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 September 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 November 10, 1999, was 13,962,086.
<PAGE>
TRAVEL SERVICES INTERNATIONAL, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION...........................................................................3
Item 1. Consolidated Financial Statements...............................................................3
Consolidated Balance Sheets as of December 31, 1998 and September 30, 1999 .....................3
Consolidated Statements of Income for the Three Months Ended
September 30, 1998 and 1999 and the Nine Months Ended September 30, 1998 and 1999...............4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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..........................................................................12
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 4. Submission of Matters to a Vote of Security Holders............................................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, SEPTEMBER 30,
1998 1999
----------------------- --------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 26,084 $ 29,233
Accounts receivable, net 15,460 17,973
Receivables and notes from affiliates and employees 250 323
Deferred income taxes 827 1,379
Prepaid expenses and other current assets 7,776 13,168
----------------------- --------------------
Total current assets 50,397 62,076
Property and equipment, net 22,504 31,361
Goodwill, net 105,773 143,302
Notes receivable from employees 410 331
Other assets 1,045 616
----------------------- --------------------
Total assets $ 180,129 $ 237,686
======================= ====================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Current portion of long-term debt 257 277
Income taxes payable - 440
Trade payables and accrued expenses 27,412 52,432
----------------------- --------------------
Total current liabilities 27,669 53,149
Borrowings under line of credit - 14,700
Long-term debt, net of current portion 2,888 2,679
Deferred income taxes 3,774 5,074
Other long-term liabilities 501 514
----------------------- --------------------
Total liabilities 34,832 76,116
----------------------- --------------------
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 13,958,077 shares outstanding, respectively 134 140
Additional paid-in capital 129,623 139,496
Retained earnings 15,540 21,934
----------------------- --------------------
Total stockholders' equity 145,297 161,570
----------------------- --------------------
Total liabilities and stockholders' equity $ 180,129 $ 237,686
======================= ====================
</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 NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 33,992 $ 48,533 $ 97,548 $ 146,679
Operating expenses 19,173 29,931 53,259 89,536
------------ ------------ ------------ ------------
Gross profit 14,819 18,602 57,143
44,289
General and administrative expenses 8,842 14,828 24,886 43,162
Goodwill amortization 782 1,104 1,804 3,202
------------ ------------ ------------ ------------
Income from operations 5,195 2,670 17,599 10,779
Other expense, net (231) (45) 258 62
------------ ------------ ------------ ------------
Income before provision for income taxes 5,426 2,715 17,341 10,717
Provision for income taxes 2,279 1,086 7,283 4,287
------------ ------------ ------------ ------------
Net income $ 3,147 $ 1,629 $ 10,058 $ 6,430
============ ============ ============ ============
Basic earnings per share $ 0.24 $ 0.12 $ 0.86 $ 0.47
============ ============ ============ ============
Diluted earnings per share $ 0.24 $ 0.12 $ 0.83 $ 0.46
============ ============ ============ ============
Shares used in computing basic earnings per share 12,914,920 13,909,767 11,658,102 13,780,762
============ ============ ============ ============
Shares used in computing diluted earnings per share 13,388,011 13,994,489 12,149,908 13,865,396
============ ============ ============ ============
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,058 $ 6,430
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,465 6,303
Amortization of unearned compensation 23 23
Interest rate swap agreement -- (280)
Deferred tax (benefit) provision (314) 747
Changes in operating assets and liabilities:
Accounts receivable (6,474) (1,279)
Receivables and notes from affiliates and employees 3 55
Prepaid expenses and other current assets (1,538) 2,171
Trade payables and accrued expenses 16,965 10,531
-------- --------
Net cash provided by operating activities 22,188 24,701
-------- --------
Cash flows from investing activities:
Capital expenditures (5,779) (11,745)
Proceeds from sale of property and equipment -- 579
Cash paid for acquisitions, net of cash acquired (51,919) (25,491)
-------- --------
Net cash used in investing activities (57,698) (36,657)
-------- --------
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 (32,841) (9,489)
Net proceeds from options exercised 192 594
Net proceeds from offerings 66,369 --
-------- --------
Net cash provided by financing activities 64,420 15,105
-------- --------
Net increase in cash and cash equivalents 28,910 3,149
Cash and cash equivalents, beginning of period 8,451 26,084
-------- --------
Cash and cash equivalents, end of period $ 37,361 $ 29,233
======== ========
Supplemental cash flow information:
Cash paid for interest $ 548 $ 1,198
======== ========
</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
SEPTEMBER 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 September 30, 1999 and for
the three and nine month periods ended September 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 outbound, cruise, 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 SEPTEMBER 30, 1998 OUTBOUND CRUISE LODGING OTHER ITEMS (1) TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 11,985 $ 14,173 $ 4,478 $ 3,356 $ -- $ 33,992
Operating expenses 7,659 6,731 2,631 2,152 -- 19,173
-------- -------- -------- -------- -------- --------
Gross profit 4,326 7,442 1,847 1,204 -- 14,819
General and administrative expenses 1,308 3,630 1,167 876 1,861 8,842
Goodwill amortization 1 -- -- -- 781 782
-------- -------- -------- -------- -------- --------
Income from operations 3,017 3,812 680 329 (2,642) 5,195
Other income (expense), net 233 125 28 28 (184) (231)
-------- -------- -------- -------- -------- --------
Net income before income taxes 3,250 3,937 708 357 (2,826) 5,426
Provision for income taxes -- -- -- -- 2,279 2,279
-------- -------- -------- -------- -------- --------
Net income $ 3,250 $ 3,937 $ 708 $ 357 $ (5,105) $ 3,147
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ADJUSTING
AND RECON.
THREE MONTHS ENDED SEPTEMBER 30, 1999 OUTBOUND CRUISE LODGING OTHER ITEMS (1) TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 21,077 $ 13,803 $ 6,123 $ 7,530 $ -- $ 48,533
Operating expenses 11,690 9,765 3,628 4,848 -- 29,931
-------- -------- -------- -------- -------- --------
Gross profit 9,387 4,038 2,495 2,682 -- 18,602
General and administrative expenses 2,381 4,216 1,414 1,469 5,348 14,828
Goodwill amortization 1 -- -- -- 1,103 1,104
-------- -------- -------- -------- -------- --------
Income from operations 7,005 (178) 1,081 1,213 (6,451) 2,670
Other income (expense), net 411 219 39 117 (741) 45
-------- -------- -------- -------- -------- --------
Net income before income taxes 7,416 41 1,120 1,330 (7,192) 2,715
Provision for income taxes -- -- -- -- 1,086 1,086
-------- -------- -------- -------- -------- --------
Net income $ 7,416 $ 41 $ 1,120 $ 1,330 $ (8,278) $ 1,629
======== ======== ======== ======== ======== ========
</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.
NINE MONTHS ENDED SEPTEMBER 30, 1998 OUTBOUND CRUISE LODGING OTHER ITEMS (1) TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 39,554 $ 43,399 $ 5,725 $ 8,870 $ -- $ 97,548
Operating expenses 24,483 19,546 3,341 5,889 -- 53,259
-------- -------- -------- -------- -------- --------
Gross profit 15,071 23,853 2,384 2,981 -- 44,289
General and administrative expenses 4,212 10,420 1,364 2,095 6,795 24,886
Goodwill amortization 1 -- -- -- 1,803 1,804
-------- -------- -------- -------- -------- --------
Income from operations 10,858 13,433 1,020 886 (8,598) 17,599
Other income (expense), net 469 212 27 111 (1,077) (258)
-------- -------- -------- -------- -------- --------
Net income before income taxes 11,327 13,645 1,047 997 (9,675) 17,341
Provision for income taxes -- -- -- -- 7,283 7,283
-------- -------- -------- -------- -------- --------
Net income $ 11,327 $ 13,645 $ 1,047 $ 997 $(16,958) $ 10,058
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ADJUSTING
AND RECON.
NINE MONTHS ENDED SEPTEMBER 30, 1999 OUTBOUND CRUISE LODGING OTHER ITEMS (1) TOTAL
-------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 61,140 $ 47,988 $ 16,394 $ 21,157 $ -- $ 146,679
Operating expenses 34,298 32,353 9,867 13,018 -- 89,536
--------- --------- --------- --------- --------- ---------
Gross profit 26,842 15,635 6,527 8,139 -- 57,143
General and administrative expenses 6,730 13,567 3,891 3,843 15,131 43,162
Goodwill amortization 1 -- -- -- 3,201 3,202
--------- --------- --------- --------- --------- ---------
Income from operations 20,111 2,068 2,636 4,296 (18,332) 10,779
Other income (expense), net 952 521 80 447 (2,062) (62)
--------- --------- --------- --------- --------- ---------
Net income before income taxes 21,063 2,589 2,716 4,743 (20,394) 10,717
Provision for income taxes -- -- -- -- 4,287 4,287
--------- --------- --------- --------- --------- ---------
Net income $ 21,063 $ 2,589 $ 2,716 $ 4,743 $ (24,681) $ 6,430
========= ========= ========= ========= ========= =========
</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 September 30, 1999, there were outstanding borrowings of
$14.7 million and letters of credit totaling $4.9 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 LIBOR 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 September 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 September 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 $2.4 million, and income before taxes of $545,000,
included in the accompanying consolidated statements of income for the nine
month period ended September 30, 1998, were generated prior to the closing dates
of the 1998 Pooling Acquisitions.
