or wanton negligence or
misconduct or performed criminal and fraudulent acts which materially damage the
business of TSI. TSI shall pay, on behalf of Employee upon presentation of
proper invoices, all fees, costs and expenses (including attorneys' fees)
incurred in connection with any matter referenced in this paragraph 10.
11. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to TSI that the execution of
this Agreement by Employee and his employment by TSI and the performance of
Employee's duties hereunder will not violate or be a breach of any agreement
with a former employer, client or any other person or entity. Further, Employee
agrees to indemnify TSI for any claim, including but not limited to attorneys'
fees and expenses of investigation, by any such third party that such third
party may now have or may hereafter come to have against TSI based upon or
arising out of any noncompetition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
7
<PAGE>
12. ASSIGNMENT; BINDING EFFECT.
Employee understands that he has been selected for employment by TSI on
the basis of Employee's personal qualifications, experience and skills.
Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 13 below, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.
13. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that TSI may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of TSI hereunder or that TSI
may undergo another type of Change in Control. In the event such a merger or
consolidation or other Change in Control is initiated prior to the end of the
Term, then the provisions of this paragraph 13 shall be applicable.
(b) In the event of a pending Change in Control wherein TSI and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of TSI's business
and/or assets that such successor is willing as of the closing to assume and
agree to perform TSI's obligations under this Agreement in the same manner and
to the same extent that TSI is hereby required to perform, then such Change in
Control shall be deemed to be a termination of this Agreement by TSI without
cause during the Term and the applicable portions of paragraph 6(d) will apply;
however, under such circumstances, the amount of the lump-sum severance payment
due to Employee shall be triple the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to TSI at least five (5) business
days prior to the anticipated closing of the transaction giving rise to the
Change in Control. In such case, the applicable provisions of paragraph 6(d)
will apply as though TSI had terminated the Agreement without cause during the
Term; however, under such circumstances, the amount of the lump-sum severance
payment due to Employee shall be double the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall all apply
for a period of two (2) years from the effective date of termination.
(d) For purposes of applying paragraph 6 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by TSI at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase TSI Common Stock, including any options
with accelerated vesting under the provisions of TSI's 1997 Long-Term Incentive
Plan, such that Employee may convert the options to shares of TSI Common Stock
at or prior to the closing of the transaction giving rise to the Change in
Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
8
<PAGE>
(i) any person or entity, or group of persons or entities
acting together, other than TSI or an employee benefit plan of TSI,
acquires directly or indirectly the Beneficial Ownership (as defined in
Section 13(d) of the Securities Exchange Act of 1934, as amended) of
any voting security of TSI and immediately after such acquisition such
person, entity or group is, directly or indirectly, the Beneficial
Owner of voting securities representing 33% or more of the total voting
power of all of the then-outstanding voting securities of TSI and has a
larger percentage of voting securities of TSI than any other person,
entity or group holding voting securities of TSI, unless the
transaction pursuant to which such acquisition is made is approved by
at least two-thirds (2/3) of the Board; or
(ii) the following individuals no longer constitute a majority
of the members of the Board: (A) the individuals who, as of the closing
date of TSI's initial public offering, constitute the Board (the
"Original Directors"); (B) the individuals who thereafter are elected
to the Board and whose election, or nomination for election, to the
Board was approved by a vote of at least two-thirds (2/3) of the
Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election);
and (C) the individuals who are elected to the Board and whose
election, or nomination for election, to the Board was approved by a
vote of at least two-thirds (2/3) of the Original Directors and
Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their
election); or
(iii) the stockholders of TSI shall approve a merger,
consolidation, recapitalization or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by TSI at any time that TSI or
any member of its Board anticipates that a Change in Control may take place.
(g) Employee shall be reimbursed by TSI or its successor, on a grossed
up basis, for any excise taxes that Employee incurs under Section 4999 of the
Internal Revenue Code of 1986, as a result of any Change in Control. Such amount
will be due and payable by TSI or its successor within ten (10) days after
Employee delivers a written request for reimbursement accompanied by a copy of
Employee's tax return(s) showing the excise tax actually incurred by Employee.
14. COMPLETE AGREEMENT.
If the IPO does not occur, this Agreement is not a promise of future
employment. This Agreement supersedes any other agreements or understandings,
written or oral, between TSI and Employee, and Employee has no oral
representations, understandings or agreements with TSI or any of its officers,
directors or representatives covering the same subject matter as this Agreement.
9
<PAGE>
This written Agreement is the final, complete and exclusive statement
and expression of the agreement between TSI and Employee and of all the terms of
this Agreement, and it cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of TSI and Employee, and no term of this
Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
15. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To TSI: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: Mel Robinson
424 Wilderness Drive
Longwood, Florida 32779
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 15.
16. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in the community where the corporate
headquarters of TSI is located on the Effective Date, in accordance with the
rules of the American Arbitration Association then in effect. The arbitrators
shall not have the authority to add to, detract from or modify any provision
hereof nor to award punitive damages to any injured party. The arbitrators shall
have the authority to order back-pay, severance compensation, vesting of options
(or cash compensation in lieu of vesting of options), reimbursement of costs,
including those incurred to enforce this Agreement, and interest thereon in the
event the arbitrators determine that Employee was terminated without disability
or good cause, as defined in paragraphs 6(b) and 6(c) hereof, respectively, or
that TSI has otherwise materially breached this Agreement. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by TSI.
10
<PAGE>
18. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware without regard to the conflicts of laws principles of
such state.
19. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: _____________________________
Name:____________________________
Title:___________________________
---------------------------------
Mel Robinson
12
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and among Travel
Services International, Inc., a Delaware corporation ("TSI"), Auto Europe, LLC,
a Maine limited liability company and a wholly-owned subsidiary of TSI (the
"Company"), and Imad Khalidi ("Employee"), is hereby entered into as of this
____ day of ______, 1997, and shall be effective as of the date of the
consummation of the initial public offering of the common stock of TSI.
R E C I T A L S
A. As of the date of this Agreement, the Company is engaged primarily in
the business of providing travel services.
B. Employee is employed hereunder by the Company in a confidential
relationship wherein Employee, in the course of Employee's employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and TSI's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and TSI, and future plans with respect thereto, all of which has been and will
be established and maintained at great expense to the Company and TSI; this
information is a trade secret and constitutes the valuable good will of the
Company and TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as Chief Executive Officer of
the Company. As such, Employee shall have responsibilities, duties and authority
reasonably accorded to and expected of a President of the Company and will
report directly to the Board of Directors of the Company (the "Board"). Employee
hereby accepts this employment upon the terms and conditions herein contained
and, subject to paragraph 1(c) hereof, agrees to devote Employee's time,
attention and efforts to promote and further the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board.
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 3 hereof.
<PAGE>
2. COMPENSATION.
For all services rendered by Employee, the Company shall compensate
Employee as follows:
(a) BASE SALARY. The base salary payable to Employee shall be $140,000
per year, payable on a regular basis in accordance with the Company's standard
payroll procedures but not less than monthly. On at least an annual basis, the
Board will review Employee's performance and may make increases to such base
salary if, in its discretion, any such increase is warranted. Such recommended
increase would, in all likelihood, require approval by the Board or a duly
constituted committee thereof.
(b) INCENTIVE BONUS PLAN. For 1997 and subsequent years, it is the
Company's intent to develop a written Incentive Bonus Plan (which may be TSI's
Incentive Bonus Plan) setting forth the criteria under which Employee and other
officers and key employees will be eligible to receive year-end bonus awards.
(c) EXECUTIVE PERQUISITES, BENEFITS, AND OTHER COMPENSATION. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that the Company or
TSI may have in effect from time to time, benefits provided to Employee
under this clause (i) to be at least equal to such benefits provided to
TSI executives.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board and participation in all other Company-wide or TSI-wide
employee benefits as available from time to time.
3. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
the Company, and for a period of two (2) years immediately following the
termination of Employee's employment under this Agreement, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any travel service business in direct competition
with the Company or TSI or any subsidiary of either the Company or TSI,
within the United States or within 100 miles of any other geographic
area in which the Company or TSI or any of the Company's or TSI's
subsidiaries conducts business, including any territory serviced by the
Company or TSI or any of such subsidiaries (the "Territory");
2
<PAGE>
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or TSI (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
the Company or TSI (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company or TSI (including the respective subsidiaries thereof)
within the Territory for the purpose of soliciting or selling products
or services in direct competition with the Company or TSI or any
subsidiary of the Company or TSI within the Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by the Company or TSI (including the respective subsidiaries
thereof) or for which the Company or TSI made an acquisition analysis,
for the purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company and TSI as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to the Company and
TSI for which they would have no other adequate remedy, Employee agrees that the
foregoing covenant may be enforced by TSI or the Company in the event of breach
by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company or TSI (including TSI's other subsidiaries) on the
date of the execution of this Agreement and the current plans of TSI (including
TSI's other subsidiaries); but it is also the intent of the Company and Employee
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of the Company and TSI (including TSI's other
subsidiaries) throughout the term of this Agreement, whether before or after the
date of termination of the employment of Employee. For example, if, during the
term of this Agreement, the Company or TSI (including TSI's other subsidiaries)
engages in new and different activities, enters a new business or establishes
new locations for its current activities or business in addition to or other
than the activities or business enumerated under the Recitals above or the
locations currently established therefor, then Employee will be precluded from
soliciting the customers or employees of such new activities or business or from
such new location and from directly competing with such new business within 100
miles of its then-established operating location(s) through the term of this
Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or TSI (including
TSI's other subsidiaries), or similar activities, or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company or TSI (including TSI's other subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities, or (iii) location, as applicable.
3
<PAGE>
(d) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
TSI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by TSI or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE.
(a) Employee understands that he may be requested by the Board or TSI
to relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will pay all relocation costs to move Employee, Employee's immediate family and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use Employee's best efforts to incur only those
costs which are reasonable and necessary to effect a smooth, efficient and
orderly relocation with minimal disruption to the business affairs of the
Company and the personal life of Employee and Employee's family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for three (3) years (the "Term"), and, unless terminated sooner as herein
provided, shall continue thereafter on a year-to-year basis on the same terms
and conditions contained herein in effect as of the time of renewal. This
Agreement and Employee's employment may be terminated in any one of the
followings ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
4
<PAGE>
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's full-time
duties hereunder for four (4) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
four (4) month period, but which shall not be effective earlier than the last
day of such four (4) month period), the Company may terminate Employee's
employment hereunder provided Employee is unable to resume Employee's full-time
duties at the conclusion of such notice period. Also, Employee may terminate
Employee's employment hereunder if his health should become impaired to an
extent that makes the continued performance of Employee's duties hereunder
hazardous to Employee's physical or mental health or life, provided that
Employee shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that, at the Company's
request made within thirty (30) days of the date of such written statement,
Employee shall submit to an examination by a doctor selected by the Company who
is reasonably acceptable to Employee or Employee's doctor and such doctor shall
have concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated as a result of Employee's disability, Employee shall
receive from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect for
whatever time period is remaining under the Term of this Agreement or for one
(1) year, whichever amount is greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material, and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure) of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud or misconduct with respect to the business or affairs
of the Company or TSI which materially and adversely affects the operations or
reputation of the Company or TSI; (4) Employee's conviction of a felony crime;
or (5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of
a termination for good cause, as enumerated above, Employee shall have no right
to any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least two-thirds of the members of
the Board of Directors of TSI. Should Employee be terminated by the Company
without cause during the Term, Employee shall be entitled to receive from the
Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Term of this Agreement or for one (1) year, whichever amount is
greater, and, in the event that Employee accepts such lump sum payment, the
period set forth in paragraph 3(a) and during which the terms of paragraph 3
apply shall be shortened to one (1) year from the date of termination of
employment. Should Employee be terminated by the Company without cause at any
time after the Term, Employee shall be entitled to receive from the Company, in
a lump-sum payment due on the effective date of termination, the base salary
rate then in effect equivalent to one (1) year of salary, and, in the event that
Employee accepts such lump sum payment, the period set forth in paragraph 3(a)
and during which the terms of paragraph 3 apply shall be shortened to one (1)
year from the date of termination of employment. Should Employee be terminated
by the Company without cause at any time during or after the Term, Employee
shall be entitled to waive Employee's right to receive severance compensation
(by a written waiver delivered to the Company on the effective date of
termination), and, in such case, the noncompetition provisions of paragraph 3
shall not apply. If Employee resigns or otherwise terminates Employee's
employment without cause pursuant to this paragraph 5(d), Employee shall receive
no severance compensation. A termination without cause within the meaning of
this paragraph 5(d) shall be
5
<PAGE>
deemed to have occurred if any person or entity, other than TSI or an employee
benefit plan of TSI, acquires directly or indirectly the Beneficial Ownership
(as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended)
of any voting security of the Company or TSI and immediately after such
acquisition such person or entity is, directly or indirectly, the Beneficial
Owner of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company or TSI and the
transaction pursuant to which such acquisition is made is approved by at least
two-thirds (2/3) of the Board of Directors of TSI but is not approved by
Employee.
(e) CHANGE IN CONTROL OF TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 12 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 12 hereof. All other rights and obligations of TSI, the Company and
Employee under this Agreement shall cease as of the effective date of
termination, except that the Company's obligations under paragraph 9 hereof and
Employee's obligations under paragraphs 3, 6, 7, 8 and 10 hereof shall survive
such termination in accordance with their terms.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 16 below, the Company shall pay all amounts and damages
to which Employee may be entitled as a result of such breach, including interest
thereon and all reasonable legal fees and expenses and other costs incurred by
Employee to enforce Employee's rights hereunder. Further, none of the provisions
of paragraph 3 hereof shall apply in the event this Agreement is terminated as a
result of a breach by the Company.
6. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists, and other property delivered to or compiled by
Employee by or on behalf of the Company, TSI, or their representatives, vendors,
or customers which pertain to the business of the Company or TSI shall be and
remain the property of the Company or TSI, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials, and other similar data
pertaining to the business, activities or future plans of the Company or TSI
which is collected by Employee shall be delivered promptly to the Company
without request by it upon termination of Employee's employment.
7. INVENTIONS.
Employee shall disclose promptly to TSI and the Company any and all
significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company or TSI and which Employee conceives as a result of
Employee's employment by the Company. Employee hereby assigns and agrees to
assign all of Employee's interests therein to the Company or its nominee.
Whenever requested to do so by the Company, Employee shall execute any and all
6
<PAGE>
applications, assignments, or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
8. TRADE SECRETS.
Employee agrees that he or she will not, during or after the Term of
this Agreement with the Company, disclose the specific terms of the Company's or
TSI's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
TSI, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever.
9. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative (other than an action by the Company or TSI against Employee),
by reason of the fact that Employee is or was performing services under this
Agreement, then the Company shall indemnify Employee against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company or TSI agrees to
engage competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by TSI shall have a conflict
of interest that prevents such counsel from representing Employee, Employee may
engage separate counsel and the Company or TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Company or TSI for errors or omissions
made in good faith where Employee has not exhibited gross, willful and wanton
negligence and misconduct or performed criminal and fraudulent acts which
materially damage the business of the Company.
10. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to the Company that the
execution of this Agreement by Employee and his employment by the Company and
the performance of Employee's duties hereunder will not violate or be a breach
of any agreement with a former employer, client or any other person or entity.
Further, Employee agrees to indemnify the Company for any claim, including but
not limited to attorneys' fees and expenses of investigation, by any such third
party that such third party may now have or may hereafter come to have against
the Company based upon or arising out of any noncompetition agreement,
invention, or secrecy agreement between Employee and such third party which was
in existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT.
Employee understands that he has been selected for employment by the
Company on the basis of Employee's personal qualifications, experience and
skills. Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 12 below, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective heirs, legal representatives, successors and assigns.
7
<PAGE>
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Term, then the provisions of this paragraph 12 shall be
applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby required to
perform, then such Change in Control shall be deemed to be a termination of this
Agreement by the Company without cause during the Term and the applicable
portions of paragraph 5(d) will apply; however, under such circumstances, the
amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(d) and the noncompetition
provisions of paragraph 3 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to the Company at least five (5)
business days prior to the anticipated closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of paragraph 5(d)
will apply as though the Company had terminated the Agreement without cause
during the Term; however, under such circumstances, the amount of the lump-sum
severance payment due to Employee shall be double the amount calculated under
the terms of paragraph 5(d) and the noncompetition provisions of paragraph 3
shall all apply for a period of two (2) years from the effective date of
termination. Employee shall have the right to waive Employee's right to receive
the severance compensation payable under this paragraph 12(c) (by a written
waiver delivered to the Company on the effective date of the termination), in
which case the noncompetition provisions of paragraph 3 shall not apply.
(d) For purposes of applying paragraph 5 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements, and lump-sum payments due Employee must be paid in
full by the Company at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase TSI Common Stock, including any options
with accelerated vesting under the provisions of TSI's 1997 Long-Term Incentive
Plan, such that Employee may convert the options to shares of TSI Common Stock
at or prior to the closing of the transaction giving rise to the Change in
Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than TSI or an employee
benefit plan of TSI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of the Company or TSI and
immediately after such acquisition such person or entity is, directly
or indirectly, the Beneficial Owner of voting securities representing
50% or more of the total voting power of all of the then-
8
<PAGE>
outstanding voting securities of the Company or TSI, unless the
transaction pursuant to which such acquisition is made is approved by
at least two-thirds (2/3) of the Board of Directors of TSI;
(ii) the following individuals no longer constitute a majority
of the members of the Board of Directors of TSI: (A) the individuals
who, as of the closing date of TSI's initial public offering,
constitute the Board of Directors of TSI (the "Original Directors");
(B) the individuals who thereafter are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI was approved by a vote of at least two-thirds
(2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI 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 TSI shall approve a merger,
consolidation, recapitalizationor reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by the Company at any time
that the Company or any member of its Board anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by the Company or its successor for
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of Employee's
tax return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, among the
Company, TSI and Employee, and Employee has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement.
This written Agreement is the final, complete and exclusive statement
and expression of the agreement between the Company and Employee and of all the
terms of this Agreement, and it cannot be varied, contradicted or supplemented
by evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of the Company and Employee, and no term of
this Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
9
<PAGE>
14. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To the Company: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: Auto Europe, LLC
59 Commercial Street
Portland, ME 04112
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define, or limit the extent or intent of the Agreement or of any part hereof.
16. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Washington, D.C., in accordance with
the rules of the American Arbitration Association then in effect. The
arbitrators shall not have the authority to add to, detract from, or modify any
provision hereof nor to award punitive damages to any injured party. The
arbitrators shall have the authority to order back-pay, severance compensation,
vesting of options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this Agreement, and
interest thereon in the event the arbitrators determine that Employee was
terminated without disability or good cause, as defined in paragraphs 5(b) and
5(c) hereof, respectively, or that the Company has otherwise materially breached
this Agreement. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company.
17. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware.
10
<PAGE>
18. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Auto Europe, LLC
By: ____________________________
Name:__________________________
Title:___________________________
Travel Services International, Inc.,
a Delaware corporation
By:____________________________
Name:_________________________
Title: __________________________
-------------------------------
Imad Khalidi, Individually
12
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and among Travel
Services International, Inc., a Delaware corporation ("TSI"), Auto Europe, LLC,
a Maine limited liability company and a wholly-owned subsidiary of TSI (the
"Company"), and Alex Cecil ("Employee"), is hereby entered into as of this ____
day of ______, 1997, and shall be effective as of the date of the consummation
of the initial public offering of the common stock of TSI.
R E C I T A L S
A. As of the date of this Agreement, the Company is engaged primarily in
the business of providing travel services.
B. Employee is employed hereunder by the Company in a confidential
relationship wherein Employee, in the course of Employee's employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and TSI's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and TSI, and future plans with respect thereto, all of which has been and will
be established and maintained at great expense to the Company and TSI; this
information is a trade secret and constitutes the valuable good will of the
Company and TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants, and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as a Special Marketing Advisor
of the Company. As such, Employee shall have responsibilities, duties, and
authority reasonably accorded to and expected of a Special Marketing Advisor of
the Company and will report directly to the President Employee hereby accepts
this employment upon the terms and conditions herein contained and, subject to
paragraph 1(c) hereof, agrees to devote Employee's time, attention, and efforts
to promote and further the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board of Directors of the Company (the "Board").
