UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File No. 0-29298
TRAVEL SERVICES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 52-2030324
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 Congress Park Drive
Delray Beach, Florida 33445
(Address of principal executive offices)
(Zip Code)
(561) 266-0860
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No ____
The number of shares outstanding of the issuer's Common Stock, par
value $.01 per share, as of August 10, 1999, was 13,958,086.
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I FINANCIAL INFORMATION...........................................................................3
Item 1. Consolidated Financial Statements...............................................................3
Consolidated Balance Sheets as of December 31, 1998 and June 30, 1999 ..........................3
Consolidated Statements of Income for the Three Months Ended
June 30, 1998 and 1999 and the Six Months Ended June 30, 1998 and 1999..........................4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1999....................................................................5
Notes to Consolidated Financial Statements......................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................23
PART II OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................24
Item 2. Changes in Securities and Use of Proceeds......................................................24
Item 5. Other Information..............................................................................24
Item 6. Exhibits and Reports on Form 8-K...............................................................26
SIGNATURES.......................................................................................................27
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, JUNE 30,
1998 1999
----------------------- --------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 26,084 $ 37,759
Accounts receivable, net 15,460 18,636
Receivables and notes from affiliates and employees 250 338
Deferred income taxes 827 1,533
Prepaid expenses and other current assets 7,776 12,559
----------------------- --------------------
Total current assets 50,397 70,825
Property and equipment, net 22,504 29,369
Goodwill, net 105,773 141,770
Notes receivable from employees 410 328
Other assets 1,045 540
----------------------- --------------------
Total assets $ 180,129 $ 242,832
======================= ====================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Current portion of long-term debt 257 286
Income taxes payable - 396
Trade payables and accrued expenses 27,412 62,035
----------------------- --------------------
Total current liabilities 27,669 62,717
Borrowings under line of credit - 14,700
Long-term debt, net of current portion 2,888 2,737
Deferred income taxes 3,774 4,341
Other long-term liabilities 501 403
----------------------- --------------------
Total liabilities 34,832 84,899
----------------------- --------------------
Commitments and contingencies (note 7)
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;
13,376,969 and 13,795,658 shares outstanding, respectively 134 138
Additional paid-in capital 129,623 137,483
Retained earnings 15,540 20,312
-----------------------
--------------------
Total stockholders' equity 145,297 157,933
----------------------- --------------------
Total liabilities and stockholders' equity $ 180,129 $ 242,832
======================= ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
----------------- -------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net revenues $ 37,033 $ 56,793 $ 63,557 $ 98,145
Operating expenses 19,230 33,273 34,088 59,604
----------------- -------------------- ---------------- ----------------
Gross profit 17,803 23,520 38,541
29,469
General and administrative expenses 8,560 15,739 16,045 28,334
Goodwill amortization 614 1,095 1,021 2,098
----------------- -------------------- ---------------- ----------------
Income from operations 8,629 6,686 12,403 8,109
Other expense, net (460) (338) (491) (108)
----------------- -------------------- ---------------- ----------------
Income before provision for income taxes 8,169 6,348 11,912 8,001
Provision for income taxes 3,431 2,539 5,003 3,200
----------------- -------------------- ---------------- ----------------
Net income $ 4,738 $ 3,809 $ 6,909 $ 4,801
================= ==================== ================ ================
Basic earnings per share $ 0.43 $ 0.28 $ 0.63 $ 0.35
================= ==================== ================ ================
Diluted earnings per share $ 0.41 $ 0.28 $ 0.60 $ 0.35
================= ==================== ================ ================
Shares used in computing basic earnings per share 11,093,749 13,795,658 11,016,399 13,729,991
================= ==================== ================ ================
Shares used in computing diluted earnings per share 11,680,066 13,795,658 11,549,706 13,859,155
================= ==================== ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1999
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $6,909 $4,801
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,005 4,012
Amortization of unearned compensation 16 15
Interest rate swap agreement - (280)
Deferred tax benefit (727) (139)
Changes in operating assets and liabilities:
Accounts receivable (3,533) (1,941)
Receivables and notes from affiliates and employees 1,031 43
Prepaid expenses and other current assets (1,212) 2,855
Trade payables and accrued expenses 25,863 20,049
----------------- -----------------
Net cash provided by operating activities 30,352 29,415
----------------- -----------------
Cash flows from investing activities:
Capital expenditures (2,164) (8,443)
Proceeds from sale of property and equipment - 456
Cash paid for acquisitions, net of cash acquired (40,969) (24,680)
----------------- -----------------
Net cash used in investing activities (43,133) (32,667)
----------------- -----------------
Cash flows from financing activities:
Proceeds from long-term debt and line of credit 30,700 24,000
Payments on long-term debt and line of credit (3,559) (9,422)
Net proceeds from options exercised - 349
----------------- -----------------
Net cash provided by financing activities 27,141 14,927
----------------- -----------------
Net increase in cash and cash equivalents 14,360 11,675
Cash and cash equivalents, beginning of period 8,451 26,084
----------------- -----------------
Cash and cash equivalents, end of period $22,811 $37,759
================= =================
Supplemental cash flow information:
Cash paid for interest $549 $898
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
Travel Services International, Inc. and its subsidiaries (the "Company") provide
specialized distribution of leisure travel products and services. The Company
was founded in April 1996 and on July 28, 1997 the Company consummated its
initial public offering of common stock and acquired five specialized
distributors of travel services (the "Founding Companies") in separate
combination transactions which were accounted for using the purchase method of
accounting (the "Combinations").
Auto Europe, one of the Founding Companies, 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 financial statements for
each period presented represent those of Auto Europe and four companies acquired
in 1997 and four companies acquired in 1998 under transactions accounted for
using the pooling of interests method of accounting (the "1997 Pooling
Acquisitions" and the "1998 Pooling Acquisitions", respectively), as well as
balances and transactions of the Company and four other Founding Companies since
July 28, 1997 and other companies acquired and accounted for using the purchase
method of accounting subsequent to the date of acquisition.
The interim consolidated financial statements as of June 30, 1999 and for the
three and six month periods ended June 30, 1998 and 1999 are unaudited, and
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments necessary to fairly present the financial
position, results of operations, and cash flows with respect to interim
financial statements, have been included. Operating results for interim periods
are not necessarily indicative of the results for full years as a result of
seasonality and other factors.
The financial statements included herein should be read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto (the "1998
Consolidated Financial Statements"), and Management's Discussion and Analysis of
Financial Condition and Results of Operations related thereto, which are
included in the Company's Form 10-K for the year ended December 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes in the accounting policies of the Company
during the periods presented. For a description of these policies, refer to Note
2 to the 1998 Consolidated Financial Statements.
The Company follows 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 all periods presented, there were no differences between reported net income
on the consolidated financial statements and comprehensive income.
The Company follows Statement of Financial Accounting Standard No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
establishes standards for the way information about reporting segments is
reported in financial statements and establishes standards for related
disclosures about products and services, geographical areas and major customers.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
Company's chief operating decision makers in deciding how to allocate resources
and in assessing performance. The Company's reportable operating segments
include cruise, outbound, lodging and other.
6
<PAGE>
In June 1998, Statement of Financial Accounting Standard No. 133, "Accounting
for Derivative Instruments and Hedging Activities," ("SFAS 133") was issued
which establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. Changes in the derivative's fair value are
required to be recognized currently in earnings unless specific hedge accounting
criteria are met. In June 1999, Statement of Financial Accounting Standard No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133 - An Amendment of FASB Statement
No. 133" was issued delaying the effective date of SFAS 133 for fiscal years
beginning after June 15, 2000. Management believes the impact of adopting this
statement will not have a material effect upon the Company's results of
operations or financial position.
3. REPORTING SEGMENTS
<TABLE>
<CAPTION>
ADJUSTING
AND RECON.
THREE MONTHS ENDED JUNE 30, 1998 CRUISE OUTBOUND LODGING OTHER ITEMS (1) TOTAL
----------- --------------- --------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $16,578 $16,304 $1,248 $2,903 $ - $37,033
Operating expenses 6,831 9,503 710 2,186 - 19,230
------------ --------------- --------------- ------------ --------------- ---------------
Gross profit 9,747 6,801 538 717 - 17,803
General and administrative expenses 3,627 1,476 198 618 2,641 8,560
Goodwill amortization - - - - 614 614
------------ --------------- --------------- ------------ --------------- ---------------
Income from operations 6,120 5,325 340 99 (3,255) 8,629
Other income (expense), net 81 186 - 45 (772) (460)
------------ --------------- --------------- ------------ --------------- ---------------
Net income before income taxes 6,201 5,511 340 144 (4,027) 8,169
Provision for income taxes - - - - 3,431 3,431
------------ --------------- --------------- ------------ --------------- ---------------
Net income $6,201 $5,511 $340 $144 $(7,458) $4,738
============ =============== =============== ============ =============== ===============
</TABLE>
<TABLE>
<CAPTION>
ADJUSTING
AND RECON.
THREE MONTHS ENDED JUNE 30, 1999 CRUISE OUTBOUND LODGING OTHER ITEMS (1) TOTAL
------------ --------------- --------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $18,685 $25,135 $5,418 $7,555 $ - $56,793
Operating expenses 12,208 13,378 3,347 4,340 - 33,273
------------ --------------- --------------- ------------ --------------- ---------------
Gross profit 6,477 11,757 2,071 3,215 - 23,520
General and administrative expenses 4,782 2,469 1,264 1,307 5,917 15,739
Goodwill amortization - - - - 1,095 1,095
------------ --------------- --------------- ------------ --------------- ---------------
Income from operations 1,695 9,288 807 1,908 (7,012) 6,686
Other income (expense), net 178 460 30 113 (1,119) (338)
------------ --------------- --------------- ------------ --------------- ---------------
Net income before income taxes 1,873 9,748 837 2,021 (8,131) 6,348
Provision for income taxes - - - - 2,539 2,539
------------ --------------- --------------- ------------ --------------- ---------------
Net income $1,873 $9,748 $837 $2,021 $(10,670) $3,809
============ =============== =============== ============ =============== ===============
</TABLE>
- --------------
(1) Adjusting and reconciling items includes goodwill amortization, software
amortization and support expenses, expenses of corporate headquarters, interest
expense, income taxes and certain other expenses controlled and recorded at
corporate headquarters. On a consolidated basis, inter-segment sales were
immaterial.
7
<PAGE>
<TABLE>
<CAPTION>
ADJUSTING
AND RECON.
SIX MONTHS ENDED JUNE 30, 1998 CRUISE OUTBOUND LODGING OTHER ITEMS (1) TOTAL
-------------- ---------------- --------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $29,226 $27,569 $1,248 $5,514 $ - $63,557
Operating expenses 12,816 16,823 710 3,739 - 34,088
-------------- ---------------- --------------- ------------ --------------- ---------------
Gross profit 16,410 10,746 538 1,775 - 29,469
General and administrative expenses 6,779 2,905 198 1,218 4,945 16,045
Goodwill amortization - - - - 1,021 1,021
-------------- ---------------- --------------- ------------ --------------- ---------------
Income from operations 9,631 7,841 340 557 (5,966) 12,403
Other income (expense), net 79 236 - 83 (889) (491)
-------------- ---------------- --------------- ------------ --------------- ---------------
Net income before income taxes 9,710 8,077 340 640 (6,855) 11,912
Provision for income taxes - - - - 5,003 5,003
-------------- ---------------- --------------- ------------ --------------- ---------------
Net income $9,710 $8,077 $340 $640 $(11,858) $6,909
============== ================ =============== ============ =============== ===============
</TABLE>
<TABLE>
<CAPTION>
ADJUSTING
AND RECON.
SIX MONTHS ENDED JUNE 30, 1999 CRUISE OUTBOUND LODGING OTHER ITEMS (1) TOTAL
-------------- ---------------- --------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $34,185 $40,063 $10,271 $13,626 $ - $98,145
Operating expenses 22,588 22,608 6,239 8,169 - 59,604
-------------- ---------------- --------------- ------------ --------------- ---------------
Gross profit 11,597 17,455 4,032 5,457 - 38,541
General and administrative expenses 9,351 4,488 2,477 2,235 9,783 28,334
Goodwill amortization - 1 - - 2,097 2,098
-------------- ---------------- --------------- ------------ --------------- ---------------
Income from operations 2,246 12,966 1,555 3,222 (11,880) 8,109
Other income (expense), net 302 681 40 190 (1,321) (108)
-------------- ---------------- --------------- ------------ --------------- ---------------
Net income before income taxes 2,548 13,647 1,595 3,412 (13,201) 8,001
Provision for income taxes - - - - 3,200 3,200
-------------- ---------------- --------------- ------------ --------------- ---------------
Net income $2,548 $13,647 $1,595 $3,412 $(16,401) $4,801
============== ================ =============== ============ =============== ===============
</TABLE>
- -----------
(1) Adjusting and reconciling items includes goodwill amortization, software
amortization and support expenses, expenses of corporate headquarters, interest
expense, income taxes and certain other expenses controlled and recorded at
corporate headquarters. On a consolidated basis, inter-segment sales were
immaterial.
8
<PAGE>
4. LONG-TERM DEBT AND CREDIT FACILITY
On July 30, 1999, the Company closed on an amended and restated credit facility
agreement effective June 30, 1999 with Bank of America N.A. d/b/a NationsBank,
N.A. ("NationsBank") with respect to an increase in the revolving line of credit
to a maximum of $35 million (the "Credit Facility") and the continuation of a
term loan facility of $1.9 million (the "Term Loan"). Borrowings under the
Credit Facility and the Term Loan are due October 15, 2001. The Credit Facility
may be used for acquisitions, general corporate purposes and letters of credit.
Letters of credit issued under the Credit Facility may not exceed $10 million in
the aggregate. As of June 30, 1999, there were outstanding borrowings of $14.7
million and letters of credit totaling $4.3 million under the Credit Facility.
At June 30, 1999, the Company wrote-off $337,000 of deferred financing costs
related to the prior credit facility. All amounts repaid under the Credit
Facility may be reborrowed. Interest on outstanding balances of the Credit
Facility and the Term Loan are computed based on the Eurodollar Rate plus a
margin ranging from 1.25% to 2.0%, depending on certain financial ratios. During
1998 and 1999, the margin was 1.25%. As of June 30, 1999, the Company had
outstanding interest rate swap hedge agreements totaling $16.4 million that
mature in October 2000 which were entered into as a requirement of the previous
credit facility. These agreements exchange floating rate obligations for fixed
rates.
The Credit Facility is secured by substantially all the assets of the Company,
is guaranteed by all its subsidiaries, and requires the Company to comply with
various loan covenants, including maintenance of certain financial and coverage
ratios and restrictions on additional indebtedness, liens, guarantees, advances,
capital expenditures, sale of assets and dividends. At June 30, 1999, the
Company was in compliance with the loan covenants.
5. ACQUISITIONS, PRO FORMA RESULTS AND CAPITAL STOCK
Since November 1997, the Company has acquired eight operating companies under
transactions accounted for using the pooling of interests method of accounting.
The 1997 Pooling Acquisitions include Cruise World, Inc., CruiseOne, Inc., The
Anthony Dean Corporation (d/b/a Cruise Fairs of America) and Ship `N' Shore
Cruises, Inc. The aggregate consideration paid in connection with such
acquisitions was 1,351,704 shares of common stock. The 1998 Pooling Acquisitions
include CruiseMasters, Inc., Landry & Kling, Inc., Goodfellow Enterprises, Inc.
(d/b/a The Travel Company), and Cruise Outlets of the Carolinas, Inc. The
aggregate consideration paid in connection with such acquisitions was 645,640
shares of common stock.
Aggregate net revenues of $820,000 and $2.4 million, and income before taxes of
$141,000 and $545,000, included in the accompanying consolidated statements of
income for the three and six month periods ended June 30, 1998, respectively,
were generated prior to the closing dates of the 1998 Pooling Acquisitions.
From December 1997 through 1998, in addition to the Combinations, the Company
acquired one software development company and seven operating companies under
transactions accounted for using the purchase method of accounting. The
operating companies acquired include Lexington Services Associates, Ltd.
("Lexington"), Trax Software, Inc., Diplomat Tours, Inc., Gold Coast Travel
Agency Corporation, The Cruise Line, Inc., ABC Corporate Services ("ABC") and
1-800-CRUISES, Inc. Accordingly, the financial results of these operating
companies have been included in the accompanying financial statements from the
date of acquisition. The aggregate consideration paid for these acquisitions,
excluding consideration paid for Lexington, was 255,107 shares of common stock
and $26.5 million in cash.
Effective June 1, 1998, the Company acquired all of the outstanding partnership
interests of Lexington. The aggregate consideration paid was 283,990 shares of
common stock and $24 million in cash, including $4 million in contingent
consideration paid in 1998. Lexington is an electronic hotel reservation
services company. The acquisition is accounted for using the purchase method of
accounting. The historical operations of Lexington are significant when compared
to the historical operations of the Company.
Effective February 1, 1999, the Company acquired all of the outstanding capital
stock of AHI International Corporation ("AHI"). The aggregate consideration paid
was 145,400 shares of common stock and $24 million in cash. AHI develops,
markets and sells packaged European vacations to individuals that are members of
over 200 university and college alumni associations. AHI is also a longstanding
provider of alumni tour packages to college bowl games. The acquisition is
accounted for using the purchase method of accounting. The historical operations
of AHI are significant when compared to the historical operations of the
Company.
9
<PAGE>
Effective February 1, 1999, the Company acquired all of the outstanding capital
stock of Lifestyle Vacation Incentives, Inc. and All Seasons Smart Traveler,
Inc., (collectively, "LVI"). The aggregate consideration was 248,600 shares of
common stock and $6.25 million in cash paid at closing and, pursuant to an
amendment to the merger agreement, 144,928 shares of common stock and $750,000
in cash paid in August 1999. Additional purchase consideration not to exceed
$1.0 million may be paid based upon financial performance for the year ended
December 31, 1999. LVI's proprietary travel incentive programs provide
structured discounts to consumers for various forms of leisure travel, including
airline tickets, cruise vacations, rental cars, hotel rooms and vacation
packages. The acquisition is accounted for using the purchase method of
accounting. The historical operations of LVI when compared to the historical
operations of the Company are not significant.
The following are unaudited pro forma combined results of operations of the
Company, Lexington and AHI for the three and six month periods ended June 30,
1998 and 1999, as if the acquisitions of Lexington and AHI had occurred on
January 1, 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $42,917 $56,793 $74,239 $98,663
======= ======= ======= =======
Net income $5,004 $3,809 $7,309 $4,303
====== ====== ====== ======
Pro forma diluted earnings per share $0.41 $0.28 $0.60 $0.31
===== ===== ===== =====
Weighted average shares used outstanding 12,218,200 13,795,658 12,186,023 13,883,388
========== ========== ========== ==========
</TABLE>
These unaudited pro forma combined results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill, increased interest expense on acquisition debt
and certain contractual adjustments to salaries, bonuses, management fees and
benefits to former owners to which such persons have agreed prospectively. They
do not purport to be indicative of the results of the operations which actually
would have resulted had the acquired companies been under common control prior
to the date of the acquisition or which may result in the future.
On July 21, 1998, the Company consummated a secondary stock offering. An
aggregate of 4,025,000 shares of common stock were registered and sold,
including 2,025,000 shares of common stock sold by the Company and 2,000,000
shares of common stock sold by certain selling stockholders. All of the shares
of common stock were sold to the public at a price of $34.50 per share. Net
proceeds to the Company from the secondary stock offering (after deducting
underwriting discounts and commissions and estimated offering expenses) were
approximately $65.6 million, of which $28.6 million was used to repay borrowings
under the predecessor credit facility. The Company did not receive any proceeds
from shares sold by selling stockholders.
6. EARNINGS PER SHARE
The Company follows Statement of Financial Accounting Standard No. 128,
"Earnings Per Share". Basic earnings per common share calculations are
determined by dividing net income by the weighted average number of shares of
common stock outstanding during the period. 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.
10
<PAGE>
A reconciliation of weighted average shares used in the calculation of basic and
diluted earnings per share for the three and six month periods ended June 30,
1998 and 1999 are as follows:
<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic common shares outstanding 11,093,749 13,795,658 11,016,399 13,729,991
Dilutive effect of stock options 586,317 - 533,307 129,164
---------- ---------- ---------- ----------
Dilutive shares outstanding 11,680,066 13,795,658 11,549,706 13,859,155
========== ========== ========== ==========
</TABLE>
Options totaling 1,763,795 and 570,032 were not included in the calculation of
dilutive shares outstanding for the three months and six months ended June 30,
1999, respectively, as the inclusion would have been anti-dilutive.
7. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions arising in the ordinary course
of business. The Company believes that none of the actions currently pending
will have a material adverse effect on its business, financial condition or
results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with (i) the Company's
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Report and (ii) the 1998 Consolidated Financial Statements and related
Notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations related thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. Statements contained
in this discussion regarding future financial performance and results and other
statements that are not historical facts are forward-looking statements. The
forward looking statements are subject to numerous risks and uncertainties to
the Company. See Part II, Item 5, Risk Factors and Qualification of Forward
Looking Statements.
INTRODUCTION
The Company is a leading specialized distributor of leisure travel products
including cruise vacations, vacation packages, domestic and international
airline tickets and European auto rentals, and is a leading provider of travel
services such as electronic hotel reservation services, specialized hotel
programs and services and incentive travel programs. The Company does not record
the gross amount of the travel products and services sold to consumers and
travel agents, but rather records the commission and fee revenue received by the
Company from travel providers and customers.
The Company, following its initial public offering and the Combinations of the
Founding Companies in July 1997, focused for the remainder of 1997 on forming a
corporate headquarters, developing a technology strategy and acquiring operating
companies. During 1998, the Company focused on developing strategic software
applications, creating a marketing and branding strategy, expanding call centers
for cruise and domestic air operations, centralizing certain activities at
corporate headquarters and acquiring additional operating companies. During 1999
the Company continues its plans to focus on expanding its presence and on-line
booking capabilities on the Internet, further developing and rolling out its
strategic software applications, integrating its cruise segment call center
operations, maximizing revenue opportunities and improving call center
operations. In addition, the Company anticipates making certain investments and
further integrating its operations to strategically position the Company for the
future.
The Company operates and reports under the following segments: cruise, outbound,
lodging and other.
The cruise segment is comprised of operating companies distributing cruises
through call centers, home-based agents and the Internet. Net revenues include
commissions and markups, volume override commissions, and royalty fees and
11
<PAGE>
franchise fees from franchisees. The Company records net 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 cruise departure date. The Company
provides an allowance for cancellations and reservation changes, which is based
on historical experience.
The outbound segment is comprised of operating companies distributing European
auto rentals, international airline tickets and international vacation packages.
Net revenues include commissions and markups. The Company records net revenue
when the reservation is booked and ticketed except for international tour
packages for which net revenue is recorded when the tour departs. The Company
provides an allowance for cancellations, reservation changes and currency
exchange guarantees, which is based on historical experience.
The lodging segment is comprised of operating companies providing electronic
hotel reservation services to independent hotels and specialized hotel programs
and other reservation and support services to travel agencies. Net revenues
include commissions and fees for reservation services, and fees for
subscriptions and advertising related to the hotel program. The Company records
net revenue at the time the traveler checks out of the hotel for hotel
reservation services, when service is provided for after-hours travel services
to travel agencies, over the subscription period for hotel program
subscriptions, and when the hotel program publication is mailed for
advertisement fees. The Company provides an allowance for cancellations,
reservation changes and "no shows", which is based on historical experience.
The other segment is comprised of operating companies providing domestic airline
tickets and incentive travel programs. Net revenues include commissions,
markups, volume overrides and segment, processing and delivery fees. The Company
records net revenue when the reservation is booked and ticketed for domestic
airline tickets, when the customer is no longer entitled to a full refund of the
cost of the incentive cruise, which is generally 45 to 90 days prior to the
cruise departure date, and ratably over estimated economic lives of incentive
travel programs. The Company provides an allowance for cancellations, which is
based on historical experience.
For each segment, operating expenses include compensation of sales and sales
support personnel, commissions and remuneration paid to travel agents and alumni
associations, credit card merchant fees, telecommunications, mail, courier,
marketing and other expenses that generally vary with revenues. Commissions and
remuneration to travel agents and alumni associations, respectively, 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. Conversely, the Company receives as a royalty
a portion of commissions earned by its franchisees selling cruises. General and
administrative expenses include compensation and benefits to management,
professional and administrative employees, fees for professional services, rent,
information services, depreciation, travel and entertainment, office services
and other overhead costs.
The financial results presented by reporting segment represent the historical
information of the Company in the manner in which the Company's management
internally disaggregates financial information for the purpose of assisting in
making operational decisions. Excluded from the four reporting segments are
goodwill amortization, software amortization and support expenses, expenses of
corporate headquarters, interest expense, income taxes and certain other
expenses controlled by and recorded at corporate headquarters.
The Company's business and growth strategies encompass many components,
including providing extensive expertise in specific travel segments and high
levels of customer service, embracing multiple selling models and distribution
channels, including the Internet, implementing cross selling opportunities
across travel segments, implementing state-of-the-art technology infrastructure
and pursuing selected strategic acquisitions.
12
<PAGE>
CONSOLIDATED FINANCIAL REVIEW
The following sets forth certain historical consolidated financial data,
also stated as a percentage of net revenues, for the periods indicated (dollars
in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues $ 37,033 100.0% $56,793 100.0%
Operating expenses 19,230 51.9 33,273 58.6
-------- ----- ------- -----
Gross profit 17,803 48.1 23,520 41.4
General and administrative expenses 8,560 23.1 15,739 27.7
Goodwill amortization 614 1.7 1,095 1.9
-------- ----- ------- -----
Income from operations 8,629 23.3 6,686 11.8
Other income (expense), net ( 460) (1.2) (338) .6
-------- ----- ------- -----
Income before provision for income taxes 8,169 22.1 6,348 11.2
Provision for income taxes 3,431 9.3 2,539 4.5
-------- ----- ------- -----
Net income $ 4,738 12.8% $ 3,809 6.7%
======== ===== ======= =====
Diluted earnings per share $ 0.41 $ 0.28
======== =======
</TABLE>
The Company reported net income of $3.8 million, or $0.28 diluted earnings per
share for the three months ended June 30, 1999, compared to net income of $4.7
million, or $0.41 diluted earnings per share for the comparable 1998 period. Net
revenues increased 53.4% from the prior year period as a result of acquisitions
and increases in transaction volumes and net revenue per transaction. Of this
increase in net revenues, 19.5% was from internal growth (which excludes the
impact of acquisitions made subsequent to April 1, 1998 accounted for using the
purchase method of accounting). However, profitability declined primarily as a
result of a decreased gross profit margins in the cruise and lodging reporting
segments and increased general and administrative expenses.
Gross profit margin in the cruise reporting segment decreased in 1999 primarily
as a result of increased marketing and other operating costs and lower effective
commission rates. Gross profit margin in the lodging reporting segment decreased
in 1999 primarily as a result of a relative increase in voice reservation
services in 1999 which are more labor intensive than electronic reservations. In
addition, the overall gross profit margin declined as a result of a change in
the relative net revenues by reporting segment compared to 1998.
General and administrative expenses increased $7.2 million, or 83.9%, in 1999,
of which $2.2 million was attributable to companies acquired in 1998 and 1999
accounted for using the purchase method of accounting, $1.7 million was
attributable to increased costs at other operating companies, primarily in the
cruise reporting segment, and $3.3 million was attributable to increased costs
at corporate headquarters. The increase in costs at corporate headquarters
resulted from centralization and expansion of certain functions such as revenue
management, Internet development, marketing, finance, telecommunications and
systems support. The Company expects its expenses associated with technology
will continue to increase in 1999 as compared to 1998 as development of its
Internet website continues and once capitalized software costs begin to be
amortized as particular software releases are rolled out to users.