From December 1997 through 1998, 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 nine month periods ended September
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 MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1998 1999 1998 1999
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 40,875 $ 48,533 $ 115,114 $ 147,196
========== ========== ========== ===========
Net income $ 4,633 $ 1,629 $ 11,942 $ 5,932
========== ========== ========== ===========
Pro forma diluted earnings per share $ 0.34 $ 0.12 $ 0.95 $ 0.43
========== ========== ========== ===========
Weighted average shares used outstanding 13,533,411 13,994,489 12,531,996 13,889,628
========== ========== ========== ===========
</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 nine month periods ended September
30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic common shares outstanding 12,914,920 13,909,768 11,658,102 13,780,762
Dilutive effect of stock options 473,091 84,721 491,806 84,634
---------- ---------- ---------- ----------
Dilutive shares outstanding 13,388,011 13,994,489 12,149,908 13,865,396
========== ========== ========== ==========
</TABLE>
Options totaling 1,433,822 and 594,684 were not included in the calculation of
dilutive shares outstanding for the three months and nine months ended September
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.
11
<PAGE>
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 continued 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.
The Company operates and reports under the following segments: outbound, cruise,
lodging and other.
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 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
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 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.
12
<PAGE>
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.
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 except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------
1998 1999
---------------------- ----------------------
<S> <C> <C> <C> <C>
Net revenues $33,992 100.0% $48,533 100.0%
Operating expenses 19,173 56.4 29,931 61.7
------- ----- ------- -----
Gross profit 14,819 43.6 18,602 38.3
General and administrative expenses 8,842 26.0 14,828 30.5
Goodwill amortization 782 2.3 1,104 2.3
------- ----- ------- -----
Income from operations 5,195 15.3 2,670 5.5
Other income (expense), net 231 0.7 45 .1
------- ----- ------- -----
Income before provision for income taxes 5,426 16.0 2,715 5.6
Provision for income taxes 2,279 6.7 1,086 2.2
------- ----- ------- -----
Net income $ 3,147 9.3% $ 1,629 3.4%
======= ===== ======= =====
Diluted earnings per share $ 0.24 $ 0.12
======= =======
</TABLE>
The Company reported net income of $1.6 million, or $0.12 diluted earnings per
share, for the three months ended September 30, 1999, as compared to net income
of $3.1 million, or $0.24 diluted earnings per share, for the comparable 1998
period. Net revenues increased $14.5 million 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, $6.0 million 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 decreased gross profit margins
in the cruise reporting segment 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 de-
creased in 1999 primarily as a result of a relative increase in voice
reservation services in 1999 which are more labor
13
<PAGE>
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 $6.0 million or 67.7% in 1999, of
which $1.2 million was attributable to companies acquired in 1998 and 1999
accounted for using the purchase method of accounting, $1.3 million was
attributable to increased costs at other operating companies, primarily in the
cruise reporting segment, and $3.5 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 of $1.1 million in for the three months ended September
30, 1999 was the result of several acquisitions in 1998 and 1999 that were
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 as compared to 42% in 1998. The decrease is the
result of certain corporate restructuring initiatives undertaken by the Company
in late 1998 and early 1999.
<TABLE>
<CAPTION>
(dollars in thousands, except per share data) NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------
1998 1999
------------------------- ------------------------
<S> <C> <C> <C> <C>
Net revenues $ 97,548 100.0% $ 146,679 100.0%
Operating expenses 53,259 54.6 89,536 61.1
--------- ----- --------- -----
Gross profit 44,289 45.4 57,143 38.9
General and administrative expenses 24,886 25.5 43,162 29.4
Goodwill amortization 1,804 1.9 3,202 2.2
--------- ----- --------- -----
Income from operations 17,599 18.0 10,779 7.3
Other income (expense), net (258) (.2) (62) (.1)
--------- ----- --------- -----
Income before provision for income taxes 17,341 17.8 10,717 7.2
Provision for income taxes 7,283 7.5 4,287 2.8
--------- ----- --------- -----
Net income $ 10,058 10.3% $ 6,430 4.4%
========= ===== ========= =====
Diluted earnings per share $ 0.83 $ 0.46
========= =========
</TABLE>
The Company reported net income of $6.4 million, or $0.46 diluted earnings per
share, for the nine months ended September 30, 1999, as compared to net income
of $10.1 million, or $0.83 diluted earnings per share, for the comparable 1998
period. Net revenues increased $49.1 million 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, 20.2% 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 $18.3 million, or 73.4%, in 1999,
of which $4.9 million was attributable to companies acquired in 1998 and 1999
accounted for using the purchase method of accounting, $5.1 million was
attributable to increased costs at other operating companies, primarily in the
cruise reporting segment, and $8.3 million was attributable to increased costs
at corporate headquarters, as discussed above.
Goodwill amortization of $3.2 million for the nine months ended September 30,
1999 is the result of several acquisitions in 1998 and 1999 accounted for under
the purchase method of accounting.
14
<PAGE>
Provision for income taxes, as a percentage of income before provision for
income taxes, was 40% in 1999 and 42% in 1998. The decrease is the result of
certain corporate restructuring initiatives undertaken by the Company 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.
<TABLE>
<CAPTION>
(dollars in thousands) THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
1998 1999
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues $ 11,985 100.0% $21,077 100.0%
Operating expenses 7,659 63.9 11,690 55.5
-------- ----- ------- -----
Gross profit 4,326 36.1 9,387 44.5
General and administrative expenses 1,308 10.9 2,381 11.3
Goodwill amortization 1 - 1 -
-------- ----- ------- -----
Income from operations 3,017 25.2 7,005 33.2
Other income (expense), net 233 2.0 411 2.0
-------- ----- ------- -----
Income before provision for income taxes $ 3,250 27.2% $ 7,416 35.2%
======== ===== ======= =====
</TABLE>
Outbound reporting segment reported income before taxes of $7.4 million for the
three months ended September 30, 1999, compared to $3.3 million for the
comparable 1998 period. Net revenues increased 75.9% in 1999 compared to 1998,
primarily because of the acquisition of AHI and increased transaction volume. Of
this increase in net revenues, 16.2% was from internal growth.
Gross profit margin improved in 1999 a result of lower sales agent 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 $1.1 million, or 82.0%, in 1999
primarily as a result of the acquisition of AHI.
<TABLE>
<CAPTION>
(dollars in thousands) NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1999
-------------------- --------------------
<S> <C> <C> <C> <C>
Net revenues $39,554 100.0% $61,140 100.0%
Operating expenses 24,483 61.9 34,298 56.1
------- ----- ------- -----
Gross profit 15,071 38.1 26,842 43.9
General and administrative expenses 4,212 10.6 6,730 11.2
Goodwill amortization 1 -- 1 --
------- ----- ------- -----
Income from operations 10,858 27.5 20,111 32.7
Other income (expense), net 469 1.2 952 1.8
------- ----- ------- -----
Income before provision for income taxes $11,327 28.7% $21,063 34.5%
======= ===== ======= =====
</TABLE>
Outbound reporting segment reported income before taxes of $21.1 million for the
nine months ended September 30, 1999, compared to $11.3 million for the
comparable 1998 period. Net revenues increased 54.6% in 1999 as compared to
1998, primarily because of acquisitions and increased sales volume. Of this
increase in net revenues, 13.9% 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 $2.5 million, or 59.8%, in 1999
primarily as a result of acquisitions.
15
<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.
<TABLE>
<CAPTION>
(dollars in thousands) THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1998 1999
-------------------- ----------------------
<S> <C> <C> <C> <C>
Net revenues $ 14,173 100.0% $ 13,803 100.0%
Operating expenses 6,731 47.5 9,765 70.7
-------- ----- -------- -----
Gross profit 7,442 52.5 4,038 29.3
General and administrative expenses 3,630 25.6 4,216 30.6
-------- ----- -------- -----
Income from operations 3,812 26.9 (178) (1.3)
Other income (expense), net 125 .9 219 1.6
-------- ----- -------- -----
Income before provision for income taxes $ 3,937 27.8% $ 41 0.3%
======== ===== ======== =====
</TABLE>
The cruise reporting segment reported a net income of $41,000 before income
taxes for the three months ended September 30, 1999 as compared to $3.9 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 decreased 2.6% in 1999 as compared to 1998 primarily from
adverse booking trends during the first half of the year and lower commission
yields. Net revenue per transaction decreased as a result of a decrease in
effective commission rates. 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. As discussed more fully below, certain
initiatives were undertaken in anticipation of increased cruise transaction
volumes. One of these initiatives was to increase the level of spending for
marketing activities. Transaction volumes did not reach expected levels and, as
a result, less cooperative marketing funds were available in the third quarter
to offset marketing expenditures. Accordingly, increased net marketing costs led
to a decrease in gross profit percentages. The Company expects net marketing
costs for the remainder of 1999 will continue to be significantly greater than
1998 levels as the Company works to improve market share and transaction volume.
General and administrative expenses increased $586,000 or 16%, 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>
(dollars in thousands) NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1999
-------------------- --------------------
<S> <C> <C> <C> <C>
Net revenues $43,399 100.0% $47,988 100.0%
Operating expenses 19,546 45.0 32,353 67.4
------- ----- ------- -----
Gross profit 23,853 55.0 15,635 32.6
General and administrative expenses 10,420 24.0 13,567 28.3
------- ----- ------- -----
Income from operations 13,433 31.0 2,068 4.3
Other income (expense), net 212 .5 521 1.1
------- ----- ------- -----
Income before provision for income taxes $13,645 31.5% $ 2,589 5.4%
======= ===== ======= =====
</TABLE>
The cruise reporting segment reported income before income taxes of $2.6 million
for the nine months ended September 30, 1999 as compared to $13.6 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 10.6% in 1999 as compared to 1998, primarily
because of acquisitions and increased sales volume, however, net revenue per
transaction decreased year over year. Of this increase in net revenues, 9.3% was
from internal growth.
