<PAGE> 1
As filed with the Securities and Exchange Commission on July 24, 1997
Registration No. 333-28237
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------
800 TRAVEL SYSTEMS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
-------------
<TABLE>
<S> <C> <C> <C>
DELAWARE 4724 59-3343338
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
--------------
MARK D. MASTRINI, PRESIDENT
800 TRAVEL SYSTEMS, INC.
4802 GUNN HIGHWAY 4802 GUNN HIGHWAY
TAMPA, FLORIDA 33624 TAMPA, FLORIDA 33624
(813) 908-0404 (813) 908-0404
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number including area code of
principal executive offices) agent for service)
</TABLE>
-----------------------------
Copies of communications to:
<TABLE>
<S> <C>
VINCENT J. MCGILL RICHARD F. DAHLSON
PHILLIPS NIZER BENJAMIN KRIM & BALLON LLP JACKSON WALKER, L.L.P.
666 FIFTH AVENUE 901 MAIN STREET, SUITE 6000
NEW YORK, NEW YORK 10103-0084 DALLAS, TEXAS 75202-3797
TELEPHONE: (212) 977-9700 TELEPHONE: (214) 953-6000
TELECOPIER: (212) 262-5152 TELECOPIER: (214) 953-5822
</TABLE>
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED _________, 1997
800 TRAVEL SYSTEMS, INC.
1,800,000 SHARES OF COMMON STOCK
1,800,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(and 1,800,000 shares of Common Stock Issuable under the Warrants)
All of the 1,800,000 shares of Common Stock, par value $.01 per share (the
"Common Stock") offered hereby and all of the 1,800,000 Redeemable Common Stock
Purchase Warrants (the "Warrants") offered hereby are being sold by 800 Travel
Systems, Inc., a Delaware corporation (the "Company"). The Common Stock and
the Warrants (collectively, the "Securities") are being offered separately and
not as units, and each is separately transferable. Prior to this Offering,
there has been no public market for the Common Stock and the Warrants. It is
estimated that the initial public offering price will be $5.00 per share for
the Common Stock (the "Share Offering Price") and $.125 per Warrant.
Each Warrant entitles the holder to purchase one share of Common Stock at a
price of $________ per share (150% of the Share Offering Price) during the
five-year period commencing on the date of this Prospectus. The Warrants are
redeemable by the Company for $.05 per Warrant on not less than 30 nor more
than 60 days written notice if the closing price for the Common Stock for seven
trading days during a 10 consecutive trading day period ending not more than 15
days prior to the date that the notice of redemption is mailed equals or
exceeds $_____ per share (200% of the Share Offering Price), subject to
adjustment under certain circumstances and provided there is then a current
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the issuance and sale of Common Stock
upon the exercise of the Warrants. Any redemption of the Warrants during the
one-year period commencing on the date of this Prospectus shall require the
written consent of First London Securities Corporation, the representative of
the Underwriters (the "Representative"). See "Description of Securities."
The initial public offering prices of the Common Stock and Warrants and the
exercise price and other terms of the Warrants have been determined through
negotiations between the Company and the Representative and are not related to
the Company's assets, book value, financial condition or other recognized
criteria of value. Although the Company has applied for the inclusion of the
Common Stock and the Warrants on the Boston Stock Exchange under the symbols
"FLI" and "FLIW," respectively, and on the Nasdaq SmallCap Market under the
symbols "IFLI" and "IFLIW," respectively, there can be no assurance that an
active trading market in the Company's securities will develop or be sustained.
The Registration Statement, of which this Prospectus forms a part, also covers
the offering by selling securityholders (the "Selling Stockholders") of
984,134 shares of Common Stock (the "Registered Shares"), which shares are
not being underwritten but which may be sold from time to time pursuant to
arrangements made by such Selling Stockholders. The holders of the Registered
Shares have agreed with the Representative not to offer, sell or otherwise
dispose of ("Sell") such Registered Shares for a period of 30 days after the
effectiveness of this Offering (the "Effective Date") and for an additional
period of thirty (30) days thereafter without the consent of the
Representative. With respect to 110,000 of his Registered Shares, one Selling
Stockholder has agreed not to Sell more than 30,000 Registered Shares in the
second month after the Effective Date without the Representative's consent, and
more than 20,000 Registered Shares during each consecutive 30-day period
thereafter. In addition, with respect to 100,000 of his Registered Shares,
such Selling Stockholder has agreed not to Sell such shares within 180 days of
the Effective Date. Another Selling Stockholder has agreed not to Sell more
than 4,564 shares per month during the 11-month period after the first month
following the Effective Date and not to sell more than 20,833 shares per month
during the 12-month period thereafter. The Representative has no current plans
or understandings to waive, shorten or modify the foregoing lock-up
arrangements. Sales of the Registered Shares or the potential of such sales at
any time, may have an adverse effect on the market prices of the securities
offered hereby. The Company will not receive any of the proceeds from the sale
of the securities by the Selling Stockholders. The Company will bear all
expenses incurred by the Selling Stockholders, other than brokerage fees and
commissions and fees of independent counsel, if any.
--------------------
THESE ARE SPECULATIVE SECURITIES, AN INVESTMENT IN THE SECURITIES OFFERED
HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION FROM
THE PUBLIC OFFERING PRICE OF THE COMMON STOCK AND SHOULD BE CONSIDERED ONLY BY
INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" ON PAGES ___ - ___ AND "DILUTION."
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)(3)
<S> <C> <C> <C>
Per Share of Common Stock . . . . . . . . . . . . . $_____ $_____ $_____
Per Warrant . . . . . . . . . . . . . . . . . . . . $_____ $_____ $_____
Total(3) . . . . . . . . . . . . . . . . . . . . . . $_____ $_____ $_____
=======================================================================================================================
</TABLE>
(See footnotes on the following page)
--------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OR
WARRANTS INCLUDING OVER-ALLOTMENT. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"PLAN OF DISTRIBUTION."
--------------------
FIRST LONDON SECURITIES CORPORATION
--------------------
The date of this Prospectus is , 1997
2
<PAGE> 3
(1) Does not include additional underwriting compensation to be received
by the Representative in the form of (i) a non-accountable expense
allowance equal to 3% of the gross proceeds of this Offering, of which
$25,000 has been paid to date, and (ii) a warrant issued to the
Representative (the "Representative's Warrant") to purchase up to
180,000 shares of Common Stock and up to 180,000 Warrants exercisable
for a four-year period commencing one year after the effective date of
this Offering at an exercise price of 120% of the initial offering
price of the Shares and Warrants (in each case subject to adjustment).
The Company has agreed to pay the Representative upon the exercise or
redemption of the Warrants a fee equal to 5% of the gross proceeds
received by the Company from the exercise of the Warrants and 5% of
the aggregate redemption price for Warrants redeemed. Such fee will be
paid to the Representative no sooner than 12 months after the
effective date of this Offering. The Representative or its designee
must be designated by the Warrant holder as having solicited the
Warrant in order to receive the fee. The Company has agreed to
indemnify the Underwriters against certain liabilities arising under
the Securities Act. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $724,750
including the Representative's non-accountable expense allowance.
The Company will bear all expenses incurred by the Selling
Stockholders, other than brokerage fees and commissions and fees of
independent counsel, if any.
(3) The Company has granted the Representative an option (the
"Representative's Over-Allotment Option"), exercisable within 45 days
from the date of this Prospectus, to purchase on the same terms as the
Securities offered hereby up to 270,000 additional shares of Common
Stock and up to 270,000 additional Warrants solely to cover
over-allotments, if any. If the Representative's Over-Allotment Option
is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $___, $___
and $___, respectively. See "Underwriting."
The Securities offered by this Prospectus are being offered on a firm
commitment basis by the Underwriters, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters subject to the right to reject
any order, in whole or in part and subject to certain other conditions. The
Representative reserves the right to withdraw, cancel or modify the Offering
without notice. It is expected that delivery of the certificates representing
the shares will be made against payment therefor at the offices of First London
Securities Corporation, Dallas, Texas on or about ______________, 1997.
3
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement"), pursuant to the Securities Act with respect to the securities
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
THE STATEMENTS CONTAINED IN THIS PROSPECTUS AS TO THE CONTENTS OF ANY CONTRACT
OR OTHER DOCUMENT IDENTIFIED AS EXHIBITS IN THIS PROSPECTUS ARE NOT NECESSARILY
COMPLETE, AND IN EACH INSTANCE, REFERENCE IS MADE TO A COPY OF SUCH CONTRACT OR
DOCUMENT FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT, EACH STATEMENT
BEING QUALIFIED IN ANY AND ALL RESPECTS BY SUCH REFERENCE. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement and exhibits which may be
inspected without charge at the Commission's principal office at Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC 20549.
Upon consummation of this Offering, the Company will become subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at its New York Regional Office, Room 1300, 7 World Trade
Center, New York, New York 10048; and at its Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may also be obtained from the
Public Reference Section of the Commission at prescribed rates. The Company's
Registration Statement on Form SB-2 as well as any reports to be filed under
the Exchange Act can also be obtained electronically after the Company has
filed such documents with the Commission through a variety of databases,
including among others, the Commission's Electronic Data Gathering, Analysis
And Retrieval ("EDGAR") program, Knight- Ridder Information, Inc., Federal
Filings/Dow Jones and Lexis/Nexis. Additionally, the Commission maintains a
Website (at http://www.sec.gov) that contains such information regarding the
Company.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law.
4
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements (including the notes thereto) and
the pro forma financial information appearing elsewhere in this Prospectus. The
consummation of the Offering will occur concurrently with, and is a condition
precedent to, the consummation of the merger of The Joseph Stevens Group, Inc.
("Stevens") with and into the Company, with Company as the surviving
corporation (the "Stevens Merger"). See "The Stevens Merger." Unless otherwise
noted, all information in this Prospectus assumes (i) no exercise of the
Representative's over-allotment option and (ii) the consummation of the Stevens
Merger and the issuance of 300,000 shares of Common Stock in connection
therewith. Unless the context otherwise requires, references in this Prospectus
to the Company are to 800 Travel Systems, Inc. and to the businesses previously
conducted by its predecessor, 1-800 Low-Air Fare, Inc., and by Stevens.
THE COMPANY
The Company is among the 100 largest independent travel agencies in
the United States. The Company provides low-priced airline tickets for domestic
and international travel to its customers through its easy-to-remember, toll-
free numbers "1-800-LOW-AIR-FARE" (1-800-569-2473) and "1-800-FLY-4-LESS"
(1-800-359-4537). The Company has approximately 170 reservation agents and
operates 365 days a year out of the Company's reservation centers in Tampa,
Florida and San Diego, California. The Company strives to provide its customers
with the lowest-priced airfare available for a particular travel route at the
time of reservation by utilizing the SABRE travel reservation system developed
by American Airlines, Inc. The SABRE system maintains over 50 million airfares,
including those of all major U.S. and international commercial airlines, and is
updated throughout the day to reflect the airlines' latest ticketing
information. The Company estimates it receives an average of 30,000 calls per
day (including repeat calls from callers unable to be serviced or calling to
confirm reservations) at its reservation centers, of which the Company has the
current capacity to answer only approximately 8,000. The Company has increased
the number of its reservation agents from 13 in 1995 to approximately 170
presently. The Company intends to use approximately $1 million of the proceeds
of this Offering to expedite the training of additional reservation agents.
The Company already has the equipment and infrastructure necessary to answer
all the calls it is currently unable to answer.
The Company's operations generate revenues principally from (i) the
commissions on air travel tickets, (ii) override commissions on air travel
tickets the Company books on Continental, United, Northwest, TWA, Carnival,
America West, America Trans Air, Trans Brazil, Mexicana and Korean airlines,
(iii) segment incentives under its contract with SABRE, (iv) co-op promotions
with other suppliers of travel-related products and services, such as
long-distance telephone companies, car rental companies and hotels, and (v)
service fees that it charges its customers.
The Company markets its services primarily by advertising its various
toll-free numbers in approximately 270 Yellow Pages directories covering a
total population of 133 million people in those standard metropolitan areas in
the continental United States ("SMA's") with populations whose general travel
profiles are attractive to the Company. The Company also maintains a home page
on the World Wide Web (www.lowairfare.com) which enables its customers to
access its customized Turbo SABRE system through their personal computers.
The Company's operating strategy is to (i) strive to provide its
customers with the lowest-priced airfare available for a particular travel
route at the time of reservation, (ii) focus on consumer air travel, which the
Company believes is the most profitable segment of the travel industry, (iii)
provide convenient, quick service to its customers, (iv) maintain low operating
costs by utilizing only two operating facilities, (v) use state-of-the-art
technology to maximize operating efficiencies, (vi) constantly review and
update its relationships with the major airlines and SABRE to obtain favorable
commission structures, and (vii) provide incentives to its sales force through
a performance-based compensation structure. See "Business--Operating Strategy."
The Company's growth strategy is to (i) grow internally as quickly as
practicable in order to be able to service the approximately 22,000 calls per
day that the Company is not currently able to service, (ii) further penetrate
existing markets and enter new markets by commencing marketing activities and
(iii) make strategic acquisitions of other telemarketing travel companies with
existing customer bases or valuable intellectual property. See
"Business--Growth Strategy."
The travel industry is one of the world's largest industries, with
$3.4 trillion in sales in 1994 according to the World Travel Organization.
According to the Travel Weekly 1996 U.S. travel agency survey (the "Travel
Weekly Survey"), revenues for U.S. travel agencies in 1995 exceeded $100
billion, representing an increase of almost 100% since 1985 and 9% since 1993.
The U.S. travel agency industry is a highly fragmented industry comprised of
numerous small agencies, but trending towards large volume agencies, according
to the Travel Weekly Survey. In contrast to 1985, when small agencies (those
reporting between $1 million and $5 million in annual sales) were responsible
for 62% of all U.S. travel agency revenues, in 1995 such agencies were
responsible for only 41% of all U.S. travel agency revenues, even though they
comprised 56% of all travel agency locations. The Company believes that only
one other travel agency operates in a manner similar to the Company by
emphasizing low-cost airfare, nationally advertising toll-free telephone
numbers that spell out their respective advertising slogans and processing
calls on such numbers at centralized reservation centers. The Company believes
that operating in such manner distinguishes the Company and its competitor from
other travel agencies as "telemarketing travel companies." See
"Business--Industry Overview."
On November 11, 1996, the Company entered into an Agreement and Plan
of Merger (the "Merger Agreement") with The Joseph Stevens Group, Inc.
("Stevens") and its sole shareholder, which agreement was
5
<PAGE> 6
amended and restated as of May 30, 1997. Stevens provides airline tickets for
domestic and international travel to consumers through its "1-800-FLY-4-LESS"
(1-800-359-4537) toll-free number out of its reservation center in San Diego,
California. Pursuant to the Merger Agreement, the parties agreed that upon the
closing of the Offering, Stevens will be merged with and into the Company, with
the Company as the surviving corporation (the "Stevens Merger"). The Company
believes that upon the consummation of the Merger, the combined company will be
among the 100 largest travel agencies in the U.S. See "The Stevens Merger."
The Company was incorporated in Delaware in November 1995. The
Company's principal executive offices are located at 4802 Gunn Highway, Suite
140, Tampa, Florida 33624 and its telephone number is (813) 908-0404.
6
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered . . . . . . . . . . 1,800,000 shares
Warrants Offered 1,800,000 Warrants
Common Stock Outstanding:
Prior to the Offering . . . . . . . . . 5,650,600 shares (1)
After the Offering . . . . . . . . . . 7,901,100 shares (2)(3)
Warrants Outstanding:
Prior to the Offering . . . . . . . . . none
After the Offering . . . . . . . . . . 1,800,000(4)
Estimated Net Proceeds . . . . . . . . . $7,577,750(5)
Use of Proceeds . . . . . . . . . . . . . The Company intends to use the
net proceeds of the Offering to
pay the note issued in connection
with the Stevens Merger; train
additional reservation agents;
expand its advertising and
marketing campaign; purchase
equipment; retire a $250,000 note;
repay $1,000,000 of indebtedness
incurred to redeem 250,000 shares
of Common Stock; redeem 654,000
shares of Common Stock, (exclusive
of the 250,000 shares referred to
immediately above); and for
working capital and general
corporate purposes.
Proposed Trading Symbols(6):
Boston Stock Exchange:
Common Stock . . . . . . . . . . . . FLI
Warrants . . . . . . . . . . . . . . FLIW
Nasdaq SmallCap Market:
Common Stock . . . . . . . . . . . . IFLI
Warrants . . . . . . . . . . . . . . IFLIW
Risk Factors . . . . . . . . . . . . . . The Common Stock and the Warrants
offered hereby are speculative
and involve a high degree of
risk. Investors should carefully
consider the risk factors
enumerated herein before investing
in the Common Stock and the
Warrants. See "Risk Factors" and
"Dilution."