Goodwill amortization increased $481,000 in 1999 as a result of several
acquisitions in 1998 and 1999 accounted for under the purchase method of
accounting.
Provision for income taxes, as a percentage of income before provision for
income taxes, was 40% in 1999 and 42% in 1998. The decrease in the effective tax
rate is the result of certain corporate restructuring initiatives undertaken by
the Company which have resulted in a reduction of the Company's effective tax
rate in 1999.
13
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------
1998 1999
-------------------------- -----------------------
<S> <C> <C> <C> <C>
Net revenues $ 63,557 100.0% $ 98,145 100.0%
Operating expenses 34,088 53.6 59,604 60.7
-------- ----- -------- -----
Gross profit 29,469 46.4 38,541 39.3
General and administrative expenses 16,045 25.2 28,334 28.9
Goodwill amortization 1,021 1.6 2,098 2.1
-------- ----- -------- -----
Income from operations 12,403 19.6 8,109 8.3
Other income (expense), net (491) (.8) (108) (.1)
-------- ----- -------- -----
Income before provision for income taxes 11,912 18.8 8,001 8.2
Provision for income taxes 5,003 7.9 3,200 3.3
-------- ----- -------- -----
Net income $ 6,909 10.9% $ 4,801 4.9%
======== ===== ======== =====
Diluted earnings per share $ 0.60 $ 0.35
======== ========
</TABLE>
The Company reported net income of $4.8 million, or $0.35 diluted earnings per
share for the six months ended June 30, 1999, compared to net income of $6.9
million, or $0.60 diluted earnings per share for the comparable 1998 period. Net
revenues increased 54.4% from the prior year period as a result of acquisitions
and increases in transaction volumes and net revenue per transaction. Of this
increase in net revenues, 22.6% was from internal growth (which excludes the
impact of acquisitions made subsequent to January 1, 1998 accounted for using
the purchase method of accounting). However, profitability declined primarily as
a result of a decreased gross profit margin in the cruise reporting segment and
increased general and administrative expenses.
Gross profit margin decreased in 1999 primarily as a result of increased
marketing, compensation and other operating costs, lower effective commission
rates within the cruise reporting segment and a change in the relative revenue
mix among the four reporting segments.
General and administrative expenses increased $12.3 million, or 76.6%, in 1999,
of which $5.0 million was attributable to companies acquired in 1998 and 1999
accounted for using the purchase method of accounting, $2.5 million was
attributable to increased costs at other operating companies, primarily in the
cruise reporting segment, and $4.8 million was attributable to increased costs
at corporate headquarters, as discussed above.
Goodwill amortization increased $1.1 million in 1999 as a result of several
acquisitions in 1998 and 1999 accounted for under the purchase method of
accounting.
Provision for income taxes, as a percentage of income before provision for
income taxes, was 40% in 1999 and 42% in 1998. The decrease in the effective tax
rate is the result of certain corporate restructuring initiatives undertaken by
the Company which have resulted in a reduction of the Company's effective tax
rate in 1999.
14
<PAGE>
CRUISE REPORTING SEGMENT FINANCIAL REVIEW
The following sets forth certain historical financial data, also stated as
a percentage of net revenues, for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues $ 16,578 100.0% $18,685 100.0%
Operating expenses 6,831 41.2 12,208 65.3
-------- ----- ------- -----
Gross profit 9,747 58.8 6,477 34.7
General and administrative expenses 3,627 21.9 4,782 25.6
-------- ----- ------- -----
Income from operations 6,120 36.9 1,695 9.1
Other income (expense), net .81 .5 178 1.0
-------- ----- ------- -----
Income before provision for income taxes $ 6,201 37.4% $ 1,873 10.1%
======== ===== ======= =====
</TABLE>
The cruise reporting segment reported income before income taxes of $1.9 million
for the three months ended June 30, 1999 compared to $6.2 million for the
comparable 1998 period. The decrease in profitability was the result of a
decline in the gross profit margin and increased general and administrative
expenses. Net revenues increased 12.7% in 1999 as compared to 1998 primarily
from internal growth in transaction volume. Net revenue per transaction remained
approximately the same year over year despite higher average package prices, as
a result of a decrease in effective commission rates. Cruise line contracts for
1999, in some cases, provided a base commission one or two percentage points
less than in effect for 1998. This decrease in base commission may be offset by
incremental override commissions which, if achieved, would be primarily recorded
in the fourth quarter of 1999. However, based on current trends, the Company
anticipates volume levels required to achieve year-end override commissions will
not be achieved.
Gross profit margin decreased in 1999 as a result of lower effective commission
rates and increased marketing costs. The Company, based in part on significant
internal growth experienced in 1998, substantially increased marketing
expenditures and the number of sales personnel at its cruise call centers during
late 1998 and early 1999. Despite these initiatives, cruise transaction volumes
during the second quarter of 1999 were significantly lower than expected.
Accordingly, gross profit margins were eroded. Net revenues in the second
quarter are largely dependent on bookings made in the first quarter. The Company
believes the decreased growth rate in the cruise reporting segment resulted
primarily from lower than expected consumer acceptance of new Company marketing
programs including a new brand name introduced in the first quarter. In
response, the Company adjusted the number of sales personnel during the second
quarter and, commencing in May 1999, began making several changes to its
marketing program, including refocusing on its formerly successful cruise brand
names such as Cruises Only, Gold Coast Cruises and Cruises Inc. The Company
expects net marketing costs for the remainder of 1999 will be significantly
greater than 1998 levels in an effort to increase market share and transaction
volume at a greater pace than experienced in the first half of 1999.
General and administrative expenses increased $1.2 million, or 31.8%, in 1999.
General and administrative expenses increased as a percentage of net revenues
primarily as a result of expansion of certain cruise call centers in late 1998
and early 1999.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues $ 29,226 100.0% $34,185 100.0%
Operating expenses 12,816 43.8 22,588 66.1
-------- ----- ------- -----
Gross profit 16,410 56.2 11,597 33.9
General and administrative expenses 6,779 23.2 9,351 27.4
-------- ----- ------- -----
Income from operations 9,631 33.0 2,246 6.5
Other income (expense), net 79 .2 302 .9
-------- ----- ------- -----
Income before provision for income taxes $ 9,710 33.2% $ 2,548 7.4%
======== ===== ======= =====
</TABLE>
15
<PAGE>
The cruise reporting segment reported income before income taxes of $2.5 million
for the six months ended June 30, 1999 compared to $9.7 million for the
comparable 1998 period. The decrease in profitability was the result of a
decline in the gross profit margin and increased general and administrative
expenses. Net revenues increased 17.0% in 1999 as compared to 1998, primarily
because of acquisitions and increased sales volume, however, net revenue per
transaction remained approximately the same year over year. Of this increase in
net revenues, 14.7% was from internal growth.
Gross profit margin decreased in 1999 as a result of increased marketing,
compensation and other operating costs and a lower effective commission rate. As
discussed above, the Company substantially increased marketing expenditures and
the number of sales personnel at its cruise call centers in late 1998 and early
1999. Since these initiatives did not generate the anticipated results,
operating costs as a percentage of revenues were higher than in prior periods.
General and administrative expenses increased $2.6 million, or 37.9%, in 1999.
General and administrative expenses increased as a percentage of net revenues
primarily as a result of acquisitions and expansion of cruise call centers in
late 1998 and early 1999.
OUTBOUND REPORTING SEGMENT FINANCIAL REVIEW
The following sets forth certain historical financial data, also stated as
a percentage of net revenues, for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues $16,304 100.0% $25,135 100.0%
Operating expenses 9,503 58.3 13,378 53.2
------- ----- ------- -----
Gross profit 6,801 41.7 11,757 46.8
General and administrative expenses 1,476 9.1 2,469 9.8
------- ----- ------- -----
Income from operations 5,325 32.6 9,288 37.0
Other income (expense), net 186 1.1 460 1.8
------- ----- ------- -----
Income before provision for income taxes $ 5,511 33.7% $ 9,748 38.8%
======= ===== ======= =====
</TABLE>
Outbound reporting segment reported income before taxes of $9.7 million for the
three months ended June 30, 1999, compared to $5.5 million for the comparable
1998 period. Net revenues increased 54.2% in 1999 compared to 1998, primarily
because of the acquisition of AHI and increased transaction volume. Of this
increase in net revenues, 12.8% was from internal growth.
Gross profit margin improved in 1999 a result of lower commissions and
remuneration costs per transaction, which decreased as a result of increased
sales directly to consumers and lower remuneration costs for sales through
alumni associations.
General and administrative expenses increased $993,000, or 67.3%, in 1999
primarily as a result of the acquisition of AHI.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues $ 27,569 100.0% $40,063 100.0%
Operating expenses 16,823 61.0 22,608 56.4
-------- ----- ------- -----
Gross profit 10,746 39.0 17,455 43.6
General and administrative expenses 2,905 10.5 4,488 11.2
Goodwill amortization - - 1 -
-------- ----- ------- -----
Income from operations 7,841 28.4 12,966 32.4
Other income (expense), net 236 .9 681 1.7
-------- ----- ------- -----
Income before provision for income taxes $ 8,077 29.3% $ 13,647 34.1%
======== ===== ======== =====
</TABLE>
16
<PAGE>
Outbound reporting segment reported income before taxes of $13.6 million for the
six months ended June 30, 1999, compared to $8.1 million for the comparable 1998
period. Net revenues increased 45.3% in 1999 as compared to 1998, primarily
because of acquisitions and increased sales volume. Of this increase in net
revenues, 15.2% was from internal growth.
Gross profit margin improved in 1999 a result of the lower commissions and
remuneration per transaction. As discussed above, commission and remuneration
expense decreased as a result of increased sales directly to consumers and sales
through alumni associations.
General and administrative expenses increased $1.6 million, or 54.5%, in 1999
primarily as a result of acquisitions.
LODGING REPORTING SEGMENT FINANCIAL REVIEW
The following sets forth certain historical financial data, also stated as
a percentage of net revenues, for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues $ 1,248 100.0% $ 5,418 100.0%
Operating expenses 710 56.9 3,347 61.8
--------- ----- -------- -----
Gross profit 538 43.1 2,071 38.2
General and administrative expenses 198 15.9 1,264 23.3
--------- ----- -------- -----
Income from operations 340 27.2 807 14.9
Other income (expense), net - - 30 .6
--------- ----- -------- -----
Income before provision for income taxes $ 340 27.2% $ 837 15.5%
========= ===== ======== =====
</TABLE>
Lodging reporting segment reported income before taxes of $837,000 for the three
months ended June 30, 1999, compared to $340,000 for the comparable 1998 period.
Lexington and ABC were acquired in June and July 1998, respectively, and were
accounted for using the purchase method of accounting. Accordingly, only one
month of results is shown for Lexington in 1998.
Gross profit margin decreased in 1999 a result of a relative increase in 1999 in
voice reservation services, which are more labor intensive than electronic
reservations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues $ 1,248 100.0% $10,271 100.0%
Operating expenses 710 56.9 6,239 60.7
--------- ----- ------- -----
Gross profit 538 43.1 4,032 39.3
General and administrative expenses 198 15.9 2,477 24.1
--------- ----- ------- -----
Income from operations 340 27.2 1,555 15.2
Other income (expense), net - - 40 -
--------- ----- ------- -----
Income before provision for income taxes $ 340 27.2% $ 1,595 15.2%
========== ===== ======= =====
</TABLE>
Lodging reporting segment reported income before taxes of $1.6 million for the
six months ended June 30, 1999, compared to $340,000 for the comparable 1998
period. As discussed above, Lexington and ABC were acquired in June and July
1998, respectively, and were accounted for using the purchase method of
accounting. Accordingly, in 1998 only one month of results is shown for
Lexington.
17
<PAGE>
OTHER REPORTING SEGMENT FINANCIAL REVIEW
The following sets forth certain historical financial data, also stated as
a percentage of net revenues, for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues $ 2,903 100.0% $ 7,555 100.0%
Operating expenses 2,186 75.3 4,340 57.4
--------- ----- -------- -----
Gross profit 717 24.7 3,215 42.6
General and administrative expenses 618 21.3 1,307 17.3
--------- ----- -------- -----
Income from operations 99 3.4 1,908 25.3
Other income (expense), net 45 1.6 113 1.5
--------- ----- -------- -----
Income before provision for income taxes $ 144 5.0% $ 2,021 26.8%
========= ===== ======== =====
</TABLE>
Other reporting segment reported income before taxes of $2.0 million for the
three months ended June 30, 1999 as compared to $144,000 for the comparable 1998
period. The other reporting segment includes three operating companies
consisting of 1-800-Fly-Cheap, a specialized domestic airline ticket
distributor, an incentive cruise specialized distributor, and LVI, a travel
incentive promotions company acquired in February 1999. Net revenues increased
160.3% in 1999 as a result of the acquisition of LVI and increases in
transaction volume and net revenue per transaction. Of this increase in net
revenues, 98.7% was from internal growth, including a 97.6% increase in net
revenue at 1-800-Fly-Cheap resulting from increases in both transaction volume
and revenue per transaction. The increase in net revenue per transaction was the
results of an increase in the number of bulk fare tickets sold compared to
published fare tickets, an increase in the average ticket price and an increase
in the average yield per ticket. The average yield per ticket increased in part
during the quarter as a result of full implementation of Release 2.0 of Flight
Attendant, the Company's reservation technology for domestic airline tickets
which has an automatic fare manager system. To support expected future growth,
the Company opened a new call center in Albuquerque, New Mexico in July 1999.
Gross profit margin increased in 1999 primarily as a result of increased net
revenue per transaction as well as decreased shipping and mail operating costs
per ticket issued resulting from 1-800-Fly-Cheap issuing more e-tickets as
compared to paper tickets.
General and administrative expenses increased $689,000, or 111.5%, in 1999.
General and administrative expenses increased as a result of the acquisition of
LVI and increased costs at 1-800-Fly-Cheap. Excluding the acquisition of LVI,
general and administrative expenses increased 57.9%. Facilities and the
management infrastructure at 1-800-Fly-Cheap were expanded in late 1998 in
anticipation of significant sales growth.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues $ 5,514 100.0% $13,626 100.0%
Operating expenses 3,739 67.8 8,169 60.0
--------- ----- ------- -----
Gross profit 1,775 32.2 5,457 40.0
General and administrative expenses 1,218 22.1 2,235 16.4
--------- ----- ------- -----
Income from operations 557 10.1 3,222 23.6
Other income (expense), net 83 1.5 190 1.4
--------- ----- ------- -----
Income before provision for income taxes $ 640 11.6% $ 3,412 25.0%
========= ===== ======= =====
</TABLE>
Other reporting segment reported income before taxes of $3.4 million for the six
months ended June 30, 1999 as compared to $640,000 for the comparable 1998
period. Net revenues increased 147.1% in 1999 as a result of the acquisition of
LVI and an increase in transaction volume and net revenue per transaction. Of
this increase in net revenues, 92.3% was from internal growth, including a 91.6%
increase in net revenue at 1-800-Fly-Cheap.
18
<PAGE>
Gross profit margin increased in 1999 primarily as a result of increased net
revenue per transaction and decreased shipping and mail operating costs per
ticket issued, offset partially by increased advertising costs. The increase in
advertising costs was attributable to newspaper advertising for 1-800-Fly-Cheap
in the first quarter of 1999.
General and administrative expenses increased $1.0 million, or 83.5%, in 1999.
General and administrative expenses increased as a result of the acquisition of
LVI and increased costs at 1-800-Fly-Cheap. Excluding the acquisition of LVI,
general and administrative expenses increased 36.6%.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL TRANSACTIONS, INCLUDING ACQUISITIONS
The Company's three primary sources of liquidity and capital resources are cash
flow from operating activities, borrowings under its Credit Facility and
issuances of common stock.
For the six months ended June 30, 1998 and 1999, net cash provided by operating
activities was $30.4 million and $29.4 million, respectively, capital
expenditures were $2.2 million and $8.4 million, respectively, aggregate
borrowings under the Credit Facility, Term Loan and other loans were $30.1
million and $24.0 million, respectively, repayment of debt was $3.6 million and
$9.4 million, respectively, and cash paid for acquisitions, net of cash
acquired, was $41.0 million and $24.7 million, respectively.
The Company expects to spend an aggregate of approximately $18 million during
1999 for capital expenditures, including approximately $11 million for
development of "Universal Technology" software applications for internal use.
The remainder of the 1999 capital budget relates to purchases of computer
hardware and personal computers, telecommunications equipment, leasehold and
building improvements and furniture and fixtures. Capital expenditures in the
six months ended June 30, 1999 totaled $8.4 million, of which $4.9 million
relates to development of Universal Technology software applications. The
Company expects to spend an aggregate of approximately $22 million to $27
million for the development of these applications between 1998 and 2000. As of
June 30, 1999, capitalized internal use software totaled $11.6 million.
The Company believes that current cash balances of the Company, together with
cash flow from operating activities and borrowings under its Credit Facility,
should be adequate to meet the Company's capital requirements over the next
year. However, future acquisitions and/or other investments in connection with
the Internet or other initiatives, depending on their size and the method of
financing, may affect the Company's liquidity and capital requirements during
that time.
LONG-TERM DEBT AND CREDIT FACILITY
On July 30, 1999, the Company closed on an amended and restated credit facility
agreement effective June 30, 1999 with Bank of America, N.A. d/b/a NationsBank,
N.A. ("NationsBank") with respect to an increase in the revolving line of credit
to a maximum of $35 million (the "Credit Facility") and the continuation of a
term loan facility of $1.9 million (the "Term Loan"). Borrowings under the
Credit Facility and the Term Loan are due October 15, 2001. The Credit Facility
may be used for acquisitions, general corporate purposes and letters of credit.
Letters of credit issued under the Credit Facility may not exceed $10 million in
the aggregate. As of June 30, 1999, there were outstanding borrowings of $14.7
million and letters of credit totaling $4.3 million under the Credit Facility.
At June 30, 1999, the Company wrote-off $337,000 of deferred financing costs
related to the previous credit facility. All amounts repaid under the Credit
Facility may be reborrowed. Interest on outstanding balances of the Credit
Facility and the Term Loan are computed based on the Eurodollar Rate plus a
margin ranging from 1.25% to 2.0%, depending on certain financial ratios. During
1998 and 1999, the margin was 1.25%. As of June 30, 1999, the Company had
outstanding interest rate swap hedge agreements totaling $16.4 million that
mature in October 2000 which were entered into as a requirement of the previous
credit facility. These agreements exchange floating rate obligations for fixed
rates.
The Credit Facility is secured by substantially all the assets of the Company,
is guaranteed by all its subsidiaries, and requires the Company to comply with
various loan covenants, including maintenance of certain financial and coverage
ratios and restrictions on additional indebtedness, liens, guarantees, advances,
capital expenditures, sale of assets and dividends. At June 30, 1999, the
Company was in compliance with the loan covenants.
19
<PAGE>
YEAR 2000 PREPAREDNESS
STATE OF READINESS
The Company recognizes that computer systems and all forms of electronic
technology, information technologies ("IT") and non-information technologies
("Non- IT"), could be adversely affected by the Year 2000 date. This is because
many systems and technology components use a two-digit field to represent the
year in dates (e.g., "99" rather than "1999"). With the advent of the Year 2000,
systems and programs may fail or produce incorrect data believing it is the year
1900, causing not just IT problems but also business and operations problems.
To help ensure that the Company's systems can survive the turn of the century,
any occurrences of dates being used in technology or systems are being
identified, assessed, corrected and tested where necessary. To support this
effort, the Company has developed an overall project approach, a project
reporting and accountability structure, and process methodology. The project
approach has been developed to address the following: (1) IT systems
(applications and computing environment), (2) Non-IT systems (embedded
technology and systems), and (3) Business Partner Management (vendors,
suppliers, banks, leasing companies). Internal and external compliance factors
that may have an impact on the Company's business operations are being addressed
and monitored using this approach.
The Company's project reporting and accountability structure encompasses every
level of the organization, including: (1) an Executive Committee (senior level
management of the Company), (2) an Executive Sponsor who is responsible for
reviewing and advising on Year 2000 project progress and processes, (3) the Year
2000 Project Office which is responsible for overall coordination, maintenance,
collection and dissemination of all Year 2000 project information as well as the
centralized systems and processes, and (4) subsidiary operating company
management and assigned points of contact responsible for any systems developed,
purchased, operated and supported within an operating company.
The Year 2000 Project Office has developed a reporting schedule and requires
periodic updates from the operating companies and others such as suppliers and
business partners, throughout the life of the project. These updates provide
associated project detail on all Year 2000 activity (i.e., budget, risks,
timeline and schedule, contingency plans, testing plans and updates, issues and
concerns, and Company awareness activities). The Year 2000 Project Office is
responsible for reporting on the Company's state of compliance.
The Company employs a seven phase process methodology for the project: Phase 1 -
Project Organization, Phase 2 Assessment (i.e., conducting an inventory and
identifying areas of exposure), Phase 3 - Planning (i.e., developing project and
contingency plans, establishing priorities, and developing strategies for
correcting problems), Phase 4 - Correction, Phase 5 - Testing, Phase 6 -
Implementation, and Phase 7 - Maintaining Compliance.
The Company has completed the Organization, Assessment and Planning phases, and
has made significant progress in the remaining phases of the project. The
Company believes the inventory gathered has identified all significant systems
and processes, and the operating companies have been asked to prioritize
"business critical" and "important" systems and assign compliance status to the
systems identified. External and internal resources have been used for this
effort and will continue to be used to correct, test and implement these items
for Year 2000 readiness and compliance. A third party Year 2000 consulting firm
conducted audits of key reservation systems for four of the Company's largest
and most critical subsidiary companies. The audits conducted by the third-party
firm indicated that the critical applications are functionally compliant, but
that additional testing should be performed or documented in some cases. The
audits also indicated that plans are in place for replacing non-compliant
hardware/software elements to achieve compliance by the end of the third
quarter. Overall, the audit findings were acceptable and highlighted actions
that could be undertaken to improve the overall level of compliance. These
action items are currently being addressed at each of the operating company
locations analyzed. As of July 16, 1999, approximately 84% of the Company's
over-all systems have been remediated and are either fully tested or in the
final stages of testing. The Company believes all internal core selling systems
and other internal systems critical to the conduct of business have been
adequately remedied. The Company anticipates the Year 2000 remediation of its
internal IT and Non-IT systems to be finalized by December 31, 1999.
As part of the Company's overall technology strategy, the Company has been
developing new common applications including the Universal Technology (already
Year 2000 compliant), that are expected to be implemented in 1999 in air, auto
and cruise companies, replacing many, although not all, of the existing systems
currently in place at those companies. New hardware and software required to
support these applications are substantially in place and are Year 2000
compliant.
20
<PAGE>
The Company has developed a communication process and has designed an approach
to informing and educating the Year 2000 project team and other Company
employees. A corporate compliance statement, a "Year 2000 Readiness Disclosure
Statement" (which adheres to the requirements of the Year 2000 Readiness
Disclosure Act), and a vendor/supplier survey have been developed. The survey
has been distributed to all business partners and suppliers, with continued
follow-up for those who fail to respond. To date, most of the Company's business
partners have responded to the compliance survey. Although approximately 80% of
the Company's business partners and suppliers have responded in writing that
they are addressing their Year 2000 issues on a timely basis, the readiness of
these third parties varies widely. Responses do not necessarily warrant
compliance or guarantee uninterrupted service and are most often vague. However,
the two primary third party global distribution reservation systems utilized by
the Company have disclosed they have substantially completed their Year 2000
compliance efforts and have definitive plans to be fully compliant by late 1999.
Due to the variation in responses received from other business partners, the
Company is not depending on the responses received and is asking its operating
companies to continue follow-up efforts with key business partners and suppliers
and with those which have not responded to the survey mail-outs. Vendor systems
that will not be made compliant are generally being replaced with compliant
alternatives. Because the Company's Year 2000 compliance is dependant on key
business partners and suppliers being compliant on a timely basis, there can be
no assurance the Company's efforts alone will resolve all Year 2000 issues. A
schedule has been developed for follow-up and review of responses. An action
plan has been developed to closely work with and monitor the progress of the
Company's critical and important business partners that could impact business
operations if such partners are not compliant. Contingency plans are also
being developed.
COSTS
The Company's total cost of Year 2000 remediation activities over the course of
the project is anticipated to be approximately $2.0 million. These costs, which
include capitalizable expenses such as hardware purchases, are spread across the
operating companies and corporate headquarters and were substantially incurred
in 1998 and during the first six months of 1999. The Year 2000 project costs do
not include costs that may be incurred by the Company as a result of the failure
of any third parties, including business partners and suppliers, to become Year
2000 compliant or costs to implement any contingency plans. The Company's
spending level on Year 2000 remediation is attributed in large part to the
Company's strategy for the development and implementation of new common
Universal Technology applications that will replace a significant portion of the
Company's legacy systems as discussed herein.
RISKS
The Company utilizes IT and Non-IT systems in many aspects of its business and
is dependent on a multitude of business partners. The Year 2000 assessment is
based upon numerous assumptions as to future events. There can be no guarantee
these assumptions will prove accurate, and actual results could differ from
those estimated if these assumptions are inaccurate. Risks associated with the
Year 2000 include, but are not limited to, the following:
o Business partners that experience Year 2000 issues may be unable to
provide goods or services to the Company, including those suppliers
providing goods and services sold by the Company. Disruption of other
services, such as electrical utilities, could also negatively impact
the Company's operations.
o Packaged software vendors that provide inadequate solutions,
corrections and testing.
o Project delays for the technology applications currently under
development could impact overall Year 2000 compliance efforts and
associated costs.
o Any internal applications, non-IT systems and IT infrastructure within
the Company that have not been identified during the Inventory and
Assessment phases of the Year 2000 project have the potential to cause
a disruption in business. The Company has a high level of confidence
that the vast majority of its systems have been identified and that
risks associated with those systems have been identified.
o Although the Company is not aware of any threatened claims related to
the Year 2000, the Company may be subject to litigation arising from
such claims and, depending on the outcome, such litigation could have a
material adverse affect on the Company. There can be no assurance that
the Company's insurance coverage would be adequate to offset these and
other business risks related to the Year 2000 issue.
21
<PAGE>
CONTINGENCY PLANS
While the Company believes it is pursuing the appropriate courses of action to
ensure Year 2000 readiness, there can be no assurance that such objectives will
be fully achieved internally or with business partners. Accordingly, the Company
is preparing contingency plans to identify and determine how to handle its worst
case scenarios. Those areas will be addressed by contingency plans. These
contingency plans will include the identification, acquisition and/or
preparation of backup systems and processes in case of non-compliance.
Contingency planning is being managed under the guidance of the Executive
Committee. Contingency plans will be based in part on an assessment of the
magnitude and probability of potential risks, and will primarily focus on
proactive steps to react to any Year 2000 failures and minimize their impact.
To the extent practical, the Company is identifying the most likely Year 2000
failures in order to develop and refine plans to continue its business in the
event of system failures. These plans include performing certain processes
manually, maintaining dedicated staff to be available at crucial dates to remedy
unforeseen problems, having appropriate supplies available, developing
communication structures and repairing or obtaining replacement systems.