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit, or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 3 hereof.
<PAGE>
2. COMPENSATION.
For all services rendered by Employee, the Company shall compensate
Employee as follows:
(a) BASE SALARY. The base salary payable to Employee shall be $80,000
per year, payable on a regular basis in accordance with the Company's standard
payroll procedures but not less than monthly. On at least an annual basis, the
Board will review Employee's performance and may make increases to such base
salary if, in its discretion, any such increase is warranted. Such recommended
increase would, in all likelihood, require approval by the Board or a duly
constituted committee thereof.
(b) PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee shall be
entitled to receive additional benefits and compensation from the Company in
such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that the Company or
TSI may have in effect from time to time.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) The Company shall provide Employee with other
perquisites as may be available to or deemed appropriate for Employee
by the Board and participation in all other Company-wide or TSI-wide
employee benefits as available from time to time.
3. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
the Company, and for a period of two (2) years immediately following the
termination of Employee's employment under this Agreement, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation,
or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any travel service business in direct competition
with the Company or TSI or any subsidiary of either the Company or TSI,
within the United States or within 100 miles of any other geographic
area in which the Company or TSI or any of the Company's or TSI's
subsidiaries conducts business, including any territory serviced by the
Company or TSI or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or TSI (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
the Company or TSI (including the respective subsidiaries thereof);
2
<PAGE>
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company or TSI (including the respective subsidiaries thereof)
within the Territory for the purpose of soliciting or selling products
or services in direct competition with the Company or TSI or any
subsidiary of the Company or TSI within the Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by the Company or TSI (including the respective subsidiaries
thereof) or for which the Company or TSI made an acquisition analysis,
for the purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company and TSI as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to the Company and
TSI for which they would have no other adequate remedy, Employee agrees that the
foregoing covenant may be enforced by TSI or the Company in the event of breach
by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company or TSI (including TSI's other subsidiaries) on the
date of the execution of this Agreement and the current plans of TSI (including
TSI's other subsidiaries); but it is also the intent of the Company and Employee
that such covenants be construed and enforced in accordance with the changing
activities, business, and locations of the Company and TSI (including TSI's
other subsidiaries) throughout the term of this Agreement, whether before or
after the date of termination of the employment of Employee. For example, if,
during the term of this Agreement, the Company, or TSI (including TSI's other
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or TSI (including
TSI's other subsidiaries), or similar activities, or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company or TSI (including TSI's other subsidiaries) shall
thereafter enter the same, similar, or a competitive (i) business, (ii) course
of activities, or (iii) location, as applicable.
(d) The covenants in this paragraph 3 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
3
<PAGE>
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
TSI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by TSI or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE.
(a) Employee understands that he may be requested by the Board or TSI
to relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will pay all relocation costs to move Employee, Employee's immediate family, and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use Employee's best efforts to incur only those
costs which are reasonable and necessary to effect a smooth, efficient, and
orderly relocation with minimal disruption to the business affairs of the
Company and the personal life of Employee and Employee's family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for three (3) years (the "Term"), and, unless terminated sooner as herein
provided, shall continue thereafter on a year-to-year basis on the same terms
and conditions contained herein in effect as of the time of renewal. This
Agreement and Employee's employment may be terminated in any one of the
followings ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's full-time
duties hereunder for four (4) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
four (4) month period, but which shall not be effective earlier than the last
day of such four (4) month period), the Company may terminate Employee's
employment hereunder provided Employee is
4
<PAGE>
unable to resume Employee's full-time duties at the conclusion of such notice
period. Also, Employee may terminate Employee's employment hereunder if his or
her health should become impaired to an extent that makes the continued
performance of Employee's duties hereunder hazardous to Employee's physical or
mental health or life, provided that Employee shall have furnished the Company
with a written statement from a qualified doctor to such effect and provided,
further, that, at the Company's request made within thirty (30) days of the date
of such written statement, Employee shall submit to an examination by a doctor
selected by the Company who is reasonably acceptable to Employee or Employee's
doctor and such doctor shall have concurred in the conclusion of Employee's
doctor. In the event this Agreement is terminated as a result of Employee's
disability, Employee shall receive from the Company, in a lump-sum payment due
within ten (10) days of the effective date of termination, the base salary at
the rate then in effect for whatever time period is remaining under the Term of
this Agreement or for one (1) year, whichever amount is greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material, and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure) of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud, or misconduct with respect to the business or affairs
of the Company or TSI which materially and adversely affects the operations or
reputation of the Company or TSI; (4) Employee's conviction of a felony crime;
or (5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of
a termination for good cause, as enumerated above, Employee shall have no right
to any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least two-thirds of the members of
the Board of Directors of TSI. Should Employee be terminated by the Company
without cause during the Term, Employee shall be entitled to receive from the
Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Term of this Agreement or for one (1) year, whichever amount is
greater, and, in the event that Employee accepts such lump sum payment, the
period set forth in paragraph 3(a) and during which the terms of paragraph 3
apply shall be shortened to one (1) year from the date of termination of
employment. Should Employee be terminated by the Company without cause at any
time after the Term, Employee shall be entitled to receive from the Company, in
a lump-sum payment due on the effective date of termination, the base salary
rate then in effect equivalent to one (1) year of salary, and, in the event that
Employee accepts such lump sum payment, the period set forth in paragraph 3(a)
and during which the terms of paragraph 3 apply shall be shortened to one (1)
year from the date of termination of employment. Should Employee be terminated
by the Company without cause at any time during or after the Term, Employee
shall be entitled to waive Employee's right to receive severance compensation
(by a written waiver delivered to the Company on the effective date of
termination), and, in such case, the noncompetition provisions of paragraph 3
shall not apply. If Employee resigns or otherwise terminates Employee's
employment without cause pursuant to this paragraph 5(d), Employee shall receive
no severance compensation. A termination without cause within the meaning of
this paragraph 5(d) shall be deemed to have occurred if any person or entity,
other than TSI or an employee benefit plan of TSI, acquires directly or
indirectly the Beneficial Ownership (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended) of any voting security of the
Company or TSI and immediately after such acquisition such person or entity is,
directly or indirectly, the Beneficial Owner of voting securities representing
50% or more of the total voting power of all of the then-outstanding voting
securities of the
5
<PAGE>
Company or TSI and the transaction pursuant to which such acquisition is made is
approved by at least two-thirds (2/3) of the Board of Directors of TSI but is
not approved by Employee.
(e) CHANGE IN CONTROL OF TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 12 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 12 hereof. All other rights and obligations of TSI, the Company, and
Employee under this Agreement shall cease as of the effective date of
termination, except that the Company's obligations under paragraph 9 hereof and
Employee's obligations under paragraphs 3, 6, 7, 8 and 10 hereof shall survive
such termination in accordance with their terms.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 16 below, the Company shall pay all amounts and damages
to which Employee may be entitled as a result of such breach, including interest
thereon and all reasonable legal fees and expenses and other costs incurred by
Employee to enforce Employee's rights hereunder. Further, none of the provisions
of paragraph 3 hereof shall apply in the event this Agreement is terminated as a
result of a breach by the Company.
6. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists, and other property delivered to or compiled by
Employee by or on behalf of the Company, TSI, or their representatives, vendors,
or customers which pertain to the business of the Company or TSI shall be and
remain the property of the Company or TSI, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials, and other similar data
pertaining to the business, activities, or future plans of the Company or TSI
which is collected by Employee shall be delivered promptly to the Company
without request by it upon termination of Employee's employment.
7. INVENTIONS.
Employee shall disclose promptly to TSI and the Company any and all
significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company or TSI and which Employee conceives as a result of
Employee's employment by the Company. Employee hereby assigns and agrees to
assign all of Employee's interests therein to the Company or its nominee.
Whenever requested to do so by the Company, Employee shall execute any and all
applications, assignments, or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
6
<PAGE>
8. TRADE SECRETS.
Employee agrees that he or she will not, during or after the Term of
this Agreement with the Company, disclose the specific terms of the Company's or
TSI's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
TSI, whether in existence or proposed, to any person, firm, partnership,
corporation, or business for any reason or purpose whatsoever.
9. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by the Company or TSI against Employee),
by reason of the fact that Employee is or was performing services under this
Agreement, then the Company shall indemnify Employee against all expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement,
as actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company or TSI agrees to
engage competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by TSI shall have a conflict
of interest that prevents such counsel from representing Employee, Employee may
engage separate counsel and the Company or TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge his or her duties under this
Agreement, Employee cannot be held liable to the Company or TSI for errors or
omissions made in good faith where Employee has not exhibited gross, willful,
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company.
10. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to the Company that the
execution of this Agreement by Employee and his or her employment by the Company
and the performance of Employee's duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including but not limited to attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any noncompetition
agreement, invention, or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT.
Employee understands that he or she has been selected for employment by
the Company on the basis of Employee's personal qualifications, experience, and
skills. Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 12 below, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective heirs, legal representatives, successors, and assigns.
7
<PAGE>
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Term, then the provisions of this paragraph 12 shall be
applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby required to
perform, then such Change in Control shall be deemed to be a termination of this
Agreement by the Company without cause during the Term and the applicable
portions of paragraph 5(d) will apply; however, under such circumstances, the
amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(d) and the noncompetition
provisions of paragraph 3 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to the Company at least five (5)
business days prior to the anticipated closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of paragraph 5(d)
will apply as though the Company had terminated the Agreement without cause
during the Term; however, under such circumstances, the amount of the lump-sum
severance payment due to Employee shall be double the amount calculated under
the terms of paragraph 5(d) and the noncompetition provisions of paragraph 3
shall all apply for a period of two (2) years from the effective date of
termination. Employee shall have the right to waive Employee's right to receive
the severance compensation payable under this paragraph 12(c) (by a written
waiver delivered to the Company on the effective date of the termination), in
which case the noncompetition provisions of paragraph 3 shall not apply.
(d) For purposes of applying paragraph 5 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements, and lump-sum payments due Employee must be paid in
full by the Company at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase TSI Common Stock, including any options
with accelerated vesting under the provisions of TSI's 1997 Long-Term Incentive
Plan, such that Employee may convert the options to shares of TSI Common Stock
at or prior to the closing of the transaction giving rise to the Change in
Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than TSI or an employee
benefit plan of TSI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of the Company or TSI and
immediately after such acquisition such person or entity is, directly
or indirectly, the Beneficial Owner of voting securities representing
50% or more of the total voting power of all of the then-
8
<PAGE>
outstanding voting securities of the Company or TSI, unless the
transaction pursuant to which such acquisition is made is approved by
at least two-thirds (2/3) of the Board of Directors of TSI;
(ii) the following individuals no longer constitute a majority
of the members of the Board of Directors of TSI: (A) the individuals
who, as of the closing date of TSI's initial public offering,
constitute the Board of Directors of TSI (the "Original Directors");
(B) the individuals who thereafter are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI was approved by a vote of at least two-thirds
(2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI 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 TSI shall approve a merger,
consolidation, recapitalization, or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by the Company at any time
that the Company or any member of its Board anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by the Company or its successor for
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of Employee's
tax return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, among the
Company, TSI, and Employee, and Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement.
This written Agreement is the final, complete, and exclusive statement
and expression of the agreement between the Company and Employee and of all the
terms of this Agreement, and it cannot be varied, contradicted, or supplemented
by evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of the Company and Employee, and no term of
this Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
9
<PAGE>
14. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To the Company: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: Auto Europe, LLC
59 Commercial Street
Portland, ME 04112
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define, or limit the extent or intent of the Agreement or of any part hereof.
16. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Washington, D.C., in accordance with
the rules of the American Arbitration Association then in effect. The
arbitrators shall not have the authority to add to, detract from, or modify any
provision hereof nor to award punitive damages to any injured party. The
arbitrators shall have the authority to order back-pay, severance compensation,
vesting of options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this Agreement, and
interest thereon in the event the arbitrators determine that Employee was
terminated without disability or good cause, as defined in paragraphs 5(b) and
5(c) hereof, respectively, or that the Company has otherwise materially breached
this Agreement. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company.
17. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware.
10
<PAGE>
18. COUNTERPARTS
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Auto Europe, LLC
By: ____________________________
Name:__________________________
Title:___________________________
Travel Services International, Inc.,
a Delaware corporation
By:____________________________
Name:_________________________
Title: __________________________
-------------------------------
Alex Cecil, Individually
12
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and among Travel
Services International, Inc., a Delaware corporation ("TSI"), Cruises, Inc., a
New York corporation and a wholly-owned subsidiary of TSI (the "Company"), and
Robert Falcone ("Employee"), is hereby entered into as of this ____ day of
______, 1997, and shall be effective as of the date of the consummation of the
initial public offering of the common stock of TSI.
R E C I T A L S
A. As of the date of this Agreement, the Company is engaged primarily in
the business of providing travel services.
B. Employee is employed hereunder by the Company in a confidential
relationship wherein Employee, in the course of Employee's employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and TSI's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and TSI, and future plans with respect thereto, all of which has been and will
be established and maintained at great expense to the Company and TSI; this
information is a trade secret and constitutes the valuable good will of the
Company and TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants, and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as Chief Executive Officer of
the Company. As such, Employee shall have responsibilities, duties, and
authority reasonably accorded to and expected of a Chief Executive Officer of
the Company and will report directly to the Board of Directors of the Company
(the "Board"). Employee hereby accepts this employment upon the terms and
conditions herein contained and, subject to paragraph 1(c) hereof, agrees to
devote Employee's time, attention, and efforts to promote and further the
business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Company. During the term of Employee's employment
hereunder, Employee shall be entitled to be a director on the Board.
(c) Employee shall not, during the term of his or her employment
hereunder, be engaged in any other business activity pursued for gain, profit,
or other pecuniary advantage if such activity interferes with Employee's duties
and responsibilities hereunder. The foregoing limitations shall not be construed
as prohibiting Employee from making personal investments in such form or manner
as will
<PAGE>
neither require Employee's services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
2. COMPENSATION.
For all services rendered by Employee, the Company shall compensate
Employee as follows:
(a) BASE SALARY. The base salary payable hereunder to Employee plus the
base salary payable to Judith Falcone under that certain Employment Agreement of
even date herewith by and among the Company, TSI and Judith Falcone shall equal
$238,000.00 per year, such salary to be divided between Employee and Judith
Falcone as shall be designated in writing to the Company by Employee and Judith
Falcone (and if no such designation is made to the Company, such salary shall be
divided equally between Employee and Judith Falcone). The base salary payable
hereunder to Employee shall be payable on a regular basis in accordance with the
Company's standard payroll procedures but not less than monthly. On at least an
annual basis, the Board will review Employee's performance and may make
increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would require approval by the Board or a
duly constituted committee thereof.
(b) INCENTIVE BONUS PLAN. For 1997 and subsequent years, it is the
Company's intent to develop a written Incentive Bonus Plan (which may be TSI's
Incentive Bonus Plan) setting forth the criteria under which Employee and other
officers and key employees will be eligible to receive year-end bonus awards.
(c) EXECUTIVE PERQUISITES, BENEFITS, AND OTHER COMPENSATION. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life, and other insurance plans that the Company or
TSI may have in effect from time to time, benefits provided to Employee
under this clause (i) to be at least equal to such benefits provided to
TSI executives.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board, including the use of one luxury vehicle consistent with
the Company's past practice (which practice has been to provide a new
vehicle under a lease every two years), and participation in all other
Company-wide or TSI-wide employee benefits as available from time to
time. Employee shall be entitled to four weeks of vacation per year.
2
<PAGE>
3. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
the Company, and for a period of two (2) years immediately following the
termination of Employee's employment under this Agreement, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation,
or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any travel service business in direct competition
with the Company or TSI or any subsidiary of either the Company or TSI,
within the United States or within 100 miles of any other geographic
area in which the Company or TSI or any of the Company's or TSI's
subsidiaries conducts business, including any territory serviced by the
Company or TSI or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or TSI (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
the Company or TSI (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company or TSI (including the respective subsidiaries thereof)
within the Territory for the purpose of soliciting or selling products
or services in direct competition with the Company or TSI or any
subsidiary of the Company or TSI within the Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by the Company or TSI (including the respective subsidiaries
thereof) or for which the Company or TSI made an acquisition analysis,
for the purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company and TSI as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to the Company and
TSI for which they would have no other adequate remedy, Employee agrees that the
foregoing covenant may be enforced by TSI or the Company in the event of breach
by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company or TSI (including TSI's other subsidiaries) on the
date of the execution of this Agreement and the current plans of TSI (including
TSI's other subsidiaries); but it is also the intent of the Company and Employee
that such covenants be construed and enforced in accordance with the changing
activities, business, and locations of the Company and TSI (including TSI's
other subsidiaries) throughout the term of this Agreement, whether before or
after the date of termination of the employment of Employee. For example, if,
during
3
<PAGE>
the term of this Agreement, the Company, or TSI (including TSI's other
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or TSI (including
TSI's other subsidiaries), or similar activities, or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company or TSI (including TSI's other subsidiaries) shall
thereafter enter the same, similar, or a competitive (i) business, (ii) course
of activities, or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time, or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
TSI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by TSI or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE.
(a) Employee understands that he may be requested by the Board or TSI
to relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will pay all relocation costs to move Employee, Employee's immediate family, and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use Employee's best efforts to incur only those
costs which are reasonable and necessary to effect a smooth, efficient, and
orderly relocation with minimal disruption to the business affairs of the
Company and the personal life of Employee and Employee's family.
3
<PAGE>
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for five (5) years (the "Term"), and, unless terminated sooner as herein
provided, shall continue thereafter on a year-to-year basis on the same terms
and conditions contained herein in effect as of the time of renewal. This
Agreement and Employee's employment may be terminated in any one of the
followings ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's full-time
duties hereunder for four (4) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
four (4) month period, but which shall not be effective earlier than the last
day of such four (4) month period), the Company may terminate Employee's
employment hereunder provided Employee is unable to resume Employee's full-time
duties at the conclusion of such notice period. Also, Employee may terminate
Employee's employment hereunder if his or her health should become impaired to
an extent that makes the continued performance of Employee's duties hereunder
hazardous to Employee's physical or mental health or life, provided that
Employee shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that, at the Company's
request made within thirty (30) days of the date of such written statement,
Employee shall submit to an examination by a doctor selected by the Company who
is reasonably acceptable to Employee or Employee's doctor and such doctor shall
have concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated as a result of Employee's disability, Employee shall
receive from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect for
whatever time period is remaining under the Term of this Agreement or for one
(1) year, whichever amount is greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material, and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure) of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud, or misconduct with respect to the business or affairs
of the Company or TSI which materially and adversely affects the operations or
reputation of the Company or TSI; (4) Employee's conviction of a felony crime;
or (5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of
a termination for good cause, as enumerated above, Employee shall have no right
to any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least two-thirds of the members of
the Board of Directors of TSI. Should Employee be terminated by the Company
without cause during the Term, Employee shall be entitled to receive from the
Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is
4
<PAGE>
remaining under the Term of this Agreement or for one (1) year, whichever amount
is greater, and, in the event that Employee accepts such lump sum payment, the
period set forth in paragraph 3(a) and during which the terms of paragraph 3
apply shall be shortened to one (1) year from the date of termination of
employment. Should Employee be terminated by the Company without cause at any
time after the Term, Employee shall be entitled to receive from the Company, in
a lump-sum payment due on the effective date of termination, the base salary
rate then in effect equivalent to one (1) year of salary, and, in the event that
Employee accepts such lump sum payment, the period set forth in paragraph 3(a)
and during which the terms of paragraph 3 apply shall be shortened to one (1)
year from the date of termination of employment. Should Employee be terminated
by the Company without cause at any time during or after the Term, Employee
shall be entitled to waive Employee's right to receive severance compensation
(by a written waiver delivered to the Company on the effective date of
termination), and, in such case, the noncompetition provisions of paragraph 3
shall not apply. If Employee resigns or otherwise terminates Employee's
employment without cause pursuant to this paragraph 5(d), Employee shall receive
no severance compensation. A termination without cause within the meaning of
this paragraph 5(d) shall be deemed to have occurred if any person or entity,
other than TSI or an employee benefit plan of TSI, acquires directly or
indirectly the Beneficial Ownership (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended) of any voting security of the
Company or TSI and immediately after such acquisition such person or entity is,
directly or indirectly, the Beneficial Owner of voting securities representing
50% or more of the total voting power of all of the then-outstanding voting
securities of the Company or TSI and the transaction pursuant to which such
acquisition is made is approved by at least two-thirds (2/3) of the Board of
Directors of TSI but is not approved by Employee.