</TABLE>
--------------------
(1) Excludes (i) 300,000 shares of Common Stock issued and warrants
exercisable for 250,000 shares of Common Stock issuable in connection
with the Stevens Merger and such additional shares as may be issued
pursuant to make-whole provisions contained in the Merger Agreement,
(ii) 300,000 shares issuable upon exercise of options granted to one of
the Company's lenders, (iii) 50,000 shares of Common Stock issuable
upon exercise of stock options granted pursuant to the Company's 1997
Stock Option Plan, (iv) 300,000 shares of Common Stock issuable upon
exercise of options issued to directors and employees of the Company
and (v) 150,500 shares of Common Stock issuable to two of the Company's
lenders upon completion of this Offering.
(2) Excludes (i) the items referred to in items (ii), (iii) and (iv) of
footnote 1, (ii) the 1,800,000 shares of Common Stock issuable upon
the exercise of the Warrants offered hereby and (iii) the 360,000
shares of Common Stock issuable upon exercise of the Representative's
Warrant and the Warrants therein.
(3) Without giving effect to the redemption of the 654,000 shares of
Common Stock to be redeemed with a portion of the proceeds of this
Offering, including the 150,500 shares referred to in item (5) of
footnote 1.
(4) Excludes (i) warrants exercisable for 300,000 shares issued to one of
the Company's lenders and (ii) warrants exercisable for 250,000 shares
of Common Stock issuable at Closing to the sole stockholder of Stevens.
(5) After subtracting the underwriting discounts and commissions and
estimated offering expenses by the Company, including a 3%
non-accountable expense allowance to the Representative.
(6) Boston Stock Exchange and the Nasdaq SmallCap Market symbols do not
imply that an established public trading market will develop for any
of these securities, or if developed, that any such market will be
sustained. See "Risk Factors--Possible Applicability of Rules Relating
to Low-Priced Stock; Possible Failure to Qualify for Boston Stock
Exchange or Nasdaq SmallCap Market Listing."
7
<PAGE> 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS(1) THE COMPANY
-------------------------------------- --------------------------------------
Eleven Months
Year Ended Ended Month Ended Year Ended
December 31, 1994 November 30, 1995 December 31, 1995 December 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Consolidated Income
Statement Data:
Revenues . . . . . . . $622,017 $1,090,938 $ 133,970 $ 3,235,777
Operating Expenses:
Payroll, commissions 790,859 1,115,403 175,604 2,490,770
and employee benefits .
Telephone . . . . . . . 165,979 392,869 14,527 539,118
Ticket Delivery Expense - 138,798 17,896 407,579
Advertising . . . . . . 459,657 333,520 437 137,223
General and 1,053,530 1,156,777 53,869 1,768,058
Administrative . . . .
Interest Expense . . . 46,417 168,857 4,017 1,114,298
Other Income . . . . . . . - 41,959 1,782 12,610
Net Loss . . . . . . . . . (1,894,425) (2,173,327) (130,598) (3,208,659)
Net Loss per Share . . . . (.50) (.57) (.03) (.61)
Weighted Average Number
of Common Shares 3,830,000 3,830,000 3,840,000 5,247,823
Outstanding . . . . . . . .
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
----------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1997(2)
---- ----
<S> <C> <C>
Consolidated Income Statement Data:
Revenues . . . . . . . . . . . . . $ 364,393 $1,639,196
Operating Expenses:
Payroll, commissions and employee 581,590 848,243
benefits . . . . . . . . . . . . .
Telephone . . . . . . . . . . . . . 122,496 245,551
Ticket Delivery Expense . . . . . . 51,422 178,967
Advertising . . . . . . . . . . . . 10,709 45,545
General and Administrative . . . . 508,902 593,073
Interest Expense . . . . . . . . . 264,449 45,890
Other Income . . . . . . . . . . . . . - 2,646
Net Loss . . . . . . . . . . . . . . . (1,175,175) (315,427)
Net Loss per Share . . . . . . . . . . $ (.29) $ (.05)
Weighted Average Number
of Common Shares Outstanding . . . . 4,116,875 6,251,209
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
YEAR ENDED (PRO FORMA
DECEMBER 31, 1996 UNAUDITED)
----------------- --------------
<S> <C> <C>
Pro Forma Statement of Income Data (unaudited)(3):
Commission Revenues . . . . . . . . . . . . . . $4,900,736 $1,639,196
Operating Expenses:
General and Administrative . . . . . . . . . . 6,885,270 1,834,393
Interest Expense . . . . . . . . . . . . . . . 1,379,226 85,340
Amortization and Depreciation . . . . . . . . . 295,914 76,986
Other Income . . . . . . . . . . . . . . . . . . . 12,610 2,646
Net Loss . . . . . . . . . . . . . . . . . . . . . (3,647,064) (354,877)
Net Loss per Share . . . . . . . . . . . . . . . . (.69) (.06)
Weighted Average Number of Common Shares Outstanding 5,247,823 6,251,209
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31, MARCH 31, MARCH 31,
1997 1997 (PRO 1997 (PRO
1995 1996 (PRO FORMA FORMA FORMA AS
UNAUDITED)(4) UNAUDITED)(5) ADJUSTED)(6)
---- ---- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital (Deficit) . . . . . $ (731,210) $ (199,449) $(2,083,360) (5,535,860) 2,102,268
Total Assets . . . . . . . . . . . . 1,444,298 2,952,522 5,697,109 3,244,609 7,994,359
Long-Term Debt . . . . . . . . . . . 60,000 30,000 30,000 30,000 30,000
Total Stockholders' Equity (Deficit) 613,882 1,664,218 - - -
Pro forma Stockholders' Equity - - 2,848,791 (603,709) 6,974,041
(Deficit) . . . . . . . . . . . . . .
</TABLE>
- -------------------------
(1) On December 1, 1995, the Company acquired certain of the assets and
assumed certain liabilities of 1-800-Low Airfare, Inc. (the "Predecessor
Business"). Pro forma results of operations as if the Company had
acquired the Predecessor Business on January 1, 1995 would not be
materially different and, accordingly, are not presented.
(2) Pursuant to the Interim Operating Agreement the Company assumed the
operations of Stevens as of January 1, 1997 and, therefore, the
Statement of Income data of the Company reflects the combined operations
of the Company and Stevens for the first quarter of 1997, because pro
forma operating results for the first quarter of 1997 would not be
materially different from the Statement of Income data for the Company,
they are not presented.
(3) The unaudited Pro Forma Statement of Income Data for the year ended
December 31, 1996 and the three months ended March 31, 1997, gives pro
forma effect to the Stevens Merger as if the Stevens Merger occurred on
January 1, 1996 and January 1, 1997, respectively.
(4) Gives pro forma effect to the Stevens Merger as if it occurred on
January 1, 1997.
(5) Gives pro forma effect to the item referred to in footnote 4 and the
redemption of an aggregate of 904,000 shares of Common Stock for an
aggregate of $3,452,500.
(6) Gives pro forma effect to the items referred to footnotes 4 and 5 as
adjusted to give effect to the consummation of the offering and the
application of the estimated net proceeds as described under "Use of
Proceeds."
9
<PAGE> 10
RISK FACTORS
The securities offered hereby are highly speculative and should be
purchased only by persons who can afford to lose their entire investment in the
Company. In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors in
evaluating an investment in the securities offered hereby.
HISTORY OF OPERATING LOSSES; FUTURE OPERATING RESULTS
The Company has incurred losses and generated negative cash flows from
continuing operations in each of the Company's fiscal years since inception.
For the eleven months ended November 30, 1995, the one month ended December 31,
1995 and the year ended December 31, 1996, the Company's predecessor and the
Company incurred losses of $2,173,327, $130,598 and $3,208,659, respectively.
There can be no assurance that the Company will operate profitably in the
future or that the Company will be successful in implementing and executing its
operating and growth strategies. As of December 31, 1996, the Company had
negative working capital. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations,"Business" and the Company's
Consolidated Financial Statements and notes thereto included elsewhere in this
Prospectus.
CAPITAL REQUIREMENTS
The Company is dependent upon the proceeds of this Offering and the
anticipated cash flow from operations to complete its current expansion plans.
Should the Company's cash flow from operations fail to meet anticipated levels,
or should its costs and capital expenditures exceed the amounts currently
expected to be required, or should the Company be unable to obtain additional
capital on acceptable terms, the Company could be required to seek
unanticipated financing in the future. There can be no assurance that the
Company will be able to raise such capital or financing when needed or on
acceptable terms, and therefore, the Company may be unable to achieve its
goals, including anticipated growth. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business--Operating Strategy."
RAPID EXPANSION OF BUSINESS
The Company's operations and business have expanded substantially,
with a large increase in reservation agents and sales in a relatively short
period of time. To properly manage its rapid growth, the Company has been and
will be required to expend significant management and financial resources.
There can be no assurance that the Company's management will be able to manage
its growth and operate a larger organization efficiently or profitably. See
"Business- -Operating Strategy."
COMPETITION
The travel agency business is characterized by intense competition.
Many of the Company's competitors, which include local, regional and national
travel agencies, possess significantly greater financial, personnel and other
resources than the Company. Certain of the Company's competitors use a
low-price discount strategy to expand their market share and a number of travel
agencies use toll-free phone lines that compete with the Company's services. If
any of the companies using a discount strategy were to focus their marketing
efforts on the Company's telemarketing niche, the Company's results of
operations could be adversely affected. In addition, the Internet permits
consumers to have direct access to travel providers as well as distribution
systems like the SABRE system, thereby by-passing both travel agents and global
distribution systems. In recent years, airline ticket prices have decreased
primarily as a result of lower costs and greater competition in the airline
industry. The Company's revenues are based upon the number of tickets it sells
and on a percentage of the price of such tickets and are therefore adversely
affected by decreases in the price of airline tickets. The Company believes
that significant price-based competition will continue to exist in the airline
industry and the Company's markets for the foreseeable future. Any significant
decrease in airline ticket prices could adversely affect the Company's results
of operations. The Company may experience increased competition in the future
as its competitors combine to form larger companies. There can be no assurance
that the Company will be competitive with larger travel agencies in the future
or that the Company will maintain its size relative to its competitors. See
"Business--Competition."
RISKS RELATING TO OVERRIDE COMMISSIONS
The Company is able to offer its customers attractive airfares in
large part due to the favorable override commission arrangements it has
obtained for selling tickets on Continental, United, Northwest, TWA, Carnival,
America West, America Trans Air, Trans Brazil, Mexicana and Korean airlines.
For example, the Company is able to offer attractive fares on TWA because of
its override commission arrangement with a consolidator which sells tickets on
TWA at a discount (the "TWA Discounter"). The Company estimates that the TWA
Discounter will be able to continue selling tickets on TWA only until the year
2001. Moreover, there can be no assurance that the
10
<PAGE> 11
Company's agreement with the TWA Discounter will be extended beyond its current
expiration date in February 1998. In addition, the override commission
agreements with the other airlines are on a year-to-year basis. If and when the
TWA Discounter is no longer able to sell TWA tickets, or such agreement
otherwise expires, or if the Company is unable to extend its current override
commission arrangements with other carriers or enter into similar arrangements
with similar carriers, the Company could lose its competitive advantages and
its business could be materially adversely affected. See
"Business--Competition" and "--Operations."
DEPENDENCE ON TWO CARRIERS FOR SUBSTANTIAL PORTIONS OF REVENUES
During 1996 and the first half of 1997, the Company generated
approximately 45% of its revenues from sales of tickets on Continental Airlines
and TWA. As a result of a combination of their low fares and the Company's
favorable override commissions with respect to tickets sold on them, the
Company is often able to offer the best fares to its customers on these
particular carriers and, consequently, sells a large number of tickets on them.
If Continental and TWA were to discontinue service, refuse to sell tickets to
the Company, impose higher fares relative to other airlines or terminate the
Company's favorable override commission structures, the Company may not be able
to sell as many tickets as it currently does, or maintain the level of
profitability on each sale that it currently has, and the Company's business
and results of operation could be adversely affected. See "Risk Factors --
Risks Relating to Override Commissions."
CHALLENGES OF BUSINESS INTEGRATION
The full benefits of the combination of the Company and Stevens will
require integration of each company's administrative, finance, sales and
marketing organizations, the coordination of each company's sales and marketing
efforts and the implementation of appropriate operational, financial and
management systems and controls. This will require substantial attention from
the senior management teams of the Company and Stevens, which have limited
experience integrating the operations of companies of the size of the Company
and Stevens and whose members have not previously worked together. The
diversion of management attention, as well as any other difficulties which may
be encountered in the transition and integration process, could have an adverse
impact on the revenue and operating results of the Company. There can be no
assurance that the Company will be able to integrate its operations and those
of Stevens successfully. In addition, the Unaudited Pro Forma Combined
Financial Information contains adjustments relating to the integration of
Stevens' operations with those of the Company. Although these adjustments are
based upon available information and certain assumptions the Company considers
reasonable as of the date of this Prospectus, actual amounts could differ from
those set forth therein. Moreover, no assurance can be given that the
anticipated impact of the integration of Stevens upon the Company's financial
condition and results of operations as presented in such pro forma information
will be as presented. See "Unaudited Pro Forma Combined Financial Information."
RISKS RELATING TO THE AIRLINE INDUSTRY
Developments in the airline industry may result in a decrease in the
price or number of tickets the Company sells. See "Business--Competition."
Concerns about passenger safety may result in a decrease in passenger air
travel and a consequent decrease in the number of tickets the Company sells.
There can be no assurance that any such developments will not occur or that the
Company will not be adversely affected by any such decrease in the level of
passenger air travel.
DEPENDENCE ON SABRE SYSTEM
The Company's ability to quote air travel ticket prices, make
reservations and sell tickets is dependent upon its contractual right to use,
and the performance of the SABRE electronic travel reservation system. In
April 1996, the Company entered into a five-year agreement with The SABRE
Group, Inc. to lease the SABRE system in its Tampa headquarters and in November
1996, entered into a five-year agreement to lease the SABRE system in its San
Diego reservation center. If the Company were to lose the contractual right to
use the SABRE system through its inability to renew the agreements upon
expiration thereof or through the Company's default under the agreements during
the respective terms thereof, the Company would not be able to conduct
operations until a replacement system was installed and became operational.
Only a very limited number of companies provide reservation systems to the
travel agency industry. There can be no assurance that a replacement system
could be obtained or, if obtained, leased on favorable terms or installed in
time to successfully continue operations.
If the SABRE system were to cease functioning, the Company would not
be able to conduct operations until a replacement system were installed and
became operational. There can be no assurance that a replacement system could
be obtained or, if obtained, installed in time to successfully continue
operations. During any interruption in the operation of SABRE, the Company
would lose revenues. Other travel agencies using other travel reservation
systems would not be subject to such interruption of their operations, and the
Company may lose market share to such competitors. Upon the interruption of the
operation of the SABRE system, the Company could decide to
11
<PAGE> 12
commence operations with another travel reservation system. See
"Business--SABRE Technology." Such a change in reservation systems could incur
substantial expenses for acquiring the right to use such system and retraining
its reservation agents. In addition, any impairment of the SABRE system which
does not cause it to cease operations could, nevertheless, adversely affect the
quality of the Company's services, resulting in lost revenues or market share
and could require the Company to subscribe to a different travel reservation
system.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is substantially dependent upon the
continuing services of Mark D. Mastrini, Jerrold B. Sendrow and Biagio
Bellizzi, as well as other key personnel. While the Company has employed a
number of executives with industry experience, the loss of Messrs. Mastrini,
Sendrow or Bellizzi could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company does not
maintain life insurance policies on the lives of Messrs. Mastrini, Sendrow or
Bellizzi. See "Management."
RISKS RELATING TO INTELLECTUAL PROPERTY
The Company markets its services in the United States under the names,
"1-800-LOW-AIR-FARE,"1-800-FLY-4-LESS" and "1-888-999-VUELA."
"1-800-FLY-4-LESS," together with its logo, is a federally registered service
mark in the name of the Company. The Company has filed an application to
register the "1-800-LOW-AIR-FARE" name and logo and the Spanish language name,
"1-888-999-VUELA," as federal service marks with the U.S. Patent and Trademark
Office. There can be no assurance that such service marks will issue or of the
effect such failure might have on the Company.
CONTROL BY EXISTING STOCKHOLDERS
Following the completion of this Offering, the existing stockholders
of the Company will own in excess of 50% of the outstanding shares of Common
Stock. As a result, these persons and entities effectively will be able to
control all matters requiring approval of the stockholders of the Company,
including the election of the entire Board of Directors. See "Principal
Stockholders" and "Description of Securities."