Completion of contingency plans for all business critical and important systems,
including worst case scenarios, is expected by the end of the third quarter of
1999. Plans will continue to be refined throughout 1999 as additional
information related to potential exposure is identified.
ONGOING PLANS AND ACTIVITIES
Based on its efforts and plans to date, the Company does not believe the Year
2000 issue will have a material adverse effect on the Company's financial
condition or results of operations. The Company is completing the correction and
testing phases and continues to monitor the likelihood of successfully
completing and addressing the full range of issues in a timely manner. Further,
contingency planning is underway for all mission critical systems and processes.
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 nature of the
travel products and services. Net revenues and operating income of the outbound
reporting segment are generally higher in the first and second quarters; net
revenues and operating income of the cruise reporting segment 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's quarterly results of operations may also be subject to
fluctuations as a result of 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 marketing programs and their
effectiveness, changes in the timing and payment of overrides by travel
providers, extreme weather conditions or other factors affecting travel or the
economy and the timing and cost of acquisitions.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes and foreign
currency fluctuations. In the normal course of business, the Company employs
established policies and procedures to manage its exposure to changes in
interest rate and fluctuations in the value of foreign currencies using a
variety of financial instruments.
The Company has utilized derivative financial instruments to reduce financial
market risks. The Company has managed its interest rate risk on its Credit
Facility through use of interest rate swaps pursuant to which the Company has
exchanged its floating rate interest obligations for fixed rates for a portion
of the outstanding borrowings. The fixing of interest rates offsets the
Company's exposure to the uncertainty of floating interest rates on a portion of
outstanding borrowings during the term of the interest rate swap agreements. The
Company was formally required by its prior credit facility to hedge 50% of
outstanding borrowings. This requirement was eliminated as of June 30, 1999. The
Company plans to leave existing interest rate swap agreements in place but does
not plan to routinely hedge the full amount of borrowings because of the
revolving nature of such borrowings.
The Company has foreign currency denominated liabilities and reservation
commitments to foreign travel providers. To mitigate potential adverse trends,
the Company's operating strategy takes into account changes in exchange rates
over time. Accordingly, for Auto Europe, an operating company that specializes
in European auto rentals and which has significant foreign currency exposure,
the Company enters into various contracts that change in value as foreign
exchange rates change to protect the value of its existing foreign currency
denominated liabilities and commitments. The principal currencies hedged are
Italian Lira, Duetsche Marks, British Pounds and French Francs. The Company
recently evaluated the degree to which it should enter into contracts for
foreign currency denominated liabilities and commitments related to AHI and
determined routine hedging would not be effective as a result of the relative
timing of product pricing, delivery, revenue recognition and payment of
liabilities of AHI's transactions denominated in foreign currencies.
It is the Company's policy to enter into foreign currency and interest rate
transactions only to the extent considered necessary to meet its objectives as
stated above. The Company does not enter into foreign currency or interest rate
transactions for speculative purposes.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. 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 the actions
currently known to the Company will have a material adverse effect on its
business, financial condition or operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company's ability to pay dividends continues to be restricted by the terms
of the Credit Facility.
ITEM 5. OTHER INFORMATION
CORPORATE RESTRUCTURING
During the second quarter of 1999, the Company substantially completed certain
planned corporate restructuring initiatives. These initiatives were undertaken
to align the operating companies according to industry segments and to maximize
the efficiency and effectiveness of the utilization of various Company assets,
such as technology, contracts and intangibles. In connection with the corporate
restructuring, various holding companies were established to own the operating
companies. In addition, certain partnerships were formed by subsidiaries of the
Company.
AMENDMENT TO LVI MERGER AGREEMENT
Effective July 29, 1999, the Company entered into an amendment to the Merger
Agreement dated as of January 30, 1999 by and between the Company and the former
owners of Lifestyle Vacation Incentives, Inc. and All Seasons Smart Traveler,
Inc. (collectively, "LVI"), providing for a modification of the consideration
and contingent earn-out provisions of the agreement. Accordingly, additional
purchase consideration of 144,928 shares of common stock of the Company and
$750,000 was paid, the earnings threshold for contingent consideration was
increased and the maximum amount of such consideration was decreased. The
agreement continues to have an earn-out provision whereby potential contingent
consideration not to exceed $1 million may be earned based on future results of
LVI. The cash payment was funded with the Company's operating capital.
AMENDED AND RESTATED CREDIT AGREEMENT
On July 30, 1999, the Company closed on an amended and restated credit facility
agreement effective June 30, 1999 with Bank of America N.A. d/b/a NationsBank,
N.A. with respect to an increase in a revolving line of credit to a maximum of
$35 million (the "Credit Facility") and a term loan facility of $1.9 million
(the "Term Loan"). Borrowings under the Credit Facility and Term Loan are due
October 15, 2001. The Credit Facility may be used for acquisitions, general
corporate purposes and letters of credit. Letters of credit issued under the
Credit Facility may not exceed $10 million in the aggregate. Interest on
outstanding borrowings of the Credit Facility and the Term Loan are computed
based on the Eurodollar Rate plus a margin ranging from 1.25% to 2.0%, depending
on certain financial ratios. The Credit Facility is secured by substantially all
assets of the Company, is guaranteed by all its subsidiaries and requires the
Company to comply with various loan covenants including maintenance of certain
financial and coverage ratios and various restrictions.
The foregoing description is qualified in all respects by reference to the full
text of the Amended and Restated Credit Facility Agreement, which is included as
an exhibit to this Report.
RISK FACTORS AND QUALIFICATION OF FORWARD LOOKING STATEMENTS
The Company is subject to various risks associated with its operations,
strategies, management and industry, including the risk factors discussed in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. In
addition, the statements contained in this Report that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
24
<PAGE>
including without limitation statements regarding the Company's expectations,
beliefs, intentions or strategies regarding future financial and operating
performance and results, sales, revenue, expenses, individual reporting
segments, marketing plans and initiatives, the Internet, acquisitions,
operational initiatives, technology, the economy and other statements. 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. Past performance is not necessarily
indicative of future results, and actual results could differ significantly from
any results anticipated in any forward-looking statement. In evaluating the
Company's business, the following factors, in addition to the Risk Factors set
forth in the Company's Annual Report on Form 10-K referred to above, should be
carefully considered: successful deployment and integration of systems; factors
affecting internal growth and management of growth; dependence on travel
providers; availability of adequate financing on acceptable terms; success in
entering new segments of the travel market and new geographic areas; the
Company's ability to implement its strategic technology, marketing, acquisition
Internet and operational initiatives; dependence on personnel, technology and
travel providers; the ability to recruit and retain appropriate personnel; labor
and technology costs; cost, availability and effectiveness of advertising and
promotional efforts; risks associated with the travel industry generally;
seasonality and quarterly fluctuations; competition; general economic
conditions, and other factors. 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.
25
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
10.20 Amended and Restated Credit Agreement dated as of June 30, 1999
11 Schedule of Computations of Earnings Per Share
21 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
The Company filed the following reports on Form 8-K during
the fiscal quarter ended June 30, 1999:
Current Report on Form 8-K dated April 15, 1999. Current
Report on Form 8-K dated May 3, 1999.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRAVEL SERVICES INTERNATIONAL, INC.
Date: August 13, 1999 By: /S/ JILL M. VALES
-----------------------------
Jill M. Vales Senior Vice President
and Chief Financial Officer (as
both a duly authorized officer of
the registrant and the principal
financial officer or chief
accounting officer of the
registrant)
27
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.20 Amended and Restated Credit Agreement dated as of June 30, 1999
11 Schedule of Computations of Earnings Per Share
21 Subsidiaries of the Registrant
27 Financial Data Schedule
EXHIBIT 10.20
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of June 30, 1999
by and between
TRAVEL SERVICES INTERNATIONAL, INC.,
as Borrower
and
BANK OF AMERICA, N.A. d/b/a
NATIONSBANK, N.A.,
as Lender
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE IDEFINITIONS AND TERMS
SECTION 1.01 Amendment and Restatement . . . . . . . . . . . .2
SECTION 1.02 Definitions. . . . . . . . . . . . . . . . . . .2
ARTICLE II LOANS
SECTION 2.01 Revolving Credit Facility.. . . . . . . . . . . 23
SECTION 2.02 Term Loan. . . . . . . . . . . . . . . . . . . 23
SECTION 2.03 Interest on Loans. . . . . . . . . . . . . . . 24
SECTION 2.04 Unavailability of Certain Loans/Funding Losses. 24
SECTION 2.05 Voluntary Reduction of Revolving Commitment or
the L/C Commitment Amount; Funding Losses.. . . 25
SECTION 2.06 Repayment of Loans. . . . . . . . . . . . . . . 25
SECTION 2.07 Notes. . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IIA LETTER OF CREDIT FACILITY
SECTION 2A.01. Letters of Credit. . . . . . . . . . . . . 27
SECTION 2A.02. Method of Issuance of Letters of Credit. . 27
SECTION 2A.03. Letter of Credit Fees. . . . . . . . . . . 28
SECTION 2A.04. Letter of Credit Reimbursement . . . . . . 28
SECTION 2A.05. Nature of Lender's Duties. . . . . . . . . 29
SECTION 2A.06. Obligations Absolute . . . . . . . . . . . 29
SECTION 2A.07. Expiration or Maturity Date of Letters of
Credit. . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE III OTHER LOAN AND PAYMENT PROVISIONS
SECTION 3.01 Interest on Overdue Payments. . . . . . . . . . 31
SECTION 3.02 Computations. . . . . . . . . . . . . . . . . . 31
SECTION 3.03 Usury . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.04 Payments. . . . . . . . . . . . . . . . . . . . 31
SECTION 3.05 Insufficient Funds. . . . . . . . . . . . . . . 32
SECTION 3.06 Fees. . . . . . . . . . . . . . . . . . . . . . 32
SECTION 3.07 Increased Costs . . . . . . . . . . . . . . . . 32
SECTION 3.08 Statements of Account . . . . . . . . . . . . . 33
ARTICLE IVCONDITIONS PRECEDENT
SECTION 4.01 Conditions Precedent to Closing . . . . . . . . 34
SECTION 4.02 Conditions Precedent to All Credit Events . . . 36
SECTION 4.03 Conditions as Covenants . . . . . . . . . . . . 36
ARTICLE VREPRESENTATIONS AND WARRANTIES
SECTION 5.01 Representations and Warranties. . . . . . . . . 37
SECTION 5.02 Survival of Representations and Warranties, Etc 42
ARTICLE VIAFFIRMATIVE COVENANTS
SECTION 6.01 Preservation of Existence and Similar Matters . 43
SECTION 6.02 Compliance with Applicable Law. . . . . . . . . 43
SECTION 6.03 Maintenance of Property . . . . . . . . . . . . 43
SECTION 6.04 Conduct of Business . . . . . . . . . . . . . . 43
SECTION 6.05 Insurance . . . . . . . . . . . . . . . . . . . 43
SECTION 6.06 Payment of Taxes and Claims . . . . . . . . . . 44
SECTION 6.07 Visits and Inspections. . . . . . . . . . . . . 44
SECTION 6.08 Use of Proceeds . . . . . . . . . . . . . . . . 44
SECTION 6.09 Additional Guarantor/Collateral . . . . . . . . 45
SECTION 6.10 Year 2000 Compliance. . . . . . . . . . . . . . 45
ARTICLE VII INFORMATION
SECTION 7.01 Quarterly Financial Statements. . . . . . . . . 46
SECTION 7.02 Year-End Statements . . . . . . . . . . . . . . 46
SECTION 7.03 Projections . . . . . . . . . . . . . . . . . . 46
SECTION 7.04 Accounts/Inventory Certificate. . . . . . . . . 46
SECTION 7.05 Collateral Value Report . . . . . . . . . . . . 47
SECTION 7.06 Appraisals. . . . . . . . . . . . . . . . . . . 47
SECTION 7.07 Copies of Certificates and Other Reports. . . . 47
SECTION 7.08 Notice of Litigation and Other Matters. . . . . 48
SECTION 7.09 ERISA . . . . . . . . . . . . . . . . . . . . . 48
<PAGE>
ARTICLE VIII NEGATIVE COVENANTS
SECTION 8.01 Financial Covenants . . . . . . . . . . . . . . 50
SECTION 8.02 Indebtedness for Money Borrowed . . . . . . . . 50
SECTION 8.03 Guaranties. . . . . . . . . . . . . . . . . . . 50
SECTION 8.04 Investments . . . . . . . . . . . . . . . . . . 50
SECTION 8.05 Liens . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.06 Plans . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.07 Loans . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.08 Certain Agreements. . . . . . . . . . . . . . . 51
SECTION 8.09 Transactions with Affiliates. . . . . . . . . . 51
SECTION 8.10 Merger, Consolidation and Other Arrangements. . 51
SECTION 8.11 No Sale of Assets . . . . . . . . . . . . . . . 51
SECTION 8.12 Sale or Discount of Receivables . . . . . . . . 52
SECTION 8.13 Dividend Limitation . . . . . . . . . . . . . . 52
ARTICLE IX DEFAULT
SECTION 9.01 Events of Default . . . . . . . . . . . . . . . 53
SECTION 9.02 Remedies. . . . . . . . . . . . . . . . . . . . 55
SECTION 9.03 Rights Cumulative . . . . . . . . . . . . . . . 56
ARTICLE X MISCELLANEOUS
SECTION 10.01 Notices. . . . . . . . . . . . . . . . . . 57
SECTION 10.02 Expenses . . . . . . . . . . . . . . . . . 58
SECTION 10.03 Stamp, Intangible and Recording Taxes. . . 58
SECTION 10.04 Set-off. . . . . . . . . . . . . . . . . . 59
SECTION 10.05 GOVERNING LAW; ARBITRATION/JURISDICTION. . 59
SECTION 10.06 Assignability. . . . . . . . . . . . . . . 60
SECTION 10.07 Amendments . . . . . . . . . . . . . . . . 61
SECTION 10.08 Nonliability of the Lender . . . . . . . . 62
SECTION 10.09 Confidential Information . . . . . . . . . 62
SECTION 10.10 Indemnification. . . . . . . . . . . . . . 62
SECTION 10.11 Survival . . . . . . . . . . . . . . . . . 63
SECTION 10.12 Titles and Captions. . . . . . . . . . . . 63
SECTION 10.13 Severability of Provisions . . . . . . . . 63
SECTION 10.14 Counterparts . . . . . . . . . . . . . . . 63
<PAGE>
ANNEX I TO CREDIT AGREEMENT. . . . . . . . . . . . . . . . . A-1
SCHEDULE 1.01(a) CURRENT BOARD OF DIRECTORS . . . . . . . S-1
SCHEDULE 1.01(b) EXISTING HEDGE AGREEMENTS. . . . . . . . S-1
SCHEDULE 4.01(e) REAL PROPERTY. . . . . . . . . . . . . . S-2
SCHEDULE 5.01(b) CORPORATE STRUCTURE. . . . . . . . . . . S-3
SCHEDULE 5.01(g) EXISTING INDEBTEDNESS FOR MONEY BORROWED,
GUARANTIES ANDEXISTING LETTERS OF CREDIT AND
ACCEPTANCES. . . . . . . . . . . . . . . S-4
SCHEDULE 5.01(h) LITIGATION . . . . . . . . . . . . . . . S-8
SCHEDULE 5.01(n) ENVIRONMENTAL. . . . . . . . . . . . . . S-9
SCHEDULE 5.01(o) INTELLECTUAL PROPERTY. . . . . . . . . .S-10
SCHEDULE 6.08 USE OF PROCEEDS TO RETIRE OBLIGATIONS . . . .S-11
SCHEDULE 8.09 EXCLUDED TRANSACTIONS . . . . . . . . . . . .S-12
EXHIBIT A FORM OF NOTICE OF BORROWING . . . . . . . . . A-1
EXHIBIT B-1 FORM OF REVOLVING NOTE. . . . . . . . . . . B-1-1
EXHIBIT B-2 FORM OF TERM NOTE . . . . . . . . . . . . . B-2-1
EXHIBIT C FORM OF SECURITY AGREEMENT. . . . . . . . . . C-1
EXHIBIT D FORM OF COLLATERAL ASSIGNMENT AND
TRADEMARK SECURITY AGREEMENT................. D-1
EXHIBIT E FORM OF PLEDGE AGREEMENT. . . . . . . . . . . E-1
EXHIBIT F FORM OF AMENDED AND RESTATED SECURITY
AGREEMENT AND PLEDGE OF MEMBERSHIP INTEREST . F-1
EXHIBIT G FORM OF SUBSIDIARY GUARANTY . . . . . . . . . G-1
EXHIBIT H FORM OF LETTER OF CREDIT REQUEST . . . . H-1
EXHIBIT I FORM OF COMPLIANCE CERTIFICATE. . . . . . . . I-1
EXHIBIT J FORM OF PARTNERSHIP PLEDGE AGREEMENT. . . . . J-1
<PAGE>
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June 30, 1999, by
and between TRAVEL SERVICES INTERNATIONAL, INC., a Florida corporation (the
"Borrower") and BANK OF AMERICA, N.A.
d/b/a NATIONSBANK, N.A. (the "Lender").
WHEREAS, the Lender and the Borrower have heretofore entered into that
certain Credit Agreement dated as of October 15, 1997, as amended by Amendment
No. 1 and Waiver dated as of October 15, 1997, Amendment No. 2 dated as of
January 15, 1998, and Amendment No. 3 dated as of March 31, 1998 (as so amended,
the "Existing Credit Agreement") pursuant to which the Lender has made available
certain credit facilities to the Borrower and the Borrower issued promissory
notes payable to the order of the Lender (the "Existing Notes"); and
WHEREAS, the Existing Credit Agreement was guaranteed by all of the
Material Subsidiaries (as defined in the Existing Credit Agreement) of the
Borrower pursuant to the Subsidiary Guaranty (as defined in the Existing Credit
Agreement) and the Borrower and the Material Subsidiaries have secured their
obligations pursuant to the Security Agreement (as defined in the Existing
Credit Agreement); and
WHEREAS, the Borrower has requested that the Existing Credit Agreement be
amended and restated in its entirety in order to, among other things, increase
the amount of the credit facilities; and
WHEREAS, the Lender is willing to make available to the Borrower the
respective credit facilities provided for herein on the terms and conditions
contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS AND TERMS
SECTION 1.01 Amendment and Restatement. The Borrower and the Lender hereby
agree that upon the effectiveness of this Agreement, the terms and provisions of
the Existing Credit Agreement shall be and hereby are amended and restated in
their entirety by the terms and conditions of this Agreement and the terms and
provisions of the Existing Credit Agreement, except as otherwise provided
herein, shall be superseded by this Agreement.
This Agreement is given as a substitution of, and not as a payment of, the
obligations of the Borrower under the Existing Credit Agreement and is not
intended to constitute a novation of the Existing Credit Agreement. Except as
otherwise selected by the Borrower by delivery of a Notice of Borrowing prior to
the Closing Date in accordance with the terms hereof, upon the effectiveness of
this Agreement all Secured Obligations outstanding and owing by the Borrower
under the Existing Credit Agreement as of the Closing Date, shall constitute
Secured Obligations hereunder. Prime Rate Loans under the Existing Credit
Agreement shall accrue interest at the Prime Rate hereunder. All of the
indebtedness, liabilities and obligations owing by the Borrower under the
Existing Credit Agreement (i) evidenced by the Existing Notes shall continue to
be evidenced by the Notes issued by the Borrower hereunder in substitution for,
and not payment or novation of, the Existing Notes and (ii) shall continue to be
secured by the Collateral (as defined in the Existing Credit Agreement) and the
Borrower acknowledges and agrees that the Collateral (as defined in the Existing
Credit Agreement) shall continue to constitute Collateral hereunder and remains
subject to a security interest in favor of the Lender and to secure the
liabilities of the Borrower re-evidenced by this Agreement and the other Loan
Documents.
SECTION 1.02 Definitions. In addition to terms defined elsewhere herein,
the following terms shall have the following meanings for the purposes of this
Agreement:
"Account" shall have the meaning set forth in the
Security Agreement.
"Account Party" has the meaning set forth in Section
2A.01(a).
"Acquisition" means any transaction, or any series of related
transactions, by which the Borrower and/or any of its Subsidiaries directly
or indirectly (a) acquires any ongoing business or all or substantially all
of the assets of any Person or division thereof, whether through purchase
of assets, merger or otherwise or (b) acquires (in one transaction or as
the most recent transaction in a series of transactions) control of at
least a majority in ordinary voting power of the securities of a Person
which have ordinary voting power for the election of directors.
"Additional Debtor" shall have the meaning set forth in
the Security Agreement.
"Additional Guarantor" shall have the meaning set forth
in the Subsidiary Guaranty.
"Additional Loan Documents" means any Loan Document entered into after
the Closing Date in accordance with Section 6.09 or otherwise.
"Additional Loan Party" means each Subsidiary as shall from time to
time become party to any of the Loan Documents in accordance with Section
6.09 or otherwise.
"Adjusted Consolidated Net Income" means Consolidated Net Income
before making provisions for federal or state income taxes.
"Adjusted Eurodollar Rate" means, with respect to each Interest Period
for any Eurodollar Rate Loan, the rate obtained by dividing (a) the
Eurodollar Rate for such Interest Period by (b) a percentage equal to 1
minus the maximum rate, at any time, at which reserves (including, without
limitation, any marginal, special, supplemental or emergency reserves) are
required to be maintained under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) by
member banks of the Federal Reserve System against (i) "Eurocurrency
liabilities" (as such term is used in Regulation D), (ii) any category of
liabilities which includes deposits by reference to which the Eurodollar
Rate is to be determined, or (iii) any category of extensions of credit or
other assets which include Eurodollar Rate Loans. The "Adjusted Eurodollar
Rate" shall be adjusted automatically on and as of the effective date of
any change in any of the foregoing reserve requirements.
"Affiliate" means, with respect to any Person, any entity which
directly or indirectly controls, is controlled by, or is under common
control with, such Person or any subsidiary of such Person or any Person
who is a director, officer or partner of such Person or any subsidiary of
such Person and, with respect to each Loan Party, shall include all other
Loan Parties. For purposes of this definition, "control" shall mean the
possession, directly or indirectly, of the power to (a) vote fifteen
percent (15%) or more of the securities having ordinary voting power for
the election of directors of such Person or (b) direct or cause the
direction of management and policies of a business, whether through the
ownership of voting securities, by contract or otherwise and either alone
or in conjunction with others or any group.
"Agreement" means this Amended and Restated Credit Agreement as it may
be amended, restated, modified or supplemented from time to time in
accordance with its terms.
"Agreement Date" means the date as of which this
Agreement is dated.
"Applicable Law" means all applicable provisions of constitutions,
statutes, rules, regulations and orders of all governmental bodies and all
applicable orders and decrees of all courts, tribunals and arbitrators.
"Available Revolving Commitment" means, on any date of determination,
the Revolving Commitment in effect on such date minus the aggregate
outstanding principal amount of Revolving Loans on such date minus the
Stated Amount of Letters of Credit minus any Reimbursement Obligations.
"Beneficiary" means any Person designated by an Account Party to whom
the Lender is to make payment, or on whose order payment is to be made,
under a Letter of Credit.
"Borrower" has the meaning set forth in the introductory paragraph
hereof and shall include the Borrower's successors and permitted assigns.
"Borrowing" means a borrowing by the Borrower of Revolving Loans
pursuant to Section 2.01 hereof or the Term Loan made pursuant to Section
2.02 hereof.
"Business Day" means any day other than a Saturday, Sunday or other
day on which banks in Charlotte, North Carolina or New York, New York are
authorized or required to close.
"Capital Expenditures" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets
which are not, in accordance with GAAP, treated as expense items for such
Person in the year made or incurred or as a prepaid expense applicable to a
future year or years, and shall include all Capitalized Lease Obligations.
"Capitalized Lease Obligation" of any Person means Indebtedness
represented by obligations under a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP, and the amount of
such Indebtedness shall be the amount accounted for with respect to such
obligations determined in accordance with such principles.
"Cash Collateral Account" means a special non-interest bearing deposit
account maintained at the Principal Office of the Lender for the purpose,
and subject to the terms and conditions, set forth in Section 2A.07.
"Change of Control" means any of the following events
or circumstances:
(i) if (A) any person (as such term is used in section
13(d) and section 14(d)(2) of the Exchange Act as in effect on the
date hereof) or related persons constituting a group (as such term is
used in Rule 13d-5 under the Exchange Act), other than members of the
Current Board of Directors, become the "beneficial owners" (as such
term is used in Rule 13d-3 under the Exchange Act as in effect on the
date hereof), directly or indirectly, of more than 15% of the total
voting power of all classes then outstanding of the Borrower's voting
stock and (B) individuals who, at the beginning of any period of 13
consecutive months, constitute the Borrower's board of directors
(together with any new director whose election by the Borrower's board
of directors or whose nomination for election by the Borrower's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason (other than death or
disability) to constitute a majority of the Borrower's board of
directors then in office as a result of the actions of such beneficial
owners; or
(ii) individuals who, at the beginning of any period of
13 consecutive months, constitute the Borrower's board of directors
(together with any new director whose election by the Borrower's board
of directors or whose nomination for election by the Borrower's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason (other than death or
disability) to constitute a majority of the Borrower's board of
directors then in office.
All calculations contemplated in this definition involving the capital
stock of any Person, shall be made with the assumption that all convertible
securities of such Person then outstanding and all securities issuable upon
the exercise of any warrants, options and other rights outstanding at such
time were converted at such time and that all options, warrants and similar
rights to acquire shares of capital stock of such Person were exercised at
such time.
"Closing Date" means July 30, 1999.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Collateral" means any collateral security pledged by any Loan Party
to secure the obligations of the Borrower hereunder or under any other Loan
Document or the obligations of such Loan Party under the Loan Documents to
which it is a party and includes, without limitation, all "Collateral", as
defined in the Security Agreement.
"Commitment" means the Lender's obligation to make the Revolving Loans
and the Term Loan and to issue and amend Letters of Credit.
"Compliance Certificate" has the meaning set forth in
Section 7.07 hereof.
"Consolidated" means the consolidated financial information of the
Borrower and its Subsidiaries under GAAP consistently applied.
"Consolidated Assets" means the assets of the Borrower and its
Subsidiaries, as determined in accordance with GAAP.
"Consolidated Capitalization" shall mean, at any time, the sum of (i)
Indebtedness for Money Borrowed on a Consolidated basis at such time plus
(ii) Consolidated Net Worth at such time.
"Consolidated Fixed Charge Coverage Ratio"means, at any time, the
ratio of (a) EBITDA for the Preceding Period less Capital Expenditures for the
Preceding Period less cash expended by the Borrower in the Preceding Period for
taxes imposed on, or measured by, income or excess profits, net of any cash
refunds or credit received during any quarterly period as a result of an
overpayment made in a prior period, provided, however, in calculating taxes on
income for the Preceding Period ending June 30, 1999 the amount of cash spent to
pay such taxes shall be reduced by $2,600,000 to (b) Consolidated Fixed Charges
for the Preceding Period.
"Consolidated Fixed Charges" means, with reference to any period, the
sum of (a) Interest Charges plus (b) the current portion of Indebtedness
for Money Borrowed.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Borrower and its Subsidiaries for such period
(taken as a cumulative whole), as determined in accordance with GAAP, after
eliminating all offsetting debits and credits between the Borrower and its
Subsidiaries and all other items required to be eliminated in the course of
the preparation of consolidated financial statements of the Borrower and
its Subsidiaries in accordance with GAAP.
"Consolidated Net Worth" shall mean, at any time for the Borrower and
its Subsidiaries on a Consolidated basis shareholders' equity at such time
determined in accordance with GAAP.