16
<PAGE>
Gross profit margin decreased in 1999 as a result of increased marketing,
compensation and other operating costs and a lower effective commission rate.
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 nine months of 1999 were
significantly lower than expected. Accordingly, gross profit margins were
eroded. 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.
General and administrative expenses increased $3.1 million, or 30.2%, 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.
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.
<TABLE>
<CAPTION>
(dollars in thousands) THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1998 1999
------------------- -------------------
<S> <C> <C> <C> <C>
Net revenues $4,478 100.0% $6,123 100.0%
Operating expenses 2,631 58.7 3,628 59.2
------ ----- ------ -----
Gross Profit 1,847 41.3 2,495 40.8
General and administrative expenses 1,167 26.1 1,414 23.1
------ ----- ------ -----
Income from operations 680 15.2 1,081 17.7
Other income (expense), net 28 0.7 39 0.6
------ ----- ------ -----
Income before provision for income taxes $ 708 15.9% $1,120 18.3%
====== ===== ====== =====
</TABLE>
Lodging reporting segment reported income before taxes of $1.1 million for the
three months ended September 30, 1999, compared to $708,000 for the comparable
1998 period. Net revenues increased 36.7% in 1999 compared to 1998, primarily
because of increased transaction volume. This increase was primarily
attributable to new hotel contracts.
General and administrative expenses increased $247,000, or 21.2%, in 1999.
<TABLE>
<CAPTION>
(dollars in thousands) NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1999
-------------------- --------------------
<S> <C> <C> <C> <C>
Net revenues $ 5,725 100.0% $16,394 100.0%
Operating expenses 3,341 58.3 9,867 60.1
------- ----- ------- -----
Gross profit 2,384 41.7 6,527 39.9
General and administrative expenses 1,364 23.8 3,891 23.8
------- ----- ------- -----
Income from operations 1,020 17.9 2,636 16.1
Other income (expense), net 27 .4 80 .5
------- ----- ------- -----
Income before provision for income taxes $ 1,047 18.3% $ 2,716 16.6%
======= ===== ======= =====
</TABLE>
Lodging reporting segment reported income before taxes of $2.7 million for the
nine months ended September 30, 1999, compared to $1.0 million 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.
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.
<TABLE>
<CAPTION>
(dollars in thousands) THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1998 1999
------------------- -------------------
<S> <C> <C> <C> <C>
Net revenues $3,356 100.0% $7,530 100.0%
Operating expenses 2,152 64.1 4,848 64.4
------ ----- ------ -----
Gross profit 1,204 35.9 2,682 35.6
General and administrative expenses 876 26.1 1,469 19.5
------ ----- ------ -----
Income from operations 329 9.8 1,213 16.1
Other income (expense), net 28 0.9 117 1.6
------ ----- ------ -----
Income before provision for income taxes $ 357 10.7% $1,330 17.7%
====== ===== ====== =====
</TABLE>
Other reporting segment reported income before taxes of $1.3 million for the
three months ended September 30, 1999 as compared to $357,000 for the comparable
1998 period. The other reporting segment includes three operating companies
consisting of a specialized domestic airline ticket distributor, an incentive
cruise specialized distributor, and a travel incentive promotions (company
acquired in February 1999). Net revenues increased 124.4% 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, 84.4% was from internal growth,
including a 105.7% 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. Flight Attendant includes
an automatic fare manager system that allows the Company to more effectively
manage yield on its domestic air tickets. To support expected future growth, the
Company opened a new call center in Albuquerque, New Mexico in July 1999.
General and administrative expenses increased $593,000, or 67.7%, 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 by 33.9%. Facilities and the
management infrastructure at 1-800-Fly-Cheap were expanded in late 1998 in
anticipation of significant sales growth.
<TABLE>
<CAPTION>
(dollars in thousands) NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1999
-------------------- --------------------
<S> <C> <C> <C> <C>
Net revenues $ 8,870 100.0% $21,157 100.0%
Operating expenses 5,889 66.4 13,018 61.5
------- ----- ------- -----
Gross profit 2,981 33.6 8,139 38.5
General and administrative expenses 2,095 23.6 3,843 17.5
------- ----- ------- -----
Income from operations 886 10.0 4,296 21.0
Other income (expense), net 111 1.3 447 1.4
------- ----- ------- -----
Income before provision for income taxes $ 997 11.3% $ 4,743 22.4%
======= ===== ======= =====
</TABLE>
Other reporting segment reported income before taxes of $4.7 million for the
nine months ended September 30, 1999 as compared to $997,000 for the comparable
1998 period. Net revenues increased 138.5% 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, 89.7% was from internal growth,
including a 96.8% 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 $1.7 million, or 83.4% 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 42.0%.
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 nine months ended September 30, 1998 and 1999, net cash provided by
operating activities was $22.2 and $24.7 million, respectively, capital
expenditures were $5.8 and $11.7 million, respectively, aggregate borrowings
under the Credit Facility, Term Loan and other loans were $30.7 and 24.0
million, respectively, repayment of debt was $32.8 and 9.5 million,
respectively, and cash paid for acquisitions, net of cash acquired, was $51.9
and $25.5 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
nine months ended September 30, 1999 totaled $11.7 million, of which $7.3
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
September 30, 1999, capitalized internal use software totaled $13.8 million, net
of accumulated amortization.
The Company believes that current cash balances, 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.
Further, the Company is investigating a possible stock buy-back program which,
if implemented, could impact the Company's capital requirements.
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 September 30, 1999, there were outstanding borrowings of
$14.7 million and letters of credit totaling $4.9 million under the 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 LIBOR 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 September 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 rate obligations.
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 September 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, tested and corrected 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, Planning and Correction
phases and is 95% complete in its testing and implementation efforts. The
Company believes the inventory gathered has identified all significant systems
and processes, and the operating companies have prioritized "business critical"
and "important" systems and assigned 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 was
contracted to conduct audits of key reservation systems at five 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, and further testing was performed and 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 have been addressed at each of the operating company locations
analyzed. As of September 30, 1999, approximately 94% of the Company's
high-priority systems have been remediated and are either fully tested or in the
final stages of testing. The Company believes all internal coreselling 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 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. Although these applications were recently developed, the Company is
conducting a testing effort to ensure compliance. This test includes the
company's Cruise Control and Flight Attendant applications.
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 is believed to comply with 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 86% 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 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
following-up efforts with key business partners and suppliers and with those
which have not responded to the surveys. 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.
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:
1. 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.
2. Packaged software vendors that provide inadequate solutions, corrections
and testing.
3. Project delays for the technology applications currently under
development could impact overall Year 2000 compliance efforts and
associated costs.
4. 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.
5. 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.
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. Contingency
plan development is required by all operating companies and is inclusive of four
activities: (1) contingency plan identification, (2) contingency plan
development, (3) contingency plan testing and training and, (4) contingency plan
revision and approval. These contingency plans will include the identification,
acquisition and/or preparation of backup systems and processes. Regardless of
compliance, all operating companies are
21
<PAGE>
required to develop these plans. The Company feels development of these plans is
necessary to guard against non-compliance as well as positioning for the
unforeseen occurrences and incidences that may result due to the changeover.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the shareholders of the Company was held on Tuesday,
September 28, 1999. At such meeting, the shareholders considered and voted upon
three proposal: (1) the election of three members to the Board of Directors; (2)
the approval of an Amended and Restated 1999 Long Term Incentive Plan, providing
for, among other things, an amendment to the Company's prior plan to authorize
an increase in the total number of share that may be subject to awards under the
plan to 18% of the aggregate number of shares of common stock outstanding; and
(3) the approval of an Amended and Restated Non-Employee Directors' Stock Plan,
providing for, among other things, an amendment to the Company's prior plan to
authorize an increase in the total number of shares that may be subject to
awards under the plan to 200,000 shares of common stock. The shareholders
approved each of the proposals. The votes cast for such proposals were as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Proposal #1
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Imad Khalidi John Przywara Joseph Vittoria
--------------------------------------------------------------------------------------------------
10,956,669 For 10,956,769 For 10,956,769 For
0 Against 0 Against 0 Against
136,911 Withheld 136,811 Withheld 136,811 Withheld
0 Abstentions and 0 Abstentions and 0 Abstentions and
broker non-votes broker non-votes broker non-votes
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Proposal #2 Proposal #3
--------------------------------------------------------------------------------------------------
6,899,152 For 8,156,799 For
1,314,949 Against 166,650 Against
0 Withheld 0 Withheld
2,879,479 Abstentions and broker non-votes 2,770,131 Abstentions and broker non-votes
--------------------------------------------------------------------------------------------------
</TABLE>
ITEM 5. OTHER INFORMATION
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,
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
24
<PAGE>
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:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
10.21 Employment Agreement, dated as of September 1, 1999,
between Travel Services International, Inc. and
Timothy M. Coleman.
10.22 Employment Agreement, dated as of October 11, 1999,
between Travel Services International, Inc. and
Patrick Doyle.
11 Schedule of Computations of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed the following reports on Form 8-K during the
fiscal quarter ended September 30, 1999:
Current Report on Form 8-K dated September 28, 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: November 12, 1999 By: /s/ Patrick Doyle
-----------------------------------
Patrick Doyle
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 NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
10.21 Employment Agreement, dated as of September 1, 1999,
between Travel Services International, Inc. and
Timothy M. Coleman.
10.22 Employment Agreement, dated as of October 11, 1999,
between Travel Services International, Inc. and
Patrick Doyle.
11 Schedule of Computations of Earnings Per Share
27 Financial Data Schedule
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and between Travel
Services International, Inc., a Florida corporation ("TSI"), and Timothy M.
Coleman ("Employee"), is hereby entered into as of the 1st day of September,
1999 (the "Effective Date").