BENEFITS TO EXISTING SHAREHOLDERS AND AFFILIATES
The consummation of this Offering and the various related transactions
described in this Prospectus will involve certain benefits to existing
shareholders, creditors and affiliates of the Company. The Company will use a
substantial portion of the net proceeds of this Offering to pay indebtedness to
and redeem shares of Common Stock held by existing shareholders, creditors and
affiliates of the Company. $1,000,000 of the net proceeds will be used to
retire the Company's promissory note in such amount issued as consideration for
the redemption of 250,000 shares formerly held by Perry Trebatch, a stockholder
of the Company. Approximately $250,000 of the net proceeds will be used to
retire the Company's promissory note to Perry Trebatch in the principal amount
of $250,000. Approximately $2,450,000 of the net proceeds will be used to
redeem 654,000 shares of Common Stock held (as of immediately after the
consummation of this Offering) by Michael Cantor (569,000 shares) and Jose
Colon (85,000 shares). See "Use of Proceeds" and "Certain Transactions."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate
of Incorporation (the "Certificate") and Amended and Restated Bylaws ("Bylaws")
may be deemed to have anti-takeover effects and may discourage, delay, defer or
prevent a change in control of the Company. These provisions: (i) divide the
Company's Board of Directors into three classes, each of which will serve for
different three-year periods; (ii) provide that the stockholders may remove
directors from office only for cause and by a supermajority vote; (iii) provide
that special meetings of the stockholders may be called only by the Board of
Directors or upon the written demand of the holders of not less than fifty
percent of the votes entitled to be cast at a special meeting; and (iv)
establish certain advance notice procedures for nomination of candidates for
election as directors and for stockholder proposals to be considered at annual
stockholders' meetings. In addition, certain provisions of the Delaware General
Corporation Law also may be deemed to have certain anti-takeover effects. See
"Description of Securities--Anti-takeover Effects of Certain Provisions of the
Company's Certificate of Incorporation and Bylaws."
PREFERRED STOCK
The Certificate authorizes the issuance of 1,000,000 shares of "blank
check" preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without shareholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights that could
materially adversely affect the voting power or other rights of the holders of
Common Stock. In the event of issuance, the preferred stock could be used,
under
12
<PAGE> 13
certain circumstances, as a method of discouraging, delaying, or preventing a
change in control of the Company. Although the Company has no present intention
to issue any shares of its preferred stock, there can be no assurance that the
Company will not do so in the future. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 7,901,100
shares of Common Stock outstanding (8,171,100 if the Representative's
over-allotment option is exercised in full), of which 1,800,000 shares of
Common Stock are being offered by the Company.
All of the shares of previously issued and outstanding Common Stock
will become available for resale 90 days after the effectiveness of this
Offering, subject in all events to the provisions of Rule 144 under the
Securities Act ("Rule 144"). The holders of 50,000 shares have agreed not to
offer, sell or otherwise dispose of ("Sell") such shares for a period of 90
days after the Effective Date; the holders of 713,750 shares have agreed not to
Sell such shares for one year after the Effective Date; the holders of 715,625
shares have agreed not to Sell such shares for 18 months after the Effective
Date; and the holders of 2,334,466 shares have agreed not to Sell such shares
for 2 years after the Effective Date.
In addition, the holders of the Registered Shares have agreed with the
Representative not to sell such Registered Shares for a period of 30 days after
the Effective Date and for an additional period of thirty (30) days thereafter
without the consent of the Representative. With respect to 110,000 of his
Registered Shares, one Selling Stockholder has agreed not to Sell more than
30,000 Registered Shares in the second month after the Effective Date without
the Representative's consent, and more than 20,000 Registered Shares during
each consecutive 30-day period thereafter. In addition, with respect to
100,000 of his Registered Shares, such Selling Stockholder has agreed not to
Sell such shares within 180 days of the Effective Date. Another Selling
Stockholder has agreed not to Sell more than 4,564 shares per month during the
11-month period after the first month following the Effective Date and not to
sell more than 20,833 shares per month during the 12-month period thereafter.
The Representative has no current plans or understandings to waive, shorten or
modify the foregoing lock-up arrangements.
The Company is unable to predict the effect, if any, that sales of the
Registered Shares or sales of shares under Rule 144 (or the potential for such
sales) or otherwise may have on the market price of the Common Stock prevailing
from time to time. Future sales of substantial amounts of Common Stock in the
public market could impair the Company's ability to raise capital through an
offering of securities and may adversely affect the market price of the Common
Stock. See "Shares Eligible for Future Sale."
ARBITRARY OFFERING PRICE AND EXERCISE PRICE OF WARRANTS
The public offering price of the Common Stock and the Warrants and the
exercise price of the Warrants, as well as the exercise price of the warrants
underlying the Representative's Warrant, have been determined solely by
negotiations between the Company and the Representative. Among the factors
considered in determining these prices were the Company's current financial
condition and prospects and the general condition of the securities market.
However, the public offering price of the Common Stock and the Warrants and the
exercise price of the Warrants and the warrants underlying Representative's
Warrant do not necessarily bear any relationship to the Company's assets, book
value, earnings or any other established criterion of value. See
"Underwriting."
DILUTION
Assuming an initial offering price of $5.00 per share, investors
purchasing shares of Common Stock in this offering will experience immediate
dilution of $4.57 per share. See "Dilution." The Merger Agreement with Stevens
provides for the issuance of warrants exercisable for 250,000 shares of Common
Stock, which warrants have the same exercise price and are entitled and subject
to the same terms and conditions as the Warrants being offered hereby. The
Merger Agreement also provides that under certain circumstances the Company
shall issue additional shares of Common Stock to the sole shareholder of Stevens
on the second anniversary of the closing of the Offering. If the current market
value on such date of the Common Stock issued to Stevens' sole shareholder on
the closing of the Offering (the "IPO Share Value") is less than $2,571,429
million, then the Company shall issue to Stevens' sole shareholder additional
shares of Common Stock with a current market value on such date equal to the
difference between the IPO Share Value and $2,571,429 million. The IPO Share
Value includes the aggregate amount of cash and the fair market value of any
other assets received in connection with the sale of any Common Stock issued to
Stevens' sole shareholder on the Closing. See "The Stevens Merger."
NECESSITY TO MAINTAIN CURRENT PROSPECTUS AND REGISTRATION STATEMENT
The Company must maintain an effective registration statement on file
with the Commission before any Warrant may be redeemed or exercised. It is
possible that the Company may be unable to cause a registration statement
covering the Common Stock underlying the Warrants to be effective. It is also
possible that the Warrants
13
<PAGE> 14
could be acquired by persons residing in states where the Company is unable to
qualify the Common Stock underlying the Warrants for sale. In either event, the
Warrants may expire, unexercised, which would result in the holders losing all
the value of the Warrants.
STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS
Holders of the Warrants have the right to exercise the Warrants only
if the underlying shares of Common Stock are qualified, registered or exempt
from registration under applicable securities laws of the states in which the
various holders of the Warrants reside. The Company cannot issue shares of
Common Stock to holders of the Warrants in states where such shares are not
qualified, registered or exempt. The Company has undertaken, however, to
qualify the Warrants for listing on the Boston Stock Exchange which provides
for blue sky registration in over 20 states. See "Description of
Securities--Warrants."
REDEEMABLE WARRANTS AND IMPACT ON INVESTORS
The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of a
Warrant to exercise the Warrant and pay the exercise price at a time when it
may be disadvantageous for the holder to do so, to sell the Warrant at the then
current market price when the holder might otherwise wish to hold the Warrant
for possible additional appreciation, or to accept the redemption price, which
is likely to be substantially less than the market value of the Warrant in the
event of a call for redemption. Holders who do not exercise their Warrants
prior to redemption by the Company will forfeit their right to purchase the
shares of Common Stock underlying the Warrants. The foregoing notwithstanding,
the Company may not redeem the Warrants at any time that a current registration
statement under the Securities Act covering the sale of the shares of Common
Stock issuable upon exercise of the Warrants is not then in effect. See
"Description of Securities--Warrants." Additionally, in connection with the
Stevens Merger, the Company will issue warrants exercisable for 250,000 shares
of Common Stock, which are exercisable at the same price and subject to the same
terms and conditions as the Warrants.
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET
Although the Representative has advised the Company that it intends to
make a market in the Common Stock and the Warrants, it will have no legal
obligation to do so. The prices and the liquidity of the Common Stock and the
Warrants may be significantly affected by the degree, if any, of the
Representative's participation in the market. No assurance can be given that
any market making activities of the Representative, if commenced, will be
continued. See "Underwriting."
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS OR "PENNY STOCK";
POSSIBLE FAILURE TO QUALIFY FOR BOSTON STOCK EXCHANGE OR NASDAQ SMALLCAP MARKET
LISTING
The Commission has adopted regulations which generally define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5.00 per share, subject to certain exceptions. While the Company
anticipates that the price at which the shares of Common Stock offered to the
public pursuant to this Offering will be equal to or in excess of $5.00, the
Warrants offered hereby will initially be "penny stocks" and become subject to
rules that impose additional sales practice requirements on broker/dealers who
sell such securities to persons other than established customers and accredited
investors, unless the Common Stock and the Warrants are listed on the Boston
Stock Exchange. There can be no assurance that the Company will be able to
satisfy the listing criteria of the Boston Stock Exchange or that the Common
Stock or the Warrants will trade for $5.00 or more per security after the
Offering. Consequently, the "penny stock" rules may restrict the ability of
broker/dealers to sell the Company's securities and may affect the ability of
purchasers in this Offering to sell the Company's securities in a secondary
market.
Although the Company has applied for listing of the Common Stock and
the Warrants on the Boston Stock Exchange and the Nasdaq SmallCap Market, there
can be no assurance that such application will be approved or that a trading
market for the Common Stock and the Warrants will develop or, if developed,
will be sustained. Furthermore, there can be no assurance that the securities
purchased by the public hereunder may be resold at their original offering
price or at any other price.
In order to qualify for initial listing on the Boston Stock Exchange,
a company must, among other things, have at least $3,000,000 in total assets
(of which $2,000,000 are tangible assets), a public float of at least 750,000
shares (with an aggregate value of at least $1,500,000), a minimum of 600
beneficial public stockholders owners (exclusive of affiliates) and a minimum
bid price for its securities of $2.00 per share. For continued listing on the
Boston Stock Exchange, a company must maintain a public float of 150,000 shares
(having a value of at least $500,000) and $1.0 million in total assets, 250
beneficial public stockholders, and stockholders' equity of $500,000. The
failure to meet these and other maintenance criteria in the future may result
in the discontinuance of the listing of the Common Stock and Warrants on the
Boston Stock Exchange.
14
<PAGE> 15
In order to qualify for initial listing on the Nasdaq SmallCap Market,
a company must, among other things, have at least $4,000,000 in total assets,
$2.0 million of total capital and surplus, $1.0 million "public float," and a
minimum bid price for its securities of $3.00 per share. For continued listing
on the Nasdaq SmallCap Market, a company must maintain a $200,000 market value
of the public float, $2.0 million in total assets and $1.0 million in total
capital and surplus. In addition, continued inclusion requires two market
makers and a minimum bid of $1.00 per share. The failure to meet these
maintenance criteria in the future may result in the discontinuance of the
listing of the Common Stock and Warrants on the Nasdaq SmallCap Market.
If the Company is or becomes unable to meet the listing criteria
(either initially or on a continued basis) of the Boston Stock Exchange or the
Nasdaq SmallCap Market and is never traded or becomes delisted therefrom,
trading, if any, in the Common Stock and the Warrants would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or, if
then available, the "Electronic Bulletin Board" administered by the National
Association of Securities Dealers, Inc. (the "NASD"). In such event, the market
price of the Common Stock and the Warrants may be adversely impacted. As a
result, an investor may find it difficult to dispose of or to obtain accurate
quotations as to the market value of the Common Stock and the Warrants.
EXERCISE OF REPRESENTATIVE'S PURCHASE WARRANTS
In connection with this Offering, the Company will sell to the
Representative, for nominal consideration, a Representative's Warrant to
purchase 180,000 shares of Common Stock and 180,000 Warrants from the Company.
The Representative's Warrant will be exercisable for a four-year period
commencing one year from the effective date of this Offering at an exercise
price of 120% of the price at which the Common Stock and Warrants are sold to
the public, subject to adjustment. The Representative's Warrant may have
certain dilutive effects because the holders thereof will be given the
opportunity to profit from a rise in the market price of the underlying shares
with a resulting dilution in the interest of the Company's other shareholders.
The terms on which the Company could obtain additional capital during the life
of the Representative's Warrant may be adversely affected because the holders
of the Representative's Warrant might be expected to exercise them at a time
when the Company would otherwise be able to obtain comparable additional
capital in a new offering of securities at a price per share greater than the
exercise price of the Representative's Warrant.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SECURITIES PRICES
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Immediately prior to this Offering, there were
approximately 100 record owners of the Company's Common Stock. The Company
anticipates that after the Offering, the Company will have over 600 beneficial
owners. Although the Company has applied to list the Common Stock and the
Warrants on the Boston Stock Exchange and the Nasdaq SmallCap Market, there can
be no assurance that a regular trading market will develop (or be sustained, if
developed) for the Common Stock or the Warrants upon completion of this
Offering, or that purchasers will be able to resell their Common Stock or
Warrants or otherwise liquidate their investment without considerable delay, if
at all. Recent history relating to the market prices of newly public companies
indicates that, from time to time, there may be significant volatility in their
market price. There can be no assurance that the market price of the Common
Stock or the Warrants will not be volatile as a result of a number of factors,
including the Company's financial results or various matters affecting the
stock market generally.
NO DIVIDENDS
The Company has not declared or paid any cash dividends on its Common
Stock since its inception. The Company currently intends to retain all earnings
for the operation and expansion of its business and does not anticipate paying
any dividends in the foreseeable future. See "Dividend Policy."
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward looking statements" within the
meaning of Section 27A of the Securities Act, and Section 21E of the Exchange
Act. The actual results of the Company may differ significantly from the
results discussed in such forward-looking statements. Certain factors that
might cause such differences include, but are not limited to, the factors
discussed in this "Risk Factors" section. The safe harbors contained in Section
27A of the Securities Act and Section 21E of the Securities Act, which apply to
certain forward-looking statements, are not applicable to this Offering.
15
<PAGE> 16
THE STEVENS MERGER
On November 11, 1996, the Company entered into an Agreement and Plan
of Merger with The Joseph Stevens Group, Inc. ("Stevens") and its sole
shareholder, The Joseph Stevens Group LLC, which Agreement was amended and
restated in its entirety effective May 30, 1997 (as amended, the "Merger
Agreement"). Stevens provides airline tickets for domestic and international
travel to consumers through its "1-800-FLY-4-LESS" (1-800-359-4537) toll-free
number. Stevens' 50 reservation agents provide reservations for airline tickets
out of its reservation center in San Diego, California. The principal assets of
Stevens are its federally registered service mark, "1-800-FLY-4-LESS," and the
related toll-free telephone number, "1-800-359-4537," through which customers
call its reservation center located in San Diego, California.
In connection with the Merger, the Company and Stevens entered into an
Interim Operating Agreement pursuant to which the Company has been operating
Stevens' business effective January 1, 1997, until the closing of the Offering.
In connection therewith, Stevens granted to the Company a license to use its
service mark and toll free number, and the Company leased Stevens' equipment
and reservation center for the period from January 1, 1997, until the closing
of the Offering. In anticipation of the consummation of the Merger, the Company
replaced Stevens' former reservation system with the Company's Turbo SABRE
system and the Company's management has taken over the management of the
business previously conducted by Stevens. Upon consummation of the Offering,
the Company's Tampa and San Diego reservation systems will continue to operate
with the Company's Turbo SABRE system and under the Company's management. See
"Business Operations."
The Company entered into the Merger Agreement in order to increase its
market share of the low-airfare business. The Company believes that as a
result of the Merger, it will acquire a valuable set of easy-to-remember toll-
free numbers and Stevens' successful promotional campaign of providing
approximately 150 newspapers with the lowest- priced airfares for certain
designated routes in exchange for placement of Stevens' name and toll-free
number. Since assuming the operations of Stevens under the Interim Operating
Agreement, the Company has doubled the Company's gross revenues, and increased
its gross margins to 14.7% of gross reservations for the quarter ended March
31, 1997 compared to 9.6% for the quarter ended March 31, 1996.
As a result of the Merger, and with the eventual phase-out of Stevens'
management, the Company will enjoy significant cost savings by operating the
San Diego and Tampa reservation facilities under the Company's single
management team. Another major benefit from the Merger will be the greater
ease with which the Company will attain the maximum commissions from the
airlines and SABRE. Under its agreements with SABRE and the airlines whose
tickets it sells, the Company can earn increased levels of commissions
depending upon the Company's overall sales volumes. All the Company's sales,
whether booked through its Tampa or San Diego reservation centers, will be
credited to the Company's consolidated accounts, and will result in the Company
achieving the various milestones faster because of the greater aggregate sales
volume.