"Control Event" means:
(i) the execution by the Borrower or any of its Subsidiaries
or Affiliates of any agreement or letter of intent with respect
to any proposed transaction or event or series of transactions or
events which, individually or in the aggregate, may reasonably be
expected to result in a Change in Control;
(ii) the execution of any written agreement which, when
fully performed by the parties thereto, would result in a Change
in Control; or
(iii) the acceptance by a sufficient number of the holders
of the common stock of the Borrower of any written offer by any
person (as such term is used in section 13(d) and section
14(d)(23) of the Exchange Act as in effect on the Closing Date),
or related persons constituting a group (as such term is used in
Rule 13d-5 under the Exchange Act as in effect on the Closing
Date) resulting in any such person or related persons
constituting a group to become the "beneficial owners" (as such
term is used in Rule 13d-3 under the Exchange Act as in effect on
the date hereof), directly or indirectly, of more than 15% of the
total voting power of all classes then outstanding of the
Borrower's voting stock.
"Credit Event" means the making of any Loan or the issuance or
amendment (including, without limitation, an extension or renewal) of a
Letter of Credit.
"Current Assets" means, as at any date of determination, the
Consolidated current assets of the Borrower and its Subsidiaries as
determined in accordance with GAAP consistently applied.
"Current Board of Directors" means those Persons listed on Schedule
1.01(a) hereto.
"Current Liabilities" means, as at any date of determination, the
Consolidated current liabilities of the Borrower and its Subsidiaries as
determined in accordance with GAAP consistently applied.
"Current Ratio" means, as at any date of determination, the ratio of
(a) Current Assets to (b) Current Liabilities.
"Date of Issuance" means the date of issuance by the Lender of a
Letter of Credit under this Agreement.
"Default" means any of the events specified in Section 9.01, whether
or not there has been satisfied any requirement for giving of notice, lapse
of time or the happening of any other condition.
"Dollars or "$" means the lawful currency of the United
States.
"Drawing" means a drawing by a Beneficiary under any
Letter of credit.
"EBITDA" means, with reference to any period, Consolidated Net Income
for such period plus all amounts deducted in arriving at such Consolidated
Net Income in respect of interest charges (including amortization of debt
discount and expense and imputed interest on Capitalized Lease Obligations)
on Indebtedness other than any capitalized interest plus all amounts
deducted in arriving at such Consolidated Net Income for taxes imposed on,
or measured by, income or excess profits plus all amounts of cash expended
by Borrower pursuant to Section 8.13 (c) or (d) plus all amounts deducted
in arriving at such Consolidated Net Income for depreciation and
amortization expense of assets in accordance with GAAP.
"Effective Date" means the later of:
(a) the Agreement Date; and
(b) the date on which all of the conditions precedent set forth
in Section 4.01 hereof shall have been fulfilled or waived in writing
by the Lender.
"Environmental Laws" means any Applicable Law relating to
environmental protection including, without limitation, the following:
Clean Air Act, 42 U.S.C. /section/ 7401 et seq.; Federal Water Pollution
Control Act, 33 U.S.C. /section/ 1251 et seq.; Solid Waste Disposal Act,
42 U.S.C. /section/ 6901 et seq.; Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. /section/ 9601 et seq.;
National Environmental Policy Act, 42 U.S.C. /section/ 4321 et seq.;
regulations of the Environmental Protection Agency and any applicable
rule of common law and any judicial interpretation thereof relating
primarily to the environment or Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
in effect from time to time.
"ERISA Affiliate" means any corporation which is a member of the same
controlled group of corporations as the Borrower within the meaning of
section 414(b) of the Code, or any trade or business which is under common
control with the Borrower within the meaning of section 414(c) of the Code.
"Eurodollar Business Day" means any day on which banks are scheduled
to be open for business and quoting interest rates for Dollar deposits on
the London interbank market and which is also a Business Day.
"Eurodollar Rate" means, with respect to any Loan bearing interest at
a rate determined by reference to the Eurodollar Rate, for the Interest
Period applicable thereto, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Dow Jones Telerate Page
3750 (or any successor page) as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two
Eurodollar Business Days prior to the first day of such Interest Period for
a term comparable to such Interest Period. If for any reason such rate is
not available, the term "Eurodollar Rate" shall mean, for any such Loan for
any such Interest Period therefor, the rate per annum (rounded upwards, if
necessary, the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page
as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Eurodollar Business Days prior
to the first day of such Interest Period for a term comparable to such
Interest Period; provided, however, if more than one rate is specified on
Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean
of all such rates.
"Eurodollar Rate Loan" means the Term Loan or a Revolving Loan that
bears interest based upon the Adjusted Eurodollar Rate.
"Eurodollar Rate Margin" means, on the date of
determination:
(a) 2.00 percent, if for the Preceding Period, the ratio of
Indebtedness for Money Borrowed to EBITDA is equal to or less than
3.00 to 1.00 and greater than 2.5 to 1.0;
(b) 1.75 percent, if for the Preceding Period, the ratio of
Indebtedness for Money Borrowed to EBITDA is equal to or less than
2.50 to 1.0 and greater than 2.0 to 1.0;
(c) 1.50 percent, if for the Preceding Period, the ratio of
Indebtedness for Money Borrowed to EBITDA is equal to or less than 2.0
to 1.0 and greater than 1.5 to 1.0; and
(d) 1.25 percent, if for the Preceding Period, the ratio of
Indebtedness for Money Borrowed to EBITDA is equal to or less than 1.5
to 1.0.
Each change in the applicable Eurodollar Rate Margin will be effective
from the date of delivery of the financial statements and the certificate
described in Sections 7.01 and 7.07(a), respectively. Notwithstanding the
foregoing, at any time during which the Borrower has failed to deliver the
financial statements or the certificate described in Sections 7.01 and
7.07(a), respectively, with respect to a fiscal quarter in accordance with
the provisions thereof, or at any time that an Event of Default shall have
occurred and shall be continuing, the Eurodollar Rate Margin shall be
reset, if necessary, to be 2.00 percent until such time as the Borrower
shall deliver such financial statements and certificate or such Event of
Default shall be cured or waived.
"Event of Default" means any of the events specified in Section 9.01,
provided that any requirement for notice or lapse of time or any other
condition has been satisfied.
"Expiration Date" means, with respect to a Letter of Credit, its
stated expiration date.
"Facility Termination Date" means the date this Agreement, the Term
Loan, the Revolving Credit Facility and the Letter of Credit Facility are
terminated.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day; provided that (a) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on the
next succeeding Business Day, and (b) if not such rate is so published on
such next succeeding Business Day, the Federal Funds Rate for such day
shall be the average rate charged to the Lender on such day on such
transactions as determined by the Lender.
"Fees" means the fees and commissions provided for or referred to in
Sections 2A.03 and 3.06 and any other fees payable by the Borrower
hereunder or under any other Loan Document.
"Financing Statements" means any and all financing statements executed
and delivered by or on behalf of any Loan Party in connection with the
perfection of the Security Interest, together with any amendments thereto
and any continuations thereof.
"Florida Mortgage" means that certain Mortgage and Security Agreement,
dated as of April 29, 1998 and recorded in the Official Records of Orange
County, Florida at Book 5470, Page 1099, as amended by that certain
Modification to Mortgage and Security Agreement, dated as of June 30, 1999,
covering the property of Cruises Only, LLC located in Orlando, Florida and
executed by Cruises Only, LLC and delivered to the Lender as a condition to
Lender's obligation to make the Term Loan.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"Governmental Approvals" means all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all governmental bodies.
"Governmental Authority" means any national, state or local government
(whether domestic or foreign), any political subdivision thereof or any
other governmental, quasi-governmental, judicial, public or statutory
instrumentality, authority, body, agency, bureau or entity (including,
without limitation, the FDIC, the Comptroller of the Currency or the
Federal Reserve Board, any central bank or any comparable authority or the
Securities and Exchange Commission) or any arbitrator with authority to
bind a party at law.
"Guarantor" means each Subsidiary of Borrower which is
a party to a Subsidiary Guaranty.
"Guaranty", "Guaranteed" or to "Guarantee" as applied
to any obligation means and includes
(a) a guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business),
directly or indirectly, in any manner, of any part or all of such
obligation, or
(b) an agreement, direct or indirect, contingent or otherwise,
and whether or not constituting a guaranty, the practical effect of
which is to assure the payment or performance (or payment of damages
in the event of nonperformance) of any part or all of such obligation
whether by
(i) the purchase of securities or
obligations,
(ii) the purchase, sale or lease of property or the purchase
or sale of services primarily for the purpose of enabling the
obligor with respect to such obligation to make any payment or
performance (or payment of damages in the event of
nonperformance) of or on account of any part or all of such
obligation, or to assure the owner of such obligation against
loss,
(iii) repayment of amounts drawn down by
beneficiaries of letters of credit, or
(iv) the supplying of funds to or investing in a Person on
account of all or any part of such Person's obligation under a
Guaranty of any obligation or indemnifying or holding harmless,
in any way, such Person against any part or all of such
obligation.
"Guaranty Supplement" shall have the meaning set forth
in the Subsidiary Guaranty.
"Hazardous Materials" means and includes, without limitation, (a)
hazardous waste as defined in the Resource Conservation and Recovery Act of
1976, or in any other Applicable Environmental Laws, (b) hazardous
substances, as defined in the Comprehensive Environmental Response,
Compensation and Liability Act, or in any other applicable Environmental
Laws, (c) gasoline, or any other petroleum product or by-product, (d) toxic
substances, as defined in the Toxic Substances Control Act of 1976, or in
any other applicable Environmental Laws, (e) insecticides, fungicides, or
rodenticides, as defined in the Federal Insecticide, Fungicide, and
Rodenticide Act of 1975, or in any other applicable Environmental Laws, or
(f) any hazardous waste, hazardous substances, hazardous materials, toxic
substances or toxic pollutants, as those terms are used or defined in the
Hazardous Materials Transportation Act, the Clean Air Act or the Clean
Water Act, as each such Act, statute or regulation may be amended from time
to time.
"Hedge Agreement" means any agreement or transaction set forth on
Schedule 1.01(b) hereto or any agreement or transaction between the
Borrower or any Subsidiary and the Lender or any Affiliate of the Lender
now existing or hereafter entered into, which provides for an interest rate
or commodity swap, cap, floor, collar, forward, foreign exchange
transaction, currency swap, cross-currency rate swap, currency option, or
any combination of or option with respect to, these or similar
transactions, for the purpose of hedging the Borrower's or such
Subsidiary's, as the case may be, exposure to fluctuations in interest
rates, currency valuations or commodity prices.
"Hostile Acquisition" means any Acquisition involving a tender offer
or proxy contest that has not been recommended or approved by the board of
directors (or similar governing body) of the Person that is the subject of
such Acquisition prior to the first public announcement or disclosure
relating to such Acquisition.
"Indebtedness" as applied to a Person means, without duplication, (a)
all indebtedness of such Person which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of
a balance sheet of such Person as at the date as of which Indebtedness is
to be determined (other than trade payables and accrued expenses, customer
deposits, deferred revenues and deferred taxes arising in the ordinary
course of business) including, without limitation, all Capitalized Lease
Obligations of such Person and all reimbursement obligations due or that
may become due of such Person under letters of credit and acceptances
issued for its account, and (b) all obligations of other Persons which such
Person has Guaranteed.
"Intellectual Property" means all patents, trademarks, trade names and
copyrights used in or necessary for the conduct of the business of the
Borrower and its Subsidiaries as currently conducted that are material to
the condition (financial or other), business or operations of the Borrower
or its Subsidiaries.
"Interest Charges" means, with respect to any period, all interest in
respect of Indebtedness of the Borrower and its Subsidiaries in accordance
with GAAP (including imputed interest on Capitalized Lease Obligations)
deducted in determining Consolidated Net Income for such period
(eliminating all offsetting debits and credits between the Borrower and its
Subsidiaries and all other items required to be eliminated in the course of
the preparation of consolidated financial statements of the Borrower and
its Subsidiaries in accordance with GAAP).
"Interest Period" means the period (a "Eurodollar Interest Period")
commencing on the date of the Borrowing of such Eurodollar Rate Loan and
ending on the date either one, three or six months thereafter. In no event
shall an Interest Period extend beyond the Revolving Termination Date.
Whenever the last day of any Interest Period would otherwise occur on a day
other than a Business Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Business Day; provided, however,
that if such extension would cause the last day of such Interest Period to
occur in the next following calendar month, the last day of such Interest
Period shall occur on the next preceding Business Day.
"Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended.
"Inventory" shall have the meaning set forth in the
Security Agreement.
"Investment" means the acquisition of any interest in any Person or
property, a loan or advance to any Person or other arrangement for the
purpose of providing funds or credit to any Person, a capital contribution
in or to any Person, or any other investment in any Person or property.
"L/C Commitment Amount" equals $10,000,000, as the same may be reduced
permanently from time to time pursuant to Section 2.05(a) hereof.
"Lender" means Bank of America, N.A. d/b/a NationsBank,
N.A. and its successors and assigns.
"Lending Office" means, for the Lender and for each Type of Loan, the
office of the Lender specified for the Lender on Annex I attached hereto.
"Letter of Credit" has the meaning set forth in Section
2A.01(a).
"Letter of Credit Facility" means the credit facility described in
Article IIA pursuant to which the Letters of Credit are to be issued.
"Letter of Credit Request" has the meaning set forth in
Section 2A.02(a).
"Lien" as applied to the property of any Person means: (a) any
mortgage, deed to secure debt, deed of trust, lien, pledge, charge, lease
constituting a Capitalized Lease Obligation, conditional sale or other tide
retention agreement, or other security interest, security title or
encumbrance of any kind in respect of any property of such Person, or upon
the income or profits therefrom; (b) any arrangement, express or implied,
under which any property of such Person is transferred, sequestered or
otherwise identified for the purpose of subjecting the same to the payment
of Indebtedness or performance of any other obligation in priority to the
payment of the general, unsecured creditors of such Person; and (c) the
filing of any financing statement under the Uniform Commercial Code or its
equivalent in any jurisdiction.
"Loan" means any Eurodollar Rate Loan or Prime Rate
Loan.
"Loan Document" means this Agreement and, after the execution and
delivery thereof pursuant to the terms of this Agreement, the Revolving
Note, the Term Note, the Subsidiary Guaranty, the Security Agreement, the
Trademark Security Agreement, the Pledge Agreement, the Membership Pledge
Agreement, the Partnership Pledge Agreement, the Florida Mortgage, each
Hedge Agreement, each document or instrument executed and delivered by an
Account Party in connection with the Letter of Credit Facility, and all
other instruments or documents executed or delivered to or in favor of the
Lender in connection with the transactions contemplated under this
Agreement, as the same may be amended, modified, supplemented or amended
and restated from time to time.
"Loan Party" means each of the Borrower and each of its Subsidiaries
and any other Person (other than the Lender) party to a Loan Document.
"Materially Adverse Effect" means a materially adverse effect upon (a)
the business, assets, liabilities, financial condition, results of
operations or business prospects of the Borrower and its Subsidiaries,
taken as a whole, as determined by the Lender in its sole discretion
exercised in good faith or (b) any Loan Party's ability to perform its
obligations under any Loan Document to which it is a party.
"Material Subsidiary" means a Subsidiary of the Borrower that (as of
any date of determination), (i) contributed at least ten percent (10%) to
Adjusted Consolidated Net Income as of the most recently ended fiscal
quarter, or (ii) owned assets constituting at least ten percent (10%) of
Consolidated Assets as of the most recently ended fiscal quarter.
"Membership Pledge Agreement" means collectively (or individually as
the context may indicate) (i) that certain Amended and Restated Security
Agreement and Pledge of Membership Interest among the Borrower, certain of
its Subsidiaries and the Lender, dated as of the date hereof, in
substantially the form of Exhibit F attached hereto and (ii) any additional
Security Agreement and Pledge of Membership Interest or Membership Pledge
Agreement Supplement delivered to the Lender pursuant to Section 6.09, as
the same may be amended, modified, supplemented or amended and restated
from time to time.
"Membership Pledge Agreement Supplement" shall have the meaning set
forth in the Membership Pledge Agreement.
"Money Borrowed" means, as applied to the Indebtedness
of a Person,
(a) Indebtedness for money borrowed, or
(b) Indebtedness, whether or not in any such case the same was
for money borrowed, but other than trade indebtedness of such Person
incurred in the ordinary course of business:
(i) represented by notes payable, and drafts
accepted, that represent extensions of credit,
(ii) constituting obligations evidenced by bonds,
debentures, letters of credit, notes or similar instruments, or
(iii) upon which interest charges are customarily paid or
that was issued or assumed as full or partial payment for
property, or
(a) Indebtedness that constitutes a Capitalized
Lease Obligation, or
(b) Indebtedness that is such by virtue of clause (b) of the
definition of Indebtedness, but only to the extent that the
obligations Guaranteed are obligations that would constitute
Indebtedness for Money Borrowed.
"Mortgaged Property" means that certain property described in and
covered by the Florida Mortgage.
"Multiemployer Plan" has the meaning set forth in Section 4001(a)(3)
of ERISA, as amended or revised from time to time.
"Notes" means, collectively, the Revolving Note and the
Term Note.
"Notice of Borrowing" means a notice in the form of Exhibit A hereto
to be delivered to the Lender pursuant to Section 2.0l(b) indicating the
Borrower's intention to borrow a Revolving Loan.
"Outstanding Credits" mean, on any date of determination, an amount
equal to (i) the aggregate principal amount of all Revolving Loans
outstanding on such date plus (ii) the aggregate Stated Amount outstanding
on such date plus (iii) the aggregate amount of Reimbursement Obligations
outstanding on such date (exclusive of Reimbursement Obligations which, on
such date of determination, are repaid with the proceeds of a Revolving
Loan made in accordance with Section 2A.04(c)(ii), to the extent the
principal amount of such Revolving Loan is included in the determination of
the aggregate principal amount of all outstanding Revolving Loans as
provided in clause (i) of this definition).
"Partnership Pledge Agreement" means collectively (or individually as
the context may indicate) (i) that certain Pledge of Partnership Interest
among certain Subsidiaries of the Borrower and the Lender, dated as of the
date hereof, in substantially the form of Exhibit J attached hereto and
(ii) any additional Pledge of Partnership Interest or Partnership Pledge
Agreement Supplement delivered to the Lender pursuant to Section 6.09, as
the same may be amended, modified, supplemented or amended and restated
from time to time.
"Partnership Pledge Agreement Supplement" shall have the meaning set
forth in the Partnership Pledge Agreement.
"Payment Date" means the date on which payment of a
Drawing is made by the Lender.
"PBGC" means the Pension Benefit Guaranty Corporation
and any successor agency.
"Permitted Acquisition" means an Acquisition that:
(i) the Person to be acquired is in the same or
complimentary line of business as described in Section 6.04;
and
(ii) the Person to be acquired has formally approved such Acquisition;
and
(iii) the Borrowing requested for such Acquisition does not exceed the
lesser of (x) $7,500,000 and (b) the difference between (A) $35,000,000 and
(B) the principal amount outstanding as of the date of such Borrowing of
all other Borrowings used for Acquisitions during the Preceding Period.
"Permitted Encumbrances" means, with respect to the Mortgaged
Property, such restrictions, easements, reservations and exceptions of tide
as are set forth in the mortgage policy or tide commitment delivered with
respect thereto pursuant to Section 4.02(c)(i) and such restrictions as are
approved by the Lender in writing.
"Permitted Investments" means any one or more of the
following:
(i) Investments in property to be used in the ordinary
course of business of the Borrower and its Subsidiaries;
(ii) Investments in current assets arising from the sale of goods and
services in the ordinary course of business of the Borrower and its
Subsidiaries;
(iii) Investments in cash;
(iv) Investments in United States Governmental
Securities;
(v) Investments in corporate securities, including commercial paper,
banker's acceptances and asset-backed securities rated "A-1", (or higher)
by Standard & Poor's or "P-1" (or higher) by Moody's (or any future
comparable ratings issued by Standard & Poor's or Moody's), provided that
such obligations mature within two hundred seventy (270) days from the date
of creation;
(vi) Investments in time deposits and certificates of deposit of the
Lender or any commercial bank organized under the laws of the United
States, any State thereof or the District of Columbia having, or which is
the principal banking subsidiary of a bank holding company organized under
the laws of the United States, any State thereof, or the District of
Columbia having, combined capital and surplus of at least $200 million and
having a long term unsecured debt rating of at least "A" or the equivalent
thereof from Standard & Poor's or at least "P-1" or the equivalent thereof
from Moody's, with maturities of not more than one (1) year from the date
of acquisition by such Person;
(vii) Investments in overnight repurchase agreements and repurchase
obligations with a term of not more than seven days for underlying
securities of the type described in clause (iv) above entered into with any
bank meet the qualifications specified in clause (vi) above;
(viii) Corporate debt instruments including medium term notes and
floating rate notes issued by foreign or domestic corporations which pay in
U.S. Dollars and carry a rating of "A" or better from Standard & Poor's and
Moody's;
(ix) Asset backed notes rated "AAA"; provided that the maturity of
such asset backed notes is considered to be either the soft bullet date or the
expected final payment date;
(x) Short-term tax-exempt securities, including municipal notes,
commercial paper, auction rate floaters, and
floating rate notes rated "A-1" by Standard & Poor's and "P- 1" by Moody's or
better, municipal notes rated "SP-1" or "MIG-2" or better, and bonds rated "AA"
or better;
(xi) Pre-refunded municipal bonds escrowed back to maturity and backed
by U.S. treasury securities;
(xii) Auction rate preferred stock or bonds issued with a rate-reset
mechanism and a maximum term of 180 days and issued by a Person with a rating of
"AA" or better by Moody's;
(xiii) Investments in money market or mutual funds substantially all
of whose assets are comprised of securities of the types described in
clauses (iv) through (vii) above;
(xiv) Investments in demand deposit accounts maintained in the
ordinary course of business;
(xv) Investments in securities of trade creditors or customers
received in any plan of reorganization or similar arrangement on the
bankruptcy or insolvency of such trade creditors or customers or received
in settlement of delinquent obligations of, and other disputes with,
suppliers arising in the ordinary course of business;
(xvi) Investments by the Borrower and Subsidiaries
in Guarantors;
(xvii) Investments by a Subsidiary in the Borrower
or a Guarantor; and
(xviii) Investments by the Borrower and any Subsidiary under Hedge
Agreements entered into in the ordinary course of business and not for
speculative purposes; and
(xix) Investments by the Borrower in marketable direct obligations
issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof that
(A) mature within six months from the date of the acquisition thereof, (B)
at the time of the acquisition thereof, have one of the two highest ratings
then obtainable from either Standard & Poor's or Moody's and (C) pay
interest that is not subject to taxation under the Code;
provided, that the investments listed in clauses (iv) through (xiii) shall
in no event exceed 15 months in maturity and the weighted average maturity
of the investments listed in such clauses may not exceed 6 months.
"Permitted Liens" means, as to any Person: (a) inchoate Liens securing
taxes, assessments and other governmental charges or levies (excluding any
Lien imposed pursuant to any of the provisions of ERISA) or the claims of
materialmen, mechanics, carriers, warehousemen or landlords for labor,
materials, supplies or rentals incurred in the ordinary course of business;
(b) Liens (excluding any Lien imposed pursuant to any of the provisions of
ERISA) consisting of deposits or pledges made, in the ordinary course of
business, in connection with, or to secure payment of, obligations under
workmen's compensation, unemployment insurance or similar legislation, or
to secure the performance of tenders, statutory obligations, surety bonds,
bids, government contracts, performance and return of money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money); (c) Permitted Encumbrances and Liens consisting of encumbrances in
the nature of zoning restrictions, easements, and rights or restrictions of
record on the use of property, which do not materially detract from the
value of such property or materially impair the use thereof in the business
of such Person; (d) Liens in existence as of the date hereof listed on
Schedule 5.01(g) hereof; (e) Liens in favor of the Lender or created
pursuant to the Loan Documents; (f) Purchase Money Liens and Liens securing
Capitalized Lease Obligations in an aggregate amount at any time less than
$2,000,000; (g) leases or subleases to providers of services or other
equipment to be located in the respective properties of the Borrower or any
of its Subsidiaries to other Persons in the ordinary course of business;
(h) Liens upon assets or equipment subject to Capitalized Lease
Obligations; (i) Liens arising from precautionary Uniform Commercial Code
financing statements filings in any jurisdiction regarding operating
leases; (j) Liens arising out of judgments or awards provided, that the
judgments secured shall, within 60 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall have been
discharged within 60 days after the expiration of any such stay.
"Person" means an individual, corporation, partnership, association,
trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan maintained for employees of the
Borrower or any of its Subsidiaries that is covered by Title IV of ERISA,
including such plans as may be established after the Agreement Date.
"Pledge Agreement" means collectively (or individually as the context
may indicate) (i) the Amended and Restated Pledge Agreement dated as the
date hereof among the Borrower, certain Subsidiaries and the Lender in
substantially the form of Exhibit E hereto and (ii) any additional Pledge
Agreement or Pledge Agreement Supplement delivered to the Lender pursuant
to Section 6.09, as the same may be amended, modified, supplemented or
amended and restated from time to time.
"Pledge Agreement Supplement" shall have the meaning
set forth in the Pledge Agreement.
"Post-Default Rate" means, with respect to a Loan, a rate equal to
five percent (5%) per annum above the then applicable interest rate of such
Loan.
"Preceding Period" means, with respect to any Person, as of the date
of determination, the most recently completed four fiscal quarters of such
Person.
"Preferred Stock", as applied to any corporation, shall mean shares of
stock of such corporation which are entitled to preference or priority over
any other shares of such corporation in respect of the payment of dividends
or distribution of assets upon liquidation or dissolution or both.
"Prime Rate" means the per annum rate of interest established from
time to time by the Lender as its prime rate, which rate may not be the
lowest rate of interest charged by the Lender to its customers; provided,
however, that in no event shall the Prime Rate charged hereunder be lower
than the Federal Funds Rate plus 0.5 of one percent in effect on such date.
"Prime Rate Loan" means the Term Loan or a Revolving Loan that bears
interest based upon the Prime Rate.
"Principal Office" means the office of the Lender
located at One Financial Plaza, 13th Floor, Ft. Lauderdale,
Florida 33394.
"Projections" means the Borrower's forecasted Consolidated: (a)
balance sheets; (b) profit and loss statements and (c) cash flow
statements, each on a quarterly and annual basis, setting forth, other than
in the case of balance sheets, such information by business segment, and
consistent with the Borrower's (and its Subsidiaries') historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
"Purchase Money Lien" means any Lien created to secure all or any part
of the purchase price, or to secure Indebtedness incurred or assumed to pay
all or any part of the purchase price or cost of construction, of tangible
property (or any improvement thereon) acquired or constructed by the
Borrower or a Subsidiary after the Closing Date, provided that
(i) any such Lien shall extend solely to the item or items of
such property (or improvement thereof) so acquired or constructed and,
if required by the terms of the instrument originally creating such
Lien, other property (or improvement thereon) which is an improvement
to or its acquired or constructed property (or improvement thereof) or
which is real property being improved by such acquired or constructed
property (or improvement thereon);
(ii) the principal amount of the Indebtedness secured by any such
Lien shall at no time exceed an amount equal to the lesser of (A) the
cost to the Borrower or such Subsidiary of the property (or
improvement thereon) so acquired or constructed and (B) the fair
market value (as determined in good faith by the board of directors of
the Borrower) of such property (or improvement thereon) at the time of
such acquisition or construction; and
(iii) any such Lien shall be created contemporaneously with, or
within 10 days after, the acquisition or construction of such
property.