R E C I T A L S
A. As of the date of this Agreement, TSI is engaged primarily in the
business of providing travel services to consumers and travel agents.
B. Employee is employed hereunder by TSI in a confidential
relationship wherein Employee, in the course of Employee's employment with TSI,
has and will continue to become familiar with and aware of information as to
TSI's customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by TSI, and future plans with respect
thereto, all of which has been and will be established and maintained at great
expense to TSI; this information is a trade secret and constitutes the valuable
goodwill of TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
1. EMPLOYMENT AND DUTIES.
(a) TSI hereby employs Employee as Senior Vice President, Operations
of TSI. As such, Employee shall have responsibilities, duties and authority
reasonably accorded to and expected of such position and will report to the
President and Chief Operating Officer of TSI. Employee hereby accepts this
employment upon the terms and conditions herein contained and, subject to
paragraph 1(c) hereof, agrees to devote Employee's full business time, attention
and efforts to promote and further the business of TSI.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the senior management or Board of Directors of TSI (the
"Board").
(c) Employee shall not, during the term of his employment hereunder,
be engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 4 hereof.
<PAGE>
2. COMPENSATION.
For all services rendered by Employee, TSI shall compensate Employee
as follows:
(a) BASE SALARY. The base salary payable to Employee shall be
$140,000 per year, payable on a regular basis in accordance with TSI's standard
payroll procedures but not less than monthly. On at least an annual basis, the
Board will review Employee's performance and may make increases to such base
salary if, in its discretion, any such increase is warranted. Such recommended
increase would, in all likelihood, require approval by the Board or a duly
constituted committee thereof. In no event will Employee's salary be reduced
during the Term.
(b) INCENTIVE BONUS PLAN. Employee shall be eligible to receive
year-end bonus awards pursuant to the Company's Incentive Bonus Plan. The
maximum bonus for which Employee may be eligible will be 75% of Employee's base
salary.
(c) EXECUTIVE PERQUISITES, BENEFITS, AND OTHER COMPENSATION.
Employee shall be entitled to receive additional benefits and compensation from
TSI in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and Employee's
dependent family members under health, hospitalization, disability, dental, life
and other insurance plans that TSI may have in effect from time to time for its
executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of Employee's
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission of any
request for reimbursement, and in a format and manner consistent with TSI's
expense reporting policy.
(iii) TSI shall provide Employee with other executive perquisites as
may be available to senior management of TSI and participation in all other
TSI-wide employee benefits as available from time to time, including
participation in TSI's 401(k) plan and vacation benefits in accordance with
TSI's established policies.
(iv) STOCK OPTIONS. Subject to Board approval, TSI shall grant to
Employee options to acquire 65,000 shares of TSI common stock at the price per
share equal to the fair market value (which shall be the last sale price for the
common stock on the Nasdaq Stock Market) on the date of grant. TSI agrees to
submit such options for approval to the Compensation Committee of the Board of
Directors at its next regular meeting following execution of this Agreement.
Such options shall be granted in accordance with TSI's Long Term Incentive Plan
and will be evidenced by a stock option grant agreement that will provide, among
other things, that the options will vest in installments of 16,250 shares on
each of the first, second, third and fourth anniversaries of the Effective Date
and will expire on the tenth anniversary of the grant.
2
<PAGE>
3. NON-COMPETITION.
Employee acknowledges that during the course of Employee's employment,
Employee will receive confidential and proprietary information from and
concerning TSI and its subsidiaries. Employee also acknowledges that TSI will
make substantial investments in TSI's goodwill and Employee's professional
development. The capital expended with respect to this goodwill and development
directly benefits the Employee and should continue to do so in the event that
the relationship between TSI and Employee is terminated. Likewise, other capital
investments to be made by TSI to assist in the Employee's professional
development (including but not limited to those items listed below) will confer
a direct economic benefit on the Employee. During the course of the Employee's
tenure with TSI, Employee will have received the following economic benefits as
a result of capital expenditures by TSI:
(1) Marketing support enabling the Employee to expand
the Employee's own professional development and to become known by
additional industry personnel.
(2) The development and implementation of information
systems and reporting formats unique to the travel business to make the
provision of travel services more efficient, and to maximize the time
available to the Employee for the expansion of TSI's business (as
opposed to attending to administrative functions).
(3) Financial support to facilitate business growth.
(4) Participation in proprietary strategic planning
sessions which focus on professional and business growth opportunities.
(5) Cross-selling, synergy and business expansion
opportunities from being part of the TSI group of companies.
The Employee agrees that TSI is entitled to protect these business
interests and investments and to prevent the Employee from using or taking
advantage of the foregoing economic benefits to TSI's detriment.
(a) Employee agrees that, except for services and duties performed
for or on behalf of TSI or its subsidiaries pursuant to this Agreement, Employee
will not, during the period of Employment with the Company and for a period of
two (2) years immediately following the termination of Employee's employment
under this Agreement ("Restricted Period") (as defined below) for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor or as a sales representative, in any travel
service business competitive with TSI and/or its subsidiaries or affiliates,
including, without limitation, any such business conducted through
3
<PAGE>
telephone or other reservation centers or through electronic distribution
channels such as the Internet, within the United States or within 100 miles of
any other geographic area in which TSI or any of TSI's subsidiaries conducts
business, including any territory serviced by TSI or any of its subsidiaries
(the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSI (including the subsidiaries thereof) for the
purpose or with the intent of enticing such employee away from or out of the
employ of TSI (including the subsidiaries thereof);
(iii) call upon any person or entity which, to Employee's knowledge,
is, at that time, or which has been, within one (1) year prior to that time, a
customer of TSI (including the respective subsidiaries thereof) within the
Territory for the purpose of soliciting or selling products or services in
direct competition with TSI or any subsidiary of TSI within the Territory; or
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate is or was, to
Employee's knowledge, either called upon by TSI (including the respective
subsidiaries thereof) or for which TSI made an acquisition analysis for the
purpose of acquiring such entity and the acquisition of such prospective
candidate is still under consideration by TSI.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit Employee from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
(c) Because of the difficulty of measuring economic losses to TSI as
a result of a breach of the foregoing covenant, and because of the immediate and
irreparable damage that could be caused to TSI for which it would have no other
adequate remedy, Employee agrees that the foregoing covenant may be enforced by
TSI in the event of breach by him, by injunctions, restraining orders and other
equitable remedies.
(d) It is agreed by the parties that the foregoing covenants in this
paragraph 4 impose a reasonable restraint on Employee in light of the activities
and business of TSI (including TSI's subsidiaries) on the date of the execution
of this Agreement and the current plans of TSI (including TSI's subsidiaries);
but it is also the intent of TSI and Employee that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of TSI (including TSI's subsidiaries) throughout the term of this Agreement. For
example, if, during the term of this Agreement, TSI (including TSI's
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business of TSI as of the date hereof, or the
locations currently established therefor, then Employee will be precluded from
soliciting the customers or employees of such new activities or business or from
such new location and from directly competing with such new business within 100
miles of its then-established operating location(s) through the term of this
Agreement.
4
<PAGE>
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with TSI (including TSI's
subsidiaries), or similar activities, or business in locations the operation of
which, under such circumstances, does not violate clause (i) of this paragraph
3, and in any event such new business, activities or location are not in
violation of this paragraph 3 or of employee's obligations under this paragraph
3, if any, Employee shall not be chargeable with a violation of this paragraph 3
if TSI (including TSI's subsidiaries) shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(e) The covenants in this paragraph 3 are severable and separate,
and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable,
and the Agreement shall be reformed in accordance therewith.
(f) All of the covenants in this paragraph 3 shall be construed as
an agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against TSI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TSI of such covenants. It is specifically agreed that the period
of two (2) years following termination of employment stated at the beginning of
this paragraph 3, during which the agreements and covenants of Employee made in
this paragraph 3 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 3.
4. PLACE OF PERFORMANCE.
(a) Employee understands that he must relocate from Employee's
present residence to the Delray Beach, Florida, area in order to efficiently
carry out Employee's duties and responsibilities under this Agreement.
(b) Employee understands that apart from the relocation set forth in
(a) above, he may be requested during the Term of this Agreement to relocate to
another geographic location in order to more efficiently carry out Employee's
duties and responsibilities. If such a request is made and Employee refuses,
such refusal shall not constitute "cause" for termination of this Agreement
under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the Effective Date and
continue for three years (until August 31, 2002), and, unless terminated sooner
as herein provided, shall continue thereafter on a year-to-year basis on the
same terms and conditions contained herein in effect as of the time of renewal.
As used herein, the word "Term" shall mean (i) during the three-year period
referred to in the preceding sentence, such three-year period, and (ii) during
any one-year
5
<PAGE>
renewal pursuant to the terms hereof, such one-year period. This Agreement and
Employee's employment may be terminated in any one of the following ways:
(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, as reasonably determined by Employee's physician,
Employee shall have been absent from Employee's full-time duties hereunder for
four (4) consecutive months, then thirty (30) days after receiving written
notice (which notice may occur before or after the end of such four (4) month
period, but which shall not be effective earlier than the last day of such four
(4) month period), TSI may terminate Employee's employment hereunder provided
Employee is unable to resume Employee's full-time duties at the conclusion of
such notice period. Also, Employee may terminate Employee's employment hereunder
if his health should become impaired to an extent that makes the continued
performance of Employee's duties hereunder hazardous to Employee's physical or
mental health or life, provided that Employee shall have furnished TSI with a
written statement from a qualified doctor to such effect and provided, further,
that, at TSI's request made within thirty (30) days after the date of such
written statement, Employee shall submit to an examination by a doctor selected
by TSI who is reasonably acceptable to Employee or Employee's doctor and such
doctor shall have concurred in the conclusion of Employee's doctor. In the event
this Agreement is terminated by either party as a result of Employee's
disability, Employee shall receive from TSI, in a lump-sum payment due within
ten (10) days after the effective date of termination, the base salary at the
rate then in effect for whatever time period is remaining under the Term of this
Agreement or for one (1) year, whichever amount is greater.
