TRAVEL SERVICES INTERNATIONAL INC, S-1/A, 1998-06-19

TRAVEL SERVICES INTERNATIONAL INC
S-1/A, 1998-06-19
TRANSPORTATION SERVICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998
REGISTRATION STATEMENT NO. 333-56567
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------

AMENDMENT NO. 1

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>

<TABLE>
<S> <C>
JOSEPH V. VITTORIA
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TRAVEL SERVICES INTERNATIONAL, INC. TRAVEL SERVICES INTERNATIONAL, INC.
220 CONGRESS PARK DRIVE 220 CONGRESS PARK DRIVE
DELRAY BEACH, FLORIDA 33445 DELRAY BEACH, FLORIDA 33445
(561) 266-0860 (561) 266-0860
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>

---------------

COPIES OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
DANIEL H. ARONSON, ESQ. NEIL GOLD, ESQ.
GREENBERG TRAURIG HOFFMAN FULBRIGHT & JAWORSKI L.L.P.
LIPOFF ROSEN & QUENTEL, P.A. 666 FIFTH AVENUE, 31ST FLOOR
515 EAST LAS OLAS BOULEVARD, SUITE 1500 NEW YORK, NEW YORK 10103
FT. LAUDERDALE, FLORIDA 33301 (212) 318-3000
(954) 765-0500 (FACSIMILE) (212) 752-5958
(FACSIMILE) (954) 765-1477
</TABLE>

---------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:

As soon as practicable after the 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 Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [x]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>

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.

SUBJECT TO COMPLETION, DATED JUNE 19, 1998

3,500,000 Shares

[GRAPHIC OMITTED]

TRAVEL SERVICES INTERNATIONAL, INC.

Common Stock

($.01 par value)

------------
Of the 3,500,000 shares (the "Shares") of Common Stock, $.01 par value ("Common
Stock"), offered hereby, 1,500,000 Shares are being sold by the Company and
2,000,000 Shares are being sold by certain selling stockholders (the "Selling
Stockholders") named herein under "Principal and Selling Stockholders" (the
"Offering"). The Company will not receive any of the proceeds from the sale of
Shares by the Selling Stockholders. The Common Stock is listed on the Nasdaq
Stock Market under the symbol "TRVL." On June 16, 1998, the last reported sale
price of the Common Stock on the Nasdaq Stock Market was $33.375.

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 8
HEREIN.

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.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
-------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Per Share ......... $ $ $ $
Total(2) .......... $ $ $ $
</TABLE>

(1) Before deduction of expenses payable by the Company estimated at $350,000.

(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 525,000
additional shares of Common Stock from the Company solely to cover
over-allotments of Shares. If the option is exercised in full, the total
Price to Public will be $ , Underwriting Discounts and Commissions
will be $ and Proceeds to Company will be $ .

The Shares are offered by the several Underwriters when, as and if issued
by the Company, delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that the
Shares will be ready for delivery on or about , 1998, against payment
therefor in immediately available funds.

CREDIT SUISSE FIRST BOSTON
FURMAN SELZ
NATIONSBANC MONTGOMERY SECURITIES LLC
RAYMOND JAMES & ASSOCIATES, INC.

Prospectus dated , 1998

<PAGE>

The following is a list of photos which we will be using for the inside front
cover of the prospectus for the Company:

1. closeup of man's face

2. cruise ship in harbor

3. closeup of telephone operator

4. plane

5. downtown Seattle, WA

6. resort in city

7. downtown Sydney, Australia

8. car on road

9. castle in mountains

10. resort in tropics

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS, IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M.
SEE "UNDERWRITING."

CERTAIN PERSONS PARTICIPATING IN THIS 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 AND
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>

PROSPECTUS SUMMARY

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. SEE "RISK FACTORS" FOR A
DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMMON STOCK.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS OTHERWISE
INDICATED, ALL REFERENCES TO COMMON STOCK INCLUDE THE COMPANY'S RESTRICTED
COMMON STOCK. SEE "DESCRIPTION OF CAPITAL STOCK--COMMON STOCK AND RESTRICTED
COMMON STOCK." ALL REFERENCES TO THE "COMPANY" REFER TO TRAVEL SERVICES
INTERNATIONAL, INC. AND ITS SUBSIDIARIES, AND ALL REFERENCES TO THE "OPERATING
COMPANIES" REFER TO THE COMPANY'S OPERATING SUBSIDIARIES.

THE COMPANY

The Company is a leading specialized distributor of cruise vacations,
domestic and international airline tickets and European auto rentals, and a
leading provider of electronic hotel reservation services, to travel agents and
travelers. The Company commenced operations in July 1997 concurrently with its
initial public offering and the acquisition of five specialized travel
distributors, and has since acquired an additional 12 operating companies and a
software development company. To date, the Company has focused its acquisitions
primarily on distributors of cruise vacations to take advantage of recognized
growth opportunities in that segment, and has emerged as the largest
distributor of cruise vacations in the world. The Company also looks for
opportunities to expand into new segments of the leisure travel industry that
are complementary to its existing lines of business. In June 1998, the Company
entered the lodging travel services segment with the acquisition of Lexington
Services Associates, Ltd. ("Lexington"), which the Company believes is the
second largest electronic hotel reservation services company in the United
States. In 1997, on a pro forma basis, the Company sold reservations for
approximately 274,000 airline passengers, 213,000 cruise passengers, 259,000
European auto rentals and 1,316,000 room nights, representing gross sales
volume in excess of approximately $600 million.

The Company offers travel agents and travelers a combination of
specialized expertise, the ability to compare travel options from multiple
travel providers and competitive prices. Unlike traditional travel agents, who
often lack extensive knowledge about the specific services being offered,
specialized distributors focus their efforts on certain segments of the travel
service industry and thus provide a greater level of expertise and service with
respect to their segments. The Company's ability to provide in-depth knowledge
about alternative services from multiple travel providers differentiates it
from the internal sales departments of travel providers, who offer only that
provider's services. The Company has preferred pricing and access to inventory
through its negotiated arrangements with 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. Recognizing
the ability of specialized distributors to sell a significant amount of travel
capacity, as well as their in-depth knowledge, travel providers are
increasingly utilizing specialized distributors as a preferred source of
distribution.

The Company believes it is well positioned to take advantage of the growth
trends in the domestic and international travel industries. Domestic travel and
tourism spending by U.S. travelers was an estimated $417 billion in 1997, and
is forecasted to increase at a compound annual growth rate of 6.7% through the
year 2000. The number of U.S. citizen departures to Europe increased 11.1% to
10.1 million in 1997, and is forecasted to increase 5.6% to 10.5 million in
1998. The number of North American cruise passengers is expected to increase
from 5.1 million in 1997 to 7.0 million by the year 2000, an 11.5% compound
annual growth rate.

The leisure travel services industry is highly fragmented, and includes
numerous small specialized distributors that generally have made little
investment in technology to improve their selling

3
<PAGE>

effectiveness, efficiency and access to information. Furthermore, most of these
companies lack the sales volume necessary to obtain preferential pricing from
travel providers or to create effective national marketing campaigns. The
Company believes significant growth opportunities are available to a well
capitalized company providing a broad offering of specialized travel services
with a high level of customer service and state-of-the-art technology
infrastructure.

RECENT DEVELOPMENTS

ACQUISITIONS. Since the completion of the Company's initial public
offering and acquisition of five specialized travel distributors (the "Founding
Companies") in July 1997, the Company has acquired 12 operating companies,
consisting of nine distributors of cruise vacations, one distributor of
international airline tickets, one distributor of European auto rentals and one
electronic hotel reservation services company. In addition, the Company has
acquired a software development company. These acquisitions have, among other
things, enabled the Company to become the largest distributor of cruise
vacations in the world, further strengthen its presence in the airline and
European auto rental travel services segments, enter into the lodging travel
services segment and accelerate the development of its technology systems.

FINANCIAL PERFORMANCE. On a pro forma basis, in the three months ended
March 31, 1998, as compared to the same prior year period, the Company's
revenues increased 34.0% to $27.8 million from $20.8 million, and net income
increased 26.2% to $2.2 million from $1.8 million. In 1997, the Company's pro
forma net revenues were $92.9 million and pro forma net income was $7.9
million.

CREDIT FACILITY. During the first quarter of 1998, the Company increased
the amount available under its existing revolving line of credit to $30 million
from $20 million.

EXPANSION OF EXECUTIVE MANAGEMENT TEAM. The Company has expanded its
executive management team in the areas of marketing and operations through the
addition of two new executive officers, each of whom has more than 15 years
experience in either the cruise line or auto rental segment of the travel
industry.

FORMATION OF INFORMATION SYSTEMS AND TECHNOLOGY GROUP. Since its initial
public offering, the Company has formed an information systems and technology
group consisting of 26 employees and consultants as of June 8, 1998. This group
is in the process of developing state-of-the-art proprietary technology systems
for the Company.

GROWTH STRATEGY

The Company seeks to become the leading specialized distributor of leisure
travel services by continuing both its internal growth strategy and aggressive
acquisition program. 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. Key elements of the
Company's growth strategy include the following:

/bullet/ INVESTMENT IN TECHNOLOGY. An essential element of the Company's
growth strategy is the development of state-of-the-art information and
telecommunication technologies for use by the Company, as well as by
travel agents and travelers through the Internet. The Company plans to
invest approximately $15 million over the next 18 months to complete the
development of its "Universal" architecture, consisting of the Universal
Agent and Universal Manager applications. The Universal Agent is expected
to allow the Company to increase its productivity and capabilities by: (i)
allowing Company agents to process reservations more quickly; (ii)
enabling Company agents to offer customers more comprehensive product
information; (iii) providing Company agents additional selling and
cross-selling capabilities; (iv) allowing Company agents

4
<PAGE>

real time access to a comprehensive customer database; and (v) using the
Internet to provide information and sell reservations. The Universal
Manager, which will complement the Universal Agent application, is
expected to allow the Company to consolidate fulfillment, back office and
accounting procedures and effectively use the customer database to source
new sales opportunities. The first stage of the Universal Agent is
expected to be implemented in the summer of 1998 in connection with the
airline segment of the Company's business, with applications for the
Company's other travel segments expected to be implemented over the next
18 to 24 months.

/bullet/ CAPITALIZE ON ECONOMIES OF SCALE AND BEST PRACTICES. The Company
believes that it can achieve significant economies of scale and that its
sales volumes and relationships with travel providers enable it to obtain
preferential pricing and access preferred travel provider inventories. The
Company believes it can also benefit from greater purchasing power in
certain key expense areas including telecommunications and advertising, as
well as reduce total operating expenses by outsourcing, eliminating or
consolidating certain duplicative marketing, back-office and
administrative functions and by creating shared services centers. In
addition, the Company has identified certain best practices, including
marketing techniques, operations strategies and cost efficiencies, that
can be implemented in order to generate incremental revenue and enhance
profitability.

/bullet/ EXPANSION THROUGH ACQUISITION. The Company continues to seek
acquisitions in order to gain market share, add new areas of expertise,
access new geographic markets and enter complementary business lines. The
Company may also pursue international acquisitions that will enable the
Company to expand its business model to include leisure travel originating
in countries other than the U.S. and Canada. The Company will seek
acquisition candidates that have long standing reputations and
demonstrated growth and profitability.

OPERATING STRATEGY

The Company seeks to provide comprehensive, quality leisure travel
services, while improving efficiencies in its operations. The components of the
Company's operating strategy include the following:

/bullet/ PROVIDE EXTENSIVE EXPERTISE IN SPECIFIC TRAVEL SEGMENTS. The
Company is a specialist in several travel services segments. By leveraging
this specialized knowledge, the Company provides a higher level of
expertise and information for a broader array of travel services than may
be available through traditional distribution channels.

/bullet/ MAINTAIN AND ENHANCE STRONG STRATEGIC RELATIONSHIPS WITH TRAVEL
PROVIDERS. The Company believes that its strategic relationships with
travel providers are integral to its success. The Company has negotiated
with many travel providers for pricing that is often lower than published
fares and preferred access to capacity. These strategic relationships
enable the Company to access multiple providers within each travel segment
and to offer prices that are generally lower than would be available to
travel agents and travelers.

5
<PAGE>

channel. The Company currently utilizes three distinct channels of
distribution: (i) call centers staffed with trained sales personnel; (ii)
home-based agents (including franchisees) who service their local markets;
and (iii) traditional travel agents. The Company also intends to expand
its presence on the Internet in order to create a fourth distribution
channel for selling its services.

/bullet/ OFFER A HIGH LEVEL OF CUSTOMER SERVICE. The Company believes that
maintaining a high level of customer service is essential 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 the ability to make
travel arrangements with greater ease.

/bullet/ DEVELOP A COMPREHENSIVE BRAND STRATEGY. The Company has reviewed
various strategies in connection with the brand recognition and marketing
of its services and intends to implement a comprehensive brand and
marketing plan in the second half of 1998. This plan calls for the
development of a new, identifiable national brand, while preserving
existing brands that have a strong identity and loyal customer following.

/bullet/ CAPITALIZE ON MANAGEMENT EXPERTISE. The Company's eight executive
management personnel average more than 15 years of experience in various
segments of the travel industry. In addition, the Company believes that
the experienced local management teams at the Operating Companies have an
in-depth understanding of their respective markets and businesses and have
built strong relationships with travel providers and customers.
----------------
The Company was incorporated under the laws of the State of Delaware in
1996. The Company's Board of Directors has approved the reincorporation of the
Company from Delaware to Florida, subject to stockholder approval at the
Company's 1998 Annual Stockholders Meeting to be held in July 1998 . The
Company's executive offices are located at 220 Congress Park Drive, Delray
Beach, Florida 33445, and its telephone number is (561) 266-0860.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company ..... 1,500,000 shares(1)
Common Stock Offered by the
Selling Stockholders ................... 2,000,000 shares(1)
Common Stock to be outstanding
after this Offering .................... 12,635,528 shares(2)
Use of Proceeds ......................... To repay amounts outstanding under its existing revolving
line of credit, and for technology expenditures, working
capital and potential acquisitions. See "Use of Proceeds."
Risks of Offering ....................... See "Risk Factors."
Dividend Policy ......................... The Company does not expect to pay any dividends in
the foreseeable future. See "Dividend Policy."
Nasdaq Stock Market symbol .............. TRVL
</TABLE>

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(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(2) Based on 11,135,528 shares outstanding on June 9, 1998. Excludes (i)
1,207,663 shares issuable upon the exercise of options outstanding as of
June 9, 1998, (ii) an aggregate of an additional 408,600 shares (after
giving effect to the Offering) reserved for issuance under the Company's
1997 Long-Term Incentive Plan and 1997 Non-Employee Directors' Stock Plan
and (iii) 878,187 shares reserved for issuance under the Company's shelf
registration statement filed with the Commission on May 4, 1998. See
"Management--Director Compensation; 1997 Non-Employee Directors' Stock
Plan," "Management--1997 Long-Term Incentive Plan" and "Shares Eligible
for Future Sale."

6
<PAGE>

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

On July 28, 1997, the Company consummated its initial public offering and
the combinations of the Founding Companies (the "Combinations"). For accounting
purposes, Auto Europe, one of the Founding Companies, was designated as the
"accounting acquiror." The other four Founding Companies were accounted for
using the purchase method of accounting. From November 1997 through March 1998,
the Company acquired five other operating companies under transactions
accounted for using the pooling of interests method of accounting (the "Pooling
Acquisitions"). Accordingly, the historical financial data for each year
presented represent those of Auto Europe and the Pooling Acquisitions, and
include the operations of the other four Founding Companies and the Company
only since July 28, 1997. On June 1, 1998, the Company acquired Lexington
Services Associates, Ltd. (the "Lexington Acquisition") which is accounted for
using the purchase method of accounting. See "Selected Historical and Pro Forma
Financial Data."

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
PRO
FORMA
1995 1996 1997 1997(1)
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues ..................... $ 30,024 $ 36,720 $ 62,076 $ 92,899
Operating expenses ............... 19,079 24,762 39,342 56,734
----------- ----------- ----------- ------------
Gross profit ..................... 10,945 11,958 22,734 36,165
General and administrative
expenses ........................ 10,534 11,478 17,864 20,316
Goodwill amortization ............ -- -- 514 2,034
----------- ----------- ----------- ------------
Income from operations ........... 411 480 4,356 13,815
Other expenses, net .............. 43 182 66 252
----------- ----------- ----------- ------------
Income before provision for
income taxes .................... 368 298 4,290 13,563
Provision for income taxes ....... 147 171 861 5,696
----------- ----------- ----------- ------------
Net income ....................... $ 221 $ 127 $ 3,429 $ 7,867
=========== =========== =========== ============
Diluted earnings per share(2)..... $ 0.09 $ 0.05 $ 0.57 $ 0.71
=========== =========== =========== ============
Shares used in computing
diluted earnings per share ...... 2,587,873 2,587,873 6,022,649 11,031,279
=========== =========== =========== ============

<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------
PRO PRO
FORMA FORMA
1997 1998 1997(1) 1998(1)
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues ..................... $ 11,302 $ 24,936 $ 20,760 $ 27,818
Operating expenses ............... 7,580 14,237 12,949 15,883
----------- ------------ ------------ ------------
Gross profit ..................... 3,722 10,699 7,811 11,935
General and administrative
expenses ........................ 3,046 6,977 4,104 7,404
Goodwill amortization ............ -- 407 509 607
----------- ------------ ------------ ------------
Income from operations ........... 676 3,315 3,198 3,924
Other expenses, net .............. 63 43 153 84
----------- ------------ ------------ ------------
Income before provision for
income taxes .................... 613 3,272 3,045 3,840
Provision for income taxes ....... 257 1,374 1,279 1,612
----------- ------------ ------------ ------------
Net income ....................... $ 356 $ 1,898 $ 1,766 $ 2,228
=========== ============ ============ ============
Diluted earnings per share(2)..... $ 0.14 $ 0.18 $ 0.16 $ 0.20
=========== ============ ============ ============
Shares used in computing
diluted earnings per share ...... 2,587,873 10,817,991 10,887,375 11,419,101
=========== ============ ============ ============
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
---------- -------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ............. $ 411 $ (8,357) $ 20,252
Total assets ................ 100,524 121,377 149,986
Long-term debt .............. 12,699 22,699 4,099
Stockholders' equity......... 57,190 67,190 114,399
</TABLE>

- ---------------

(1) The pro forma financial data includes: (i) the results of the Company, each
Founding Company and the Lexington Acquisition as if the Combinations and
the Lexington Acquisition had occurred at the beginning of each respective
period; (ii) amortization of goodwill resulting from the Combinations and
the Lexington Acquisition; (iii) certain adjustments to salaries, bonuses,
management fees and benefits to former owners and key management of the
Founding Companies, the Lexington Acquisition and the Pooling
Acquisitions, to which such persons have agreed prospectively
("Compensation Differential"); (iv) reversal of acquisition costs
associated with Pooling Acquisitions; (v) provision for income taxes as if
pro forma income was subject to corporate federal and state income taxes
during the periods; and (vi) the issuance of 315,395 shares of Common
Stock at an assumed offering price of $33.375 per share the net proceeds
of which would be sufficient to repay debt incurred in connection with the
Lexington Acquisition. See Note 4 to the Company's Consolidated Financial
Statements.

(2) Diluted earnings per share has been restated to comply with Statement of
Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE. See
Note 2 to the Company's Consolidated Financial Statements.
(3) Gives effect to the Lexington Acquisition which occurred on June 1, 1998.
Does not include an additional $10.0 million of long-term debt incurred or
any other pro forma adjustments in connection with the acquisition of The
Cruise Line Inc. on April 1, 1998.

(4) Adjusted to give effect to the issuance and sale of the 1,500,000 shares of
Common Stock offered by the Company hereby (at an assumed public offering
price of $33.375 per share based on the last reported sales price of the
Common Stock on the Nasdaq Stock Market on June 16, 1998) and the
application of the net proceeds therefrom as described under "Use of
Proceeds."

7
<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.

THE STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT PURELY HISTORICAL
ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
INCLUDING WITHOUT LIMITATION STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS,
BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO THE
COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY
SUCH FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL
RESULTS, EXPERIENCE AND THE PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE
MATERIALLY DIFFERENT FROM THOSE ANTICIPATED, EXPRESSED OR IMPLIED BY THE
FORWARD-LOOKING STATEMENTS. IN EVALUATING THE COMPANY'S BUSINESS, THE FOLLOWING
FACTORS, IN ADDITION TO THE RISK FACTORS SET FORTH BELOW AND OTHER INFORMATION
SET FORTH HEREIN, SHOULD BE CAREFULLY CONSIDERED: SUCCESSFUL INTEGRATION OF
SYSTEMS; FACTORS AFFECTING INTERNAL GROWTH AND MANAGEMENT OF GROWTH; DEPENDENCE
ON TRAVEL PROVIDERS; SUCCESS OF THE ACQUISITION STRATEGY AND AVAILABILITY OF
ACQUISITION FINANCING; SUCCESS IN ENTERING NEW SEGMENTS OF THE TRAVEL MARKET
AND NEW GEOGRAPHIC AREAS; DEPENDENCE ON TECHNOLOGY; LABOR AND TECHNOLOGY COSTS;
ADVERTISING AND PROMOTIONAL EFFORTS; RISKS ASSOCIATED WITH THE TRAVEL INDUSTRY
GENERALLY; SEASONALITY AND QUARTERLY FLUCTUATIONS; COMPETITION; AND GENERAL
ECONOMIC CONDITIONS. IN ADDITION, THE COMPANY'S BUSINESS STRATEGY AND GROWTH
STRATEGY INVOLVE A NUMBER OF RISKS AND CHALLENGES, AND THERE CAN BE NO
ASSURANCE THAT THESE RISKS AND OTHER FACTORS WILL NOT HAVE A MATERIAL ADVERSE
EFFECT ON THE COMPANY.

LIMITED COMBINED OPERATING HISTORY; RISKS OF INTEGRATION

The Company was founded in April 1996 but conducted no operations and
generated no revenues prior to its initial public offering in July 1997, when
it acquired the Founding Companies. Since July 1997, the Company has acquired
an additional 12 operating companies and one software development company.
Currently, the Company relies on the existing reporting systems of the
Operating Companies for financial reporting. 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 executive management group was primarily assembled in connection with
its initial public offering, and there can be no assurance that the management
group will be able to continue to effectively manage the combined entity or
effectively implement and carry out the Company's internal growth strategy and
acquisition program. The consolidated financial statements cover periods when
the Operating Companies 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 Operating
Companies, and any future acquisitions 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 continue to
be successful.

A number of the Operating 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 become the leading specialized
distributor of leisure travel services will be successful, or that the
travelers or travel providers will accept the Company as a distributor of a
variety of specialized travel services. See "Business--Business Strategy."

DEPENDENCE ON TRAVEL PROVIDERS

The Company is dependent upon travel providers for access to their
capacity. The Company receives from certain travel providers pricing that is
preferential to published fares which enables the

8
<PAGE>

Company to offer, for certain products, prices lower than would be generally
available to travelers and travel agents. Other distributors may have similar
arrangements with travel providers, some of which may provide better
availability or more competitive pricing than that offered by the Company. The
Company anticipates that a significant portion of its revenues will continue to
be derived from the sale of capacity for relatively few travel providers. In
1997, (i) two auto rental companies represented an aggregate of 87% of European
auto rental pro forma net revenues; (ii) six cruise lines represented an
aggregate of 74% of cruise pro forma net revenues; and (iii) two airlines
represented an aggregate of 52% of airline pro forma net revenues. The
Company's agreements with its travel providers can generally be canceled 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. In addition, the lodging industry recently has witnessed a period
of consolidation. Continued consolidation could reduce the Company's electronic
hotel reservation services customer base which could, in turn, have a material
adverse effect on the Company's financial condition and results of operations.

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 operating companies. There can be no assurance that the Company will
be able to identify, acquire or profitably manage additional businesses or
successfully integrate acquired businesses into the Company without substantial
costs, delays or other operational or financial problems. Increased competition
for acquisition candidates may develop, in which event there may be fewer
acquisition opportunities available to the Company, as well 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. Customer dissatisfaction or performance problems at a single
acquired company could also have an adverse effect on the reputation of the
Company. The Company may also seek international acquisitions that may be
subject to additional risks associated with doing business in foreign
countries. In addition, there can be no assurance that businesses acquired will
achieve anticipated revenues and earnings. The Company continually reviews
various strategic acquisition opportunities and has held discussions with a
number of such acquisition candidates. As of the date of this Prospectus, the
Company is not party to any agreements with respect to any acquisitions. See
"Business--Growth Strategy."

RISKS RELATED TO ACQUISITION FINANCING AND POSSIBLE NEED FOR ADDITIONAL CAPITAL

The Company plans 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
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. There can be no assurance that the
Company's line of credit will be sufficient or that other financing will be
available 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 carry out its acquisition strategy. In addition, to maintain
historical levels of growth, the Company may need to seek additional funding
through public or private financing. Adequate funds for these purposes may not
be available when needed or may not be available on terms acceptable to the
Company. If funding is insufficient, the Company may be required to delay,
reduce the scope of or eliminate some or all of its expansion programs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

9
<PAGE>

DEPLOYMENT OF NEW TECHNOLOGY

Commencing in the summer of 1998 and continuing for 18 to 24 months
thereafter, the Company expects that it will replace many of the existing
computer systems at the Operating Companies and implement its new "Universal"
architecture. There can be no assurance that these new systems will be
successfully developed, installed according to the expected time frame or
within the anticipated budget, implemented without any disruption to the
Company's business or result in the intended operational benefits and cost
efficiencies. See "Business--Information Technology."

DEPENDENCE UPON TECHNOLOGY

The Company's business is currently 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, one of the Operating Company'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, such as SABRE Group and Amadeus and THISCO 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.

The technology systems being used currently at the Company's headquarters
are Year 2000 compliant, and new systems currently under development by the
Company are working with compliant standards. An assessment of the Year 2000
readiness of the technology currently being used in the Operating Companies is
in process, and the Company cannot make any assurances with respect to such
readiness at this time. The assessment being conducted by the Company includes
inquiries of management and certification requests from hardware and software
vendors. New systems under development by the Company are expected to replace
some of the older software applications currently in use at certain Operating
Companies. There can be no assurance, however, that such replacements will be
made or will be made on time. The Company can not assess whether its travel
providers and other third parties have appropriate plans to remedy Year 2000
compliance issues where their systems interface with the Company's systems or
otherwise impact its operations. There can be no assurance that a failure of
systems of third parties on which the Company's systems and operations rely to
be Year 2000 compliant will not have a material adverse effect on the Company's
business, financial condition and operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Information Technology."

MANAGEMENT OF GROWTH; FACTORS AFFECTING INTERNAL GROWTH

The Company expects to continue to grow internally and through
acquisitions. The Company expects to spend significant time and effort
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 or 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 qualified management, the
Company's business, financial condition and results of operations could be
materially adversely affected. While the Company has experienced revenue and
earnings growth on a pro forma basis over the past few years, there can be no
assurance that the Company will continue to experience internal growth
comparable to these levels, if at all. From time to time, certain of the
Operating Companies have been unable to hire and train the number of qualified
sales personnel needed to meet the demands of their businesses. Factors
affecting the ability of the Company to continue to experience internal growth
include, but are not limited to, the ability to expand the travel

10
<PAGE>

services offered, the continued relationships with certain travel providers and
travel agents, the ability to recruit and retain qualified sales personnel, the
ability to cross-sell services within the Company and continued access to
capital. See "Business--Growth Strategy" and "Management."

RISKS ASSOCIATED WITH THE TRAVEL INDUSTRY; GENERAL ECONOMIC CONDITIONS

The Company's results of operations are dependent upon factors generally
affecting the travel industry. The Company's revenues and earnings are
especially sensitive to events that affect domestic and international air
travel, cruise travel, auto rentals in Europe and room nights. A number of
factors could result in an overall decline in demand for travel, 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, excessive inflation, a general weakening in
economic activity and reduced employment in the U.S. These types of events
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Industry Overview."

SEASONALITY AND QUARTERLY FLUCTUATIONS

The domestic and international leisure travel industry is seasonal. The
results of each of the Operating 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 a majority of the Operating Companies are generally higher in the second
and third quarters. Seasonality depends on the particular leisure travel
service sold. The Company expects seasonality to continue in the future on a
combined basis. The Company's quarterly results of operations may also be
subject to fluctuations as a result of the timing and cost of acquisitions,
changes in the mix of services offered by the Company as a result of
acquisitions, internal growth rates among various travel segments, fare wars by
travel providers, changes in relationships with certain travel providers, the
timing of the payment of overrides 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 Conditions and Results of
Operations."

SUBSTANTIAL AMOUNT OF GOODWILL

Approximately $84.3 million, or 69.5%, of the Company's pro forma total
assets as of March 31, 1998, is goodwill, which represents the excess of
consideration paid over the estimated fair market value of net assets acquired
in business combinations accounted for under the purchase method. The Company
generally amortizes goodwill on a straight line method over a period of 35
years with the amount amortized in a particular period constituting a non-cash
expense that reduces the Company's net income. Amortization of goodwill
resulting from certain past acquisitions, and additional goodwill recorded in
certain future acquisitions may not be deductible for tax purposes. In
addition, the Company will be required periodically to evaluate the
recoverability of goodwill by reviewing the anticipated undiscounted future
cash flows from operations and comparing such cash flows to the carrying value
of the associated goodwill. If goodwill becomes impaired, the Company would be
required to write down the carrying value of the goodwill and incur a related
charge to its income. A reduction in net income resulting from a write down of
goodwill would currently affect financial results and could have a material and
adverse impact upon the market price of the Common Stock.

SUBSTANTIAL COMPETITION

11
<PAGE>

availability or more competitive pricing than that offered by the Company.
Furthermore, some travel agents have a strong presence in their geographic area
which may make it difficult for the Company to attract customers in those
areas.