"Receivables Financing" shall mean a transaction pursuant to which
funds are advanced to the Borrower and/or any of its Subsidiaries in
exchange for which the Borrower and/or any of its Subsidiaries shall sell,
pledge, contribute or place a Lien on any or all of its accounts or note
receivables to repay, in whole or in part, such funds.
"Reimbursement Obligation" means the absolute and unconditional
obligation of the Borrower to reimburse the Lender for any Drawing pursuant
to Section 2A.04(b).
"Reportable Event" has the meaning set forth in Section 4043(1,) of
ERISA, but shall not include a Reportable Event as to which the provision
for 30 days' notice to the PBGC is waived under applicable regulations.
"Responsible Officer" means, with respect to any Loan
Party, its President, Chief Executive Officer, Chief
Operating Officer, a Vice President or Chief Financial
Officer.
"Revolving Commitment" means Thirty-Five Million Dollars
($35,000,000), as the same may be reduced permanently from time to time
pursuant to Section 2.05(a) hereof.
"Revolving Credit Facility" means the revolving loan facility
described in Section 2.01 hereof.
"Revolving Loan" has the meaning set forth in Section
2.01(a) hereof.
"Revolving Note" has the meaning set forth in Section
2.07 hereof.
"Revolving Termination Date" means October 15, 2001.
"Secured Obligations" means, individually and collectively: (a) the
Revolving Loans; (b) the Term Loan; (c) all Reimbursement Obligations; and
(d) all other indebtedness, liabilities, obligations, covenants and duties
of the Borrower owing to the Lender of every kind, nature and description,
under or in respect of this Agreement, any Note or any of the other Loan
Documents including, without limitation, the Fees, whether direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated, and whether or not evidenced by any note.
"Security Agreement" means collectively (or individually as the
context may indicate) (i) the Amended and Restated Security Agreement
executed and delivered by the Borrower and each Guarantor on the date
hereof, in favor of the Lender, in substantially the form of Exhibit C
hereto and (ii) any Security Agreement Supplement delivered to the Lender
pursuant to Section 6.09, as the same may be amended, modified,
supplemented or amended and restated from time to time.
"Security Agreement Supplement" shall have the meaning
set forth in the Security Agreement.
"Security Interest" means the Lien of the Lender upon, and the
collateral assignment to the Lender of, the Collateral effected hereby, by
the execution and delivery of the Florida Mortgage, the Security Agreement,
the Pledge Agreement, the Membership Pledge Agreement, the Partnership
Pledge Agreement, the Trademark Security Agreement and by any other Loan
Document or pursuant to the terms hereof or thereof.
"Stated Amount" means the amount available to be drawn by a
Beneficiary under a Letter of Credit from time to time, as the Stated
Amount of any such Letter of Credit may be increased or reduced from time
to time in accordance with the terms of such Letter of Credit.
"Subsidiary" means each of the Persons specified on Schedule 5.01(b)
and any other Person of which an aggregate of 50% or more of the voting
stock of any class or classes or 50% or more of other voting or equity
interests is owned of record or beneficially by another Person, or by one
or more Subsidiaries of such other Person, or by such other Person and one
or more Subsidiaries of such Person.
"Subsidiary Guaranty" means collectively (or individually as the
context may indicate) (i) the Amended and Restated Guaranty Agreement
executed and delivered by each Subsidiary on the date hereof, in favor of
the Lender, in substantially the form of Exhibit G hereto and (ii) any
Guaranty Supplement delivered to the Lender pursuant to Section 6.09, as
the same may be amended, modified, supplemented or amended and restated
from time to time.
"Term Loan" means the term loan made to the Borrower pursuant to
Section 2.02 hereof.
"Term Note" has the meaning set forth in Section 2.07
hereof.
"Termination Event" means (a) a Reportable Event; (b) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment
as a termination under Section 4041 of ERISA or (c) the institution of
proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, or
the appointment of a trustee to administer any Plan.
"Trademark Security Agreement" means collectively (or individually as
the context may indicate) (i) the Collateral Assignment and Trademark
Security Agreement, executed and delivered by the Borrower and each
Guarantor on the date hereof, in favor of Lender, in substantially the form
of Exhibit D hereto, and (ii) each additional Trademark Security Agreement
executed by each Additional Loan Party pursuant to Section 6.09 hereof.
"Type" with respect to the Term Loan or a Revolving Loan, refers to
whether such Loan is a Eurodollar Rate Loan or a Prime Rate Loan.
"Unfunded Vested Accrued Benefits" means with respect to any Plan at
any time, the amount (if any) by which (a) the present value of all vested
nonforfeitable benefits under such Plan exceeds (b) the fair market value
of all Plan assets allocable to such benefits, all determined as of the
then most recent valuation date for such Plan.
"Uniform Code" or "UCC" means the Uniform Commercial Code as in effect
from time to time in the State of Florida.
"Unused Commitment" means, on any date of determination, an amount
equal to the Revolving Commitment minus the Outstanding Credits on such
date.
"Year 2000 Compliant" means all computer applications (including those
affected by information received from its suppliers and vendors) that are
material to the Borrower's or any of its Subsidiaries' business and
operations will on a timely basis be able to perform properly
date-sensitive functions involving all dates on and after January 1, 2000.
"Year 2000 Problem" means the risk that computer applications used by
the Borrower or any of its Subsidiaries (including those affected by
information received from its suppliers and vendors) may be unable to
recognize and perform properly date-sensitive functions involving certain
dates on and after January 1, 2000.
SECTION 1.03 General. All terms of an accounting nature not specifically
defined herein shall have the meaning ascribed thereto by GAAP. References in
this Agreement to "Sections", "Articles", "Exhibits" and "Schedules" are to
Sections, Articles, Exhibits and Schedules herein and hereto unless otherwise
indicated. References in this Agreement to any document, instrument or agreement
(a) shall include all Exhibits, Schedules and other attachments thereto, (b)
shall include all documents, instruments or agreements issued or executed in
replacement thereof, and (c) shall mean such document, instrument or agreement,
or replacement or predecessor thereto, as amended, modified or supplemented from
time to time in accordance with its terms and in effect at any given time.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and plural, and pronouns stated in
the masculine, feminine or neuter gender shall include the masculine, the
feminine and the neuter. Unless explicitly set forth to the contrary, a
reference to "Subsidiary" shall mean a Subsidiary of the Borrower or a
Subsidiary of such Subsidiary and a reference to an "Affiliate" shall mean a
reference to an Affiliate of the Borrower. Unless otherwise indicated, all
references to time are references to Eastern Standard Time. Unless otherwise
indicated, all accounting terms, ratios and measurements shall be interpreted or
determined in accordance with GAAP consistently applied.
<PAGE>
ARTICLE II
LOANS
SECTION 2.01 Revolving Credit Facility.
(a) Revolving Loans. Subject to the terms and conditions hereof, during the
period from the Effective Date to the Revolving Termination Date, the Lender
agrees at any time and from time to time to make a revolving loan or revolving
loans (each, a "Revolving Loan" and, collectively, the "Revolving Loans") to the
Borrower in an aggregate principal amount at any time outstanding up to, but not
exceeding, the Revolving Commitment; provided, however, that any given Borrowing
of Revolving Loans made pursuant to this Article II (i) shall not exceed the
Unused Commitment at the time of such Borrowing and (ii) shall be limited as set
forth in clause (b) of Section 6.08. Subject to the terms and conditions of this
Agreement, during the period from the Effective Date to the Revolving
Termination Date, the Borrower may borrow, repay and reborrow Revolving Loans.
All Borrowings of Revolving Loans shall be in integral multiples of $100,000.
(b) Borrowings Under Revolving Credit Facility. The Borrower shall give the
Lender written notice pursuant to a Notice of Borrowing or telephonic notice of
each Borrowing which notice shall be irrevocable and effective upon receipt. Any
such telephonic notice shall be subsequently confirmed in writing by the
Borrower pursuant to a Notice of Borrowing sent to the Lender by telefacsimile
on the same day of such telephonic notice by a Responsible Officer of the
Borrower. The Notice of Borrowing shall specify the aggregate principal amount
of the Revolving Loan to be made by the Lender pursuant to the Notice of
Borrowing and the date of such Borrowing. Each Notice of Borrowing shall be
irrevocable by and binding on the Borrower.
(c) Disbursements of Revolving Loans. Provided that the applicable
conditions set forth in Article IV hereof applicable for a Revolving Loan are
fulfilled and the applicable Notice of Borrowing is delivered to the Lender
before 12:00 noon (EST) on any Business Day, the Lender will make such funds
available to the Borrower at the account specified by the Borrower in such
Notice of Borrowing on the Business Day specified in such Notice of Borrowing.
Provided that the applicable conditions set forth in Article IV hereof
applicable for a Revolving Loan are fulfilled and the applicable Notice of
Borrowing is delivered to the Lender not later than 12:00 noon (EST) on any
Business Day, the Lender will make such funds available to the Borrower at the
account specified by the Borrower in such Notice of Borrowing on the following
Business Day.
SECTION 2.02 Term Loan. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrower
contained herein, the Lender agrees to continue to lend to the Borrower the
amount of the Term Loan outstanding under the Existing Agreement on the Closing
Date, which amount is $1,924,999.99. Amounts borrowed under this Section 2.02
and repaid may not be reborrowed.
SECTION 2.03 Interest on Loans. Subject to the provisions of Section 3.01
hereof, interest on each Eurodollar Rate Loan shall be payable on the last day
of each Interest Period with respect thereto and at maturity of such Loan
(whether by acceleration or otherwise or upon demand), at an interest rate per
annum during the Interest Period for such Loan equal to the Adjusted Eurodollar
Rate for the Interest Period in effect for such Eurodollar Rate Loan plus the
Eurodollar Rate Margin. The Lender upon determining the Adjusted Eurodollar Rate
for any Interest Period shall promptly notify the Borrower by telephone
(confirmed promptly in writing by facsimile transmission) or in writing by
facsimile transmission thereof and of the amount of interest which will become
payable at the end of such Interest Period. Each determination by the Lender of
an interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error. Subject to the provisions of Section 3.01 hereof,
interest on each Prime Rate Loan shall be payable on the last day of each
calendar month and at maturity of such Loan (whether by acceleration or
otherwise or upon demand), at an interest rate per annum equal to the Prime
Rate.
SECTION 2.04 Unavailability of Certain Loans/Funding Losses.
(a) Notwithstanding any other provision of this Article II to the contrary:
(i) if the Lender is unable to determine (which determination shall be
conclusive and binding upon the Borrower), by reason of circumstances
affecting the interbank Eurodollar market, the Eurodollar Rate for
Eurodollar Rate Loans the Lender shall give telefacsimile notice thereof to
the Borrower and the right of the Borrower to select or maintain Eurodollar
Rate Loans shall be suspended until the Lender shall notify the Borrower
that the circumstances causing such suspension no longer exists; and
(ii) if the Lender shall, at least one Business Day before the date of
any requested Borrowing notify the Borrower that the Adjusted Eurodollar
Rate comprising such Borrowing will not adequately reflect the cost to the
Lender of making or funding the Eurodollar Rate Loans, the right of the
Borrower to select Eurodollar Rate Loans shall be suspended until the
Lender notifies the Borrower that such rates in fact reflect the cost to
the Lender of making or funding such Loans.
If either of the events specified in clauses (i) or (ii) of the preceding
sentence occurs, on the last day of the then existing Interest Period therefor,
the Loans shall convert into Prime Rate Loans. Such Loans may be reconverted
into Eurodollar Rate Loans one Business Day after Lender has notified the
Borrower that such rates reflect the cost to the Lender of making or funding
such Loans and receipt by the Lender of the written request of the Borrower to
reconvert such Loans.
(b) In the case of any Borrowing that the related Notice of Borrowing
specifies is to be comprised of Eurodollar Rate Loans, the Borrower shall
indemnify the Lender against any loss, cost or expense incurred by the Lender as
a result of any failure of the Borrower to fulfill for any reason whatsoever
including the exercise of any remedies under Section 9.02, on or before the date
for such Borrowing specified in such Notice of Borrowing, the applicable
conditions set forth in Article IV hereof or as a result of the failure of the
Borrower to borrow any such requested Eurodollar Rate Loan, including, without
limitation, any loss (including loss of anticipated profits after taking into
account any reinvestment of funds), cost or expense incurred by the Lender by
reason of the liquidation or reemployment of deposits or other funds acquired by
the Lender to fund the Eurodollar Rate Loan to be made by the Lender as part of
such Borrowing, such amount to be determined by the Lender and such
determination by the Lender shall be binding upon the Borrower, absent manifest
error. The Lender shall promptly notify the Borrower of any such amount.
SECTION 2.05 Voluntary Reduction of Revolving Commitment or the L/C
Commitment Amount; Funding Losses.
(a) The Borrower shall have the right to reduce permanently the amount of
the Revolving Commitment or the L/C Commitment Amount at any time and from time
to time without penalty or premium but in no event more frequently than one time
during any calendar week upon not less than twenty-four hours prior written
notice to the Lender of each such reduction, which notice shall specify the
effective date thereof and the amount of any such reduction (which in the case
of any partial reduction shall not be less than $100,000 and integral multiples
of $100,000 in excess of that amount) and shall be irrevocable once given and
effective only upon receipt by the Lender. Notwithstanding the foregoing, in no
event shall the Borrower be permitted to reduce the Revolving Commitment below
an aggregate amount equal to the Outstanding Credits at such time. The Revolving
Commitment or the L/C Commitment Amount once reduced pursuant to this Section
shall not be increased. Notwithstanding the foregoing, in no event shall the
Borrower be permitted to reduce the L/C Commitment Amount below an amount equal
to the aggregate Stated Amount of the Letters of Credit outstanding at such
time.
(b) The Borrower may prepay any Loan at any time; provided, however, that
in the event the Borrower prepays any Eurodollar Rate Loan prior to the end of
the applicable Interest Period therefor for any reason whatsoever including the
exercise of any remedies under Section 9.02, the Borrower shall indemnify the
Lender against any loss, cost or expense incurred by the Lender as a result of
any such prepayment including, without limitation, any loss (including loss of
anticipated profits after taking into account any reinvestment of funds), cost
or expense incurred by the Lender by reason of the liquidation or reemployment
of deposits or other funds acquired by the Lender to fund the Eurodollar Rate
Loan made by the Lender, such amount to be determined by the Lender and such
determination by the Lender shall be binding upon the Borrower, absent manifest
error. The Lender shall promptly notify the Borrower of any such amount. The
Borrower may prepay any Prime Rate Loan at any time without penalty or premium.
SECTION 2.06 Repayment of Loans.
(a) Repayment of Revolving Loans. The Borrower shall repay the entire
outstanding principal amount of, and all accrued but unpaid interest on, the
Revolving Loans on the Revolving Termination Date. If at any time (i) the
Outstanding Credits exceed the Revolving Commitment in effect at such time, or
(ii) the aggregate Stated Amount of Letters of Credit outstanding at such time
exceeds the L/C Commitment Amount, then in either case, the Borrower shall
immediately pay to the Lender the amount of such excess. Such payment, if made
with respect to an excess described in clause (i) above, shall be applied to pay
all amounts of principal outstanding on the Revolving Loans, and if made with
respect to the excess described in clause (ii) above, shall be applied to any
Reimbursement Obligations then outstanding or, if no Reimbursement Obligations
are then outstanding, or the amount of such excess exceeds the amount of
Reimbursement Obligations then outstanding, then such excess or remaining excess
shall be deposited in the Cash Collateral Account and applied by the Lender to
satisfy Reimbursement Obligations thereafter arising. In the event the Borrower
is required to pay any outstanding Eurodollar Rate Loans by reason of this
Section 2.06(a) prior to the end of the applicable Interest Period therefor, the
Borrower shall indemnify the Lender against the losses, costs and expenses
described in Section 2.05(b) hereof incurred by the Lender.
(b) Repayment of Term Loan. The Borrower agrees to repay the principal
amount of the Term Loan in monthly installments based on a fifteen year equal
amortization of principal, each such installment being payable on the fifth
calendar day of each calendar month, commencing on the fifth day of the month
following the advance of the Term Loan in an amount as set forth in the Term
Note, with the last such installment due and payable on October 15, 2001. Any
repayment or prepayment of the Term Loan prior to the scheduled maturity date
shall be applied in satisfaction of the required payments of principal in
inverse order of their scheduled due dates.
SECTION 2.07 Notes. The obligation of the Borrower to repay the Revolving
Loans shall be evidenced by an amended and restated promissory note (the
"Revolving Note"). The Revolving Note shall be payable to the Lender, shall be
in the face amount equal to the Revolving Commitment, and shall be in
substantially the form of Exhibit B-1 hereto. The obligation of the Borrower to
repay the Term Loan shall also be evidenced by an amended and restated
promissory note (the "Term Note"). The Term Note shall be payable to the Lender,
shall be in the face amount equal to the amount of the Term Loan outstanding
under the Existing Agreement on the date hereof, and shall be in substantially
the form of Exhibit B-2 hereto.
<PAGE>
ARTICLE IIA
LETTER OF CREDIT FACILITY
SECTION 2A.01. Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, the Lender
agrees to issue and amend (including, without limitation, to extend or renew)
for the account of the Borrower or any Subsidiary thereof (each such Person, an
"Account Party") one or more documentary or standby letters of credit
(individually, a "Letter of Credit" and collectively, the "Letters of Credit")
in such form as may be requested from time to time by the Borrower in accordance
with Section 2A.02(a) and agreed to by the Lender, from and including the date
of the Existing Credit Agreement to the Revolving Termination Date, up to a
maximum aggregate Stated Amount at any one time outstanding equal to the L/C
Commitment Amount and having an expiration date on or prior to 364 days after
the Date of Issuance of such Letter of Credit, subject, if requested by the
Borrower, to automatic renewal for the same term unless the Lender notifies the
applicable Beneficiary of its election not to renew the Letter of Credit issued
for its benefit; provided, however, that the Lender will not issue or amend a
Letter of Credit if, immediately following such issuance or amendment, the
Stated Amount of such Letter of Credit would (i) exceed the Unused Commitment or
(ii) cause the Borrower to breach clause (b) of Section 6.08.
(b) The Letters of Credit shall be in a form customarily used by the Lender
or in such other form as has been approved by the Lender. At the time of
issuance or amendment, the amount and the terms and conditions of each Letter of
Credit shall be subject to approval by the Lender and the Borrower. Any Letter
of Credit containing an automatic renewal provision shall also contain a
provision pursuant to which, notwithstanding any other provisions thereof, it
shall have a final Expiration Date no later than the Revolving Termination Date.
SECTION 2A.02. Method of Issuance of Letters of Credit.
(a) Notice of Issuance; Application Forms. The Borrower shall give the
Lender written notice (or telephonic notice confirmed in writing) at least three
Business Days prior to the requested Date of Issuance of a Letter of Credit,
such notice to be in substantially the form of Exhibit H hereto (a "Letter of
Credit Request"). The Borrower shall also execute and deliver, and cause each
other Account Party with respect to a requested Letter of Credit to execute and
deliver, such customary letter of credit application forms as requested from
time to time by the Lender. Such application forms shall indicate the identity
of the Account Party and that the Borrower is the "Applicant" or shall otherwise
indicate that the Borrower is the obligor in respect of any Letter of Credit to
be issued thereunder. If the terms or conditions of the application forms
conflict with any provision of the Letter of Credit Facility, the terms of the
Letter of Credit Facility shall govern.
(b) Issuance. Provided the Borrower has given the notice prescribed by
Section 2A.02(a) and subject to the other terms and conditions of this
Agreement, including the satisfaction of any applicable conditions precedent set
forth in Article IV, the Lender shall issue the requested Letter of Credit on
the requested Date of Issuance as set forth in the applicable Letter of Credit
Request for the benefit of the stipulated Beneficiary and shall deliver the
original of such Letter of Credit to the Beneficiary at the address specified in
the notice. At the request of the Borrower, the Lender shall deliver a copy of
each Letter of Credit to the Borrower within a reasonable time after the Date of
Issuance thereof. Upon the request of the Borrower, the Lender shall deliver to
the Borrower a copy of any Letter of Credit proposed to be issued hereunder
prior to the issuance thereof.
SECTION 2A.03. Letter of Credit Fees. In consideration for the issuance of
Letters of Credit hereunder, the Borrower hereby agrees to pay to the Lender a
letter of credit fee in an amount equal to 1.00% per annum so long as no Default
or Event of Default shall have occurred and be continuing and 2.00% per annum if
a Default or Event of Default shall have occurred and be continuing, in either
case, of the daily weighted average amount of all outstanding Letters of Credit
issued hereunder. Such fees shall be payable quarterly in arrears on the last
Business Day of each calendar quarter of each year, commencing June 30, 1999,
and on the Revolving Termination Date.
SECTION 2A.04. Letter of Credit Reimbursement.
(a) Notice of Drawing. The Lender shall promptly notify the Borrower by
telephone, telefacsimile, telex or other telecommunication of any Drawing under
a Letter of Credit and of the anticipated Payment Date. On the Payment Date or
at such prior time as the Lender shall have been notified of such Drawing, if
practicable, the Lender shall confirm to the Borrower by telephone or
telefacsimile that payment of the Drawing is to be made by the Lender on such
date.
(b) Payments. The Borrower hereby agrees to pay to the Lender, in the
manner provided in Section 2A.04(c):
(i) On each Payment Date, an amount equal to the amount paid by the
Lender under any Letter of Credit; and
(ii) If any Drawing shall be reimbursed to the Lender after 2:00 p.m.
on the Payment Date, interest on any and all amounts required to be paid
pursuant to clause (i) of this Section 2A.04(b) from and after the due date
thereof until payment in full, payable on demand, at an annual rate of
interest equal to 2.00% above the Prime Rate as in effect from time to
time.
(c) Method of Reimbursement. The Borrower shall reimburse the Lender for
each Drawing under any Letter of Credit in the following manner:
(i) the Borrower shall immediately reimburse the
Lender in accordance with Section 3.04; or
(ii) if (A) the Borrower has not reimbursed the Lender pursuant to
subparagraph (i) above, (B) the applicable conditions set forth in Articles
II and IV have been fulfilled or waived by the Lender in writing, and (C)
the Available Revolving Commitment in effect at such time exceeds the
amount of the Drawing to be reimbursed, the Borrower may reimburse the
Lender for such Drawing with the proceeds of a Revolving Loan; or
(iii) pursuant to Section 3.04, the Lender may debit any deposit
account of the Borrower maintained with the Lender and appropriate and
apply an amount of funds in such account equal to the Reimbursement
Obligations outstanding at such time in satisfaction of such Reimbursement
Obligations.
SECTION 2A.05. Nature of Lender's Duties. In determining whether to honor
any Drawing under any Letter of Credit, the Lender shall be responsible only to
determine that the documents and certificates required to be delivered under
that Letter of Credit have been delivered and that they materially comply on
their face with the requirements of that Letter of Credit. The Borrower
otherwise assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit issued by the Lender by, the respective Beneficiaries of such
Letters of Credit. In furtherance and not in limitation of the foregoing, the
Lender shall not be responsible (i) for the form, validity, sufficiency,
accuracy, genuineness or legal effects of any documents submitted by any party
in connection with the application for and issuance of any drawing honored under
such Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forced; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit, or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex, telefacsimile or otherwise, whether or not they be in
cipher; (iv) for errors in interpretation of technical terms; (v) for any loss
or delay in the transmission or otherwise of any document required in order to
make a drawing under any such Letter of Credit, or the proceeds thereof; (vi)
for the misapplication by the Beneficiary of any such Letter of Credit or the
proceeds of any drawing honored under such Letter of Credit; and (vii) for any
consequences arising from causes beyond the control of the Lender. None of the
above shall affect, impair or prevent the vesting of any of the Lender's rights
or powers hereunder. Not in limitation of the foregoing, any action taken or
omitted to be taken by the Lender under or in connection with any Letter of
Credit shall not create against the Lender any liability to the Borrower, except
for actions or omissions resulting from the gross negligence or willful
misconduct of the Lender or any of its agents or representatives.
SECTION 2A.06. Obligations Absolute. The obligation of the Borrower to
reimburse the Lender for Drawings honored under the Letter of Credit issued by
it shall be unconditional and irrevocable and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances including,
without limitation, the following circumstances:
(i) any lack of validity or enforceability of any
Letter of Credit;
(ii) the existence of any claim, set-off, defense or other right which
the Borrower, any Account Party or any Affiliate of the Borrower or any
Account Party may have at any time against a Beneficiary or any transferee
of any Letter of Credit (or any Persons or entities for whom any such
Beneficiary or transferee may be acting), the Lender or any other Person,
whether in connection with this Agreement, the transactions contemplated
herein or any unrelated transaction;
(iii) any draft, demand, certificate or any other documents presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Loan Documents;
(v) any non-application or misapplication by the Beneficiary of the
proceeds of any Drawing under a Letter of Credit; or
(vi) the fact that a Default or Event of Default shall have occurred
and be continuing.
No payment made under this Section shall be deemed to be a waiver of any claim
the Borrower may have against the Lender or any other Person.
SECTION 2A.07. Expiration or Maturity Date of Letters of Credit. If the
Facility Termination Date occurs prior to the Expiration Date of any Letters of
Credit outstanding hereunder, the Borrower shall deposit with the Lender an
amount of money equal to the Stated Amount of such Letter(s) of Credit in the
Cash Collateral Account on the Facility Termination Date. If a Drawing pursuant
to such Letter of Credit occurs on or prior to the Expiration Date of such
Letter of Credit, the Borrower authorizes the Lender to use the monies deposited
in the Cash Collateral Account to make payment to the Beneficiary with respect
to such Drawing. If no Drawing occurs on or prior to the Expiration Date of such
Letter of Credit, the Lender shall promptly return to the Borrower the monies
deposited in the Cash Collateral Account with respect to such outstanding Letter
of Credit. The Borrower hereby collaterally assigns, and grants to the Lender a
security interest in, all funds held in the Cash Collateral Account from time to
time and proceeds thereof, as security for the payment of all amounts due and to
become due from the Borrower to the Lenders under this Agreement. The Cash
Collateral Account shall be in the name of the Borrower and the Lender as a cash
collateral account but the Lender shall have sole dominion and control over, and
sole access to, the Cash Collateral Account. Neither the Borrower nor any Person
claiming on behalf of or through the Borrower shall have any right to withdraw
any of the funds held in the Cash Collateral Account. The Borrower agrees that
it will not (i) sell or otherwise dispose of any interest in the Cash Collateral
Account or any funds held therein, or (ii) create or permit to exist any Lien
upon or with respect to the Cash Collateral Account or any funds held therein,
except as provided in or contemplated by this Agreement. The Lender shall
exercise reasonable care in the custody and preservation of any funds held in
the Cash Collateral Account and shall be deemed to have exercised such care if
such funds are accorded treatment substantially equivalent to that which the
Lender accords other funds deposited with the Lender, it being understood that
the Lender shall not have any responsibility for taking any necessary steps to
preserve rights against any parties with respect to any funds held in the Cash
Collateral Account.
ARTICLE III
OTHER LOAN AND PAYMENT PROVISIONS
SECTION 3.01 Interest on Overdue Payments. In the event the Borrower shall
fail to pay when due (whether at maturity, by reason of acceleration or
otherwise) any principal of, or interest on, any of the Loans or any other
amount owing hereunder or under any Note or other Loan Document when due or any
other Default or Event of Default shall have occurred and be continuing, all
Loans shall bear interest, to the extent permitted by law, at the Post-Default
Rate until such unpaid amount has been paid in full (whether before or after
judgment). All interest provided for in this Section shall be immediately due
and payable.