(c) GOOD CAUSE. TSI may terminate the Agreement for good cause,
which includes, but is not limited to: (1) Employee's willful, material and
irreparable breach of this Agreement; (2) Employee's gross negligence in the
performance or intentional nonperformance of duties and responsibilities
hereunder continuing for ten (10) days after receipt of written notice of need
to cure; (3) Employee's willful dishonesty, fraud or misconduct which materially
and adversely affects the operations, property or reputation of TSI or its
subsidiaries; (4) Employee's conviction of a felony crime; (5) chronic alcohol
abuse or illegal drug abuse by Employee; or (6) Employees willful misconduct,
whether or not with respect to the business or affairs of TSI, which materially
and adversely affects the operations, property or reputation of TSI or its
subsidiaries.
TSI shall not be limited to termination as a remedy for any
damaging, injurious, improper or illegal act by the Employee, but may also seek
damages, injunction, or such other remedy as TSI may deem appropriate under the
circumstances. If the Employee's employment is terminated for good cause, the
Employee agrees to vacate TSI's offices on or before the effective date of the
termination and to return and deliver to TSI at such time all TSI property. In
the event of a termination for good cause, as enumerated above, Employee shall
have no right to any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective
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ninety (90) days after written notice is provided to TSI. Employee may only be
terminated without cause by TSI during the Term hereof if such termination is
approved by at least two-thirds of the members of the Board. Should Employee's
employment be terminated by TSI without cause during the Term, Employee shall
receive from TSI the base salary at the rate then in effect for whatever time
period is remaining under the Term of this Agreement or for one (1) year,
whichever amount is greater, payable in accordance with standard payroll terms,
plus any accrued salary, declared but unpaid bonus and reimbursement of
expenses. In addition, in the event that such termination without cause by TSI
occurs prior to the end of the first year of the Term, then 25% of the options
granted to Employee pursuant to Section 2(c)(iv) of this Agreement shall be
deemed to have vested immediately prior to such termination. If Employee resigns
or otherwise terminates Employee's employment without cause pursuant to this
paragraph 5(d), Employee shall receive no severance compensation.
(e) Upon termination of this Agreement for any reason provided
above, Employee shall be entitled to receive all compensation earned and all
benefits and reimbursements due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above. All other rights and obligations of TSI and Employee under this Agreement
shall cease as of the effective date of termination, except that the Company's
obligations under paragraph 8 hereof and Employee's obligations under paragraphs
3, 6, 7, 8 and 9 hereof shall survive such termination in accordance with their
terms. Further, unless Employee and TSI otherwise agree in writing, upon
termination of this Agreement for any reason, Employee will immediately resign
from all director, officer or other positions held with TSI and its
subsidiaries.
6. COMPANY PROPERTY; INVENTIONS.
(a) All records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, and other property delivered to or
compiled by Employee by or on behalf of TSI, or its representatives, vendors, or
customers which pertain to the business of TSI shall be and remain the property
of TSI, as the case may be, and be subject at all times to its discretion and
control. Likewise, all correspondence, reports, records, charts, advertising
materials, and other similar data pertaining to the business, activities, or
future plans of TSI which is collected by Employee shall be delivered promptly
to TSI without request by it upon termination of Employee's employment.
(b) Employee shall disclose promptly to TSI any and all significant
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by Employee, solely or
jointly with another, during the period of employment, and which are directly
related to the business or activities of TSI and which Employee conceives as a
result of Employee's employment by TSI. Employee hereby assigns and agrees to
assign all of Employee's interests therein to TSI or its nominee. Whenever
requested to do so by TSI, Employee shall execute any and all applications,
assignments, or other instruments that the Company shall deem necessary to apply
for and obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein.
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7. CONFIDENTIALITY AND PROPRIETARY INFORMATION.
(a) ACKNOWLEDGEMENT. Employee acknowledges and agrees that in the
course of rendering services to TSI and its customers, the Employee will have
access to and will become acquainted with confidential and proprietary
information about the professional, business and financial affairs of TSI, its
affiliates and its vendors, suppliers and customers, and that Employee may have
contributed to or may in the future contribute to such information. Employee
further recognizes that Employee is being employed as a key employee, that TSI
is engaged in a highly competitive business, and that the success of TSI in the
marketplace and business depends upon its goodwill and reputation for integrity,
quality and dependability. Employee recognizes that in order to guard the
legitimate interests of TSI it is necessary for TSI to protect all such
confidential and proprietary information, goodwill and reputation.
(b) PROPRIETARY INFORMATION. In the course of Employee's service to
TSI, Employee may have access to confidential know-how, business documents or
information, marketing data, client lists and trade secrets which are
confidential. Such information shall hereinafter be called "Proprietary
Information" and shall include any and all items enumerated in the preceding
sentence which come within the scope of the business activities of TSI as to
which Employee has had or may have access, whether previously existing, now
existing or arising hereafter, whether or not conceived or developed by others
or by Employee alone or with others during the period of his service to TSI, and
whether or not conceived or developed during regular working hours. "Proprietary
Information" shall not include any information which is in the public domain
during the period of service by Employee or becomes public thereafter, provided
such information is not in the public domain as a consequence of disclosure by
Employee in violation of this Agreement.
(c) FIDUCIARY OBLIGATIONS. Employee agrees and acknowledges that the
Proprietary Information is of critical importance to TSI and a violation of this
Paragraph 7 will seriously and irreparably impair and damage TSI's business.
Employee therefore agrees, while he is an employee of TSI and at all times
thereafter, to keep all Proprietary Information strictly confidential.
(d) NON-DISCLOSURE. Except as required by law or order of any court
or governmental entity or in connection with the proper performance of his
duties hereunder, Employee shall not disclose, directly or indirectly (except as
required by law), any Proprietary Information to any person other than (a) TSI,
(b) persons who are authorized employees of TSI at the time of such disclosure,
(c) such other persons, including prospective investors or lenders, to whom
Employee has been instructed to make disclosure by TSI's senior management, or
(d) Employee's counsel, so long as such counsel agrees to keep all Proprietary
Information confidential (in the case of clauses (b) and (c), only to the extent
required in the course of Employee's service to the TSI). Upon any termination
of Employee's employment hereunder, Employee shall deliver to TSI all notes,
letters, documents, tapes, discs, recorded data and records which may contain
Proprietary Information which are then in Employee's possession or control and
shall not retain, use, or make any copies, summaries or extracts thereof.
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8. INDEMNIFICATION.
In connection with any threatened, pending or completed claim,
demand, liability, action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by TSI against Employee),
by reason of the fact that Employee is or was performing services (including an
act, omission or failure to act) under this Agreement, then TSI shall indemnify
and hold harmless, to the maximum extent permitted by law, Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. In the event that both Employee and TSI are made a party to the same
third-party action, complaint, suit or proceeding, TSI agrees to engage
competent legal representation reasonably acceptable to Employee, and Employee
agrees to use the same representation, provided that if counsel selected by TSI
shall have a conflict of interest that prevents such counsel from representing
Employee, Employee may engage separate counsel and TSI shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use Employee's best efforts to faithfully discharge his duties under this
Agreement, Employee cannot be held liable to TSI for errors or omissions made in
good faith where Employee has not exhibited gross, willful or wanton negligence
or misconduct or performed criminal and fraudulent acts which materially damage
the business of TSI. TSI shall pay, on behalf of Employee upon presentation of
proper invoices, all fees, costs and expenses (including attorneys' fees)
incurred in connection with any matter referenced in this paragraph 8.
9. REPRESENTATIONS OF EMPLOYEE.
(a) Employee hereby represents and warrants to TSI that the
execution of this Agreement by Employee, employment by TSI and the performance
of Employee's duties hereunder will not violate or be a breach of any agreement
with a former employer, client, or any other person or entity to which the
Employee is a party or is otherwise obligated. Further, Employee agrees to
indemnify TSI for any claim, including but not limited to attorneys' fees and
expenses of investigation, by any such third party that such third party may now
have or may hereafter come to have against TSI based upon or arising out of any
non-competition agreement, invention or secrecy agreement between Employee and
such third party which was in existence as of the date of this Agreement.
(b) The Employee has and will continue to truthfully disclose to TSI
the following matters, whether occurring at any time during the five (5) years
immediately preceding the date of this Agreement or at any time during the term
of this Agreement:
(1) any criminal complaint, indictment or criminal proceeding
in which the Employee is named as a defendant;
(2) any allegation, investigation, or proceeding, whether
administrative, civil or criminal, against the Employee by any
licensing authority or industry association; and
(3) any allegation, investigation or proceeding, whether
administrative, civil, or criminal, against the Employee for violating
professional ethics or standards, or
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engaging in illegal, immoral or other misconduct (of any nature or
degree), relating to the business of TSI.
10. ASSIGNMENT; BINDING EFFECT.
This Agreement shall inure to the benefit of and be binding on
the Employee and TSI and the Employee's and TSI's respective heirs, personal
representatives, successors and assigns; PROVIDED, HOWEVER, that the Employee
shall have no right to assign the Employee's rights or duties under this
contract to any other person. In the event of the sale, merger or consolidation
of TSI, the Employee specifically agrees that TSI may assign its rights and
obligations hereunder to its successor, assign or purchaser. In addition, and in
any event, TSI may, at any time, assign its rights and obligations under this
Agreement to any person that is an affiliate of TSI or to any person which,
after any such assignment, employs at least 50% of the employees employed by TSI
immediately prior to the assignment.