(e) CHANGE IN CONTROL OF TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 12 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination, including any
benefits accrued under the Incentive Bonus Plan but not yet paid. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 12 hereof. All other rights and obligations of TSI, the Company, and
Employee under this Agreement shall cease as of the effective date of
termination, except that the Company's obligations under paragraph 9 hereof and
Employee's obligations under paragraphs 3, 6, 7, 8 and 10 hereof shall survive
such termination in accordance with their terms.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 16 below, the Company shall pay all amounts and damages
to which Employee may be entitled as a result of such breach, including interest
thereon and all reasonable legal fees and expenses and other costs incurred by
Employee to enforce Employee's rights hereunder. Further, none of the provisions
of paragraph 3 hereof shall apply in the event this Agreement is terminated as a
result of a breach by the Company.
6. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists, and other property delivered to or compiled by
Employee by or on behalf of the Company, TSI, or their representatives, vendors,
or customers which pertain to the business of the Company or TSI shall be and
5
<PAGE>
remain the property of the Company or TSI, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials, and other similar data
pertaining to the business, activities, or future plans of the Company or TSI
which is collected by Employee shall be delivered promptly to the Company
without request by it upon termination of Employee's employment.
7. INVENTIONS.
Employee shall disclose promptly to TSI and the Company any and all
significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment, and which are
directly related to the business or activities of the Company or TSI and which
Employee conceives as a result of Employee's employment by the Company. Employee
hereby assigns and agrees to assign all of Employee's interests therein to the
Company or its nominee. Whenever requested to do so by the Company, Employee
shall execute any and all applications, assignments, or other instruments that
the Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
8. TRADE SECRETS.
Employee agrees that he or she will not, during or after the Term of
this Agreement with the Company, disclose the confidential terms of the
Company's or TSI's relationships or agreements with their respective significant
vendors or customers or any other significant and material trade secret of the
Company or TSI, whether in existence or proposed, to any person, firm,
partnership, corporation, or business for any reason or purpose whatsoever.
9. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by the Company or TSI against Employee),
by reason of the fact that Employee is or was performing services under this
Agreement, then the Company shall indemnify Employee against all expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement,
as actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company or TSI agrees to
engage competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by TSI shall have a conflict
of interest that prevents such counsel from representing Employee, Employee may
engage separate counsel and the Company or TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge his or her duties under this
Agreement, Employee cannot be held liable to the Company or TSI for errors or
omissions made in good faith where Employee has not exhibited gross, willful,
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company.
10. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to the Company that the
execution of this Agreement by Employee and his or her employment by the Company
and the performance of Employee's duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including but not
6
<PAGE>
limited to attorneys' fees and expenses of investigation, by any such third
party that such third party may now have or may hereafter come to have against
the Company based upon or arising out of any noncompetition agreement,
invention, or secrecy agreement between Employee and such third party which was
in existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT.
Employee understands that he or she has been selected for employment by
the Company on the basis of Employee's personal qualifications, experience, and
skills. Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 12 below, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective heirs, legal representatives, successors, and assigns.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Term, then the provisions of this paragraph 12 shall be
applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby required to
perform, then such Change in Control shall be deemed to be a termination of this
Agreement by the Company without cause during the Term and the applicable
portions of paragraph 5(d) will apply; however, under such circumstances, the
amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(d) and the noncompetition
provisions of paragraph 3 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to the Company at least five (5)
business days prior to the anticipated closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of paragraph 5(d)
will apply as though the Company had terminated the Agreement without cause
during the Term; however, under such circumstances, the amount of the lump-sum
severance payment due to Employee shall be double the amount calculated under
the terms of paragraph 5(d) and the noncompetition provisions of paragraph 3
shall all apply for a period of two (2) years from the effective date of
termination. Employee shall have the right to waive Employee's right to receive
the severance compensation payable under this paragraph 12(c) (by a written
waiver delivered to the Company on the effective date of the termination), in
which case the noncompetition provisions of paragraph 3 shall not apply.
(d) For purposes of applying paragraph 5 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements, and lump-sum payments due Employee must be paid in
full by the Company at or prior to such closing. Further, Employee will be given
7
<PAGE>
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase TSI Common Stock, including any options
with accelerated vesting under the provisions of TSI's 1997 Long-Term Incentive
Plan, such that Employee may convert the options to shares of TSI Common Stock
at or prior to the closing of the transaction giving rise to the Change in
Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than TSI or an employee
benefit plan of TSI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of the Company or TSI and
immediately after such acquisition such person or entity is, directly
or indirectly, the Beneficial Owner of voting securities representing
50% or more of the total voting power of all of the then-outstanding
voting securities of the Company or TSI, unless the transaction
pursuant to which such acquisition is made is approved by at least
two-thirds (2/3) of the Board of Directors of TSI;
(ii) the following individuals no longer constitute a majority
of the members of the Board of Directors of TSI: (A) the individuals
who, as of the closing date of TSI's initial public offering,
constitute the Board of Directors of TSI (the "Original Directors");
(B) the individuals who thereafter are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI was approved by a vote of at least two-thirds
(2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI 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 TSI shall approve a merger,
consolidation, recapitalization, or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by the Company at any time
that the Company or any member of its Board anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by the Company or its successor for
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of Employee's
tax return(s) showing the excise tax actually incurred by Employee.
8
<PAGE>
13. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, among the
Company, TSI, and Employee, and Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement.
This written Agreement is the final, complete, and exclusive statement
and expression of the agreement between the Company and Employee and of all the
terms of this Agreement, and it cannot be varied, contradicted, or supplemented
by evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of the Company and Employee, and no term of
this Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
14. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To the Company: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: c/o Cruises, Inc.
5000 Campus Wood Drive
Syracuse, NY 13057
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define, or limit the extent or intent of the Agreement or of any part hereof.
16. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Washington, D.C., in accordance with
the rules of the American Arbitration Association then in effect. The
arbitrators shall not have the authority to add to, detract from, or modify any
provision hereof nor to award punitive damages to any injured party. The
arbitrators shall have the authority to order back-pay, severance compensation,
vesting of options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this Agreement, and
interest thereon in the event the arbitrators determine that Employee was
terminated without disability or good cause, as defined in paragraphs 5(b)
9
<PAGE>
and 5(c) hereof, respectively, or that the Company has otherwise materially
breached this Agreement. A decision by a majority of the arbitration panel shall
be final and binding. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The direct expense of any arbitration proceeding
shall be borne by the Company.
17. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware.
18. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Cruises, Inc.
By: ____________________________
Name:__________________________
Title:___________________________
Travel Services International, Inc.,
a Delaware corporation
By:____________________________
Name:_________________________
Title: __________________________
-------------------------------
Robert Falcone, Individually
11
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and among Travel
Services International, Inc., a Delaware corporation ("TSI"), Cruises, Inc., a
New York corporation and a wholly-owned subsidiary of TSI (the "Company"), and
Judith Falcone ("Employee"), is hereby entered into as of this ____ day of
______, 1997, and shall be effective as of the date of the consummation of the
initial public offering of the common stock of TSI.
R E C I T A L S
A. As of the date of this Agreement, the Company is engaged primarily in
the business of providing travel services.
B. Employee is employed hereunder by the Company in a confidential
relationship wherein Employee, in the course of Employee's employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and TSI's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and TSI, and future plans with respect thereto, all of which has been and will
be established and maintained at great expense to the Company and TSI; this
information is a trade secret and constitutes the valuable good will of the
Company and TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as Vice President of the
Company. As such, Employee shall have responsibilities, duties and authority
reasonably accorded to and expected of a Vice President of the Company and will
report directly to the President of the Company. Employee hereby accepts this
employment upon the terms and conditions herein contained and, subject to
paragraph 1(c) hereof, agrees to devote Employee's time, attention and efforts
to promote and further the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board of Directors of the Company (the "Board").
During the term of Employee's employment hereunder, Employee shall be entitled
to be a director on the Board.
(c) Employee shall not, during the term of her employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 3 hereof.
<PAGE>
(d) Employee shall be entitled to take "familiarization cruises" for
the purpose of researching, becoming familiar with, and writing about cruise
lines, cruise ships and destinations, all as part of Employee's duties under
this Agreement. Time spent on familiarization cruises shall not be counted as
vacation time, and all expenses related thereto (other than expenses for items
of a personal nature) shall be reimbursed by the Company (to the extent not
absorbed by the cruise line) in a manner consistent with the past practices of
the Company.
2. COMPENSATION.
For all services rendered by Employee, the Company shall compensate
Employee as follows:
(a) BASE SALARY. The base salary payable hereunder to Employee plus the
base salary payable to Robert Falcone under that certain Employment Agreement of
even date herewith by and among the Company, TSI and Robert Falcone shall equal
$238,000.00 per year, such salary to be divided between Employee and Robert
Falcone as shall be designated in writing to the Company by Employee and Robert
Falcone (and if no such designation is made to the Company, such salary shall be
divided equally between Employee and Robert Falcone). The base salary payable
hereunder to Employee shall be payable on a regular basis in accordance with the
Company's standard payroll procedures but not less than monthly. On at least an
annual basis, the Board will review Employee's performance and may make
increases to such base salary if, in its discretion, any such increase is
warranted. Such recommended increase would require approval by the Board or a
duly constituted committee thereof.
(b) INCENTIVE BONUS PLAN. For 1997 and subsequent years, it is the
Company's intent to develop a written Incentive Bonus Plan (which may be TSI's
Incentive Bonus Plan) setting forth the criteria under which Employee and other
officers and key employees will be eligible to receive year-end bonus awards.
(c) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that the Company or
TSI may have in effect from time to time, benefits provided to Employee
under this clause (i) to be at least equal to such benefits provided to
TSI executives.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board, including the use of one luxury vehicle consistent with
the Company's past practice (which practice has been to provide a new
vehicle under a lease every two years) and participation in all other
Company-wide or TSI-wide employee benefits as available from time to
time. Employee shall be entitled to four weeks of vacation per year.
2
<PAGE>
3. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
the Company, and for a period of two (2) years immediately following the
termination of Employee's employment under this Agreement, for any reason
whatsoever, directly or indirectly, for herself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any travel service business in direct competition
with the Company or TSI or any subsidiary of either the Company or TSI,
within the United States or within 100 miles of any other geographic
area in which the Company or TSI or any of the Company's or TSI's
subsidiaries conducts business, including any territory serviced by the
Company or TSI or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or TSI (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
the Company or TSI (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company or TSI (including the respective subsidiaries thereof)
within the Territory for the purpose of soliciting or selling products
or services in direct competition with the Company or TSI or any
subsidiary of the Company or TSI within the Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by the Company or TSI (including the respective subsidiaries
thereof) or for which the Company or TSI made an acquisition analysis,
for the purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company and TSI as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to the Company and
TSI for which they would have no other adequate remedy, Employee agrees that the
foregoing covenant may be enforced by TSI or the Company in the event of breach
by her, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company or TSI (including TSI's other subsidiaries) on the
date of the execution of this Agreement and the current plans of TSI (including
TSI's other subsidiaries); but it is also the intent of the Company and Employee
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of the Company and TSI (including TSI's other
subsidiaries) throughout the term of this Agreement, whether before or after the
date of termination of the employment of Employee. For example, if, during
3
<PAGE>
the term of this Agreement, the Company, or TSI (including TSI's other
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or TSI (including
TSI's other subsidiaries), or similar activities, or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company or TSI (including TSI's other subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time, or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
TSI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by TSI or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE.
(a) Employee understands that she may be requested by the Board or TSI
to relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will pay all relocation costs to move Employee, Employee's immediate family, and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use Employee's best efforts to incur only those
costs which are reasonable and necessary to effect a smooth, efficient and
orderly relocation with minimal disruption to the business affairs of the
Company and the personal life of Employee and Employee's family.
4
<PAGE>
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for five (5) years (the "Term"), and, unless terminated sooner as herein
provided, shall continue thereafter on a year-to-year basis on the same terms
and conditions contained herein in effect as of the time of renewal. This
Agreement and Employee's employment may be terminated in any one of the
followings ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's full-time
duties hereunder for four (4) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
four (4) month period, but which shall not be effective earlier than the last
day of such four (4) month period), the Company may terminate Employee's
employment hereunder provided Employee is unable to resume Employee's full-time
duties at the conclusion of such notice period. Also, Employee may terminate
Employee's employment hereunder if her health should become impaired to an
extent that makes the continued performance of Employee's duties hereunder
hazardous to Employee's physical or mental health or life, provided that
Employee shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that, at the Company's
request made within thirty (30) days of the date of such written statement,
Employee shall submit to an examination by a doctor selected by the Company who
is reasonably acceptable to Employee or Employee's doctor and such doctor shall
have concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated as a result of Employee's disability, Employee shall
receive from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect for
whatever time period is remaining under the Term of this Agreement or for one
(1) year, whichever amount is greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud or misconduct with respect to the business or affairs
of the Company or TSI which materially and adversely affects the operations or
reputation of the Company or TSI; (4) Employee's conviction of a felony crime;
or (5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of
a termination for good cause, as enumerated above, Employee shall have no right
to any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least two-thirds of the members of
the Board of Directors of TSI. Should Employee be terminated by the Company
without cause during the Term, Employee shall be entitled to receive from the
Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is
5
<PAGE>
remaining under the Term of this Agreement or for one (1) year, whichever amount
is greater, and, in the event that Employee accepts such lump sum payment, the
period set forth in paragraph 3(a) and during which the terms of paragraph 3
apply shall be shortened to one (1) year from the date of termination of
employment. Should Employee be terminated by the Company without cause at any
time after the Term, Employee shall be entitled to receive from the Company, in
a lump-sum payment due on the effective date of termination, the base salary
rate then in effect equivalent to one (1) year of salary, and, in the event that
Employee accepts such lump sum payment, the period set forth in paragraph 3(a)
and during which the terms of paragraph 3 apply shall be shortened to one (1)
year from the date of termination of employment. Should Employee be terminated
by the Company without cause at any time during or after the Term, Employee
shall be entitled to waive Employee's right to receive severance compensation
(by a written waiver delivered to the Company on the effective date of
termination), and, in such case, the noncompetition provisions of paragraph 3
shall not apply. If Employee resigns or otherwise terminates Employee's
employment without cause pursuant to this paragraph 5(d), Employee shall receive
no severance compensation. A termination without cause within the meaning of
this paragraph 5(d) shall be deemed to have occurred if any person or entity,
other than TSI or an employee benefit plan of TSI, acquires directly or
indirectly the Beneficial Ownership (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended) of any voting security of the
Company or TSI and immediately after such acquisition such person or entity is,
directly or indirectly, the Beneficial Owner of voting securities representing
50% or more of the total voting power of all of the then-outstanding voting
securities of the Company or TSI and the transaction pursuant to which such
acquisition is made is approved by at least two-thirds (2/3) of the Board of
Directors of TSI but is not approved by Robert G. Falcone.
(e) CHANGE IN CONTROL OF TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 12 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination, including any
benefits accrued under the Incentive Bonus Plan but not yet paid. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 12 hereof. All other rights and obligations of TSI, the Company, and
Employee under this Agreement shall cease as of the effective date of
termination, except that the Company's obligations under paragraph 9 hereof and
Employee's obligations under paragraphs 3, 6, 7, 8 and 10 hereof shall survive
such termination in accordance with their terms.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 16 below, the Company shall pay all amounts and damages
to which Employee may be entitled as a result of such breach, including interest
thereon and all reasonable legal fees and expenses and other costs incurred by
Employee to enforce Employee's rights hereunder. Further, none of the provisions
of paragraph 3 hereof shall apply in the event this Agreement is terminated as a
result of a breach by the Company.
6
<PAGE>
6. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists, and other property delivered to or compiled by
Employee by or on behalf of the Company, TSI, or their representatives, vendors,
or customers which pertain to the business of the Company or TSI shall be and
remain the property of the Company or TSI, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials, and other similar data
pertaining to the business, activities, or future plans of the Company or TSI
which is collected by Employee shall be delivered promptly to the Company
without request by it upon termination of Employee's employment.
7. INVENTIONS.
Employee shall disclose promptly to TSI and the Company any and all
significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment, and which are
directly related to the business or activities of the Company or TSI and which
Employee conceives as a result of Employee's employment by the Company. Employee
hereby assigns and agrees to assign all of Employee's interests therein to the
Company or its nominee. Whenever requested to do so by the Company, Employee
shall execute any and all applications, assignments, or other instruments that
the Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
8. TRADE SECRETS.
Employee agrees that he or she will not, during or after the Term of
this Agreement with the Company, disclose the confidential terms of the
Company's or TSI's relationships or agreements with their respective significant
vendors or customers or any other significant and material trade secret of the
Company or TSI, whether in existence or proposed, to any person, firm,
partnership, corporation, or business for any reason or purpose whatsoever.
9. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by the Company or TSI against Employee),
by reason of the fact that Employee is or was performing services under this
Agreement, then the Company shall indemnify Employee against all expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement,
as actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company or TSI agrees to
engage competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by TSI shall have a conflict
of interest that prevents such counsel from representing Employee, Employee may
engage separate counsel and the Company or TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge his or her duties under this
Agreement, Employee cannot be held liable to the Company or TSI for errors or
omissions made in good faith where Employee has not exhibited gross, willful,
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company.
7
<PAGE>
10. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to the Company that the
execution of this Agreement by Employee and his or her employment by the Company
and the performance of Employee's duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including but not limited to attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any noncompetition
agreement, invention, or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT.
Employee understands that he or she has been selected for employment by
the Company on the basis of Employee's personal qualifications, experience, and
skills. Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 12 below, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective heirs, legal representatives, successors, and assigns.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Term, then the provisions of this paragraph 12 shall be
applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby required to
perform, then such Change in Control shall be deemed to be a termination of this
Agreement by the Company without cause during the Term and the applicable
portions of paragraph 5(d) will apply; however, under such circumstances, the
amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(d) and the noncompetition
provisions of paragraph 3 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to the Company at least five (5)
business days prior to the anticipated closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of paragraph 5(d)
will apply as though the Company had terminated the Agreement without cause
during the Term; however, under such circumstances, the amount of the lump-sum
severance payment due to Employee shall be double the amount calculated under
the terms of paragraph 5(d) and the noncompetition provisions of paragraph 3
shall all apply for a period of two (2) years from the effective date of
termination. Employee shall have the right to waive Employee's right to receive
the severance compensation payable under this paragraph 12(c) (by a written
waiver delivered to the Company on the effective date of the termination), in
which case the noncompetition provisions of paragraph 3 shall not apply.
8
<PAGE>
(d) For purposes of applying paragraph 5 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements, and lump-sum payments due Employee, unless waived,
must be paid in full by the Company at or prior to such closing. Further,
Employee will be given sufficient time and opportunity to elect whether to
exercise all or any of Employee's vested options to purchase TSI Common Stock,
including any options with accelerated vesting under the provisions of TSI's
1997 Long-Term Incentive Plan, such that Employee may convert the options to
shares of TSI Common Stock at or prior to the closing of the transaction giving
rise to the Change in Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than TSI or an employee
benefit plan of TSI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of the Company or TSI and
immediately after such acquisition such person or entity is, directly
or indirectly, the Beneficial Owner of voting securities representing
50% or more of the total voting power of all of the then-outstanding
voting securities of the Company or TSI unless the transaction pursuant
to which such acquisition is made is approved by at least two-thirds
(2/3) of the Board of Directors of TSI;
(ii) the following individuals no longer constitute a majority
of the members of the Board of Directors of TSI: (A) the individuals
who, as of the closing date of TSI's initial public offering,
constitute the Board of Directors of TSI (the "Original Directors");
(B) the individuals who thereafter are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI was approved by a vote of at least two-thirds
(2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI 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 TSI shall approve a merger,
consolidation, recapitalization, or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by the Company at any time
that the Company or any member of its Board anticipates that a Change in Control
may take place.
9
<PAGE>
(g) Employee shall be reimbursed by the Company or its successor for
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of Employee's
tax return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, among the
Company, TSI, and Employee, and Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement.