RELIANCE ON KEY PERSONNEL

The Company's operations are dependent on the efforts and relationships of
Joseph V. Vittoria and the other executive officers as well as the senior
management of the Operating Companies. Furthermore, the Company will likely be
dependent on the senior management of any businesses acquired in the future. If
any of these individuals become unable to continue in their role the Company's
business or prospects could be adversely affected. Although the Company has
entered into an employment agreement with each of the Company's executive
officers and the executive officers of each Operating Company, there can be no
assurance that such individuals will continue in their present capacity for any
particular period of time. The Company does not maintain key man life insurance
covering any of its executive officers or other members of senior management.
See "Management."

VOTING CONTROL OF EXISTING MANAGEMENT AND STOCKHOLDERS

After giving effect to the Offering, the Company's executive officers and
directors, their affiliates and executive officers of the Operating Companies
beneficially own shares of Common Stock representing 32.7% of the total voting
power of the Common Stock (38.7% 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 and Selling
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

Sales of substantial amounts of Common Stock in the public market during
or after the Offering, or the perception that such sales could occur, may
adversely affect prevailing market prices of the Common Stock and could impair
the future ability of the Company to raise capital through an offering of its
equity securities or to use such securities as consideration in acquisitions.
Upon completion of the Offering, the Company will have 12,635,528 shares of
Common Stock outstanding. Of these shares, 6,586,000 shares will be freely
tradeable without restriction under the Securities Act. The remaining 6,049,528
shares represent (i) shares beneficially owned by "affiliates" of the Company
(as that term is defined in Rule 144 under the Securities Act) and other
original investors in the Company and (ii) shares issued to sellers of
companies acquired by the Company during the past year, which shares may be
sold in the open market in compliance with the applicable requirements of Rule
144 or Rule 145 under the Securities Act or, in certain cases, pursuant to the
Company's shelf registration statement. In addition, 40,000 shares may be
acquired pursuant to outstanding currently exercisable options. The Company,
its directors and executive officers and the Selling Stockholders have agreed
that they will not offer, sell, contract to sell, pledge, grant any option for
the sale of, announce their intention to sell, or otherwise dispose of,
directly or indirectly, any shares of Common Stock, or any securities
convertible into or exercisable or exchangeable for Common Stock, for a period
of 120 days after the date of this Prospectus without the prior written consent
of Credit Suisse First Boston, except for, in the case of the Company, Common
Stock issued pursuant to any employee or director benefit plans described
herein or in connection with acquisitions.

Pursuant to a shelf registration statement filed with the Commission on
May 4, 1998, the Company registered 1,506,706 shares of the Company's Common
Stock under the Securities Act for use by the Company as consideration for
recent and future acquisitions and 1,668,294 shares of the Company's Common
Stock to be sold by certain stockholders of the Company. Upon issuance, those
shares will generally be freely tradable, unless the resale thereof is
contractually restricted. When possible, the Company will seek restrictions on
the shares issued as consideration for future acquisitions that are as

12
<PAGE>

restrictive as those described in the preceding paragraph, however, such
restrictions may not be available in certain cases, such as transactions
accounted for using the pooling of interests method of accounting. See "Shares
Eligible for Future Sale."

POSSIBLE VOLATILITY OF STOCK PRICE

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, and 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.

EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS

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 and, in the event that the Company's
stockholders approve the reincorporation of the Company from Delaware to
Florida at the 1998 Annual Meeting of Stockholders to be held in July 1998 (the
"1998 Annual Meeting"), the Florida Business Corporation Act, may also
discourage takeover attempts that have not been approved by the Board of
Directors. See "Management--Directors and Executive Officers" and "Description
of Capital Stock."

13
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company (after deducting underwriting discounts
and commissions and estimated offering expenses) from the sale of 1,500,000
shares of Common Stock offered by the Company are estimated to be approximately
$47.2 million ($63.9 million if the Underwriters' over-allotment option is
exercised in full) at an assumed public offering price of $33.375 per share,
based on the last reported sale price of the Common Stock on the Nasdaq Stock
Market on June 16, 1998. The Company will not receive any of the proceeds from
the sale of 2,000,000 shares of Common Stock offered hereby by the Selling
Stockholders.

The Company intends to apply a portion of the net proceeds from the
Offering to repay the amounts outstanding under the Company's $30 million
revolving line of credit (which are expected to be approximately $28.6 million
at the closing of the Offering). Indebtedness under the Company's revolving
line of credit has been used for acquisitions (including the Company's recent
acquisitions of The Cruise Line Inc. and Lexington), is payable October 15,
2000 and bears interest at an effective rate of 7.1% per year as of June 9,
1998. Amounts repaid under the revolving line of credit may be reborrowed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

The Company intends to use the remaining net proceeds for capital and
technology expenditures. The Company has reviewed various strategic acquisition
opportunities and has held discussions with a number of such acquisition
candidates. The Company is not a party to any agreements regarding any
acquisitions as of the date of this Prospectus. Pending utilization as
described above, the Company intends to invest the net proceeds in short-term,
investment grade securities, certificates of deposit or direct or guaranteed
obligations of the U.S. government, or a combination thereof.

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, the Company's Credit Facility
includes restrictions on the ability of the Company to pay dividends without
the consent of the lender.

PRICE RANGE OF COMMON STOCK

The Common Stock is quoted on the Nasdaq Stock Market under the symbol
"TRVL." The Company completed its initial public offering in July 1997 at a
price of $14.00 per share. The following table sets forth, for the Company's
fiscal periods indicated, the range of high and low reported sales prices for
the Common Stock.

<TABLE>
<CAPTION>
1997 HIGH LOW
- -------------------------------------------------- ----------- ---------
<S> <C> <C>
Third Quarter 1997 (from July 23, 1997) .......... $ 25-5/8 $18-7/8
Fourth Quarter ................................... $ 26 $19-3/8
1998
- ----
First Quarter .................................... $33-11/16 $17-7/8
Second Quarter (through June 16, 1998) ........... $ 39-3/8 $ 30
</TABLE>

On June 16, 1998, the last reported sale price of the Common Stock on the
Nasdaq Stock Market was $33.375 per share. On June 16, 1998, there were 142
holders of record of the Company's Common Stock, although the Company believes
the number of beneficial holders is substantially greater.

14
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated cash and equivalents and
capitalization of the Company (i) at March 31, 1998; (ii) on a pro forma basis
to give effect to the Lexington Acquisition; and (iii) as further adjusted to
give effect to the issuance of the 1,500,000 shares of Common Stock offered
hereby (at as assumed public offering price of $33.375 based on the last
reported sales price of the Common Stock on the Nasdaq Stock Market on June 16,
1998) and the application of the estimated net proceeds therefrom. See "Use of
Proceeds." This table should be read in conjuntion with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the Notes thereto contained
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------------- ------------
<S> <C> <C> <C>
Cash and equivalents .......................................... $20,619 $ 10,619 $ 39,228
======= ========= ========
Long-term debt, less current portion .......................... $12,699 $ 22,699(1) $ 4,099
------- ----------- --------
Stockholders' Equity(2):
Preferred stock, $0.01 par value, 1,000,000 shares authorized;
none outstanding ........................................... -- -- --
Common stock, $0.01 par value, 50,000,000 shares authorized;
10,504,826 shares outstanding, 10,790,540 shares outstanding
pro forma, and 12,290,540 shares outstanding pro forma
as adjusted ................................................ 105 108 123
Additional paid-in capital ................................... 52,462 62,459 109,653
Retained earnings ............................................ 4,623 4,623 4,623
------- ----------- --------
Total stockholders' equity ................................... 57,190 67,190 114,399
------- ----------- --------
Total capitalization ........................................ $69,889 $ 89,889 $118,498
======= =========== ========
</TABLE>

- ----------------
(1) Does not include an additional $10.0 million of long-term debt incurred or
any other pro forma adjustments in connection with the acquisition of The
Cruise Line Inc. on April 1, 1998.

(2) Does not include (i) 1,207,633 shares issuable upon the exercise of options
outstanding as of June 9, 1998, (ii) an aggregate of an additional 408,600
shares (after giving effect to the Offering) reserved for issuance under
the Company's 1997 Long-Term Incentive Plan and 1997 Non-Employee
Directors' Stock Option Plan and (iii) 878,187 shares reserved for
issuance under the Company's shelf registration statement filed with the
Commission on May 4, 1998. See "Management--Director Compensation; 1997
Non-Employee Directors' Stock Plan" and "Management--1997 Long-Term
Incentive Plan" and "Shares Eligible for Future Sale."

15
<PAGE>

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

On July 28, 1997, the Company consummated its initial public offering and
acquired the Founding Companies in transactions accounted for using the
purchase method of accounting. Historical financial statements do not include
the operating results of the Founding Companies (other than Auto Europe, the
"accounting acquiror") prior to July 1997. Historical financial statements for
the years ended December 31, 1995, 1996 and 1997 and the three months ended
March 31, 1997 and 1998 include the operating results of five additional
specialized distributors of cruise reservation services acquired from November
1997 through March 1998 under transactions accounted for using the pooling of
interests method of accounting (the "Pooling Acquisitions"). Historical
financial statements for the three months ended March 31, 1998 also include the
operating results of three specialized distributors of reservations (one
airline, one cruise and one auto rental) acquired during the first quarter of
1998 under transactions accounted for using the purchase method of accounting
(the "Purchase Acquisitions"), from the date of acquisition through March 31,
1998. Historical financial statements do not include the operating results of
two other specialized distributors of cruise reservations acquired in April and
May 1998 (the "Second Quarter 1998 Poolings") which will be accounted for using
the pooling of interests method of accounting, as the financial results of
these acquisitions were not material to the Company's results of operations.
Historical financial statements do not include the April 1, 1998 acquisition of
The Cruise Line Inc., a specialized distributor of cruise reservation services,
accounted for under the purchase method of accounting (the "Cruise Line
Purchase") or the June 1, 1998 acquisition of Lexington Services Associates,
Ltd., an electronic hotel reservation services company, accounted for using the
purchase method of accounting (the "Lexington Acquisition").

The historical financial data of the Company as of December 31, 1996 and
1997 and for each of the five years ending December 31, 1993, 1994, 1995, 1996,
and 1997 have been derived from the audited consolidated financial statements
of the Company included elsewhere herein and from the Company's Registration
Statement dated July 22, 1997. The historical financial data of the Company for
the three months ended March 31, 1997 and 1998 have been derived from the
unaudited consolidated financial statements of the Company included elsewhere
herein, which have been prepared on the same basis as the audited financial
statements and, in the opinion of management, reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of such data. The information contained in these tables should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.

Historical financial statements do not include the operating results of
the Founding Companies (other than Auto Europe, the "accounting acquiror")
prior to July 1997, and, therefore, are not meaningful when comparing
historical operating results for the years ended December 31, 1996 and 1997 and
for the three months ended March 31, 1997 and 1998. Accordingly, pro forma
combined results of operations and pro forma diluted earnings per share for the
Company are presented which give effect to the results of the Company combined
with all the Founding Companies and the Lexington Acquisition as if the
Combinations and the Lexington Acquisition had occurred at the beginning of
each respective period, along with certain adjustments associated with the
Combinations, the Pooling Acquistions and the Lexington Acquisition. The pro
forma combined statements do not include the operating results of the Second
Quarter 1998 Poolings and the Cruise Line Purchase as operating results of
these acquisitions were not material to the Company's results of operations.
The pro forma financial data have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which actually
would have resulted had the Founding Companies and the Lexington Acquisition
been under common control prior to the Combinations or the Lexington
Acquisition, or which may result in the future.

16
<PAGE>

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------
PRO
FORMA
1993 1994 1995 1996 1997 1997(1)
------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA:
Net revenues .................. $ 12,208 $ 17,156 $ 30,024 $ 36,720 $ 62,076 $ 92,899
Operating expenses ............ 8,469 11,101 19,079 24,762 39,342 56,734
----------- ----------- ----------- ----------- ----------- ------------
Gross profit .................. 3,739 6,055 10,945 11,958 22,734 36,165
General and administrative
expenses ..................... 3,986 6,276 10,534 11,478 17,864 20,316
Goodwill amortization ......... -- -- -- -- 514 2,034
----------- ----------- ----------- ----------- ----------- ------------
Income from operations ........ (247) (221) 411 480 4,356 13,815
Other expenses, net ........... 19 28 43 182 66 252
----------- ----------- ----------- ----------- ----------- ------------
Income before provision for
income taxes ................. (266) (249) 368 298 4,290 13,563
Provision for income
taxes ........................ -- -- 147 171 861 5,696
----------- ----------- ----------- ----------- ----------- ------------
Net income .................... $ (266) $ (249) $ 221 $ 127 $ 3,429 $ 7,867
=========== =========== =========== =========== =========== ============
Per Share Data(2):
Basic earnings
per share ................... $ (0.10) $ (0.10) $ 0.09 $ 0.05 $ 0.58
=========== =========== =========== =========== ===========
Diluted earnings
per share ................... $ (0.10) $ (0.10) $ 0.09 $ 0.05 $ 0.57 $ 0.71
=========== =========== =========== =========== =========== ============
Shares used in computing
basic earnings per share ..... 2,587,873 2,587,873 2,587,873 2,587,873 5,883,667
=========== =========== =========== =========== ===========
Shares used in computing
diluted earnings per share 2,587,873 2,587,873 2,587,873 2,587,873 6,022,649 11,031,279
=========== =========== =========== =========== =========== ============

<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------
PRO PRO
FORMA FORMA
1997 1998 1997(1) 1998(1)
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA:
Net revenues .................. $ 11,302 $ 24,936 $ 20,760 $ 27,818
Operating expenses ............ 7,580 14,237 12,949 15,883
----------- ------------ ------------ ------------
Gross profit .................. 3,722 10,699 7,811 11,935
General and administrative
expenses ..................... 3,046 6,977 4,104 7,404
Goodwill amortization ......... -- 407 509 607
----------- ------------ ------------ ------------
Income from operations ........ 676 3,315 3,198 3.924
Other expenses, net ........... 63 43 153 84
----------- ------------ ------------ -------------
Income before provision for
income taxes ................. 613 3,272 3,045 3,840
Provision for income
taxes ........................ 257 1,374 1,279 1,612
----------- ------------ ------------ -------------
Net income .................... $ 356 $ 1,898 $ 1,766 $ 2,228
=========== ============ ============ =============
Per Share Data(2):
Basic earnings
per share ................... $ 0.14 $ 0.18
=========== ============
Diluted earnings
per share ................... $ 0.14 $ 0.18 $ 0.16 $ 0.20
=========== ============ ============ =============
Shares used in computing
basic earnings per share ..... 2,587,873 10,427,197
=========== ============
Shares used in computing
diluted earnings per share 2,587,873 10,817,991 10,887,375 11,419,101
=========== ============ ============ =============
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1993 1994 1995 1996 1997
---------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital .............. $ (891) $ (2,729) $ (2,866) $ (5,357) $ 1,197
Total assets ................. 3,307 4,689 7,430 11,610 68,307
Long-term debt ............... 17 24 191 2,272 4,129
Stockholders' equity ......... (95) (535) 90 248 50,838

<CAPTION>
MARCH 31, 1998
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
----------- -------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital .............. $ 411 $ (8,357) $ 20,252
Total assets ................. 100,524 121,377 149,986
Long-term debt ............... 12,699 22,699 4,099
Stockholders' equity ......... 57,190 67,190 114,399
</TABLE>

- --------------

(1) The pro forma financial data includes: (i) the results of the Company, each
Founding Company and the Lexington Acquisition as if the Combinations and
the Lexington Acquisition had occurred at the beginning of each respective
period; (ii) amortization of goodwill resulting from the Combinations and
the Lexington Acquisition; (iii) certain adjustments to salaries, bonuses,
management fees and benefits to former owners and key management of the
Founding Companies, the Lexington Acquisition and the Pooling
Acquisitions, to which such persons have agreed prospectively
("Compensation Differential"); (iv) reversal of acquisition costs
associated with Pooling Acquisitions; (v) provision for income taxes as if
pro forma income was subject to corporate federal and state income taxes
during the periods; and (vi) the issuance of 315,395 shares of Common
Stock at an assumed offering price of $33.375 per share, the net proceeds
of which would be sufficient to repay debt incurred in connection with the
Lexington Acquisition. See Note 4 to the Company's Consolidated Financial
Statements.

(2) Diluted earnings per share have been restated to comply with Statement of
Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE. See
Note 2 to the Company's Consolidated Financial Statements.
(3) Gives effect to the Lexington Acquisition which occurred on June 1, 1998.
Does not include an additional $10.0 million of long term debt incurred or
any other pro forma adjustments in connection with the acquisition of The
Cruise Line, Inc. on April 1, 1998.

17
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with "Selected
Historical and Pro Forma Financial Data" and the Company's Consolidated
Financial Statements and related Notes thereto included elsewhere in this
Prospectus.

INTRODUCTION

The Company's revenue is derived primarily from selling travel related
services, including cruise vacations, airline tickets and European auto
rentals, and providing electronic hotel reservation services. The Company does
not record the total gross amount of the travel services sold to travelers or
travel agents. Net revenues recorded by the Company include commissions and
markups on travel services, volume bonuses and override commissions, processing
and delivery fees, franchise fees and hotel reservation fees. The Company
records net revenues when earned which, for auto rentals and airline tickets is
at the time the reservation is booked and ticketed, for cruise bookings is when
the cruise is fully paid for and the customer is no longer entitled to a full
refund of the cost of the cruise, generally 45 to 90 days prior to the sailing
date, and for hotel reservation services is at the time the traveler checks out
of the hotel. The Company provides an allowance for cancellations, reservation
changes, "no shows" and currency exchange guarantees which is based on
historical experience.

Operating expenses include compensation of sales and sales support
personnel, commissions, credit card merchant fees, telecommunications, mail,
courier, marketing, global distribution systems fees and other expenses that
vary with revenues. Commissions to travel agents are typically based on a
percentage of the gross amount of the travel services sold. The Company's sales
personnel are compensated either on an hourly basis, a commission basis or a
combination of the two, with the majority of agents receiving a substantial
portion of their compensation based on sales generated. The Company's
independent contractors selling cruises receive a portion of the commissions
earned by the Company. The Company receives a portion of commissions earned by
its franchisees selling cruises.

General and administrative expenses include compensation and benefits to
management and administrative employees, fees for professional services, rent,
information services, depreciation, travel and entertainment, office services,
amortization of capitalized internally developed software and other overhead
costs. Internally developed software is amortized over five years.

The Company records as goodwill the excess of consideration paid over the
estimated fair market value of net assets acquired in business combinations
accounted for under the purchase method. Goodwill is amortized over 35 years
for the travel service companies acquired and over five years for an acquired
software company. As of March 31, 1998, including the pro forma adjustment for
the Lexington Acquisition, goodwill, net was $84.3 million.

18
<PAGE>
RESULTS OF OPERATIONS--HISTORICAL

The following table sets forth for 1995, 1996 and 1997 and the three
months ended March 31, 1997 and 1998 certain items from the Company's
Historical Statement of Income Financial Data expressed as a percentage of net
revenues:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues ..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses ............................... 63.5 67.4 63.4 67.1 57.1
----- ----- ----- ----- -----
Gross profit ..................................... 36.5 32.6 36.6 32.9 42.9
General and administrative expenses .............. 35.1 31.3 28.8 27.0 28.0
Goodwill amortization ............................ -- -- 0.8 -- 1.6
----- ----- ----- ----- -----
Income from operations ........................... 1.4 1.3 7.0 6.0 13.3
Other expenses, net .............................. 0.2 0.5 0.1 0.6 0.2
----- ----- ----- ----- -----
Income before provision for income taxes ......... 1.2 0.8 6.9 5.4 13.1
Provision for income taxes ....................... 0.5 0.5 1.4 2.3 5.5
----- ----- ----- ----- -----
Net income ....................................... 0.7% 0.3% 5.5% 3.1% 7.6%
===== ===== ===== ===== =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

Net revenues increased from $11.3 million in the three months ended March
31, 1997 (the "1997 Period") to $24.9 million in the three months ended March
31, 1998 (the "1998 Period"). Net revenues in the European auto rental segment
increased 19.6%, with the balance attributable to the inclusion of the net
revenues of four of the Founding Companies commencing on July 28, 1997 and the
Purchase Acquisitions in 1998.

Operating expenses increased from $7.6 million in the 1997 Period to $14.2
million in the 1998 Period. As a percentage of net revenues, total operating
expenses decreased from 67.1% in the 1997 Period to 57.1% in the 1998 Period,
primarily due to changes in the mix of business in each travel segment as a
result of acquisitions, and as a result of lower commission expenses as a
percentage of net revenues in the European auto rental segment in the 1998
Period as compared to the 1997 Period.

General and administrative expenses increased from $3.0 million in the
1997 Period to $7.0 million in the 1998 Period, and were 27.0% and 28.0% of net
revenues, respectively. This increase was primarily the result of expenses
associated with being a public company and corporate overhead which did not
exist prior to the intitial public offering, offset in part by lower general
and administrative expenses at the Operating Companies as a percentage of net
revenues.

Goodwill amortization was $407,000 in 1998. No goodwill amortization was
recorded prior to the Combinations in July 1997.

1996 COMPARED TO 1997

Net revenues increased from $36.7 million in 1996 to $62.1 million in
1997. This increase is primarily attributable to a 27.0% increase in net
revenues from European auto rental reservations and a 19.7% increase in cruise
net revenues at the companies comprising the Pooling Acquisitions, as well as
the inclusion of the net revenues of four of the Founding Companies commencing
on July 28, 1997.

Operating expenses increased from $24.8 million in 1996 to $39.3 million
in 1997. As a percentage of net revenues, total operating expenses decreased
from 67.4% in 1996 to 63.4% in 1997, primarily due to lower salaries and
commission expenses as a percentage of net revenues at Auto Europe, as well as

19
<PAGE>

the operating expenses at the Pooling Acquisitions and the four other Founding
Companies being lower as a percentage of net revenues than at Auto Europe.

General and administrative expenses increased from $11.5 million in 1996
to $17.9 million in 1997, and were 31.3% and 28.8% of net revenues,
respectively. This decrease as a percentage of net revenues was the result of
the Pooling Acquisitions and the four other Founding Companies generally having
lower general and administrative expenses as a percentage of net revenues than
Auto Europe, offset in part by expenses associated with being a public company
and corporate overhead which did not exist prior to the initial public
offering.

Goodwill amortization was $514,000 in 1997. No goodwill amortization was
recorded prior to the Combinations in July 1997.

1995 COMPARED TO 1996

Net revenues increased from $30.0 million in 1995 to $36.7 million in
1996. This increase is attributable to a 17.3% and a 24.1% increase in net
revenues from European auto rental reservations and cruise reservations,
respectively.

Operating expenses increased from $19.1 million in 1995 to $24.8 million
in 1996. As a percentage of net revenues, total operating expenses increased
from 63.5% in 1995 to 67.4% in 1996, primarily due to higher salaries and
commission expenses as a percentage of net revenues at Auto Europe.

General and administrative expenses increased from $10.5 million in 1995
to $11.5 million in 1996, and were 35.1% and 31.3%, respectively, of net
revenues. This decrease as a percentage of net revenues was the result of
spreading overhead costs over a larger revenue base in 1996.

RESULTS OF OPERATIONS--PRO FORMA

Due to the significance of the Combinations in July 1997 and the Lexington
Acquisition in June 1998, pro forma statements of operations are presented for
1997, the 1997 Period and the 1998 Period, which give effect to the results of
the Company combined with all the Founding Companies and the Lexington
Acquisition as if the Combinations and the Lexington Acquisition had occurred
at the beginning of each respective period, along with certain adjustments
associated with the Combinations, the Pooling Acquisitions and the Lexington
Acquisition.

The pro forma results include the effects of: (i) the Combinations and the
Lexington Acquisition; (ii) amortization of goodwill resulting from the
Combinations and the Lexington Acquisition; (iii) certain adjustments to
salaries, bonuses, management fees and benefits to former owners and key
management of the Founding Companies, the Lexington Acquisition and the Pooling
Acquisitions, to which such persons have agreed prospectively ("Compensation
Differential"); (iv) reversal of acquisition costs associated with Pooling
Acquisitions; and (v) provision for income taxes as if pro forma income was
subject to corporate federal and state income taxes during the periods.

The pro forma financial data have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the Founding Companies and the Lexington been
under common control prior to the Combinations or the Lexington Acquisition, or
which may result in the future.

20
<PAGE>

The following table sets forth for 1997, the 1997 Period and the 1998
Period certain items from the Company's Selected Pro Forma Statement of Income
Financial Data expressed as a percentage of net revenues:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------------
1997 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Net revenues ..................................... 100.0% 100.0% 100.0%
Operating expenses ............................... 61.1 62.4 57.1
----- ----- -----
Gross profit ..................................... 38.9 37.6 42.9
General and administrative expenses .............. 21.9 19.8 26.6
Goodwill amortization ............................ 2.2 2.5 2.2
----- ----- -----
Income from operations ........................... 14.8 15.3 14.1
Other expenses, net .............................. 0.2 0.6 --
----- ----- -----
Income before provision for income taxes ......... 14.6 14.7 14.1
Provision for taxes .............................. 6.1 6.2 5.8
----- ----- -----
Net income ....................................... 8.5% 8.5% 8.3%
===== ===== =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

Net revenues increased $7.1 million, or 34.0%, from $20.8 million in the
1997 Period to $27.8 million in the 1998 Period. The increase in net revenues
is primarily attributable to increased sales volumes of travel services by the
Company in each segment. Net revenues for the period increased 55.2%, 21.0%,
19.6% and 34.0%, in the cruise, air, European auto rental, and hotel segments,
respectively. Cruise passengers handled increased from 71,000 to 106,000
(49.3%), airline tickets issued increased from 60,000 to 75,000 (25.0%),
European car rental reservations increased from 63,000 to 77,000 (22.2%), and
hotel room nights increased from 338,000 to 466,000 (37.9%). Of the 34.0%
increase in combined pro forma net revenues, 9.5% was attributable to the
Purchase Acquisitions and 24.5% was attributable to internal growth at the
Founding Companies, the Pooling Acquisitions and the Lexington Acquisition.

Operating expenses increased $2.9 million, or 22.7%, from $12.9 million in
the 1997 Period to $15.9 million in the 1998 Period. As a percentage of net
revenues, total operating expenses decreased from 62.4% in the 1997 Period to
57.1% in the 1998 Period, primarily as a result of a decrease in commission and
net advertising expenses as percentages of net revenues.

General and administrative expenses increased $3.3 million, or 80.4%, from
$4.1 million in the 1997 Period to $7.4 million in the 1998 Period, and were
19.8% and 26.6% of net revenues, respectively. This increase as a percentage of
net revenues was primarily the result of expenses associated with being a
public company and corporate overhead which did not exist prior to the initial
public offering, offset in part as a result of spreading overhead costs over a
larger revenue base.

Goodwill amortization expense increased $98,000, or 19.3%, from $509,000
in the 1997 Period to $607,000 in the 1998 Period. The increase in goodwill
amortization expense in the 1998 Period was the result of amortization related
to the Purchase Acquisitions.

LIQUIDITY AND CAPITAL RESOURCES

The Company's three primary sources for liquidity and capital are cash
flow from operating activities, issuance of Common Stock and borrowings under
its Credit Facility.

In the three months ended March 31, 1997 and 1998, on a historical basis,
net cash provided by operating activities was approximately $5.9 million and
$14.2 million, respectively, capital expenditures

21
<PAGE>

were $509,000 and $897,000, respectively, and net repayment of debt was $2.4
million and $249,000, respectively. For the years ended December 31, 1996 and
1997, on a historical basis, net cash provided by operating activities was
approximately $114,000 and $3.2 million, respectively, capital expenditures
were $3.0 million in each year, and net repayment of debt was $1.1 million and
$3.7 million, respectively.

On July 28, 1997, the Company issued an aggregate of 6,297,225 shares of
Common Stock, with 3,422,225 shares issued in connection with the Combinations
and 2,875,000 shares sold at a price of $14.00 per share in the Company's
initial public offering. The net proceeds to the Company from the initial
public offering (after deducting underwriting discounts, commissions and
offering expenses) were $33.2 million. Of this amount, $29.1 million represents
the cash portion of the purchase price related to the Combinations, including
working capital adjustments and estimated reimbursements to stockholders of
three of the Founding Companies that had elected S Corporation status under the
Internal Revenue Code for certain taxes incurred by them in connection with the
Combinations. The remaining $4.1 million was used for general corporate
purposes.

The Company issued 1,384,689 shares of Common Stock during 1997 in
connection with five acquisitions, excluding the Combinations, and issued
338,411 shares of Common Stock and paid $8.4 million cash consideration during
the 1998 Period in connection with the 1998 Acquisitions.

The Company has a credit facility agreement with NationsBank, N.A. with
respect to a $30.0 million revolving line of credit (the "Credit Facility") and
a term loan facility of $2.1 million (the "Term Loan"). Borrowings under the
Credit Facility and Term Loan are due October 15, 2000 and October 5, 2000,
respectively. The Credit Facility may be used for acquisitions, letters of
credit not to exceed $3.0 million, and for capital expenditures (including but
not limited to investments in technology) and general corporate purposes which
in the aggregate may not exceed $5.0 million. As of March 31, 1998, outstanding
borrowings under the Credit Facility totaled $8.6 million. On April 1, 1998, an
additional $10.0 million was borrowed under the Credit Facility to finance, in
part, the Cruise Line Purchase. On June 1, 1998, an additional $10.0 million
was borrowed under the Credit Facility to finance, in part, the Lexington
Acquisition. Interest on outstanding balances of the Credit Facility are
computed based on the Eurodollar Rate plus a margin ranging from 1.25% to 2.0%,
depending on certain financial ratios. Availability fees of 25 basis points per
annum payable on the unused portion of the Credit Facility and a facility fee
are paid equal to 5/8 of one percent of the aggregate principal balance on the
Term Loan. The Credit Agreement requires the Company to secure an interest rate
hedge on fifty percent of the outstanding principal amount borrowed under the
Credit Facility and one hundred percent of the outstanding balance on the Term
Loan. As of June 5, 1998, the Company entered into interest rate swap hedge
agreements totaling $16.4 million and maturing in October 2000. The Credit
Facility is secured by substantially all the assets of the Company and requires
the Company to comply with various loan covenants, which include maintenance of
certain financial ratios, restrictions on additional indebtedness and
restrictions on liens, guarantees, advances, capital expenditures, sale of
assets and dividends.