11. COMPLETE AGREEMENT.
This Agreement supersedes any other agreements or understandings,
written or oral, between TSI and Employee, and Employee has no oral
representations, understandings or agreements with TSI or any of its officers,
directors or representatives covering the same subject matter as this Agreement.
This written Agreement is the final, complete and exclusive statement and
expression of the agreement between TSI and Employee and of all the terms of
this Agreement, and it cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of TSI and Employee, and no term of this
Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
12. NOTICE.
Whenever any notice is required hereunder, it shall be given in
writing addressed as follows:
To TSI: Travel Services International, Inc.
220 Congress Park Drive
Delray Beach, FL 33445
Attention: President/Chief Operating Officer
and General Counsel
To Employee: Mr. Timothy M. Coleman
17206 SE 46th Street
Bellevue, WA 98006
Cc: Mr. Gregory Russell
Peterson Russell PLLC
1800 Skyline Tower
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10900 NE 4th Street
Bellevue, WA 98004-5841
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 12.
13. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
14. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Palm Beach County, Florida, in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall not have the authority to add to, detract from or
modify any provision hereof nor to award punitive damages to any injured party.
The arbitrators shall have the authority to order back-pay and severance
compensation in the event the arbitrators determine that Employee was terminated
without disability or good cause, as defined in paragraphs 5(b) and 5(c) hereof,
respectively, or that TSI has otherwise materially breached this Agreement. A
decision by a majority of the arbitration panel shall be final and binding.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction.
15. GOVERNING LAW.
This Agreement shall in all respects be construed according to the
laws of the State of Florida without regard to the conflicts of laws principles
of such state.
16. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: /S/ JOHN BALSON
-------------------------------------------
Name: John Balson
Title: President and Chief Operating Officer
/S/ TIMOTHY M. COLEMAN
----------------------------------------------
Timothy M. Coleman
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EXHIBIT 10.22
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), by and between Travel
Services International, Inc., a Florida corporation ("TSI"), and Patrick Doyle
("Employee"), is hereby entered into as of the 11th day of October, 1999 (the
"Effective Date").
R E C I T A L S
A. As of the date of this Agreement, TSI is engaged primarily in the
business of providing travel services to consumers and travel agents.
B. Employee is employed hereunder by TSI in a confidential
relationship wherein Employee, in the course of Employee's employment with TSI,
has and will continue to become familiar with and aware of information as to
TSI's customers, specific manner of doing business, including the processes,
techniques and trade secrets utilized by TSI, and future plans with respect
thereto, all of which has been and will be established and maintained at great
expense to TSI; this information is a trade secret and constitutes the valuable
goodwill of TSI.
A G R E E M E N T S
In consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
1. EMPLOYMENT AND DUTIES.
(a) TSI hereby employs Employee as Senior Vice President and Chief
Financial Officer of TSI. As such, Employee shall have responsibilities, duties
and authority reasonably accorded to and expected of such position and will
report to the Chairman and Chief Executive Officer of TSI. Employee hereby
accepts this employment upon the terms and conditions herein contained and,
subject to paragraph 1(c) hereof, agrees to devote Employee's full business
time, attention and efforts to promote and further the business of TSI.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the senior management or Board of Directors of TSI (the
"Board").
(c) Employee shall not, during the term of his employment
hereunder, be engaged in any other business activity pursued for gain, profit or
other pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require Employee's services in the operation or affairs of the
companies or enterprises in which such investments are made nor violate the
terms of paragraph 4 hereof. Further, the foregoing limitations shall not be
construed as prohibiting Employee from participating as a member of the Board of
Directors of (i) 21st Century Holding Company, including its subsidiaries, and
(ii) cruise-related subsidiaries of Neptun Maritime; PROVIDED,
<PAGE>
HOWEVER, that such activities do not materially interfere with Employee's
ability to fulfill his obligations to TSI.
2. COMPENSATION.
For all services rendered by Employee, TSI shall compensate Employee
as follows:
(a) BASE SALARY. The base salary payable to Employee shall be
$150,000 per year, payable on a regular basis in accordance with TSI's standard
payroll procedures but not less than monthly. On at least an annual basis, the
Board will review Employee's performance and may make increases to such base
salary if, in its discretion, any such increase is warranted. Such recommended
increase would, in all likelihood, require approval by the Board or a duly
constituted committee thereof.
(b) INCENTIVE BONUS PLAN. Employee shall be eligible to receive
year-end bonus awards pursuant to the Company's Incentive Bonus Plan. The
maximum bonus for which Employee may be eligible will be 75% of Employee's base
salary.
(c) EXECUTIVE PERQUISITES, BENEFITS, AND OTHER COMPENSATION.
Employee shall be entitled to receive additional benefits and compensation from
TSI in such form and to such extent as specified below:
(i) Payment of all premiums for coverage for Employee and Employee's
dependent family members under health, hospitalization, disability, dental, life
and other insurance plans that TSI may have in effect from time to time for its
executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of Employee's
services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission of any
request for reimbursement, and in a format and manner consistent with TSI's
expense reporting policy.
(iii) TSI shall provide Employee with other executive perquisites as
may be available to senior management of TSI and participation in all other
TSI-wide employee benefits as available from time to time, including
participation in TSI's 401(k) plan and vacation benefits in accordance with
TSI's established policies.
(iv) STOCK OPTIONS. Subject to Board approval, TSI shall grant to
Employee options to acquire 40,000 shares of TSI common stock at the price per
share equal to the fair market value (which shall be the last sale price for the
common stock on the Nasdaq Stock Market) on the date of grant. TSI agrees to
submit such options for approval to the Compensation Committee of the Board of
Directors no later than at its next regular quarterly meeting following
execution of this Agreement. Such options shall be granted in accordance with
TSI's Long Term Incentive Plan and will be evidenced by a stock option grant
agreement that will provide, among other things, that the options will vest in
installments of 10,000 shares
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on each of the first, second, third and fourth anniversaries of the Effective
Date and will expire on the tenth anniversary of the grant.
3. NON-COMPETITION.
Employee acknowledges that during the course of Employee's employment,
Employee will receive confidential and proprietary information from and
concerning TSI and its subsidiaries. Employee also acknowledges that TSI will
make substantial investments in TSI's goodwill and Employee's professional
development. The capital expended with respect to this goodwill and development
directly benefits the Employee and should continue to do so in the event that
the relationship between TSI and Employee is terminated. Likewise, other capital
investments to be made by TSI to assist in the Employee's professional
development (including but not limited to those items listed below) will confer
a direct economic benefit on the Employee. During the course of Employee's
tenure with TSI, Employee will have received economic benefits as a result of
capital expenditures by TSI, including, but not limited to, enabling Employee
(1) to expand Employee's own professional development; (2) to become known by
additional industry personnel; (3) to participate in proprietary strategic
planning sessions which focus on professional and business growth opportunities;
and (4) to participate in TSI's future through appreciation in stock value.
The Employee agrees that TSI is entitled to protect these business
interests and investments and to prevent the Employee from using or taking
advantage of the foregoing economic benefits to TSI's detriment.
(a) Employee agrees that, except for services and duties performed
for or on behalf of TSI or its subsidiaries pursuant to this Agreement, Employee
will not, during the period of Employment with the Company and for a period of
two (2) years immediately following the termination of Employee's employment
under this Agreement ("Restricted Period") (as defined below) for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor or as a sales representative, in any travel
service business, including, without limitation, any such business conducted
through telephone or other reservation centers or through electronic
distribution channels such as the Internet, within the United States or within
100 miles of any other geographic area in which TSI or any of TSI's subsidiaries
conducts business, including any territory serviced by TSI or any of its
subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of TSI (including the subsidiaries thereof) for the
purpose or with the intent of enticing such employee away from or out of the
employ of TSI (including the subsidiaries thereof);
(iii) call upon any person or entity which, to Employee's knowledge,
is, at that time, or which has been, within one (1) year prior to that time, a
customer of TSI (including the
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<PAGE>
respective subsidiaries thereof) within the Territory for the purpose of
soliciting or selling products or services in direct competition with TSI or any
subsidiary of TSI within the Territory; or
(iv) call upon any prospective acquisition candidate, on Employee's
own behalf or on behalf of any competitor, which candidate was, to Employee's
knowledge, either called upon by TSI (including the respective subsidiaries
thereof) or for which TSI made an acquisition analysis, for the purpose of
acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit Employee from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to TSI as
a result of a breach of the foregoing covenant, and because of the immediate and
irreparable damage that could be caused to TSI for which it would have no other
adequate remedy, Employee agrees that the foregoing covenant may be enforced by
TSI in the event of breach by him, by injunctions, restraining orders and other
equitable remedies.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of TSI (including TSI's subsidiaries) on the date of the execution
of this Agreement and the current plans of TSI (including TSI's subsidiaries);
but it is also the intent of TSI and Employee that such covenants be construed
and enforced in accordance with the changing activities, business and locations
of TSI (including TSI's subsidiaries) throughout the term of this Agreement. For
example, if, during the term of this Agreement, TSI (including TSI's
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business of TSI as of the date hereof, or the
locations currently established therefor, then Employee will be precluded from
soliciting the customers or employees of such new activities or business or from
such new location and from directly competing with such new business within 100
miles of its then-established operating location(s) through the term of this
Agreement.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with TSI (including TSI's
subsidiaries), or similar activities, or business in locations the operation of
which, under such circumstances, does not violate clause (i) of this paragraph
3, and in any event such new business, activities or location are not in
violation of this paragraph 3 or of employee's obligations under this paragraph
3, if any, Employee shall not be chargeable with a violation of this paragraph 3
if TSI (including TSI's subsidiaries) shall thereafter enter the same, similar
or a competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 3 are severable and separate,
and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant.