This written Agreement is the final, complete, and exclusive statement
and expression of the agreement between the Company and Employee and of all the
terms of this Agreement, and it cannot be varied, contradicted, or supplemented
by evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of the Company and Employee, and no term of
this Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
14. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To the Company: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: c/o Cruises, Inc.
5000 Campus Wood Drive
Syracuse, NY 13057
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define, or limit the extent or intent of the Agreement or of any part hereof.
16. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Washington,
10
<PAGE>
D.C., in accordance with the rules of the American Arbitration Association then
in effect. The arbitrators shall not have the authority to add to, detract from,
or modify any provision hereof nor to award punitive damages to any injured
party. The arbitrators shall have the authority to order back-pay, severance
compensation, vesting of options (or cash compensation in lieu of vesting of
options), reimbursement of costs, including those incurred to enforce this
Agreement, and interest thereon in the event the arbitrators determine that
Employee was terminated without disability or good cause, as defined in
paragraphs 5(b) and 5(c) hereof, respectively, or that the Company has otherwise
materially breached this Agreement. A decision by a majority of the arbitration
panel shall be final and binding. Judgment may be entered on the arbitrators'
award in any court having jurisdiction. The direct expense of any arbitration
proceeding shall be borne by the Company.
17. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware.
18. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Cruises, Inc.
By: ____________________________
Name:__________________________
Title:___________________________
Travel Services International, Inc.,
a Delaware corporation
By:____________________________
Name:_________________________
Title: __________________________
-------------------------------
Judith Falcone
12
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and among Travel
Services International, Inc., a Delaware corporation ("TSI"), Cruises, Inc., a
New York corporation and a wholly-owned subsidiary of TSI (the "Company"), and
Holley Christen ("Employee"), is hereby entered into as of this ____ day of
______, 1997, and shall be effective as of the date of the consummation of the
initial public offering of the common stock of TSI.
R E C I T A L S
A. As of the date of this Agreement, the Company is engaged primarily in
the business of providing travel services.
B. Employee is employed hereunder by the Company in a confidential
relationship wherein Employee, in the course of Employee's employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and TSI's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and TSI, and future plans with respect thereto, all of which has been and will
be established and maintained at great expense to the Company and TSI; this
information is a trade secret and constitutes the valuable good will of the
Company and TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as Chief Financial Officer of
the Company. As such, Employee shall have responsibilities, duties and authority
reasonably accorded to and expected of a Chief Financial Officer of the Company
and will report directly to the President of the Company. Employee hereby
accepts this employment upon the terms and conditions herein contained and,
subject to paragraph 1(c) hereof, agrees to devote Employee's time, attention
and efforts to promote and further the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board of Directors of the Company (the "Board").
(c) Employee shall not, during the term of her employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 3 hereof.
<PAGE>
2. COMPENSATION.
For all services rendered by Employee, the Company shall compensate
Employee as follows:
(a) BASE SALARY. The base salary payable to Employee shall be $47,120
per year, payable on a regular basis in accordance with the Company's standard
payroll procedures but not less than monthly. On at least an annual basis, the
Board or the President will review Employee's performance and may make increases
to such base salary if, in its discretion, any such increase is warranted.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(ii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board or the President and participation in all other
Company-wide or TSI-wide employee benefits as available from time to
time.
3. [INTENTIONALLY DELETED]
4. PLACE OF PERFORMANCE.
(a) Employee understands that she may be requested by the Board or TSI
to relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will pay all relocation costs to move Employee, Employee's immediate family, and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use Employee's best efforts to incur only those
costs which are reasonable and necessary to effect a smooth, efficient, and
orderly relocation with minimal disruption to the business affairs of the
Company and the personal life of Employee and Employee's family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for one (1) year (the "Term"), unless terminated sooner as herein provided. This
Agreement and Employee's employment may be terminated prior to the end of such
Term in any one of the followings ways:
2
<PAGE>
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's full-time
duties hereunder for four (4) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
four (4) month period, but which shall not be effective earlier than the last
day of such four (4) month period), the Company may terminate Employee's
employment hereunder provided Employee is unable to resume Employee's full-time
duties at the conclusion of such notice period. Also, Employee may terminate
Employee's employment hereunder if her health should become impaired to an
extent that makes the continued performance of Employee's duties hereunder
hazardous to Employee's physical or mental health or life, provided that
Employee shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that, at the Company's
request made within thirty (30) days of the date of such written statement,
Employee shall submit to an examination by a doctor selected by the Company who
is reasonably acceptable to Employee or Employee's doctor and such doctor shall
have concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated as a result of Employee's disability, Employee shall
receive from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect for
whatever time period is remaining under the Term of this Agreement or for one
(1) year, whichever amount is greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material, and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure) of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud, or misconduct with respect to the business or affairs
of the Company or TSI which materially and adversely affects the operations or
reputation of the Company or TSI; (4) Employee's conviction of a felony crime;
or (5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of
a termination for good cause, as enumerated above, Employee shall have no right
to any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Should Employee be terminated by the Company without cause during the Term,
Employee shall receive from the Company, in a lump-sum payment due on the
effective date of termination, the base salary at the rate then in effect for
whatever time period is remaining under the Term of this Agreement or for one
(1) year, whichever amount is greater. Any termination without cause by the
Company shall operate to shorten the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. If Employee resigns or otherwise terminates
Employee's employment without cause pursuant to this paragraph 5(d), Employee
shall receive no severance compensation.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. All other
rights and obligations of TSI, the Company, and Employee under this Agreement
shall cease as of the effective date of termination, except that the Company's
obligations under paragraph 9 hereof and Employee's obligations under paragraphs
3, 6, 7, 8 and 10 hereof shall survive such termination in accordance with their
terms.
3
<PAGE>
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which she is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 15 below, the Company shall pay all amounts and damages
to which Employee may be entitled as a result of such breach, including interest
thereon and all reasonable legal fees and expenses and other costs incurred by
Employee to enforce Employee's rights hereunder. Further, none of the provisions
of paragraph 3 hereof shall apply in the event this Agreement is terminated as a
result of a breach by the Company.
6. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists and other property delivered to or compiled by
Employee by or on behalf of the Company, TSI, or their representatives, vendors
or customers which pertain to the business of the Company or TSI shall be and
remain the property of the Company or TSI, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or TSI
which is collected by Employee shall be delivered promptly to the Company
without request by it upon termination of Employee's employment.
7. INVENTIONS.
Employee shall disclose promptly to TSI and the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment, and which are
directly related to the business or activities of the Company or TSI and which
Employee conceives as a result of Employee's employment by the Company. Employee
hereby assigns and agrees to assign all of Employee's interests therein to the
Company or its nominee. Whenever requested to do so by the Company, Employee
shall execute any and all applications, assignments or other instruments that
the Company shall deem necessary to apply for and obtain Letters Patent of the
United States or any foreign country or to otherwise protect the Company's
interest therein.
8. TRADE SECRETS.
Employee agrees that she will not, during or after the Term of this
Agreement with the Company, disclose the confidential terms of the Company's or
TSI's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
TSI, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever.
4
<PAGE>
9. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by the Company or TSI against Employee), by
reason of the fact that Employee is or was performing services under this
Agreement, then the Company shall indemnify Employee against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company or TSI agrees to
engage competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by TSI shall have a conflict
of interest that prevents such counsel from representing Employee, Employee may
engage separate counsel and the Company or TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge her duties under this Agreement,
Employee cannot be held liable to the Company or TSI for errors or omissions
made in good faith where Employee has not exhibited gross, willful and wanton
negligence and misconduct or performed criminal and fraudulent acts which
materially damage the business of the Company.
10. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to the Company that the
execution of this Agreement by Employee and her employment by the Company and
the performance of Employee's duties hereunder will not violate or be a breach
of any agreement with a former employer, client or any other person or entity.
Further, Employee agrees to indemnify the Company for any claim, including but
not limited to attorneys' fees and expenses of investigation, by any such third
party that such third party may now have or may hereafter come to have against
the Company based upon or arising out of any noncompetition agreement, invention
or secrecy agreement between Employee and such third party which was in
existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT.
Employee understands that she has been selected for employment by the
Company on the basis of Employee's personal qualifications, experience and
skills. Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2), this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives, successors
and assigns.
12. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, among the
Company, TSI and Employee, and Employee has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement.
5
<PAGE>
This written Agreement is the final, complete and exclusive statement
and expression of the agreement between the Company and Employee and of all the
terms of this Agreement, and it cannot be varied, contradicted or supplemented
by evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of the Company and Employee, and no term of
this Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
13. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To the Company: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: Cruises, Inc.
5000 Campus Wood Drive
Syracuse, NY 13057
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
15. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Washington, D.C., in accordance with
the rules of the American Arbitration Association then in effect. The
arbitrators shall not have the authority to add to, detract from or modify any
provision hereof nor to award punitive damages to any injured party. The
arbitrators shall have the authority to order back-pay, severance compensation,
vesting of options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this Agreement, and
interest thereon in the event the arbitrators determine that Employee was
terminated without disability or good cause, as defined in paragraphs 5(b) and
5(c) hereof, respectively, or that the Company has otherwise materially breached
this Agreement. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company.
16. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware.
6
<PAGE>
17. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
[The next page is the signature page.]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Cruises, Inc.
By: ____________________________
Name:__________________________
Title:___________________________
Travel Services International, Inc.,
a Delaware corporation
By:____________________________
Name:_________________________
Title: __________________________
-------------------------------
Holley Christen, Individually
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), by and among TRAVEL
SERVICES INTERNATIONAL, INC., a Delaware corporation ("TSI"), CRUISES ONLY, LLC,
a Delaware limited liability company and a wholly-owned subsidiary of TSI (the
"Company"), and WAYNE HELLER ("Employee"), is hereby entered into as of this
____ day of ______, 1997, and shall be effective as of the date of the
consummation of the initial public offering of the common stock of TSI.
R E C I T A L S
A. As of the date of this Agreement, the Company is engaged primarily in the
business of providing travel services.
B. Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of Employee's employment with the Company, has
and will continue to become familiar with and aware of information as to the
Company's and TSI's customers, specific manner of doing business, including the
processes, techniques and trade secrets utilized by the Company and TSI, and
future plans with respect thereto, all of which has been and will be established
and maintained at great expense to the Company and TSI; this information is a
trade secret and constitutes the valuable good will of the Company and TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as Chairman and Chief Executive
Officer of the Company. As such, Employee shall have responsibilities, duties
and authority reasonably accorded to and expected of a Chairman and Chief
Executive Officer of the Company and will report directly to the Board of
Directors of the Company (the "Board"), all in accordance with instructions and
authorizations from the Board. Employee hereby accepts this employment upon the
terms and conditions herein contained and, subject to paragraph 1(c) hereof,
agrees to devote 70% of time, attention and efforts devoted by Employee to work
to promote and further the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board.
(c) During the term of his employment hereunder, Employee may spend up
to 30% of the time Employee devotes to work to any other business activity which
he may pursue for gain, profit or other pecuniary advantage, provided that such
activity does not interfere with Employee's duties and responsibilities
hereunder. The foregoing limitations shall not be construed as prohibiting
Employee from making personal investments in such form or manner as will neither
require Employee's services in
<PAGE>
the operation or affairs of the companies or enterprises in which such
investments are made nor violate the terms of paragraph 3 hereof.
2. COMPENSATION.
For all services rendered by Employee, the Company shall compensate
Employee as follows:
(a) Base Salary. The base salary payable hereunder to Employee shall be
$125,000 per year. The base salary payable hereunder to Employee shall be
payable on a regular basis in accordance with the Company's standard payroll
procedures but not less than monthly. If Judy Heller shall cease to be employed
by the Company, the base salary payable hereunder to Employee shall be increased
to $150,000 per year. On at least an annual basis, the Board will review
Employee's performance and may make increases to such base salary if, in its
discretion, any such increase is warranted. Such recommended increase would
require approval by the Board or a duly constituted committee thereof.
(b) Incentive Bonus Plan. For 1997 and subsequent years, it is the
Company's intent to develop a written Incentive Bonus Plan (which may be TSI's
Incentive Bonus Plan) setting forth the criteria under which Employee and other
officers and key employees will be eligible to receive year-end bonus awards,
subject to Board approval.
(c) Executive Perquisites, Benefits, and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that the Company or
TSI may have in effect from time to time, which coverage shall be
sufficient to cover procedures and hospitalizations to Florida Hospital
and treatment by the Florida Heart Group at levels consistent with the
levels received by Employee as President of Cruises Only, Inc. prior to
this date, all such benefits provided to Employee under this clause (i)
to be at least equal to such benefits provided to TSI executives and
subject to the Board's discretion with respect to such plans. Any such
life insurance under these plans shall provide $1 million of coverage
with AD&D for Employee. If this Agreement is terminated and thereafter
Employee remains a member of the Board of Directors of TSI, TSI shall
make available high quality health care and accident insurance for
Employee and his immediate family for so long as Employee is a member
of the Board of Directors of TSI.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board, including (A) membership fees for Employee's American
Express, VISA and Master Charge Platinum Cards, (B) all reasonable
charges in connection with Employee's cellular telephone service
(except that Employee shall be responsible for all personal charges in
connection with such telephone service in excess of $37.50 per month),
(C) upgrades of all computers used by Employee in connection
2
<PAGE>
with the business of the Company, (D) the 5th Floor office currently
being used by Employee in the Company's building as long as Employee is
employed by the Company, (E) first class business travel, provided that
Employee uses his best efforts to obtain discounted prices through TSI,
(F) four weeks vacation per year, (G) contributions to Employee's
401(k) plan at a level equal to the contributions made for all other
employees of the Company and (H) being listed on TSI's ARC list for
purposes of travel and travel discounts, (I) being an authorized user
on the Company's Citrus Club membership, (J) being eligible to
participate in any car allowance program developed by TSI for its
senior executives and (K) participation in all other Company-wide or
TSI-wide employee benefits as available from time to time.
3. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
the Company, and for a period of two (2) years immediately following the
termination of Employee's employment under this Agreement, for any reason
whatsoever, directly or indirectly, for himself 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 the same or similar business as the Company prior to
the Effective Date in direct competition with the Company or TSI or any
subsidiary of either the Company or TSI, within the United States of
America (the "Territory"), provided, however, that Employee shall have
the right to be an investor in any entity engaged in the cruise line
business, and provided further, however, that after the termination or
expiration of Employee's employment hereunder, Employee may engage as
an employee of a cruise line business so long as (A) Employee is not
employed to sell cruise reservations for such cruise line business and
(B) any trade services or products (e.g., software programs) developed
in whole or part by Employee while in the employ of such cruise line
business are offered to the Company on a preferential basis;
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or TSI (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
the Company or TSI (including the respective subsidiaries thereof),
provided that Employee shall be permitted to call upon and hire any
member of his immediate family;
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company or TSI (including the respective subsidiaries thereof)
within the Territory for the purpose of soliciting or selling products
or services in direct competition with the Company or TSI or any
subsidiary of the Company or TSI within the Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by the Company or TSI (including the respective subsidiaries
thereof) or for which the Company or TSI made an acquisition analysis,
for the purpose of acquiring such entity.
3
<PAGE>
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company and TSI as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to the Company and
TSI for which they would have no other adequate remedy, Employee agrees that the
foregoing covenant may be enforced by TSI or the Company in the event of breach
by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company or TSI (including TSI's other subsidiaries) on the
date of the execution of this Agreement and the current plans of TSI (including
TSI's other subsidiaries); but it is also the intent of the Company and Employee
that such covenants be construed and enforced in accordance with the changing
activities, business and locations of the Company and TSI (including TSI's other
subsidiaries) throughout the term of this Agreement, whether before or after the
date of termination of the employment of Employee. For example, if, during the
term of this Agreement, the Company or TSI (including TSI's other subsidiaries)
engages in new and different activities, enters a new business or establishes
new locations for its current activities or business in addition to or other
than the activities or business enumerated under the Recitals above or the
locations currently established therefor, then Employee will be precluded from
soliciting the customers or employees of such new activities or business or from
such new location and from directly competing with such new business within 100
miles of its then-established operating location(s) through the term of this
Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or TSI (including
TSI's other subsidiaries), or similar activities, or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of employee's obligations under this
paragraph 3, if any, Employee shall not be chargeable with a violation of this
paragraph 3 if the Company or TSI (including TSI's other subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
TSI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by TSI or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4
<PAGE>
4. PLACE OF PERFORMANCE.
(a) Employee understands that he may be requested by the Board or TSI
to relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will pay all relocation costs to move Employee, Employee's immediate family, and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use Employee's best efforts to incur only those
costs which are reasonable and necessary to effect a smooth, efficient and
orderly relocation with minimal disruption to the business affairs of the
Company and the personal life of Employee and Employee's family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for three (3) years (the "Term"), and, unless terminated sooner as herein
provided, shall continue thereafter on a year-to-year basis on the same terms
and conditions contained herein in effect as of the time of renewal. Either
party may request modification of this Agreement during any term by serving
written notice to the other party not less than sixty (60) days prior to the
expiration of any term; provided that neither party shall be obligated to agree
to any modification hereof, in which case this Agreement (unless terminated as
herein provided) shall continue unmodified. This Agreement and Employee's
employment may be terminated in any one of the followings ways:
(a) Death. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's duties
hereunder for six (6) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Employee's employment
hereunder provided Employee is unable to resume Employee's full-time duties at
the conclusion of such notice period. Also, Employee may terminate Employee's
employment hereunder if his health should become impaired to an extent that
makes the continued performance of Employee's duties hereunder hazardous to
Employee's physical or mental health or life, provided that Employee shall have
furnished the Company with a written statement from a qualified doctor to such
effect and provided, further, that, at the Company's request made within thirty
(30) days of the date of such written statement, Employee shall submit to an
examination by a doctor selected by the Company who is reasonably acceptable to
Employee or Employee's doctor and such doctor shall have concurred in the
conclusion of Employee's doctor. In the event this Agreement is terminated as a
result of Employee's disability, Employee shall receive from the Company, in a
lump-
5
<PAGE>
sum payment due within ten (10) days of the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Term of this Agreement or for one (1) year, whichever amount is
greater. Benefits, including insurance benefits, and pro rata bonuses shall
continue to be paid for such period.
(c) Good Cause. The Company may terminate the Agreement ten (10) days
after delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure) of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud or misconduct with respect to the business or affairs
of the Company or TSI which materially and adversely affects the operations or
reputation of the Company or TSI; (4) Employee's conviction of a felony crime;
or (5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of
a termination for good cause, as enumerated above, Employee shall have no right
to any severance compensation.
(d) Without Cause. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least two-thirds of the members of
the Board of Directors of TSI. Should Employee be terminated by the Company
without cause during the Term, Employee shall be entitled to receive from the
Company, in a lump-sum payment due on the effective date of termination, the
base salary applicable to Employee at the rate then in effect for whatever time
period is remaining under the Term of this Agreement or for one (1) year,
whichever amount is greater, and, in the event that Employee accepts such lump
sum payment, the period set forth in paragraph 3(a) and during which the terms
of paragraph 3 apply shall be shortened to one (1) year from the date of
termination of employment. Benefits, including insurance benefits, and pro rata
bonuses shall continue to be paid for such remaining or one-year period,
whichever is greater. Should Employee be terminated by the Company without cause
at any time after the Term, Employee shall be entitled to receive from the
Company, in a lump-sum payment due on the effective date of termination, the
base salary rate applicable to Employee then in effect equivalent to one (1)
year of salary, and, in the event that Employee accepts such lump sum payment,
the period set forth in paragraph 3(a) and during which the terms of paragraph 3
apply shall be shortened to one (1) year from the date of termination of
employment. Should Employee be terminated by the Company without cause at any
time during or after the Term, Employee shall be entitled to waive Employee's
right to receive severance compensation (by a written waiver delivered to the
Company on the effective date of termination), and, in such case, the
noncompetition provisions of paragraph 3 shall not apply. If Employee resigns or
otherwise terminates Employee's employment without cause pursuant to this
paragraph 5(d), Employee shall receive no severance compensation. A termination
without cause within the meaning of this paragraph 5(d) shall be deemed to have
occurred if any person or entity, other than TSI or an employee benefit plan of
TSI, acquires directly or indirectly the Beneficial Ownership (as defined in
Section 13(d) of the Securities Exchange Act of 1934, as amended) of any voting
security of the Company or TSI and immediately after such acquisition such
person or entity is, directly or indirectly, the Beneficial Owner of voting
securities representing 50% or more of the total voting power of all of the
then-outstanding voting securities of the Company or TSI and the transaction
pursuant to which such acquisition is made is approved by at least two-thirds
(2/3) of the Board of Directors of TSI but is not approved by Employee.