Pursuant to the Merger Agreement, as amended and restated (the "Merger
Agreement"), upon the closing of the Offering, (i) Stevens will be merged with
and into the Company, with the Company as the surviving corporation, (ii)
the Company will issue an aggregate of 300,000 shares of Common Stock to
Stevens' sole stockholder, The Joseph Stevens Group, LLC, in exchange for all
of the outstanding capital stock of Stevens plus such additional shares of
Common Stock as may be issued pursuant to make-whole provisions contained in
the Merger Agreement and (iii) the Company will issue to Stevens' sole
stockholder warrants exercisable for 250,000 shares of Common Stock, which
warrants have the same exercise price and are entitled and subject to the same
terms and conditions as the Warrants being offered hereby, and in respect to
which the Company will be required to file a registration statement within 180
days of the Effective Date. The Merger Agreement also provides for the escrow
of the Company's cash in the amount of $46,665 and the issuance by the Company
of a promissory note in the amount of $1,578,335 payable fifteen days after the
date of this Prospectus. Upon consummation of this Offering, such cash and
promissory note will be released to the sole shareholder of Stevens. The Merger
Agreement also provides that if on the second anniversary of the date of the
closing of this Offering the value of the portion of the 300,000 shares issued
to the Stevens' shareholder, then held by the Stevens' shareholder, together
with the fair market value of any consideration received in exchange for the
shares no longer held by the Stevens' shareholder, is less than $2,571,429, the
Company shall issue to the Stevens' shareholder such number of shares of the
Company's Common Stock, based upon its then bid price, as is necessary to
make-up any such deficiency. The Company did not assume the liabilities of
Stevens, and is being indemnified by the sole stockholder, The Joseph Stevens
Group LLC, in respect of such unassumed liabilities.
Joseph Stevens & Company, L.P., the investment banking firm at which
the Chairman of the Company's Board of Directors, Michael Gaggi, is a senior
vice president, is not affiliated with or related to The Joseph Stevens Group,
Inc., its sole stockholder, The Joseph Stevens Group, LLC or any of the equity
members of The Joseph Stevens Group, LLC.
16
<PAGE> 17
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Common Stock and Warrants offered hereby (assuming an initial public offering
price of $5.00 per Share and $.125 per Warrant) are estimated to be
approximately $7,577,750 (approximately $8,781,613 million if the Underwriters'
over-allotment option is exercised in full), after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company. The Company intends to use the net proceeds of the Offering as
follows:
<TABLE>
<CAPTION>
PERCENT OF
USE DOLLAR AMOUNT NET PROCEEDS
--- ------------- ------------
<S> <C> <C>
Payment of note issued in connection with the redemption of
250,000 shares of Common Stock . . . . . . . . . . . . . . $1,000,000 13.20%
Redemption of 654,000 shares of Common Stock . . . . . . . . 2,452,500 32.36%
Repay note issued in connection with the Stevens Merger . . . 1,578,335 20.82%
Repay note to Perry Trebatch . . . . . . . . . . . . . . . . 250,000 3.30%
Training reservation agents . . . . . . . . . . . . . . . . . 1,000,000 13.20%
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 6.60%
Property and Equipment . . . . . . . . . . . . . . . . . . . 50,000 .66%
Working Capital . . . . . . . . . . . . . . . . . . . . . . . 746,915 9.86%
</TABLE>
Approximately $1,578,335 of the net proceeds will be used to retire
the Company's promissory note issued to the sole shareholder of Stevens in
connection with the Merger, bearing interest at the prime rate reported in The
Wall Street Journal as the base rate on corporate loans posted by at least 75%
of the 30 largest banks in the United States (___ % at _________, 199__), and
the principal and accrued and unpaid interest of which is payable on the 20th
day after the closing of the Offering.
Approximately $2,450,000 of the net proceeds will be used to redeem
654,000 shares of the Company's Common Stock held by two stockholders, Michael
Cantor (569,000 shares) and Dr. Jose Colon (85,000 shares). See "Certain
Transactions."
$1,000,000 of the net proceeds will be used to retire the Company's
promissory note in such amount issued as consideration for the redemption of
250,000 shares formerly held by Perry Trebatch, a stockholder of the Company.
Such note was issued on June __, 1997, bears no interest and is due on the
fifth day after the closing of this Offering. See "Certain Transactions."
Approximately $250,000 of the net proceeds will be used to retire the
Company's promissory note to Perry Trebatch, in the principal amount of
$225,000, bearing interest at the rate of 10% per annum, and the principal and
accrued and unpaid interest of which is payable on July 31, 1997. If such note
is not paid on its due date, it will become payable in twelve equal monthly
installments commencing August 1, 1997. See "Certain Transactions." The
Company incurred the above indebtedness for general working capital purposes.
See "Certain Transactions."
Approximately $1,000,000 of the net proceeds will be used to support
the Company's training program for reservation agents. Approximately $500,000
of the net proceeds will be used for advertising and marketing purposes. The
Company expects that with the proceeds of this Offering it will begin to expand
its marketing programs beyond Yellow Pages Directories into selected print and
media outlets.
Approximately $50,000 of the net proceeds will be used to purchase
property and equipment. Inasmuch as the Company's facilities are currently
state-of-the art, it currently anticipates that it will spend only a small
portion of the Offering proceeds to maintain its plant and equipment.
The Company expects to use the approximately $746,915 balance of the
net proceeds for working capital and general corporate purposes.
Proceeds not immediately required for the purposes described above
will be invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-terms interest-
bearing investments.
17
<PAGE> 18
DIVIDEND POLICY
To date, the Company has neither declared nor paid any dividends on
its Common Stock nor does the Company anticipate that such dividends will be
paid in the foreseeable future. Rather, the Company intends to retain any
earnings to finance the growth and development of its business. Any payment of
cash dividends on its Common Stock in the future will be dependent, among other
things, upon the Company's earnings, financial condition, capital requirements
and other factors which the Board of Directors deems relevant.
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company
at March 31, 1997, (ii) the Pro Forma capitalization of the Company as of such
date after giving effect to the Stevens Merger, and (iii) the Pro Forma
capitalization of the Company as of such date after giving effect to the
Stevens Merger and the sale by the Company of 1,800,000 shares of Common Stock
and 1,800,000 Warrants offered hereby at an assumed initial public offering
price of $5.00 per share of Common Stock and $0.125 per Warrant (after
deduction of the underwriting discount and estimated offering expenses) and the
application of the net proceeds as described under "Use of Proceeds." This
table should be read in conjunction with Financial Statements of the Company,
the Predecessor Business and Stevens, including notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
March 31, 1997
--------------
Pro Forma
Pro Pro As
Actual (1) Forma(2) Forma(3) Adjusted(4)
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Current Maturities of long term debt $ 280,750 1,858,750 $2,858,750 30,750
Long-term debt 30,000 30,000 30,000 30,000
----------- ---------- ---------- ----------
Preferred stock---$.01 par value; 1,000,000 shares 310,750 1,888,750 2,888,750 60,750
authorized, none issued or outstanding ----------- ----------- ---------- ----------
Common stock---$.01 par value; 20,000,000 shares 59,512(4) 62,512(5) 53,472 71,472
authorized, 5,650,600 shares issued and
outstanding, 5,950,600 shares issued and
outstanding Pro Forma (2), 5,046,600 shares
issued and outstanding Pro Forma (3) and 7,901,000
shares outstanding Pro Forma, As Adjusted (5)
Additional Paid-In Capital 4,976,259 6,473,259 3,029,799 10,589,549
Stock Subscriptions Receivable (32,296) (32,296) (32,296) (32,296)
Retained Deficit $(3,654,684) (3,654,684) (3,654,684) (3,654,684)
----------- ---------- ---------- ----------
Total Stockholders' Equity (Deficit) 1,348,791 2,848,791 (603,709) 6,974,041
----------- ---------- ---------- ----------
Total capitalization 1,659,541 4,737,541 2,285,041 7,034,791
=========== ========== ========== ==========
</TABLE>
(1) Reflects the actual short-term and long-term indebtedness and
capitalization of the Company without giving effect to the Stevens
Merger or the Offering contemplated hereby.
(2) Reflects the pro forma short-term and long-term indebtedness and
capitalization of the Company after giving effect to the consummation
of the Stevens Merger as if it occurred on March 31, 1997.
(3) Reflects the pro forma short-term and long-term indebtedness and
capitalization of the Company after giving effect to the consummation
of the Stevens Merger and the redemption of 904,000 shares of Common
Stock for an aggregate of $3,452,500 as if they occurred on March 31,
1997.
(4) Reflects the pro forma short-term and long-term indebtedness and
capitalization of the Company after giving effect to the Stevens
Merger as adjusted to give effect to the consummation of the Offering
and the application of the estimated net proceeds as described under
"Use of Proceeds."
(5) Excludes (i) 300,000 shares of Common Stock issued and warrants
exercisable for 250,000 shares of Common Stock issuable in connection
with the Stevens Merger, (ii) 300,000 shares issuable upon exercise of
warrants granted to one of the Company's lenders and (iii) 50,000
shares of Common Stock issuable upon exercise of stock options granted
pursuant to the Company's 1997 Stock Option Plan, (iv) 300,000 shares
of Common Stock issuable upon exercise of options issued to directors
and employees of the Company, (v) 1,800,000 shares of Common Stock
issuable upon the exercise of the Warrants offered hereby and (vi)
360,000 shares of Common Stock issuable upon exercise of the
Representative's Warrant and the Warrants therein.
(6) Excludes (i) 300,000 shares issuable upon exercise of warrants granted
to one of the Company's lenders and (ii) 50,000 shares of Common Stock
issuable upon exercise of stock options granted pursuant to the
Company's 1997 Stock Option Plan, (iii) 300,000 shares of Common Stock
issuable upon exercise of options issued to directors and employees of
the Company, (iv) 1,800,000 shares of Common Stock issuable upon the
exercise
18
<PAGE> 19
of the Warrants offered hereby and (v) 360,000 shares of Common
Stock issuable upon exercise of the Representative's Warrant and the
Warrants therein.
19
<PAGE> 20
DILUTION
The difference between the initial public offering price per share of
Common Stock and the pro forma net tangible book value per share after this
Offering constitutes the dilution to investors in this Offering. Net tangible
book value per share is determined by dividing the net tangible book value of
the Company (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock.
At March 31, 1997, the pro forma net tangible book value of the
Company was $(4,535,100) or $(.85) per share, after giving effect to the
consummation of the Stevens Merger and the issuance of 300,000 shares of Common
Stock in connection therewith and the redemption of 904,000 shares of stock for
$3,452,500. Without taking into account any changes in net tangible book value
attributable to operations after March 31, 1997, other than the issuance and
sale by the Company of 1,800,000 shares of Common Stock offered hereby at an
assumed public offering price of $5.00 per share and 1,800,000 Warrants offered
hereby at the assumed offering price of $.125 per Warrant, and the application
of the net proceeds as described under "Use of Proceeds," the pro forma net
tangible book value of the Company as of March 31, 1997 would have been
$3,042,650, or $.43 per share. This represents an immediate increase in net
tangible book value of $1.28 per share to the existing shareholders and an
immediate dilution of $4.57 per share to new investors. The following table
illustrates this dilution, on a per share basis:
<TABLE>
<S> <C> <C> <C>
Assumed initial public offering price of Common Stock . . . . . . . . . -- $ 5.00
Net tangible book value as of March 31, 1997 . . . . . . . . . . . $ .00
Pro forma net tangible book value after giving effect
to the Stevens merge . . . . . . . . . . . . . . . . . . . . . . . (.19)
Decrease in pro forma net tangible book value after giving (.66)
effect of stock redemption . . . . . . . . . . . . . . . . . . . .
Increase in net tangible book value attributable to new investors 1.28
Pro forma net tangible book value after offering . . . . . . . . . . . .43
-------------
Total dilution to new investors . . . . . . . . . . . . . . . . . . . . $ 4.57
--------------
</TABLE>
If the Representative's over-allotment option is exercised in full, the pro
forma net tangible book value of the Company as of March 31, 1997 will be
$4,246,513, or $ .57 per share. This represents an immediate increase in net
tangible book value of $1.42 per share to the existing shareholders and an
immediate dilution of $4.43 per share to new investors.
The following table summarizes, as of March 31, 1997, the total number of
shares of Common Stock purchased from the Company, the aggregate consideration
paid and the average price per share paid (assuming an initial public offering
price of $5.00 per share) by the existing shareholders and the new investors,
after giving effect to the redemption of 904,000 shares of Common Stock as
contemplated hereby.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
------------------------ ------------------------ -------------
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing Shareholders . . . . . . 5,347,209 75% 2,455,902 21.4 .46
New Investors . . . . . . . . . . 1,800,000 25% 9,000,000 78.6 $5.00
Total . . . . . . . . . . . . 7,147,209 100% $11,455,902 100% $1.61
</TABLE>
(1) The computation in both of the foregoing tables assume no exercise of the
Representative's Warrant. See "Description of Securities."
If the Underwriters' over-allotment option is exercised in full, the
new investors will have paid $10,350,000 for 2,070,000 shares of Common Stock,
representing 100% of the total consideration for 27.9% of the total number of
shares outstanding.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the financial condition
and results of operations of the Company and should be read in conjunction with
the financial statements of the Company and related notes thereto included
elsewhere in this Prospectus.
OVERVIEW
The Company operates as a telemarketing travel agency, providing air
transportation reservation services for domestic and international travel to
customers through its easy to remember, toll-free numbers. The Company strives
to provide its customers with the lowest-priced airfare available for a
particular travel route at the time of reservation by utilizing the SABRE
travel reservation system.
The Company was formed in November 1995 to acquire certain assets of
and assume certain liabilities of 1-800- Low Airfare, Inc. (the "Predecessor
Business"). The acquisition was consummated on December 1, 1995. The
Predecessor Business had commenced operations in 1993. To expand its
operations, in November 1996 the Company entered into a Merger Agreement with
Stevens and its sole shareholder. Stevens is one of the largest independent
travel agencies in the United States specializing in the telemarketing of
airline tickets. Pursuant to the Merger Agreement, simultaneously with the
closing of this Offering, Stevens will be merged with and into the Company,
with the Company as the surviving corporation.
The Company's operating revenues presently consist, and for the
immediate future will continue to consist, principally of (i) commissions on
air travel tickets; (ii) override commissions on air travel tickets booked on
airlines with which the Company has override agreements; (iii) segment
incentives under the Company's agreement with SABRE; (iv) co-op promotions with
suppliers of travel related products and services; and (v) service fees charged
to customers.
The Company's revenues are a function of the number and price of the
tickets its sells and the percentage of the price of such tickets it retains as
commissions and override commissions, as well as on the service charge imposed
on customers. Although the Company entered into its first override agreement
in December 1995, it only began to achieve the volume necessary to benefit from
these agreements in the third quarter of 1996. The Company entered into an
agreement with the TWA Discounter on March 1, 1996. As a result of its
override agreements and its agreement with the TWA Discounter, the Company is
able to charge its customers a $10 or $20 service charge, depending on the
price of the ticket, while still offering low priced tickets. The Company only
began to impose this service charge in January 1997.
The Company anticipates that as the volume of tickets sold increases
and the proportion of tickets sold which are subject to an override agreement
increases, the percentage of the price of the tickets sold retained by the
Company will increase. Set forth below for the periods indicated are the gross
dollar amounts of reservations booked, revenues and revenues as a percentage of
reservations, the gross dollar amount of expenses and expenses as a percentage
of revenues.
21
<PAGE> 22
<TABLE>
<CAPTION>
1995 Quarters Ended March 31,
---------------------------------- --------------------------------------------
Eleven
Months Month
Ended Ended Year Ended
November December 1995 December
30, 1995 31, 1995 Total % 31, 1996 % 1997 % 1996 %
-------- -------- ----- --- -------- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Reservations $9,647,090 $1,609,426 $11,256,516 - $23,590,782 - $11,165,266 - $3,779,151 -
========== ========== =========== =========== =========== ==========
Revenues 1,090,938 133,970 1,224,908 10.9%* 3,235,777 13.7%* 1,639,196 14.7%* 364,393 9.6%*
(including --------- ------- --------- --------- --------- -------
overrides)
OPERATING
EXPENSES ** ** ** **
Employee Costs 1,115,403 175,604 1,291,007 105.4% 2,490,770 77.0% 848,243 51.7% 581,590 159.6%
Telephone 392,869 14,527 407,396 33.3% 539,118 16.7% 245,551 15.0% 122,496 33.6%
Ticket 138,798 17,896 156,694 12.8% 407,579 12.6% 178,967 10.9% 51,422 14.1%
Delivery
Advertising 333,520 437 333,957 27.3% 137,223 4.2% 45,545 2.8% 10,709 2.9%
General and
Administrative 1,156,777 53,869 1,210,646 98.8% 1,768,058 54.6% 593,073 36.2% 508,902 139.7%
Interest 168,857 4,017 172,874 14.1% 1,114,298 34.4% 45,890 2.8% 264,449 72.6%
----------- --------- ----------- ------ ----------- ----- --------- ------ ----------- ------
Total Expenses 3,306,224 266,350 3,572,574 291.7% 6,457,046 199.6% 1,957,269 119.4% 1,539,568 422.5%
----------- --------- ----------- ------ ----------- ----- --------- ------ ----------- ------
Other Income 41,959 1,782 43,741 3.6% 12,610 0.4% 2,646 0.2% - -
----------- --------- ----------- ------ ----------- ----- --------- ------ ----------- ------
Net (Loss) $(2,173,327) $(130,598) $(2,303,925) 188.1% $(3,208,659) 99.2% $(315,427) 19.2% $(1,175,175) 322.5%
============ ========== ============ ====== ============ ===== ========== ====== ============ =======
</TABLE>
* Revenues as a percentage of gross reservations.