SECTION 3.02 Computations. Unless otherwise expressly set forth herein, any
accrued interest on any Loan and any Fees due hereunder shall be computed on the
basis of a year of 360 days and the actual number of days elapsed.
SECTION 3.03 Usury. In no event shall the amount of interest due or payable
on the Loans or any Reimbursement Obligation exceed the maximum rate of interest
allowed by Applicable Law and, in the event any such payment is paid by the
Borrower or received by any Lender, then such excess sum shall be credited as a
payment of principal, unless the Borrower shall notify the Lender in writing
that the Borrower elects to have such excess sum returned to it forthwith. It is
the express intent of the parties hereto that the Borrower not pay and the
Lender not receive, directly or indirectly, in any manner whatsoever, interest
in excess of that which may be lawfully paid by the Borrower under Applicable
Law.
SECTION 3.04 Payments. Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Borrower
under this Agreement, the Notes or any other Loan Document shall be made in
Dollars, in immediately available funds, to the Lender at its Principal Office,
not later than 2:00 p.m. on the date on which such payment shall become due
(each such payment made after such time on such due date to be deemed to have
been made on the next succeeding Business Day) and shall be made in accordance
with the wiring instructions set forth for the Lender on Annex I attached
hereto. The parties agree that if the Borrower makes any payment due hereunder
after 2:00 p.m. but before 5:00 p.m. on the date such payment is due, such late
payment shall not constitute a Default under Section 9.01(a) hereof but shall
nevertheless be deemed to have been paid as of the next succeeding Business Day
as provided in the parenthetical phrase of the preceding sentence. The Borrower
authorizes the Lender to and the Lender may (but shall not be obligated to)
debit the amount of any such payment from any special or general deposit account
of the Borrower with the Lender designated from time to time by Borrower. The
Borrower shall, at the time of making each payment under this Agreement or any
Note, specify to the Lender the amounts payable by the Borrower hereunder to
which such payment is to be applied and in the event that it fails to so
specify, or an Event of Default has occurred and is continuing, the Lender may
apply such payment to the Loans, any Reimbursement Obligation or any other
obligation of the Borrower under the Loan Documents in such manner as the Lender
may determine to be appropriate. If the due date of any payment under this
Agreement or any Note would otherwise fall on a day which is not a Business Day
such date shall be extended to the next succeeding Business Day and interest
shall be payable for the period of such extension.
SECTION 3.05 Insufficient Funds. If the Lender receives funds insufficient
to pay in full the outstanding principal of any Loans, any Reimbursement
Obligations and/or interest and/or fees and expenses due and payable on any date
such amounts are due, the Lender shall apply any such funds received by it:
(a) first, to pay all fees and expenses owing to the Lender under or
in connection with this Agreement and the other Loan Documents;
(b) second, to pay all accrued but unpaid interest on all outstanding
Loans and Reimbursement Obligations;
(c) third, to pay all amounts of principal outstanding on (i) first,
the Revolving Loans and Reimbursement Obligations and, (ii) second, the
Term Loan in accordance with the second sentence of Section 2.06(b) hereof.
SECTION 3.06 Fees.
(a) Facility Fees. The Borrower has heretofore paid the
fees due to the Lender from the Borrower.
(b) Unused Fee. The Borrower shall pay to the Lender a fee for the period
from and including the date of the initial Borrowing of Revolving Loans to and
excluding the Revolving Termination Date (or such earlier date upon which the
Revolving Commitment shall have been terminated) in an amount equal to the
Revolving Commitment less the sum of the average daily amount of Outstanding
Credits during the preceding fiscal quarter of the Borrower multiplied by 1/2
of 1 percent per annum, such fee to be payable quarterly in arrears on the last
day of each March, June, September and December commencing on September 30,
1999, or on such earlier date upon which the Revolving Commitment is terminated.
SECTION 3.07 Increased Costs. The Borrower agrees that if: (a) any change
after the Agreement Date in any Applicable Law or in any request, guideline or
directive of any administrative or governmental authority (whether or not having
the force of law) or in the interpretation thereof by any court or
administrative or governmental authority charged with administration thereof,
shall either impose, affect, modify or deem applicable any reserve, special
deposit, capital maintenance or similar requirement against any Loan or Letters
of Credit or impose on the Lender any other condition regarding any Loan or
Letters of Credit or (b) there shall occur any change after the Agreement Date
in the basis of taxation of payments to the Lender of any amount owing to the
Lender hereunder (except for a change in the rate or amount of taxation on the
overall net income of the Lender), and the result of any event referred to in
clause (a) or (b) above shall be to increase the cost to the Lender of making or
maintaining any Loan or issuing or maintaining any Letter of Credit or to reduce
the rate of return on capital with respect to any Loan or Letters of Credit,
then, upon demand by the Lender, the Borrower shall immediately pay to the
Lender additional amounts which shall be sufficient to compensate the Lender for
such increased cost, tax or reduced rate of return, together with interest on
such amount from the date five days after the date the Borrower receives the
statement(s) referred to in the next sentence to the date the Borrower pays such
increased cost, tax or reduced rate of return in full at the Prime Rate. A
statement setting forth the basis for requesting such compensation and the
method for determining the amount thereof, submitted by the Lender to the
Borrower, shall be conclusive absent manifest error.
SECTION 3.08 Statements of Account. The Lender will account to the Borrower
upon its request but not more frequently than monthly with a statement of Loans,
Letters of Credit, interest, fees, expenses, charges and any other payments made
pursuant to this Agreement and the other Loan Documents, and such account
rendered by the Lender shall be deemed final, binding and conclusive upon
Borrower unless the Lender is notified by the Borrower in writing within thirty
days after the date each account is delivered to the Borrower that the Borrower
objects to the information, calculations or items therein contained. Such notice
shall only be deemed an objection to those items specifically objected to
therein. The failure of the Lender to deliver such a statement of accounts shall
not relieve or discharge the Borrower from its obligations hereunder.
<PAGE>
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.01 Conditions Precedent to Closing. This Agreement and the
obligation of the Lender to continue to make Revolving Loans or to continue to
make the Term Loan to the Borrower, or to continue to issue Letters of Credit,
in accordance with the terms hereof, are subject to the condition precedent that
the Borrower shall comply not later than the Closing Date with each of the
following, such compliance shall be satisfactory to the Lender and any documents
delivered to the Lender shall be in form and substance reasonably satisfactory
to the Lender:
(a) Loan Documents. The following documents shall have been duly
authorized, executed and delivered to the Lender by each Loan Party a party
thereto, shall be in full force and effect on the Closing Date without any event
or condition having occurred or existing which constitutes, or with the giving
of notice or lapse of time or both would constitute, a default thereunder or
breach thereof or would give any party thereto the right to terminate any
thereof:
(i) this Agreement;
(ii) the Revolving Note;
(iii) the Term Note;
(iv) the Subsidiary Guaranty;
(v) the Security Agreement;
(vi) the Trademark Security Agreement;
(vii) the Membership Pledge Agreement;
(viii) the Pledge Agreement; and
(ix) the Partnership Pledge Agreement;
(b) Resolutions. Each Loan Party shall have delivered to the Lender
certified copies (certified by the respective Secretary or Assistant Secretary
of each Loan Party (such Person shall be the "Authenticating Person" with
respect to such Loan Party)) of all corporate or other necessary action taken by
each Loan Party authorizing the execution, delivery and performance of the Loan
Documents to which it is a party;
(c) Corporate Certificates. Each Loan Party shall have delivered to the
Lender (i) a certificate of an Authenticating Person of each Loan Party
certifying, as applicable, (A) that the articles of incorporation and by-laws of
such Loan Party have not been amended, modified, or rescinded since the last
date such documents were delivered to the Lender and certified by an
Authenticating Person or (B) that the operating agreement of such Loan Party has
not been amended, modified or rescinded since the last date such document was
delivered to the Lender and certified by an Authenticating Person; (ii) with
respect to each Loan Party, a certificate of formation or other good standing
certificate issued by the Secretary of State of the jurisdiction in which such
Loan Party was formed and in the State of its principal place of business and in
each State where such Loan Party is qualified to do business; and (iii)
certificates of incumbency and specimen signatures signed by the appropriate
Authenticating Person with respect to each of the officers or other Persons of
each Loan Party who are authorized to execute and deliver the Loan Documents to
which such Loan Party is a party;
(d) Filings and Recordings. All Uniform Commercial Code financing
statements and other documents or memoranda, if any, in respect thereof,
necessary or advisable, in the opinion of the Lender shall have been duly filed
or recorded including without limitation UCC-1 financing statements, and if
necessary, UCC-3 amendment statements, naming each Loan Party as "Debtor" and
the Lender as "Secured Party" and covering the Collateral and filed in all
necessary and appropriate jurisdictions; and
(e) Consents and Approvals. All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained in connection with the
execution, delivery and performance of any Loan Document shall have been taken,
given or obtained, as the case may be, shall be in full force and effect in all
material respects; and
(f) Insurance Certificate. Each Loan Party shall have delivered a
certificate of insurance covering any of the tangible insurable Collateral of
such Loan Party which comply with Section 6.05.
(g) Opinions of Counsel. The Borrower shall have delivered to the Lender
the following legal opinions:
(i) Opinion of Greenberg Traurig, P.A., counsel to the
Loan Parties substantially in the form attached hereto as Exhibit J;
and
(ii) Opinions of special local counsel to the Borrower
and its Subsidiaries as required by the Lender.
(h) Notice of Borrowing. With respect to each Borrowing of a Revolving
Loan, the Borrower shall have delivered to the Lender a Notice of Borrowing
executed by the Borrower;
(i) Financial Information. There shall have been delivered to the Lender
the financial information required by Section 5.01(j).
(j) Additional Documents. Such other documents and
instruments as the Lender may reasonably request.
(k) Letter of Credit Request. With respect to each issuance of a Letter of
Credit, the Borrower shall have delivered to the Lender a Letter of Credit
Request executed by the Borrower.
(l) Endorsement to Title Policy. An endorsement to the title policy on the
Mortgaged Property updating the time and date of coverage and containing only
such title exceptions approved by the Lender.
SECTION 4.02 Conditions Precedent to All Credit Events. The obligations of
the Lender to make Revolving Loans and the Term Loan and to issue or amend
Letters of Credit is subject to the further condition precedent that, as of the
date of each such Credit Event after giving effect thereto: (a) no Default or
Event of Default shall have occurred and be continuing or would occur as a
result of such Credit Event; (b) the representations and warranties made or
deemed made by the Borrower in this Agreement and the other Loan Documents to
which it is a party and by each other Loan Party in the Loan Documents to which
it is a party, shall be true and correct in all material respects on and as of
the date of the making of such Credit Event with the same force and effect as if
made on and as of such date except to the extent that such representations and
warranties shall have been true and correct in all material respects on and as
of such earlier date) and except for changes in factual circumstances
specifically permitted hereunder; (c) no Materially Adverse Effect has occurred
since the Effective Date; and (d) the amount of any Borrowing or Revolving Loans
or the Stated Amount of any Letter of Credit to be issued on such date does not
exceed the Unused Commitment or cause the Borrower to breach clause (b) of
Section 6.08. Each Notice of Borrowing delivered by the Borrower to the Lender
hereunder and each Borrowing of Loans shall constitute a certification by the
Borrower to the effect set forth in the preceding sentence (both as of the date
of such Credit Event and after giving effect to such Credit Event) and such
Notice of Borrowing shall have attached to it a Compliance Certificate based on
the last financial statements delivered to the Lender pursuant to Article VII
hereof, showing compliance immediately prior to and after such Borrowing.
SECTION 4.03 Conditions as Covenants. In the event the Lender makes the
Revolving Loans or continues the Term Loan or continues to issue Letters of
Credit prior to the satisfaction of all conditions precedent set forth in
Section 4.01 hereof, the Borrower shall nevertheless cause such condition or
conditions to be satisfied within thirty days after the date of the making of
such Revolving Loans and continuation of the Term Loan or the issuance of such
Letter of Credit unless any such conditions have been waived in writing by the
Lender.
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01 Representations and Warranties. The Borrower represents and
warrants to the Lender as follows:
(a) Organization; Power; Qualification. The Borrower and each of its
Subsidiaries is a corporation, limited liability company or partnership, as the
case may be, duly organized, validly existing and in good standing under the
laws of the State of its organization, has the power and authority to own or
lease its properties and to carry on its business as now being and hereafter
proposed to be conducted and is duly qualified and is in good standing as a
corporation, limited liability company or partnership, as the case may be, and
authorized to do business, in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization and where the failure to be so qualified or authorized would have
a Materially Adverse Effect.
(b) Ownership Structure. Schedule 5.01(b) correctly sets forth as of the
date hereof the corporate structure and ownership interests of the Borrower and
each of its Subsidiaries including the correct legal name of the Borrower and
each of its Subsidiaries and the shareholders or other Persons holding equity
interests in greater than 5% of the total equity interests outstanding in the
Borrower and each of its Subsidiaries and their percentage equity or voting
interest in the Borrower and each of its Subsidiaries. Except as set forth in
Schedule 5.01(b):
(i) neither the Borrower nor any of its Subsidiaries has
issued to any third party any securities convertible into ownership
interests in its capital stock or other equity interest, as
applicable, or any options, warrants or other rights to acquire any
securities convertible into such equity interests, and
(ii) the outstanding stock and securities of or other
equity interests, as applicable, in each of the Borrower's
Subsidiaries are owned by the Persons indicated on Schedule 5.01(b),
free and clear of all Liens, warrants, options and rights of others of
any kind whatsoever except as contemplated by the Pledge Agreement,
the Membership Pledge Agreement and the Partnership Pledge Agreement.
(c) Authorization of Agreement, Notes, Loan Documents and Borrowings. The
Borrower has the corporate power, and has taken all necessary corporate action
to authorize it, to borrow hereunder and to execute, deliver and perform this
Agreement, the Notes and the other Loan Documents to which it is a party in
accordance with their respective terms and to consummate the transactions
contemplated hereby. This Agreement, the Notes and each of the other Loan
Documents to which the Borrower is a party have been duly executed and delivered
by the duly authorized officers of the Borrower and each is the legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its respective terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
limiting creditors, rights or by equitable principles generally (regardless of
whether enforcement is sought in equity of at law).
(d) Compliance of Agreement, Notes, Loan Documents and Borrowing with Laws,
etc. The execution, delivery and performance of this Agreement, the Revolving
Note and the other Loan Documents to which the Borrower is a party and the
Borrowings hereunder do not, and, to the knowledge of the Borrower, the
execution, delivery and performance of any Loan Document will not, by the
passage of time, the giving of notice, a determination of materiality, the
satisfaction of any condition, any combination of the foregoing, or otherwise:
(i) require any Governmental Approval or violate any Applicable Law relating to
the Borrower or any of its Subsidiaries; (ii) conflict with, result in a breach
of or constitute a default under the articles of incorporation or bylaws of the
Borrower, or any indenture, material agreement or other instrument to which the
Borrower is a party or by which it or any of its properties may be bound; or
(iii) result in or require the creation or imposition of any Lien upon or with
respect to any property now owned or hereafter acquired by the Borrower or any
of its Subsidiaries other than Permitted Liens.
(e) Compliance with Law; Governmental Approvals. The Borrower and each of
its Subsidiaries is in compliance with each Governmental Approval applicable to
it in respect of the conduct of its business and the ownership of its property
and in compliance with all other Applicable Law relating to the business of the
Borrower or any of its Subsidiaries, except for noncompliances which, and
Governmental Approvals the failure to possess which, would not, singly or in the
aggregate, cause a Default or Event of Default or have a Materially Adverse
Effect and, where appropriate, in respect of which adequate reserves have been
established on the books of the Borrower.
(f) Titles to Properties. Each of the Borrower and each of its Subsidiaries
has good, marketable and legal title to, or a valid leasehold interest in, its
properties and assets including, but not limited to, those reflected on the
balance sheets of the Borrower and its Subsidiaries as at March 31, 1999.
(g) Indebtedness and Guarantees. Schedule 5.01(g) is a complete and correct
listing of all (i) Indebtedness for Money Borrowed of the Borrower and each of
its Subsidiaries, (ii) Guarantees of the Borrower or any of its Subsidiaries and
(iii) all letters of credit and acceptances issued or created by any Person for
the account of the Borrower or any of its Subsidiaries existing on the date
hereof; excluding in each of the foregoing instances any Indebtedness incurred
by, or Guarantees of, the Borrower and its Subsidiaries under the Loan
Documents. Each of the Borrower and each of its Subsidiaries has performed and
is in compliance with all of the material terms of such Indebtedness and such
Guarantees and all instruments and agreements relating thereto, and, to the best
knowledge of the Borrower, no default or event of default, or event or condition
which with the giving of notice, the lapse of time, a determination of
materiality, the satisfaction of any other condition or any combination of the
foregoing, would constitute such a default or event of default, exists with
respect to any such Indebtedness or Guaranty.
(h) Litigation. Except as set forth on Schedule 5.01(h), there are no
actions, suits or proceedings pending (nor, to the knowledge of the Borrower,
are there any actions, suits or proceedings threatened) against the Borrower or
any of its Subsidiaries or any of their respective property in any court or
before any arbitrator of any kind or before or by any governmental body which
would have a Materially Adverse Effect. There are no strikes or walkouts in
progress relating to any labor contracts to which the Borrower or any of its
Subsidiaries is a party.
(i) Tax Returns and Payments. All federal, state and other tax returns of
the Borrower or any of its Subsidiaries required by Applicable Law to be filed
have been duly filed (except where valid extension of time for filing has been
obtained), and all federal, state and other taxes, assessments and other
governmental charges or levies upon the Borrower or any of its Subsidiaries and
its properties, income, profits and assets which are due and payable have been
paid, other than those contested in good faith and for which adequate reserves
have been established in accordance with GAAP.
(j) Financial Information.
(i) Financial Statements. The Borrower has furnished to
the Lender copies of the audited consolidated balance sheets of the
Borrower and its Subsidiaries as at December 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity
and cash flows for the period covered thereby and the unaudited
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at March 31, 1999, and the related consolidated and
consolidating statements of operations, and related consolidated
statements of changes in stockholders' equity and cash flows for the
period covered thereby, each certified by the chief financial officer
of the Borrower to be in compliance with the next succeeding sentence.
Such consolidated balance sheets and consolidated statements
(including in each case related Schedules and notes) are complete and
correct and present fairly, in accordance with GAAP consistently
applied throughout the period involved, the consolidated financial
position of the Borrower and its Subsidiaries as at such date and the
results of operations and the cash flow for such period. Except as
disclosed in such balance sheet or statements or Schedule 5.01(g),
neither the Borrower nor its Subsidiaries have on the Closing Date any
material liabilities, contingent or otherwise, and there are not any
material unrealized or anticipated losses of the Borrower or its
Subsidiaries, taken as a whole.
(ii) Projections. The Projections delivered pursuant to
Section 7.03 have been prepared by Borrower in light of the past
operations and future plans of the business of Borrower and its
Subsidiaries. The Projections reflect as of the date thereof the good
faith estimate of Borrower and its senior management concerning the
most probable course of its business, provided, however, the Lender
recognizes that actual results may differ from the Projections and
that the Borrower makes no representation that the Projections will be
attained.
(k) ERISA. The Borrower and its ERISA Affiliates are in compliance with
ERISA in all material respects. No material liability to the PBGC or to a
Multiemployer Plan has been, or is expected by the Borrower or its Affiliates to
be, incurred by the Borrower or any ERISA Affiliates.
(l) Absence of Defaults. No event has occurred, which has not been
remedied, cured or waived: (i) which constitutes a Default or an Event of
Default; or (ii) which constitutes, or which with the passage of time, the
giving of notice, a determination of materiality, the satisfaction of any
condition, or any combination of the foregoing, would constitute, a default or
event of default by the Borrower or any of its Subsidiaries of any material
agreement (other than this Agreement) or judgment, decree or order to which the
Borrower or any of its Subsidiaries is a party or by which the Borrower or any
of its Subsidiaries or any of its respective properties may be bound.
(m) Accuracy and Completeness of Information. All written information,
reports and other papers and data furnished to the Lender by, on behalf of, or
at the direction of, any Loan Party were, at the time the same were so
furnished, true and correct in all material respects, to the extent necessary to
give the recipient a true and accurate knowledge of the subject matter, or, in
the case of financial statements, present fairly, in accordance with GAAP
consistently applied throughout the periods involved, the financial position of
the Loan Parties involved as at the date thereof and the results of operations
for such periods. No fact is known to the Borrower which has had, or may in the
future have (so far as the Borrower can reasonably foresee), a Materially
Adverse Effect which has not been set forth in the financial statements referred
to in Section 5.01(j) or in such information, reports or other papers or data or
otherwise disclosed in writing to the Lender prior to the date hereof. No
document furnished or written statement made to the Lender in connection with
the negotiation, preparation and execution of this Agreement or any of the other
Loan Documents contains or, to the Borrower's best knowledge, will contain any
untrue statement of a fact material to the creditworthiness of the Borrower or
any other Loan Party or omits or will, to the Borrower's best knowledge, omit to
state a material fact necessary in order to make the statements contained
therein not misleading.
(n) Environmental Laws. Except as set forth on Schedule 5.01(n), each of
the Borrower and each of its Subsidiaries has obtained all material Governmental
Approvals required under Environmental Laws and is in compliance in all material
respects with all terms and conditions of such Governmental Approvals, and each
is also in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables contained in the Environmental Laws. Except as set
forth on Schedule 5.01(n), the Borrower is not aware of, and has not received
notice of, any past, present, or future events, conditions, circumstances,
activities, practices, incidents, actions, or plans which, with respect to the
Borrower or any of its Subsidiaries, may prevent compliance or continued
compliance in all material respects with Environmental Laws or may require the
Borrower or any of its Subsidiaries to notify any Governmental Authority of any
of the foregoing. There is no civil, criminal, or administrative action, suit,
demand, claim, hearing, notice, or demand letter, notice or violation,
investigation, or proceeding pending or, to the Borrower's knowledge,
threatened, against the Borrower or any of its Subsidiaries relating in any way
to Environmental Laws.
(o) Intellectual Property. Each of the Borrower and each of its
Subsidiaries, owns, is licensed to use or otherwise has the right to use the
Intellectual Property and all such Intellectual Property is identified on
Schedule 5.01(o) and, in the Borrower's reasonable discretion except as set
forth on Schedule 5.01(o), is fully protected and/or duly and properly
registered, filed or issued in the appropriate office and jurisdictions for such
registrations, filing or issuances. All Intellectual Property that is registered
or for which application for registration is pending is identified on Schedule
5.01(o). Except as disclosed in Schedule 5.01(o), no claim has been asserted by
any Person with respect to the use of any Intellectual Property, or challenging
or questioning the validity, use or effectiveness of any Intellectual Property.
Except as disclosed in Schedule 5.01(o), to the Borrower's best knowledge, the
use of such Intellectual Property by Borrower and its Subsidiaries does not
infringe on the rights of any Person, subject to such claims and infringements
as do not, in the aggregate, give rise to any liabilities on the part of the
Borrower and its Subsidiaries that are material to Borrower or its Subsidiaries.
(p) Solvency. As of and from and after the Agreement Date and after giving
effect to each Credit Event, each of the Borrower and each of its Material
Subsidiaries: (a) owns and will own assets the fair saleable value of which are
(i) greater than the total amount of its liabilities (including contingent
liabilities and in the case of the Guarantors, subject to Section 2(b) of the
Guaranty Agreement) and (ii) greater than the amount that will be required to
pay its then existing debts as they become absolute and matured considering all
financing alternatives and potential asset sales reasonably available to it; (b)
has capital that is not unreasonably small in relation to its business as
presently conducted or any contemplated or undertaken transaction; and (c) does
not intend to incur and does not believe that it will incur debts beyond its
ability to pay such debts as they become due.
(q) Holding Company and Investment Company Status. Neither the Borrower nor
any Subsidiary is a "holding company, or a "subsidiary company of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company,'
of a "holding company", or a "public utility", within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or a "public utility" within
the meaning of the Federal Power Act, as amended. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(r) Year 2000 Compliance. The Borrower and its Material Subsidiaries have
(i) initiated a review and assessment of all areas within its and each of its
Material Subsidiaries' business and operations (including those affected by
information received from suppliers and vendors) that could reasonably be
expected to be adversely affected by the year 2000 Problem, (ii) developed a
plan and timeline for addressing the Year 2000 Problem on a timely basis and
(iii) to date, implemented that plan substantially in accordance with that
timetable. The Borrower reasonably believes that all computer applications
(including those affected by information received from its suppliers and
vendors) that are material to its or any of its Subsidiaries' business and
operations will on a timely basis be Year 2000 Compliant, except to the extent
that a failure to do so could not reasonably be expected to have a Material
Adverse Effect.
SECTION 5.02 Survival of Representations and Warranties, Etc. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the Agreement Date, the Effective Date and at and as of the
date of each Credit Event, except to the extent that such representations and
warranties expressly relate solely to an earlier date (in which case such
representations and warranties shall have been true and correct in all material
respects on and as of such earlier date) and except for changes in factual
circumstances specifically permitted hereunder.
<PAGE>
ARTICLE VI
AFFIRMATIVE COVENANTS
For so long as any of the Secured Obligations remains unpaid or
unperformed, or this Agreement is in effect, unless the Lender shall otherwise
consent in the manner provided for in Section 10.07, the Borrower will:
SECTION 6.01 Preservation of Existence and Similar Matters. Subject to
Section 8.10 hereof, preserve and maintain, and cause each Subsidiary to
preserve and maintain, its respective existence, rights, franchises, licenses
and privileges in the jurisdiction of its formation and qualify and remain
qualified and authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification or authorization and the failure to be so qualified or authorized
would have a Materially Adverse Effect.
SECTION 6.02 Compliance with Applicable Law. Comply, and cause each
Subsidiary to comply, with all Applicable Laws as the same may be amended from
time to time, and the obtaining of all Governmental Approvals relating to the
Borrower or such Subsidiary where noncompliance would have a Materially Adverse
Effect except where the Borrower or such Subsidiary is challenging in good faith
by appropriate proceedings diligently pursued the application or enforcement of
such Applicable Law or requirement for such Governmental Approval and against
which adequate reserves have been established in accordance with GAAP, where
appropriate.
SECTION 6.03 Maintenance of Property. In addition to, and not in derogation
of, the requirements of any of the other Loan Documents, (a) protect and
preserve, and cause each Subsidiary to protect and preserve, all of its
properties necessary for the conduct of its business and maintain in good
repair, working order and condition all of its tangible properties ordinary wear
and tear excepted, and (b) from time to time, in the Borrower's reasonable
discretion, make or cause to be made, and cause each Subsidiary to make or cause
to be made, all needed and appropriate repairs, renewals, replacements and
additions to such properties, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
SECTION 6.04 Conduct of Business. At all times carry on, and cause each
Subsidiary to carry on, its business in the same or complimentary line of
business as engaged in on the date hereof. The Borrower will not, and will not
permit any of its Subsidiaries to, engage to any substantial extent in any
business other than the businesses in which the Borrower and its Subsidiaries
are engaged on the date of this Agreement and businesses reasonably related or
complimentary thereto or in furtherance thereof.