The Company plans to repay the $28.6 million outstanding under the Credit
Facility as of June 1, 1998 from a portion of the net proceeds of the Offering.
All amounts repaid may be reborrowed by the Company.

On March 30, 1998, $3 million previously pledged to Barnett Bank was
released in exchange for a guarantee by the Company of outstanding debt of one
of the Founding Companies. Such debt, totaling $3,141,241, was repaid on April
28, 1998, including $1,901,838 which was refinanced using the proceeds of the
Term Loan.

The Company expects to spend in excess of $8 million during 1998 for
capital expenditures, including $4 million for development of technology
applications. The remainder of this 1998 capital budget relates to purchases of
computer hardware and personal computers, telecommunications equipment,
leasehold and building improvements and furniture and fixtures. For the 1998
Period, $897,000 has been expended, of which $307,000 relates to development of
technology applications. The Company also expects to expend approximately $11
million in 1999 for development of technology applications, excluding computer
and telecommunications hardware and implementation costs.

22
<PAGE>

Depending on the methods of financing and the size of potential
acquisitions, the Company believes that the net proceeds of the Offering,
together with cash flow from operating activities and borrowings under the
Credit Facility, will be adequate to meet the Company's capital requirements
over the next 12 months.

SEASONALITY AND QUARTERLY FLUCTUATIONS

The results of the Company are subject to quarterly fluctuations caused
primarily by the seasonal variations in the travel industry, especially the
leisure travel segment. Seasonality also varies depending on the travel
segment. Net revenues and operating income of the European auto rental segment
are generally higher in the first and second quarters, net revenues and
operating income of the airline and cruise reservation companies are generally
higher in the second and third quarters, and net revenues and operating income
of the lodging segment are generally higher in the third and fourth quarters.
The Company expects this seasonality and quarterly fluctuations to continue.

The Company's quarterly results of operations may also be subject to
fluctuations as a result of the timing and cost of acquisitions, changes in the
mix of services offered by the Company, fare wars by travel providers, net
daily rates charged to travelers by hotels, changes in relationships with
certain travel providers (including commission rates and programs), changes in
the timing and payment of overrides by travel providers, extreme weather
conditions or other factors affecting travel or the economy.

The following table presents summary financial data on a pro forma basis
for each of the five most recent quarterly periods:

<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED,
----------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1997 1997 1998
----------- ------------ --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues ....................... $ 20,760 $ 29,213 $ 23,768 $ 19,158 $ 27,818
Gross profit ....................... 7,811 12,773 8,917 6,664 11,935
Income from operations ............. 3,198 7,120 2,671 826 3,924
Net income ......................... 1,766 4,069 1,562 470 2,228
Diluted earnings per share ......... $ 0.16 $ 0.37 $ 0.14 $ 0.04 $ 0.20
</TABLE>

NEW ACCOUNTING PRONOUNCEMENTS

The Company implemented several new accounting pronouncements and
standards in 1997 and 1998. The Company adopted in 1997 Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." Basic earnings per common
share calculations are determined by dividing net income by the weighted
average number of common shares outstanding during the year. Diluted earnings
per

23
<PAGE>

common share calculations are determined by dividing net income by the weighted
average number of common shares and dilutive common share equivalents (options)
outstanding.

Pursuant to AICPA Statement of Position No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" the Company
has begun to capitalize certain direct costs related to strategic systems
development projects. The Company capitalized $492,000 of such costs through
March 31, 1998.

The Company adopted in 1998 Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" which establishes standards for reporting
and display of comprehensive income and its components in the financial
statements. For the periods presented there were no differences between net
income and comprehensive net income.

In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 131, "Disclosures about Segments of an Enterprise and Related Information
("SFAS No. 131"). SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
product and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after December
15, 1997. Financial statement disclosures for prior periods are required to be
restated. The Company is in the process of evaluating the disclosure
requirements. The adoption of SFAS No. 131 will have no impact on consolidated
results of operations, financial position or cash flow.

24
<PAGE>

BUSINESS

INDUSTRY OVERVIEW

Domestic travel and tourism spending by U.S. travelers was an estimated
$417 billion in 1997 and is forecasted to increase at a compound annual growth
rate of 6.7% through the year 2000. The market for specialized distributors of
leisure travel services is highly fragmented, and includes numerous small
specialized distributors that generally have made little investment in
technology to improve their selling effectiveness efficiency and access to
information. Many of these specialized distributors are small and generally
have made little investment in technology to improve their selling
effectiveness, efficiencies and access to information. Furthermore, most of
these companies lack the volume necessary to obtain preferential pricing from
travel providers or to create effective national marketing campaigns. The
Company believes significant growth opportunities are available to a well
capitalized company providing a broad offering of specialized travel services
with a high level of customer service and state-of-the-art technology
infrastructure.

CRUISE INDUSTRY. The number of North American cruise passengers is
expected to increase from 5.1 million in 1997 to 7.0 million by the year 2000,
an 11.5% compound annual growth rate. In addition, industry analysts forecast a
10.3% compound annual growth rate in capacity over the same period, with a
total of 25 new vessels, contracted or planned, adding a net supply of
approximately 40,700 berths. The character of a cruise varies significantly
among the different cruise lines and cruise ships. In addition, a cruise
vacation, 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. It is estimated that 6% of cruise vacations are sold directly by the
internal sales departments of the cruise lines. 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, cooperative
advertising dollars and access to preferred berth locations. In contrast to
most traditional travel agents, specialized cruise 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.

AIRLINE INDUSTRY. The number of passengers carried by the major U.S. based
airlines increased 2.9% to 542 million in 1997 from 526 million in 1996, with
domestic and international passenger growth of 2.8% and 4.1%, 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 offer specialized distributors controlled
access to capacity at 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 domestic and
international flights to both travel agents and travelers.

EUROPEAN AUTO RENTAL INDUSTRY. U.S. citizen departures to Europe increased
11.1% to 10.1 million in 1997 from 9.0 million in 1996. In 1998, 10.5 million
U.S. citizen departures to Europe are expected. 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.

25
<PAGE>

LODGING INDUSTRY. Average daily room rates in the U.S. lodging industry
increased 6.2% to $75.04 in 1997 from $70.76 in 1996. Average daily room nights
sold increased 2.3% to 2.3 million in 1997 from 2.2 million in 1996. Average
daily rates and average daily rooms sold are expected to increase 5.3% and
2.2%, respectively, in 1998.

BUSINESS OVERVIEW

The Company is a leading specialized distributor of cruise vacations,
domestic and international airline tickets and European auto rentals, and a
leading provider of electronic hotel reservation services, to travel agents and
travelers. The Company commenced operations in July 1997 concurrently with its
initial public offering and the acquisition of five specialized travel
distributors, and has since acquired an additional 12 operating companies and a
software development company. To date, the Company has focused its acquisitions
primarily on distributors of cruise vacations to take advantage of recognized
growth opportunities in that segment, and has emerged as the largest
distributor of cruise vacations in the world. The Company also looks for
opportunities to expand into new segments of the leisure travel industry that
are complementary to its existing lines of business. In June 1998, the Company
entered the lodging travel services segment with the acquisition of Lexington
which the Company believes is the second largest electronic hotel reservation
services company in the United States. In 1997, on a pro forma basis, the
Company sold reservations for approximately 274,000 airline passengers, 213,000
cruise passengers, 259,000 European auto rentals and 1,316,000 room nights,
representing gross sales volume in excess of approximately $600 million.

The Company offers travel agents and travelers a combination of
specialized expertise, the ability to compare travel options from multiple
travel providers and competitive prices. Unlike traditional travel agents who
often lack extensive knowledge about the specific services being offered,
specialized distributors focus their efforts on certain segments of the travel
service industry and thus provide a greater level of expertise and service with
respect to their segments. The Company's ability to provide in-depth knowledge
about alternative services from multiple travel providers also differentiates
it from the internal sales departments of travel providers, who offer only that
provider's services. The Company has preferred pricing and access to inventory
through its negotiated arrangements with 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. Recognizing
the ability of specialized distributors to sell a significant amount of travel
capacity, as well as their in-depth knowledge, travel providers are
increasingly utilizing specialized distributors as a preferred source of
distribution.

GROWTH STRATEGY

The Company seeks to become the leading specialized distributor of leisure
travel services by continuing its internal growth strategy and aggressive
acquisition program. 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. Key elements of the
Company's growth strategy include the following:

26
<PAGE>

Universal Agent application, is expected to allow the Company to
consolidate fulfillment, back office and accounting procedures and
effectively use the customer database to source new sales opportunities.
The first stage of the Universal Agent is expected to be implemented in
the summer of 1998 in connection with the airline segment of the Company's
business, with applications for the Company's other travel segments
expected to be implemented over the next 18 to 24 months.

/bullet/ EMPHASIZE CROSS-SELLING. The Company intends to take advantage of
significant cross-selling opportunities to further enhance revenue growth.
The Company believes that the development and implementation of its
technology will allow it to offer "one-stop shopping" for a variety of
travel services while still providing extensive expertise within each
leisure travel segment. For example, Travel 800, which currently focuses
on domestic air travel, has begun to satisfy international air travel
requests through Diplomat Tours and offer international travelers a
European auto rental option through Auto Europe. Similarly, each of the
cruise reservation companies is expected to have the technology to be able
to provide travelers with domestic and international airline reservations
related to their cruise vacation. Most of the Operating Companies in the
Company's cruise segment are now selling Alaska land tour packages
provided by Ship `N' Shore.

/bullet/ CAPITALIZE ON ECONOMIES OF SCALE AND BEST PRACTICES. The Company
believes that it can achieve significant economies of scale and that its
sales volumes and relationships with travel providers enable it to obtain
preferential pricing and access preferred travel provider inventories. The
Company believes it can also benefit from greater purchasing power in
certain key expense areas including telecommunications and advertising, as
well as reduce total operating expenses by outsourcing, eliminating or
consolidating certain duplicative marketing, back-office and
administrative functions and by creating shared services centers. In
addition, the Company has identified certain best practices, including
marketing techniques, operation strategies and cost efficiencies, that can
be implemented in order to generate incremental revenue and enhance
profitability. For example, the Company has begun to implement travel
insurance and cooperative marketing programs within its cruise business.

The Company believes that it is well positioned to continue to carry out
its acquisition program. As consideration for acquisitions, the Company
uses various combinations of Common Stock and cash and may, in the future,
also use notes. The Company believes that the experience, reputation and
relationships of the Operating Companies' management is of significant
value in the Company's attempts to acquire other specialized distributors
of travel services. In addition, the Company relies 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 continually reviews acquisitions of companies with long
standing reputations and demonstrated growth and profitability and has
held discussions with a number of acquisition candidates. The Company is
not a party to any agreements regarding any acquisitions as of the date of
this Prospectus.

27
<PAGE>

ACQUISITIONS

The following table sets forth certain information with respect to the
Company's acquisitions:

<TABLE>
<CAPTION>
OPERATING COMPANY DATE OF ACQUISITION TRAVEL SERVICE SEGMENT PRIMARY LOCATION
- ------------------------- --------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Auto Europe July 1997 European auto rentals Portland, Maine
Cruises Inc. July 1997 Cruise vacations Syracuse, New York
Cruises Only July 1997 Cruise vacations Orlando, Florida
D-FW Tours July 1997 International air Dallas, Texas
Travel 800 July 1997 Domestic air San Diego, California
Cruise Fairs of America November 1997 Cruise vacations Los Angeles, California
CruiseOne November 1997 Cruise vacations Deerfield Beach, Florida
CruiseWorld November 1997 Cruise vacations New York Tri-State area
Ship `N' Shore(1) November 1997 Cruise vacations Englewood, Florida
Trax Software December 1997 Software development Delray Beach, Florida
Diplomat Tours(2) January 1998 International air Sacramento, California
Gold Coast Cruises February 1998 Cruise vacations North Miami, Florida
AutoNet International February 1998 European auto rentals Delray Beach, Florida
CruiseMasters March 1998 Cruise vacations Los Angeles, California
The Cruise Line Inc. April 1998 Cruise vacations North Miami, Florida
Landry & Kling May 1998 Cruise vacations Coral Gables, Florida
The Travel Company May 1998 Cruise vacations Atherton, California
Lexington Services June 1998 Lodging reservations Irving, Texas
</TABLE>

- ----------------
(1) Includes Ship `N' Shore Cruises, Inc., SNS Coach Line, Inc., SNS Travel
Marketing, Inc., Cruise Mart, Inc. and Cruise Time, Inc.

(2) Includes Diplomat Tours, Inc. and International Airline Consolidators.

Since the completion of the Company's initial public offering in July
1997, the Company has acquired 12 operating companies and a software
development company. To date, the Company has focused its acquisitions
primarily on distributors of cruise vacations to take advantage of recognized
growth opportunities in that segment and has emerged as the largest distributor
of cruise vacations in the world. The Company has recently entered into the
lodging segment through its purchase of Lexington. The following is a summary
of the strategy underlying the Company's acquisitions since the Company's
initial public offering:

/bullet/ Lexington Services--enabled the Company to enter into the lodging
travel services segment.

/bullet/ The Cruise Line Inc. and Gold Coast Cruises--significantly
bolstered the Company's presence in the cruise segment,
particularly in South Florida.

/bullet/ Ship `N' Shore--provided Alaska land tour operations and
expertise in the Alaska cruise market.

/bullet/ CruiseMasters, Cruise Fairs of America and The Travel
Company--provided a West Coast presence for the distribution of
cruise vacations and added specific marketing expertise.

/bullet/ CruiseOne--added a cruise franchise distribution system
consisting of more than 350 franchisees.

/bullet/ CruiseWorld--provided eight retail cruise distribution locations
in the New York Tri-State area.

/bullet/ Landry & Kling--provided expertise in cruise charters and
corporate incentive marketing.

/bullet/ Diplomat Tours and AutoNet International--expanded presence in
European airline tickets and auto rental markets and bolstered
relationships with travel agents.

/bullet/ Trax Software--accelerated the development of the Company's
technology systems.

28
<PAGE>

OPERATING STRATEGY

The Company seeks to provide comprehensive, quality leisure travel
services, while improving efficiencies in its operations. The components of the
Company's operating strategy include the following:

/bullet/ MARKET THROUGH MULTIPLE DISTRIBUTION CHANNELS. The Company
believes that utilizing multiple distribution channels provides it with
additional sales opportunities, decreases its reliance on any one channel
and differentiates it from competitors who offer their products through a
single channel. The Company currently utilizes three distinct channels of
distribution: (i) call centers staffed with trained sales personnel; (ii)
home-based agents (including franchisees) who service their local markets;
and (iii) traditional travel agents. The Company also intends to expand
its presence on the Internet in order to create a fourth distribution
channel for booking its products and services.

/bullet/ DEVELOP COMPREHENSIVE BRAND STRATEGY. The Company has reviewed
various strategies in connection with the brand recognition and marketing
of its services and intends to implement a comprehensive brand and
marketing plan in the second half of 1998. This plan calls for the
development of a new, identifiable national brand, while preserving
existing brands that have a strong identity and loyal customer following.

SERVICES

The Company distributes leisure travel services for cruise vacations,
domestic and international air travel and European auto rentals and also
provides electronic hotel reservation services. The Company currently provides
its services nationwide primarily through the use of toll-free telephone
numbers and computerized central reservation systems. Typically, potential
customers call the Company, often in response to an advertisement or other
promotion. The Company's sales personnel assist potential customers, whether
travel agents or travelers, in selecting the appropriate travel arrangement and
making the reservation.

CRUISE. The Company is the largest distributor of cruise line
reservations in the world providing reservations for cruises on all major
cruise lines. Typically, berths are booked on behalf of its customers

29
<PAGE>

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, generally 60 or 90 days prior to sailing, at
no cost to the Company. The Company also advises large groups, such as affinity
groups, corporate groups and business seminars, in selecting the appropriate
cruise and sells Alaskan land tour packages directly to travelers and through
certain cruise line providers.

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 sales personnel undergo extensive in-house training, participate in
frequent seminars conducted by cruise lines and often receive complementary
passes for cruises that provide the agent direct cruise line experience.
Through the technology being developed by the Company, detailed information
about ships, itineraries, destinations and other data is expected to be
available to sales personnel at their desktops. 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,
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 1997, the
Company recognized cruise pro forma net revenue of $34.3 million on
reservations for over 213,000 passengers on over 45 cruise lines, representing
gross sales volume of approximately $270 million.

AIR TRAVEL. The Company provides reservations for both domestic and
international airline flights. Through strategic relationships with most major
airlines, the Company is generally able to offer fares below published rates.
The Company sells domestic airline reservations to travelers relying primarily
on its reputation and telephone numbers such as 1-800-FLY-CHEAP and
1-800-LOW-FARE to attract business. The Company sells reservations for
international flights primarily to travel agents utilizing multiple fax
distribution technology to advise travel agents of special fares and
promotions. In 1997, the Company recognized airline pro forma net revenues of
$15.5 million on reservations for over 274,000 passengers, representing gross
sales volume of approximately $98 million.

EUROPEAN AUTO RENTAL. The Company 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. The Company's European auto rental customers are
primarily travel agents. The Company's field representatives establish and
maintain relationships with a majority of the travel agents located in the U.S.
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. The Company 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 1997, the Company recognized European auto rental pro forma net
revenues of $32.7 million from over 259,000 travelers, representing gross sales
volume of approximately $81 million.

LODGING. The Company provides electronic reservation processing services
to over 2,100 independent and chain hotels in 48 countries worldwide. The
Company's lodging service revenues are

30
<PAGE>

generally commission based and, therefore, largely depend on the volume of
reservations processed on behalf of its hotel customers. The Company generally
processes hotel reservations through the major computerized central reservation
systems, including SABRE Group and Amadeus, through Internet sites such as
TravelWeb and Expedia and through its call center. In 1997, the Company
recognized hotel pro forma net revenues of $10.5 million from 1.3 million room
nights, representing gross sales volume of approximately $150 million.

INFORMATION TECHNOLOGY

The Company has adopted an information technology strategy that is focused
on delivering value to the Company's operations and its customers and travel
providers, while enabling efficient and effective "back-office" processes.

The core of the Company's information technology strategy is the expected
implementation of "Universal" architecture, a series of browser-based
applications currently under development for use by Company personnel, travel
agents and travelers to access and sell or purchase the Company's products and
services. The Universal architecture is expected to allow the Company to sell
better and faster, enabling real-time access to preferred fares and rates,
inventories, product information, and customer profiles and history. This
platform is also expected to be implemented on the Internet for access by
travel agents and travelers to locate travel information and make travel
reservations.

The Company's information technology strategy consists of two key
components: the Universal Agent and the Universal Manager. The Universal Agent
applications are being designed to streamline and enhance the selling process
and to permit simultaneous access to multiple source systems, including the
Company's own database of preferred rates and fares and central reservation
systems that hold inventory, such as SABRE and Amadeus. The Company is also
designing systems to facilitate direct access to inventories of travel
providers. The acquisition of Trax Software, Inc. ("Trax") in December 1997
accelerated the development of the design of the Universal Agent applications
by using the logic contained within the Trax software and leveraging the
in-depth industry knowledge of the Trax developers who joined the Company. The
Universal Manager applications are expected to provide the tools necessary to
allow the Company to consolidate back-office processes, including customer
service, ticketing and fulfillment, and accounting.

The Company is also investing in database management tools and
infrastructure, including data warehousing tools to facilitate management
reporting and decision support activities. The customer information database is
at the center of this effort. The Company is investing in its customer
information database, with the goal of owning the most comprehensive collection
of customer information in the leisure travel industry.

TRAVEL PROVIDER RELATIONSHIPS

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 canceled or modified by
the travel provider upon relatively short notice. Other distributors may have
similar arrangements with travel providers, some of which may provide better
availability or more competitive pricing than that offered by the Company.

The Company has negotiated arrangements with many major airline, cruise
line and European auto rental companies and certain hotel chains. In 1997, (i)
two auto rental companies represented an aggregate of 87% of European auto
rental pro forma net revenues; (ii) six cruise lines represented an aggregate
of 74% of cruise pro forma net revenues; and (iii) two airlines represented an
aggregate of 52% of airline pro forma net revenues.

31
<PAGE>

The following table sets forth a list of certain of the Company's travel
providers:

<TABLE>
<CAPTION>
CRUISE LINES AIRLINES EUROPEAN AUTO RENTAL COMPANIES HOTELS
- ----------------------------- ---------------------- -------------------------------- ----------------------
<S> <C> <C> <C>
Carnival Cruise Line American Airlines Alamo Europe Extended Stay America
Celebrity Cruise Line British Airways Avis Europe Limited Harvey Hotels
Holland America Continental Airlines Budget Helmsley Hotels
Norwegian Cruise Line Delta Air Lines Europcar International S.A. Summerfield Suites
Princess Cruises Northwest Airlines
Royal Caribbean Cruise Line US Airways
United Airlines
</TABLE>

SALES AND MARKETING

The Company engages in different marketing and advertising programs
depending on the particular travel service and whether the customers are
primarily travel agents or travelers. 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. In addition, the
Company advertises on cable and satellite television and through direct mail.
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
sales personnel, direct mailings and fax distribution technology. 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 or through the Internet. 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,
travel providers, travel agents, tour operators, group travel sponsors and
central reservation service providers, some of which have greater 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, with respect to sales to travel agents, attractive commission
structures. The Company's travel providers may decide to compete more directly
with the Company and restrict the availability and/or preferential pricing of
their capacity. 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.

EMPLOYEES

As of June 1, 1998, the Company had 1,416 full-time employees, of whom 673
were employed in connection with cruise services, 302 were employed in
connection with air services, 281 were employed in connection with European
auto rental services, 128 were employed in connection with hotel services and
32 were employed at the Company's corporate headquarters. In addition, the
Company had contracts with 264 independent contractors and 353 franchisees, and
used temporary employees as required to meet the needs of seasonal demand. The
Company believes that its relations with its employees, independent contractors
and franchisees are good.

FACILITIES

As of June 1, 1998, the Company had 29 office facilities, two of which it
owns and 27 of which are leased. As the Company continues to implement its
growth strategy, certain changes are expected, such as combinations of
facilities, expansion of other facilities, and the implementation of new call
centers or shared services centers.

32
<PAGE>

LEGAL PROCEEDINGS

The Company is involved in various legal claims and 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.

33
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning the Company's
directors and executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ----- -----------------------------------------------------
<S> <C> <C>
Joseph V. Vittoria(1)(3) .......... 63 Chairman and Chief Executive Officer, Director
Michael J. Moriarty ............... 51 President and Chief Operating Officer
Jill M. Vales ..................... 40 Senior Vice President and Chief Financial Officer
Maryann Bastnagel ................. 41 Senior Vice President and Chief Information Officer
Suzanne B. Bell ................... 31 Senior Vice President, General Counsel and Secretary
Melville W. Robinson .............. 42 Vice President, Corporate Development
John C. DeLano .................... 38 Vice President, Operations
Spencer Frazier ................... 46 Vice President, Marketing
Robert G. Falcone ................. 56 CEO-Cruises Inc.; Director
Wayne Heller(3) ................... 41 CEO-Cruises Only; Director
Imad Khalidi ...................... 46 CEO-Auto Europe; Director
John W. Przywara .................. 46 CEO-D-FW Tours; Director
Elan J. Blutinger(2) .............. 42 Director
D. Fraser Bullock(1)(3) ........... 43 Director
Tommaso Zanzotto(1)(2) ............ 55 Director
Leonard A. Potter ................. 36 Advisory Director
</TABLE>

- ----------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Acquisition Committee

JOSEPH V. VITTORIA became the Chairman and Chief Executive Officer and a
director of the Company in July 1997. 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 Avis, Inc. by creating one of the
world's largest Employee Stock Ownership Plans in 1987. He is 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 Transmedia Europe, Transmedia Asia, Carey International, Inc.,
ResortQuest International, Inc., CD Radio, Inc. and various non-profit
associations.

MICHAEL J. MORIARTY became the President and Chief Operating Officer of
the Company in July 1997. Mr. Moriarty was the President and Chief Operating
Officer of Studio Plus Hotels, Inc., a national extended stay hotel company
from July 1996 until its sale in 1997. From 1981 to July 1996, Mr. Moriarty
held various senior executive positions with the Marriott Company, a hotel
company, including Brand Vice President of Marriott International (1994-1996),
Vice President of Operations for the Residence Inn by Marriott Company
(1989-1994), Vice President Finance and Development of Residence Inn
(1987-1989), Vice President of Finance and Development for the Roy Rogers
Restaurants Company, a subsidiary of the Marriott Company, and Director of
Finance and Business Analysis for Marriott Hotels and Resorts.

JILL M. VALES became Senior Vice President and Chief Financial Officer of
the Company in July 1997. From 1996 to 1997, Ms. Vales served as the Chief
Operating Officer of Gunster, Yoakley, Valdes-Fauli & Stewart, P.A., a law
firm. From 1990 until 1996, Ms. Vales held various positions at Certified
Vacations, an affiliate of Alamo Rent-A-Car, including Senior Vice President of
Operations and Chief Financial Officer (1994-1996), Vice President of Finance
and Operations (1992-1994) and Senior

34
<PAGE>

Director of Finance and Operations and Controller (1990-1992). From 1979 to
1990, Ms. Vales held various positions at KPMG Peat Marwick, specializing in
auditing travel companies. Ms. Vales is a certified public accountant.

MARYANN BASTNAGEL became the Senior Vice President and Chief Information
Officer of the Company in July 1997. From 1989 to 1997, Ms. Bastnagel held
various positions with Marriott International, Inc. in information services and
technology, including Vice President of Business Technology, where she was
responsible for defining systems and technology strategy for the Marriott
Lodging Group. From 1990 to 1994, Ms. Bastnagel was Vice President of
Information Systems and a member of the Executive Committee for Residence Inn
by Marriott. From 1985 to 1989, she was a Senior Manager with Price Waterhouse
Management Consulting Services on large scale information systems development
projects. From 1981 to 1985, Ms. Bastnagel was a Senior Consultant with Booz,
Allen & Hamilton, Inc.

MELVILLE W. ROBINSON became the Vice President, Corporate Development of
the Company in July 1997. From 1994 to July 1997, Mr. Robinson served as the
Chief Financial Officer of Cruises Only, one of the Founding Companies. From
1989 until 1993, Mr. Robinson was the President and Chief Financial Officer of
the Gale Group, a U.S. based consumer products manufacturing firm. From 1986 to
1989, Mr. Robinson was a Managing Director at PNC Merchant Banking Corp., where
he founded and managed the Growth Capital Group. From 1983 to 1986, Mr.
Robinson was the Chief Financial Officer of Drug Emporium Inc., a
publicly-traded discount drugstore chain.

JOHN C. DELANO became Vice President, Operations, of the Company in
January 1998. Mr. DeLano spent nearly twenty years in the auto rental industry,
and from 1991 to 1997 he served as Managing Director and National Operations
Manager for Avis Australia, where he coordinated the marketing, operations,
human resources, information technology, sales, fleet, accounting and field
management functions. In 1992, while under Mr. DeLano's supervision, Avis
Australia was awarded the prestigious Australian Quality Award (similar to the
Malcolm Baldridge Award in the U.S.) and the 1996 Australian Customer Service
Award.

SPENCER FRAZIER became Vice President, Marketing, of the Company in April
1998. From 1996 to 1998, Mr. Frazier served as the President of Worldwide
Concepts, Inc., a consulting firm focused on the promotion of worldwide
tourism. From 1994 to 1996, he was the Executive Vice President of Kloster
Cruise Limited, overseeing marketing and sales for Royal Cruise Line and
international marketing for Norwegian Cruise Line. From August 1991 to July
1994, he was President of Royal Viking Line.

ROBERT G. FALCONE became a director of the Company in July 1997. Mr.
Falcone has served as the Chairman and Chief Executive Officer of Cruises Inc.
since its founding in 1982. Mr. Falcone is a member of the National Association
of Cruise Only Agencies ("NACOA"), the Airline Reporting Corporation ("ARC"),
the Travel Council of the World (Environmental Group), the American Society of
Travel Agents ("ASTA"), Cruise Lines International Association ("CLIA") and is
the co-founder of the Society of Elite Agents, a trade association of leading
cruise specialists ("SEA").

WAYNE HELLER became a director of the Company in July 1997. 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 became a director of the Company in July 1997. 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.

JOHN W. PRZYWARA became a director of the Company in July 1997. 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.

35
<PAGE>

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. 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. Mr.
Blutinger is also a director and co-founder of ResortQuest International, Inc.

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. Mr. Bullock is also a director and co-founder of ResortQuest
International, Inc.

TOMMASO ZANZOTTO became a director of the Company in July 1997. 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. Mr. Zanzotto is also a director of Compass International
Services Corporation.

LEONARD A. POTTER served as a director of the Company from its formation
until May 1997. After the initial public offering in July 1997, he became 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-founder of
Staffmark, Inc. and ResortQuest International, Inc. Prior to forming Capstone
Partners, LLC in April 1996, Mr. Potter was an attorney at Morgan, Lewis &
Bockius LLP for more than five years practicing in the areas of mergers and
acquisitions and securities law. While at Morgan, Lewis & Bockius he
represented a number of public companies in connection with their creation and
subsequent implementation of consolidation strategies similar to the Company's,
including U.S. Office Products, F.Y.I. Incorporated and Cotelligent Group.