** Expenses as a percentage of revenues.
The Company's operating expenses include primarily those items necessary to
advertise its services, maintain and staff its travel reservation centers,
including payroll, commissions and benefits; telephone; general and
administrative expenses, including rent and computer maintenance fees; and, to
date, interest, fees and expenses associated with the Company's financing
activities.
RESULTS OF OPERATIONS
For purposes of the discussion below, the results of operations of the
Predecessor Business for the period from January 1, 1995, through November 30,
1995, have been combined with the results of operation for the Company for the
month of December 1995.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues for the year ended December 31, 1996 ("Fiscal '96") increased 164%
to $3,235,777 compared to $1,224,908 for the year ended December 31, 1995
("Fiscal '95"). The increased revenues reflect the growing consumer awareness
of the services provided by the Company and an increase in the volume of calls
handled as a result of the growth in the number of the Company's telephone
reservation agents from approximately 13 as of December 31, 1995, to 76 as of
December 31, 1996. As a percentage of gross reservations, revenues increased
from 10.9% of gross reservations during 1995 to 13.7% of gross reservations
during 1996.
Operating expenses for Fiscal '96 increased 81% to $6,457,046 compared to
$3,572,574 for Fiscal '95. The increase in operating expenses resulted
primarily from an increase in the Company's payroll, commissions and employee
benefits
22
<PAGE> 23
expenses, which increased 92% to $2,490,770 in Fiscal '96 from $1,291,007 in
Fiscal '95. Consistent with the increase in the volume of tickets sold by the
Company, the Company also recorded increases in its telephone and ticket
delivery expenses, though these increases were not proportional with the
increase in the Company's volume. Also contributing significantly to the
increase in the Company's operating expenses was an increase in the Company's
interest expense by 544% to $1,114,298 in Fiscal '96 from $172,874 for Fiscal
'95. A portion ($1,047,093) of the interest expense incurred during Fiscal '96
represents shares issued as compensation for loans made to the Company.
Despite the increase in operating expenses from Fiscal '95 to Fiscal '96, as
reflected in the table on the preceding page, total operating expenses as a
percentage of revenues decreased from Fiscal '95 to Fiscal '96. Further, with
the exception of interest expense, which increased as a result of the Company's
need to fund its growth, each of the Company's expense items decreased as a
percentage of revenues from Fiscal '95 to Fiscal '96. This decrease reflects
the fact that although certain of the Company's expenses may increase with
revenues, others remain constant over a range of revenues and those which
increase generally do so at a rate less than the rate of increase in revenues.
During 1996 the Company's operating loss was $3,208,659 (including non-cash
charges of $1,811,093 resulting from shares issued to lenders, consultants,
employees and the Company's landlord), as compared to an operating loss of
$2,303,925 for Fiscal '95. The consistency of the Company's operating loss
reflects the fact that while the volume of business increased, the Company's
operating expenses, inclusive of interest charges, increased by an
approximately equal amount.
LIQUIDITY AND CAPITAL RESOURCES
The Company commenced operations in December 1995 upon the acquisition of
certain assets of the Predecessor Business for $1,407,008 of which $10,000 was
paid in cash, $90,000 was paid by the delivery of the Company's Promissory
Note; $720,480 was satisfied through the issuance of 600,400 shares of the
Company's Common Stock and $586,528 was satisfied through the assumption of
certain liabilities of the Predecessor Business. Of the 600,400 Shares issued,
300,000 shares were to be issued to creditors of the Predecessor Business which
elected to convert their claims against the Predecessor Business into stock at
the rate of $10.00 per share. Pursuant to this Agreement, during Fiscal '96 the
Company issued 153,934 shares of Common Stock to creditors of the Predecessor
Business and 146,066 shares of its Common Stock to the Predecessor Business.
To date the Company has financed its operations from capital contributions,
net of related expenses, in the amount of $2,455,902; loans in the amount of
$310,750; and through services provided by certain vendors to be paid out of
future revenues. The Company, including its Predecessor, used $1,293,714 in
operating activities in Fiscal '95 and $1,095,150 for operating activities in
Fiscal '96. The decrease in cash used in operating activities reflects the fact
that a significant portion of the Company's expenses, particularly interest,
incurred during Fiscal '96 was satisfied through the issuance of shares of the
Company's Common Stock. The Company anticipates that it will continue to use
cash in its operating activities for the immediate future.
During Fiscal '96 the Company's capital expenditures were approximately
$371,000 primarily for leasehold improvements. Because the Company's computers
and telephone switching equipment are already in place, the Company does not
anticipate substantial capital expenditures during the current fiscal year.
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
Revenue for the quarter ended March 31, 1997 increased 350% to $1,639,196
compared to $364,393 for the quarter ended March 31, 1996. The increase in
revenue was the direct result of the increase in gross reservations booked of
195% in the quarter ended March 31, 1997 ($11,165,266) as compared to the
quarter ended March 31, 1996 ($3,779,151). Approximately $5,858,000 of the
gross reservation increase and $522,200 of the increase in revenues is
attributable to the assumption of the operations of Stevens in January 1997.
The Company believes that as a result of the Merger, the Company has
significantly increased its market share of the low-airfare business. In
addition, it has acquired a valuable set of easy-to-remember toll-free numbers
and a successful promotional campaign in which the Company provides
approximately 150 newspapers with the lowest-priced airfares for certain
designated route in exchange for placement of Stevens' name and toll-free
number. In addition to the increase in revenue applicable to increased gross
reservations, the commissions and fees earned increased to 14.7% of gross
reservations for the quarter ended March 31, 1997 compared to 9.6% for the
quarter ended March 31, 1996. This 53% increase in commissions and fee rates is
the result of volume incentives provided by the airlines, which the Company will
be able to take advantage of more quickly as a result of the greater overall
sales volumes generated by the Company's two reservation centers.
Operating expenses for the quarter ended March 31, 1997 increased 50% to
$1,911,379 compared to $1,275,119 for the quarter ended March 31, 1996. The
operating expenses did not increase proportionate to revenues due to the fact
that many expenses remain constant over broad ranges of revenues (i.e. office
rent, utilities, management wages, etc.) and a new agreement effective
September 1996 with its telephone service provider helped the Company control
the telephone expense. Pursuant to the new four-year agreement, subject to the
Company being current in its payments, the telephone service provider will
grant the Company a credit of (i) $15,000 towards installation charges and an
additional $180,000 for
23
<PAGE> 24
general charges in the fifth month following the initiation of service (subject
to forfeiture in the event the Company discontinues service in the second year
of the agreement) and (ii) $180,000 for general charges in the 17th month
following initiation of service. Since the execution and delivery of the
Merger Agreement in November 1996, the Company's management commenced managing
Stevens and replaced Stevens' prior reservation system with a new SABRE system.
Upon consummation of the Merger, Stevens' prior management will be phased out,
and the Company anticipates significant cost savings from consolidating
operations under one management team. Interest expense declined by $218,000 in
the quarter ended March 31, 1997 as compared to the quarter ended March 31,
1996, due to the fact that no penalty interest was due on outstanding notes at
March 31, 1997. In prior periods, as a result of its inability to make
payments when due, the Company had incurred penalty interest on such notes
pursuant to the terms of such loans.
Despite the increase in operating expenses from the first quarter of '96 to
the first quarter to '97, as reflected in the table above, total operating
expenses as a percentage of revenues decreased from 422.5% of revenues during
the first quarter of '96 to 119.4% of revenues during the first quarter of '97.
This decrease is largely attributable to the fact that the Company's revenues
increased by 350% during this period while expenses increased by a
significantly lesser percentage.
During the quarter ended March 31, 1997 the Company's operating loss
declined to $315,427 from $1,175,175 for the quarter ended March 31, 1996.
This decline was the result of revenue increasing faster than related expenses
plus the decline in the interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $288,159 of cash in operating activities during the quarter
ended March 31, 1997 and used $757,506 of cash in operating activities during
the quarter ended March 31, 1996. The 1996 operating activity use of cash was
financed by the borrowing of $125,000 and the sale of common stock of $983,550.
In subsequent quarters of 1996 the Company raised an additional $1,497,854
which was used to finance additional use of cash in operating activities for
the last three quarters of 1996 and the first quarter of 1997.
During the first quarter of 1996 the Company's capital expenditures were
$46,703. Because the Company's computers and telephone switching equipment are
already in place, the Company does not anticipate substantial capital
expenditures in the immediate future.
The Company anticipates that approximately $746,915 of the net proceeds of
this Offering will be available to be used as working capital. In addition,
approximately $1,000,000 of such net proceeds will be used to train a
sufficient number of people to add approximately 200 additional reservation
agents over the next 24 months, which should enable the Company to increase the
number of calls answered each day by approximately 12,000 and, consequently,
the Company's revenues. In addition the Company intends to use $500,000 to
expand its marketing activities to increase consumer awareness of its services.
The Company will use $1,000,000 of the proceeds of this Offering to retire the
Company's promissory note issued as consideration for the redemption of 250,000
shares formerly held by Perry Trebatch, a stockholder of the Company. The
Company will also use approximately $2,450,000 of the proceeds of this Offering
to redeem 654,000 shares of Common Stock (exclusive of the 250,000 shares
redeemed for the Company's $1,000,000 promissory note described immediately
above) from two individual lenders to the Company: 569,000 shares from Michael
Cantor and 85,000 shares from Jose Colon. The Company and the Representative
believe that it is in the best interests of the Company and the investors in
this Offering to redeem such shares for several reasons. First, the Company
secured a discounted redemption price of $3.75 per share. In addition, because
Mr. Cantor and Dr. Colon hold registration rights with respect to such shares,
they could adversely affect the trading price of the Common Stock and Warrants
by exercising such registration rights and selling such shares to the public.
The Company and the Representative believe that given the opportunity to redeem
such shares at a discounted price, it is in the Company's and its shareholders
best interest to help reduce the possibility of a large influx of shares on the
market and a corresponding decrease in the trading price of the Common Stock
and Warrants.
If the Company's revenues continue to increase as currently anticipated, the
Company should not require any additional capital beyond that provided by this
Offering to achieve its current business plans. If, however, the Company were
to seek to expand its operations through acquisitions, the Company could
require capital beyond that provided by this Offering. There can be no
assurance that such capital will be available, or, if available, on terms
acceptable to the Company.
24
<PAGE> 25
BUSINESS
Unless otherwise noted or the context otherwise requires, references in this
Prospectus to the Company are to 800 Travel Systems, Inc. and to the businesses
previously conducted by its predecessor, 1-800 Low-Air Fare, Inc. and The
Joseph Stevens Group, Inc.
The Company is among the 100 largest independent travel agencies in the
United States. The Company provides low-priced airline tickets for domestic
and international travel to its customers through its easy-to-remember,
toll-free numbers "1-800-LOW-AIR-FARE" (1-800-569-2473) and "1-800-FLY-4-LESS"
(1-800-359-4537). The Company has approximately 170 reservation agents and
operates 365 days a year out of the Company's reservation centers in Tampa,
Florida and San Diego, California. The Company strives to provide its customers
with the lowest-priced airfare available for a particular travel route at the
time of reservation by utilizing the SABRE travel reservation system. The
SABRE system maintains over 50 million airfares, including those of all major
U.S. and international commercial airlines, and is updated throughout the day
to reflect the airlines' latest ticketing information. The Company estimates it
receives an average of 30,000 calls per day (including repeat calls from
callers unable to be serviced or calling to confirm reservations) at its
reservation centers, of which the Company has the current capacity to answer
only approximately 8,000. The Company has increased the number of its
reservation agents from 13 in 1995 to approximately 170 presently. The Company
intends to use approximately $1 million of the proceeds of this Offering to
expedite the training of additional reservation agents. The Company already
has the equipment and infrastructure necessary to answer all the calls it is
currently unable to answer.
The Company's operations generate revenues principally from (i) the
commissions on air travel tickets, (ii) override commissions on air travel
tickets the Company books on Continental, United, Northwest, TWA, Carnival,
America West, America Trans Air, Trans Brazil, Mexicana and Korean airlines,
(iii) segment incentives under its contract with SABRE, (iv) co-op promotions
with other suppliers of travel-related products and services, such as
long-distance telephone companies, car rental companies and hotels, and (v)
service fees that it charges its customers.
The Company markets its services primarily by advertising in approximately
270 Yellow Pages directories covering a total population of over 133 million
people in those standard metropolitan areas in the continental United States
("SMA's") with populations whose general travel profiles are attractive to the
Company. The Company also maintains a home page on the World Wide Web
(www.lowairfare.com) which enables its customers to access its customized Turbo
SABRE system through their personal computers.
INDUSTRY OVERVIEW
The travel industry is one of the world's largest industries, with $3.4
trillion in sales in 1994 according to the World Travel Organization (the
"WTO"). According to the Travel Weekly 1996 U.S. travel agency survey (the
"Travel Weekly Survey"), revenues for U.S. travel agencies in 1995 exceeded
$100 billion, representing an increase of almost 100% since 1985 and 9% since
1993. The Air Transport Association (the "ATA") projects that 800 million U.S.
passengers will purchase airline tickets in the year 2005. The Company believes
that approximately 60% of the U.S. market for air travel is booked through
travel agencies rather than directly through air carriers.
The U.S. travel agency industry is a highly fragmented industry comprised of
numerous small agencies, but trending towards large volume agencies, according
to the Travel Weekly Survey. In contrast to 1985, when small agencies (those
reporting between $1 million and $5 million in annual sales) were responsible
for 62% of all U.S. travel agency revenues, in 1995 such agencies were
responsible for only 41% of all U.S. travel agency revenues.
The Company believes that only one other travel agency operates in a manner
similar to the Company by emphasizing low-cost airfare, nationally advertising
toll-free telephone numbers that spell out their respective advertising slogans
and processing calls on such numbers at centralized reservation centers. The
Company believes that operating in such manner distinguishes the Company and
its competitor from other travel agencies as "telemarketing travel companies."
OPERATING STRATEGY
The Company's operating strategy is to (i) strive to provide its customers
with the lowest-priced airfare available for a particular travel route at the
time of reservation on those airlines whose tickets the Company sells, (ii)
focus on consumer air travel, which the Company believes is the most profitable
segment of the travel industry, (iii) provide convenient, quick service to its
customers, (iv) maintain low operating costs by utilizing only two operating
facilities, (v) use state-of-the-art technology to maximize operating
efficiencies, (vi) constantly review and update its relationships with major
airlines and SABRE to obtain favorable commission structures, and (vii) provide
incentives to its sales force through a performance-based compensation
structure. The Company believes that this strategy distinguishes it from most
travel agencies in the United States, and that significant internal growth
opportunities exist as (x) customers' demand for low-price air travel remains
unsatisfied through traditional sources and (y) technological developments in
the area of information processing enable increasingly efficient global
distribution of travel information.
25
<PAGE> 26
Low-Priced Airfare on Major Airlines
The Company strives to provide its customers with the lowest-priced airfare
available for a particular travel route at the time of the reservation on those
airlines whose tickets the Company sells (which includes most major U.S. and
international airlines), using the comprehensive ticket information available
on its customized Turbo SABRE system. The Company's SABRE system provides the
operating reservation agent, within two or three seconds of a request for a
particular route, up to 900 ticket options ranked in order of price. The
reservation agent can then offer ticket options in ascending order of price
until the customer chooses a suitable carrier and departure time. In contrast,
airlines typically quote only their own fares and often quote highest fares
first to avoid selling the lowest-priced tickets. The Company believes that
most travel agents do not offer customers the lowest-priced airfare available
because they either lack the technical capability or prefer to sell more
expensive tickets and earn larger commissions. In contrast, the Company's
operating strategy is based on generating large sales volume rather than on
high margins on individual tickets. The Company's customers generally have one
objective - lowest-priced airfares. As a result, the Company's strategy allows
it to satisfy its customers' demands for low airfares while obtaining higher
commissions and additional incentives for higher volumes. The Company believes
that its ability to provide low-priced airfare on the airlines whose tickets it
sells (which is almost always lower than the lowest fare published by that
airline) provides a distinct competitive advantage in attracting and retaining
customers.