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Moreover, in the event any court of competent jurisdiction shall determine that
the scope, time or territorial restrictions set forth are unreasonable, then it
is the intention of the parties that such restrictions be enforced to the
fullest extent which the court deems reasonable, and the Agreement shall be
reformed in accordance therewith.
(e) All of the covenants in this paragraph 3 shall be construed as
an agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against TSI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TSI of such covenants. It is specifically agreed that the period
of two (2) years following termination of employment stated at the beginning of
this paragraph 3, during which the agreements and covenants of Employee made in
this paragraph 3 shall be effective, shall be computed by excluding from such
computation any time during which Employee is in violation of any provision of
this paragraph 3.
4. PLACE OF PERFORMANCE.
(a) Employee understands that he may be requested to relocate from
Employee's present residence to another geographic location in order to more
efficiently carry out Employee's duties and responsibilities under this
Agreement. In such event, TSI will pay all actual reasonable relocation costs to
move Employee, Employee's immediate family and their personal property and
effects. Such costs may include, but are not limited to, moving expenses,
temporary lodging expenses prior to moving into a new permanent residence; all
closing costs on the purchase of a residence (comparable to Employee's present
residence) in the new location. The general intent of the foregoing is that
Employee shall not personally bear any out-of-pocket cost as a result of the
relocation, with an understanding that Employee will use Employee's best efforts
to incur only those costs which are reasonable and necessary to effect a smooth,
efficient and orderly relocation with minimal disruption to the business affairs
of TSI and the personal life of Employee and Employee's family.
(b) Notwithstanding the above, if Employee is requested to relocate and
Employee refuses, such refusal shall not constitute "cause" for termination of
this Agreement under the terms of paragraph 5(c).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
The term of this Agreement shall begin on the Effective Date and
continue for three years (until October 10, 2002), and, unless terminated sooner
as herein provided, shall continue thereafter on a year-to-year basis on the
same terms and conditions contained herein in effect as of the time of renewal.
As used herein, the word "Term" shall mean (i) during the three-year period
referred to in the preceding sentence, such three-year period, and (ii) during
any one-year renewal pursuant to the terms hereof, such one-year period.
This Agreement and Employee's employment may be terminated in any
one of the following ways:
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(a) DEATH. The death of Employee shall immediately terminate this
Agreement with no severance compensation due to Employee's estate.
(b) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, as reasonably determined by Employee's physician,
Employee shall have been absent from Employee's full-time duties hereunder for
four (4) consecutive months, then thirty (30) days after receiving written
notice (which notice may occur before or after the end of such four (4) month
period, but which shall not be effective earlier than the last day of such four
(4) month period), TSI may terminate Employee's employment hereunder provided
Employee is unable to resume Employee's full-time duties at the conclusion of
such notice period. Also, Employee may terminate Employee's employment hereunder
if his health should become impaired to an extent that makes the continued
performance of Employee's duties hereunder hazardous to Employee's physical or
mental health or life, provided that Employee shall have furnished TSI with a
written statement from a qualified doctor to such effect and provided, further,
that, at TSI's request made within thirty (30) days after the date of such
written statement, Employee shall submit to an examination by a doctor selected
by TSI who is reasonably acceptable to Employee or Employee's doctor and such
doctor shall have concurred in the conclusion of Employee's doctor. In the event
this Agreement is terminated by either party as a result of Employee's
disability, Employee shall receive from TSI, in a lump-sum payment due within
ten (10) days after the effective date of termination, the base salary at the
rate then in effect for whatever time period is remaining under the Term of this
Agreement or for one (1) year, whichever amount is greater.
(c) GOOD CAUSE. TSI may terminate the Agreement for good cause,
which includes: (1) Employee's willful, material and irreparable breach of this
Agreement; (2) Employee's gross negligence in the performance or intentional
nonperformance of duties and responsibilities hereunder continuing for ten (10)
days after receipt of written notice of need to cure; (3) Employee's willful
dishonesty, fraud or misconduct which materially and adversely affects the
operations, property or reputation of TSI or its subsidiaries; (4) Employee's
conviction of a felony crime; (5) chronic alcohol abuse or illegal drug abuse by
Employee; (6) Employee's willful misconduct, whether or not with respect to the
business or affairs of TSI, which materially and adversely affects the
operations, property or reputation of TSI or its subsidiaries; or (7) Employee's
insubordination or failure to adhere to material Company policies.
TSI shall not be limited to termination as a remedy for any
damaging, injurious, improper or illegal act by the Employee, but may also seek
damages, injunction, or such other remedy as TSI may deem appropriate under the
circumstances. If the Employee's employment is terminated for good cause, the
Employee agrees to vacate TSI's offices on or before the effective date of the
termination and to return and deliver to TSI at such time all TSI property. In
the event of a termination for good cause, as enumerated above, Employee shall
have no right to any severance compensation.
(d) WITHOUT CAUSE. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's employment,
effective ninety (90) days after written notice is provided to TSI. Employee may
only be terminated without cause by TSI during the Term hereof if such
termination is approved by at least two-thirds of the members of the Board.
Should Employee's employment be terminated by TSI
6
<PAGE>
without cause during the Term, Employee shall receive from TSI the base salary
at the rate then in effect for whatever time period is remaining under the Term
of this Agreement or for one (1) year, whichever amount is greater, payable in
accordance with standard payroll terms, plus any accrued salary, declared but
unpaid bonus and reimbursement of expenses. If Employee resigns or otherwise
terminates Employee's employment without cause pursuant to this paragraph 5(d),
Employee shall receive no severance compensation.
(e) NON-RENEWAL. In the event that either TSI or the Employee desires for any
reason whatsoever to have this Agreement and Employee's employment hereunder
terminated at the end of the Term, then such party shall give written notice of
non-renewal to the other party no later than three months before the end of the
Term. Upon delivery of such notice, the "Term" shall automatically be modified
to extend the remaining Term by three months, such that the notice of
non-renewal shall serve to become six-months prior notice of termination;
PROVIDED, HOWEVER, that TSI may, at its sole option and discretion, terminate
Employee's employment at any time following a notice of non-renewal so long as
TSI continues the payment of Employee's salary and benefits, and the vesting of
Employee's stock options, through the end of the Term, as modified by this
Section 5(e).
(f) Upon termination of this Agreement for any reason provided above, Employee
shall be entitled to receive all compensation earned and all benefits and
reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above. All
other rights and obligations of TSI and Employee under this Agreement shall
cease as of the effective date of termination, except that the Company's
obligations under paragraph 8 hereof and Employee's obligations under paragraphs
3, 6, 7, 8 and 9 hereof shall survive such termination in accordance with their
terms. Further, unless Employee and TSI otherwise agree in writing, upon
termination of this Agreement for any reason, Employee will immediately resign
from all director, officer or other positions held with TSI and its
subsidiaries.
6. COMPANY PROPERTY; INVENTIONS.
(a) All records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, and other property delivered to or
compiled by Employee by or on behalf of TSI, or its representatives, vendors, or
customers which pertain to the business of TSI shall be and remain the property
of TSI, as the case may be, and be subject at all times to its discretion and
control. Likewise, all correspondence, reports, records, charts, advertising
materials, and other similar data pertaining to the business, activities, or
future plans of TSI which is collected by Employee shall be delivered promptly
to TSI without request by it upon termination of Employee's employment.
(b) Employee shall disclose promptly to TSI any and all significant
conceptions and ideas for inventions, improvements, and valuable discoveries,
whether patentable or not, which are conceived or made by Employee, solely or
jointly with another, during the period of employment, and which are directly
related to the business or activities of TSI and which Employee conceives as a
result of Employee's employment by TSI. Employee hereby assigns
7
<PAGE>
and agrees to assign all of Employee's interests therein to TSI or its nominee.
Whenever requested to do so by TSI, Employee shall execute any and all
applications, assignments, or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
7. CONFIDENTIALITY AND PROPRIETARY INFORMATION.
(a) ACKNOWLEDGEMENT. Employee acknowledges and agrees that in the
course of rendering services to TSI and its customers, the Employee will have
access to and will become acquainted with confidential and proprietary
information about the professional, business and financial affairs of TSI, its
affiliates and its vendors, suppliers and customers, and that Employee may have
contributed to or may in the future contribute to such information. Employee
further recognizes that Employee is being employed as a key employee, that TSI
is engaged in a highly competitive business, and that the success of TSI in the
marketplace and business depends upon its goodwill and reputation for integrity,
quality and dependability. Employee recognizes that in order to guard the
legitimate interests of TSI it is necessary for TSI to protect all such
confidential and proprietary information, goodwill and reputation.
(b) PROPRIETARY INFORMATION. In the course of Employee's service to
TSI, Employee may have access to confidential know-how, business documents or
information, marketing data, client lists and trade secrets which are
confidential. Such information shall hereinafter be called "Proprietary
Information" and shall include any and all items enumerated in the preceding
sentence which come within the scope of the business activities of TSI as to
which Employee has had or may have access, whether previously existing, now
existing or arising hereafter, whether or not conceived or developed by others
or by Employee alone or with others during the period of his service to TSI, and
whether or not conceived or developed during regular working hours. "Proprietary
Information" shall not include any information which is in the public domain
during the period of service by Employee or becomes public thereafter, provided
such information is not in the public domain as a consequence of disclosure by
Employee in violation of this Agreement.
(c) FIDUCIARY OBLIGATIONS. Employee agrees and acknowledges that the
Proprietary Information is of critical importance to TSI and a violation of this
Paragraph 7 will seriously and irreparably impair and damage TSI's business.