BOARD OF DIRECTORS

The Board of Directors of the Company consists of nine directors divided
into three classes with each class serving for a term of three years. As of the
date of this Prospectus, there is one vacancy on the Board of Directors. 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 Tommaso 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 and Wayne Heller. The Board of Directors has established
an Audit Committee, Compensation Committee and Acquisition Committee, and may
establish other committees from time to time as the Board may determine.

The Advisory Director attends meetings of the Board of Directors, consults
with officers and directors of the Company and provides guidance (but not
direction) concerning management and

36
<PAGE>

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.

The Audit Committee consists of three members, two of whom are independent
directors. The Audit Committee makes recommendations concerning the engagement
of independent public accountants, reviews with the independent public
accountants the plans and the results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, reviews recommendations
regarding the Company's accounting methods and the adequacy of its systems of
internal accounting controls, and reviews and approves financial press releases
and reports.

The Compensation Committee consists of two members, each of whom is a
"disinterested director," as defined in the rules promulgated by the Securities
and Exchange Commission pursuant to the Exchange Act, and an "outside director"
within the meaning of Section 162(m) of the Internal Revenue Code. The
Compensation Committee determines compensation for the Company's executive
officers, administers the Company's Plan and makes recommendations to the Board
of Directors with respect to the Company's compensation policies.

The Acquisition Committee consists of three fixed members and one floating
member. The floating member changes based upon the business segment to which an
acquisition relates. The Acquisition Committee has the authority to review and
approve acquisitions with a purchase price of $10 million or less, provided
that if the acquisition relates to a new line of business for the Company, then
the acquisition must be reviewed and approved by the full Board of Directors.

The Board of Directors does not have any other committees at this time,
although additional committees may be formed in the future. All officers serve
at the discretion of the Board of Directors.

DIRECTOR COMPENSATION; 1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN

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.

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 initial public 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
initial public 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

37
<PAGE>
shares of Common Stock for use in connection with the Directors' Plan. Upon
consummation of the initial public offering, Messrs. Blutinger, Bullock,
Zanzotto and Potter each received options to purchase 10,000 shares.

EXECUTIVE COMPENSATION

The following table sets forth the aggregate compensation paid to the
Company's Chief Executive Officer and five of the Company's other most highly
compensated executive officers whose total annualized salary and bonus was
$100,000 or more (the Chief Executive Officer and such other executive officers
are sometimes referred to herein as the "Named Executive Officers") with
respect to the year ended December 31, 1997:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------- -------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY(2)($) BONUS($) OPTIONS(#) COMPENSATION($)
- -------------------------------------------- --------- -------------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Joseph V. Vittoria, CEO .................... 1997 84,615 86,000 100,000 --
Michael J. Moriarty, President/COO ......... 1997 63,462 51,500 75,000 6,104 (3)
Jill M. Vales, Sr. VP/CFO .................. 1997 63,462 32,000 50,000 24,000 (4)
Maryann Bastnagel, Sr. VP/CIO .............. 1997 63,462 48,500 110,000 8,172 (3)
Suzanne B. Bell,
Sr. VP/General Counsel ................... 1997 52,885 27,000 25,000 --
Imad Khalidi,
VP European Operations(5) ................ 1997 293,231 295,000 -- --
</TABLE>
- ----------------
(1) With the exception of Mr. Khalidi, each of the Named Executive Officers
commenced employment with the Company upon consummation of the initial
public offering (July 28, 1997). Mr. Khalidi served as President of Auto
Europe prior to the initial public offering. Commencing on July 28, 1997,
Mr. Khalidi served as CEO of Auto Europe and as a director and Vice
President, European Operations, of the Company.
(2) Annual salaries are as follows: $200,000 for Mr. Vittoria; $150,000 for
each of Mr. Moriarty, Ms. Vales and Ms. Bastnagel; and $125,000 for Ms.
Bell. Mr. Khalidi's 1997 salary and bonus include amounts paid by Auto
Europe prior to the initial public offering. After the initial public
offering, Mr. Khalidi's annual salary is $140,000.
(3) Consists of relocation expenses paid during 1997.
(4) Consists of consulting fees paid prior to the consummation of the Company's
initial public offering.
(5) Effective March 1998, Mr. Khalidi no longer serves as Vice President,
European Operations, but continues in his capacities as CEO of Auto Europe
and as a director of the Company.

The following table sets forth the stock options granted to the Named
Executive Officers during the year ended December 31, 1997:

STOCK OPTION GRANTS AND EXERCISE

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE OR DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE VALUE($)(1)
- ----------------------------- ------------ -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Joseph V. Vittoria .......... 100,000 10.4 14.00 7/28/07 821,000
Michael J. Moriarty ......... 75,000 7.8 14.00 7/28/07 615,000
Jill M. Vales ............... 50,000 5.2 14.00 7/28/07 410,000
Maryann Bastnagel ........... 110,000 11.4 14.00 7/28/07 903,000
Suzanne B. Bell ............. 25,000 2.6 14.00 7/28/07 205,000
Imad Khalidi ................ -- -- -- -- --
</TABLE>
- ----------------
(1) Calculated using the Black-Scholes valuation method.

38
<PAGE>

None of the Named Executive Officers exercised any stock options during
1997. Each of the options set forth in the table above will vest in equal
installments on each of the first four anniversaries of the initial public
offering.

EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE

Mr. Vittoria has entered into an employment agreement with the Company
providing for an annual base salary of $200,000. Mr. Moriarty has entered into
an employment agreement with the Company providing for an annual base salary of
$150,000 plus in the first year a guaranteed minimum bonus of $75,000. Ms.
Vales, Mr. Khalidi, Ms. Bastnagel and Ms. Bell each have entered into an
employment agreement with the Company providing for an annual base salary of
$150,000, $140,000, $150,000 and $125,000 respectively. Each of these
agreements is for a term of three years. In addition, certain executive
officers of the Operating Companies, including Messrs. Falcone, Heller and
Przywara, members of the Board of Directors, have entered into employment
agreements. Effective July 28, 1997, Mr. Falcone's employment agreement is for
a term of five years; Mr. Heller's and Mr. Przywara's employment agreements are
for a term of three years (in each case, the "Initial Term"). Unless terminated
or not renewed by the Company or the employee, the term will continue
thereafter on a year-to-year basis on the same terms and conditions existing at
the time of renewal. Each employment agreement contains a covenant not to
compete (the "Covenant") with the Company for a period of two years immediately
following termination of employment or, in the case of a termination by the
Company without cause in the absence of a change in control, for a period of
one year following termination of employment. Under this Covenant, the
executive officer is prohibited from: (i) engaging in any travel service
business in direct competition with the Company within defined geographic areas
in which the Company or its subsidiaries does business; (ii) enticing a
managerial employee of the Company away from the Company; (iii) calling upon
any person or entity which is, or has been, within one year prior to the date
of termination, a customer of the Company; or (iv) calling upon a prospective
acquisition candidate which the employee knew was approached or analyzed by the
Company, for the purpose of acquiring the entity. The Covenant may be enforced
by injunctions or restraining orders and shall be construed in accordance with
the changing activities, business and location of the Company.

Each of these employment agreements provides that, in the event of a
termination of employment by the Company without cause during the Initial Term
the employee will be entitled to receive from the Company an amount equal to
his or her then current salary for the remainder of the Initial Term or for one
year, whichever is greater. In the event of a termination of employment without
cause after the Initial Term of the employment agreement, the employee will be
entitled to receive an amount equal to his or her then current salary for one
year. In either case, payment is due in one lump sum on the effective date of
termination. In the event of a change in control of the Company (as defined in
the agreement) during the Initial Term, if the employee is not given at least
five days' notice of such change in control and the successor's intent to be
bound by such employment agreement, the employee may elect to terminate his or
her employment and receive in one lump sum three times the amount he or she
would receive pursuant to a termination without cause during the Initial Term.
The employment agreements of Messrs. Falcone, Heller, Khalidi and Przywara also
state, that in the event of a termination without cause by the Company or a
change in control, the employee may elect to waive the right to receive
severance compensation and, in such event, the non-competition 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 employment agreement and receive in one lump sum two times the
amount he would receive pursuant to a termination without cause during the
Initial Term. In such an event, the non-competition provisions of the
employment agreement would apply for two years from the effective date of
termination.

Each agreement with respect to the acquisition of an Operating Company
(including the Founding Companies) also contains a similar covenant prohibiting
sellers from competing with the Company for a periods following the
consummation of the respective acquisition.

39
<PAGE>

INDEMNIFICATION AGREEMENTS

The Company has entered into indemnification agreements with each of the
Company's directors and executive officers. The indemnification agreements
require, among other things, that the Company indemnify its directors and
executive officers to the fullest extent permitted by law, and advance to the
directors and executive officers all related expenses, subject to reimbursement
if it is subsequently determined that indemnification is not permitted. The
Company must also indemnify and advance all expenses incurred by directors and
executive officers seeking to enforce their rights under the Company's
directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the Charter and Bylaws, it provides greater assurance
to directors and executive officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by the
Board of Directors or by the stockholders to eliminate the rights it provides.

1997 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 officers, employees, directors who are also
employees, consultants and independent contractors of the Company or any of its
subsidiaries, 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 of the Board of
Directors administers the Plan and generally selects the individuals who will
receive awards and the terms and conditions of those awards.

The Company initially reserved 900,000 shares of Common Stock for use in
connection with the Plan. Beginning with the initial public offering and
continuing each fiscal quarter thereafter, the number of shares available for
use in connection with the Plan may not exceed 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. Subject to stockholder approval at the
Company's 1998 Annual Stockholders Meeting to be held in July 1998, the
Compensation Committee of the Company's Board of Directors authorized an
increase in the number of shares available for use in connection with the Plan
to 15% of the aggregate number of shares outstanding on the last day of the
preceding calendar quarter.

As of June 8, 1998, 1,260,579 shares are reserved for use in connection
with the Plan (1,440,579 shares after giving effect to the Offering), of which
1,167,663 shares have been granted. 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 Compensation Committee of the Board of Directors has approved an additional
option grant to Mr. Vittoria of 100,000 shares subject to the availability of
sufficient shares under the Plan. This grant is expected to be effective as of
July 1, 1998 and will have an exercise price equal to the fair market value on
the effective date. The vesting of these options will occur over four years and
may be accelerated based upon thresholds of $50, $75 and $100 for the share
price of the Common Stock. In addition, based upon availability of shares under
the Plan and thresholds for the price of the Common Stock of $50 and $75,
additional option grants of 150,000 shares and 200,000 shares, respectively,
are expected to be issued to Mr. Vittoria. All options will be granted with
exercise prices equal to the fair market value at the time of grant.

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>

401(K) PLAN

The Company established a new 401(k) plan effective July 1, 1998; existing
401(k) plans and similar plans at the Operating Companies will be suspended or
rolled into the new plan. All employees of the Company, meeting certain minimum
eligibility requirements, are eligible to participate in the 401(k) Plan. The
401(k) Plan provides that each participant may contribute up to 20% of his or
her pre-tax gross compensation (but not greater than a statutorily prescribed
annual limit). The percentage elected by certain highly compensated
participants may be required to be lower. The 401(k) Plan permits, but does not
require, additional contributions to the 401(k) Plan by the Company. All
amounts contributed by employee participants in conformance with plan
requirements and earnings on such contributions are fully vested at all times.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is composed of Tommaso Zanzotto and Elan
Blutinger. Mr. Zanzotto has never been an officer or employee of the Company or
its subsidiaries. Mr. Blutinger was an officer of the Company prior to the
Company's initial public offering. The Company was initially capitalized by
Alpine Consolidated, LLC, a consolidator of highly fragmented businesses, of
which Mr. Blutinger is a Managing Director, and Capstone Partners, LLC. 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,
including Alpine Consolidated, LLC, totaled 1,633,335 shares on the
consummation of the initial public offering. In addition, prior to consummation
of the initial public offering, TSGI Funding, LLC ("TSGI"), a Delaware limited
liability company, extended loans to the Company from time to time in amounts
equal to the legal, accounting and other transactional costs, expenses and
disbursements incurred by the Company in connection with the acquisitions of
the Founding Companies and the initial public offering. The member managers of
TSGI were Alpine Consolidated, LLC and Capstone Partners, LLC. All amounts
loaned by TSGI were repaid, without interest, by the Company on July 28, 1997,
upon consummation of the initial public offering. Such loans aggregated
$950,000.

41
<PAGE>

CERTAIN TRANSACTIONS

FORMATION, INITIAL PUBLIC OFFERING AND FOUNDING COMPANY ACQUISITIONS

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 is 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 totaled 1,633,335
shares on the consummation of the initial public offering.

Prior to consummation of the initial public offering, TSGI Funding, LLC
("TSGI"), a Delaware limited liability company, extended loans to Travel
Services International, Inc. from time to time in an amount equal to the legal,
accounting and other transactional costs, expenses and disbursements incurred
by the Company in connection with the acquisitions of the Founding Companies
and the initial public offering. The member managers of TSGI International,
Inc. were repaid, without interest, by the Company on July 28, 1997, upon
consummation of the initial public offering. Such loans aggregated $950,000.

The aggregate consideration paid by the Company in the acquisitions of the
Founding Companies consisted of approximately $29.1 million in cash and
3,422,225 shares of Common Stock. In addition, certain non-operating assets
with a net book value of approximately $2.2 million were excluded from the
combinations of the Founding Companies (the "Combinations") and retained by
certain stockholders of the Founding Companies. The following table sets forth
the consideration paid to each of the Founding Companies.

<TABLE>
<CAPTION>
COMPANY CASH SHARES
- ------------------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Auto Europe .......... $ 5,000 1,083,334
Cruises Only ......... 9,211 908,334
Travel 800 ........... 9,241 902,778
Cruises Inc. ......... 3,431 333,334
D-FW Tours ........... 2,215 194,445
------- ---------
Total .............. $29,098 3,422,225
======= =========
</TABLE>

The consideration paid for the Founding Companies was determined through
arm's-length negotiations between the Company and representatives of each
Founding Company. The cash portion includes working capital adjustments,
reimbursements of certain legal and accounting fees incurred by stockholders
and estimated reimbursements to certain stockholders for certain taxes that
will be incurred by them in connection with the Combinations. The factors
considered by the parties in determining the consideration paid included, 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.

Pursuant to the agreements entered into in connection with the
acquisitions of the Founding Companies, the stockholders of the Founding
Companies agreed not to compete with the Company for three years, commencing on
the date of consummation of the initial public offering.

Prior to the initial public offering of the Company, substantially all the
indebtedness of the Founding Companies was personally guaranteed by their
respective stockholders or by entities controlled by such stockholders. In
connection with the Combinations, the Company assumed all remaining payment
obligations of such indebtedness. Indebtedness assumed as of July 28, 1997
includes the following: (i) Auto Europe's mortgage note payable to Key Bank of
$1,181,000, bearing interest at prime plus 1%, payable in monthly principal
installments of $7,000, maturing in August 2002; (ii) Auto Europe's mortgage
note payable to the U.S. Small Business Administration of $735,000, bearing
interest at 7.25%, payable in monthly principal and interest payments of
$6,000, maturing in October 2016; (iii) Cruises Only mortgage payable of
$1,947,000 to Barnett Bank, bearing interest at 7.8% with monthly payments of
$17,000 through October 2000 and thereafter bearing interest at a rate equal to

42
<PAGE>

the five year treasury yield plus 1.9% or prime, as selected by Cruises Only
through maturity in October 2005; (iv) Cruises Only note payable to Barnett
Bank of $603,000, bearing interest at 8.5% with monthly payments of $12,000,
maturing in 2002; and (v) Cruises Only note payable to Barnett Bank of
$842,000, bearing interest at prime minus .25% with monthly payments of
$20,000, maturing in 2001.

Subsequent to the Combinations, the Company repaid the mortgage to the
Small Business Administration as required upon the change in ownership, and
Cruises Only's obligations to Barnett Bank were modified to include a fixed
interest rate of 7.2% and to pledge as collateral Company funds totaling $3
million. The collateral was released in April 1998 in exchange for a guarantee
of such debt by the Company, which was then repaid.

In connection with the Combinations, as a consideration for their
interests in the Founding Companies, certain directors and holders of more than
5% of the outstanding shares of the Company, together with their spouses or
trusts for the benefit of their immediate family members, received cash
(including working capital adjustments and reimbursements of certain costs and
expenses) and shares of Common Stock of the Company as follows:

<TABLE>
<CAPTION>
CASH SHARES
------------- ----------
<S> <C> <C>
Alex Cecil ................. $5,000,000 1,083,334
Robert G. Falcone .......... $3,431,000 300,000
Wayne Heller ............... $9,211,000 908,334
Susan Parker ............... $9,241,000 902,778
John Pryzwara .............. $2,215,000 194,445
</TABLE>

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 rent paid by Cruises Inc. to Pioneer during
1997 was $201,000. The lease terminates on February 29, 2006.

Prior to the initial public offering, 800 Ideas, Inc., the predecessor to
Travel 800 and a company controlled by Susan Parker, a greater than 5%
stockholder of the Company, entered into a Custom Network Service Arrangement
("CNSA") with Sprint Communications Company LP for long distance telephone
services. This contract was not transferred as part of the Combinations, but
was retained by 800 Ideas, Inc. Travel 800 continues to utilize long distance
telephone services under the CNSA and pays for its portion of usage under the
CNSA.

Jacqueline Duffort Cecil, the wife of Alex Cecil, a holder of more than 5%
of the outstanding shares of the Company and the Chief Executive Officer of
Auto Europe prior to July 1997, loaned $300,000 to Auto Europe on December 31,
1995 and 1996 at an interest rate of prime plus 1%. Auto Europe repaid this in
February 1997.

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 was not included in the assets of Auto
Europe acquired by the Company in July 1997.

Auto Europe has purchased computer equipment from The Series II Group,
which is owned by Imad Khalidi, a director of the Company and Chief Executive
Officer of Auto Europe, and certain other employees of Auto Europe. Auto Europe
purchases the equipment at cost to The Series II Group. Auto Europe purchased
$134,000 worth of computer supplies and equipment from The Series II Group
during 1997.

Prior to the initial public offering, Auto Europe extended a loan to Imad
Khalidi, a director of the Company and Chief Executive Officer of Auto Europe.
The indebtedness is evidenced by a note, the principal amount of which is
$326,000. The note bears interest at 6% and is payable on September 30, 1998.

COMPANY POLICY

Any future 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 AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of Common Stock, as of June 8, 1998, and as adjusted to
reflect the sale of shares of Common Stock by the Company and the Selling
Stockholders, by: (i) each beneficial owner of more than 5% of the Company's
Common Stock; (ii) each director of the Company; (iii) each of the Named
Executive Officers; (iv) each Selling Stockholder; and (v) all executive
officers and directors as a group. Except as indicated in the footnotes below,
the persons named in this table have sole voting and investment power with
respect to the shares beneficially owned by them.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED SHARES BEING OWNED AFTER THE
PRIOR TO THE OFFERING OFFERED OFFERING
------------------------ -------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------- ------------ --------- --------- --------
<S> <C> <C> <C> <C> <C>

Joseph V. Vittoria(2) ........................... 370,000 3.3% -- 370,000 2.9%
Michael J. Moriarty(2) .......................... 64,583 * -- 64,583 *
Jill M. Vales(2) ................................ 55,333 * -- 55,333 *
Maryann Bastnagel(2) ............................ 28,500 * -- 28,500 *
Suzanne B. Bell(2)(3) ........................... 35,750 * -- 35,750 *
Robert G. Falcone(4) ............................ 250,000 2.2 25,000 225,000 1.8
Wayne Heller(5) ................................. 908,334 8.2 65,000 843,334 6.7
Imad Khalidi .................................... 500,000 4.5 -- 500,000 4.0
John W. Przywara ................................ 194,445 1.7 -- 194,445 1.5
Elan J. Blutinger(6)(7) ......................... 323,693 2.9 -- 323,693 2.6
D. Fraser Bullock(6) ............................ 241,328 2.2 20,000 221,328 1.8
Tommaso Zanzotto(6) ............................. 10,242 * -- 10,242 *
J&W Heller Corp.(5) ............................. 908,334 8.2 65,000 843,334 6.7
800 Ideas, Inc.(8) .............................. 902,778 8.1 681,000 221,778 1.8
Greystones, Inc.(9) ............................. 1,083,334 9.7 704,063 379,271 3.0
William M. DeArman(10) .......................... 28,783 * 14,391 14,392 *
Craig Sakin(10) ................................. 9,035 * 9,035 -- --
Leonard A. Potter(6) ............................ 113,408 1.0 35,000 78,408 *
William J. Lynch(10) ............................ 122,572 1.1 25,000 97,572 *
George R. Begley UST, George R.
Begley, Jr.(10) ............................... 12,606 * 4,000 8,606 *
George R. Begley UST, Tracey
Chettle Begley(10) ............................ 12,606 * 4,000 8,606 *
The B&LR Investment Company(11) ................. 83,110 * 44,110 39,000 *
The Brent & Lori Robinson Charitable
Trust(11) ..................................... 25,000 * 25,000 -- --
William F. Gorog(12) ............................ 6,685 * 3,500 3,185 *
Todd Chaffee(12) ................................ 4,464 * 4,464 -- --
John C. Bachus, Jr. Revocable Trust(12) ......... 32,868 * 30,000 2,868 *
Raelock Ventures, Ltd.(12) ...................... 8,929 * 8,929 -- --
Martin Culver(12) ............................... 34,860 * 17,430 17,430 *
Anthony Antonelli(12) ........................... 20,271 * 17,001 3,270 *
The Anthony Antonelli Retirement
Fund(12) ...................................... 27,555 * 27,555 -- --
</TABLE>

44
<PAGE>

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED SHARES BEING OWNED AFTER THE
PRIOR TO THE OFFERING OFFERED OFFERING
------------------------ -------------- -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------- ------------ --------- ------------ --------
<S> <C> <C> <C> <C> <C>

Sand Finans A/S(13) .............................. 8,929 * 8,929 -- --
Meltzer Family Limited Partnership(13) ........... 27,035 * 27,035 -- --
Educational Trust for Alex Blutinger(13) ......... 13,000 * 4,290 8,710 *
Educational Trust for Erik Blutinger(13) ......... 13,000 * 4,290 8,710 *
Educational Trust for Jonathan
Blutinger(13) .................................. 13,000 * 4,290 8,710 *
Prudent Investments, L.L.C.(13) .................. 8,929 * 8,929 -- --
Robert Rudolph(13) ............................... 31,665 * 31,665 -- --
Gordon Macklin Family Trust(13) .................. 15,618 * 15,618 -- --
Melvin Usdan(13) ................................. 32,103 * 20,000 12,103 *
Steven Garchik(13) ............................... 59,638 * 55,000 4,638 *
Douglas W. Comfort(13) ........................... 31,665 * 22,000 9,665 *
Robert Silverberg(13) ............................ 8,929 * 8,929 -- --
Sol W. Goodman(13) ............................... 8,929 * 8,929 -- --
Martin Kahn(13) .................................. 15,618 * 15,618 -- --
All Directors and Executive Officers as
a Group (15 persons)(14) ....................... 2,999,708 26.6 110,000 2,889,708 22.6
</TABLE>

- ----------------
* Less than 1.0%
(1) Unless indicated otherwise, the address of the beneficial owners is c/o
Travel Services International, Inc., 220 Congress Park Drive, Delray
Beach, Florida 33445.

(2) Includes the following shares which may be acquired upon the exercise of
options that will vest within 60 days following the date of this
Prospectus: 25,000 shares for Mr. Vittoria; 18,750 shares for Mr.
Moriarty; 12,500 shares for Ms. Vales; 27,500 shares for Ms. Bastnagel;
and 6,250 shares for Ms. Bell.

(3) Includes 5,000 shares owned by Ms. Bell's spouse.

(4) Includes 100,000 shares owned by Judith A. Falcone, his spouse.

(5) These shares are held of record by J&W Heller Corp., a corporation of
which Mr. Heller is a 50% stockholder. The remaining 50% of the ownership
of J&W Heller Corp. is held by Judy Heller, his spouse.

(6) Includes 10,000 shares which may be acquired upon the exercise of vested
options.

(7) Excludes 39,000 shares held by trusts for the benefit of Mr. Blutinger's
minor children. Mr. Blutinger disclaims ownership, investment and voting
power of such shares.

(8) These shares are held of record by 800 Ideas, Inc., a corporation of which
Susan Parker is the sole stockholder. Effective June 9, 1998, Ms. Parker
resigned from her position as a member of the Company's Board of
Directors.

(9) The stockholder's address is 124 Pine Street, Portland, Maine 04102. Alex
Cecil, the former owner of Auto Europe, is the sole voting stockholder of
Greystones, Inc.

(10) The stockholder's address is c/o Capstone Partners, LLC, 9 East 53rd
Street, 3rd Floor, New York, New York 10022.

(11) The stockholder's address is c/o Alpine Consolidated, LLC, 100 West Canyon
Crest Road, Alpine, Utah 84004.

(12) The stockholder's address is c/o Alpine Consolidated, LLC, 1683 Box Elder
Drive, Alpine, Utah 84004.

(13) The stockholder's address is c/o Alpine Consolidated, LLC, 2927 44th
Street NW, Washington, D.C. 20016.

(14) Includes 132,500 shares that may be acquired upon the exercise of vested
options or options that will vest within 60 days following the date of
this Prospectus.

45
<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 are designated restricted common stock
(the "Restricted Common Stock") and 1,000,000 shares of preferred stock, par
value $.01 per share (the "Preferred Stock"). At June 8, 1998, the Company had
outstanding 11,135,528 shares of Common Stock held of record by 142
shareholders, of which 2,484,501 shares are shares of Restricted Common Stock,
and no shares of Preferred Stock. The Company's Board of Directors has approved
the reincorporation of the Company from Delaware to Florida, subject to
stockholder approval at the 1998 Annual Meeting.

COMMON STOCK AND RESTRICTED COMMON STOCK

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

46
<PAGE>

prescribed by law, the Board of Directors is expressly authorized to adopt
resolutions to issue the shares, to fix the number of shares and to change the
number of shares constituting any series and to provide for or change the
voting powers, designations, preferences and relative, participating, optional
or other special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative),
dividend rates, terms of redemption (including sinking fund provisions),
redemption prices, conversion rights and liquidation preferences of the shares
constituting any series of the Preferred Stock, in each case without any
further action or vote by the stockholders. The Company has no current plans to
issue any shares of Preferred Stock.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of shares of the Preferred Stock pursuant to the Board
of Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.

STATUTORY BUSINESS COMBINATIONS PROVISION

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 662/3% 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.

In the event that the Company's stockholders approve the Company's
reincorporation from Delaware to Florida at the 1998 Annual Meeting, the
Company will be subject to the "affiliated transactions" and "control share
acquisition" provisions of the Florida Business Corporation Act. These
provisions require, subject to certain exceptions, that an "affiliated
transaction" be approved by the holders of two-thirds of the voting shares
other than those beneficially owned by an "interested shareholder" or by a
majority of disinterested directors. Voting rights must also be conferred on
"control shares" acquired in specified control share acquistions, generally
only to the extent conferred by resolution approval by the shareholders,
excluding holders of shares defined as "interested shares."

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

47
<PAGE>

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

Upon completion of the Offering, the Company will have 12,635,528 shares
of Common Stock outstanding. Of these shares, 6,586,000 shares will be freely
tradeable without restriction under the Securities Act. The remaining 6,049,528
shares represent (i) shares beneficially owned by "affiliates" of the Company
(as that term is defined in Rule 144) and other original investors in the
Company and (ii) shares issued to sellers of companies acquired by the Company
during the past year, which shares may be sold in the open market in compliance
with the applicable requirements of Rule 144 or Rule 145 or, in certain cases,
pursuant to the Company's shelf registration statement.

As of June 8, 1998 there were 1,207,663 shares of Common Stock issuable
upon the exercise of outstanding options under the Plan and Directors' Plan and
an additional 152,916 shares of Common Stock reserved for future award or grant
under such plans. The Board of Directors has approved an amendment to the Plan,
subject to stockholder approval to increase the number of shares of Common
Stock that may be issued thereunder to 15% of the outstanding shares of the
Company's Common Stock. See "Management--Director Compensation; 1997
Non-Employee Directors' Stock Plan" and "Management--1997 Long-Term Incentive
Plan." The Company has filed a registration statement on Form S-8 to register
shares of Common Stock for issuance under the Plan and Directors' Plan. Common
Stock issued pursuant to such registration statement upon exercise of
outstanding vested options granted pursuant to the Plan and Directors' Plan,
other than Common Stock issued to affiliates of the Company, is available for
immediate resale in the open market.

The Company has also filed a shelf registration statement on Form S-1 to
register shares of Common Stock for issuance by the Company in acquisitions and
for the resale of shares held by certain persons who were sellers of companies
acquired. Shares of Common Stock issued by the Company pursuant to such
registration statement are available for immediate resale in the open market,
except the resale of such shares by affiliates of acquired companies is subject
to the restrictions and limitations imposed by Rule 145 under the Securities
Act. As of June 8, 1998, 878,187 shares of Common Stock remain available for
issuance by the Company under the registration statement. An aggregate of
1,668,924 shares was registered for resale under the shelf registration
statement by the selling stockholders named therein. As of June 8, 1998,
1,457,924 shares remain available for sale by selling stockholders.