Sell Tickets of Almost All Major Airlines
The Company sells tickets for a large number of major U.S. and international
airlines. The Company is authorized to sell tickets on behalf of all major
domestic airlines including Continental, United, Northwest, TWA, American,
Alaska, Delta, Midway, Southwest and America West, but not U.S. Airways. To be
authorized to sell tickets on behalf of U.S. Airways a travel agent that is
not a public company must submit financial statements of its principal
shareholders, which the Company is currently unable to do. The Company
anticipates that shortly after the closing of this Offering it will become
authorized to sell tickets of U.S. Airways.
Because of Delta Airlines' pricing and commission policies, the volume of
Delta tickets sold by the Company is not commensurate with Delta's position in
the airline industry. The Company also does not sell tickets on smaller
airlines, whose airfares and commission structures do not enable the Company to
generate a profit on such sales. Where the fares of such airlines are available
on the Company's SABRE system at a lower price, the Company's reservation
agents direct the callers directly to such airlines. The Company constantly
monitors and periodically revisits its existing relationships with individual
airlines, and attempts to establish new relationships with other airlines, as
part of its general strategy of keeping abreast of market conditions and
industry trends.
Focus on Consumer Air Travel
The Company believes that consumer air travel is the most profitable segment
of the travel industry, and that it can compete effectively in this segment
because of its high technology, telemarketing approach to the consumer air
travel business and the resulting efficiencies. The Company considers the
consumer market to include any person who pays for his or her own travel
expense, regardless of the purpose of the travel, as opposed to business
travelers whose employers pay for their travel expenses. However, the Company
does sell to certain customers who purchase air travel for business purposes
which is paid for by their employers.
The Company believes that its reservation agents require substantially less
time to book reservations because (i) all the information they need is
immediately available and the necessary steps can be conducted on their
computer screens, and (ii) the Company's services are focused on air travel,
which does not require research or follow-up work and can be completed in one
phone call, in contrast to the more time-consuming arrangements for hotel and
car-rental reservations. Consequently, the Company believes its average
reservation agent can book an average of $265 in travel plans (i.e. the gross
ticket price booked) for customers per hour, compared to the industry average
of $147 gross bookings per hour. The Company strives to increase this average
by rewarding reservation agents with commissions for weekly sales in excess of
various levels. In addition, the Company believes that the fact that the
majority of the most inexpensive air travel tickets are non-refundable
increases the profitability of the consumer air travel market. Over 90% of the
Company's ticket sales are non-refundable and, as a result, the value of
tickets refunded each week is less than 1% of all tickets sold.
Convenient Service
The Company believes that a significant factor in a customer's decision to
purchase air travel is the convenience of service. The Company believes that
the convenience of its service compares favorably to that of its competitors
because (i) its reservation agents provide immediate and comprehensive
information, and (ii) if purchased early enough, tickets are delivered the next
day. The Company's telemarketing service, coupled with its delivery of tickets
by next-day courier, eliminates the need for customers to visit a travel
agency. The Company offers one source for the lowest-priced airfare available,
thus eliminating the need for the customer to call several air carriers or
travel agents. In addition, the easy-to-remember "1-800-LOW-AIR-FARE" and
"1-800-FLY-4-LESS" names and associated numbers, "1-800-569-2473" and
"1-800-359-4537" facilitate repeat calls from customers who may call on
subsequent occasions from other locations where
26
<PAGE> 27
the area code may be different or where they may not have access to a Yellow
Pages directory. See "Growth Strategy--Internal Growth."
Low Operating Costs
The Company seeks to have the lowest margin of operating costs in the travel
agency industry. The Company minimizes its operating costs by processing all of
its customer reservations and purchases through two centralized facilities,
rather than duplicating its financial and management resources at a number of
locations. Since its customers do not physically visit the Company's
reservation centers in Tampa or San Diego, the Company does not need to
construct and maintain the more expensive locations that traditional travel
agents do. Similarly, the Company does not need to incur the expense of
furnishing its reservation facilities to accommodate customers, but rather
maintains functional reservation centers geared toward maximizing the number of
reservation agents that can operate at any one time. The Company also minimizes
its operating costs by basing its marketing strategy on advertising through
Yellow Pages directories in those SMA's with populations whose general travel
profiles are attractive to the Company, which the Company believes is the most
cost-effective method of advertising available. See "--Marketing." The Company
also minimizes its costs by contracting for employees at its Tampa reservation
center through a professional employee leasing organization. All of the
Company's workers at the Tampa facility (other than management) are retained on
an hourly basis through such services. The Company is responsible for training
and supervising the job performance of worksite employees. The Company has
determined that it is more economical to contract with employee providers than
to employ such hourly workers itself.
State-of-the-Art Technology
The Company uses state-of-the-art computer technology available to access
all the major U.S. and international air carriers' routes and fares. Each of
the Company's reservation agents operates a SABRE computer terminal and
headset. The Company has significantly customized the Turbo SABRE system
specifically for the Company's specific purposes and uses. As a result, the
Company's reservation agents have fewer procedures to master and therefore are
trained and become proficient on the Company's reservation system more quickly,
thus incurring lower training expenses. In addition, the skills learned by the
reservation agents on the Company's Turbo SABRE system are not transferable to
other travel agencies, resulting in lower reservation agent turnover.
Review and Update Relationships with Airlines
The Company's management constantly reviews and updates its relationship
with the major airlines and SABRE in order to obtain a favorable commission
structure. The Company believes that as a result of such efforts, the Company
has been able to obtain commission structures that are more favorable than
those obtained by travel agents generally. See "- Operations; Standard
Commissions" and "-; Override Commissions."
Employee Incentives
The Company's reservation agents are organized into teams of approximately
20 reservation agents under one supervisor. The reservation agents earn a base
salary and commission, each of which is dependent upon the volume of sales
generated by an agent within a moving, historic measuring period. The team
supervisors, in turn, are paid based on the average sales of that supervisor's
team. The Company believes that this performance based compensation structure
enables it to retain and constantly motivate the best-performing reservation
agents.
GROWTH STRATEGY
The Company has a three-point growth strategy:
o Internal Growth.
The Company's Tampa and San Diego reservation centers are currently
operating at less than maximum capacity because the Company can add up
to 40 reservation agents a month while maintaining the quality of its
customer service and operating efficiencies. Consequently, of the
30,000 calls per day (including repeat calls from callers unable to be
serviced) the Company estimates it receives on average at both
reservation centers, the Company's approximately 170 reservation
agents currently can answer only an average of approximately 8,000
calls. As a result, the Company believes it can grow substantially
over the next twenty-four months as it adds additional personnel. The
Company's Tampa and the San Diego facilities can accommodate a
combined total of 1,300 reservation agents working in staggered
shifts, or 565 working at any one time. The Company believes that it
can achieve substantial growth by increasing the number of its
reservation agents and consequently increasing its capacity to process
the existing demand by potential customers who call its toll-free
numbers daily.
27
<PAGE> 28
o Marketing.
The Company has already implemented a marketing strategy of focusing
on advertising in Yellow Pages directories in the largest SMA's. The
Company has advertisements of its "1-800-LOW-AIR-FARE" name and
"1-800-569-2473" toll-free number listed in over 236 directories
reaching a population of over 88 million people and has entered into
agreements for advertising in 73 additional directories reaching a
population of over 31 million people. The Company has advertisements
of its "1-800-FLY-4-LESS" name and "1-800-359-4537" toll-free number
listed in over 115 directories reaching a population of over 102
million people. The Company intends to continue its current strategy
of advertising in Yellow Pages, but intends to focus on directories in
those SMA's with populations whose general travel profiles are
attractive to the Company. Once the Company's ability to satisfy
existing customer demand is addressed, the Company anticipates
increasing consumer awareness of its easy-to-use, low-priced airfare
approach to travel reservations through select print and radio
advertising campaigns. See "Business--Marketing."
o Strategic Acquisitions.
The Company believes that opportunities exist for it to expand its
market share in existing markets through the acquisition of other
telemarketing travel companies with valuable customer lists and
intellectual property. The Company expects that such acquisitions
would involve the purchase of the relevant names, service marks and
telephone numbers, as well as any logos and other identifying features
associated with them. The Stevens Merger is an example of one such
strategic acquisition. See "The Stevens Merger" and "--Competition."
SERVICES
The primary service the Company offers to its customers who call its
toll-free numbers or access its Internet home page is a reservation service for
domestic and international flights. The Company strives to provide its
customers with the lowest-priced airfare available for a particular travel
route at the time of the reservation on those airlines whose tickets the
Company sells. The Company's Turbo SABRE system is customized to provide to the
reservation agent within two or three seconds up to 900 ticket options, ranked
in order of price. Once tickets are purchased, they are printed at the
Company's Tampa reservation center and delivered by overnight courier to
customers.
The Company offers its reservation services through approximately 170
reservation agents and supervisors located at the Company's reservation centers
in Tampa, Florida and San Diego, California. The reservation centers operate 16
hours a day, 365 days a year. Each reservation agent operates a computer
terminal that accesses the SABRE travel reservation and information system. The
Company adjusts the number of reservation agents serving customers on an hourly
basis. At the peak hours of 11:30 a.m. through 4:30 p.m., Eastern time, the
Company has the most reservation agents working. Currently, the average number
of agents working during such peak hours is 85. During the hours of 1:00 a.m.
through 6:00 a.m., Eastern time, the Company needs the least agents and staffs
an average of 17 reservation agents. It is during the peak hours of 11:30 a.m.
through 4:30 p.m. that the Company is not able to answer all of the calls it
receives.
Personalized Service
The Company's customized Turbo SABRE system enables it to retain in
its files individual travel preferences for its customers, such as seating,
special meals and frequent flier numbers, which are automatically displayed
when a customer's identifying information is input. This tailored information
program personalizes the reservation process as well as reduces the time
required to complete each reservation.
Corporate Customers
While the Company's current customers are predominantly individuals
and the Company's operating strategy targets the consumer market, the Company
offers certain services targeted at corporate customers. These services,
however, are designed to be offered during the processing of a single telephone
call, as with calls from individual customers. The Company's Turbo SABRE system
enables it to program "pop-up-windows" specifying, for each corporate customer,
its travel policy, preferred air carrier vendors, specially negotiated rates,
handling instructions and emergency procedures. The "pop-up-window" for each
corporate customer appears on the terminal screen and guides the reservation
agent during the reservation process.
Repeat Customers
The Company believes that repeat customers are key to its ability to
grow. The Company's "1-800-LOW-AIR-FARE" (1-800-569-2473) number has a rate of
repeat customers (meaning customers who purchase at least one more ticket
within a year) of approximately 38%, and the Company's "1-800-FLY-4-LESS"
(1-800-359-4537) number has a repeat customer rate of approximately 50%. The
Company believes that while customers are initially attracted by the low-priced
airfares made available by the Company, they become repeat customers because of
their satisfaction not only with the prices but also the convenience of being
able to book their reservations on one relatively brief toll-free telephone
call. The
28
<PAGE> 29
Company believes that it can generate internal growth by obtaining an even
larger portion of the travel business of its existing customers and
consequently increasing its repeat customer business.
OPERATIONS
The Company's operations generate revenues principally from (i) the
commissions on air travel tickets, (ii) override commissions on air travel
tickets the Company books on Continental, United, Northwest, TWA, Carnival,
America West, America Trans Air, Trans Brazil, Mexicana and Korean airlines,
(iii) segment incentives under the SABRE contract, (iv) co-op promotions with
other suppliers of travel-related products and services, such as long-distance
telephone companies, car rental companies and hotels, and (v) service fees of
$10 or $20 that it charges per ticket. The Company also earns a $5 shipping and
handling fee (net of expenses) for delivering tickets to its customers.
Standard Commissions
In accordance with industry practice, the Company receives a
commission of approximately 9.25% of the price of full-fare tickets and 11% for
excursion tickets that it sells on air carriers for which the Company is
authorized to sell air travel tickets. The Company is an authorized agent of
all air carriers whose fares are quoted on SABRE, other than U.S. Airways. Most
major U.S. airlines impose caps on such commissions of $25 dollars for one-way
air travel tickets and $50 dollars for round-trip tickets. In 1996, such
commissions accounted for more than 70% of the Company's gross revenues. The
Company does not earn basic commissions on the 25% of airline tickets purchased
from consolidators. See "--Agreements with Consolidators."
From time to time, most of the major U.S. air carriers informally
waive the commission cap for the Company and other large travel agencies. Such
waivers generally apply to sales of tickets for travel on selected routes and
are granted to provide an incentive to increase sales for those routes. In
addition, the Company obtains higher commissions through the payment of
override commissions in excess of the standard 9.25% and 11% commissions
pursuant to agreements with most of the major U.S. airlines. Due to such
override commissions and waivers of the commission cap and the Company's
strategy of selling tickets on airlines with which it has override commission
arrangements, the Company is rarely subject to the commission cap. See
"--Override Commissions."
Override Commissions
The Company has entered into agreements with Continental, United,
Northwest, TWA, Carnival, America West, America Trans Air, Trans Brazil,
Mexicana and Korean airlines for the payment of override commissions above the
standard commissions the Company receives. Under such agreements, additional
commissions are generally awarded if the volume of ticket sales surpasses
certain agreed upon thresholds based upon ticket sales as reported by the
Airlines Reporting Corporation (the "ARC"), a corporation owned and established
by the airlines to provide reporting, settlement and related services in
connection with the sale of transportation by travel agencies in the U.S.
Override commissions are generally paid quarterly and, depending upon the
specific agreement with the air carrier, may be paid directly by check from the
air carrier to the Company, by means of net payments by the Company to ARC with
respect to amounts owed to the air carrier, or through ARC by means of a credit
memo in favor of the Company. In 1996, override commissions accounted for
approximately 15% of the Company's gross revenues.
The Stevens Merger will enable the Company to obtain greater override
commissions, since the volume of combined sales of the previously separate
entities will be used to determine whether and when the agreed-to thresholds
have been met.
Segment Incentives under SABRE Contract
The Company earns additional revenue from SABRE for each segment of
air travel that it sells. A segment of air travel is non-stop air travel
between two destinations. For each segment of air travel it sells, the Company
receives $.50 from SABRE. In 1996, SABRE segment incentives accounted for less
than 1% of the Company's gross revenues.
Service Fee; Shipping and Handling
The Company also charges the customer a service fee per airline ticket
sold of $10 for tickets less than $250 and $20 for tickets equal to or greater
than $250. These fees are already calculated into the cost of the ticket when
quoted to the caller. Because of the Company's override commission structure,
the price of the ticket (even inclusive of the service charge) is still
generally lower than the lowest-priced published fare quoted by the airlines.
The Company also earns $5.00 (net of expenses) from the shipping and handling
fee it charges to its customers.
29
<PAGE> 30
Agreements with Consolidators
The Company also sells air travel tickets offered by consolidators.
Consolidators purchase large number of tickets directly from various air
carriers for resale to the public. When the Company sells such tickets, the
reservation is generally not booked through SABRE or settled through ARC, and
the Company is paid its commission directly from the consolidator. The Company
has entered into an agreement with a consolidator that sells tickets on TWA at
a discount (the "TWA Discounter") pursuant to which it (i) solicits customers
to purchase tickets for air travel on TWA at discounted fares from the TWA
Discounter and (ii) solicits businesses to enter into agreements for the
purchase of air travel on TWA from the TWA Discounter (the "TWA Agreement").
The TWA Agreement expires in February 1998 and is terminable before such date
on 15 days' prior written notice by either party. The Company receives a 15%
commission on each air travel ticket solicited by the Company or pursuant to an
agreement solicited by the Company. Air travel tickets sold by the Company
pursuant to the TWA Agreement, unlike sales from most other consolidators, are
booked through SABRE and settled through ARC; however, the Company receives its
commission directly from the TWA Discounter monthly. In 1996, commissions
received under the TWA Agreement accounted for approximately 20% of the
Company's gross revenues, and commissions received from other consolidators
accounted for approximately 5% of the Company's gross revenues. The Company
anticipates that its current arrangement with the TWA Discounter will expire in
2001, when the TWA Discounter will no longer be able to sell tickets on TWA;
there can be no assurance, however, that the Company's TWA Agreement will be
extended beyond its scheduled expiration date in February 1998. See "Risk
Factors-Risks Relating to Override Commissions."
World Wide Web Home Page
In anticipation of future technological innovations and consumer
demand for directly accessing information and making purchases on-line, the
Company has launched its home page at www.lowairfare.com on the World Wide Web,
which enables customers to access the Company's customized Turbo SABRE system
through their personal computers. The Company believes that consumers who
prefer to purchase travel and travel-related products and services on-line will
choose to access the Company's customized Turbo SABRE system over other
options. Through the Company's home page on the Internet, customers can access
the Company's customized Turbo SABRE system, view all information on the
system, make reservations and pay for their tickets by providing their major
credit card number for payment. In this process, the customer operates the
Turbo SABRE system in place of the reservation agent. As with purchases by
telephone, tickets are issued at the Tampa facility and delivered by overnight
courier. Commissions that the Company earns on transactions conducted through
its Web page are split equally with American Airlines.