Employee therefore agrees, while he is an employee of TSI and at all times
thereafter, to keep all Proprietary Information strictly confidential.
(d) NON-DISCLOSURE. Except as required by law or order of any court or
governmental entity or in connection with the proper performance of his duties
hereunder, Employee shall not disclose, directly or indirectly (except as
required by law), any Proprietary Information to any person other than (a) TSI,
(b) persons who are authorized employees of TSI at the time of such disclosure,
(c) such other persons, including prospective investors or lenders, to whom
Employee has been instructed to make disclosure by TSI's senior management, or
(d) Employee's counsel, so long as such counsel agrees to keep all Proprietary
Information confidential (in the case of clauses (b) and (c), only to the extent
required in the course of Employee's service to the TSI). Upon any termination
of Employee's employment hereunder, Employee shall deliver to TSI all
8
<PAGE>
notes, letters, documents, tapes, discs, recorded data and records which may
contain Proprietary Information which are then in Employee's possession or
control and shall not retain, use, or make any copies, summaries or extracts
thereof.
8. INDEMNIFICATION.
In connection with any threatened, pending or completed claim,
demand, liability, action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by TSI against Employee),
by reason of the fact that Employee is or was performing services (including an
act, omission or failure to act) under this Agreement, then TSI shall indemnify
and hold harmless, to the maximum extent permitted by law, Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith. In the event that both Employee and TSI are made a party to the same
third-party action, complaint, suit or proceeding, TSI agrees to engage
competent legal representation reasonably acceptable to Employee, and Employee
agrees to use the same representation, provided that if counsel selected by TSI
shall have a conflict of interest that prevents such counsel from representing
Employee, Employee may engage separate counsel and TSI shall pay all attorneys'
fees of such separate counsel. Further, while Employee is expected at all times
to use Employee's best efforts to faithfully discharge his duties under this
Agreement, Employee cannot be held liable to TSI for errors or omissions made in
good faith where Employee has not exhibited gross, willful or wanton negligence
or misconduct or performed criminal and fraudulent acts which materially damage
the business of TSI. TSI shall pay, on behalf of Employee upon presentation of
proper invoices, all fees, costs and expenses (including attorneys' fees)
incurred in connection with any matter referenced in this paragraph 8.
9. REPRESENTATIONS OF EMPLOYEE.
(a) Employee hereby represents and warrants to TSI that the execution
of this Agreement by Employee, employment by TSI and the performance of
Employee's duties hereunder will not violate or be a breach of any agreement
with a former employer, client, or any other person or entity to which the
Employee is a party or is otherwise obligated. Further, Employee agrees to
indemnify TSI for any claim, including but not limited to attorneys' fees and
expenses of investigation, by any such third party that such third party may now
have or may hereafter come to have against TSI based upon or arising out of any
non-competition agreement, invention or secrecy agreement between Employee and
such third party which was in existence as of the date of this Agreement.
(b) The Employee has and will continue to truthfully disclose to TSI
the following matters, whether occurring at any time during the five (5) years
immediately preceding the date of this Agreement or at any time during the term
of this Agreement:
(1) any criminal complaint, indictment or criminal proceeding
in which the Employee is named as a defendant;
9
<PAGE>
(2) any allegation, investigation, or proceeding, whether
administrative, civil or criminal, against the Employee by any
licensing authority or industry association; and
(3) any allegation, investigation or proceeding, whether
administrative, civil, or criminal, against the Employee for violating
professional ethics or standards, or engaging in illegal, immoral or
other misconduct (of any nature or degree), relating to the business of
TSI.
10. ASSIGNMENT; BINDING EFFECT.
This Agreement shall inure to the benefit of and be binding on
the Employee and TSI and the Employee's and TSI's respective heirs, personal
representatives, successors and assigns; PROVIDED, HOWEVER, that the Employee
shall have no right to assign the Employee's rights or duties under this
contract to any other person. In the event of the sale, merger or consolidation
of TSI, the Employee specifically agrees that TSI may assign its rights and
obligations hereunder to its successor, assign or purchaser. In addition, and in
any event, TSI may, at any time, assign its rights and obligations under this
Agreement to any person that is an affiliate of TSI or to any person which,
after any such assignment, employs at least 50% of the employees employed by TSI
immediately prior to the assignment.
11. COMPLETE AGREEMENT.
This Agreement supersedes any other agreements or understandings,
written or oral, between TSI and Employee, and Employee has no oral
representations, understandings or agreements with TSI or any of its officers,
directors or representatives covering the same subject matter as this Agreement.
This written Agreement is the final, complete and exclusive statement and
expression of the agreement between TSI and Employee and of all the terms of
this Agreement, and it cannot be varied, contradicted or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a written instrument
signed by a duly authorized officer of TSI and Employee, and no term of this
Agreement may be waived except by a written instrument signed by the party
waiving the benefit of such term.
12. NOTICE.
Whenever any notice is required hereunder, it shall be given in
writing addressed as follows:
To TSI: Travel Services International, Inc.
220 Congress Park Drive
Delray Beach, FL 33445
Attention: Chief Executive Officer and General Counsel
To Employee: Mr. Patrick Doyle
2601 N.W. 28th Terrace
Boca Raton, FL 33434
10
<PAGE>
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party may
change the address for notice by notifying the other party of such change in
accordance with this paragraph 12.
13. SEVERABILITY; HEADINGS.
If any portion of this Agreement is held invalid or inoperative, the
other portions of this Agreement shall be deemed valid and operative and, so far
as is reasonable and possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
14. ARBITRATION.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three (3) arbitrators in Palm Beach County, Florida, in
accordance with the rules of the American Arbitration Association then in
effect. The arbitrators shall not have the authority to add to, detract from or
modify any provision hereof nor to award punitive damages to any injured party.
The arbitrators shall have the authority to order back-pay and severance
compensation in the event the arbitrators determine that Employee was terminated
without disability or good cause, as defined in paragraphs 5(b) and 5(c) hereof,
respectively, or that TSI has otherwise materially breached this Agreement. A
decision by a majority of the arbitration panel shall be final and binding.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction.
15. GOVERNING LAW.
This Agreement shall in all respects be construed according to the
laws of the State of Florida without regard to the conflicts of laws principles
of such state.
16. COUNTERPARTS.
This Agreement may be executed simultaneously in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TRAVEL SERVICES INTERNATIONAL, INC.
By: /S/ JOSEPH V. VITTORIA
------------------------------------------
Name: Joseph V. Vittoria
Title: Chairman and Chief Executive Officer
/S/ PATRICK DOYLE
----------------------------------------------
Patrick Doyle
12
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>
Quarter ended September 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 283,990 283,990 283,990
Shares issued in consideration for acquisition of 1-800-Cruises 36,546 19,897 19,897
Shares used in connection with the secondary stock offering 2,025,000 1,597,500 1,597,500
Exercised options 13,719 13,719 13,719
Options granted 1,649,903 -- 473,091
========== ========== ==========
Shares used in computing earnings per share for quarter ended September 30, 1998 15,008,972 12,914,920 13,388,011
========== ========== ==========
Quarter ended September 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
Additional Shares used in consideration for acquisition of Lifestyles 144,928 96,619 96,619
Shares issued in connection with the secondary stock offering 2,025,000 2,025,000 2,025,000
Exercised options 73,799 73,799 73,799
Options granted 2,046,172 -- 84,721
---------- ---------- ----------
Shares used in computing earnings per share for the quarter ended September 30, 1999 16,004,249 13,909,768 13,994,489
========== ========== ==========
</TABLE>
<PAGE>
SCHEDULE OF COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
BASIC DILUTED
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES SHARES SHARES
---------- ---------- ----------
<S> <C> <C> <C>
Nine month period ended September 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
Shares used in consideration for acquisition of 1-800-Cruises 36,546 6,632 6,632
Shares used in consideration with the secondary stock offering 2,025,000 532,500 532,500
Exercised options 13,719 13,719 13,719
Options granted 1,649,903 - 491,806
---------- ---------- ----------
Shares used in computing earnings per share for the period ended September 30, 1998 15,008,972 11,658,102 12,149,908
========== ========== ==========
Nine month period ended September 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 145,400 121,167 121,167
Shares issued in consideration for acquisition of LVI 248,600 207,167 207,167
Additional Shares used in consideration for acquisition of LVI 144,928 33,280 33,280
Shares issued in connection with the secondary stock offering 2,025,000 2,025,000 2,025,000
Exercised options 73,799 73,799 73,799
Options granted 2,046,172 - 84,634
---------- ---------- ----------
Shares used in computing earnings per share for the period ended September 30, 1999 16,004,249 13,780,762 13,865,396
========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TRAVEL SERVICES INTERNATIONAL, INC. & SUBSIDIARIES DATA IS FOR CONSOLIDATED
HISTORY AND FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 29,233
<SECURITIES> 0
<RECEIVABLES> 18,296
<ALLOWANCES> 2,242
<INVENTORY> 0
<CURRENT-ASSETS> 62,076
<PP&E> 31,361
<DEPRECIATION> 1,187
<TOTAL-ASSETS> 237,686
<CURRENT-LIABILITIES> 53,149
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 161,430
<TOTAL-LIABILITY-AND-EQUITY> 161,570
<SALES> 146,679
<TOTAL-REVENUES> 146,679
<CGS> 89,536
<TOTAL-COSTS> 89,536
<OTHER-EXPENSES> 46,364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 10,717
<INCOME-TAX> 4,287
<INCOME-CONTINUING> 6,430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,430
<EPS-BASIC> .46
<EPS-DILUTED> .46
</TABLE>