In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company and the date on which they were acquired from an affiliate, then
the holder of such restricted securities (including the affiliate) is entitled
to sell that number of shares within any three-month period that does not
exceed the greater of (i) one percent of the then outstanding shares of the
Common Stock or (ii) the average weekly reported volume of trading of the
Common Stock during the four calendar weeks preceding such sales. Sales under
Rule 144 also are subject to certain requirements pertaining to the manner of
such sales, notices of such sales and the availability of current public
information concerning the Company. Any shares not constituting restricted
securities sold by affiliates must be sold in accordance with the foregoing
volume limitations and other requirements but without regard to the one year
holding period. Under Rule 144(k), if a period of at least two years has
elapsed from the later of the date on which restricted securities were acquired
from the Company and the date on which they were acquired from an affiliate,

48
<PAGE>

a holder of such restricted securities who is not an affiliate at the time of
the sale and has not been an affiliate for at least three months prior to the
sale would be entitled to sell the shares immediately and without regard to the
volume limitations and other conditions described above.

The Company, its directors and executive officers and the Selling
Stockholders have agreed that they will not offer, sell, contract to sell,
pledge, grant any option for the sale of, announce their intention to sell, or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or
any securities convertible into or exchangeable or exercisable for Common
Stock, for a period of 120 days after the date of this Prospectus without the
prior written consent of Credit Suisse First Boston, except for, in the case of
the Company, Common Stock issued pursuant to any employee or director benefit
plans described herein or in connection with acquisitions.

Sales of substantial amounts of Common Stock by existing stockholders
could have an adverse impact on the prevailing market price of the Common
Stock. No predictions can be made as to the effect, if any, that market sales
of shares by existing stockholders or the availability of such shares for
future sale will have on the market price of shares of Common Stock prevailing
from time to time.

49
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated July , 1998 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation, Furman Selz LLC, NationsBanc Montgomery Securities LLC and Raymond
James & Associates, Inc. are acting as representatives (the "Representatives"),
have severally but not jointly agreed to purchase from the Company and the
Selling Stockholders the following respective numbers of shares of Common
Stock:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ------------------------------------------------ ------------
<S> <C>
Credit Suisse First Boston Corporation .........
Furman Selz LLC ................................
NationsBanc Montgomery Securities LLC ..........
Raymond James & Associates, Inc. ...............
---------
Total ........................................ 3,500,000
---------
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides
that, in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.

The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to
purchase up to 525,000 additional shares at the public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of the shares of Common Stock. To the extent that such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as it was obligated to purchase pursuant to the
Underwriting Agreement.

The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the Shares to the public
initially at the public offering price set forth on the cover page of this
Prospectus and, through the Representatives, to certain dealers at such price
less a concession of $ per Share, and the Underwriters and such dealers
may allow a discount of $ per Share on sales to certain other dealers.
After the initial public offering, the public offering price, concession and
discount to dealers may be changed by the Representatives.

The Company, its directors, executive officers and the Selling
Stockholders have agreed with the underwriters that they will not offer, sell,
contract to sell, pledge, grant any option for the sale of, announce their
intention to sell, or otherwise dispose of, directly or indirectly, any shares
of Common Stock, or any securities convertible into or exchangeable or
exercisable for Common Stock, for a period of 120 days after the date of this
Prospectus without the prior written consent of Credit Suisse First Boston
Corporation, except for, in the case of the Company, Common Stock issued
pursuant to any employee or director benefit plans described herein or in
connection with acquisitions.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments which the Underwriters may be
required to make in respect thereof.

In connection with this offering, the Underwriters and selling group
members (if any) who are qualified market makers on Nasdaq may engage in
passive market making transactions in the Common

50
<PAGE>

Stock on Nasdaq in accordance with Rule 103 of Regulation M under the Exchange
Act during the business day prior to the pricing of the offering before the
commencement of offers of sales of the Common Stock. Passive market makers must
comply with applicable volume and price limitations and must be indentified as
such. In general, a passive market maker must display its bid at a price not in
excess of the highest independent bid for such security; if all independent
bids are lowered below the passive market maker's bid, however, such bid must
then be lowered when certain purchase limits are exceeded.

The Representatives, on behalf of the Underwriters, may engage in
overallotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase shares of Common Stock so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq Stock Market or otherwise and, if commenced, may be
discontinued at any time.

NationsBank N.A. ("NationsBank"), an affiliate of NationsBanc Montgomery
Securities LLC, has entered into the Credit Facility and the Term Loan which
are secured by substantially all of the Company's assets. At June 9, 1998, the
Company was indebted to NationsBank in the amount of $30.7 million. The Company
intends to use more than 10% of the net proceeds from the sale of the Common
Stock to repay this indebtedness owed by it to NationsBank, and the Company has
met the requirements of Rules 2710(c)(8)(B)(i) and 2720(c)(3) of the NASD
Conduct Rules.

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 Greenberg Traurig Hoffman
Lipoff Rosen & Quentel, P.A., Miami, Florida. 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 of Travel Services International, Inc.
and its subsidiaries, Cruises Only, Inc., 800-Ideas, Inc. and Cruises Inc.
included in this Prospectus and Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, to the extent and for the
periods indicated in their reports thereon. Such financial statements have been
included in reliance upon the authority of said firm as experts in giving such
reports.

The financial statements of Lexington Services Associates, Ltd. at
December 31, 1997 and for the year then ended appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company is subject to the information requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports,

51
<PAGE>

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 Stock Market. Reports,
proxy statements and other information concerning the Company can also be
inspected at the offices of the Nasdaq Stock Market, 1735 K Street, Washington,
D.C. 20006.

52
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
TRAVEL SERVICES INTERNATIONAL, INC.:
Report of Independent Certified Public Accountants ...................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 F-3
(unaudited)
Consolidated Statements of Income for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March 31, 1997 and 1998 (unaudited) .... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995,
1996 and 1997 and the Three Months Ended March 31, 1998 (unaudited) ................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March 31, 1997 and 1998 (unaudited) .... F-6
Notes to Consolidated Financial Statements .............................................. F-7
LEXINGTON SERVICES ASSOCIATES, LTD.:
Report of Independent Auditors .......................................................... F-23
Balance Sheets as of December 31, 1997 and March 31, 1998 (unaudited) ................... F-24
Statements of Income for the Periods Ended December 31, 1997 and the Three Months Ended
March 31, 1998 (unaudited) ............................................................ F-25
Statements of Partners' Capital for the Periods Ended December 31, 1997 and the Three
Months Ended March 31, 1998 (unaudited) ............................................... F-26
Statements of Cash Flows for the Periods Ended December 31, 1997 and the Three Months
Ended March 31, 1998 (unaudited) ...................................................... F-27
Notes to Financial Statements ........................................................... F-28
CRUISES ONLY, INC.:
Report of Independent Public Accountants ................................................ F-34
Balance Sheet as of July 27, 1997 ....................................................... F-35
Statement of Income for the Seven-Month Period Ended July 27, 1997 ...................... F-36
Statement of Changes in Stockholders' Deficit for the Seven-Month Period
Ended July 27, 1997 ................................................................... F-37
Statement of Cash Flows for the Seven-Month Period ended July 27, 1997 .................. F-38
Notes to Financial Statements ........................................................... F-39
800-IDEAS, INC.:
Report of Independent Public Accountants ................................................ F-43
Balance Sheet as of July 27, 1997 ....................................................... F-44
Statement of Income for the Seven-Month Period Ended July 27, 1997 ...................... F-45
Statement of Changes in Stockholders' Equity for the Seven-Month Period
Ended July 27, 1997 ................................................................... F-46
Statement of Cash Flows for the Seven-Month Period ended July 27, 1997 .................. F-47
Notes to Financial Statements ........................................................... F-48
CRUISES INC.:
Report of Independent Public Accountants ................................................ F-52
Balance Sheet as of July 27, 1997 ....................................................... F-53
Statement of Income for the Seven-Month Period Ended July 27, 1997 ...................... F-54
Statement of Changes in Stockholders' Equity for the Seven-Month Period
Ended July 27, 1997 ................................................................... F-55
Statement of Cash Flows for the Seven-Month Period ended July 27, 1997 .................. F-56
Notes to Financial Statements ........................................................... F-57
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To Travel Services International, Inc.:

We have audited the accompanying consolidated balance sheets of Travel
Services International, Inc., and subsidiaries as of December 31, 1996 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for each of three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Travel
Services International, Inc., and subsidiaries as of December 31, 1996 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

West Palm Beach, Florida
March 31, 1998 (except with respect to the matters discussed
in Note 15, as to which the date is June 16, 1998).

F-2
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ MARCH 31,
1996 1997 1998
-------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................... $ 867,000 $ 7,257,000 $ 20,619,000
Accounts receivables, net ............................... 1,427,000 4,819,000 6,880,000
Receivables from affiliates and employees ............... 647,000 444,000 407,000
Prepaid expenses ........................................ 718,000 899,000 1,598,000
Deferred income taxes ................................... -- 773,000 1,160,000
Other current assets .................................... 69,000 209,000 185,000
----------- ----------- ------------
Total current assets ................................... 3,728,000 14,401,000 30,849,000
Property and equipment, net .............................. 5,552,000 11,266,000 12,225,000
Goodwill, net ............................................ -- 41,701,000 56,220,000
Notes receivables from employees ......................... 86,000 214,000 176,000
Other assets ............................................. 2,244,000 725,000 1,054,000
----------- ----------- ------------
Total assets ........................................... $11,610,000 $68,307,000 $100,524,000
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ....................... $ 2,326,000 $ 433,000 $ 472,000
Due to affiliates and employees ......................... 300,000 478,000 1,433,000
Trade payables and accrued expenses ..................... 6,459,000 12,293,000 28,533,000
----------- ----------- ------------
Total current liabilities .............................. 9,085,000 13,204,000 30,438,000
Long-term debt, net of current portion ................... 2,272,000 4,129,000 12,699,000
Deferred income and other long-term liabilities .......... 5,000 136,000 197,000
Commitments and contingencies (note 14)
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; 2,587,873, 10,319,250 and 10,504,826 shares
outstanding, respectively ............................. 26,000 103,000 105,000
Additional paid-in capital .............................. 457,000 48,010,000 52,462,000
Retained earnings (deficit) ............................. (235,000) 2,725,000 4,623,000
----------- ----------- ------------
Total stockholders' equity ............................. 248,000 50,838,000 57,190,000
----------- ----------- ------------
Total liabilities and stockholders' equity ............. $11,610,000 $68,307,000 $100,524,000
=========== =========== ============
</TABLE>

The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.

F-3
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------- -----------------------------
1995 1996 1997 1997 1998
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues ...................... $30,024,000 $36,720,000 $62,076,000 $11,302,000 $24,936,000
Operating expenses ................ 19,079,000 24,762,000 39,342,000 7,580,000 14,237,000
----------- ----------- ----------- ----------- -----------
Gross profit ..................... 10,945,000 11,958,000 22,734,000 3,722,000 10,699,000
General and administrative
expenses ......................... 10,534,000 11,478,000 17,864,000 3,046,000 6,977,000
Goodwill amortization ............. -- -- 514,000 -- 407,000
----------- ----------- ----------- ----------- -----------
Income from operations ........... 411,000 480,000 4,356,000 676,000 3,315,000
Other income (expense):
Interest income ................... 49,000 117,000 314,000 9,000 176,000
Interest expense .................. (91,000) (287,000) (428,000) (86,000) (240,000)
Other, net ........................ (1,000) (12,000) 48,000 14,000 21,000
----------- ----------- ----------- ----------- -----------
Total other income (expense) ..... (43,000) (182,000) (66,000) (63,000) (43,000)
----------- ----------- ----------- ----------- -----------
Income before provision for
income taxes ................... 368,000 298,000 4,290,000 613,000 3,272,000
Provision for income taxes ........ 147,000 171,000 861,000 257,000 1,374,000
----------- ----------- ----------- ----------- -----------
Net income ....................... $ 221,000 $ 127,000 $ 3,429,000 $ 356,000 $ 1,898,000
=========== =========== =========== =========== ===========
HISTORICAL:
Basic earnings per share .......... $ 0.09 $ 0.05 $ 0.58 $ 0.14 $ 0.18
=========== =========== =========== =========== ===========
Diluted earnings per share ........ $ 0.09 $ 0.05 $ 0.57 $ 0.14 $ 0.18
=========== =========== =========== =========== ===========
Weighted average shares
outstanding in computing
basic earnings per share ......... 2,587,873 2,587,873 5,883,657 2,587,873 10,427,197
=========== =========== =========== =========== ===========
Weighted average shares
outstanding in computing
diluted earnings per share ....... 2,587,873 2,587,873 6,022,649 2,587,873 10,817,991
=========== =========== =========== =========== ===========
PRO FORMA (NOTE 4):
Diluted pro forma earnings
per share ........................ $ 0.33 $ 0.43 $ 0.71 $ 0.16 $ 0.20
=========== =========== =========== =========== ===========
Weighted average shares
outstanding in computing
diluted pro forma earnings
per share ........................ 10,286,265 10,286,265 11,031,279 10,887,375 11,419,101
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.

F-4
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
------------ ---------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1994 ......... 2,587,873 $ 26,000 $ 457,000 $ (407,000) $ 76,000
Net income ............................... -- -- -- 221,000 221,000
Distributions ............................ -- -- -- (65,000) (65,000)
--------- -------- ------------ ---------- ------------
Balances as of December 31, 1995 ......... 2,587,873 26,000 457,000 (251,000) 232,000
Net income ............................... -- -- -- 127,000 127,000
Distributions ............................ -- -- -- (111,000) (111,000)
--------- -------- ------------ ---------- ------------
Balances as of December 31, 1996 ......... 2,587,873 26,000 457,000 (235,000) 248,000
Net income ............................... -- -- -- 3,429,000 3,429,000
Distributions ............................ -- -- (1,904,000) (469,000) (2,373,000)
Initial Public Offering and
Combinations ............................ 7,698,392 77,000 49,447,000 -- 49,524,000
Acquisition of Trax Software ............. 32,985 -- -- -- --
Amortization of unearned
compensation ............................ -- -- 10,000 -- 10,000
--------- -------- ------------ ---------- ------------
Balances as of December 31, 1997 ......... 10,319,250 103,000 48,010,000 2,725,000 50,838,000
Net income (unaudited) ................... -- -- -- 1,898,000 1,898,000
Acquisition of Goldcoast and
Diplomat (unaudited) .................... 185,576 2,000 4,449,000 -- 4,451,000
Amortization of unearned
compensation (unaudited) ................ -- -- 3,000 -- 3,000
---------- -------- ------------ ---------- ------------
Balances as of March 31, 1998
(unaudited) ............................. 10,504,826 $105,000 $ 52,462,000 $4,623,000 $ 57,190,000
========== ======== ============ ========== ============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.

F-5
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash from operating activities:
Net income ......................................... $ 221,000 $ 127,000 $ 3,429,000
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization ..................... 520,000 778,000 1,736,000
Amortization of unearned compensation ............. -- -- 10,000
Changes in operating assets and liabilities:
Accounts receivables ............................. (135,000) (350,000) (971,000)
Receivables and notes from affiliates
and employees .................................. 92,000 (202,000) (115,000)
Prepaid expenses ................................. (227,000) (429,000) (18,000)
Deferred income taxes ............................ -- -- (773,000)
Other assets ..................................... (17,000) (40,000) 550,000
Trade payables and accrued expenses .............. 1,369,000 230,000 (661,000)
------------- ------------- --------------
Net cash provided by operating activities ......... 1,823,000 114,000 3,187,000
------------- ------------- --------------
Cash flows from investing activities:
Capital expenditures ............................... (1,260,000) (2,988,000) (2,952,000)
Improvements to other assets ....................... -- (69,000) --
Proceeds from sale of property and
equipment ........................................ 14,000 74,000 54,000
Cash paid for acquisitions, net of cash
acquired ......................................... -- -- (18,208,000)
------------- ------------- --------------
Net cash used in investing activities ............. (1,246,000) (2,983,000) (21,106,000)
------------- ------------- --------------
Cash flows from financing activities:
Proceeds from long-term debt and lines
of credit ........................................ 724,000 4,104,000 --
Payments on long-term debt and lines
of credit ........................................ (683,000) (1,133,000) (3,731,000)
Stock redemption ................................... (400,000) -- --
Net proceeds from Offering ......................... -- -- 33,219,000
Consideration paid to former stockholder of
accounting acquirer .............................. -- -- (5,000,000)
Distributions to stockholders ...................... (65,000) (111,000) (179,000)
------------- ------------- --------------
Net cash provided by (used in) financing
activities ...................................... (424,000) 2,860,000 24,309,000
------------- ------------- --------------
Net increase in cash and cash equivalents ........... 153,000 (9,000) 6,390,000
Cash and cash equivalents,
beginning of period ................................ 723,000 876,000 867,000
------------- ------------- --------------
Cash and cash equivalents, end of period ............ $ 876,000 $ 867,000 $ 7,257,000
============= ============= ==============
Supplemental cash flow information:
Cash paid for interest ............................. $ 124,000 $ 262,000 $ 426,000
============= ============= ==============
Supplemental disclosure of non-cash financing
and investing activities:
Receivable from stockholder exchanged for
non-operating assets ............................ $ -- $ 2,120,000 $ --
============= ============= ==============
Assets distributed to stockholders ................ $ -- $ -- $ 2,193,000
============= ============= ==============

<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1997 1998
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Cash from operating activities:
Net income ......................................... $ 356,000 $ 1,898,000
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization ..................... 269,000 852,000
Amortization of unearned compensation ............. -- 3,000
Changes in operating assets and liabilities:
Accounts receivables ............................. (314,000) (1,728,000)
Receivables and notes from affiliates
and employees .................................. 92,000 75,000
Prepaid expenses ................................. 69,000 (212,000)
Deferred income taxes ............................ -- (387,000)
Other assets ..................................... (75,000) (297,000)
Trade payables and accrued expenses .............. 5,524,000 13,953,000
------------- ------------
Net cash provided by operating activities ......... 5,921,000 14,157,000
------------- ------------
Cash flows from investing activities:
Capital expenditures ............................... (509,000) (897,000)
Improvements to other assets ....................... -- --
Proceeds from sale of property and
equipment ........................................ 30,000 --
Cash paid for acquisitions, net of cash
acquired ......................................... -- (8,249,000)
------------- ------------
Net cash used in investing activities ............. (479,000) (9,146,000)
------------- ------------
Cash flows from financing activities:
Proceeds from long-term debt and lines
of credit ........................................ -- 8,600,000
Payments on long-term debt and lines
of credit ........................................ (2,422,000) (249,000)
Stock redemption ................................... -- --
Net proceeds from Offering ......................... -- --
Consideration paid to former stockholder of
accounting acquirer .............................. -- --
Distributions to stockholders ...................... -- --
------------- ------------
Net cash provided by (used in) financing
activities ...................................... (2,422,000) 8,351,000
------------- ------------
Net increase in cash and cash equivalents ........... 3,020,000 13,362,000
Cash and cash equivalents,
beginning of period ................................ 867,000 7,257,000
------------- ------------
Cash and cash equivalents, end of period ............ $ 3,887,000 $ 20,619,000
============= ============
Supplemental cash flow information:
Cash paid for interest ............................. $ 111,000 $ 240,000
============= ============
Supplemental disclosure of non-cash financing
and investing activities:
Receivable from stockholder exchanged for
non-operating assets ............................ $ -- $ --
============= ============
Assets distributed to stockholders ................ $ -- $ --
============= ============
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these financial statements.

F-6
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION:

Travel Services International, Inc. (the "Company") and subsidiaries
provide specialized distribution of leisure travel services to both travel
agents and travelers. The Company, incorporated in Delaware, was founded in
April 1996. On July 22, 1997, the Company's Registration Statement on Form S-1
was declared effective. On July 28, 1997, the Company consummated its initial
public offering (the "Offering") of common stock, and simultaneously acquired
five specialized distributors of travel services in separate combination
transactions (the "Combinations"). As a result of the Combinations, the Company
acquired 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 acquired substantially all of the assets of Auto Europe, Inc.
(Maine) ("Auto Europe"), Cruises Only, Inc. ("Cruises Only") and 800-Ideas,
Inc. ("Travel 800") (each a "Founding Company" and collectively the "Founding
Companies").

On July 28, 1997, the Company issued an aggregate of 6,297,225 shares of
Common Stock in connection with the Combinations (3,422,225 shares) and the
Offering (2,875,000 shares). Shares issued in connection with the Offering were
sold to the public at $14.00 per share. The net proceeds to the Company from
the Offering (after deducting underwriting discounts, commissions and estimated
offering expenses) were approximately $33.2 million. Of this amount, $29.1
million represents the cash portion of the purchase price relating to the
Combinations (including $5 million paid to the former stockholder of Auto
Europe, the accounting acquiror, and working capital adjustments and estimated
reimbursements to stockholders of three of the Founding Companies that had
elected S Corporation status under the Internal Revenue Code for certain taxes
incurred by them in connection with the Combinations).

The consideration for the Combinations consisted of cash and common stock.
The Combinations were accounted for under the purchase method of accounting.
Auto Europe has been designated as the accounting acquiror for financial
statement presentation purposes in accordance with Securities and Exchange
Commission ("SEC") 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.
Accordingly, the historical financial statements for each year presented
represent those of Auto Europe and companies acquired in 1997 and 1998 under
transactions accounted for using the pooling of interests method of accounting
described in Note (3). The historical financial statements as of and for the
year ended December 31, 1997 also include balances and transactions of the four
other Founding Companies and the Company since July 28, 1997. Historical
financial statements as of and for the three months ended March 31, 1998 also
include the balances and operating results of companies acquired during the
first quarter of 1998 under transactions accounted for using the purchase
method of accounting, from the date of acquisition through March 31, 1998.

Historical operating results presented do not include operations of four
of the Founding Companies prior to July 28, 1997 or of Lexington Services
Associates, Ltd. acquired on June 1, 1998 (the "Lexington Acquisition"). Refer
to Note (4) for information regarding pro forma operating results and pro forma
diluted earnings per share which give effect to results of the Company combined
with all Founding Companies as if the Combinations had occurred at the
beginning of each respective year and the Lexington Acquisition as if it had
occurred on January 1, 1997 and to Note (15) for information regarding the
Lexington Acquistion.

F-7
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

INTERIM FINANCIAL INFORMATION

The interim financial statements as of March 31, 1998, and for the three
months ended March 31, 1997 and 1998, are unaudited and omit certain
information and footnote disclosures related to these periods, normally
included in financial statements prepared in accordance with generally accepted
accounting principles. 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 for car rentals and
airline tickets is at the time a reservation is booked and ticketed and for
cruise bookings is 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. Revenues primarily consist of commissions and markups on travel services,
volume bonuses from travel service providers, processing fees, franchise fees,
and delivery fees. The Company recognizes revenues from franchise fees when the
Company has fulfilled all contractual obligations required by the agreements
signed with the franchisees. The Company defers franchise renewal fees and
amortizes those fees to revenues over the applicable one-year period. The
Company provides an allowance for cancellations, reservation changes and
currency exchange guarantees, and provisions for such amounts are reflected in
net revenues based on historical experience. The allowances netted against net
revenues are not material in the three years ended December 31, 1997. However,
actual cancellations and reservation changes could vary significantly based
upon changes in economic and political conditions that may impact leisure
travel patterns. The Company has also recorded an allowance for doubtful
accounts receivables totaling $37,000, $145,000 and $135,000 (unaudited) at
December 31, 1996, 1997 and March 31, 1998, respectively.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with a
maturity of three months or less at the date of purchase to be cash
equivalents. Cash and cash equivalents at December 31, 1996, 1997 and March 31,
1998, include interest bearing demand deposits and highly liquid investments of
$992,000, $6,290,000 and $19,588,000 (unaudited), respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments", requires disclosure of the fair value of
certain financial instruments. Cash and cash equivalents, receivables, trade
payables, and debt are reflected in the accompanying consolidated financial
statements at cost, which approximates fair value. All long-term debt
obligations bear interest.

F-8
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)

FOREIGN CURRENCY TRANSACTIONS

The Company enters into foreign currency forward purchase contracts to
hedge substantially all of its foreign currency denominated liabilities and
reservation commitments to foreign travel service. The hedging minimizes the
impact of foreign exchange rate movements on the Company's operating results
because gains and losses on these contracts generally offset losses and gains
on the liabilities being hedged. The typical maturity of these purchase
contracts is 60 days. At December 31, 1996 and 1997, respectively, the Company
had outstanding forward purchase contracts of $687,000 and $5.4 million,
respectively. The risk of loss on unhedged liabilities is not considered
significant.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is provided over
estimated useful lives of the respective assets on a straight-line basis.
Leasehold improvements are amortized on a straight-line basis over periods not
exceeding the respective terms of the leases.

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 costs and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statement of income.

INTANGIBLE ASSETS AND AMORTIZATION

The Combinations and certain other acquisitions were accounted for using
the purchase method of accounting. The excess of consideration paid over the
estimated fair value of the net assets acquired less liabilities assumed is
recorded as goodwill. Allocations of the purchase price to assets acquired and
liabilities assumed have been initially assigned and recorded based on
preliminary estimates of fair value and may be revised as additional
information concerning the valuation of such assets and liabilities becomes
available.

Goodwill is being amortized on a straight-line basis generally over 35
years, representing the approximate remaining useful life of acquired
intangible assets. Accumulated amortization totals $514,000 at December 31,
1997 and $921,000 (unaudited) at March 31, 1998. In accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed", subsequent to an
acquisition, the Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining net book value may
warrant revision or may not be recoverable. If factors indicate that the net
book value should be evaluated for possible impairment, the Company will use an
estimate of the related business's undiscounted operating income over the
remaining life of the cost in excess of net assets of acquired businesses, in
measuring whether such cost is recoverable.

CAPITALIZED SOFTWARE COSTS

Pursuant to American Institute of Certified Public Accountants Statements
of Position No. 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use" ("SOP 98-1"), the Company capitalizes certain
direct costs related to strategic systems development

F-9
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)

projects during the application development stage. Costs incurred during the
preliminary project and post implementation operation stages are expensed as
incurred. Capitalized costs are amortized using the straight line method over
the estimated useful life of five years commencing when the application is
ready for use. Capitalized software development costs are reported at the lower
of unamortized costs or net realizable value. No capitalized costs were
amortized in 1997 or 1998.

STOCK COMPENSATION PLANS

Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123") requires adoption of a fair value
method of accounting for stock-based compensation plans for non-employees and
permits continuation of accounting using the intrinsic value based method under
Accounting Principals Board ("APB") Opinion No. 25, "Accounting for
Stock-issued to Employees", for stock options granted to employees.

The Company has chosen to account for stock options issued to employees
using the intrinsic value based method prescribed in APB Opinion No. 25 and,
accordingly, does not recognize compensation expense for these stock option
grants made at an exercise price equal to or in excess of the fair market value
of the stock at the date of grant. Pro forma net income and earnings per share
amounts are presented in Note (10) as if the fair value method had been
adopted.

INCOME TAXES

Prior to July 28, 1997, the Company consisted of Auto Europe, the
accounting acquiror, and the Pooling Acquisitions accounted for using the
pooling of interests method of accounting. Auto Europe, which elected S
Corporation status as defined by the Internal Revenue Code, was not subject to
taxation for federal purposes until the transfer of the net assets of the S
Corporation to the Company, which coincided with the Company's Offering. At
that time, Auto Europe adopted Statement of Financial Accounting Standard No.
109, "Accounting for Income Taxes" ("SFAS No. 109"). Auto Europe recorded a
deferred tax asset and a corresponding reduction of income tax expense of
approximately $543,000 on July 28, 1997, representing the net deferred taxes at
that date which were not previously recorded because of Auto Europe's previous
status under Subchapter S of the Internal Revenue Code.

Under SFAS 109, deferred tax assets and liabilities are computed based
upon the difference between the financial statement and income tax basis of
assets and liabilities using the enacted marginal tax rate applicable when the
related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability each period. If available evidence suggests that it is more likely
than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets
to the amount that is more likely than not to be realized. Future changes in
such valuation allowance are included in the provision for deferred income
taxes in the period of change.

EARNINGS PER SHARE

The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") in 1997. Basic earnings per common share
("EPS") calculations are determined by dividing net income by the weighted
average number of shares of common stock

F-10
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)

outstanding during the year. Diluted earnings per common share calculations are
determined by dividing net income by the weighted average number of common
shares and dilutive common share equivalents outstanding (all related to
outstanding stock options discussed in Note (10)). SFAS No. 128 had no impact
on the Company's reported earnings per share for 1995 and 1996 as no common
share equivalents existed during these periods.

A reconciliation of shares used in the calculation of Basic and Diluted
EPS is as follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Basic common shares outstanding ........... 5,883,657 10,427,197
Dilutive effect of options ................ 138,992 390,794
--------- ----------
Diluted common shares outstanding ......... 6,022,649 10,817,991
========= ==========
</TABLE>

Diluted pro forma earnings per share is also presented to give effect to
the Offering and the Combinations as discussed in Note (4).

USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Significant accounting estimates include establishing allowances for
doubtful accounts, cancellations, reservation changes and currency exchange
guarantees.

NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in the financial statements.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. During the three months ended March 31, 1998,
the Company adopted SFAS No. 130. The following types of items are to be
considered in computing comprehensive income: foreign currency translation
adjustments, pension liability adjustments, unearned stock plan awards and
unrealized gain/ loss on securities available for sale. For all periods
presented herein, there were no differences between net income and
comprehensive income.

In June 1997, the FASB issued Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 establishes standards for the way that public business

F-11
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)

enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about product and
services, geographic areas, and major customers. SFAS No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997.
Financial statement disclosures for prior periods are required to be restated.
The Company is in the process of evaluating the disclosure requirements. The
adoption of SFAS No. 131 will have no impact on consolidated results of
operations, financial position or cash flow.