SECTION 6.05 Insurance. Maintain, and cause each Subsidiary to maintain, at
all times with such insurance companies as shall be reasonably satisfactory to
the Lender, with all premiums thereon to be paid by the Borrower, insurance with
respect to its properties (including without limitation the Collateral) and
business against such casualties and contingencies (including but not limited to
public liability and business interruption) and in such amounts as is customary
in the case of similarly situated corporations engaged in the same or similar
businesses or as requested by the Lender. Each such insurance policy shall name
the Lender as loss payee, with respect to properties, and additional insured,
with respect to liabilities, and shall provide for at least ten (10) days prior
written notice to the Lender of any default under, termination of or proposed
cancellation of such policy due to non-payment of premium and thirty (30) days
prior written notice to the Lender of any default under, termination of or
proposed cancellation of such policy due to any reason, other than non-payment
of premium. Notwithstanding the Lender being named as loss payee, amounts paid
in respect of such policy up to an aggregate $100,000 per occurrence (each, a
"Borrower Insurance Payment") shall be payable directly to the Borrower,
provided, that the Borrower shall pay or cause to be paid to the Lender any
Borrower Insurance Payment if the amount of such payment, less amounts used to
repair, replace or restore properties the damage or destruction of which gave
rise to such insurance payment, when aggregated with all previous Borrower
Insurance Payments, would exceed $250,000. All such amounts paid in respect of
such policy in excess of $100,000 per occurrence shall be paid to the Lender and
shall become part of the Collateral. From time to time deliver to the Lender
upon its request a detailed list, together with copies of all policies of the
insurance then in effect, stating the names of the insurance companies, the
amounts and rates of the insurance, the dates of the expiration thereof and the
properties and risks covered thereby.
SECTION 6.06 Payment of Taxes and Claims. Pay or discharge when due (a) all
taxes, assessments and governmental charges or levies imposed upon it or any
Subsidiary or upon the income or profits of the Borrower or any Subsidiary or
upon any properties belonging to the Borrower or any Subsidiary, and (b) all
lawful claims of materialmen, mechanics, carriers, warehousemen and landlords
for labor, materials, supplies and rentals which, if unpaid, might become a Lien
on any properties of the Borrower or any Subsidiary or which would otherwise
adversely affect the value of any Collateral; provided, however, that this
Section shall not require the payment or discharge of any such tax, assessment,
charge, levy or claim in an amount less than $100,000 or any such tax,
assessment, charge, levy or claim which is being contested in good faith by
appropriate proceedings which operate to suspend the collection thereof and for
which adequate cash reserves have been established in an amount equal to such
tax, assessment, charge, levy or claim; provided, further, however, neither the
Borrower nor any Subsidiary thereof may contest any such tax, assessment,
charge, levy or claim if the contest thereof will impair the value or
marketability of any Collateral or the Lender's Lien therein.
SECTION 6.07 Visits and Inspections. Permit, and cause its Subsidiaries to
permit, representatives or agents of the Lender, upon reasonable notice, from
time to time, as often as may be reasonably requested, but only during normal
business hours, to: (a) visit and inspect its respective properties (including
the Collateral); (b) inspect and make extracts from its relevant books and
records, including but not limited to management letters prepared by independent
accountants; and (c) discuss with its principal officers, and its independent
accountants, matters relating to its business, assets, liabilities, financial
conditions, results of operations and business prospects.
SECTION 6.08 Use of Proceeds. (a) Use the proceeds of Revolving Loans for
general corporate purposes, including Permitted Acquisitions, and the issuance
of Letters of Credit pursuant to Article IIA hereof; and (b) not use any part of
the proceeds of the Term Loan or the Revolving Loans (x) for a Hostile
Acquisition or (y) to purchase or carry, or to reduce or retire or refinance any
credit incurred to purchase or carry, any margin stock (within the meaning of
Regulations U and X of the Board of Governors of the Federal Reserve System) or
to extend credit to others for the purpose of purchasing or carrying any margin
stock.
SECTION 6.09 Additional Guarantor/Collateral. Within 60 days of the
creation or acquisition of any Subsidiary, (i) cause such Subsidiary to execute
and deliver in favor of the Lender a Guaranty Supplement and a Security
Agreement Supplement and, where applicable, a Trademark Security Agreement and
(ii) cause the owner of the capital stock or other equity interest of such
Subsidiary to execute and deliver in favor of the Lender a Pledge Agreement,
Pledge Agreement Supplement, Membership Pledge Agreement, Membership Pledge
Agreement Supplement, Partnership Pledge Agreement or Partnership Pledge
Agreement Supplement, as applicable. Each of such Additional Loan Documents
shall be governed by the laws of the State of Florida and shall contain such
other terms and provisions as the Lender determines to be necessary or
appropriate (after consulting with legal counsel) in order that such Additional
Loan Documents comply with local laws, rules and regulations and is fully
enforceable against such Additional Loan Party.
In connection with the delivery of any such Additional Loan Documents by an
Additional Loan Party there shall be delivered an opinion of counsel (which
counsel and the form and substance of such opinion shall be reasonably
satisfactory to the Lender) addressed to the Lender as it relates to such
Additional Loan Party and the Additional Loan Documents and such officers'
certificates, financing statements, applications for registration, directors and
shareholders resolutions and other agreements, instruments and documents as the
Lender may reasonably request.
SECTION 6.10 Year 2000 Compliance. The Borrower will promptly notify the
Lender in the event the Borrower discovers or determines that any computer
application (including those affected by information received from its suppliers
and vendors) that is material to its or any of its Subsidiaries' business and
operations will not be Year 2000 Compliant on a timely basis, except to the
extent that such failure could not reasonably be expected to have Material
Adverse Effect.
<PAGE>
ARTICLE VII
INFORMATION
For so long as any of the Secured Obligations remains unpaid or
unperformed, or this Agreement is in effect, unless the Lender shall otherwise
consent in the manner set forth in Section 10.07, the Borrower will furnish to
the Lender at its Principal Office:
SECTION 7.01 Quarterly Financial Statements. Within forty-five days after
the close of each of the first three quarterly accounting periods of each fiscal
year of the Borrower, and within ninety days after the close of the last
quarterly accounting period of each fiscal year of the Borrower, the
consolidated and, unless all of the Subsidiaries are party to the Subsidiary
Guaranty, consolidating balance sheet of the Borrower and its Subsidiaries as at
the end of such period and the related statement of income of the Borrower and
its Subsidiaries for such period, setting forth in each case in comparative form
the figures for the corresponding periods of the previous fiscal year, all of
which shall be certified by the chief financial officer of the Borrower, in his
or her opinion, to present fairly, in accordance with GAAP consistently applied
(subject to changes resulting from normal year-end adjustments), the
consolidated financial position of the Borrower and its Subsidiaries as at the
date thereof and the consolidated results of operations for such period,
SECTION 7.02 Year-End Statements. Within 120 days after the end of each
fiscal year of the Borrower, the consolidated and, unless all of the
Subsidiaries are party to the Subsidiary Guaranty, consolidating balance sheet
of the Borrower and its Subsidiaries as at the end of such fiscal year and the
related statements of income and cash flows of the Borrower and its Subsidiaries
for such fiscal year, setting forth in comparative form the figures as at the
end of and for the previous fiscal year, all of which shall be certified by the
chief financial officer of the Borrower, in his or her opinion, to present
fairly, in accordance with GAAP consistently applied, the consolidated financial
position of the Borrower and its Subsidiaries as at the date thereof and the
consolidated results of operations for such period and with respect to the
consolidated financial statements by independent certified public accountants of
recognized national standing or otherwise acceptable to the Lender, whose
certificate shall be in scope and substance satisfactory to the Lender and who
shall have authorized the Borrower to deliver such financial statements and
certification thereof to the Lender pursuant to this Agreement.
SECTION 7.03 Projections. Together with the delivery of financial
statements required by Section 7.02 above, the delivery of Projections, in form
and substance satisfactory to the Lender, for the ensuing fiscal year on an
annual and quarterly basis.
SECTION 7.04 Accounts/Inventory Certificate. From time to time and in any
event within 45 days after the end of the first three fiscal quarters, and
within 120 days after the end of the last fiscal quarter during which this
Agreement remains in effect a Schedule of Accounts which shall consist of a
summary of aging of all of the then existing Accounts of Borrower and its
Subsidiaries and a Schedule of Inventory, all as certified as true, complete and
correct by the chief financial officer of the Borrower and to be in form
reasonably satisfactory to the Lender, and upon request of the Lender, deliver
to the Lender a complete list of all existing Accounts, together with the name
of the Account Debtor, the balance due and an aging thereof.
SECTION 7.05 Collateral Value Report. Not more than once every other
calendar year prior to an Event of Default and at any time while and so long as
an Event of Default shall have occurred and be continuing, the Borrower will
upon the request of the Lender, at the Borrower's expense, obtain and deliver to
the Lender a report of an independent collateral auditor satisfactory to the
Lender with respect to the Accounts and Inventory which report shall include,
with respect to Accounts, verification with respect to the amount, aging,
identity and credit of the respective account debtors and the billing practices
of the Borrower and with respect to Inventory, verification as to the value,
location and respective types.
SECTION 7.06 Appraisals. From time to time, if the Lender determines that
obtaining appraisals is necessary in order to comply with Applicable Laws, the
Lender will, at the Borrower's expense, obtain appraisal reports in form and
substance and from appraisers satisfactory to the Lender stating the then
current fair market values of all or any portion of the Collateral owned by the
Borrower or any of its Subsidiaries. In addition, not more than once every other
calendar year prior to an Event of Default and at any time while and so long as
an Event of Default shall have occurred and be continuing, the Borrower will
upon the request of the Lender, at the Borrower's expense, obtain and deliver to
the Lender appraisal reports or updated appraisals in form and substance and
from appraisers satisfactory to the Lender, stating (1) the then current fair
market and orderly liquidation values of all or any portion of the Collateral
and (2) the then current business value of the Borrower or any of its
Subsidiaries as a going concern.
SECTION 7.07 Copies of Certificates and Other Reports.
(a) Together with each delivery of financial statements required by
Sections 7.01 and Section 7.02 above, a Compliance Certificate, substantially in
the form of Exhibit I hereto, demonstrating (with computations in reasonable
detail) compliance by the Borrower and its Subsidiaries with the provisions of
Section 8.01 and stating that there exists no Event of Default or Default, or,
if any Event of Default or Default exists, specifying the nature and period of
existence thereof and what action the Borrower has taken, is taking or proposes
to take with respect thereto. Together with each delivery of financial
statements required by Section 7.02 above, the Borrower will deliver a
certificate of such accountants stating that, in making the audit necessary for
their report on such financial statements, they have obtained no knowledge of
any Event of Default or Default, or, if they have obtained knowledge of any
Event of Default or Default, specifying the nature and period of existence
thereof to the extent permitted under generally accepted auditing standards.
(b) Promptly upon receipt thereof, copies of all reports, if any, submitted
to the Borrower by the Borrower's independent public accountants including,
without limitation, any management report; and
(c) From time to time and promptly upon each request, such data,
certificates, reports, statements, opinions of counsel, documents or further
information regarding the business, assets, liabilities, financial condition,
results of operations or business prospects of the Borrower as the Lender may
reasonably request. The rights of the Lender under this Section are in addition
to and not in derogation of its rights under any other provision of this
Agreement or any of the other Loan Documents.
SECTION 7.08 Notice of Litigation and Other Matters. Prompt notice of and
in any event within 10 Business Days after the occurrence thereof:
(a) to the extent the Borrower is aware of the same, the commencement of
all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or other
tribunal or before any arbitrator against or in any other way relating adversely
to, or adversely affecting, the Borrower or any of its Subsidiaries or any of
their respective properties, assets or businesses which, if adversely determined
or resolved, would have a Materially Adverse Effect, including without
limitation, any claim, action, demand, suit, proceeding, hearing, study, or
investigation, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, chemical, or industrial, toxic, or other Hazardous Material which
would result in an aggregate liability of $100,000 for the Borrower or any of
its Subsidiaries;
(b) any amendment to the articles of incorporation of the
Borrower or any of its Subsidiaries;
(c) any change in the senior management of the Borrower or any of its
Material Subsidiaries, and any change in the business, assets, liabilities,
financial condition, results of operations or business prospects of the Borrower
or any of its Material Subsidiaries, in either case which has had or may have a
Materially Adverse Effect; and
(d) any Default or Event of Default or any event which constitutes or which
with the passage of time, the giving of notice, a determination of materiality,
the satisfaction of any condition or any combination of any of the foregoing
would constitute a default or event of default by the Borrower or any of its
Subsidiaries under any material agreement (other than this Agreement) to which
the Borrower or such Subsidiary is a party or by which the Borrower or such
Subsidiary or any of its respective properties may be bound.
SECTION 7.09 ERISA. As soon as possible and in any event within 30 days
after the Borrower knows, or has reason to know:
(a) that any Termination Event with respect to a Plan has
occurred or will occur; or
(b) of the existence of any Unfunded Vested Accrued Benefits under all
Plans; or
(c) that the Borrower or any ERISA Affiliate is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
required by reason of its complete or partial withdrawal (as described in
Section 4203 or 4205 of ERISA) from such Plan, a certificate of a Responsible
Officer of the Borrower setting forth the details of such of the events
described in clauses (a) through (c) as applicable and the action which is
proposed to be taken with respect thereto, together with any notice or filing
which may be required by the PBGC or other agency of the United States
government with respect to such of the events described in clauses (a) through
(c) as applicable.
<PAGE>
ARTICLE VIII
NEGATIVE COVENANTS
So long as any of the Secured Obligations remains unpaid or unperformed, or
this Agreement is in effect, unless the Lender shall otherwise consent in the
manner set forth in Section 10.07, the Borrower will not, and will not permit
any of its Subsidiaries to, directly or indirectly:
SECTION 8.01 Financial Covenants. Permit at any time on a Consolidated
basis:
(a) Ratio of Funded Debt to EBITDA. The ratio of Indebtedness for Money
Borrowed to EBITDA for the Preceding Period to be more than 3.00 to 1.0;
(b) Ratio of Funded Debt to Capitalization. The ratio of Indebtedness for
Money Borrowed to Consolidated Capitalization to be more than 0.50 to 1.00.
(c) Consolidated Fixed Charge Coverage Ratio. The Consolidated Fixed Charge
Coverage Ratio at any fiscal quarter end to be less than 1.30 to 1.00 from the
Closing Date through June 29, 2000 and 2.00 to 1.00 from June 30, 2000 and
thereafter.
(d) Current Ratio. Permit the Current Ratio to be less than 1.00 to 1.00 at
any fiscal quarter end.
SECTION 8.02 Indebtedness for Money Borrowed. Create, assume, or otherwise
become or remain obligated in respect of, or permit or suffer to exist or to be
created, assumed or incurred or to be outstanding any Indebtedness for Money
Borrowed, except that this Section 8.02 shall not apply to Indebtedness: (a) for
Money Borrowed represented by the Loans and the Notes, (b) set forth on Schedule
5.01(g) hereof, (c) Indebtedness incurred in connection with a Purchase Money
Lien or constituting a Capitalized Lease Obligation, which Indebtedness, in the
aggregate, does not exceed at any time $2,000,000, (d) intercompany indebtedness
and Guaranties among the Borrower and its Subsidiaries to the extent permitted
by Section 8.07 and Section 8.03 and (e) Indebtedness of the Borrower under
Hedge Agreements entered into in the ordinary course of business and not for
speculative purposes; provided, however, that Indebtedness referred to in clause
(b) (other than with respect to letters of credit set forth on Schedule 5.01(g))
above may not be renewed, extended or refinanced without the prior written
consent of the Lender.
SECTION 8.03 Guaranties. Become or remain liable on or under any Guaranty
(other than with respect to (a) the Subsidiary Guaranty, (b) Guaranty
Supplements, (c) Indebtedness set forth on Schedule 5.01(g) and (d) Guaranties
by the Borrower of the obligations of the Guarantors.
SECTION 8.04 Investments. After the Agreement Date, make or purchase any
Investment or, after such date, permit any Investment to be outstanding other
than (i) Permitted Investments; (ii) Permitted Acquisitions; (iii) Investments
in existence as of the date hereof; (iv) Investments permitted under Section
8.07; or (v) Investments made in the ordinary course of business as conducted by
the Borrower and its Subsidiaries on the Effective Date and not in excess of
$500,000, individually or $1,000,000 in the aggregate for any calendar year.
SECTION 8.05 Liens. Create, assume, incur or permit or suffer to exist
(upon the happening of a contingency or otherwise) or to be created, assumed or
incurred, any Lien upon any of its properties or assets of any character whether
now owned or hereafter acquired or any income or profits therefrom or assign or
otherwise convey any right to receive income or profits, except for Permitted
Liens.
SECTION 8.06 Plans. Take any action which would cause any Unfunded Vested
Accrued Benefits under any Plan of the Borrower to exist.
SECTION 8.07 Loans. Extend credit to, or make any advance, loan or
contribution of money or goods to, any Person, provided, that, (a) the Borrower
and any Subsidiary thereof may make advances in the ordinary course of business
to their respective employees and (b) the Borrower or any Subsidiary may make
loans and advances to any other Guarantor and any Subsidiary may make loans and
advances to the Borrower, provided, that the sum of all such advances made under
clause (a) of this Section shall not exceed $1,000,000 at any one time
outstanding.
SECTION 8.08 Certain Agreements. (a) Amend, supplement or otherwise modify
any material term of any material agreement, oral or written, other than in the
ordinary course of business, or (b) permit Auto Europe, LLC to default in the
performance of its obligations under the Credit Enhancement Agreement, dated as
of June 1, 1995, between City of Portland, Maine and Auto Europe, Inc. (as
predecessor to Auto Europe, LLC) if such default would result in liability in
excess of $100,000.
SECTION 8.09 Transactions with Affiliates. Except as specified on Schedule
8.09 hereto, enter into any transaction or series of related transactions,
whether or not in the ordinary course of business, with any Affiliate (other
than a Guarantor) of the Borrower, other than on terms and conditions
substantially as favorable to the Borrower as would be obtainable by the
Borrower at the time in a comparable arm's length transaction with a Person not
an Affiliate ("Unaffiliated Transaction") other than any transaction or series
of transactions with respect to assets or services of the Borrower or its
Subsidiaries having a value in an Unaffiliated Transaction equal to or less than
$250,000 individually or $500,000 in the aggregate.
SECTION 8.10 Merger, Consolidation and Other Arrangements. Merge or
consolidate with any other Person unless the Borrower or a Subsidiary is the
surviving and continuing corporation and the financial condition, business or
operations of the Borrower or such Subsidiary shall not be materially and
adversely affected thereby and at the time of such merger or consolidation and
after giving effect thereto no Default or Event of Default shall have occurred
and be continuing.
SECTION 8.11 No Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of substantially all of its respective assets other than: (i) Inventory
in the ordinary course of its business; (ii) property no longer used or useful
in the conduct of such Person's business and disposed of in the ordinary course
of business, (iii) the transfer of the capital stock of Lifestyle Vacation
Incentives, Inc. to any Guarantor so long as such Guarantor promptly pledges
such stock to the Lender pursuant to a Pledge Agreement, and (iv) the transfer
of Intellectual Property or contracts to any Guarantor so long as such Guarantor
promptly grants the Lender a duly perfected security interest in such
Intellectual Property or contracts.
SECTION 8.12 Sale or Discount of Receivables. Sell with recourse, or
discount or otherwise sell for less than the face value thereof, any of its
notes or Accounts including without limitation pursuant to a Receivables
Financing.
SECTION 8.13 Dividend Limitation. (i) Pay or declare any cash dividend on
any class of its stock or make any other distribution on account of any class of
its stock; or (ii) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of its stock; except for:
(a) dividends payable in common stock;
(b) any Subsidiary of the Borrower may pay dividends
or any other such distribution to the Borrower or any
Guarantor;
(c) the Borrower may repurchase shares of common stock and/or options
to purchase such common stock held by directors, executive officers,
members of management or employees of the Borrower or any of its
Subsidiaries upon the death, disability, retirement or termination of
employment of such directors, executive officers, members of management or
employees so long as (x) no Default or Event of Default then exists or
would result therefrom and (y) the aggregate amount of cash expended by the
Borrower pursuant to this clause (c) does not exceed $1,000,000 in any
fiscal year of the Borrower; and
(d) the Borrower may repurchase shares of its common stock and/or
options to purchase such common shares held by any Person so long as (x) no
Default or Event of Default then exists or would result therefrom and (y)
the aggregate amount of cash expended by the Borrower pursuant to this
clause (d) does not exceed $1,000,000 in any fiscal year of the Borrower.
The term "stock" as used in this Section 8.13 shall include warrants or
options to purchase stock and any Preferred Stock.
<PAGE>
ARTICLE IX
DEFAULT
SECTION 9.01 Events of Default. Each of the following shall constitute an
Event of Default:
(a) Default in Payment. The Borrower shall fail to pay when due (whether
upon demand, at maturity, by reason of acceleration or otherwise) the principal
of any of the Loans or the Notes, or any amount payable hereunder as and when
required to be paid pursuant to any Reimbursement Obligation, or shall fail to
pay when due, and such failure shall continue for five (5) or more days, any
interest on any of the Loans, any of the Notes, any Reimbursement Obligation or
on any of the other obligations owing by the Borrower under this Agreement or
any other Loan Document, or any other Loan Party shall fail to pay when due any
obligation owing by such Loan Party under any Loan Document to which it is a
party.
(b) Misrepresentations. Any statement, representation or warranty made or
deemed made by or on behalf of the Borrower or any other Loan Party under this
Agreement or under any other Loan Document, or any amendment hereto or thereto,
or in any other writing or statement at any time furnished or made or deemed
made by or on behalf of the Borrower or any other Loan Party to the Lender in
connection with any Loan Document or with respect to the transactions
contemplated by the Loan Documents, shall at any time prove to have been
incorrect or misleading in any material respect when furnished or made.
(c) Default in Performance. (i) The Borrower shall fail to perform or
observe any term, covenant, condition or agreement contained in Article VIII
hereof or Section 2.06 or Section 6.09 hereof or (ii) the Borrower or any Loan
Party shall fail to perform or observe any term, covenant, condition or
agreement contained in this Agreement or any other Loan Document to which it is
a party and not otherwise mentioned in this Section 9.01 and the continuance of
such failure shall have continued for a period of thirty days.
(d) Cross Default. The Borrower or any Subsidiary defaults (whether as
primary obligor or as guarantor or other surety) in any payment of principal of
or interest on any other obligation for Money Borrowed (or any Capitalized Lease
Obligation, any obligation under a conditional sale or other title retention
agreement, any obligation issued or assumed as full or partial payment for
property whether or not secured by a purchase money mortgage or any obligation
under notes payable or drafts accepted representing extensions of credit) beyond
any period of grace or cure provided with respect thereto, or the Borrower or
any Subsidiary fails to perform or observe any other agreement, term or
condition contained in any agreement under which any such obligation is created
(or if any other event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause, or to
permit the holder or holders of such obligation (or a trustee on behalf of such
holder or holders) to cause, such obligation to become due (or to be repurchased
or defeased by the Borrower or any Subsidiary) prior to any stated maturity; or
(e) Voluntary Bankruptcy Proceeding. The Borrower or any of its
Subsidiaries shall: (i) commence a voluntary case under the federal bankruptcy
laws (as now or hereafter in effect); (ii) file a petition seeking to take
advantage of any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or composition for adjustment of debts;
(iii) consent to or fail to contest in a timely and appropriate manner any
petition filed against it in an involuntary case under such bankruptcy laws or
other laws; (iv) apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver, custodian, trustee, or liquidator of itself or of a substantial part
of its property, domestic or foreign; (v) admit in writing its inability to pay
its debts as they become due; (vi) make a general assignment for the benefit of
creditors; (vii) make a conveyance fraudulent as to creditors under any state or
federal law; or (viii) take any corporate action for the purpose of effecting
any of the foregoing.
(f) Involuntary Bankruptcy Proceeding. A case or other proceeding shall be
commenced against the Borrower or any of its Subsidiaries in any court of
competent jurisdiction seeking: (i) relief under the federal bankruptcy laws (as
now or hereafter in effect) or under any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding up or adjustment of
debts; or (ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of such Person, or of all or any substantial part of the assets,
domestic or foreign, of such Person and, in either event, shall not be
discharged within 60 days.
(g) Litigation. The Borrower or any Loan Party shall challenge or contest
in any action, suit or proceeding in any court or before any arbitrator or
governmental body the validity or enforceability of this Agreement, any Note or
any other Loan Document.
(h) Judgment. A judgment or order for the payment of money (not paid or
fully covered by insurance) individually or in the aggregate equal to or greater
than $100,000 shall be entered against the Borrower by any court and such
judgment or order shall continue undischarged or unstayed for a period of
forty-five days.
(i) Attachment. A warrant or writ of attachment or execution or similar
process shall be issued against any property of the Borrower or any of its
Subsidiaries which, individually or together with all other such processes,
would have a Materially Adverse Effect and such processes shall continue
undischarged for a period of forty-five days; provided, however, that if such
processes shall require the payment of money individually or in the aggregate
equal to or greater than $100,000, such forty-five day period shall not be
required to pass for an Event of Default to occur hereunder.
(j) ERISA. (i) Any Termination Event with respect to a Plan shall occur;
(ii) any Plan shall incur an "accumulated funding deficiency" (as defined in
Section 412 of the Internal Revenue Code or Section 302 of ERISA) for which a
waiver has not been obtained in accordance with the applicable provisions of the
Internal Revenue Code and ERISA; or (iii) the Borrower is in "default" (as
defined in Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan resulting from the Borrower's complete or partial withdrawal
(as described in Section 4203 or 4205 of ERISA) from such Multiemployer Plan.
(k) Cessation of Operations. Except as permitted pursuant to Section 8.10,
the business operations as conducted on the Closing Date of the Borrower or any
of its Material Subsidiaries shall be suspended for a period of 30 consecutive
days or longer.
(l) Security Interest. The Security Interest shall for any reason cease to
be a valid, enforceable, perfected and first-priority Lien on any of the
Collateral, subject only to Permitted Liens, except to the extent such failure
to perfect arises out of the Lender's negligence.
(m) Guaranties. The Subsidiary Guaranty or any Guaranty Supplement (if any)
or any provisions thereof shall be found or held invalid or unenforceable by a
court of competent jurisdiction or shall have ceased to be effective as to any
Subsidiary of the Borrower or such Subsidiary shall have repudiated its
obligations under the Subsidiary Guaranty or Guaranty Supplement to which it is
a party.
(n) Change of Control. A Control Event and/or Change of Control shall
occur.
(o) Executive Officers. Both of the individuals specified below shall cease
to hold the office specified opposite his or her name (x) for any reason other
than his or her death, disability or non-renewal of the initial term of his or
her employment contract, or (y) due to his or her death, disability or
non-renewal of the initial term of his or her employment contract, and a
successor satisfactory to the Lender does not assume his or her responsibilities
and position within 60 days of cessation:
Name
Office
Joseph V.
Vittoria
Chief Executive Officer of Borrower or
John Balson
President and Chief Operating Officer of
Borrower
SECTION 9.02 Remedies. Upon the occurrence of an Event of Default the
following provisions shall apply:
(a) Automatic. Upon the occurrence of an Event of Default specified in
Section 9.01(e) or (f), (i) the principal of, and the interest on, the Loans and
the Notes at the time outstanding, and (ii) an amount equal to the Aggregate
Stated Amount of all Letters of Credit outstanding as of the date of the
occurrence of such Event of Default, and (iii) all of the other obligations of
the Borrower hereunder, including, but not limited to, the other amounts owed to
the Lender under this Agreement, the Notes or any of the other Loan Documents,
and all other Secured Obligations shall become automatically due and payable by
the Borrower without presentment, demand, protest, or other notice of any kind,
all of which are expressly waived by the Borrower and the Revolving Credit
Facility and the Letter of Credit Facility, the obligation of the Lender to
issue Letters of Credit under the Letter of Credit Facility, and the Lender's
Commitment, shall immediately and automatically terminate.