(e) Change in Control of TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 12 below.
6
<PAGE>
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation, benefits and pro rata bonuses subsequent to termination, if any,
will be due and payable to Employee only to the extent and in the manner
expressly provided above or in paragraph 12 hereof. All other rights and
obligations of TSI, the Company and Employee under this Agreement shall cease as
of the effective date of termination, except that the Company's obligations
under paragraph 9 hereof and Employee's obligations under paragraphs 3, 6, 7, 8
and 10 hereof shall survive such termination in accordance with their terms.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 16 below, the Company shall pay all amounts and damages
to which Employee may be entitled as a result of such breach, including interest
thereon and all reasonable legal fees and expenses and other costs incurred by
Employee to enforce Employee's rights hereunder. Further, none of the provisions
of paragraph 3 hereof shall apply in the event this Agreement is terminated as a
result of a breach by the Company.
6. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists and other property delivered to or compiled by
Employee by or on behalf of the Company, TSI or their representatives, vendors
or customers which pertain to the business of the Company or TSI shall be and
remain the property of the Company or TSI, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or TSI
which are collected by Employee shall be delivered promptly to the Company
without request by it upon termination of Employee's employment. Employee shall
have the opportunity to buy any equipment utilized by Employee at the time of
his termination at its depreciated value.
7. INVENTIONS.
Employee shall disclose promptly to TSI and the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company or TSI and which Employee conceives as a result of
Employee's employment by the Company. Employee hereby assigns and agrees to
assign all of Employee's interests therein to the Company or its nominee.
Whenever requested to do so by the Company, Employee shall execute any and all
applications, assignments or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
8. TRADE SECRETS.
Employee agrees that he will not, during or after the Term of this
Agreement with the Company, disclose the specific terms of the Company's or
TSI's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
TSI, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever.
7
<PAGE>
9. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by the Company or TSI against Employee), by
reason of the fact that Employee is or was performing services under this
Agreement, then the Company shall indemnify Employee against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company or TSI agrees to
engage competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by TSI shall have a conflict
of interest that prevents such counsel from representing Employee, Employee may
engage separate counsel and the Company or TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge his duties under this Agreement,
Employee cannot be held liable to the Company or TSI for errors or omissions
made in good faith where Employee has not exhibited gross, willful and wanton
negligence and misconduct or performed criminal and fraudulent acts which
materially damage the business of the Company.
10. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to the Company that the
execution of this Agreement by Employee and his employment by the Company and
the performance of Employee's duties hereunder will not violate or be a breach
of any agreement with a former employer, client or any other person or entity.
Further, Employee agrees to indemnify the Company for any claim, including but
not limited to attorneys' fees and expenses of investigation, by any such third
party that such third party may now have or may hereafter come to have against
the Company based upon or arising out of any noncompetition agreement, invention
or secrecy agreement between Employee and such third party which was in
existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT.
Employee understands that he has been selected for employment by the
Company on the basis of Employee's personal qualifications, experience, and
skills. Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 12 below, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective heirs, legal representatives and successors. The Company shall
not assign this Agreement without Employee's written consent, which consent may
be withheld by Employee.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Term, then the provisions of this paragraph 12 shall be
applicable.
8
<PAGE>
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby required to
perform, then such Change in Control shall be deemed to be a termination of this
Agreement by the Company without cause during the Term and the applicable
portions of paragraph 5(d) will apply; however, under such circumstances, the
amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(d) and the noncompetition
provisions of paragraph 3 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to the Company at least five (5)
business days prior to the anticipated closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of paragraph 5(d)
will apply as though the Company had terminated the Agreement without cause
during the Term; however, under such circumstances, the amount of the lump-sum
severance payment due to Employee shall be double the amount calculated under
the terms of paragraph 5(d) and the noncompetition provisions of paragraph 3
shall all apply for a period of two (2) years from the effective date of
termination. Employee shall have the right to waive Employee's right to receive
the severance compensation payable under this paragraph 12(c) (by a written
waiver delivered to the Company on the effective date of the termination), in
which case the noncompetition provisions of paragraph 3 shall not apply.
(d) For purposes of applying paragraph 5 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements, and lump-sum payments due Employee, unless waived,
must be paid in full by the Company at or prior to such closing. Further,
Employee will be given sufficient time and opportunity to elect whether to
exercise all or any of Employee's vested options to purchase TSI Common Stock,
including any options with accelerated vesting under the provisions of TSI's
1997 Long-Term Incentive Plan, such that Employee may convert the options to
shares of TSI Common Stock at or prior to the closing of the transaction giving
rise to the Change in Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than TSI or an employee
benefit plan of TSI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of the Company and
immediately after such acquisition such person or entity is, directly
or indirectly, the Beneficial Owner of voting securities representing
50% or more of the total voting power of all of the then-outstanding
voting securities of the Company, unless the transaction pursuant to
which such acquisition is made is approved by at least two-thirds (2/3)
of the Board of Directors of TSI;
(ii) the following individuals no longer constitute a majority
of the members of the Board of Directors of TSI: (A) the individuals
who, as of the closing date of TSI's initial public offering,
constitute the Board of Directors of TSI (the "Original Directors");
(B) the individuals who thereafter are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI was approved by a vote of at least two-thirds
(2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the
9
<PAGE>
Board of Directors of TSI and whose election, or nomination for
election, to the Board of Directors of TSI 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 TSI shall approve a merger,
consolidation, recapitalization, or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by the Company at any time
that the Company or any member of its Board anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by the Company or its successor for
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of Employee's
tax return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, among the
Company, TSI and Employee, and Employee has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement.
This written Agreement is the final, complete and exclusive statement
and expression of the agreement between the Company and Employee and of all the
terms of this Agreement, and it cannot be varied, contradicted or supplemented
by evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of the Company and Employee, and no term of
this Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
14. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To the Company: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, Maryland 20816
10
<PAGE>
To Employee: Wayne Heller
Cruises Only, LLC
1011 East Colonial Drive
Orlando, Florida 32083
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
16. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in the community where the corporate
headquarters of TSI is located, in accordance with the rules of the American
Arbitration Association then in effect. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraphs 5(b) and 5(c) hereof, respectively, or that the
Company has otherwise materially breached this Agreement. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by the Company.
17. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Florida.
18. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.,
a Delaware corporation
By:_________________________________
Name:_______________________________
Title: _____________________________
CRUISES ONLY, LLC
By: ________________________________
Wayne Heller
President
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), by and among TRAVEL
SERVICES INTERNATIONAL, INC., a Delaware corporation ("TSI"), CRUISES ONLY, LLC,
a Delaware limited liability company and a wholly-owned subsidiary of TSI (the
"Company"), and JUDY HELLER ("Employee"), is hereby entered into as of this ____
day of ______, 1997, and shall be effective as of the date of the consummation
of the initial public offering of the common stock of TSI.
R E C I T A L S
A. As of the date of this Agreement, the Company is engaged primarily in the
business of providing travel services.
B. Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of Employee's employment with the Company, has
and will continue to become familiar with and aware of information as to the
Company's and TSI's customers, specific manner of doing business, including the
processes, techniques and trade secrets utilized by the Company and TSI, and
future plans with respect thereto, all of which has been and will be established
and maintained at great expense to the Company and TSI; this information is a
trade secret and constitutes the valuable good will of the Company and TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as Vice Chairman and President
of the Company. As such, Employee shall have responsibilities, duties and
authority reasonably accorded to and expected of a Vice Chairman and President
of the Company and will report directly to the Chief Executive Officer of the
Company. Employee hereby accepts this employment upon the terms and conditions
herein contained and, subject to paragraph 1(c) hereof, agrees to devote 70% of
time, attention and efforts devoted by Employee to work to promote and further
the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board of Directors of the Company (the "Board").
(c) During the term of her employment hereunder, Employee may spend up
to 30% of the time Employee devotes to work to any other business activity which
she may pursue for gain, profit or other pecuniary advantage, provided that such
activity does not interfere with Employee's duties and responsibilities
hereunder. The foregoing limitations shall not be construed as prohibiting
Employee from making personal investments in such form or manner as will neither
require Employee's services in the operation or affairs of the companies or
enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
<PAGE>
2. COMPENSATION.
For all services rendered by Employee, the Company shall compensate
Employee as follows:
(a) Base Salary. The base salary payable hereunder to Employee shall be
$125,000 per year. The base salary payable hereunder to Employee shall be
payable on a regular basis in accordance with the Company's standard payroll
procedures but not less than monthly. If Wayne Heller shall cease to be employed
by the Company, the base salary payable hereunder to Employee shall be increased
to $150,000 per year. On at least an annual basis, the Board will review
Employee's performance and may make increases to such base salary if, in its
discretion, any such increase is warranted. Such recommended increase would
require approval by the Board or a duly constituted committee thereof.
(b) Incentive Bonus Plan. For 1997 and subsequent years, it is the
Company's intent to develop a written Incentive Bonus Plan (which may be TSI's
Incentive Bonus Plan) setting forth the criteria under which Employee and other
officers and key employees will be eligible to receive year-end bonus awards,
subject to Board approval.
(c) Executive Perquisites, Benefits, and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life and other insurance plans that the Company or
TSI may have in effect from time to time, which coverage shall be
sufficient to cover procedures and hospitalizations to Florida Hospital
and treatment by the Florida Heart Group at levels consistent with the
levels received by Employee as Vice President of Cruises Only, Inc.
prior to this date, all such benefits provided to Employee under this
clause (i) to be at least equal to such benefits provided to TSI
executives and subject to the Board's discretion with respect to such
plans. Any such life insurance under these plans shall provide $1
million of coverage with AD&D for Employee. If this Agreement is
terminated and thereafter Employee remains a member of the Board of
Directors of TSI, TSI shall make available high quality health care and
accident insurance for Employee and her immediate family for so long as
Employee is a member of the Board of Directors of TSI at TSI's expense.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board, including (A) membership fees for Employee's American
Express, VISA and Master Charge Platinum Cards, (B) all reasonable
charges in connection with Employee's cellular telephone service
(except that Employee and Wayne Heller, collectively, shall be
responsible for all personal charges in connection with such telephone
service in excess of $75 per month), (C) upgrades of all computers used
by Employee in connection with the business of the Company, (D) the 5th
Floor office currently being used by Employee in the Company's building
as long as Employee is
2
<PAGE>
employed by the Company, (E) first class business travel, provided that
Employee uses her best efforts to obtain discounted prices through TSI,
(F) four weeks vacation per year, (G) contributions to Employee's
401(k) plan at a level equal to the contributions made for all other
employees of the Company and (H) being listed on TSI's ARC list for
purposes of travel and travel discounts, (I) being an authorized user
on the Company's Citrus Club membership, (J) being eligible to
participate in any car allowance program developed by TSI for its
senior executives and (K) participation in all other Company-wide or
TSI-wide employee benefits as available from time to time.
3. NON-COMPETITION.
(a) Provided that TSI shall have complied with and performed all of its
obligations under the Agreement and Plan of Organization, dated as of May 9,
1997, among the Company, TSI and the Stockholders named therein and that the
Company shall have received payment in full of the consideration described in
Section 3 thereof, Employee shall not, during the period of Employee's
employment with the Company, and for a period of two (2) years immediately
following the termination of Employee's employment under this Agreement, for any
reason whatsoever, directly or indirectly, for herself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in the same or similar business of the Company on the
Effective Date in direct competition with TSI 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 TSI (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 TSI
(including the subsidiaries thereof), provided that Employee shall be
permitted to call upon and hire any member of her immediate family;
(iii) call upon any person or entity which is at that time, or
which has been, within one (1) year prior to the Effective Date, a
customer of TSI (including the subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services
in direct competition with TSI or any subsidiary of TSI within the
Territory in the same or similar business of the Company on the
Effective Date; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor in the travel
services business, which candidate, to the actual knowledge of Employee
after due inquiry, was called upon by TSI (including the subsidiaries
thereof) or for which, to the actual knowledge of Employee after due
inquiry, TSI (or any subsidiary thereof) made an acquisition analysis,
for the purpose of acquiring such entity.
v) disclose customers, whether in existence or proposed, of
the Company 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.
3
<PAGE>
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to TSI as a
result of a breach of the foregoing covenant, and because of the immediate and
irreparable damage that could be caused to TSI for which it would have no other
adequate remedy, Employee agrees that the foregoing covenant may be enforced by
TSI in the event of breach by Employee, by injunctions and restraining orders.
(c) It is agreed by the parties hereto that the foregoing covenants in
this paragraph 3 impose a reasonable restraint on Employee in light of the
activities and business of TSI (including the subsidiaries thereof) on the date
of the execution of this Agreement and the current plans of TSI.
(d) The covenants in this paragraph 3 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.
(e) It is specifically agreed that the period of two (2) years stated
at the beginning of this paragraph 3, during which the agreements and covenants
of Employee made in this paragraph 3 shall be effective, shall be computed by
excluding from such computation any time during which Employee is in violation
of any provision of this paragraph 3. The covenants contained in this paragraph
3 shall have no effect if the transactions contemplated by the Agreement and
Plan of Organization referenced above are not consummated nor may such covenants
be enforced by any party to this Agreement that is in breach of its obligations
hereunder.
(f) The parties hereto hereby agree that the covenants in this
paragraph 3 are a material and substantial part of this Agreement.
4. PLACE OF PERFORMANCE.
(a) Employee understands that she may be requested by the Board or TSI
to relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will pay all relocation costs to move Employee, Employee's immediate family, and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use Employee's best efforts to incur only those
costs which are reasonable and necessary to effect a smooth, efficient and
orderly relocation with minimal disruption to the business affairs of the
Company and the personal life of Employee and Employee's family.
4
<PAGE>
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for three (3) years (the "Term"), and, unless terminated sooner as herein
provided, shall continue thereafter on a year-to-year basis on the same terms
and conditions contained herein in effect as of the time of renewal. Either
party may request modification of this Agreement during any term by serving
written notice to the other party not less than sixty (60) days prior to the
expiration of any term; provided that neither party shall be obligated to agree
to any modification hereof, in which case this Agreement (unless terminated as
herein provided) shall continue unmodified. This Agreement and Employee's
employment may be terminated in any one of the followings ways:
(a) Death. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's duties
hereunder for six (6) consecutive months, then thirty (30) days after receiving
written notice (which notice may occur before or after the end of such four (4)
month period, but which shall not be effective earlier than the last day of such
four (4) month period), the Company may terminate Employee's employment
hereunder provided Employee is unable to resume Employee's full-time duties at
the conclusion of such notice period. Also, Employee may terminate Employee's
employment hereunder if her health should become impaired to an extent that
makes the continued performance of Employee's duties hereunder hazardous to
Employee's physical or mental health or life, provided that Employee shall have
furnished the Company with a written statement from a qualified doctor to such
effect and provided, further, that, at the Company's request made within thirty
(30) days of the date of such written statement, Employee shall submit to an
examination by a doctor selected by the Company who is reasonably acceptable to
Employee or Employee's doctor and such doctor shall have concurred in the
conclusion of Employee's doctor. In the event this Agreement is terminated as a
result of Employee's disability, Employee shall receive from the Company, in a
lump-sum payment due within ten (10) days of the effective date of termination,
the base salary at the rate then in effect for whatever time period is remaining
under the Term of this Agreement or for one (1) year, whichever amount is
greater. Benefits, including insurance benefits, and pro rata bonuses shall
continue to be paid for such period.
(c) Good Cause. The Company may terminate the Agreement ten (10) days
after delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure) of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud or misconduct with respect to the business or affairs
of the Company or TSI which materially and adversely affects the operations or
reputation of the Company or TSI; (4) Employee's conviction of a felony crime;
or (5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of
a termination for good cause, as enumerated above, Employee shall have no right
to any severance compensation.
5
<PAGE>
(d) Without Cause. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least two-thirds of the members of
the Board of Directors of TSI. Should Employee be terminated by the Company
without cause during the Term, Employee shall be entitled to receive from the
Company, in a lump-sum payment due on the effective date of termination, the
base salary applicable to Employee at the rate then in effect for whatever time
period is remaining under the Term of this Agreement or for one (1) year,
whichever amount is greater, and, in the event that Employee accepts such lump
sum payment, the period set forth in paragraph 3(a) and during which the terms
of paragraph 3 apply shall be shortened to one (1) year from the date of
termination of employment. Benefits, including insurance benefits, and pro rata
bonuses shall continue to be paid for such remaining or one-year period,
whichever is greater. Should Employee be terminated by the Company without cause
at any time after the Term, Employee shall be entitled to receive from the
Company, in a lump-sum payment due on the effective date of termination, the
base salary rate applicable to Employee then in effect equivalent to one (1)
year of salary, and, in the event that Employee accepts such lump sum payment,
the period set forth in paragraph 3(a) and during which the terms of paragraph 3
apply shall be shortened to one (1) year from the date of termination of
employment. Should Employee be terminated by the Company without cause at any
time during or after the Term, Employee shall be entitled to waive Employee's
right to receive severance compensation (by a written waiver delivered to the
Company on the effective date of termination), and, in such case, the
noncompetition provisions of paragraph 3 shall not apply. If Employee resigns or
otherwise terminates Employee's employment without cause pursuant to this
paragraph 5(d), Employee shall receive no severance compensation. A termination
without cause within the meaning of this paragraph 5(d) shall be deemed to have
occurred if any person or entity, other than TSI or an employee benefit plan of
TSI, acquires directly or indirectly the Beneficial Ownership (as defined in
Section 13(d) of the Securities Exchange Act of 1934, as amended) of any voting
security of the Company or TSI and immediately after such acquisition such
person or entity is, directly or indirectly, the Beneficial Owner of voting
securities representing 50% or more of the total voting power of all of the
then-outstanding voting securities of the Company or TSI and the transaction
pursuant to which such acquisition is made is approved by at least two-thirds
(2/3) of the Board of Directors of TSI but is not approved by Employee.
(e) Change in Control of TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 12 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation, benefits and pro rata bonuses subsequent to termination, if any,
will be due and payable to Employee only to the extent and in the manner
expressly provided above or in paragraph 12 hereof. All other rights and
obligations of TSI, the Company and Employee under this Agreement shall cease as
of the effective date of termination, except that the Company's obligations
under paragraph 9 hereof and Employee's obligations under paragraphs 3, 6, 7, 8
and 10 hereof shall survive such termination in accordance with their terms.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which she is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 16 below, the Company shall pay all amounts and damages
to which Employee may be entitled as a result of such breach, including interest
thereon and all reasonable legal fees and expenses and other costs incurred by
Employee to enforce Employee's rights hereunder.
6
<PAGE>
Further, none of the provisions of paragraph 3 hereof shall apply in the event
this Agreement is terminated as a result of a breach by the Company.
6. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists and other property delivered to or compiled by
Employee by or on behalf of the Company, TSI or their representatives, vendors
or customers which pertain to the business of the Company or TSI shall be and
remain the property of the Company or TSI, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials and other similar data
pertaining to the business, activities or future plans of the Company or TSI
which are collected by Employee shall be delivered promptly to the Company
without request by it upon termination of Employee's employment. Employee shall
have the opportunity to buy any equipment utilized by Employee at the time of
her termination at its depreciated value.
7. INVENTIONS.
Employee shall disclose promptly to TSI and the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company or TSI and which Employee conceives as a result of
Employee's employment by the Company. Employee hereby assigns and agrees to
assign all of Employee's interests therein to the Company or its nominee.
Whenever requested to do so by the Company, Employee shall execute any and all
applications, assignments or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
8. TRADE SECRETS.
Employee agrees that she will not, during or after the Term of this
Agreement with the Company, disclose the specific terms of the Company's or
TSI's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
TSI, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever.
9. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by the Company or TSI against Employee), by
reason of the fact that Employee is or was performing services under this
Agreement, then the Company shall indemnify Employee against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit or proceeding, the Company or TSI agrees to
engage competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by TSI shall have a conflict
of interest that prevents such counsel from representing Employee, Employee may
engage separate counsel and the Company or TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge her duties under this Agreement,
Employee cannot be held liable to the Company or TSI for
7
<PAGE>
errors or omissions made in good faith where Employee has not exhibited gross,
willful and wanton negligence and misconduct or performed criminal and
fraudulent acts which materially damage the business of the Company.
10. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to the Company that the
execution of this Agreement by Employee and her employment by the Company and
the performance of Employee's duties hereunder will not violate or be a breach
of any agreement with a former employer, client or any other person or entity.
Further, Employee agrees to indemnify the Company for any claim, including but
not limited to attorneys' fees and expenses of investigation, by any such third
party that such third party may now have or may hereafter come to have against
the Company based upon or arising out of any noncompetition agreement, invention
or secrecy agreement between Employee and such third party which was in
existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT.
Employee understands that she has been selected for employment by the
Company on the basis of Employee's personal qualifications, experience, and
skills. Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 12 below, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective heirs, legal representatives and successors. The Company shall
not assign this Agreement without Employee's written consent, which consent may
be withheld by Employee.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Term, then the provisions of this paragraph 12 shall be
applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby required to
perform, then such Change in Control shall be deemed to be a termination of this
Agreement by the Company without cause during the Term and the applicable
portions of paragraph 5(d) will apply; however, under such circumstances, the
amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(d) and the noncompetition
provisions of paragraph 3 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to the Company at least five (5)
business days prior to the anticipated closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of paragraph 5(d)
will apply as though the Company had terminated the Agreement without cause
during the Term; however, under such circumstances, the amount of the lump-sum
severance payment due to Employee
8
<PAGE>
shall be double the amount calculated under the terms of paragraph 5(d) and the
noncompetition provisions of paragraph 3 shall all apply for a period of two (2)
years from the effective date of termination. Employee shall have the right to
waive Employee's right to receive the severance compensation payable under this
paragraph 12(c) (by a written waiver delivered to the Company on the effective
date of the termination), in which case the noncompetition provisions of
paragraph 3 shall not apply.
(d) For purposes of applying paragraph 5 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements, and lump-sum payments due Employee, unless waived,
must be paid in full by the Company at or prior to such closing. Further,
Employee will be given sufficient time and opportunity to elect whether to
exercise all or any of Employee's vested options to purchase TSI Common Stock,
including any options with accelerated vesting under the provisions of TSI's
1997 Long-Term Incentive Plan, such that Employee may convert the options to
shares of TSI Common Stock at or prior to the closing of the transaction giving
rise to the Change in Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than TSI or an employee
benefit plan of TSI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of the Company and
immediately after such acquisition such person or entity is, directly
or indirectly, the Beneficial Owner of voting securities representing
50% or more of the total voting power of all of the then-outstanding
voting securities of the Company, unless the transaction pursuant to
which such acquisition is made is approved by at least two-thirds (2/3)
of the Board of Directors of TSI;
(ii) the following individuals no longer constitute a majority
of the members of the Board of Directors of TSI: (A) the individuals
who, as of the closing date of TSI's initial public offering,
constitute the Board of Directors of TSI (the "Original Directors");
(B) the individuals who thereafter are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI was approved by a vote of at least two-thirds
(2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI 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 TSI shall approve a merger,
consolidation, recapitalization, or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
9
<PAGE>
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by the Company at any time
that the Company or any member of its Board anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by the Company or its successor for
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of Employee's
tax return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, among the
Company, TSI and Employee, and Employee has no oral representations,
understandings or agreements with the Company or any of its officers, directors
or representatives covering the same subject matter as this Agreement.
This written Agreement is the final, complete and exclusive statement
and expression of the agreement between the Company and Employee and of all the
terms of this Agreement, and it cannot be varied, contradicted or supplemented
by evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of the Company and Employee, and no term of
this Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
14. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To the Company: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, Maryland 20816
To Employee: Judy Heller
Cruises Only, LLC
1011 East Colonial Drive
Orlando, Florida 32083
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
10
<PAGE>
15. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
16. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in the community where the corporate
headquarters of TSI is located, in accordance with the rules of the American
Arbitration Association then in effect. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to award
punitive damages to any injured party. The arbitrators shall have the authority
to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in paragraphs 5(b) and 5(c) hereof, respectively, or that the
Company has otherwise materially breached this Agreement. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by the Company.
17. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Florida.
18. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.,
a Delaware corporation
By:_________________________________
Name:_______________________________
Title: _____________________________
CRUISES ONLY, LLC
By: ________________________________
WAYNE HELLER
President
------------------------------------
JUDY HELLER, Individually
12
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and among Travel
Services International, Inc., a Delaware corporation ("TSI"), D-FW Tours, Inc.,
a Texas corporation and a wholly-owned subsidiary of TSI (the "Company"), and
John Przywara ("Employee"), is hereby entered into as of this ____ day of
______, 1997, and shall be effective as of the date of the consummation of the
initial public offering of the common stock of TSI.
R E C I T A L S
A. As of the date of this Agreement, the Company is engaged primarily in the
business of providing travel services.
B. Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of Employee's employment with the Company, has
and will continue to become familiar with and aware of information as to the
Company's and TSI's customers, specific manner of doing business, including the
processes, techniques and trade secrets utilized by the Company and TSI, and
future plans with respect thereto, all of which has been and will be established
and maintained at great expense to the Company and TSI; this information is a
trade secret and constitutes the valuable good will of the Company and TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants, and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as President of the Company. As
such, Employee shall have responsibilities, duties, and authority reasonably
accorded to and expected of a President of the Company and will report directly
to the Board of Directors of the Company (the "Board"). Employee hereby accepts
this employment upon the terms and conditions herein contained and, subject to
paragraph 1(c) hereof, agrees to devote Employee's time, attention, and efforts
to promote and further the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Company.
(c) Employee shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit, or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 3 hereof.
<PAGE>
2. COMPENSATION.
For all services rendered by Employee, the Company shall compensate
Employee as follows:
(a) Base Salary. The base salary payable to Employee shall be $150,000
per year, payable on a regular basis in accordance with the Company's standard
payroll procedures but not less than monthly. On at least an annual basis, the
Board will review Employee's performance and may make increases to such base
salary if, in its discretion, any such increase is warranted. Such recommended
increase would, in all likelihood, require approval by the Board or a duly
constituted committee thereof.
(b) Incentive Bonus Plan. For 1997 and subsequent years, it is the
Company's intent to develop a written Incentive Bonus Plan (which may be TSI's
Incentive Bonus Plan) setting forth the criteria under which Employee and other
officers and key employees will be eligible to receive year-end bonus awards.
(c) Executive Perquisites, Benefits, and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life, and other insurance plans that the Company or
TSI may have in effect from time to time, benefits provided to Employee
under this clause (i) to be at least equal to such benefits provided to
TSI executives.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board and participation in all other Company-wide or TSI-wide
employee benefits as available from time to time.
3. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
the Company, and for a period of two (2) years immediately following the
termination of Employee's employment under this Agreement, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation,
or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any travel service business in direct competition
with the Company or TSI or any subsidiary of either the Company or TSI,
within the United States or within 100 miles of any other geographic
area in which the Company or TSI or any of the Company's or TSI's
2
<PAGE>
subsidiaries conducts business, including any territory serviced by the
Company or TSI or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or TSI (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
the Company or TSI (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company or TSI (including the respective subsidiaries thereof)
within the Territory for the purpose of soliciting or selling products
or services in direct competition with the Company or TSI or any
subsidiary of the Company or TSI within the Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by the Company or TSI (including the respective subsidiaries
thereof) or for which the Company or TSI made an acquisition analysis,
for the purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company and TSI as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to the Company and
TSI for which they would have no other adequate remedy, Employee agrees that the
foregoing covenant may be enforced by TSI or the Company in the event of breach
by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company or TSI (including TSI's other subsidiaries) on the
date of the execution of this Agreement and the current plans of TSI (including
TSI's other subsidiaries); but it is also the intent of the Company and Employee
that such covenants be construed and enforced in accordance with the changing
activities, business, and locations of the Company and TSI (including TSI's
other subsidiaries) throughout the term of this Agreement, whether before or
after the date of termination of the employment of Employee. For example, if,
during the term of this Agreement, the Company, or TSI (including TSI's other
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or TSI (including
TSI's other subsidiaries), or similar activities, or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any event such new business, activities or location are
not in violation of this paragraph 3 or of employee's
3
<PAGE>
obligations under this paragraph 3, if any, Employee shall not be chargeable
with a violation of this paragraph 3 if the Company or TSI (including TSI's
other subsidiaries) shall thereafter enter the same, similar, or a competitive
(i) business, (ii) course of activities, or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time, or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
TSI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by TSI or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE.
(a) Employee understands that he may be requested by the Board or TSI
to relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will pay all relocation costs to move Employee, Employee's immediate family, and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use Employee's best efforts to incur only those
costs which are reasonable and necessary to effect a smooth, efficient, and
orderly relocation with minimal disruption to the business affairs of the
Company and the personal life of Employee and Employee's family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for three (3) years (the "Term"), and, unless terminated sooner as herein
provided, shall continue thereafter on a year-to-year basis on the same terms
and conditions contained herein in effect as of the time of renewal. This
Agreement and Employee's employment may be terminated in any one of the
followings ways:
4
<PAGE>
(a) Death. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's full-time
duties hereunder for four (4) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
four (4) month period, but which shall not be effective earlier than the last
day of such four (4) month period), the Company may terminate Employee's
employment hereunder provided Employee is unable to resume Employee's full-time
duties at the conclusion of such notice period. Also, Employee may terminate
Employee's employment hereunder if his or her health should become impaired to
an extent that makes the continued performance of Employee's duties hereunder
hazardous to Employee's physical or mental health or life, provided that
Employee shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that, at the Company's
request made within thirty (30) days of the date of such written statement,
Employee shall submit to an examination by a doctor selected by the Company who
is reasonably acceptable to Employee or Employee's doctor and such doctor shall
have concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated as a result of Employee's disability, Employee shall
receive from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect for
whatever time period is remaining under the Term of this Agreement or for one
(1) year, whichever amount is greater.
(c) Good Cause. The Company may terminate the Agreement ten (10) days
after delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material, and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure) of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud, or misconduct with respect to the business or affairs
of the Company or TSI which materially and adversely affects the operations or
reputation of the Company or TSI; (4) Employee's conviction of a felony crime;
or (5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of
a termination for good cause, as enumerated above, Employee shall have no right
to any severance compensation.
(d) Without Cause. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least two-thirds of the members of
the Board of Directors of TSI. Should Employee be terminated by the Company
without cause during the Term, Employee shall be entitled to receive from the
Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Term of this Agreement or for one (1) year, whichever amount is
greater, and, in the event Employee accepts such lump sum payment, the period
set forth in paragraph 3(a) and during which the terms of paragraph 3 apply
shall be shortened to one (1) year from the date of termination of employment.
Should Employee be terminated by the Company without cause at any time after the
Term, Employee shall be entitled to receive from the Company, in a lump-sum
payment due on the effective date of termination, the base salary rate then in
effect equivalent to one (1) year of salary, and, in the event that Employee
accepts such a lump sum payment, the period set forth in paragraph 3(a) and
during which the terms of paragraph 3 apply shall be shortened to one (1) year
from the date of termination of employment. Should Employee be terminated by the
Company without cause at any time during or after the Term, Employee shall be
entitled to waive Employee's right to receive severance compensation (by a
written waiver delivered to the Company on the effective date of termination),
and, in such case, the non-
5
<PAGE>
competition provisions of paragraph 3 shall not apply. If Employee resigns or
otherwise terminates Employee's employment without cause pursuant to this
paragraph 5(d), Employee shall receive no severance compensation. A termination
without cause within the meaning of this paragraph 5(d) shall be deemed to have
occurred if any person or entity, other than TSI or an employee benefit plan of
TSI, acquires directly or indirectly the Beneficial Ownership (as defined in
Section 13(d) of the Securities Exchange Act of 1934, as amended) of any voting
security of the Company or TSI and immediately after such acquisition such
person or entity is, directly or indirectly, the Beneficial Owner of voting
securities representing 50% or more of the total voting power of all of the
then-outstanding voting securities of the Company or TSI and the transaction
pursuant to which such acquisition is made is approved by at least two-thirds
(2/3) of the Board of Directors of TSI but is not approved by Employee.
(e) Change in Control of TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 12 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 12 hereof. All other rights and obligations of TSI, the Company, and
Employee under this Agreement shall cease as of the effective date of
termination, except that the Company's obligations under paragraph 9 hereof and
Employee's obligations under paragraphs 3, 6, 7, 8 and 10 hereof shall survive
such termination in accordance with their terms.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which he is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 16 below, the Company shall pay all amounts and damages
to which Employee may be entitled as a result of such breach, including interest
thereon and all reasonable legal fees and expenses and other costs incurred by
Employee to enforce Employee's rights hereunder. Further, none of the provisions
of paragraph 3 hereof shall apply in the event this Agreement is terminated as a
result of a breach by the Company.
6. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists, and other property delivered to or compiled by
Employee by or on behalf of the Company, TSI, or their representatives, vendors,
or customers which pertain to the business of the Company or TSI shall be and
remain the property of the Company or TSI, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials, and other similar data
pertaining to the business, activities, or future plans of the Company or TSI
which is collected by Employee shall be delivered promptly to the Company
without request by it upon termination of Employee's employment.
7. INVENTIONS.
Employee shall disclose promptly to TSI and the Company any and all
significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company
6
<PAGE>
or TSI and which Employee conceives as a result of Employee's employment by the
Company. Employee hereby assigns and agrees to assign all of Employee's
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments, or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. TRADE SECRETS.
Employee agrees that he or she will not, during or after the Term of
this Agreement with the Company, disclose the specific terms of the Company's or
TSI's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
TSI, whether in existence or proposed, to any person, firm, partnership,
corporation, or business for any reason or purpose whatsoever.
9. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by the Company or TSI against Employee),
by reason of the fact that Employee is or was performing services under this
Agreement, then the Company shall indemnify Employee against all expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement,
as actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company or TSI agrees to
engage competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by TSI shall have a conflict
of interest that prevents such counsel from representing Employee, Employee may
engage separate counsel and the Company or TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge his or her duties under this
Agreement, Employee cannot be held liable to the Company or TSI for errors or
omissions made in good faith where Employee has not exhibited gross, willful,
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company.
10. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to the Company that the
execution of this Agreement by Employee and his or her employment by the Company
and the performance of Employee's duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including but not limited to attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any noncompetition
agreement, invention, or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
11. ASSIGNMENT; BINDING EFFECT.
Employee understands that he or she has been selected for employment by
the Company on the basis of Employee's personal qualifications, experience, and
skills. Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 12 below, this Agreement shall be binding
upon, inure
7
<PAGE>
to the benefit of, and be enforceable by the parties hereto and their respective
heirs, legal representatives, successors, and assigns.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Term, then the provisions of this paragraph 12 shall be
applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby required to
perform, then such Change in Control shall be deemed to be a termination of this
Agreement by the Company without cause during the Term and the applicable
portions of paragraph 5(d) will apply; however, under such circumstances, the
amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(d) and the noncompetition
provisions of paragraph 3 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to the Company at least five (5)
business days prior to the anticipated closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of paragraph 5(d)
will apply as though the Company had terminated the Agreement without cause
during the Term; however, under such circumstances, the amount of the lump-sum
severance payment due to Employee shall be double the amount calculated under
the terms of paragraph 5(d) and the noncompetition provisions of paragraph 3
shall all apply for a period of two (2) years from the effective date of
termination. Employee shall have the right to waive Employee's right to receive
the severance compensation payable under this paragraph 12(c) (by a written
waiver delivered to the Company on the effective date of the termination), in
which case the noncompetition provisions of paragraph 3 shall not apply.
(d) For purposes of applying paragraph 5 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements, and lump-sum payments due Employee must be paid in
full by the Company at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase TSI Common Stock, including any options
with accelerated vesting under the provisions of TSI's 1997 Long-Term Incentive
Plan, such that Employee may convert the options to shares of TSI Common Stock
at or prior to the closing of the transaction giving rise to the Change in
Control, if Employee so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than TSI or an employee
benefit plan of TSI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of the Company or TSI and
8
<PAGE>
immediately after such acquisition such person or entity is, directly
or indirectly, the Beneficial Owner of voting securities representing
50% or more of the total voting power of all of the then-outstanding
voting securities of the Company or TSI, unless the transaction
pursuant to which such acquisition is made is approved by at least
two-thirds (2/3) of the Board of Directors of TSI;
(ii) the following individuals no longer constitute a majority
of the members of the Board of Directors of TSI: (A) the individuals
who, as of the closing date of TSI's initial public offering,
constitute the Board of Directors of TSI (the "Original Directors");
(B) the individuals who thereafter are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI was approved by a vote of at least two-thirds
(2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI 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 TSI shall approve a merger,
consolidation, recapitalization, or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by the Company at any time
that the Company or any member of its Board anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by the Company or its successor for
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of Employee's
tax return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, among the
Company, TSI, and Employee, and Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
Agreement.
This written Agreement is the final, complete, and exclusive statement
and expression of the agreement between the Company and Employee and of all the
terms of this Agreement, and it cannot be varied, contradicted, or supplemented
by evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by
9
<PAGE>
a duly authorized officer of the Company and Employee, and no term of this
Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
14. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To the Company: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: D-FW Tours, Inc.
7616 LBJ Freeway
Suite 524
Dallas, TX 75251
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define, or limit the extent or intent of the Agreement or of any part hereof.
16. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Washington, D.C., in accordance with
the rules of the American Arbitration Association then in effect. The
arbitrators shall not have the authority to add to, detract from, or modify any
provision hereof nor to award punitive damages to any injured party. The
arbitrators shall have the authority to order back-pay, severance compensation,
vesting of options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this Agreement, and
interest thereon in the event the arbitrators determine that Employee was
terminated without disability or good cause, as defined in paragraphs 5(b) and
5(c) hereof, respectively, or that the Company has otherwise materially breached
this Agreement. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company.
17. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware.
10
<PAGE>
18. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
D-FW Tours, Inc.
By: _____________________________
Name:____________________________
Title:___________________________
Travel Services International, Inc.,
a Delaware corporation
By:______________________________
Name:____________________________
Title: __________________________
---------------------------------
John Przywara, Individually
11
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and among Travel
Services International, Inc., a Delaware corporation ("TSI"), Travel 800, LLC, a
Delaware limited liability corporation and a wholly-owned subsidiary of TSI (the
"Company"), and Susan Parker ("Employee"), is hereby entered into as of this
____ day of ______, 1997, and shall be effective as of the date of the
consummation of the initial public offering of the common stock of TSI.
R E C I T A L S
A. As of the date of this Agreement, the Company is engaged primarily in
the business of providing travel services.
B. Employee is employed hereunder by the Company in a confidential
relationship wherein Employee, in the course of Employee's employment with the
Company, has and will continue to become familiar with and aware of information
as to the Company's and TSI's customers, specific manner of doing business,
including the processes, techniques and trade secrets utilized by the Company
and TSI, and future plans with respect thereto, all of which has been and will
be established and maintained at great expense to the Company and TSI; this
information is a trade secret and constitutes the valuable good will of the
Company and TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants, and
conditions set forth herein and the performance of each, the parties hereto
hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Employee as President of the Company. As
such, Employee shall have responsibilities, duties, and authority reasonably
accorded to and expected of a President of the Company and will report directly
to the Board of Directors of the Company (the "Board"). Employee hereby accepts
this employment upon the terms and conditions herein contained and, subject to
paragraph 1(c) hereof, agrees to devote Employee's time, attention and efforts
to promote and further the business of the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Board.
(c) Employee shall not, during the term of her employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity materially interferes with Employee's
duties and responsibilities hereunder. The foregoing limitations shall not be
construed as prohibiting Employee from making personal investments in such form
or manner as will
<PAGE>
neither require Employee's services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of
paragraph 3 hereof.
2. COMPENSATION.
For all services rendered by Employee, the Company shall compensate
Employee as follows:
(a) BASE SALARY. The base salary payable to Employee shall be $200,000
per year, payable on a regular basis in accordance with the Company's standard
payroll procedures but not less than monthly. On at least an annual basis, the
Board will review Employee's performance and may make increases to such base
salary if, in its discretion, any such increase is warranted. Such recommended
increase would, in all likelihood, require approval by the Board or a duly
constituted committee thereof.