Processing Reservations and Sales
Each call that is processed by a reservation agent is handled in the
following manner. First, a customer generally requests information about the
airfare for a particular route. The reservation agent enters the relevant
parameters into the Turbo SABRE system and initiates a search. Each search
takes approximately two to three seconds to appear on the operator's monitor.
The reservation agent then quotes the airfares as they appear on the terminal
screen, in increasing order of price. A customer may request the most
inexpensive airfare of all or the most inexpensive airfare of a particular
carrier or type of carrier.
The Company estimates that an average of approximately one in 10
callers who get through purchases an air travel ticket. If the customer
decides to purchase a ticket, the reservation agent requests and records
certain standard information such as name, address and telephone number. The
Company only accepts major credit cards for purchases by telephone. The Company
does accept cash payments from "walk-ins" to its Tampa facility (i.e.
individuals who visit the reservation center), although such sales constitute
less than 1% of its total sales. After a customer tells the reservation agent
his or her credit card number, the reservation agent executes a command causing
the credit card number to be verified with the credit card issuer, via the
SABRE central information system. As a result, once approval is received
electronically by the reservation agent at the Turbo SABRE terminal, the sale
is complete and the credit card payment is settled in accordance with the
procedures described below under "--Settlement of Accounts." After each sale is
completed, instructions are automatically transmitted via the Turbo SABRE
system from the reservation agent's terminal to the Tampa facility's ticket
printing area. Tickets are printed along with an itinerary of the customer's
travel arrangements. Tickets are printed on stock forms provided by ARC. ARC
requires the Company and other travel agencies to implement various security
measures in order to prevent theft of such stock. In addition, each air carrier
that authorizes the Company to issue its tickets provides metal plates on which
the Company's SABRE ticket printing machines print such carrier's tickets. Once
printed, tickets and itineraries are placed inside a ticket envelope and a
Federal Express package. Federal Express personnel pick up all such packages
each evening, six days a week, and deliver them by Federal Express' standard
next-morning delivery.
Refunds, Chargebacks and the SABRE Credit Card Authorization Guarantee
With the exception of sales to "walk-in" customers at the Tampa
facility (which account for less than 1% of sales), all of the Company's sales
are paid for by credit card. Once a sale is closed as described above under "--
Reservation and Sale Sequence," it is subject only to refund or chargeback.
Because the majority of the most inexpensive air travel tickets are
non-refundable, only 5% of the tickets the Company sells are refundable, and
the Company processes only an average
30
<PAGE> 31
of $1,000 worth of refunds a week, or .01% of sales. The Company recoups some
of its costs associated with processing such refunds by imposing a $50 charge
on each refund.
Chargebacks similarly account for a small part of the Company's sales.
A chargeback results from a customer who refuses to pay for a charge on his or
her credit card statement. In such an instance, the Company generally must
either return its commission to the relevant credit card issuer or seek
recourse directly against the customer. Approximately 1% of the tickets sold
by the Company result in chargebacks.
None of the Company's credit card sales are subject to refusal by the
relevant credit card issuer to remit payment to the Company. Since
authorizations of credit card charges are effected electronically through the
SABRE system, SABRE offers its subscribers a guarantee of such authorizations
for a fee of $.50 per authorization. The Company pays this fee for all
authorizations, and in return, SABRE pays the Company the amount of any
commission or other payment refused by the relevant credit card issuer.
Airlines Reporting Corporation
All of the Company's sales of air travel tickets that are offered
directly by air carriers are settled through the Airlines Reporting Corporation
("ARC"). Such sales account for approximately 75% of the Company's sales.
For sales settled through ARC, all commissions and other amounts owed
to the Company are also settled through ARC according to ARC's procedures,
except that override commissions may also be paid directly by check or wire
transfer from the relevant air carrier to the Company. See "--Override
Commissions." The only sales of air travel that are not generally settled
through ARC are air travel tickets offered by consolidators; however, some
sales of air travel tickets by the Company that are offered by consolidators
are settled through ARC. See "--Agreements with Consolidators." For sales of
air travel offered by consolidators, all commissions and other amounts owed to
the Company are generally paid directly by check or wire transfer directory
from the relevant consolidator to the Company.
As an ARC-affiliated travel agency, the Company is subject to all
rules and procedures imposed by ARC. ARC screens applications of new travel
agencies, initiates collection procedures against travel agencies in default of
payment, provides ticket stock to the travel agencies and facilitates payment
between travel agencies and airlines. Tickets purchased from the Company are
reported through ARC in accordance with the Company's Standard Ticket and Area
Settlement Plan ("ASP"). The ASP encompasses distribution and control of ARC
air travel tickets and other ARC traffic documents and processing and
settlement services in connection with the sale or issuance of such documents
by the Company. ARC administers the Company's ASP on behalf of ARC carriers.
Settlement of Accounts
Pursuant to ARC guidelines, the Company is required to submit weekly
sales reports to ARC each Tuesday with supporting documents for the week ended
on the prior Sunday. On the eighth day after the Company has submitted its
sales report to ARC (the second Wednesday thereafter), the Company's accounts
are drafted by ARC via its settlement bank (the "designated area bank") for
amounts owed to carrier airlines for tickets purchased, and the Company's
accounts are credited by ARC, via the designated area bank, for commissions
owed to the Company. On the same day, the designated area bank submits a draft
to the Company's own bank account for any remaining amount due and provides the
collected funds and related documents to the appropriate carrier. The
designated area bank provides each carrier with a record of its own sales
activity and sends all credit card charges to the appropriate credit card
issuer or a merchant processor with an accompanying computer generated invoice.
The credit card issuer or a merchant processor then pays each carrier directly
for such billings minus the applicable commission of the credit card issuer.
In connection with the settlement of the Company's accounts through
ARC, if there are insufficient funds in the Company's account to make the
necessary payments when due, the Company has 24 hours to make funds available.
If such funds are not made available within such 24-hour period, the Company
becomes a "defaulted agent." Pursuant to the terms of the Company's agreement
with ARC, ARC may terminate the Company immediately. The Company then has ten
days to appeal such termination to a special arbitration panel. If the agent is
terminated, ARC repossesses all ticket stock and plates from the Company, and
takes steps necessary to liquidate the surety bond in the amount of $20,000
that the Company was required to post in order to become an ARC affiliate. Any
proceeds from liquidation of the surety bond are divided on a pro rata basis
among all ARC member airlines with which the Company had debts outstanding.
Toll-Free Telephone Numbers
The Company has contractual rights customary to the industry to use
each of the three toll-free numbers through which customers call its
reservation centers. In addition, if the Company for any reason fails to pay
its monthly fee for such number, the Company believes that it will have a cure
period to pay all amounts outstanding. Should the Company not make such
payments and consequently lose the right to use such number, the Company
expects that a "cooling-off" period of up to between 4 to 8 months will be
imposed, during which no other party may use such number.
31
<PAGE> 32
MARKETING
The Company markets its services primarily to individual customers who
pay for their own tickets. The Company focuses its marketing efforts on placing
advertisements listing its three easy-to-remember names and toll-free telephone
numbers in Yellow Pages directories in those SMA's with populations whose
general travel profiles are attractive to the Company.
In order to evaluate the Company's media alternatives, the Company
reviewed several marketing tests conducted during 1994 and the first quarter of
1995 in the New York market (cable TV, radio, newspaper, billboard and Yellow
Pages advertising). Based on that review, the Company concluded that Yellow
Pages directories generated the most calls and are the most cost-effective
advertising medium. There are over 7,000 Yellow Pages directories published by
the Baby Bell companies and approximately 5,000 directories published
independently. The Company believes that consumers use the Yellow Pages when
they are ready to purchase a good or service and that a high percentage respond
by calling the businesses listed in the directory they consult.
Given the broad distribution of Yellow Pages directories in
metropolitan areas and other large markets, the Company's strategy is to place
advertisements in directories of the largest SMA's, thereby reaching the
greatest number of consumers with each advertisement. The Company currently has
advertisements of its "1-800-LOW-AIR-FARE" name and "1-800-569-2473" toll-free
number listed in over 236 directories reaching a population of over 88 million
people and has entered into agreements for advertisement in 73 additional
directories reaching a population of over 31 million people in the next three
months. The Company has advertisements of its "1-800-FLY-4-LESS" name and
"1-800-359-4537" toll-free number listed in over 115 directories reaching a
population of over 102 million people. The Company also has advertisements of
its "1-888-999-VUELA" name and "1-888-999-8835" toll-free number listed in over
21 directories reaching a population of over 13 million people. The monthly
cost incurred by the Company as of December 1996 to advertise in Yellow Pages
directories was approximately $14,000.
The Company's "1-800-FLY-4-LESS" name and number also appear (free of
charge to the Company) in approximately 150 newspapers nationwide reaching a
population of over 100 million people as part of a promotion campaign in which
the Company provides such newspapers with the lowest-priced fares for selected
routes. In addition, the Company advertises its "1-888-999-VUELA" name and
number in the Spanish language radio and television markets of south Florida.
SABRE TECHNOLOGY
Global distribution systems are the principal means of air travel
distribution in the United States and a growing means of air travel
distribution internationally. The Company has chosen the SABRE system, which it
believes is the best such system available. A typical SABRE transaction -
consisting of an information request by a subscriber, a search in SABRE and a
response to the subscriber - averages less than two seconds in elapsed time.
SABRE's "one-stop shopping" capabilities permit the Company to locate, price,
compare and purchase the travel and travel-related products and services that
best satisfy the traveler's requirements. SABRE was named the "World's Leading
Computer Reservations System" for the third year in a row at the 1996 World
Travel Awards.
General
SABRE is the largest global distribution system for electronic travel
in the United States. SABRE was first developed in the 1960's and was one of
the world's first electronic airline reservation systems. SABRE evolved from
American Airlines' internal reservation system into a global distribution
system when SABRE's content was expanded to include additional airlines and
other travel providers. Computer reservation terminals were placed in travel
agencies beginning in 1976, and consumer direct access to SABRE became
available through computer on-line services in 1985 and on the Internet in
1996. Other global distribution systems include Amadeus/System One, Covia and
Worldspan. Amadeus/System One is owned by Air France, Continental Airlines,
Iberia and Lufthansa. Covia, formerly known as Galileo/Apollo, is owned by
United Airlines, British Airways, Swissair, KLM Royal Dutch and USAir, among
others, and the Canadian affiliate of Galileo/Apollo is owned by Air Canada.
Worldspan is owned by Delta, Northwest and TWA and is affiliated with ABACUS,
an Asian global distribution system. Each offers similar products and services.
The SABRE system is able to perform high-volume, high-reliability,
real-time transactions processing 24 hours a day, 365 days a year, thus
enabling the creation of an efficient electronic marketplace for the sale and
purchase of travel. The SABRE system maintains over 50 million airfares
(updated throughout the day), processes an average of 93 million requests for
information per day. Such frequent updates of airfares are essential for the
Company to be able to strive to provide its customers with the lowest-priced
airfares. Through SABRE, reservations may be booked on all major U.S. and
international airlines, but generally not on charter companies or certain small
airlines or on air travel offered for resale by consolidators. Consolidators
purchase large numbers of tickets directly from air carriers for resale to the
public. In certain cases, however, the tickets they sell may be booked through
SABRE. See "Operations--Agreements with Consolidators." In addition to
providing information to subscribers about airlines and other travel providers
and their products and services, SABRE also allows travel agency subscribers to
print airline tickets, boarding passes and itineraries and purchase travel
32
<PAGE> 33
insurance or book theater tickets or limousines. Additionally, SABRE provides
subscribers with travel information on matters such as currency, health and
visa requirements, weather and sightseeing.
Through SABRE, subscribers - principally travel agencies but also
business travel departments and individual consumers - can access information
on, and book reservations with, airlines and other providers ("associates") of
travel and travel-related products and services. In 1995, more than 600
associates displayed information about their travel and travel-related products
and services through SABRE, and American Airlines has estimated that $40
billion in travel and travel-related products and services were reserved
through SABRE in 1995. SABRE subscribers are able to book reservations with
more than 350 airlines and to make reservations with more than 55 car rental
companies and more than 190 hotel companies covering approximately 30,000 hotel
properties worldwide. During 1995, more airline bookings in the United States
were made through SABRE than through any other global distribution system.
American Airlines has estimated that in 1995 over 40% of all airline bookings
made through travel agencies in the United States were made through SABRE.
Turbo SABRE
Because travel agencies have differing needs, based on, among other
things, volume and location, the SABRE interface has been modified to meet the
specific needs of different categories of travel agents. Travel agents can
choose SABRE interfaces that range from simple text-based systems to
feature-laden graphical interfaces. The Company has taken advantage of these
options by choosing the Turbo SABRE system, an advanced point-of-sale interface
that allows for screen customization and reservations/sales process structuring
and eliminates SABRE-specific commands, thereby reducing keystrokes and
training requirements for high-volume travel companies that need high levels of
functionality. Turbo SABRE also provides data other than SABRE, such as back
office hosts and local area network (LAN) databases.
The Company has added a number of programs written and developed
exclusively for the Company to its Turbo SABRE system. They include programs
that generate "pop-up" windows to supply frequently requested or used
information, as well as programs to alert reservation agents, supervisors and
customer service agents using the system to errors frequently made by system
operators. The Company believes that these customized features enhance the
speed and efficiency of its operations and give it a competitive advantage over
its competitors.
SABRE Agreements
In April 1996, the Company renewed the agreement pursuant to which it
subscribes to the SABRE system at its Tampa headquarters for a five-year term.
In November 1996, the Company also executed a five-year subscriber agreement
pursuant to which it subscribes to the SABRE system at its San Diego
reservation center. Under these agreements, SABRE provides the Company with
the hardware, software, technical support and other services the Company needs
to access SABRE in return for leasing fees. These fees are reduced by the
"segment incentives" that the Company is credited with for each flight segment
it books (at both its Tampa and San Diego facilities) through the SABRE system.
To the extent that the segment incentives earned by the Company exceed the fees
payable by it to American during each quarter, the Company receives such excess
in cash.
In 1997, American also provided the Company with a lump sum cash
promotional support, and has agreed to pay the Company additional productivity
cash advances during each year of the agreement, subject to the Company booking
a minimum number of flight segments and the exact amount of which will depend
upon the number of such flight segments. American also extended to the Company
lines of credit toward the payment of charges incurred in connection with the
lease of the Turbo SABRE system.
INTELLECTUAL PROPERTY
The Company markets its services in the United States under the names,
"1-800-LOW-AIR-FARE,"1-800-FLY-4-LESS" and "1-888-999-VUELA."
"1-800-FLY-4-LESS," together with its logo, is a federally registered service
mark in the name of the Company. The Company has filed an application to
register the "1-800-LOW-AIR-FARE" name and logo as a federal service mark with
the U.S. Patent and Trademark Office. It has also filed an application to
register the Spanish language name, "1-888-999-VUELA," and related logo as a
federal service mark with the U.S. Department of Commerce.
COMPETITION
The travel agency industry is highly fragmented and characterized by
intense competition. The Company competes with a variety of other providers of
travel and travel-related products and services. Its principal competitors are
(i) other telemarketing travel companies, (ii) traditional travel agencies,
(iii) air carrier vendors, and (iv) various on-line services available on the
Internet. The Company's competitors who are telemarketing travel companies and
traditional travel agencies have access to the same technology that the Company
uses and also to other global distribution systems of electronic travel. See
"--SABRE Technology." Although distribution through travel agents continues to
be the primary method of travel distribution, new channels of distribution are
developing directly to businesses and consumers through computer on-line
services, the Internet and private networks. In addition, individual consumers
have access to other versions of SABRE
33
<PAGE> 34
technology and also to other global distribution systems of electronic travel
permitting consumer-direct travel distribution via personal computer, cable
television and other media. The Company faces competition in these channels not
only from its principal competitors but also from possible new entrants in the
sale of travel products and services and from travel providers that distribute
their products and services directly. For example, in July 1996, American
Express Co. and Microsoft Corp. announced an on-line travel booking service for
corporations, which they have scheduled for release in the first half of 1997.
The Company expects that this on-line travel booking service, while only in the
developmental stage, will eventually directly compete with the Company. In
addition, the Internet permits consumers to have direct access to travel
providers, thereby by-passing both travel agents and global distribution
systems such as SABRE. Further, some of the Company's competitors have
significantly greater financial or marketing resources than the Company. As a
result, they may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than the Company.
During periods of recession in the travel industry, the Company's
competitive advantages with respect to quick, convenient processing of
reservations and purchases of lowest-priced airfare may be of reduced
importance. The Company's position in a recession may be more difficult than
some of its competitors, since the Company targets the consumer market which
may be the most adversely affected. See "Risk Factors--Risks Relating to the
Airline Industry."