(b) Optional. If any other Event of Default (other than as set forth in
Section 9.01(e) or (f)) shall have occurred and be continuing, the Lender may
declare the principal of, and interest on, the Loans and the Notes at the time
outstanding, an amount equal to the aggregate Stated Amount of all Letters of
Credit at the time outstanding, and all of the other obligations of the Borrower
hereunder, including, but not limited to, the other amounts owed to the Lender
under this Agreement, the Notes or any of the other Loan Documents, and all
other Secured Obligations to be forthwith due and payable, whereupon the same
shall immediately become due and payable without presentment, demand, protest or
other notice of any kind, all of which are expressly waived by the Borrower and
terminate the Lender's Commitment, the Revolving Credit Facility, the Letter of
Credit Facility, the obligation of the Lender to make Revolving Loans under the
Revolving Credit Facility and the obligation of the Lender to issue Letters of
Credit under the Letter of Credit Facility. The Lender shall provide prompt
notice of any such declaration to the Borrower, however, the failure of the
Lender to so notify the Borrower shall not affect Lender's rights hereunder.
(c) Other Loan Documents. The Lender may exercise any and all rights under
any and all of the Loan Documents.
(d) Application of Proceeds. All proceeds of Collateral and other sums
received by Lender upon the exercise of its rights and remedies under the Loan
Documents, including, without limitation, proceeds of insurance and proceeds
from any condemnation, may be applied by the Lender, after deduction for any
expenses incurred in connection with such exercise which are reimbursable to the
Lender hereunder, to the Secured Obligations in such manner as the Lender may
determine then to be appropriate.
SECTION 9.03 Rights Cumulative. The rights and remedies of the Lender under
this Agreement, the Notes and each of the other Loan Documents shall be
cumulative and not exclusive of any rights or remedies which it would otherwise
have under Applicable Law. In exercising its rights and remedies the Lender may
be selective and no failure or delay by the Lender in exercising any right Shall
operate as a waiver of it, nor shall any single or partial exercise of any power
or right preclude its other or further exercise or the exercise of any other
power or right.
<PAGE>
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Notices. Unless otherwise provided herein, communications
provided for hereunder or under any other Loan Document shall be in writing and
shall be mailed, telefacsimiled or delivered as follows:
If to the Borrower:
Travel Services International, Inc.
220 Congress Park Drive
Suite 300
Delray Beach, Florida 33445
Attention: Jill M. Vales, Chief Financial Officer
Telephone: (561) 266-6169
Telefacsimile: (561) 266-0872
Attention: Suzanne B. Bell, General Counsel
Telephone: (561) 266-6171
Telefacsimile: (561) 266-0872
with a copy to:
Greenberg Traurig, P.A.
515 East Las Olas Boulevard, Suite 1500
Ft. Lauderdale, Florida 33301
Attention: Daniel H. Aronson, Esq.
Telephone: (954) 768-8201
Telefacsimile: (954) 765-1477
If to the Lender:
Bank of America, N.A. d/b/a NationsBank, N.A.
One Financial Plaza, 13th Floor
Ft. Lauderdale, Florida 33394
Attention: John M. Powell
Telephone: (954) 765-2319
Telefacsimile: (954) 765-2123
or, as to each party at such other address as shall be designated by such party
in a written notice to the other parties. All such notices and other
communications shall be effective (i) if mailed, when received; (ii) if
telefacsimiled, when transmission is confirmed; or (iii) if hand delivered, when
delivered.
SECTION 10.02 Expenses. The Borrower will pay all present and future
expenses of the Lender in connection with:
(a) the negotiation, preparation, execution, delivery and administration of
this Agreement, the Notes and each of the other Loan Documents, whenever the
same shall be executed and delivered, including appraisers' fees, search fees,
recording fees (including any intangible recording taxes) and the reasonable
fees and disbursements of: (i) Smith Helms Mulliss & Moore, L.L.P., special
counsel to the Lender, and (ii) each local counsel retained by the Lender;
(b) the negotiation, preparation, execution and delivery of any waiver,
amendment or consent by the Lender relating to this Agreement, the Notes or any
of the other Loan Documents;
(c) any restructuring, refinancing or "workout" of the transactions
contemplated by this Agreement, the Notes and the other Loan Documents,
including the reasonable fees and disbursements of counsel to the Lender;
(d) consulting with one or more Persons engaged by the Lender, including
appraisers, accountants and lawyers, concerning or related to the servicing of
this Agreement or the nature, scope or value of any right or remedy of the
Lender hereunder, under the Notes or under any of the other Loan Documents,
including any review of factual matters in connection therewith, which expenses
shall include the reasonable fees and disbursements of such Persons;
(e) the collection or enforcement of the obligations of the Borrower or any
Loan Party under this Agreement, the Notes or any other Loan Document including
the reasonable fees and disbursements of counsel to the Lender if such
collection or enforcement is done by, through or with the assistance of an
attorney;
(f) prosecuting or defending any claim in any way arising out of, related
to, or connected with this Agreement, the Notes or any of the other Loan
Documents, which expenses shall include the reasonable fees and disbursements of
counsel to the Lender and of experts and other consultants retained by the
Lender;
(g) the exercise by the Lender of any right or remedy granted to it under
this Agreement, the Notes or any of the other Loan Documents including the
reasonable fees and disbursements of counsel to the Lender; and
(h) reasonable costs and expenses incurred by the Lender in gaining
possession of, maintaining, handling, preserving, storing, shipping, appraising,
selling, preparing for sale and advertising to sell the Collateral, whether or
not a sale is consummated.
SECTION 10.03 Stamp, Intangible and Recording Taxes. The Borrower will pay
any and all applicable stamp, intangible, registration, recordation and similar
taxes, fees or charges and shall indemnify the Lender against any and all
liabilities with respect to or resulting from any delay in the payment or
omission to pay any such taxes, fees or charges, which may be payable or
determined to be payable in connection with the execution, delivery, performance
or enforcement of this Agreement, the Notes and any of the other Loan Documents
or the perfection of any rights or Liens thereunder, other than any such
liabilities resulting from Lender's gross negligence or willful misconduct.
SECTION 10.04 Set-off. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of an Event of Default, the Lender is
hereby authorized by the Borrower, at any time or from time to time, without
notice to the Borrower or to any other Person, any such notice being hereby
expressly waived, to set-off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, Indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other Indebtedness at any time held or owing by the Lender or any Affiliate of
the Lender, to or for the credit or the account of the Borrower against and on
account of any of the Secured Obligations, irrespective of whether or not the
Lender shall have declared any or all of the Loans and all other Secured
Obligations to be due and payable as permitted by Section 9.02, and although
such obligations shall be contingent or unmatured.
SECTION 10.05 GOVERNING LAW; ARBITRATION/JURISDICTION.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF FLORIDA WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAW.
(b) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, INCLUDING, WITHOUT LIMITATION,
ANY DISPUTE CONCERNING THE SCOPE OF THIS ARBITRATION CLAUSE SHALL BE RESOLVED BY
BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ ENDISPUTE AND ANY SUCCESSOR
THEREOF (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(c) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN FORT LAUDERDALE,
FLORIDA AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT THREE ARBITRATORS,
COMPRISED OF AT LEAST ONE ATTORNEY AND ONE ACCOUNTANT; IF J.A.M.S. IS UNABLE OR
LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL
ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
(d) RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO (i)
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (ii) BE A WAIVER BY THE
LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (iii) LIMIT THE RIGHT OF THE LENDER (A)
TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SET-OFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT.
NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
SECTION 10.06 Assignability.
(a) The Borrower shall not have the right to assign this Agreement or any
interest therein except with the prior written consent of the Lender.
(b) The Lender may make, carry or transfer Loans at, to or for the account
of, any of its United States branch offices or the United States office of an
Affiliate of the Lender or the Lender may pledge any Loans or Notes to any
Federal Reserve Bank.
(c) The Lender may assign to one or more financial institutions all or a
portion of its Commitment, the Loans owing to it and the Note or Notes held by
it and shall provide notice thereof and a copy of the instrument of assignment
to the Borrower, however, the failure by the Lender to so notify the Borrower or
to provide the Borrower with a copy of the instrument of assignment shall not
affect the Lender's rights hereunder. Upon the effectiveness of the assignment,
(x) the assignee thereunder shall be a party hereto, and, to the extent that
rights and obligations hereunder have been assigned to it, such assignee shall
have the rights and obligations of a "Lender" hereunder and (y) the assignor
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it, relinquish its rights (other than any rights it may have
pursuant to Sections 10.02 and 10.10 which will survive such assignment) and be
released from its obligations under this Agreement, other than with respect to
Section 10.09 hereof (and, in the case of an assignment for all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
the Notes and the other Loan Documents the Lender shall cease to be a party
hereto). If a bank syndicate is formed, the Lender agrees to serve as agent
thereof.
(d) The Lender may sell participations (without the consent of the
Borrower) to one or more parties in or to all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Loans owing to it and the Note or Notes held by
it); provided, however, that (i) the Lender's obligations under this Agreement
and the other Loan Documents (including, without limitation, its Commitment to
the Borrower hereunder) shall remain unchanged, (ii) the Lender shall remain
solely responsible to the Borrower and the other Loan Parties for the
performance of such obligations, (iii) the Lender shall remain the holder of any
such Note for all purposes of this Agreement, (iv) the Borrower shall continue
to deal solely and directly with the Lender in connection with the Lender's
rights and obligations under this Agreement and (v) the Lender shall not
transfer, grant, assign or sell any participation under which the participant
shall have rights to approve any amendment or waiver of this Agreement except to
the extent such amendment or waiver would (A) extend the final maturity date or
the date of the payments of any installment of fees or principal or interest of
any Loans or Reimbursement Obligations in which such participant is
participating, (B) reduce the amount of any installment of principal of any
Loans or Reimbursement Obligations in which such participant is participating,
(C) reduce the interest rate applicable to any Loans or Reimbursement
Obligations in which such participant is participating, or (D) except as
otherwise expressly provided in this Agreement, reduce any fees payable to the
Lender hereunder.
(e) The Lender agrees that, without the prior written consent of the
Borrower, it will not make any assignment hereunder in any manner or under any
circumstances that would require registration or qualification of, or filings in
respect of, any Loan or the Notes under the securities laws of the United States
of America or of any other jurisdiction.
(f) In connection with the efforts of the Lender to assign its rights or
obligations or to participate interests, the Lender may disclose to any proposed
participant and their counsel any information in its possession regarding the
Borrower or any Loan Party, subject to the provisions of Section 10.09.
SECTION 10.07 Amendments. Except as otherwise expressly provided in this
Agreement, any consent or approval required or permitted by this Agreement or in
any Loan Document to be given by the Lender may be given, and any term of this
Agreement or of any other Loan Document may be amended, and the performance or
observance by the Borrower of any terms of this Agreement or such other Loan
Document or the continuance of any Default or Event of Default may be waived
(either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Borrower and the
Lender. No waiver shall extend to or affect any obligation not expressly waived
or impair any right consequent thereon. No course of dealing or delay or
omission on the part of the Lender in exercising any right shall operate as a
waiver thereof or otherwise be prejudicial thereto. Except as otherwise
explicitly provided for herein or in any other Loan Document, no notice to or
demand upon the Borrower shall entitle the Borrower to other or further notice
or demand in similar or other circumstances.
SECTION 10.08 Nonliability of the Lender. The relationship between the
Borrower and the Lender shall be solely that of borrower and lender. The Lender
shall not have any fiduciary responsibilities to the Borrower. The Lender does
not undertake any responsibility to the Borrower to review or inform the
Borrower of any matter in connection with any phase of the Borrower's business
or operations.
SECTION 10.09 Confidential Information. Except as otherwise provided by
law, the Lender shall utilize all non-public information obtained pursuant to
the requirements of this Agreement which has been identified as confidential or
proprietary by the Borrower in accordance with its customary procedure for
handling confidential information of this nature and in accordance with safe and
sound banking practices but in any event may make disclosure: (i) to any of its
Affiliates provided they shall agree to keep such information confidential in
accordance with the terms of this Section 10.09; (ii) as reasonably required by
any bona fide transferee or participant in connection with the contemplated
transfer of any of the Commitment, the Term Loan or participations therein as
permitted hereunder provided they shall agree to keep such information
confidential in accordance with the terms of this Section 10.09); (iii) as
required by any Governmental Authority or representative thereof or pursuant to
legal process; (iv) to the Lender's independent auditors and other professional
advisors provided they shall agree to keep such information confidential in
accordance with the terms of this Section 10.09); and (v) after the happening
and during the continuance of an Event of Default, to any other Person, in
connection with the exercise of the Lender's rights hereunder or under any of
the other Loan Documents.
SECTION 10.10 Indemnification. The Borrower shall and hereby agrees to
indemnify, defend and hold harmless the Lender and its directors, officers,
agents, employees and counsel from and against (a) any and all losses, claims,
damages, liabilities, deficiencies, judgments or expenses incurred by any of
them (except in each case to the extent that it is judicially determined to have
resulted from their own gross negligence or willful misconduct) arising out of
or by reason of any litigations, investigations, claims or proceedings which
arise out of or are in any way related to: (i) this Agreement or any Loan
Document or the transactions contemplated hereby or thereby including, without
limitation, amounts paid in settlement, Lender's court costs and the reasonable
fees and disbursements of counsel to the Lender incurred in connection with any
such litigation, investigation, claim or proceeding; (ii) the making of Loans;
(iii) any actual or proposed use by the Borrower of the proceeds of the Loans or
the issuing of Letters of Credit or any actual or proposed use by any
Beneficiary of the proceeds of any Letter of Credit; and (b) any such losses,
claims, damages, liabilities, deficiencies, judgments or expenses incurred in
connection with any remedial or other action taken by the Borrower or the Lender
in connection with compliance by the Borrower or any of the Subsidiaries, or any
of their respective properties, with any federal, state or local Environmental
Laws or other environmental rules, regulations, orders, directions, ordinances,
criteria or guidelines. If and to the extent that the obligations of the
Borrower hereunder are unenforceable for any reason, the Borrower hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under Applicable Law. The Borrower's
obligations hereunder shall survive any termination of this Agreement and the
other Loan Documents and the payment in full of the Secured Obligations, and are
in addition to, and not in substitution of, any other of its obligations set
forth in this Agreement.
SECTION 10.11 Survival. Notwithstanding any termination of this Agreement,
or of the other Loan Documents, the indemnities to which the Lender is entitled
under the provisions of Sections 10.02 and 10.10 and under any other provision
of this Agreement and the other Loan Documents shall continue in full force and
effect and shall protect the Lender against events arising after such
termination as well as before.
SECTION 10.12 Titles and Captions. Titles and captions of Articles,
Sections, subsections and clauses in this Agreement are for convenience only,
and neither limit nor amplify the provisions of this Agreement.
SECTION 10.13 Severability of Provisions. Any provision of this Agreement
or any other Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 10.14 Counterparts. This Agreement and any other Loan Document may
be executed in any number of counterparts, each of which shall be deemed to be
an original and shall be binding upon all parties, their successors and assigns.
[Signatures on next page]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their authorized officers all as of the day and year first above
written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: /s/ Jill M. Vales
Name: Jill M. Vales
Title: Senior Vice President, Chief
Financial Officer
BANK OF AMERICA, N.A., d/b/a
NATIONSBANK, N.A.
By: /s/ Cheryl R. Moncure
Name: Cheryl R. Moncure
Title: Senior Vice President
<PAGE>
STATE OF NORTH CAROLINA )
) to wit:
COUNTY OF MECKLENBURG )
I HEREBY CERTIFY that on this day, before me, an officer duly authorized in
the State and County listed above to take acknowledgments, personally appeared
Cheryl R. Moncure who is personally known to me to be the person who signed the
foregoing Credit Agreement on behalf of Bank of America, N.A. d/b/a NationsBank,
N.A. and who executed the foregoing instrument on July 30, 1999, and who
acknowledged before me in the State of North Carolina, County of Mecklenburg,
that she executed same.
This acknowledgment is given for the sole purpose of verifying the identity
of the parties who signed the foregoing instrument and the place of its signing,
and without any liability on the part of the Notary with regard to the
obligations of the foregoing instrument.
WITNESS my hand and official seal this 30th day of July, 1999.
/s/ EMILY A. SAMPLE
Print Name: Emily A. Sample
Notary Public - State of North
Carolina
Commission Expires: October 6, 2002
(NOTARIAL SEAL)
<PAGE>
STATE OF NORTH CAROLINA )
) to wit:
COUNTY OF MECKLENBURG )
I HEREBY CERTIFY that on this day, before me, an officer duly authorized in
the State and County listed above to take acknowledgments, personally appeared
Jill M. Vales who is personally known to me to be the person who signed the
foregoing Credit Agreement on behalf of Travel Services International, Inc. and
who executed the foregoing instrument on July 30, 1999, and who acknowledged
before me in the State of North Carolina, County of Mecklenburg, that she
executed same.
This acknowledgment is given for the sole purpose of verifying the identity
of the parties who signed the foregoing instrument and the place of its signing,
and without any liability on the part of the Notary with regard to the
obligations of the foregoing instrument.
WITNESS my hand and official seal this 30th day of July, 1999.
/S/ KIMBERLY BA. SALTRICK
Print Name: Kimberly B. Saltrick
Notary Public - State of North
Carolina
Commission Expires: August 11,2002
(NOTARIAL SEAL)
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OF
COMPANY INCORPORATION TRADENAMES
<S> <C> <C>
TTC Holdings, Inc. DE None
TTC, Inc. DE None
Travel Treasury Holdings, Inc. DE None
Travel Treasury, Inc. DE None
Incentive Holding Corp. DE None
Incentive Corp. DE None
Vacation and Tour Holding Corp. DE None
Vacation and Tour Corp. DE None
Auto Rental Holding Corp. DE None
Auto Rental Corp. DE None
Lodging Holding Corp. DE None
Lodging Corp. DE None
Cruise Holding Corp. DE None
Cruise Corp. DE None
Travel Management Holdings, Inc. DE None
Travel Management, Inc. DE None
Travel Management Limited, Inc. DE None
Travel Technology Holdings, Inc. DE None
Travel Technology, Inc. DE None
Travel Technology Limited, Inc. DE None
Air Ticket Holding Corp. DE None
Air Ticket Corp. DE None
Nerve Holding Corp. DE None
Auto Net International, Inc. DE AutoNet International
ABC Corporate Services, Inc. IL ABC Corporate Services, ABC
Premier Hotel Plan
CruiseMasters, Inc. CA Cruise Fairs of America, The
Travel Company, CruiseMasters
CruiseWorld, Inc. NY The Travel Company, Cruises Only
Ship 'N' Shore Cruises, Inc. FL Ship 'N' Shore, The Travel
Company
SNS Coachline, Inc. AK None
The Cruise Line, Inc. FL The Travel Company, Cruises Only
AHI International Corporation IL Alumni Holidays, Alumni Campus
Abroad, AHI, All Horizons,
Studentaire, AHI Discoveries,
Journeys of Distinction, Club
Alumni
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATE OF
COMPANY INCORPORATION TRADENAMES
<S> <C> <C>
Lifestyle Vacation Incentives, Inc. FL Lifestyles, All Seasons Smart
Traveler
Auto Europe, LLC DE AUTO EUROPE, SKY DRIVE, AET
Inc., Great Atlantic Travel,
Destination Europe
Cruises Only, LLC DE Discount Cruises, SAFE CRUISE,
CAPTAIN'S CARD, The Travel
Company
Cruise Mart, Inc. FL None
Cruise Time, Inc. NY None
SNS Travel Marketing, Inc. FL None
Gold Coast Travel Agency Corporation, Inc. FL Gold Coast Cruises, The Travel
Company
Goodfellow Enterprises, Inc. CA The Travel Company
1-800-Cruises, Inc. FL 1-800-CRUISES, The Travel Company
Jubilee Enterprises, Inc. FL 1-800-CRUISES, The Travel Company
Cruise Outlets of the Carolinas, Inc. NC The Travel Company, Cruise Outlet
Cruises, Inc. NY The Travel Company
CruiseOne, Inc. FL The Travel Company
Landry & Kling, Inc. FL NATIONAL SALES CENTER FOR
CORPORATE CRUISES, NSCCC
Travel Management Center, Ltd. FL None
Travel Technology, Ltd. FL None
D-FW Travel Arrangements, Inc. TX D-FW Tours, GET UP 'N GO
VACATIONS
Diplomat Tours, Inc. DE Diplomat Tours, International
Airline Consolidators
Travel 800, LLC DE Travel 800, 1-800-FLY-CHEAP, The
Travel Company
Lexington Services Corporation DE Lexington Services
Lexington Services Limited, Inc. DE None
Lexington Services Associates, Ltd. TX Lexington Services
Trax Software, Inc. VA TRAX
</TABLE>
EXHIBIT 11
TRAVEL SERVICES INTERNATIONAL, INC.
SCHEDULE OF COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Basic Diluted
Weighted Weighted
Average Average
Shares Shares Shares
--------------------------- ------------
<S> <C> <C> <C>
HISTORICAL:
Quarter ended June 30, 1998
Shares attributable to Auto Europe, accounting acquiror, at beginning of period 1,083,334 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,997,344 1,997,344 1,997,344
Shares issued in consideration for acquisition of Other Founding Companies 2,338,891 2,338,891 2,338,891
Shares issued to founders and management of TSI 2,484,501 2,484,501 2,484,501
Sold pursuant to the initial public offering 2,875,000 2,875,000 2,875,000
Shares issued in consideration for acquisition of Trax Software 32,985 32,985 32,985
Shares issued in consideration for acquisition of Diplomat 21,821 21,821 21,821
Shares issued in consideration for acquisition of Goldcoast 163,755 163,755 163,755
Shares issued in consideration for acquisition of AutoNet 2,183 1,455 1,455
Shares issued in consideration for acquisition of Lexington 283,990 94,663 94,663
Options granted 1,211,547 - 586,317
============ ============ ============
Shares used in computing earnings per share for quarter ended June 30, 1998 12,495,351 11,093,749 11,680,066
============ ============ ============
Quarter ended June 30, 1999
Shares attributable to Auto Europe, accounting acquiror, at beginning of period 1,083,334 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,997,344 1,997,344 1,997,344
Shares issued in consideration for acquisition of Other Founding Companies 2,338,891 2,338,891 2,338,891
Shares issued to founders and management of TSI 2,484,501 2,484,501 2,484,501
Sold pursuant to the initial public offering 2,875,000 2,875,000 2,875,000
Shares issued in consideration for acquisition of Trax Software 32,985 32,985 32,985
Shares issued in consideration for acquisition of Diplomat 21,821 21,821 21,821
Shares issued in consideration for acquisition of Goldcoast 163,755 163,755 163,755
Shares issued in consideration for acquisition of AutoNet 2,183 2,183 2,183
Shares issued in consideration for acquisition of Lexington 283,990 283,990 283,990
Shares issued in consideration for acquisition of 1-800-CRUISES 36,546 36,546 36,546
Shares issued in consideration for acquisition of AHI 145,400 145,400 145,400
Shares issued in consideration for acquisition of LVI 248,600 248,600 248,600
Shares issued in connection with the secondary stock offering 2,025,000 2,025,000 2,025,000
Exercised options 56,308 56,308 56,308
Options granted 1,763,795 - -
============ ============ ============
Shares used in computing earnings per share for the quarter ended June 30, 1999 15,559,453 13,795,658 13,795,658
============ ============ ============
</TABLE>
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
SCHEDULE OF COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Basic Diluted
Weighted Weighted
Average Average
Shares Shares Shares
------------- ------------- --------------
<S> <C> <C> <C>
HISTORICAL:
Six month period ended June 30, 1998
Shares attributable to Auto Europe, accounting acquiror, at beginning of period 1,083,334 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,997,344 1,997,344 1,997,344
Shares issued in consideration for acquisition of Other Founding Companies 2,338,891 2,338,891 2,338,891
Shares issued to founders and management of TSI 2,484,501 2,484,501 2,484,501
Sold pursuant to the initial public offering 2,875,000 2,875,000 2,875,000
Shares issued in consideration for acquisition of Trax Software 32,985 32,985 32,985
Shares issued in consideration for acquisition of Diplomat 21,821 19,821 19,821
Shares issued in consideration for acquisition of Goldcoast 163,755 136,463 136,463
Shares issued in consideration for acquisition of AutoNet 2,183 728 728
Shares issued in consideration for acquisition of Lexington 283,990 47,332 47,332
Options granted 1,211,547 - 533,307
------------- ------------- --------------
Shares used in computing earnings per share for the period ended June 30, 1998 12,495,351 11,016,399 11,549,706
============= ============= ==============
Six month period ended June 30, 1999
Shares attributable to Auto Europe, accounting acquiror, at beginning of period 1,083,334 1,083,334 1,083,334
Shares issued in consideration for acquisition of the Pooling Acquisitions 1,997,344 1,997,344 1,997,334
Shares issued in consideration for acquisition of Other Founding Companies 2,338,891 2,338,891 2,338,891
Shares issued to founders and management of TSI 2,484,501 2,484,501 2,484,501
Sold pursuant to the initial public offering 2,875,000 2,875,000 2,875,000
Shares issued in consideration for acquisition of Trax Software 32,985 32,985 32,985
Shares issued in consideration for acquisition of Diplomat 21,821 21,821 21,821
Shares issued in consideration for acquisition of Goldcoast 163,755 163,755 163,755
Shares issued in consideration for acquisition of AutoNet 2,183 2,183 2,183
Shares issued in consideration for acquisition of Lexington 283,990 283,990 283,990
Shares issued in consideration for acquisition of 1-800-CRUISES 36,546 36,546 36,546
Shares issued in consideration for acquisition of AHI 145,400 121,167 121,167
Shares issued in consideration for acquisition of LVI 248,600 207,167 207,167
Shares issued in connection with the secondary stock offering 2,025,000 2,025,000 2,025,000
Exercised options 56,308 56,308 56,308
Options granted 1,763,795 - 129,163
============= ============= ==============
Shares used in computing earnings per share for the period ended June 30, 1999 15,559,453 13,729,991 13,859,155
============= ============= ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TRAVEL SERVICES INTERNATIONAL, INC. & SUBSIDIARIES DATA IS FOR CONSOLIDATED
HISTORY FINANCIAL STATEMENTS AS OF JUNE 30, 1999. SEE FOOTNOTE 1 BASIS OF
PERCENTAGE
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 37,759
<SECURITIES> 0
<RECEIVABLES> 18,974
<ALLOWANCES> 2,026
<INVENTORY> 0
<CURRENT-ASSETS> 70,825
<PP&E> 29,369
<DEPRECIATION> 1,914
<TOTAL-ASSETS> 242,832
<CURRENT-LIABILITIES> 62,717
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 157,795
<TOTAL-LIABILITY-AND-EQUITY> 242,832
<SALES> 98,145
<TOTAL-REVENUES> 98,145
<CGS> 59,604
<TOTAL-COSTS> 59,604
<OTHER-EXPENSES> 30,432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 8,001
<INCOME-TAX> 3,200
<INCOME-CONTINUING> 4,801
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,801
<EPS-BASIC> .35
<EPS-DILUTED> .35
</TABLE>