(b) INCENTIVE BONUS PLAN. For 1997 and subsequent years, it is the
Company's intent to develop a written Incentive Bonus Plan (which may be TSI's
Incentive Bonus Plan) setting forth the criteria under which Employee and other
officers and key employees will be eligible to receive year-end bonus awards.
(c) EXECUTIVE PERQUISITES, BENEFITS, AND OTHER COMPENSATION. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and
Employee's dependent family members under health, hospitalization,
disability, dental, life, and other insurance plans that the Company or
TSI may have in effect from time to time, benefits provided to Employee
under this clause (i) to be at least equal to such benefits provided to
TSI executives.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of Employee's services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in reasonable
detail by Employee upon submission of any request for reimbursement,
and in a format and manner consistent with the Company's expense
reporting policy.
(iii) The Company shall provide Employee with other executive
perquisites as may be available to or deemed appropriate for Employee
by the Board and participation in all other Company-wide or TSI-wide
employee benefits as available from time to time.
3. NON-COMPETITION.
(a) Employee will not, during the period of Employee's employment with
the Company, and for a period of two (2) years immediately following the
termination of Employee's employment under this Agreement, for any reason
whatsoever, directly or indirectly, for herself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation,
or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any travel service business in direct competition
with the Company or TSI or any subsidiary of either the Company or TSI,
within the United States or within 100 miles
2
<PAGE>
of any other geographic area in which the Company or TSI or any of the
Company's or TSI's subsidiaries conducts business, including any
territory serviced by the Company or TSI or any of such subsidiaries
(the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or TSI (including the respective
subsidiaries thereof) in a managerial capacity for the purpose or with
the intent of enticing such employee away from or out of the employ of
the Company or TSI (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of the Company or TSI (including the respective subsidiaries thereof)
within the Territory for the purpose of soliciting or selling products
or services in direct competition with the Company or TSI or any
subsidiary of the Company or TSI within the Territory; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by the Company or TSI (including the respective subsidiaries
thereof) or for which the Company or TSI made an acquisition analysis,
for the purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to the
Company and TSI as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to the Company and
TSI for which they would have no other adequate remedy, Employee agrees that the
foregoing covenant may be enforced by TSI or the Company in the event of breach
by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company or TSI (including TSI's other subsidiaries) on the
date of the execution of this Agreement and the current plans of TSI (including
TSI's other subsidiaries); but it is also the intent of the Company and Employee
that such covenants be construed and enforced in accordance with the changing
activities, business, and locations of the Company and TSI (including TSI's
other subsidiaries) throughout the term of this Agreement, whether before or
after the date of termination of the employment of Employee. For example, if,
during the term of this Agreement, the Company, or TSI (including TSI's other
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or TSI (including
TSI's other subsidiaries), or similar activities, or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
this paragraph 3, and in any
3
<PAGE>
event such new business, activities or location are not in violation of this
paragraph 3 or of employee's obligations under this paragraph 3, if any,
Employee shall not be chargeable with a violation of this paragraph 3 if the
Company or TSI (including TSI's other subsidiaries) shall thereafter enter the
same, similar, or a competitive (i) business, (ii) course of activities, or
(iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time, or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall be reformed in accordance therewith.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company or
TSI, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by TSI or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE.
(a) Employee understands that she may be requested by the Board or TSI
to relocate from Employee's present residence to another geographic location in
order to more efficiently carry out Employee's duties and responsibilities under
this Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will pay all relocation costs to move Employee, Employee's immediate family, and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use Employee's best efforts to incur only those
costs which are reasonable and necessary to effect a smooth, efficient, and
orderly relocation with minimal disruption to the business affairs of the
Company and the personal life of Employee and Employee's family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the date hereof and continue
for three (3) years (the "Term"), and, unless terminated sooner as herein
provided, shall continue thereafter on a year-to-year basis on the same terms
and conditions contained herein in effect as of the time of renewal. This
Agreement and Employee's employment may be terminated in any one of the
followings ways:
4
<PAGE>
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from Employee's full-time
duties hereunder for four (4) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
four (4) month period, but which shall not be effective earlier than the last
day of such four (4) month period), the Company may terminate Employee's
employment hereunder provided Employee is unable to resume Employee's full-time
duties at the conclusion of such notice period. Also, Employee may terminate
Employee's employment hereunder if his or her health should become impaired to
an extent that makes the continued performance of Employee's duties hereunder
hazardous to Employee's physical or mental health or life, provided that
Employee shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that, at the Company's
request made within thirty (30) days of the date of such written statement,
Employee shall submit to an examination by a doctor selected by the Company who
is reasonably acceptable to Employee or Employee's doctor and such doctor shall
have concurred in the conclusion of Employee's doctor. In the event this
Agreement is terminated as a result of Employee's disability, Employee shall
receive from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect for
whatever time period is remaining under the Term of this Agreement or for one
(1) year, whichever amount is greater.
(c) GOOD CAUSE. The Company may terminate the Agreement ten (10) days
after delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material, and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure) of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud, or misconduct with respect to the business or affairs
of the Company or TSI which materially and adversely affects the operations or
reputation of the Company or TSI; (4) Employee's conviction of a felony crime;
or (5) chronic alcohol abuse or illegal drug abuse by Employee. In the event of
a termination for good cause, as enumerated above, Employee shall have no right
to any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to the Company.
Employee may only be terminated without cause by the Company during the Term
hereof if such termination is approved by at least two-thirds of the members of
the Board of Directors of TSI. Should Employee be terminated by the Company
without cause during the Term, Employee shall be entitled to receive from the
Company, in a lump-sum payment due on the effective date of termination, the
base salary at the rate then in effect for whatever time period is remaining
under the Term of this Agreement or for one (1) year, whichever amount is
greater, and, in the event that Employee accepts such lump sum payment, the
period set forth in paragraph 3(a) and during which the terms of paragraph 3
apply shall be shortened to one (1) year from the date of termination of
employment. Should Employee be terminated by the Company without cause at any
time after the Term, Employee shall be entitled to receive from the Company, in
a lump-sum payment due on the effective date of termination, the base salary
rate then in effect equivalent to one (1) year of salary, and, in the event that
Employee accepts such lump sum payment, the period set forth in paragraph 3(a)
and during which the terms of paragraph 3 apply shall be shortened to one (1)
year from the date of termination of employment. Should Employee be terminated
by the Company without cause at any time during or after the Term, Employee
shall be entitled to waive Employee's right to receive severance compensation
(by a written waiver delivered to the Company on the effective date of
termination), and, in such case, the
5
<PAGE>
noncompetition provisions of paragraph 3 shall not apply. If Employee resigns or
otherwise terminates Employee's employment without cause pursuant to this
paragraph 5(d), Employee shall receive no severance compensation. A termination
without cause within the meaning of this paragraph 5(d) shall be deemed to have
occurred if any person or entity, other than TSI or an employee benefit plan of
TSI, acquires directly or indirectly the Beneficial Ownership (as defined in
Section 13(d) of the Securities Exchange Act of 1934, as amended) of any voting
security of the Company or TSI and immediately after such acquisition such
person or entity is, directly or indirectly, the Beneficial Owner of voting
securities representing 50% or more of the total voting power of all of the
then-outstanding voting securities of the Company or TSI and the transaction
pursuant to which such acquisition is made is approved by at least two-thirds
(2/3) of the Board of Directors of TSI but is not approved by Employee.
(e) CHANGE IN CONTROL OF TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 12 below.
Upon termination of this Agreement for any reason provided above,
Employee shall be entitled to receive all compensation earned and all benefits
and reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above or in
paragraph 12 hereof. All other rights and obligations of TSI, the Company, and
Employee under this Agreement shall cease as of the effective date of
termination, except that the Company's obligations under paragraph 9 hereof and
Employee's obligations under paragraphs 3, 6, 7, 8 and 10 hereof shall survive
such termination in accordance with their terms.
If termination of Employee's employment arises out of the Company's
failure to pay Employee on a timely basis the amounts to which she is entitled
under this Agreement or as a result of any other breach of this Agreement by the
Company, as determined by a court of competent jurisdiction or pursuant to the
provisions of paragraph 16 below, the Company shall pay all amounts and damages
to which Employee may be entitled as a result of such breach, including interest
thereon and all reasonable legal fees and expenses and other costs incurred by
Employee to enforce Employee's rights hereunder. Further, none of the provisions
of paragraph 3 hereof shall apply in the event this Agreement is terminated as a
result of a breach by the Company.
6. RETURN OF COMPANY PROPERTY.
All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists, and other property delivered to or compiled by
Employee by or on behalf of the Company, TSI, or their representatives, vendors,
or customers which pertain to the business of the Company or TSI shall be and
remain the property of the Company or TSI, as the case may be, and be subject at
all times to their discretion and control. Likewise, all correspondence,
reports, records, charts, advertising materials, and other similar data
pertaining to the business, activities, or future plans of the Company or TSI
which is collected by Employee shall be delivered promptly to the Company
without request by it upon termination of Employee's employment.
7. INVENTIONS.
Employee shall disclose promptly to TSI and the Company any and all
significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company
6
<PAGE>
or TSI and which Employee conceives as a result of Employee's employment by the
Company except for inventions or improvements in connection with the Agent
Program software (which is owned by 800-Ideas, Inc. and licensed to the
Company). Employee hereby assigns and agrees to assign all of Employee's
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments, or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. TRADE SECRETS.
Employee agrees that she will not, during or after the Term of this
Agreement with the Company, disclose the specific terms of the Company's or
TSI's relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company or
TSI, whether in existence or proposed, to any person, firm, partnership,
corporation, or business for any reason or purpose whatsoever.
9. INDEMNIFICATION.
In the event Employee is made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by the Company or TSI against Employee), by
reason of the fact that Employee is or was performing services under this
Agreement, then the Company shall indemnify Employee against all expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement,
as actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and the Company are made a party to the same
third-party action, complaint, suit, or proceeding, the Company or TSI agrees to
engage competent legal representation, and Employee agrees to use the same
representation, provided that if counsel selected by TSI shall have a conflict
of interest that prevents such counsel from representing Employee, Employee may
engage separate counsel and the Company or TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge his or her duties under this
Agreement, Employee cannot be held liable to the Company or TSI for errors or
omissions made in good faith where Employee has not exhibited gross, willful,
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company. In the event that the
Company breaches its agreement to indemnify Employee under this paragraph 9, the
noncompetition provisions of paragraph 3 shall thereafter not apply to Employee.
10. NO PRIOR AGREEMENTS.
Employee hereby represents and warrants to the Company that the
execution of this Agreement by Employee and his or her employment by the Company
and the performance of Employee's duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other person or
entity. Further, Employee agrees to indemnify the Company for any claim,
including but not limited to attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any noncompetition
agreement, invention, or secrecy agreement between Employee and such third party
which was in existence as of the date of this Agreement.
7
<PAGE>
11. ASSIGNMENT; BINDING EFFECT.
Employee understands that she has been selected for employment by the
Company on the basis of Employee's personal qualifications, experience, and
skills. Employee, therefore, shall not assign all or any portion of Employee's
performance under this Agreement. Subject to the preceding two (2) sentences and
the express provisions of paragraph 12 below, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the parties hereto and
their respective heirs, legal representatives, successors, and assigns.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to (c)
below, Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder or
that the Company may undergo another type of Change in Control. In the event
such a merger or consolidation or other Change in Control is initiated prior to
the end of the Term, then the provisions of this paragraph 12 shall be
applicable.
(b) In the event of a pending Change in Control wherein the Company and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of the Company's
business and/or assets that such successor is willing as of the closing to
assume and agree to perform the Company's obligations under this Agreement in
the same manner and to the same extent that the Company is hereby required to
perform, then such Change in Control shall be deemed to be a termination of this
Agreement by the Company without cause during the Term and the applicable
portions of paragraph 5(d) will apply; however, under such circumstances, the
amount of the lump-sum severance payment due to Employee shall be triple the
amount calculated under the terms of paragraph 5(d) and the noncompetition
provisions of paragraph 3 shall not apply.
(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to the Company at least five (5)
business days prior to the anticipated closing of the transaction giving rise to
the Change in Control. In such case, the applicable provisions of paragraph 5(d)
will apply as though the Company had terminated the Agreement without cause
during the Term; however, under such circumstances, the amount of the lump-sum
severance payment due to Employee shall be double the amount calculated under
the terms of paragraph 5(d) and the noncompetition provisions of paragraph 3
shall all apply for a period of two (2) years from the effective date of
termination. Employee shall have the right to waive Employee's right to receive
the severance compensation payable under this paragraph 12(c) (by a written
waiver delivered to the Company on the effective date of the termination), in
which case the noncompetition provisions of paragraph 3 shall not apply.
(d) For purposes of applying paragraph 5 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements, and lump-sum payments due Employee, unless waived,
must be paid in full by the Company at or prior to such closing. Further,
Employee will be given sufficient time and opportunity to elect whether to
exercise all or any of Employee's vested options to purchase TSI Common Stock,
including any options with accelerated vesting under the provisions of TSI's
1997 Long-Term Incentive Plan, such that Employee may convert the options to
shares of TSI Common Stock at or prior to the closing of the transaction giving
rise to the Change in Control, if Employee so desires.
8
<PAGE>
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person or entity, other than TSI or an employee
benefit plan of TSI, acquires directly or indirectly the Beneficial
Ownership (as defined in Section 13(d) of the Securities Exchange Act
of 1934, as amended) of any voting security of the Company or TSI and
immediately after such acquisition such person or entity is, directly
or indirectly, the Beneficial Owner of voting securities representing
50% or more of the total voting power of all of the then-outstanding
voting securities of the Company or TSI, unless the transaction
pursuant to which such acquisition is made is approved by at least
two-thirds (2/3) of the Board of Directors of TSI;
(ii) the following individuals no longer constitute a majority
of the members of the Board of Directors of TSI: (A) the individuals
who, as of the closing date of TSI's initial public offering,
constitute the Board of Directors of TSI (the "Original Directors");
(B) the individuals who thereafter are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI was approved by a vote of at least two-thirds
(2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board of
Directors of TSI and whose election, or nomination for election, to the
Board of Directors of TSI 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 TSI shall approve a merger,
consolidation, recapitalization, or reorganization of TSI, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least 75% of the total
voting power represented by the voting securities of the surviving
entity outstanding immediately after such transaction being
Beneficially Owned by at least 75% of the holders of outstanding voting
securities of TSI immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction; or
(iv) the stockholders of TSI shall approve a plan of complete
liquidation of TSI or an agreement for the sale or disposition by TSI
of all or a substantial portion of TSI's assets (i.e., 50% or more of
the total assets of TSI).
(f) Employee must be notified in writing by the Company at any time
that the Company or any member of its Board anticipates that a Change in Control
may take place.
(g) Employee shall be reimbursed by the Company or its successor for
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Employee
delivers a written request for reimbursement accompanied by a copy of Employee's
tax return(s) showing the excise tax actually incurred by Employee.
13. COMPLETE AGREEMENT.
This Agreement is not a promise of future employment. This Agreement
supersedes any other agreements or understandings, written or oral, among the
Company, TSI, and Employee, and Employee
9
<PAGE>
has no oral representations, understandings, or agreements with the Company or
any of its officers, directors, or representatives covering the same subject
matter as this Agreement.
This written Agreement is the final, complete, and exclusive statement
and expression of the agreement between the Company and Employee and of all the
terms of this Agreement, and it cannot be varied, contradicted, or supplemented
by evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of the Company and Employee, and no term of
this Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
14. NOTICE.
Whenever any notice is required hereunder, it shall be given in writing
addressed as follows:
To the Company: Travel Services International, Inc.
c/o Alpine Consolidated, LLC
4701 Sangamore Road, P15
Bethesda, MD 20816
To Employee: 10146 El Capitan Real
El Cajon, CA 92020
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define, or limit the extent or intent of the Agreement or of any part hereof.
16. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Washington, D.C., in accordance with
the rules of the American Arbitration Association then in effect. The
arbitrators shall not have the authority to add to, detract from, or modify any
provision hereof nor to award punitive damages to any injured party. The
arbitrators shall have the authority to order back-pay, severance compensation,
vesting of options (or cash compensation in lieu of vesting of options),
reimbursement of costs, including those incurred to enforce this Agreement, and
interest thereon in the event the arbitrators determine that Employee was
terminated without disability or good cause, as defined in paragraphs 5(b) and
5(c) hereof, respectively, or that the Comp any has otherwise materially
breached this Agreement. A decision by a majority of the arbitration panel shall
be final and binding. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The direct expense of any arbitration proceeding
shall be borne by the Company. The substantially prevailing party in any
proceeding hereunder shall be
10
<PAGE>
entitled to recover from the losing party reasonable attorneys' fees for
services rendered to the prevailing party in such proceeding.
17. GOVERNING LAW.
This Agreement shall in all respects be construed according to the laws
of the State of Delaware.
18. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
[The next page is the signature page.]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Travel 800, LLC
By: ____________________________
Name:__________________________
Title:___________________________
Travel Services International, Inc.,
a Delaware corporation
By:____________________________
Name:_________________________
Title: __________________________
-------------------------------
Susan Parker, Individually
12
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the, "Agreement") dated as of
_____________ 1997 is by and between a Travel Services International, Inc., a
Delaware corporation (the "Company"), and ______________ ("Indemnitee").
RECITALS
A. Indemnitee is a[n] [member of the Board of Directors or officer] of
the Company and in such capacity is performing a valuable service to the
Company.
B. The Company's Bylaws (the "Bylaws") provide for the indemnification
of the directors, officers, employees and agents of the Company to the extent
set forth in the Amended and Restated Certificate of Incorporation of the
Company (the "Certificate").
C. The Certificate provides that the Company shall indemnify the
directors, officers, employees and agents of the Company to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, as amended to
date (the "Corporation Law").
D. The Corporation Law specifically provides that indemnification and
advancement of expenses provided in such statute shall not be exclusive of any
other rights under any agreement, and thereby contemplates that agreements may
be entered into between the Company and members of the Board of Directors or
officers of the Company with respect to the indemnification of such directors or
officers.
E. In accordance with the authorization provided in the Corporation
Law, the Company has purchased and presently maintains a policy or policies of
directors' and officers' liabilities insurance (the "Insurance") covering
certain liabilities which may be incurred by the Company's directors and
officers in the performance of their services to the Company.
F. The general availability of directors' and officers' liability
insurance covering certain liabilities which may be incurred by the Company's
directors and officers in the performance of their services to the Company and
the applicability, amendment and enforcement of statutory and by-law provisions
have raised questions concerning the adequacy and reliability of the protection
afforded to directors and officers.
G. In order to induce Indemnitee to serve as a[n] [member of the Board
of Directors or officer] of the Company for the current term and for any
subsequent term to which he is elected or nominated, the Company has deemed it
to be in its best interest to enter into this Agreement with Indemnitee.
<PAGE>
NOW, THEREFORE, in consideration of Indemnitee's agreement to serve as
a[n] [member of the Board of Directors or officer] of the Company after the date
hereof, the parties hereto agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
(a) Change in Control. A "Change in Control" shall be deemed
to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended),
other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, is or becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Act), directly
or indirectly, of securities of the Company representing 25% or more of
the combined voting power of the outstanding securities of the Company,
or (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve (x) a merger or consolidation of
the Company with any other entity (other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation), (y) a plan of complete
liquidation of the Company or (z) an agreement or agreements for the
sale or disposition, in a single transaction or series of related
transactions, by the Company of all or substantially all of the
property and assets of the Company. Notwithstanding the foregoing,
events otherwise constituting a Change in Control in accordance with
the foregoing shall not constitute a Change in Control if such events
are solicited by the Company and are approved, recommended or supported
by the Board of Directors of the Company in actions taken prior to, and
with respect to, such events.
(b) Reviewing Party. A "Reviewing Party" means (i) the Board
of Directors or a committee of directors of the Company, who are not
officers, appointed by the Board of Directors, provided that a majority
of such directors are not parties to the claim or (ii) special,
independent counsel selected and
<PAGE>
appointed by the Board of Directors or by a committee of directors of
the Company who are not officers.