(3) ACQUISITIONS:

On November 19, 1997, the Company consummated the acquisitions of all of
the outstanding capital stock of CruiseOne, Inc., Cruise World, Inc., and The
Anthony Dean Corporation (d/b/a Cruise Fairs of America). The aggregate
consideration paid for these acquisitions was 880,196 shares of common stock.
On November 21, 1997, the Company consummated the acquisitions of all of the
outstanding capital stock of Ship 'N' Shore Cruises, Inc., Cruise Time, Inc.,
SNS Coachline, Inc., Cruise Mart, Inc. and SNS Travel Marketing, Inc. The
aggregate consideration paid for these acquisitions was 471,508 shares of
common stock. On March 31, 1998, the Company consummated the acquisition of all
of the outstanding capital stock of CruiseMasters, Inc. ("CruiseMasters"). The
aggregate consideration paid for this acquisition was 152,835 shares of common
stock. These November 1997 and March 1998 acquisitions of specialized
distributors of cruise reservations (collectively, the "Pooling Acquisitions")
are accounted for using the pooling of interests method of accounting and,
accordingly, the consolidated financial statements for the periods presented
have been restated to include the Pooling Acquisitions.

Revenues and income generated by the Pooling acquisitions prior to the
date of acquisition and included in the accompanying consolidated statements of
income were as follows:

<TABLE>
<CAPTION>
1995 1996 1997
------------- -------------- --------------
<S> <C> <C> <C>
Net revenues .......... $8,105,000 $11,000,000 $15,722,000
========== =========== ===========
Net income ............ $ 365,000 $ 259,000 $ 1,167,000
========== =========== ===========
</TABLE>

On December 2, 1997, the Company consummated the acquisition of all of the
outstanding capital stock of Trax Software, Inc. ("Trax"). The aggregate
consideration paid was 32,985 shares of common stock. Trax developed software
products designed for specialized distributors of leisure travel services. This
software is the foundation of the reservations booking functionality of the
Company's integrated selling, service, product development and customer
information systems now under development. The acquisition is accounted for
using the purchase method of accounting. Accordingly, the operations of Trax
have been included in the accompanying consolidated financial statements from
the date of acquisition. The historical operations of Trax when compared to the
historical operations of the Company are not significant.

On January 20, 1998, the Company consummated the acquisition of
substantially all of the assets and assumption of substantially all of the
liabilities of Diplomat Tours, Inc. and International Airline Consolidators
(collectively, "Diplomat"). The aggregate consideration paid for Diplomat
consisted of 21,821 shares of common stock and $2.0 million in cash. Diplomat
is a specialized distributor of international airline reservations and had 1997
net revenues of approximately $1.9 million. The

F-12
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(3) ACQUISITIONS:--(CONTINUED)
acquisition is accounted for using the purchase method of accounting. The
historical operations of Diplomat when compared to the historical operations of
the Company are not significant.

On February 9, 1998, the Company consummated the acquisition of all of the
outstanding capital stock of Gold Coast Travel Agency Corporation, Inc. ("Gold
Coast"). The aggregate consideration paid for Gold Coast consisted of 163,755
shares of common stock and $6.25 million in cash. In addition $500,000 in
contingent consideration is payable based upon performance in the 1998 fiscal
year. Gold Coast is a specialized distributor of cruise reservations and had
1997 net revenues of approximately $6.8 million. The acquisition is accounted
for using the purchase method of accounting. The historical operations of Gold
Coast when compared to the historical operations of the Company are not
significant.

Refer to Note (15) for information regarding subsequent events involving
acquisitions.

(4) PRO FORMA RESULTS AND EARNINGS PER SHARE:

Pro forma diluted earnings per share for the Company gives effect to
results of the Company combined with the Founding Companies as if the
Combinations had occurred at the beginning of each respective year, and as if
the Lexington Acquisition had occurred on January 1, 1997, along with certain
adjustments associated with the Pooling Acquisitions. The pro forma results
include the effects of: (i) the Combinations and the Lexington Acquisition;
(ii) amortization of goodwill resulting from the Combinations and the
Lexington Acquisition; (iii) certain adjustments to salaries, bonuses,
management fees and benefits to former owners and key management of the
Founding Companies, the Lexington Acquisition and the Pooling Acquisitions, to
which such persons have agreed prospectively ("Compensation Differential");
(iv) pro forma acquisition costs associated with Pooling Acquisitions and
Lexington; and (v) provision for income taxes as if pro forma income was
subject to corporate federal and state income taxes during the periods; and
(vi) the issuance of 315,395 shares of Common Stock at an assumed offering
price of $33.375 per share the net proceeds of which would be sufficient to
repay debt incurred in connection with the Lexington Acquisition.

These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which actually
would have resulted had the Founding Companies and the Lexington Acquisition
been under common control prior to the Combinations and the Lexington
Acquisition, or which may result in the future.

F-13
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited pro forma operating results and diluted pro forma earnings per
share follow:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -------------------------------
1995 1996 1997 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues ................... $ 52,660,000 $ 63,017,000 $ 92,899,000 $20,760,000 $27,818,000
============ ============ ============ =========== ===========
Income before taxes, additional
goodwill and adjustments for
Compensation Differential
and acquisition costs ........ $ 368,000 $ 298,000 $ 4,290,000 $ 613,000 $ 3,272,000
Income of Founding Companies
and Lexington, prior to the
acquisition dates ............. 2,548,000 2,562,000 5,699,000 1,476,000 395,000
------------ ------------ ------------ ----------- -----------
Pro forma income before
adjustments .................. 2,916,000 2,860,000 9,989,000 2,089,000 3,667,000
Compensation Differential..... 4,153,000 5,964,000 5,105,000 1,465,000 753,000
Acquisition costs ............ -- -- 503,000 -- 27,000
Goodwill amortization ........ (1,234,000) (1,234,000) (2,034,000) (509,000) (607,000)
------------ ------------ ------------ ----------- -----------
Pro forma income
before income taxes ........ 5,835,000 7,590,000 13,563,000 3,045,000 3,840,000
Pro forma provision for
income taxes ................ 2,451,000 3,188,000 5,696,000 1,279,000 1,612,000
------------ ------------ ------------ ----------- -----------
Pro forma net income ......... $ 3,384,000 $ 4,402,000 $ 7,867,000 $ 1,766,000 $ 2,228,000
============ ============ ============ =========== ===========
Diluted pro forma earnings
per share .................... $ .33 $ .43 $ .71 $ .16 $ .20
============ ============ ============ =========== ===========
Weighted average shares used
outstanding .................. 10,286,265 10,286,265 11,031,279 10,887,375 11,419,101
============ ============ ============ =========== ===========
</TABLE>

F-14
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(5) PROPERTY AND EQUIPMENT AND OTHER ASSETS:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE --------------------------------- MARCH 31,
IN YEARS 1996 1997 1998
------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land ............................. $ 365,000 $ 835,000 $ 835,000
Buildings ........................ 27-40 2,766,000 4,904,000 4,904,000
Vehicles ......................... 5 674,000 1,257,000 1,257,000
Furniture and fixtures ........... 5-7 203,000 828,000 987,000
Computers and equipment .......... 3-5 3,020,000 5,617,000 6,540,000
Capitalized software ............. 5 -- 185,000 492,000
Leasehold improvements ........... 5-7 36,000 110,000 409,000
------------ ------------ ------------
7,064,000 13,736,000 15,424,000
Less: Accumulated depreciation and
amortization .................... (1,512,000) (2,470,000) (3,199,000)
------------ ------------ ------------
$ 5,552,000 $ 11,266,000 $ 12,225,000
============ ============ ============
</TABLE>

Other assets at December 31, 1996 include an investment in real estate not
utilized in operations with a carrying value of $2.1 million. Immediately prior
to the Offering and Combinations, the property was distributed, along with
other property and equipment with a net book value of $73,000, to a former
stockholder.

(6) TRADE PAYABLES AND ACCRUED EXPENSES:

Trade payables and accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- MARCH 31,
1996 1997 1998
------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued compensation ............................ $ 486,000 $ 2,360,000 $ 2,882,000
Accrued commissions ............................. 365,000 174,000 431,000
Due to travel providers and customers ........... 3,317,000 4,772,000 17,344,000
Due to travel agents ............................ 589,000 898,000 2,552,000
Allowance for cancellations and refunds ......... 327,000 404,000 522,000
Offering costs .................................. -- 547,000 13,000
Other ........................................... 1,375,000 3,138,000 4,789,000
---------- ----------- -----------
$6,459,000 $12,293,000 $28,533,000
========== =========== ===========
</TABLE>

F-15
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) LONG TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- MARCH 31,
1996 1997 1998
--------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Borrowings under NationsBank credit facility ......... $ -- $ -- $ 8,600,000
Borrowings under Key Bank line of credit ............. 2,000,000 -- --
Mortgage note payable to Key Bank, bearing
interest at prime plus 1%, payable in monthly
principal installments of $7,000 plus accrued
interest, matures in August 2002. Secured by
certain real estate ................................. 1,229,000 1,139,000 1,125,000
Note payable to Bank of New York, bearing interest
at prime plus 1%, payable in monthly payments of
$3,000 through October 2000. Secured by certain
property and equipment .............................. 153,000 113,000 103,000
Mortgage payable to Barnett Bank, bearing interest
at 7.2%, payable in monthly payments of $15,000
through September 2005 and a balloon payment in
October 2005. Secured by certain real estate and
by funds pledged of $3 million....................... -- 1,916,000 1,905,000
Note payable to Barnett Bank, bearing interest at
7.2%, payable in monthly principal payments of
$13,000 through April 2001 and a balloon
payment in May 2001. Secured by funds pledged
of $3 million........................................ -- 750,000 710,000
Note payable to Barnett Bank, bearing interest at
7.2%, payable in monthly payments of $9,000
through September 2002 and a balloon payment
in October 2002. Secured by funds pledged of
$3 million........................................... -- 566,000 549,000
Note payable to U.S. Small Business Administration
(SBA), bearing interest at 7.25% .................... 745,000 -- --
Note payable to Textron Financial Corporation,
bearing interest at 9%, payable in monthly
principal and interest payments. Secured
by vehicles ......................................... 243,000 -- --
Notes payable to various automobile lenders,
bearing interest ranging from 7.9% to 11.9% ......... 110,000 -- --
Other notes payable .................................. 118,000 78,000 179,000
------------ ---------- -----------
Total long-term debt ................................ 4,598,000 4,562,000 13,171,000
Less-current portion ................................ (2,326,000) (433,000) (472,000)
------------ ---------- -----------
Long-term debt, net of current portion .............. $ 2,272,000 $4,129,000 $12,699,000
============ ========== ===========
</TABLE>

F-16
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(7) LONG TERM DEBT:--(CONTINUED)

On October 15, 1997, the Company entered into a credit agreement (the
"Credit Agreement") with NationsBank, N.A. with respect to a $20 million
revolving line of credit (the "Credit Facility") and a term loan facility of
approximately $2 million (the "Term Loan"). The Credit Facility may be used for
letters of credit not to exceed $2 million, acquisitions, and for capital
expenditures and general corporate purposes up to an aggregate amount of $5
million. The Credit Agreement requires the Company to comply with various loan
covenants, which include maintenance of certain financial ratios, restrictions
on additional indebtedness and restrictions on liens, guarantees, advances,
capital expenditures, sale of assets and dividends. At December 31, 1997, the
Company was in compliance with applicable loan covenants. Interest on
outstanding balances of the Credit Facility are computed based on the
Eurodollar Rate plus a margin ranging from 1.25% to 2.0%, depending on certain
financial ratios. Availability fees of 25 basis points per annum payable on the
unused portion of the Credit Facility and a facility fee are paid equal to 5/8
of one percent of the aggregate principal balance on the Term Loan. The Credit
Facility has a three-year term and is secured by substantially all the assets
of the Company, including the stock and membership interests in the Founding
Companies and any future material subsidiaries, as defined. The Company, each
Founding Company and all other current and future material subsidiaries are
required to guarantee repayment of all amounts due under the Credit Facility.
The Credit Agreement requires the Company to secure an interest rate hedge on
fifty percent of the outstanding principal amount borrowed under the Credit
Facility and one hundred percent of the outstanding balance on the Term Loan.
The Term Loan is to be used to refinance the mortgage note payable to Barnett
Bank.

At December 31, 1997, maturities of long-term debt were as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------ -------------
<S> <C>
1998 ................ $ 433,000
1999 ................ 427,000
2000 ................ 425,000
2001 ................ 505,000
2002 ................ 404,000
Thereafter .......... 2,368,000
----------
$4,562,000
==========
</TABLE>

Refer to Note (15) for information regarding certain subsequent events
related to the Credit Agreement.

(8) STOCKHOLDERS' EQUITY:

In May 1997, the Company effected a 5,444.45-for-one stock split of its
common shares. 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 the common stock split and the
increase in the shares of authorized common stock have been retroactively
reflected in the accompanying consolidated financial statements for all periods
presented.

In May 1997, the stockholders exchanged 2,484,501 shares of common stock
for an equal number of shares of restricted voting common stock. 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.

Other transactions in the Company's common stock are discussed in Notes
(1), (3) and (15).

F-17
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) INCOME TAXES:

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal .......... $123,000 $144,000 $719,000 $237,000 $1,273,000
State ............ 24,000 27,000 142,000 20,000 101,000
-------- -------- -------- -------- ----------
$147,000 $171,000 $861,000 $257,000 $1,374,000
======== ======== ======== ======== ==========
Current .......... $147,000 $171,000 $826,000 $257,000 $1,761,000
Deferred ......... -- -- 35,000 -- (387,000)
-------- -------- -------- -------- ----------
$147,000 $171,000 $861,000 $257,000 $1,374,000
======== ======== ======== ======== ==========
</TABLE>

A reconciliation of the difference between the expected provision for
income taxes using the federal tax rate and the Company's actual provision is
as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ----------------------------
1995 1996 1997 1997 1998
----------- ----------- ------------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income tax computed at the
Federal statutory tax rate ......... $129,000 $104,000 $1,502,000 $215,000 $1,145,000
State and local taxes (net of
federal benefit) ................... 18,000 67,000 48,000 42,000 201,000
Non-deductible goodwill ............. 112,000 -- 28,000
Tax benefit to record deferred
taxes at July 27, 1997 ............. -- -- (543,000) -- --
Other, net .......................... -- -- (258,000) -- --
-------- -------- ---------- -------- ----------
$147,000 $171,000 $ 861,000 $257,000 $1,374,000
======== ======== ========== ======== ==========
</TABLE>

The major components of the Company's net current deferred tax assets at
December 31, 1997 relate to allowances, accruals and adjustments relating to
the conversion from cash to accrual method of accounting for income tax
purposes at certain of the Founding Companies and Pooling Acquisitions.

(10) STOCK OPTION PLANS:

In May 1997, the Company adopted two stock option plans (the "Plans").
Under the The Long Term Incentive Plan (the "Incentive Plan"), the maximum
number of common shares 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.
Options may be granted to directors, officers, employees, consultants, and
independent contractors. 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-18
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(10) STOCK OPTION PLANS:--(CONTINUED)

Pursuant to the Non-Employee Directors' Stock Plan (the "Directors'
Plan"), each non-employee director and advisory director is automatically
granted an option to purchase 10,000 shares upon such person's initial election
as a 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. The Directors Plan also 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 parties. The Company has reserved 100,000 shares of Common Stock for
issuance under the Directors' Plan.

The price at which the Company's options are granted under the plans are
equal to or in excess of the fair market value of the stock at the date of
grant. Generally, options granted under the Incentive Plan may remain
outstanding and may be exercised at any time up to three months after the
person to whom such options were granted is no longer employed or retained by
the Company. Options granted under the Directors' Plan may remain outstanding
and may be exercised at any time up to one year after termination of service as
a director or advisor. Substantially all of the outstanding options under the
Incentive Plan vest at the rate of 25% per year and options under the
Directors' Plan are immediately exercisable. Options granted under the Plans
have maximum terms of not more than 10 years.

During 1997, 962,250 non-qualified stock options were granted under the
Plans at exercise prices between $14 and $24 with a weighted average exercise
price of $15.07. At December 31, 1997, substantially all of the options granted
remain outstanding as none were exercised or cancelled during the year; 40,000
options are exercisable. The weighted average remaining contractual life of the
outstanding options are nine years and seven months.

The Company applies APB Opinion No. 25 and related interpretations in
accounting for options granted to employees and directors. Accordingly, no
compensation cost has been recognized related to such grants. Had compensation
cost been recorded for the Company's awards under the Plans based on fair value
at the grant dates consistent with the methodologies of SFAS 123, the Company's
1997 reported actual net income and earnings per share would have been reduced
to the pro forma amounts indicated below:

<TABLE>
<S> <C> <C>
Net Income: As Reported .......... $3,429,000
Pro Forma ............ $2,506,000
Basic EPS: As Reported .......... $ .58
Pro Forma ............ $ .44
Diluted EPS: As Reported .......... $ .57
Pro Forma ............ $ .43
</TABLE>

Under SFAS 123, the fair value of each option granted is estimated on the
date of grant using the Black-Scholes model with the following assumptions:
expected volatility of 70%, risk-free interest rate of 7.5%, expected dividends
of $0 and expected term of four years.

The Company recorded expense of $10,000 in 1997 related to 10,000 options
granted to a non-employee of the Company. In determining the expense to be
recorded, the Company applied the Black-Scholes model using the same
assumptions described above, including expected term of four years.

F-19
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(11) CONCENTRATIONS OF RISK:

TRAVEL SERVICE PROVIDERS

The Company markets and provides reservation services for rental car
companies located in various European countries. Two auto rental companies
accounted for approximately 82%, 80%, and 87%, respectively, of the Company's
net revenues from European auto rentals in 1995, 1996 and 1997. The Company
markets and provides reservation services for a variety of cruise lines. Net
revenue from the sales of cruises on behalf of six cruise lines represented
approximately 78%, 70%, and 74%, respectively, of the Company's net cruise
revenues in 1995, 1996 and 1997.

GEOGRAPHICAL

The table below provides information on the percentage of the Company's
total auto rentals occurring in significant geographical regions for the three
years ended December 31, 1997:

<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -----
<S> <C> <C> <C>
Germany ................. 21% 19% 18%
United Kingdom .......... 19% 19% 20%
France .................. 16% 17% 17%
Italy ................... 13% 14% 13%
</TABLE>

(12) RELATED PARTY TRANSACTIONS:

Notes and receivables from affiliates and employees at December 31, 1997
consist of a note from an affiliate for $326,000 which bears interest at six
percent and is due September 30, 1998 and a note from an employee for $86,000
which bears interest at the prime rate payable quarterly, and is due in annual
three principal payments commencing January 1, 1999.

Due to affiliates of $478,000 at December 31, 1997 represents amounts
payable to Founding Company stockholders for reimbursement of certain
receivables and taxes related to the Offering and Combinations. These amounts
are expected to be paid in 1998. Due to affiliates of $300,000 at December 31,
1996 represents a short-term loan from the wife of an affiliate which was
repaid in February 1997.

The Company leases office space from an employee under a lease which
expires November 2002. Total payments were approximately $48,000, $58,000,
$106,000 and $45,000 (unaudited), respectively, in 1995, 1996, 1997 and March
31, 1998.

One of the Company's subsidiaries obtains long distance telephone services
under an agreement with an unrelated owned by an affiliate of the Company. The
Company pays market rates for these services.

The Company leases office space from the brother of an affiliate under a
lease which expires February 2006. Payments were $191,000, $191,000, $201,000
and $48,000 (unaudited) in 1995, 1996, 1997 and March 31, 1998, respectively.

The Company purchased $134,000 worth of computer equipment from a company
controlled by an affiliate in 1997.

F-20
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(13) BENEFIT PLANS:

The Company has four 401(k) retirement plans, one profit-sharing plan, and
one simple IRA plan. The Company's annual contributions to the 401(k) and
profit sharing plans are discretionary. Contributions under the benefit plans
were approximately $104,000 in 1995, $136,000 in 1996, $38,000 in 1997 and $0
(unaudited) during the three months ended March 31, 1998. The Company
established a new 401(k) plan effective July 1, 1998 under which eligible
employees of all Company subsidiaries may participate; existing plans will be
suspended or rolled into the new plan. Company contributions under the new plan
will be determined upon the discretion of the board of directors. The board has
approved a match equal to 25% of employee contributions up to 6% of annual
compensation.

(14) COMMITMENTS AND CONTINGENCIES:

LITIGATION

The Company is involved in various legal claims and actions arising in the
ordinary course of business. The Company believes that none of the claims and
actions currently pending will have a material adverse effect on its business,
financial condition or results of operations.

OPERATING LEASES

The Company leases office space and office equipment under operating
leases. The Company incurred approximately $1,300,000, $1,361,000, $1,532,000
and $421,000 (unaudited) in rental expense under noncancellable operating
leases in 1995, 1996, 1997 and March 31, 1998, respectively.

Minimum annual commitments under operating leases at December 31, 1997 are
as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------ ------------
<S> <C>
1998 ................ 1,220,000
1999 ................ 867,000
2000 ................ 740,000
2001 ................ 667,000
2002 ................ 568,000
Thereafter .......... 530,000
---------
$4,592,000
==========
</TABLE>

INSURANCE

The Company carries a broad range of insurance coverage, including
directors and officers, prospectus liability, general and business liability,
commercial property, workers' compensation, and general umbrella policies. The
Company has not incurred significant claims or losses on any of its insurance
policies during the periods presented in the accompanying financial statements.

LETTERS OF CREDIT

The Company had outstanding irrevocable letters of credit totaling
$650,000 at December 31, 1997. These letters of credit, which have terms of one
year or less, collateralize the Company's obligations to third parties for
payment of travel obligations. Refer to Note (15) for information regarding
certain subsequent events related to letters of credit.

F-21
<PAGE>

TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(15) SUBSEQUENT EVENTS:

ACQUISITIONS

Effective April 1, 1998, the Company completed the acquisition of all of
the outstanding capital stock of The Cruise Line, Inc., a specialized
distributor of cruise reservation services. The consideration paid was $12.5
million in cash. The acquisition will be accounted for using the purchase
method of accounting. The acquisition was not material to the Company's
financial position or results of operations.

On May 21, 1998, the Company completed the acquisition of all the
outstanding capital stock of Landry & Kling, Inc. ("L&K"), a specialized
distributor of corporate incentive cruise reservations. The aggregate
consideration paid was 163,078 shares of common stock. The acquisition will be
accounted for using the pooling of interests method of accounting. The
acquisition was not material to the Company's financial position or results of
operations.

On May 31, 1998, the Company completed the acquisition of all the
outstanding capital stock of The Travel Company, Inc. ("The Travel Company"), a
specialized distributor of cruise reservations. The aggregate consideration
paid was 179,727 shares of common stock. The acquisition will be accounted for
using the pooling of interests method of accounting. The acquisition was not
material to the Company's financial position or results of operations.

On June 1, 1998, the Company consummated the acquisition of all of the
outstanding capital stock Lexington Services Associates, Ltd. ("Lexington").
Lexington is an electronic hotel reservation services company. The aggregate
consideration paid consisted of 285,714 shares of common stock and $20.0
million in cash. An additional $7.5 million in cash and common stock may be
paid as contingent consideration based upon financial performance in the twelve
months ended May 31, 1999. The acquisition will be accounted for using the
purchase method of accounting.

LONG-TERM DEBT

On March 27, 1998, the Company received a commitment from NationsBank,
N.A. to increase the Credit Facility to $30 million, of which up to $3 million
can be used for letters of credit. As of June 5, 1998, outstanding borrowings
under the Credit Facility totaled $28.6 million. As discussed in Note (7), the
Credit Agreement requires the Company to secure an interest rate hedge on fifty
percent of the outstanding principal amount borrowed under the Credit Facility
and 100% of the Term Loan. As of June 5, the Company has entered into interest
rate swap hedge agreements totalling $16.4 million and maturing in October
2000, with an average interest rate of 6.08%. As of June 5, 1998, letters of
credit outstanding under the Credit Facility total $1,007,000. On March 31,
1998, funds pledged to Barnett Bank of $3 million were released in exchange for
a guarantee by the Company of outstanding debt of one of the Founding
Companies. Such debt totalling $3,141,241 was repaid on April 25, 1998,
including $1,901,838 which was refinanced using the proceeds of the Term Loan.

F-22
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The General Partner
Lexington Services Associates, Ltd.

We have audited the accompanying balance sheet of Lexington Services
Associates, Ltd. dba Lexington Services, Ltd. (the Partnership), as of December
31, 1997, and the related statements of income, partners' capital, and cash
flows for the year then ended. These financial statements are the
responsibility of the Partnership'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 Lexington Services
Associates, Ltd., dba Lexington Services, Ltd., at December 31, 1997, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.

Ernst & Young LLP

April 17, 1998,
except for Note 6, as to which
the date is June 1, 1998

F-23
<PAGE>

LEXINGTON SERVICES ASSOCIATES, LTD.
DBA LEXINGTON SERVICES, LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................................ $ 300 $ 300
Accounts receivable, net of allowance for "no-shows" and doubtful
accounts of $594,867 and 626,672, respectively ................ 1,754,093 1,915,278
Prepaid expenses ................................................ 80,539 83,304
Notes receivable ................................................ 54,191 84,243
Other current assets ............................................ 58,577 43,081
---------- ----------
Total current assets ............................................. 1,947,700 2,126,206
Furniture, fixtures, and equipment, at cost (Note 3):
Furniture and fixtures .......................................... 223,945 259,834
Telephone system ................................................ 183,338 185,285
Computer equipment .............................................. 773,067 879,341
Leasehold improvements .......................................... 6,978 7,603
---------- ----------
1,187,328 1,332,063
Less accumulated depreciation and amortization .................. (579,939) (641,379)
---------- ----------
Net furniture, fixtures, and equipment ........................... 607,389 690,684
Due from affiliate ............................................... 1,424,006 1,643,797
---------- ----------
Total assets ..................................................... $3,979,095 $4,460,687
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt (Note 3) ...................... $ 710,574 $1,160,759
Accounts payable ................................................ 479,087 471,168
Accrued liabilities ............................................. 333,111 381,620
---------- ----------
Total current liabilities ........................................ 1,522,772 2,013,547
Long-term debt less current portion (Note 3) ..................... 1,010,940 983,655
Commitments and contingencies (Note 4)
Partners' capital:
General partner ................................................. 144,539 146,349
Limited partners ................................................ 1,300,844 1,317,136
---------- ----------
Total partners' capital .......................................... 1,445,383 1,463,485
---------- ----------
Total liabilities and partners' capital .......................... $3,979,095 $4,460,687
========== ==========
</TABLE>

See accompanying notes.

F-24
<PAGE>

LEXINGTON SERVICES ASSOCIATES, LTD.
DBA LEXINGTON SERVICES, LTD.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
-------------- -------------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Reservation fees .......................................... $ 8,363,156 $2,299,940
Source fees ............................................... 2,238,828 612,385
Licensing fees ............................................ 210,249 48,790
----------- ----------
10,812,233 2,961,115
Selling, general, and administrative expenses:
Costs of reservations and related expenses ................ 4,736,524 1,213,868
General and administrative (Note 5) ....................... 2,863,496 1,090,272
Selling and development costs ............................. 1,728,274 556,939
Depreciation and amortization ............................. 237,879 61,440
----------- ----------
9,566,173 2,922,519
----------- ----------
Operating income ........................................... 1,246,060 38,596
Other income (expense):
Interest expense, net including $64,448 in 1997 and $15,586
in 1998 to related parties .............................. (177,063) (46,279)
Other income .............................................. 95,572 25,785
----------- ----------
(81,491) (20,494)
----------- ----------
Net income ................................................. $ 1,164,569 $ 18,102
=========== ==========
</TABLE>

See accompanying notes.

F-25
<PAGE>

LEXINGTON SERVICES ASSOCIATES, LTD.
DBA LEXINGTON SERVICES, LTD.

STATEMENTS OF PARTNERS' CAPITAL

<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------- ------------ -------------
<S> <C> <C> <C>
Partners' capital at January 1, 1997 .................... $ 28,082 $ 252,732 $ 280,814
Net income ............................................. 116,457 1,048,112 1,164,569
-------- ---------- ----------
Partners' capital at December 31, 1997 .................. 144,539 1,300,844 1,445,383
Net income (unaudited) .................................. 1,810 16,292 18,102
-------- ---------- ----------
Partners' capital at March 31, 1998 (unaudited) ......... $146,349 $1,317,136 $1,463,485
======== ========== ==========
</TABLE>

See accompanying notes.

F-26
<PAGE>

LEXINGTON SERVICES ASSOCIATES, LTD.
DBA LEXINGTON SERVICES, LTD.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1997 1998
-------------- -------------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................. $ 1,164,569 $ 18,102
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ............................. 237,879 61,440
Bad debt expense .......................................... 123,779 40,714
Changes in operating assets and liabilities:
Accounts receivable ...................................... (735,063) (201,899)
Prepaid expenses ......................................... (31,438) (2,765)
Notes receivable ......................................... (35,593) (30,052)
Other current assets ..................................... (36,905) 15,496
Accounts payable ......................................... 260,154 (7,919)
Accrued liabilities ...................................... 181,793 48,509
------------ ----------
Net cash provided by (used in) operating activities ......... 1,129,175 (58,374)
INVESTING ACTIVITIES
Purchases of furniture, fixtures, and equipment ............. (279,640) (144,735)
------------ ----------
Net cash used in investing activities ....................... (279,640) (144,735)
FINANCING ACTIVITIES
Net borrowings under line of credit agreements .............. 250,000 451,620
Net advances to affiliate ................................... (1,256,363) (219,791)
Borrowings on term loans .................................... 254,774 --
Payments on long-term debt .................................. (74,858) (27,285)
Payments on related party loans ............................. (23,038) (1,435)
------------ ----------
Net cash (used in) provided by financing activities ......... (849,485) 203,109
------------ ----------
Net increase (decrease) in cash ............................. 50 --
Cash at beginning of period ................................. 250 300
------------ ----------
Cash at end of period ....................................... $ 300 $ 300
============ ==========
SUPPLEMENTAL INFORMATION
Cash paid for interest ...................................... $ 177,063 $ 46,279
============ ==========
</TABLE>

See accompanying notes.

F-27
<PAGE>

LEXINGTON SERVICES ASSOCIATES, LTD.
DBA LEXINGTON SERVICES, LTD.
NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997 AND MARCH 31, 1998 (UNAUDITED)

1. ORGANIZATION

Lexington Services Associates, Ltd. dba Lexington Services, Ltd. (the
Partnership), a Texas limited partnership, was formed March 9, 1992, to provide
Centralized Reservation Services (CRS) and Global Distribution Systems (GDS)
connectivity to subscribers in the hotel industry and to license hotels within
the extended stay hotel industry with the Lexington Hotel Suites and Inns
tradename and associated service marks. The Partnership serves hotels,
primarily independent and small chain hotels, in 48 countries. At March 31,
1998, the Partnership consisted of one general partner, Lexington Services
Corporation, and three limited partners. The term of the Partnership, unless
extended, expires December 31, 2040.

Net earnings and losses of the Partnership are allocated 10% to the
general partner and 90% to the limited partners. The general partner receives
compensation for services rendered to the Partnership in an amount equal to 2%
of the net cash flow of the Partnership, as defined in the partnership
agreement.

Distribution of Partnership assets, other than upon Partnership
dissolution, will be made at the discretion of the general partner.
Distributions will be allocated to the partners based on their respective
ownership interests in the Partnership at the date of distribution declaration.

As discussed in Note 5, the Partnership has significant transactions with
related parties.

2. SIGNIFICANT ACCOUNTING POLICIES

UNAUDITED INTERIM FINANCIAL STATEMENTS

The financial statements as of March 31, 1998, and for the three months
then ended are unaudited, however, in the opinion of management of the Company,
such financial statements include all adjustments, consisting of normal
recurring accruals necessary for a fair presentation of the financial position
as of March 31, 1998, and the results of operations and cash flows for the
three months then ended. Operating results for the three months ended March 31,
1998, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998.

REVENUE RECOGNITION

The Partnership recognizes revenues primarily from reservation fees,
source fees, and licensing fees. Reservation fees comprise approximately 77%
and 78% of the Partnership's revenue in 1997 and 1998, respectively, and are
recognized upon check-out from the member hotel by travelers who booked their
reservation through the Partnership's CRS. The fees are based on a negotiated
percent of the average daily room revenue earned by the member hotel. Source
fees are generated from transaction charges for the booking of reservations by
the Partnership for the member hotel and are recognized upon check-out from the
member hotel by travelers. Licensing fees are generated from the licensing of
independently owned hotels that utilize the Lexington Hotel Suites and Inns
trade name. These fees are recognized monthly based on reported revenues of the
licensed, independently owned hotels and affiliates.

CREDIT AND FOREIGN CURRENCY RISK

The Partnership provides credit to customers in the normal course of
business and maintains an allowance for "no-shows" and doubtful accounts based
upon expected collectibility. Losses from "no-shows" and bad debts have
historically been within management's expectations. Accounts receivable at

F-28
<PAGE>

LEXINGTON SERVICES ASSOCIATES, LTD.
DBA LEXINGTON SERVICES, LTD.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997 AND MARCH 31, 1998 (UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

December 31, 1997 and March 31, 1998, include approximately $300,000 and
$438,000, respectively, due from customers in other countries who can settle
their account in foreign currencies. The Partnership recorded losses of
approximately $7,000 and $360 on foreign currency exchanges during the year
ended December 31, 1997 and the three months ended March 31, 1998,
respectively. During 1997, the Partnership's member hotels were geographically
dispersed as follows: United States--58%, Australia--14%, Europe--10%,
Mexico--10%, Canada--5%, and Other--3%.

DUE FROM AFFILIATE

Due from affiliate represents net cash collected and disbursed by the
Partnership through a central disbursement account maintained by Lexington
Management Corp. (LMC), an affiliate, for the Partnership and certain other
related entities. During January 1996, approximately $700,000 due to LMC was
converted into a note payable, described in Note 3.

FURNITURE, FIXTURES, AND EQUIPMENT

Furniture, fixtures, and equipment are stated at cost. Provisions for
depreciation and amortization of furniture, fixtures, and equipment are
computed using accelerated methods over estimated useful lives of five to seven
years.

TRADEMARKS

Trademarks with a carrying value of approximately $345,000 and $290,000 at
December 31, 1997 and March 31, 1998, respectively, were purchased from LMC
when the Partnership was formed in 1992 in exchange for $9,000 cash and a
$441,000 note payable, payable in monthly installments of $2,000 plus interest
at 6%. Accumulated amortization was $105,000 and $95,100 as of December 31,
1997 and March 31, 1998, respectively. The trademarks relate to the logo and
format used by the Lexington Hotel Suites and Inns. The value assigned to the
trademarks is being amortized over 18 years. The asset, net of amortization,
and related $290,000 note payable have been excluded from the balance sheets at
December 31, 1997 and March 31, 1998; however, the Partnership is obligated for
the remaining amounts due under the obligation. During the period ended March
31, 1998, the Partnership sold certain trademarks for approximately $75,000,
resulting in a gain of $26,600 which has been included in other income.

INCOME TAXES

The Partnership is not subject to state and federal income taxes.
Accordingly, no provision for income taxes has been made on the Partnership's
books because all income or losses are allocable to the partners for inclusion
in their respective income tax returns.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

F-29
<PAGE>

LEXINGTON SERVICES ASSOCIATES, LTD.
DBA LEXINGTON SERVICES, LTD.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997 AND MARCH 31, 1998 (UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

ADVERTISING EXPENSE

The cost of advertising is expensed as incurred. The Partnership incurred
approximately $73,000 and $16,000 in advertising costs in the year ended 1997
and the three months ended March 31, 1998, respectively.

SOFTWARE DEVELOPMENT COSTS

The costs of developing and maintaining the Partnership's CRS software and
other internal-use software is expensed as incurred.

3. LONG-TERM DEBT

Long-term debt consists of:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
Borrowings from a bank under a $1,500,000 revolving line of
credit bearing interest at the bank's prime rate plus .25%
(8.75% at December 31, 1997). Interest on borrowings is
payable monthly with a .25% fee on the unused portion of
the revolver, which matures in August 1998. The revolver
is secured by accounts receivable, and furniture, fixtures,
and equipment. ............................................ $ 600,000 $1,051,620
Borrowings from a bank under five term loans bearing
interest at the bank's prime rate plus .25% (8.75% at
December 31, 1997). Principal payments of $9,095, plus
accrued interest, are due monthly, with maturities varying
from September 2001 to December 2002. The loans are
secured by furniture, fixtures, and equipment. ............ 420,079 392,794
Borrowings from LMC, an affiliate, bearing interest at 6%,
with interest payable monthly and principal due January
2000 (See Note 2). ........................................ 700,000 700,000
Others at rates ranging from 8% to 12%, with principal and
interest payable monthly in varying amounts through
January 1998. ............................................. 1,435 --
---------- ----------
1,721,514 2,144,414
Less current portion of long-term debt ..................... 710,574 1,160,759
---------- ----------
$1,010,940 $ 983,655
========== ==========
</TABLE>

F-30
<PAGE>

LEXINGTON SERVICES ASSOCIATES, LTD.
DBA LEXINGTON SERVICES, LTD.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997 AND MARCH 31, 1998 (UNAUDITED)

3. LONG-TERM DEBT--(CONTINUED)
Maturities of long-term debt as of December 31, 1997, are as follows:

Amounts available under the $1,500,000 revolver and the term facilities
agreements are limited in the aggregate to $2,203,700. Amounts available under
the $1,500,000 revolver are limited to the amount available based on the level
of Tangible Net Worth, as defined, and to 60% of Eligible Domestic Accounts
Receivable plus 40% of Eligible Foreign Accounts Receivable, as defined
($1,150,000 and $1,164,000 at December 31, 1997 and March 31, 1998,
respectively). The facilities agreements contain various restrictive covenants
including, but not limited to, net worth requirements, liquidity ratios, and
limitations on capital expenditures and additional indebtedness. In January
1998, the Company renegotiated its loan agreement, extending the revolver's
maturity date until February 1999, increasing the revolver to $2,000,000, and
allowing for aggregate borrowings of $2,985,566.

4. COMMITMENTS AND CONTINGENCIES

EMPLOYMENT AGREEMENTS

Certain key employees are covered by employment contracts that, in certain
circumstances, provide severance compensation of up to six months salary in the
event of a change of control of the Partnership. Substantially all other
employees are covered by thirty day employment agreements that renew
automatically.

LEASES

An affiliate of the Partnership, Glade Properties, Inc. (Glade), leases
certain office facilities under noncancelable operating leases which are
occupied by the Partnership. The cost of the lease agreement for the office
space is allocated by Glade among the affiliated entities occupying the
facilities based primarily on each entity's relative square foot usage. Total
rent expense of approximately $131,400 and $45,000 was recognized by the
Partnership for the year ended December 31, 1997 and the three-months ended
March 31, 1998, respectively, for their portion of the rent under Glade's lease
agreement.

F-31
<PAGE>

LEXINGTON SERVICES ASSOCIATES, LTD.
DBA LEXINGTON SERVICES, LTD.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997 AND MARCH 31, 1998 (UNAUDITED)

4. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

Based on the Partnership's current rent allocation, its share of the
future minimum lease payments as of December 31, 1997, are as follows:

CONTINGENCIES

The Partnership is involved in certain disputes arising in the ordinary
course of business which involve or may involve litigation. Although the
ultimate resolution of these matters cannot be reasonably estimated at this
time, Management does not believe they will have a material adverse effect on
the financial position of the Partnership.

5. RELATED PARTY TRANSACTIONS

In addition to Notes Payable and Lease transactions described in Notes 3
and 4, the Partnership has arrangements with related parties for certain
services as follows.

MANAGEMENT AGREEMENTS

Two affiliates, LMC and Woodstone International, Inc., provide various
management services for the Partnership, including treasury, risk management,
tax, and other administrative services necessary for the operation of the
Partnership. Included in general and administrative expenses are management
fees of $1,923,000 and $812,000 for the year ended December 31, 1997 and the
three months ended March 31, 1998, respectively.

EMPLOYEE BENEFIT PLANS

The Partnership participates in the LMC 401(k) defined contribution plan
for all employees who meet certain eligibility requirements. The Partnership
makes matching contributions up to certain limits to the plan based on employee
contributions. The Partnership made contributions to the plan of approximately
$29,200 and $7,400 for the year ended December 31, 1997 and the three months
ended March 31, 1998, respectively.

6. SUBSEQUENT EVENTS

On June 1, 1998, the Company sold the partnership interests in the Company
to Travel Services International, Inc. for $20,000,000 in cash and 285,714
shares of Travel Services International's common stock. An additional
$7,500,000 in cash and common stock may be paid as contingent consideration
based upon financial performance of the former Company for the twelve months
ended May 31, 1999. These financial statements do not reflect the effects, if
any, of the sale.

F-32
<PAGE>

LEXINGTON SERVICES ASSOCIATES, LTD.
DBA LEXINGTON SERVICES, LTD.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997 AND MARCH 31, 1998 (UNAUDITED)

7. IMPACT OF YEAR 2000 (UNAUDITED)

The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total remaining Year
2000 project cost is estimated at approximately $100,000, which includes the
salaries of individuals as well as software and hardware replacements.

The project is estimated to be completed not later than January 31, 1999,
which is prior to any anticipated impact on its operating systems. The Company
believes that with modifications to existing software and conversions to new
software, the Year 2000 Issue will not pose significant operational problems
for its computer systems. However, if such modifications and conversions are
not made, or are not completed timely, the Year 2000 Issue could have a
material effect on the operations of the Company.

F-33
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Cruises Only, Inc.:

We have audited the accompanying balance sheet of Cruises Only, Inc. (a
Florida corporation) as of July 27, 1997, and the related statements of income,
changes in stockholders' deficit and cash flows for the seven-month period
ended July 27, 1997. 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 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 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 Only, Inc. as of
July 27, 1997, and the results of its operations and its cash flows for the
seven-month period then ended in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Houston, Texas,
September 26, 1997.

F-34
<PAGE>

CRUISES ONLY, INC.

BALANCE SHEET

JULY 27, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................... $ 442
Receivables from cruise lines ........................................... 1,037
Due from TSII ........................................................... 226
Prepaid expenses and other current assets ............................... 11
------
Total current assets ............................................... 1,716
PROPERTY AND EQUIPMENT, net .............................................. 3,665
OTHER ASSETS ............................................................. 28
------
Total assets ....................................................... $5,409
======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt .................................... $ 382
Accounts payable and accrued liabilities ................................ 860
Customer deposits and deferred income ................................... 980
Other current liabilities ............................................... 285
------
Total current liabilities .......................................... 2,507
------
LONG-TERM DEBT, net of current maturities ................................ 3,010
------
DEFERRED INCOME .......................................................... 156
------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock $1 par value; 7,500 shares authorized and outstanding ...... 7
Deficit ................................................................. (271)
------
Total stockholders' deficit ........................................ (264)
------
Total liabilities and stockholders' deficit ........................ $5,409
======
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-35
<PAGE>

CRUISES ONLY, INC.

STATEMENT OF INCOME

FOR THE SEVEN-MONTH PERIOD ENDED JULY 27, 1997
(IN THOUSANDS)

<TABLE>
<S> <C>
NET REVENUES ................................ $6,658
OPERATING EXPENSES .......................... 2,631
------
Gross profit .......................... 4,027
GENERAL AND ADMINISTRATIVE EXPENSES ......... 2,018
------
Income from operations ................ 2,009
INTEREST EXPENSE ............................ (166)
OTHER INCOME, net ........................... 54
------
Net income ............................ $1,897
======
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-36
<PAGE>

CRUISES ONLY, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE SEVEN-MONTH PERIOD ENDED JULY 27, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON RETAINED
SHARES STOCK DEFICIT TOTAL
-------- -------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 ............. 7,500 $ 7 $ (808) $ (801)
Net income ............................ -- -- 1,897 1,897
Distributions to stockholders ......... -- -- (1,360) (1,360)
----- --- -------- --------
BALANCE, July 27, 1997 ................. 7,500 $ 7 $ (271) $ (264)
===== === ======== ========
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-37
<PAGE>

CRUISES ONLY, INC.

STATEMENT OF CASH FLOWS

FOR THE SEVEN-MONTH PERIOD ENDED JULY 27, 1997
(IN THOUSANDS)

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $ 1,897
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation ................................................................... 169
Deferred income ................................................................ (34)
Loss on retirement of assets ................................................... 39
Changes in operating assets and liabilities--
Receivables from cruise lines ................................................. (125)
Due from TSII ................................................................. (226)
Prepaid expenses and other current assets ..................................... 13
Other assets .................................................................. 16
Accounts payable and accrued liabilities ...................................... 131
Customer deposits and deferred income ......................................... (64)
Other current liabilities ..................................................... (23)
--------
Net cash provided by operating activities ................................... 1,793
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................................... (7)
----------
Net cash used in investing activities ....................................... (7)
----------
CASH FLOWS FROM FINANCING ACTIVITIES: .............................................
Payments on long-term debt ....................................................... (219)
Distributions to stockholders .................................................... (1,360)
---------
Net cash used in financing activities ....................................... (1,579)
---------
Net increase in cash and cash equivalents ................................... 207
CASH AND CASH EQUIVALENTS, beginning of period .................................... 235
---------
CASH AND CASH EQUIVALENTS, end of period .......................................... $ 442
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ........................................................... $ 166
=========
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-38
<PAGE>

CRUISES ONLY, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 27, 1997

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.

On July 28, 1997, 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) were contributed to a newly established subsidiary
limited liability corporation of the Company and subsequently, purchased by
Travel Services International, Inc. (TSII) concurrent with the consummation of
the initial public offering of the common stock of TSII. In connection with
this transaction, the Company received cash and shares of TSII common stock.
The net assets retained by the Company and subsequently distributed to the
Company's previous owners were approximately $170,700.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, including the net amount of
interest cost associated with significant capital additions. 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 represents the cost of cruises for cash sales which have
not yet been remitted to the cruise lines. Deferred income generally includes
commissions collected more than 60 days prior to the sail date. Deferred income
also includes the unearned portion of a $300,000 promotion support payment
received by the Company during 1996 from a supplier. In the event the Company
breaches the agreement during the 60-month term, the promotion support payment
must be refunded. The promotional support payment is being amortized to income
using the straight-line method over the 60-month agreement term. Approximately
$34,000 of this amount has been included in other income for the seven-month
period ended July 27, 1997.

F-39
<PAGE>

CRUISES ONLY, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JULY 27, 1997

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

INCOME TAXES

The Company had 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 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.

CONCENTRATION OF RISK

CRUISE LINES--Net revenues from the sales of cruises on behalf of four
cruise lines represented approximately 42.4%, 14%, 11% and 11%, of net
commission revenues for the seven-month period ended July 27, 1997.

F-40
<PAGE>

CRUISES ONLY, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JULY 27, 1997

3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

Property and equipment as of July 27,1997, consist of the following (in
thousands):

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS AMOUNT
------------- ---------
<S> <C> <C>
Land ................................... -- $ 470
Buildings and improvements ............. 40 2,154
Office equipment ....................... 5-7 390
Furniture and fixtures ................. 7 1,214
------
4,228
Less--Accumulated depreciation ......... (563)
------
Property and equipment, net .......... $3,665
======
</TABLE>

Accounts payable and accrued liabilities as of July 27, 1997, consist of
the following (in thousands):

<TABLE>
<S> <C>
Accounts payable .......................... $134
Accrued compensation and benefits ......... 313
Other accrued liabilities ................. 413
----
$860
====
</TABLE>

4. DEBT

Long-term debt as of July 27, 1997, consists of the following (in
thousands):

<TABLE>
<S> <C>
Notes 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 .......................... $ 603
Note payable to a bank, bearing interest at 7.8% and monthly payments of $17
through October 2000. Thereafter, note bears interest at a rate equal to the
five-year treasury yield plus 1.9% or prime, as selected by the Company, through
maturity in October 2005. Secured by land, building, improvements and personal
property of the Company and personally guaranteed by the stockholders .......... 1,947
Note payable to a bank, bearing interest at prime minus .25% (8.25% at July 27,
1997), 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 ............................................................ 842
------
3,392
Less--Current maturities ........................................................ 382
------
$3,010
======
</TABLE>

F-41
<PAGE>

CRUISES ONLY, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JULY 27, 1997

4. DEBT--(CONTINUED)

Future maturities of long-term debt obligations as of July 27, 1997, are
as follows (in thousands):

<TABLE>
<S> <C>
Period from July 28 - December 31, 1997 ......... $ 158
Year ending December 31,
1998 .......................................... 387
1999 .......................................... 400
2000 .......................................... 414
2001 .......................................... 212
Thereafter .................................... 1,821
------
$3,392
======
</TABLE>

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 July 27, 1997, the
Company had not drawn any funds under this credit arrangement.

5. 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.

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 automobile 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 period 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. No contributions were made by the
Company during the seven-month period ended July 27, 1997.

7. 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 for 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-42
<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 July 27, 1997, and the related statements of income,
changes in stockholder's equity and cash flows for the seven-month period 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 800-Ideas, Inc. as of July
27, 1997, the results of its operations and its cash flows for the seven-month
period then ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas,
September 26, 1997.

F-43
<PAGE>

800-IDEAS, INC.

BALANCE SHEET

JULY 27, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................... $1,718
Accounts receivable, net of $109 allowance for doubtful accounts ........ 727
Prepaid expenses and other current assets ............................... 478
------
Total current assets ............................................... 2,923
FURNITURE AND EQUIPMENT, net ............................................. 255
OTHER ASSETS ............................................................. 63
------
Total assets ....................................................... $3,241
======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ................................ $ 729
Deferred income ......................................................... 136
------
Total current liabilities .......................................... 865
------
DEFERRED INCOME .......................................................... 169
------
STOCKHOLDER'S EQUITY:
Common stock, no par value; 1,000 shares authorized and outstanding ..... 71
Retained earnings ....................................................... 2,136
------
Total stockholder's equity ......................................... 2,207
------
Total liabilities and shareholder's equity ......................... $3,241
======
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-44
<PAGE>

800-IDEAS, INC.

STATEMENT OF INCOME

FOR THE SEVEN-MONTH PERIOD ENDED JULY 27, 1997
(IN THOUSANDS)

<TABLE>
<S> <C>
NET REVENUES ................................ $5,812
OPERATING EXPENSES .......................... 3,533
------
Gross profit .......................... 2,279
GENERAL AND ADMINISTRATIVE EXPENSES ......... 896
------
Income from operations ................ 1,383
OTHER INCOME, net ........................... 48
------
Net income ............................ $1,431
======
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-45
<PAGE>

800-IDEAS, INC.

STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY

FOR THE SEVEN-MONTH PERIOD ENDED JULY 27, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
-------- -------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 ......... 1,000 $71 $ 2,285 $ 2,356
Net income ........................ -- -- 1,431 1,431
Distributions ..................... -- -- (1,580) (1,580)
----- --- -------- --------
BALANCE, July 27, 1997 ............. 1,000 $71 $ 2,136 $ 2,207
===== === ======== ========
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-46
<PAGE>

800-IDEAS, INC.

STATEMENT OF CASH FLOWS

FOR THE SEVEN-MONTH PERIOD ENDED JULY 27, 1997
(IN THOUSANDS)

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $ 1,431
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation ................................................................... 69
Changes in operating assets and liabilities:
Accounts receivable ........................................................... 383
Prepaid expenses and other current assets ..................................... (289)
Other assets .................................................................. (46)
Accounts payable and accrued liabilities ...................................... 433
Deferred income ............................................................... 305
--------
Net cash provided by operating activities ................................... 2,286
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment .............................................. (26)
--------
Net cash used in investing activities ....................................... (26)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations ............................................ (24)
Distributions to stockholder ..................................................... (1,580)
--------
Net cash used in financing activities ....................................... (1,604)
--------
Net increase in cash and cash equivalents ................................... 656
CASH AND CASH EQUIVALENTS, beginning of period .................................... 1,062
--------
CASH AND CASH EQUIVALENTS, end of period .......................................... $ 1,718
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ........................................................... $ 3
========
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-47
<PAGE>

800-IDEAS, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 27, 1997

1. BUSINESS AND ORGANIZATION 800-IDEAS, INC.

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.

On July 28, 1997, 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) were contributed to a newly established subsidiary
limited liability corporation of the Company and subsequently, purchased by
Travel Services International, Inc. (TSII). This exchange was concurrent with
the consummation of the initial public offering of the common stock of TSII. In
connection with this transaction, the Company received cash and shares of TSII
common stock. The net assets retained by the Company and subsequently
distributed to the Company's previous owner were approximately $320,000.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Equipment under capital lease is amortized over the shorter of the life of the
related asset or the life of the lease.

Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of 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.

DEFERRED INCOME

Deferred income includes the unamortized amount of signing bonuses
received by the Company in connection with its custom Network Service
Arrangement and its automated reservation service contract. The signing bonus
amounts are being amortized using the straight-line method over the respective
contract term. Income of $75,000 attributable to the signing bonuses for the
seven-month period ended July 27, 1997 is included in other income, net, in the
accompanying financial statements.

INCOME TAXES

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

F-48
<PAGE>

800-IDEAS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JULY 27, 1997

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

processing fees and delivery fees. The Company provides a reserve for
cancellations, reservation changes and lost ticket charges, and provisions for
such amounts are reflected in net revenues.

OPERATING EXPENSES

Operating expenses include travel agent commissions, salaries,
communication, advertising, credit card fees and other costs associated with
selling and processing air travel reservations.

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,
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.

CONCENTRATION OF RISK

TRAVEL SERVICE PROVIDERS--The Company primarily markets and sells the
services of various United States domestic airlines. Two airlines accounted for
44% and 11%, respectively, of net revenues for the seven-month period ended
July 27, 1997.

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
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 July 27, 1997, consist of the following (in
thousands):

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS AMOUNT
------------- -------
<S> <C> <C>
Computer and office equipment ........................... 7 $439
Furniture and fixtures .................................. 5-7 81
Leasehold improvements .................................. 7 21
----
541
Less--Accumulated depreciation and amortization ......... 286
----
Property and equipment, net ........................... $255
====
</TABLE>

F-49
<PAGE>

800-IDEAS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JULY 27, 1997

3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS--(CONTINUED)

Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):

<TABLE>
<CAPTION>
Balance at beginning of period $125
<S> <C>
Deductions for uncollectible receivables written off
and recoveries, net ............................... (16)
---
$ 109
=====
</TABLE>

Accounts payable and accrued expenses as of July 27, 1997, consist of the
following (in thousands):

<TABLE>
<CAPTION>
Accounts payable $562
<S> <C>
Accrued compensation and benefits ......... 167
---
$729
====
</TABLE>

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.

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 July 27, 1997, are as follows (in
thousands):

<TABLE>
<S> <C>
Period from July 28, 1997 to December 31, 1997 ......... $ 15
Year ending December 31, 1998 .......................... 141
----
$156
====
</TABLE>

The lease provides for the payment of taxes and other expenses by the
Company. Rent expense for the operating lease was approximately $80,000 for the
seven-month period ended July 27, 1997.

5. RELATED PARTY TRANSACTIONS

The Company has entered into a custom Net 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. 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 transfer to TSII and TSII agreed
to pay for its portion of usage under the CSNA.

6. COMMITMENTS AND CONTINGENCIES

INSURANCE

The Company carries a broad range of insurance coverage, including general
and business automobile liability, commercial property, workers' compensation
and a general umbrella policy. The

F-50
<PAGE>

800-IDEAS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JULY 27, 1997

6. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

Company has not incurred significant claims or losses on any of its insurance
policies during the seven-month period 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 the seven-month period
ended July 27, 1997, the Company earned volume bonuses totaling approximately
$407,000.

7. 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 for 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-51
<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 July 27, 1997, and the related statements of income, changes
in stockholders' equity and cash flows for the seven-month period 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cruises Inc., as of July
27, 1997, the results of its operations and its cash flows for the seven-month
period then ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas,
October 3, 1997.

F-52
<PAGE>

CRUISES INC.

BALANCE SHEET
JULY 27, 1997

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................ $1,098
Receivables from cruise lines ............................................ 177
Prepaid expenses and other current assets ................................ 193
------
Total current assets ................................................... 1,468
PROPERTY AND EQUIPMENT, net ............................................... 277
OTHER ASSETS .............................................................. 17
------
Total assets ........................................................... $1,762
======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ..................................... $ 52
Accounts payable and accrued liabilities ................................. 773
------
Total current liabilities .............................................. 825
------
DEFERRED INCOME TAXES ..................................................... 56
------
COMMITMENTS AND CONTINGENCIES .............................................
STOCKHOLDERS' EQUITY:
Common stock, no par value; 200 shares authorized, 100 shares outstanding --
Retained earnings ......................................................... 881
------
881
------
Total liabilities and shareholders' equity ............................. $1,762
======
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-53
<PAGE>

CRUISES INC.

STATEMENT OF INCOME
FOR THE SEVEN-MONTH PERIOD ENDED JULY 27, 1997

(IN THOUSANDS)

<TABLE>
<S> <C>
NET REVENUES ................................. $4,089
OPERATING EXPENSES ........................... 2,408
------
Gross profit ............................... 1,681
GENERAL AND ADMINISTRATIVE EXPENSES .......... 1,266
------
Income from operations ..................... 415
INTEREST INCOME, net ......................... 4
OTHER INCOME, net ............................ 3
------
Income before income tax provision ......... 422
INCOME TAX PROVISION ......................... 350
------
Net income ................................. $ 72
======
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-54
<PAGE>

CRUISES INC.

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SEVEN-MONTH PERIOD ENDED JULY 27, 1997

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
RETAINED
SHARES EARNINGS
-------- ---------
<S> <C> <C>
BALANCE, December 31, 1996 ......... 100 $809
Net income ......................... -- 72
--- ----
BALANCE, July 27, 1997 ............. 100 $881
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-55
<PAGE>

CRUISES INC.

STATEMENT OF CASH FLOWS
FOR THE SEVEN-MONTH PERIOD ENDED JULY 27, 1997

(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 72
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation ....................................................... 54
Changes in operating assets and liabilities:
Receivables from cruise lines ..................................... 242
Prepaid expenses and other current assets ......................... 13
Other assets ...................................................... 17
Accounts payable and accrued liabilities .......................... (226)
Deferred income taxes ............................................. 34
-------
Net cash provided by operating activities ....................... 206
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment and capitalized interest ......... (38)
-------
Net cash used in investing activities ........................... (38)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt .......................................... (7)
-------
Net cash used in financing activities ........................... (7)
-------
Net increase in cash and cash equivalents ....................... 161
CASH AND CASH EQUIVALENTS, beginning of period ....................... 937
-------
CASH AND CASH EQUIVALENTS, end of period ............................. $1,098
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest .............................................. $ 3
=======
</TABLE>

The accompanying notes to financial statements are an integral part of this
financial statement.

F-56
<PAGE>

CRUISES ONLY, INC.

NOTES TO FINANCIAL STATEMENTS

JULY 27, 1997

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.

On July 28, 1997, the Company was purchased by Travel Services
International, Inc. (TSII). Pursuant to this transaction, all of the
outstanding stock of the Company was exchanged for cash and shares of TSII
common stock concurrent with the consummation of the initial public offering of
the common stock of TSII.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.

PROPERTY AND EQUIPMENT

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

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-57
<PAGE>

CRUISES ONLY, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JULY 27, 1997

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

REVENUE RECOGNITION

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,
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.