2. Indemnification of Indemnitee.
-----------------------------
The Company hereby agrees that it shall hold harmless and indemnify
Indemnitee to the fullest extent authorized and permitted by the provisions of
the Certificate and Bylaws and the provisions of the Corporation Law, or by any
amendment thereof, but in the case of any such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than the Certificate, Bylaws or Corporation Law permitted the Company to
provide prior to such amendment, or other statutory provisions authorizing or
permitting such indemnification which is adopted after the date hereof.
3. Insurance.
---------
3.1 Insurance Policies. So long as Indemnitee may be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that Indemnitee is or was a director or officer, to the extent that the Company
maintains one or more insurance policy or policies providing directors' and
officers' liability insurance, Indemnitee shall be covered by such policy or
policies in accordance with its or their terms, to the maximum extent of the
coverage applicable to any director or officer then serving the Company.
3.2 Maintenance of Insurance. The Company shall not be required to
maintain the Insurance or any policy or policies of comparable insurance, as the
case may be, if such insurance is not reasonably available or if, in the
reasonable business judgment of the Board of Directors of the Company which
shall be conclusively established by such determination by the Board of
Directors, or any appropriate committee thereof, either (i) the premium cost for
such insurance is substantially disproportionate to the amount of coverage
thereunder or (ii) the coverage provided by such insurance is so limited by
exclusions that there is insufficient benefit from such insurance.
3.3 Self-Insurance. To the extent Indemnitee is not indemnified under
other Sections of this Agreement and is not fully, by reason of deductible or
otherwise, covered by directors' and officers' liability insurance, the Company
shall maintain self-insurance for, and thereby indemnify and hold harmless,
Indemnitee from and against any and all expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by Indemnitee in connection with any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, in which Indemnitee was or is made party or was or is involved by
reason of the fact that Indemnitee is or was a director or officer of the
Company. Notwithstanding the foregoing,
<PAGE>
payments of self-insurance under this Section to Indemnitee by the Company shall
not exceed the amount of $5,000,000 for any event and further shall be limited
in accordance with Section 5 hereof. An "event" as used in the preceding
sentence in reference to a limitation on self-insurance shall include the same
acts or omissions by Indemnitee and interrelated, repeated or continuous acts or
omissions.
4. Additional Indemnification.
--------------------------
Subject only to the exclusions set forth in Section 5 hereof, the
Company hereby agrees that it shall hold harmless and indemnify Indemnitee.
(a) against any and all expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by Indemnitee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including an action by or on behalf of
stockholders of the Company or by or in the right of the Company, to
which Indemnitee is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Indemnitee
is, was or at any time becomes a director, officer, employee or agent
of the Company, or is or was serving or at any time serves at the
request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Company under the non-exclusivity provisions of the
Corporation Law.
5. Limitations on Additional Indemnification.
-----------------------------------------
No indemnification pursuant to this Agreement shall be paid by the
Company:
(a) in respect to any transaction if it shall be determined by
the Reviewing Party, or by final judgment or other final adjudication,
that Indemnitee derived an improper personal benefit;
(b) on account of Indemnitee's conduct which is determined by
the Reviewing Party, or by final judgment or other final adjudication,
to have involved acts or omissions not in good faith, intentional
misconduct or a knowing violation of law;
(c) if the Reviewing Party or a court having jurisdiction in
the matter shall determine that such indemnification is in violation of
the Certificate, the Bylaws or the law.
<PAGE>
6. Advancement of Expenses.
-----------------------
In the event of any threatened or pending action, suit or proceeding in
which Indemnitee is a party or is involved and which may give rise to a right of
indemnification under this Agreement, following written request to the Company
by Indemnitee the Company shall promptly pay to Indemnitee amounts to cover
expenses incurred by Indemnitee in such proceeding in advance of its final
disposition upon the receipt by the Company of (i) a written undertaking
executed by or on behalf of Indemnitee to repay the advance if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as provided in this Agreement and (ii) satisfactory evidence as to
the amount of such expenses.
7. Repayment of Expenses.
---------------------
Indemnitee agrees that Indemnitee shall reimburse the Company for all
reasonable expenses paid by the Company in defending any civil, criminal,
administrative or investigative action, suit or proceeding against Indemnitee in
the event and only to the extent that it shall be determined by final judgment
or other final adjudication that Indemnitee is not entitled to be indemnified by
the Company for such expenses under the provisions of the Corporation Law or any
applicable law.
8. Determination of Indemnification; Burden of Proof.
-------------------------------------------------
With respect to all matters concerning the rights of Indemnitee to
indemnification and payment of expenses under this Agreement or under the
provisions of the Certificate and Bylaws now or hereafter in effect, the Company
shall appoint a Reviewing Party and any determination by the Reviewing Party
shall be conclusive and binding on the Company and Indemnitee. If under
applicable law, the entitlement of Indemnitee to be indemnified under this
Agreement depends on whether a standard of conduct has been met, the burden of
proof of establishing that Indemnitee did not act in accordance with such
standard of conduct shall rest with the Company. Indemnitee shall be presumed to
have acted in accordance with such standard and entitled to indemnification or
advancement of expenses hereunder, as the case may be, unless, based upon a
preponderance of the evidence, it shall be determined by the Reviewing Party
that Indemnitee did not meet such standard. For purposes of this Agreement,
unless otherwise expressly stated herein, the termination of any action, suit or
proceeding by judgment, order, settlement, whether with or without court
approval, or conviction, or upon a plea of nolo contendere or its equivalent
shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law.
<PAGE>
9. Effect of Chance in Control.
---------------------------
If there has not been a Change in Control after the date of this
Agreement, the determination of (i) the rights of Indemnitee to indemnification
and payment of expenses under this Agreement or under the provisions of the
Certificate and the Bylaws, (ii) standard of conduct and (iii) evaluation of the
reasonableness of amounts claimed by Indemnitee shall be made by the Reviewing
Party or such other body or persons as may be permitted by the Corporation Law.
If there has been a Change in Control after the date of this Agreement, such
determination and evaluation shall be made by a special, independent counsel who
is selected by Indemnitee and approved by the Company, which approval shall not
be unreasonably withheld, and who has not otherwise performed services for
Indemnitee or the Company.
10. Continuation of Indemnification.
-------------------------------
All agreements and obligations of the Company contained herein shall
continue during the period that Indemnitee is a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, and shall continue thereafter so long as
Indemnitee shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that Indemnitee was a director or officer
of the Company or serving in any other capacity referred to herein.
11. Notification and Defense of Claim.
---------------------------------
Promptly after receipt by Indemnitee of notice of the commencement of
any action, suit or proceeding, Indemnitee shall, if a claim in respect hereof
is to be made against the Company under this Agreement, notify the Company of
the commencement thereof; provided, however, that delay in so notifying the
Company shall not constitute a waiver or release by Indemnitee of rights
hereunder and that omission by Indemnitee to so notify the Company shall not
relieve the Company from any liability which it may have to Indemnitee otherwise
than under this Agreement. With respect to any such action, suit or proceeding
as to which Indemnitee notifies the Company of the commencement thereof:
(a) The Company shall be entitled to participate therein at its own
expense; and
(b) Except as otherwise provided below, to the extent that it may wish,
the Company, jointly with any other indemnifying party similarly
notified, shall be entitled to assume the defense thereof and to employ
counsel reasonably satisfactory to Indemnitee. After notice from the
Company to Indemnitee of its election to so assume the defense thereof,
the Company shall not be liable to Indemnitee under this Agreement for
any
<PAGE>
legal or other expenses subsequently incurred by Indemnitee in
connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have the
right to employ counsel of his own choosing in such action, suit or
proceeding but the fees and expenses of such counsel incurred after
notice from the Company of assumption by the Company of the defense
thereof shall be at the expense of Indemnitee unless (i) the employment
of counsel by Indemnitee has been specifically authorized by the
Company, such authorization to be conclusively established by action by
disinterested members of the Board of Directors though less than a
quorum; (ii) representation by the same counsel of both Indemnitee and
the Company would, in the reasonable judgment of Indemnitee and the
Company, be inappropriate due to an actual or potential conflict of
interest between the Company and Indemnitee in the conduct of the
defense of such action, such conflict of interest to be conclusively
established by an opinion of counsel to the Company to such effect;
(iii) the counsel employed by the Company and reasonably satisfactory
to Indemnitee has advised Indemnitee in writing that such counsel's
representation of Indemnitee would likely involve such counsel in
representing differing interests which could adversely affect the
judgment or loyalty of such counsel to Indemnitee, whether it be a
conflicting, inconsistent, diverse or other interest; or (iv) the
Company shall not in fact have employed counsel to assume the defense
of such action, in each of which cases the fees and expenses of counsel
shall be paid by the Company. The Company shall not be entitled to
assume the defense of any action, suit or proceeding brought by or on
behalf of the Company or as to which a conflict of interest has been
established as provided in (ii) hereof. Notwithstanding the foregoing,
if an insurance company has supplied directors' and officers' liability
insurance covering an action, suit or proceeding, then such insurance
company shall employ counsel to conduct the defense of such action,
suit or proceeding unless Indemnitee and the Company reasonably concur
in writing that such counsel is unacceptable.
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any liability or
penalty on Indemnitee without Indemnitee's written consent. Neither the
Company nor Indemnitee shall unreasonably withhold consent to any
proposed settlement.
12. Enforcement.
-----------
(a) The Company expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on the Company hereby in
order to induce Indemnitee to serve as a
<PAGE>
director or officer of the Company and acknowledges that Indemnitee is relying
upon this Agreement in continuing in such capacity.
(b) If a claim for indemnification or advancement of expenses is not
paid in full by the Company within thirty (30) days after a written claim by
Indemnitee has been received by the Company, Indemnitee may at any time assert
the claim and bring suit against the Company to recover the unpaid amount of the
claim. In the event Indemnitee is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such action,
the Company shall reimburse Indemnitee for all of Indemnitee's reasonable
attorneys' fees and expenses in bringing and pursuing such action.
13. Proceedings by Indemnitee.
-------------------------
The Company shall not be liable to make any payment under this
Agreement in connection with any action, suit or proceeding, or any part
thereof, initiated by Indemnitee unless such action, suit or proceeding, or part
thereof, (i) was authorized by the Company, such authorization to be
conclusively established by action by disinterested members of the Board of
Directors though less than a quorum or (ii) was brought by Indemnitee pursuant
to Section 12(b) hereof.
14. Effectiveness.
-------------
This Agreement is effective for, and shall apply to, (i) any claim
which is asserted or threatened before, on or after the date of this Agreement
but for which no action, suit or proceeding has been brought prior to the date
hereof and (ii) any action, suit or proceeding which is threatened before, on or
after the date of this Agreement but which is not pending prior to the date
hereof. This Agreement shall not apply to any action, suit or proceeding which
was brought before the date of this Agreement. So long as the foregoing is
satisfied, this Agreement shall be effective for, and be applicable to, acts or
omissions occurring prior to, on or after the date hereof.
15. Non-exclusivity.
---------------
The rights of Indemnitee under this Agreement shall not be deemed
exclusive, or in limitation of, any rights to which Indemnitee may be entitled
under any applicable common or statutory law, or pursuant to the Certificate,
the Bylaws, a vote of the stockholders or otherwise.
16. Other Payments.
--------------
The Company shall not be liable to make any payment under this
Agreement in connection with any action, suit or proceeding against Indemnitee
to the extent Indemnitee has otherwise received payment of the amounts otherwise
payable by the Company hereunder.
<PAGE>
17. Subrogation.
-----------
In the event the Company makes any payment under this Agreement, the
Company shall be subrogated, to the extent of such payment, to all rights of
recovery of Indemnitee with respect thereto, and Indemnitee shall execute all
agreements, instruments, certificates or other documents and do or cause to be
done all things necessary or appropriate to secure such recovery rights to the
Company including, without limitation, executing such documents as shall enable
the Company to bring an action or suit to enforce such recovery rights.
18. Survival; Continuation.
----------------------
The rights of Indemnitee under this Agreement shall inure to the
benefit of Indemnitee, his heirs, executors, administrators, personal
representatives and assigns, and this Agreement shall be binding upon the
Company, its successors and assigns. The rights of Indemnitee under this
Agreement shall continue so long as Indemnitee may be subject to any action,
suit or proceeding because of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company or is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. If the Company, in a
single transaction or series of related transactions, sells, leases, exchanges,
or otherwise disposes of all or substantially all of its property and assets,
the Company shall, as a condition precedent to any such transaction, cause
effective provision to be made so that the persons or entities acquiring such
property and assets shall become bound by and replace the Company under this
Agreement.
19. Amendment and Termination.
-------------------------
No amendment, modification, termination or cancellation of this
Agreement shall be effective unless made in writing signed by both parties
hereto.
20. Headings.
--------
Section headings of the sections and paragraphs of this Agreement have
been inserted for convenience of reference only and do not constitute a part of
this Agreement.
21. Notices.
-------
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally, mailed by
certified mail (return receipt requested) or sent by overnight delivery service,
cable, telegram, facsimile transmission or telex to the parties at the following
addresses or at such other addresses as shall be specified by the parties by
like notice:
<PAGE>
(a) if to the Company:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Attn: President
with a copy to:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Attn:
-----------------------------
(b) if to the Indemnitee
-----------------------------------
-----------------------------------
-----------------------------------
Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the fourth calendar day after posting, in the case of
notice so given by overnight delivery service, on the date of actual delivery
and, in the case of notice so given by cable, telegram, facsimile transmission,
telex or personal delivery, on the date of actual transmission or, as the case
may be, personal delivery.
22. Severability.
------------
If any provision of this Agreement shall be held to be illegal, invalid
or unenforceable under any applicable law, then such contravention or invalidity
shall not invalidate the entire Agreement. Such provision shall be deemed to be
modified to the extent necessary to render it legal, valid and enforceable, and
if no such modification shall render it legal, valid and enforceable, then this
Agreement shall be construed as if not containing the provision held to be
invalid, and the rights and obligations of the parties shall be construed and
enforced accordingly.
23. Complete Agreement.
------------------
This Agreement, those documents expressly referred to herein and other
documents of even date herewith embody the complete agreement and understanding
among the parties and supersede and preempt any prior understandings, agreements
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
<PAGE>
24. Counterparts.
------------
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, with the same effect as if
all parties had signed the same document. All such counterparts shall be deemed
an original, shall be construed together and shall constitute one and the same
instrument.
25. CHOICE OF LAW. THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW,
AND NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
Travel Services International, Inc.
By:
---------------------------------
,
----------------- --------------
---------------------------------
, Indemnitee
---------------------
PROMISSORY NOTE
Bethesda, Maryland
May , 1997
FOR VALUE RECEIVED, Travel Services Group International, Inc.,
a Delaware corporation ("Borrower"), unconditionally promises to pay to the
order of TSGI Funding, LLC, a Delaware limited liability company ("Lender"),
without offset, at its offices at c/o Alpine Consolidated, LLC, 4701 Sangamore
Road, PL 15, Bethesda, Maryland 20816, or at such other place as the holder of
this Note may designate in writing, on demand, the principal sum set forth below
in the last entry on the Schedule of Advances and Payments of Principal (the
"Schedule") as "Principal Amount Outstanding," with interest payable on the 1st
day of each month beginning June 1, 1997, and at maturity on the unpaid
principal of such sum until repaid in full. All payments made on this Note shall
be applied first to accrued interest and then to principal. In no event shall
the principal sum set forth below in the last entry on the Schedule as the
Principal Amount Outstanding exceed the amount set forth below in the last entry
on the Schedule as the Total Borrowings Cap. Lender and Borrower initially
intend that the principal amount available hereunder will be $500,000. Such
$500,000 amount, however, may be increased from time to time as Lender and
Borrower shall mutually agree in writing, as shall be set forth in the last
entry on the Schedule under Total Borrowings Cap. Interest on this Note with
respect to each advance made hereunder shall accrue at the rate per annum set
forth below in the entry on the Schedule as the Interest Rate for such advance.
Borrower understands and agrees that any officer or authorized
employee of Lender may make entries on the Schedule of this Note and on any
additional schedules attached hereto upon receipt of written or telephonic
instructions of any one reasonably believed by such officer or authorized
employee to be an authorized agent of Borrower. Borrower shall indemnify and
hold Lender harmless from and against any and all claims, damages, losses, costs
and expenses (including attorneys' fees) that may arise or be created by the
acceptance of instructions for making or paying advances by telephone.
The happening of any of the following events shall constitute
an event of default:
A. The failure to make when due any installment or other
payment described herein, whether of principal, interest, late charges or
otherwise;
B. The dissolution or termination of existence of Borrower;
C. The inability of Borrower to pay its debts when due, the
insolvency of Borrower, the application for the appointment of a receiver or
custodian for Borrower or the property of Borrower, the entry of an order for
relief of the filing of a petition by or against
<PAGE>
Borrower under the provisions of any bankruptcy or insolvency law, or any
assignment for the benefit of creditors by or against Borrower;
D. The entry of a judgment against Borrower or the issuance or
service of any attachment, levy or garnishment against Borrower or the property
of Borrower;
E. The determination by Lender that a material adverse change
in the financial condition of Borrower has occurred since the date hereof, or if
Lender deems itself insecure or otherwise in good faith believes that the
prospect of payment or performance is impaired;
F. The failure of Borrower to perform any obligation to Lender
hereunder or under the terms of any other obligation of Borrower to Lender; or
G. The default by Borrower in any agreement for borrowed
money, whether owed to Lender or to a third person.
Upon the happening of any event of default, this Note shall,
at the sole option of Lender, become immediately due and payable without notice
to or demand on Borrower. In the event Borrower fails to pay any installment of
interest or otherwise fails to repay this Note within seven (7) days of its due
date, Borrower agrees to pay Lender on demand a late charge of five percent (5%)
of the overdue payment.
Borrower hereby expressly waives presentment, demand, protest
and notice of dishonor, and waives the benefit of all homestead and similar
exemptions as to this debt. If after default, this Note is placed in the hands
of an attorney for collection, Borrower agrees to pay all reasonable attorneys'
fees incurred by Lender.
Any failure or delay by Lender to exercise any right hereunder
shall not be construed as a waiver of the right to exercise the same or any
other rights at any time.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF ADVANCES AND PAYMENTS OF PRINCIPAL
- ------------------------------------------------------------------------------------------------------------
Principal Total Approving
Interest Amount Borrowings Person's
Date Advances Rate Payments Outstanding Cap Initials
- ------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate principal amount outstanding shown on the Schedule shall
be prima facie evidence of the principal amount owing and unpaid on this Note.
The failure to record the date and amount of any advance on the Schedule shall
not, however, limit or otherwise effect the obligations of Borrower under this
Note to repay the principal amount of the advance together with all interest
accruing thereon.
The provisions of this Note shall be construed and interpreted, and all
rights and obligations of the parties hereunder determined in accordance with
the laws of the State of Maryland.
- 3 -
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
and delivered as of the day and year first above written.
TRAVEL SERVICES GROUP INTERNATIONAL, INC.,
a Delaware corporation
By:
---------------------------------------
Name:
---------------------------------
Title:
--------------------------------
ACKNOWLEDGED:
TSGI FUNDING, LLC
a Delaware corporation
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
- 4 -
CONSENT OF PERSON NAMED TO BECOME AN ADVISORY 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 an advisory 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: June 17, 1997
/s/ Leonard Potter
-----------------------------
Leonard Potter
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Travel Services International, Inc., and Founding Companies Unaudited Pro
Forma Combined Financial Statements for the three month period ended March 31,
1997 (In Thousands)
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1<F1>
<CASH> 8,815
<SECURITIES> 0
<RECEIVABLES> 2,332
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,767
<PP&E> 9,248
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,162
<CURRENT-LIABILITIES> 16,347
<BONDS> 5,058
0
0
<COMMON> 37,757
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 59,162
<SALES> 15,126
<TOTAL-REVENUES> 15,126
<CGS> 9,892
<TOTAL-COSTS> 9,892
<OTHER-EXPENSES> 2,964
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> 2,171
<INCOME-TAX> 969
<INCOME-CONTINUING> 1,202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,202
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
<FN>
<F1>
The above numbers should only be read in conjunction with TSII's financial
statements and accompanying footnotes, for the three month period ended March
31, 1997.
</FN>
</TABLE>