CONCENTRATION OF RISK

CRUISE LINES--Net revenues from the sales of cruises on behalf of two
cruise lines represented approximately 27% and 19%, respectively, of net
revenues for the seven-month period ended July 27, 1997.

3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

Property and equipment as of July 27,1997, consist of the following (in
thousands):

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS AMOUNT
------------- ---------
<S> <C> <C>
Leasehold improvements ................. 7 $ 8
Office equipment ....................... 5-7 492
Furniture and fixtures ................. 7 101
------
601
Less--Accumulated depreciation ......... (324)
------
Property and equipment, net .......... $ 277
======
</TABLE>

F-58
<PAGE>

CRUISES ONLY, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JULY 27, 1997

4. INCOME TAXES

The income tax expense consisted of the following components for the year
ended July 27, 1997 (in thousands):

<TABLE>
<S> <C>
Current ............................ $316
Deferred ........................... 34
----
Total income tax expense ......... $350
====
</TABLE>

For the seven-month period ended July 27, 1997, the primary difference
between the Company's effective tax rate and the statutory rate is due to state
income taxes and an adjustment to convert from cash basis to accrual basis for
income tax purposes.

Deferred tax assets and liabilities include the following as of July 27,
1997 (in thousands):

<TABLE>
<S> <C>
Tax assets--
Accrued expenses ....................... $ 35
-----
Tax liability--
Accounts receivable .................... (28)
Depreciation and amortization .......... (28)
-----
(56)
-----
Net deferred tax (liability) ......... $ (21)
=====
</TABLE>

5. DEBT

Current maturities of debt as of July 27, 1997, consist of a note payable
to a bank, bearing interest at the bank's base rate plus 1% (9.25% at July 27,
1997). The principal and interest on this note were paid in full by TSII on
July 28, 1997.

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 July 27, 1997) and are personally guaranteed by certain
stockholders. There were no borrowings outstanding on the line of credit as of
July 27, 1997.

6. RELATED-PARTY TRANSACTIONS

Since 1990, Cruises Inc. has leased office space from Pioneer Park I
Company ("Pioneer") pursuant to a lease dated August 9, 1990, as subsequently
amended and supplemented. One of the principals of Pioneer is Michael Falcone,
the brother of Robert Falcone. The rent paid by Cruises Inc. to Pioneer was
$92,000 for the seven-month period ended July 27, 1997. The lease terminates on
February 28, 2006.

The Company employs a small number of individuals related to the
stockholders at wages commensurate with their experience and level of
responsibility.

7. COMMITMENTS AND CONTINGENCIES

INSURANCE

The Company carries a broad range of insurance coverage, including general
and business automobile liability, commercial property, workers' compensation
and a general umbrella policy. The

F-59
<PAGE>

CRUISES ONLY, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JULY 27, 1997

7. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

Company has not incurred significant claims or losses on any of its insurance
policies during the period 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. For the seven-month period
ended July 27, 1997, the Company made contributions of approximately $5,000.

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 July 27, 1997, are summarized as
follows:

<TABLE>
<S> <C>
Period from July 28--
December 31, 1997 ......... $ 143,098
Year ending December 31,
1998 ..................... 215,432
1999 ..................... 211,943
2000 ..................... 180,000
2001 ..................... 168,315
2002 ..................... 156,630
Thereafter ............... 544,690
----------
$1,620,108
==========
</TABLE>

8. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

F-60
<PAGE>

The following is a list of photos which we will be using for the inside front
cover of the prospectus for the Company:

1. building

2. boat on water

3. Golden Gate Bridge

4. tropics

5. Eiffle Tower

6. mountains

7. pyramids

<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

--------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary .......................... 3
Risk Factors ................................ 8
Use of Proceeds ............................. 14
Dividend Policy ............................. 14
Price Range of Common Stock ................. 14
Capitalization .............................. 15
Selected Historical and Pro Forma
Financial Data ........................... 16
Management's Discussion And Analysis
Of Financial Condition And Results
Of Operations ............................ 18
Business .................................... 25
Management .................................. 34
Certain Transactions ........................ 42
Principal and Selling Stockholders .......... 44
Description of Capital Stock ................ 46
Shares Eligible for Future Sale ............. 48
Underwriting ................................ 50
Legal Matters ............................... 51
Experts ..................................... 51
Additional Information ...................... 51
Index to Financial Statements ............... F-1
</TABLE>

[GRAPHIC OMITTED]

TRAVEL SERVICES
INTERNATIONAL, INC.

3,500,000 Shares

Common Stock

($.01 par value)

PROSPECTUS

CREDIT SUISSE FIRST BOSTON

FURMAN SELZ

NATIONSBANC MONTGOMERY
SECURITIES LLC

RAYMOND JAMES
& ASSOCIATES, INC.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)

<TABLE>
<S> <C>
SEC Registration Fee ............................... $ 41,262
NASD Filing Fee .................................... 14,487
Blue Sky Fees and Expenses ......................... 10,000
Nasdaq Stock Market Additional Listing Fee ......... 17,500
Accounting Fees and Expenses ....................... 85,000
Legal Fees and Expenses ............................ 75,000
Printing Expenses .................................. 85,000
Other .............................................. 21,751
--------
Total ............................................ $350,000
========
</TABLE>

- ----------------
(1) The amounts set forth above, except for the SEC fee, the NASD Filing Fee
and the Nasdaq Stock Market Additional Listing Fee, 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

II-1
<PAGE>

on 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 has entered into indemnification agreements with each of its
executive officers, its advisory director and directors which indemnifies such
person to the fullest extent permitted by its Amended and Restated Certificate
of Incorporation, its Bylaws and the DGCL. In the event that the Company's
stockholders approve the Company's reincorporation from Delaware to Florida at
the Company's 1998 Annual Meeting, the Company intends to amend said
indemnification agreements to provide indemnification to the fullest extent
permitted under the Florida Business Corporation Act. The Company also
maintains obtain directors and officers liability insurance.

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.

The following is certain information concerning all sales of securities by
the Company during the year ended December 31, 1997 that were not registered
under the Securities Act:

(a) Travel Services International, Inc. 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. 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 were to become officers, directors, key employees,
or holders of more than 5% of the stock of the Company at a per share
price of $.01.

(c) In July 1997, the Company issued the following shares in connection
with the acquisition of the five Founding Companies: 333,334 shares in
connection with the acquisition of Cruises, Inc.;

II-2
<PAGE>

908,334 shares in connection with the acquisition of Cruises Only;
1,083,334 shares in connection with the acquisition of Auto Europe;
902,778 shares in connection with the acquisition of Travel 800; and
194,445 shares in connection with the acquisition of D-FW Tours.

(d) In November 1997, the Company issued the following shares in connection
with the acquisitions of the following four Operating Companies and Trax
Software, Inc.: 328,492 shares in connection with the acquisition of
CruiseOne; 326,704 shares in connection with the acquisition of
CruiseWorld; 471,508 shares in connection with the acquisition of Ship
`N' Shore; 225,000 shares in connection with the acquisition of Cruise
Fairs; and 32,985 shares in connection with the acquisition of Trax.

(e) In January 1998, the Company issued the following shares in connection
with the acquisition of the following Operating Company: 21,822 shares
in connection with the acquisition of Diplomat Tours.

(f) In February 1998, the Company issued the following shares in connection
with the acquisition of the following Operating Companies: 163,755
shares in connection with the acquisition of Gold Coast and 2,183 shares
in connection with the acquisition of AutoNet International.

(g) In March 1998, the Company issued the following shares in connection
with the acquisition of the following Operating Company: 152,835 shares
in connection with the acquisition of Cruise Masters.

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, among
other things, the offers and sales were made to a small number of sophisticated
investors, or directors and executive officers, of the Company who had access
to the information about the Company and were able to bear the risk of loss of
their investment.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement*
2.1 Agreement and Plan of Organization, dated as of May 9, 1997, among the Registrant, Auto-
Europe, Inc. (Maine), Imad Khalidi, Alex Cecil and Wilfred Diller, as trustee for Thurston
Cecil and Lila Cecil.(1)
2.2 Agreement and Plan of Organization, dated as of May 9, 1997, among the Registrant, Cruises
Only, Inc., Wayne Heller and Judy Heller.(1)
2.3 Agreement and Plan of Organization, dated as of May 9, 1997, among the Registrant, 800-
Ideas, Inc. and Susan Parker.(1)
2.4 Agreement and Plan of Organization, dated as of May 9, 1997, among the Registrant, Cruises,
Inc., Robert G. Falcone, Judith A. Falcone and Pamela C. Cole.(1)
2.5 Agreement and Plan of Organization, dated as of May 9, 1997, among the Registrant, D-FW
Tours, Inc., D-FW Travel Arrangements, Inc., John W. Przywara and Sharon S. Przywara.(1)
2.6 First Amendment to Agreement and Plan of Organization among the Registrant, Auto-
Europe, Inc. (Maine), Imad Khalidi Alex Cecil and Wilfred Diller, as trustee for Thurston
Cecil and Lila Cecil.(2)
2.7 First Amendment to Agreement and Plan of Merger, dated as of June 30, 1997, by and among
the Registrant, Cruises, Inc., Robert G. Falcone, Judith A. Falcone, and Pamela C. Cole.(2)
2.8 First Amendment to Agreement and Plan of Merger, dated as of June 30, 1997, by and among
the Registrant, Cruises Only, Inc., Wayne Heller and Judy Heller.(2)
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ----------------------------------------------------------------------------------------------
<S> <C>
2.9 First Amendment to Agreement and Plan of Merger, dated as of June 30, 1997, by and among
the Registrant, D-FW Travel Arrangements, Inc., John W. Przywara and Sharon Scott
Przywara.(2)
2.10 First Amendment to Agreement and Plan of Merger, dated as of June 30, 1997, by and among
the Registrant, 800-Ideas, Inc. and Susan Parker.(2)
3.1 Amended and Restated Certificate of Incorporation(1)
3.2 Bylaws(1)
4.1 Specimen Common Stock Certificate(2)
4.2 Form of Restriction and Registration Rights Agreement, dated as of July 28, 1997, between the
Registrant and the each of the persons listed on the schedule thereto.(4)
5 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.*
10.1 Amended and Restated Employment Agreement, dated as of July 22, 1997, between the
Registrant and Joseph V. Vittoria.(4)
-- Amended and Restated Employment Agreement, dated as of May 12, 1997, between the
Registrant and Jill M. Vales.(4)
-- Amended and Restated Employment Agreement, dated as of June 6, 1997, between the
Registrant and Michael J. Moriarty.(4)
-- Employment Agreement, dated July 22, 1997, between the Registrant and Mel Robinson.(4)
-- Employment Agreement, dated July 22, 1997, among the Registrant, Auto Europe, LLC and
Imad Khalidi.(4)
-- Employment Agreement, dated July 18, 1997, among the Registrant, Auto Europe, LLC and
Alex Cecil.(4)
-- Employment Agreement, dated July 22, 1997, among the Registrant, Cruises, Inc. and Robert
Falcone.(4)
-- Employment Agreement, dated July 22, 1997, among the Registrant, Cruises, Inc. and Judith
Falcone.(4)
-- Employment Agreement, dated July 22, 1997, among the Registrant, Cruises, Inc. and Holley
Christen.(4)
-- Employment Agreement, dated July 22, 1997, among the Registrant, Cruises Only, LLC and
Wayne Heller.(4)
-- Employment Agreement, dated July 22, 1997, among the Registrant, Cruises Only, LLC and
Judy Heller.(4)
-- Employment Agreement, dated July 22, 1997, among the Registrant, Travel 800, LLC and
Susan Parker.(4)
10.2 Form of Indemnification Agreement, dated July 28, 1997, between the Registrant and each of
the persons set forth on the schedule thereto.(4)
10.3 1997 Long Term Incentive Plan(3)
10.4 Non-Employee Directors' Stock Plan(3)
10.6 Employment Agreement, dated July 25, 1997, between the Registrant and Suzanne B. Bell.(4)
10.7 Employment Agreement, dated as of July 25, 1997, between the Registrant and Maryann
Bastnagel.(4)
10.8 Credit Agreement, dated as of October 15, 1997, by and between the Registrant and
NationsBank, N.A.(4)
10.9 Stock Purchase Agreement, dated as of October 28, 1997, among the Registrant, CruiseOne,
Inc., Anthony J. Persico and Charlotte Luna, as amended.(5)
10.10 Stock Purchase Agreement, dated as of October 28, 1997, among the Registrant, Cruise World,
Inc., and the sellers named therein, as amended.(5)
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------
<S> <C>
10.11 Stock Purchase Agreement, dated as of October 28, 1996, among the Registrant, Ship `N'
Shore Cruises, Inc., Cruise Time, Inc., SNS Coachline, Inc., Cruise Mart, Inc., SNS Travel
Marketing, Inc. and Natalee Stutzman, as amended.(5)
10.12 Asset Purchase Agreement, dated as of February 9, 1998, among the Registrant, Gold Coast
Travel Agency Corporation, Inc. and Rhea Sherota.(6)
10.13 Employment Agreement, dated as of January 19, 1998, between the Registrant and John C. De
Lano.(7)
10.14 Stock Purchase Agreement, dated March 31, 1998, among the Registrant, The Cruise Line, Inc.
and the shareholders named therein(8)
10.15 Employment Agreement, dated as of April 1, 1998, among the Registrant and Spencer Frazier.
10.16 Purchase Agreement by and among the Registrant and Lexington Services Associates, Ltd., a
Texas limited partnership (the "Partnership"), and the Partnership's partners dated as of
June 1, 1998.(9)
11 Schedule of Computations of Earnings Per Share(7)
21 Subsidiaries of the Registrant(9)
23.1 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A. (included in Exhibit 5)*
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ernst & Young LLP.
24 Reference is made to the Signatures section of this Registration Statement for the Power of
Attorney contained therein(9)
</TABLE>

- ----------------
* To be filed by amendment.
(1) Previously filed as the same Exhibit number on May 14, 1997, under a
Registration Statement on Form S-1 (File no. 333-27125).
(2) Previously filed as the same Exhibit number on July 1, 1997 under a
Registration Statement on Form S-1 (File no. 333-27125).
(3) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended June 30, 1997.
(4) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended September 30, 1997.
(5) Previously filed as an exhibit to the Company's Form 8-K dated November 19,
1997.
(6) Previously filed as an exhibit to the Company's Form 8-K dated February 9,
1998.
(7) Previously filed as an exhibit to the Company's Form 10-K for the year
ended December 31, 1997.
(8) Previously filed as an exhibit to the Company's Form 8-K dated March 31,
1998.

(9) Previously filed.

(b) Financial Statement Schedules

<TABLE>
<S> <C>
Report of Independent Certified Public Accountants ......... S-1
Schedule II--Valuation and Qualifying Accounts ............. S-2
</TABLE>

All other schedules have been omitted either because they are not
applicable or because the information has been disclosed in the financial
statements and related notes included in the prospectus.

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.

II-5
<PAGE>

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.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Delray
Beach, State of Florida, on the 18th day of June, 1998.

TRAVEL SERVICES INTERNATIONAL, INC.

BY: /s/ Joseph V. Vittoria

Joseph V. Vittoria
Chairman and Chief Executive Officer

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.

<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
- ------------------------------- ---------------------------------- --------------
<S> <C> <C>
/s/ Joseph V. Vittoria Chairman of the Board, June 18, 1998
- ------------------------------- Chief Executive Officer, Director
Joseph V. Vittoria
(Principal Executive Officer)
/s/ Jill M. Vales Senior Vice President, Chief June 18, 1998
- ------------------------------- Financial and Principal
Jill M. Vales
Accounting Officer
/s/ * Director June 18, 1998
- -------------------------------
Wayne Heller

/s/ * Director June 18, 1998
- -------------------------------
Robert G. Falcone

/s/ * Director June 18, 1998
- -------------------------------
Imad Khalidi

/s/ * Director June 18, 1998
- -------------------------------
John W. Przywara

/s/ * Director June 18, 1998
- -------------------------------
Elan J. Blutinger

/s/ * Director June 18, 1998
- -------------------------------
D. Fraser Bullock

Director June , 1998
- -------------------------------
Tommaso Zanzotto
</TABLE>

- ----------------

<TABLE>
<S> <C>
*By: /s/ Jill M. Vales
- ----------------------
Jill M. Vales
Attorney-in-fact
</TABLE>

II-7
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To Travel Services International, Inc.:

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Travel Services International, Inc.
and subsidiaries, included in this registration statement and have issued our
report thereon dated March 31, l998 (except with respect to the matters
discussed in Note 15, as to which date is June 16, 1998). Our audits were made
for the purpose of forming an opinion on the basic financial statements taken
as a whole. The schedule listed in the index above is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

West Palm Beach, Florida,
March 31, 1998.

S-1
<PAGE>

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
DESCRIPTION YEAR EXPENSES END OF YEAR
- ------------------------------------------------------ -------------- ----------- ------------
<S> <C> <C> <C>
Reserves and allowances deducted from assets accounts:
Allowance for uncollectible accounts recievable
Year ended December 31, 1995 ....................... $37,000 -- $ 37,000
Year ended December 31, 1996 ....................... $37,000 -- $ 37,000
Year ended December 31, 1997 ....................... $37,000 108,000 $145,000
</TABLE>

S-2
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
- --------- -------------------------------------------------------------------------- -----------
<S> <C> <C>
10.15 Employment Agreement, dated as of April 1, 1998, among the Registrant and
Spencer Frazier.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ernst & Young LLP.
</TABLE>

EXHIBIT 10.15

EMPLOYMENT AGREEMENT

This Employment Agreement (the "Agreement"), by and between Travel
Services International, Inc., a Delaware corporation ("TSI"), and Spencer
Frazier ("Employee"), is hereby entered into as of the 1st day of April, 1998
(the "Effective Date").

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 Vice President, Marketing of TSI. As
such, Employee shall have responsibilities, duties and authority reasonably
accorded to and expected of a Vice President, Marketing, of TSI and will report
directly to the President 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 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 $120,000
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 1998 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. For services rendered in 1998, TSI shall pay a guaranteed
minimum bonus in the amount of 35% of Employee's base salary, payable at the
time that bonuses for 1998 are paid to other officers and key employees.

(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 and available to senior management 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 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 Effective Date, TSI shall grant to Employee options to acquire
75,000 shares of TSI common stock at the price per share equal to the fair
market value on the Effective Date. Such options shall vest in installments of
18,750 shares on each of the first, second, third and fourth anniversaries of
the Effective Date.

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:

(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor or as a sales
representative, in any travel service business in direct competition
with TSI or any subsidiary of TSI, within the United States or within
100 miles of any other geographic area in which TSI or any of TSI's
subsidiaries conducts business, including any territory serviced by TSI
or any of its subsidiaries (the "Territory");

(ii) call upon any person who is, at that time, within the
Territory, an employee of TSI (including the subsidiaries thereof) in a
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of TSI (including the
subsidiaries thereof);

(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer
of TSI (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services
in direct competition with TSI or any subsidiary of TSI within the
Territory; or

(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate
was, to Employee's actual knowledge after due inquiry, either called
upon by TSI (including the respective subsidiaries thereof) or for
which TSI made an acquisition analysis, for the purpose of acquiring
such entity.

Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Employee from acquiring as an investment not more than two percent
(2%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.

(b) Because of the difficulty of measuring economic losses to TSI as a
result of a breach of the foregoing covenant, and because of the immediate and
irreparable damage that could be caused to TSI for which it would have no other
adequate remedy, Employee agrees that the foregoing covenant may be enforced by
TSI in the event of breach by 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. 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

3
<PAGE>

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.

(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 will relocate from Employee's present
residence to another geographic location near TSI's headquarters in Delray
Beach, Florida, in order to more efficiently carry out Employee's duties and
responsibilities under this Agreement; provided that Employee may commute from
his existing residence to TSI's headquarters prior to August 1, 1998. TSI will
pay all actual reasonable costs associated with such commuting (which costs may
include, but are not limited to, travel expenses and temporary lodging expenses)
during the period beginning on the Effective Date and ending on the earlier of
the date that Employee establishes a new permanent residence or August 1, 1998;
provided, the maximum total amount to be paid by TSI hereunder shall be $25,000.

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.

4
<PAGE>

(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
for whatever time period is remaining under the Term of this Agreement or for
one (1) year, whichever amount is greater.

(c) GOOD CAUSE. TSI may terminate the Agreement ten (10) days after
delivery of written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
continuing for ten (10) days after receipt of written notice of need to cure of
any of Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud or misconduct with respect to the business or affairs
of TSI which materially and adversely affects the operations or reputation of
TSI; (4) Employee's conviction of a felony crime; or (5) chronic alcohol abuse
or illegal drug abuse by Employee. In the event of a termination for good cause,
as enumerated above, Employee shall have no right to any severance compensation.

(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective thirty (30) days after written notice is provided to TSI. Employee may
only be terminated without cause by TSI during the Term hereof if such
termination is approved by at least two-thirds of the members of the Board.
Should Employee's employment be terminated by TSI without cause during the Term,
Employee shall receive from TSI, in a lump-sum payment due on the effective date
of termination, the base salary at the rate then in effect for whatever time
period is remaining under the Term of this Agreement or for one (1) year,
whichever amount is greater, plus any accrued salary and declared but unpaid
bonus and reimbursement of expenses. Should Employee's employment be terminated
by TSI without cause at any time after the Term, Employee shall receive from
TSI, in a lump-sum payment due on the effective date of termination, the base
salary rate then in effect equivalent to one (1) year of salary, plus any
accrued salary and declared but unpaid bonus and reimbursement of expenses.
Further, any termination without cause by TSI shall operate to shorten the
period set forth in paragraph 4(a) and during which the terms of paragraph 4
apply to one (1) year from the date of termination of employment. If Employee
resigns or otherwise terminates Employee's employment without cause pursuant to
this paragraph 6(d), Employee shall receive no severance compensation.

(e) CHANGE IN CONTROL OF TSI. In the event of a "Change in Control of
TSI" (as defined below) during the Term, refer to paragraph 13 below.

5
<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 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 paragraphs 10 and 17 hereof and Employee's obligations
under paragraphs 4, 7, 8, 9, 11 and 17 hereof shall survive such termination in
accordance with their terms.

If termination of Employee's employment arises out of TSI's failure to
pay Employee on a timely basis the amounts to which she is entitled under this
Agreement or as a result of any other material breach of this Agreement by TSI
(including but not limited to a material reduction in Employee's
responsibilities hereunder), as determined by a court of competent jurisdiction
or pursuant to the provisions of paragraph 17 below, such termination shall be
deemed a termination without cause, and TSI shall pay to Employee severance
compensation pursuant to the applicable provisions of paragraph 6(d) and all
amounts and damages to which Employee may be entitled as a result of such
breach, including interest thereon and all reasonable legal fees and expenses
and other costs incurred by Employee to enforce Employee's rights hereunder.
Further, none of the provisions of paragraph 4 hereof shall apply in the event
this Agreement is terminated as a result of a breach by TSI.

In the event of any termination of Employee's employment for any reason
provided above, Employee shall be under no obligation to seek other employment
and there shall be no offset against any amounts due to Employee under this
Agreement on account of any remuneration attributable to any subsequent
employment that Employee may obtain. Any amounts due under this paragraph 6 are
in the nature of severance payments, or liquidated damages, or both, and are not
in the nature of a penalty.

7. RETURN OF COMPANY PROPERTY.

All records, designs, patents, business plans, financial statements,
manuals, memoranda, lists and other property delivered to or compiled by
Employee by or on behalf of TSI, or its representatives, vendors or customers
which pertain to the business of TSI shall be and remain the property of TSI,
and be subject at all times to its discretion and control. Likewise, all
correspondence, reports, records, charts, advertising materials, and other
similar data pertaining to the business, activities or future plans of TSI which
is collected by Employee shall be delivered promptly to TSI without request by
it upon termination of Employee's employment.

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.

6
<PAGE>

9. TRADE SECRETS.

Employee agrees that she will not, other than as required by court
order, during or after the Term of this Agreement with TSI, disclose the
confidential terms of TSI's or its subsidiaries' relationships or agreements
with its significant vendors or customers or any other significant and material
trade secret of TSI or its subsidiaries, whether in existence or proposed, to
any person, firm, partnership, corporation or business for any reason or purpose
whatsoever.

10. INDEMNIFICATION.

In 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, then TSI shall indemnify and hold
harmless, to the maximum extent permitted by law, Employee against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Employee in connection therewith. In the
event that both Employee and TSI are made a party to the same third-party
action, complaint, suit or proceeding, TSI agrees to engage competent legal
representation reasonably acceptable to Employee, and Employee agrees to use the
same representation, provided that if counsel selected by TSI shall have a
conflict of interest that prevents such counsel from representing Employee,
Employee may engage separate counsel and TSI shall pay all attorneys' fees of
such separate counsel. Further, while Employee is expected at all times to use
Employee's best efforts to faithfully discharge her or her duties under this
Agreement, Employee cannot be held liable to TSI for errors or omissions made in
good faith where Employee has not exhibited gross, willful or wanton negligence
or misconduct or performed criminal and fraudulent acts which materially damage
the business of TSI. TSI shall pay, on behalf of Employee upon presentation of
proper invoices, all fees, costs and expenses (including attorneys' fees)
incurred in connection with any matter referenced in this paragraph 10.

11. NO PRIOR AGREEMENTS.

Employee hereby represents and warrants to TSI that the execution of
this Agreement by Employee and 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 she has been selected for employment by TSI
on the basis of his 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 TSI may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of TSI hereunder or that TSI
may undergo another type of Change in Control. In the event such a merger or
consolidation or other Change in Control is initiated prior to the end of the
Term, then the provisions of this paragraph 13 shall be applicable.

(b) In the event of a pending Change in Control wherein TSI and
Employee have not received written notice at least five (5) business days prior
to the anticipated closing date of the transaction giving rise to the Change in
Control from the successor to all or a substantial portion of TSI's business
and/or assets that such successor is willing as of the closing to assume and
agree to perform TSI's obligations under this Agreement in the same manner and
to the same extent that TSI is hereby required to perform, then such Change in
Control shall be deemed to be a termination of this Agreement by TSI without
cause during the Term and the applicable portions of paragraph 6(d) will apply;
however, under such circumstances, the amount of the lump-sum severance payment
due to Employee shall be triple the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall not apply.

(c) In any Change in Control situation, Employee may elect to terminate
this Agreement by providing written notice to TSI at least five (5) business
days prior to the anticipated closing of the transaction giving rise to the
Change in Control. In such case, the applicable provisions of paragraph 6(d)
will apply as though TSI had terminated the Agreement without cause during the
Term; however, under such circumstances, the amount of the lump-sum severance
payment due to Employee shall be double the amount calculated under the terms of
paragraph 6(d) and the noncompetition provisions of paragraph 4 shall all apply
for a period of two (2) years from the effective date of termination.

(d) For purposes of applying paragraph 6 hereof under the circumstances
described in (b) and (c) above, the effective date of termination will be the
closing date of the transaction giving rise to the Change in Control and all
compensation, reimbursements and lump-sum payments due Employee must be paid in
full by TSI at or prior to such closing. Further, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase TSI Common Stock, including any options
with accelerated vesting under the provisions of TSI's 1997 Long-Term Incentive
Plan, such that Employee may convert the options to shares of TSI Common Stock
at or prior to the closing of the transaction giving rise to the Change in
Control, if Employee so desires.

(e) A "Change in Control" shall be deemed to have occurred if:

(i) any person or entity, or group of persons or entities
acting together, other than TSI or an employee benefit plan of TSI,
acquires directly or indirectly the Beneficial Ownership (as defined in
Section 13(d) of the Securities Exchange Act of 1934, as amended) of
any voting security of TSI and immediately after such acquisition such
person, entity or group is, directly or indirectly, the Beneficial
Owner of voting securities representing 33% or more of the total voting
power of all of the 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

8
<PAGE>

(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.

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:

9
<PAGE>

To TSI: Travel Services International, Inc.
220 Congress Park Drive, Suite 300
Delray Beach, FL 33445

To Employee: Spencer Frazier
__________________________
__________________________

Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 15.

16. SEVERABILITY; HEADINGS.

If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.

17. ARBITRATION.

Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in the community where the corporate
headquarters of TSI is located on the Effective Date, in accordance with the
rules of the American Arbitration Association then in effect. The arbitrators
shall not have the authority to add to, detract from or modify any provision
hereof nor to award punitive damages to any injured party. The arbitrators shall
have the authority to order back-pay, severance compensation, vesting of options
(or cash compensation in lieu of vesting of options), reimbursement of costs,
including those incurred to enforce this Agreement, and interest thereon in the
event the arbitrators determine that Employee was terminated without disability
or good cause, as defined in paragraphs 6(b) and 6(c) hereof, respectively, or
that TSI has otherwise materially breached this Agreement. A decision by a
majority of the arbitration panel shall be final and binding. Judgment may be
entered on the arbitrators' award in any court having jurisdiction. The direct
expense of any arbitration proceeding shall be borne by TSI.

18. GOVERNING LAW.

This Agreement shall in all respects be construed according to the laws
of the State of Delaware without regard to the conflicts of laws principles of
such state.

19. COUNTERPARTS.

This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.

10
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

TRAVEL SERVICES INTERNATIONAL, INC.

By: /S/ MICHAEL J. MORIARTY
----------------------------------------
Name: Michael J. Moriarty
Title: President and Chief Operating Officer

/S/ SPENCER FRAZIER
--------------------------
Spencer Frazier

EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

West Palm Beach, Florida,

June 17, 1998.

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 17, 1998, with respect to the financial
statements of Lexington Services Associates Ltd. included in the Registration
Statement on Form S-1 and related Prospectus of Travel Services International
Inc. dated June 11, 1998.

Ernst & Young LLP

Dallas, Texas

June 17, 1998.