The Company believes that its ability to compete depends upon a number
of factors, including price, reliability, name and toll-free number recognition
and speed of price quotations and reservations. There can be no assurance that
the Company will be able to continue to compete successfully with respect to
these or other factors.
EMPLOYEES
At July 15, 1997, the Company had approximately 147 full-time
worksite employees at its Tampa headquarters and 75 full-time worksite
employees at its San Diego reservation center. Of such employees, 3 served
in management, 172 were reservation agents or supervisors, 6 were involved in
sales and marketing and 41 served in various clerical and other administrative
capacities. All of the Company's reservation agents, supervisors and other
worksite employees at the Tampa reservation center are provided through a
professional employee leasing organization (the "Employee Provider").
In November 1995, the Company entered into an agreement with a Payroll
Transfers Interstate, Inc (the "Employee Provider"), pursuant to which the
Employee Provider leases all of the Company's workers at the Tampa facility to
the Company. The Employee Provider is responsible for its employees' benefits.
The Company provides all necessary training and pays the Employee Provider an
amount equal to 11.71% of the gross payroll of the employees provided by the
Employee Provider. The services agreement between the Company and the Employee
Provider may be terminated on 30 days' prior written notice.
PROPERTIES
The Company's corporate headquarters are located at its 33,000 square
foot reservation center in Tampa, Florida. The Company also operates Stevens'
10,000 square foot reservation center in San Diego California. See "The Stevens
Merger." The Company leases these properties from unaffiliated third parties
and believes that its existing facilities are adequate for its current needs.
The Company currently pays approximately $14,300 per month for its Tampa
headquarters and approximately $7,000 per month for its San Diego reservation
center.
LITIGATION
The Company may be involved from time to time in routine litigation
incidental to its business. However, the Company believes that it is not a
party to any material pending litigation which is likely to have a significant
negative impact on the business, income, assets or operation of the Company.
34
<PAGE> 35
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and certain
information concerning them, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Mark D. Mastrini 33 President, Chief Operating Officer and Director
Jerrold B. Sendrow 52 Chief Financial Officer, Vice President-Finance,
Treasurer and Secretary
Biagio Bellizzi 57 Vice President-Marketing
Pasquale Guadagno 39 Director
Michael Gaggi 35 Chairman of the Board
</TABLE>
Mr. Mastrini has served as the Company's Chief Operating Officer since
January 1996, and as the Company's President since January 1997. Prior to
joining the Company, from October 1992 until October 1996, Mr. Mastrini was the
founder and owner of One on One Consulting, a consulting firm in Pueblo,
Colorado. From September 1992 until October 1994, Mr. Mastrini was owner of
X-Press Printing, a printing business in Pueblo, Colorado. From October 1993
until December 1996, he was the owner and editor of Pueblo West Eagle Monthly
Magazine. From May 1991 until June 1992, Mr. Mastrini was Vice President of
Sales and Marketing at the Braniff Airlines in Dallas, Texas, an airline which
subsequently filed for protection under Chapter 11 of the Bankruptcy Code in
the Bankruptcy Court in the Eastern District of New York in July 1992.
Mr. Sendrow has served as the Company's Chief Financial Officer, Vice
President-Finance, Treasurer and Secretary since the incorporation of the
Company in November 1995. From June 1994 through November 1995, Mr. Sendrow
was employed by 1-800 Low-Air Fare, Inc., the Company's predecessor, in the
same capacities. From March 1993 through June 1994, Mr. Sendrow was employed
by MSW Columbia Travel Group, Inc. as vice president-finance. From December
1984 through March 1993, Mr. Sendrow was employed by Pisa Brothers, Inc. as
controller. Mr. Sendrow has over 22 years experience in the travel industry.
Mr. Bellizzi has served as the Company's Vice President-Operations
since its incorporation as 800 Travel Systems, Inc. in November 1995. From June
1995 through November 1995, Mr. Bellizzi was employed by 1-800 Low-Air Fare,
Inc., the Company's predecessor, as vice president-operations. From 1991
through June 1995, Mr. Bellizzi was employed by Thomas Cook Travel, Inc. as
Director-Leisure Marketing from 1993 until 1995 and as Director - Retail
Offices from 1991 to 1993. Mr. Bellizzi has over 30 years experience in the
travel industry.
Mr. Guadagno has served as a director of the Company since its
incorporation as 800 Travel Systems, Inc. in November 1995. Mr. Guadagno has
been a Senior Vice-President at M.S. Farrell, Inc., an investment banking firm,
since December 1996. From 1993 until November 1996, Mr. Guadagno was Senior
Vice President of Euro-Atlantic Securities, Inc., an investment banking firm in
Boca Raton, Florida. From 1990 through 1993, Mr. Guadagno was employed as a
Senior Vice President by Smith-Barney in New York City.
Mr. Gaggi has served as a director of the Company since its
incorporation as 800 Travel Systems, Inc. in November 1995. Mr. Gaggi is a
senior vice president at Joseph Stevens & Company, L.P., an investment banking
firm in New York City, and has held that position since 1994. From 1993 until
1994, Mr. Gaggi was employed as a vice president by Barington Capital. Mr.
Gaggi has been a principal director of Upscale Eyeglass Boutiques Myoptics
since 1990. Joseph Stevens & Company, L.P. is not affiliated with or related to
The Joseph Stevens Group, Inc., the travel agency acquired by the Company in
the Steven Merger, or its sole stockholder, The Joseph Stevens Group, LLC or
any of its equity members.
DIRECTOR COMPENSATION
As compensation for services, non-employee directors are paid $2,500
per month. In addition, during 1996 the Company paid personal expenses of
certain directors aggregating approximately $100,000. Of such amount $65,750
was paid on behalf of Michael Gaggi for transportation, lodging, entertainment
and long-distance telephone expenses and $34,250 was paid on behalf of a former
director of the Company. For services rendered, the Company issued options to
purchase 100,000 shares of Common Stock, exercisable at $1.00 per share, to
each of Messrs. Gaggi and Guadagno. In addition, certain directors have received
commissions in connection with private placement of the Company's securities.
See "Certain Transactions."
35
<PAGE> 36
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or payable in
respect of the year ended December 31, 1996 to the Company's executive officers
who earned over $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------- ----------------------------------------------------
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARDS($)(1) OPTIONS/SARS COMPENSATION
- ------------------ -------- ----- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mark Mastrini $70,200 $120,000(1)
President and
Chief Operating
Officer
</TABLE>
(1) Represents 100,000 shares of Common Stock, valued at $1.20 per share.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of
Messrs. Mastrini, Sendrow and Bellizzi. Each of the employment agreements
commenced on June 1, 1997, and terminates June 30, 2000. Pursuant to their
respective agreements each of Messrs. Mastrini, Sendrow and Bellizzi has agreed
to donate his entire working time and attention to the business of the Company.
In addition, each of these individuals has agreed not to compete with the
business of the Company for a period of ninety days following the termination
of his employment with the Company.
Pursuant to his agreement, Mr. Mastrini is entitled to receive a base
salary initially at the rate of $89,000 per year. The base salary is to
increase by 5% plus the annual increase in the consumer price index on each of
July 1, 1998 and 1999. In addition to his base salary, Mr. Mastrini is to
receive medical and disability insurance comparable to that provided to the
Company's employees generally and a car allowance of $500 per month. As
additional compensation for his services, the Company issued 100,000 shares of
its Common Stock to Mr. Mastrini and options, exercisable at $5.00 per share,
to purchase 25,000 shares of the Company's Common Stock.
Pursuant to his agreement Mr. Sendrow is entitled to receive a base
salary initially at the rate of $70,200 per year. Mr. Sendrow's base salary
increases by 5% plus the annual increase in the consumer price index on each of
July 1, 1998 and 1999. In addition to his base salary Mr. Sendrow is to receive
medical and disability insurance comparable to that provided to the Company's
employees generally and a car allowance of $350 per month. As additional
consideration for his services, the Company issued 100,000 shares of its Common
Stock to Mr. Sendrow and options, exercisable at $5.00 per share, to purchase
12,500 shares of the Company's Common Stock.
Pursuant to his agreement, Mr. Bellizzi is entitled to receive a base
salary initially at the rate of $45,000 per year. Mr. Bellizzi's base salary
increases by 5% plus the annual increase in the consumer price index on each of
July 1, 1998 and 1999. In addition to his base salary, Mr. Bellizzi is to
receive medical and disability insurance comparable to that provided to the
Company's employees generally. As additional for his services, the Company
issued 50,000 shares of its Common Stock to Mr. Bellizzi and options,
exercisable at $5.00 per share, to purchase 12,500 shares of the Company's
Common Stock.
CONSULTANT
Lucien Bittar has been a consultant to the Company since January 1996,
and receives a consulting fee at the rate of $6,000 per month. Mr. Bittar
served as the Company's President and a director from its incorporation as 800
Travel Systems, Inc. in November 1995 until January 1996. Mr. Bittar served as
the Vice-Chairman of the Board from April 1996 until February 1997. From August
1994 through November 1995, Mr. Bittar was president and a director of 1-800
Low-Air Fare, Inc., the Company's predecessor. Mr. Bittar founded Filigree,
Inc., a travel consulting company, in May 1989 and served as its president and
chief executive officer from that time until he joined 1-800 Low-Air Fare, Inc.
in August 1994. Prior to 1989, Mr. Bittar was employed by Thomas Cook Travel,
36
<PAGE> 37
Inc. During that time he served as executive vice president responsible for all
United States operations and a member of the Board of Directors.
ADDITIONAL SERVICE PROVIDER
Scot Spencer was engaged by the Company pursuant to a Services
Agreement in November 1995 to assist the Company in locating sources of
financing. Mr. Spencer's agreement, which by its terms expired on December 31,
1996, provided for a weekly fee of $2,500. Since the expiration of the
agreement, the Company has paid Mr. Spencer a fee of $3,000 per week for
services rendered with respect to the Company's financing arrangements,
including services rendered with respect to this Offering. In June 1997, Mr.
Spencer resigned from this position, effective July 31, 1997, subject to
extension to August 31, 1997. The Company does not intend to renew Mr.
Spencer's engagement thereafter. In May 1996, in a proceeding captioned United
States of America v. Scot Spencer, U.S. District Court, E.D.N.Y., Mr. Spencer
was convicted of one count of bankruptcy fraud and one count of conspiracy to
commit bankruptcy fraud as a result of his activities in connection with Braniff
Airlines and sentenced to 51 months in jail. Mr. Spencer has appealed his
conviction and his sentence has been suspended pending the outcome of his
appeal. From 1988 through 1989 Mr. Spencer served as a consultant to the
corporate parent of Braniff Airlines, which filed for bankruptcy protection
under Chapter 11 of the Bankruptcy Code in 1989 in the U.S. Bankruptcy Court,
Central District of Florida. From 1990 to June 30, 1991 Mr. Spencer served as
president of Braniff Airlines which subsequently filed for bankruptcy in the
Bankruptcy Court, Eastern District of New York, in July 1992 at which time it
permanently ceased operations.
STOCK OPTION PLAN
Under the Company's 1997 Stock Option Plan (the "Stock Option Plan"),
250,000 shares of Common Stock have been reserved for issuance upon exercise of
stock options. The Stock Option Plan is designed as a means to attract, retain
and motivate qualified and competent persons who are key to the Company and its
subsidiaries, including employees, officers and directors, and upon whose
efforts and judgment the success of the Company is largely dependent, through
the encouragement of stock ownership in the Company by such persons. For
purposes of this discussion, the term director includes directors of the
Company and directors of any of its subsidiaries.
The Compensation Committee of the Board of Directors or, in the
absence of the appointment of a Committee, the Board of Directors (collectively
referred to herein as the "Compensation Committee") administers and interprets
the Stock Option Plan and is authorized to grant options thereunder to all
eligible employees, officers and directors of the Company. The Stock Option
Plan provides for the granting of both incentive stock options and nonqualified
stock options. Options are granted under the Stock Option Plan on such terms
and at such prices as determined by the Compensation Committee, except that the
per share exercise price of incentive stock options cannot be less than the par
value per share or the fair market value of the Common Stock on the date of
grant. Each option is exercisable after the period or periods specified in the
option agreement, but no option may be exercisable after the expiration of ten
years from the date of grant. Incentive stock options granted to an individual
who owns (or is deemed to own) at least 10% of the total combined voting power
of all classes of stock of the Company must have an exercise price of at least
110% of the fair market value of the Common Stock on the date of grant and a
term of no more than five years.
No incentive stock option, and unless the Compensation Committee's
prior written consent is obtained (which consent may be obtained at the time an
Option is granted) and the transaction does not violate the requirements of
Rule 16b-3 promulgated under the Exchange Act no nonqualified stock option, may
be transferred other than by will or the laws of descent and distribution. Each
option may be exercisable during the optionee's lifetime only by the optionee,
or in the case of a nonqualified stock option that has been transferred with
the Compensation Committee's prior written consent, only by the transferee
consented to by the Compensation Committee. Unless the Compensation Committee's
prior written consent is obtained (which consent may be obtained at the time an
Option is granted) and the transaction does not violate the requirements of
Rule 16b-3 promulgated under the Exchange Act, no shares of Common Stock
acquired by an officer, as that term is defined under Rule 16b-3, of the
Company or director pursuant to the exercise of an option may be transferred
prior to the expiration of the six-month period following the date on which the
option was granted.
The Stock Option Plan also authorizes the Company to make or guarantee
loans to optionees to enable them to exercise their options. Such loans must
(i) provide for recourse to the optionee, (ii) bear interest at a rate no less
than the prime rate of interest, and (iii) be secured by the shares of Common
Stock purchased. The Board of Directors has the authority to amend or terminate
the Stock Option Plan, provided that no such action may substantially impair
any outstanding option without the written consent of the holder, and provided
further that certain amendments of the Stock Option Plan are subject to
shareholder approval. Unless terminated sooner, the Stock Option Plan will
continue in effect until all options granted thereunder have expired or been
exercised, provided that no options may be granted after 10 years from the date
the Board of Directors adopted the Stock Option Plan.
37
<PAGE> 38
As of July 15, 1997, the Company had outstanding options to purchase
an aggregate of 50,000 shares of Common Stock under the Plan at a weighted
average exercise price of $5.00 per share.
38
<PAGE> 39
CERTAIN TRANSACTIONS
The Company commenced operations in November 1995, upon the Company's
purchase of certain assets and assumption of certain liabilities of 1-800
Low-Air Fare, Inc., a Delaware corporation, and its wholly-owned subsidiary S.
Travel, Inc., a Delaware corporation (collectively, the "Predecessor
Business"), pursuant to an Asset Purchase Agreement dated November 13, 1995
(the "Asset Purchase Agreement"). Under the Asset Purchase Agreement, the
Company acquired all rights to the tradename "1-800 Low Air Fare" and the
telephone number corresponding thereto, together with certain furniture,
fixtures, equipment and other assets including the Predecessor Business' SABRE
Subscription Agreement. In exchange, the Company paid the Predecessor Business
$100,000, and assumed certain of its liabilities. Additionally, the Company
issued 600,400 shares of its Common Stock and agreed to issue up to 300,000
shares of its Common Stock to the creditors of the Predecessor Business in
exchange for forgiveness of the debt of the Predecessor Business, at the
exchange rate of $10 of debt for each share of Common Stock. The creditors of
the Predecessor Business elected to convert $1,664,340 of such indebtedness for
166,434 shares of Common Stock. The remaining 133,566 shares were issued to S.
Travel, Inc.
In 1996, the Company issued 100,000 shares of Common Stock to Mark D.
Mastrini, the Company's Chief Operating Officer, as part of his compensation.
In connection with this issuance the Company accrued compensation expense of
$120,000. In addition, in 1997 the Company granted to Mr. Mastrini options to
purchase 25,000 shares of Common Stock, exercisable at $5.00 per share.
In 1995, the Company issued 100,000 shares of Common Stock to Jerrold
B. Sendrow, the Company's Chief Financial Officer, for which he agreed to pay
$1,000. The Company did not accrue any compensation expense in connection with
this transaction. In addition, in 1997 the Company granted to Mr. Sendrow
options to purchase 25,000 shares of Common Stock, exercisable at $5.00 per
share.
In 1995, the Company agreed to issue 50,000 shares of Common Stock to
Biagio Bellizzi, the Company's Vice-President, Marketing for which he agreed
to pay $500.00 The Company did not accrue any compensation expense in
connection with this transaction. In addition, in 1997 the Company granted to
Mr. Bellizzi options to purchase 12,500 shares of Common Stock, exercisable at
$5.00 per share. The Company did not accrue any compensation expense in
connection with the grant of such options to Mr. Bellizzi or in connection with
the options granted to Messrs. Mastrini and Sendrow set forth in the two
preceding paragraphs.
During 1996, the Company completed a private placement of shares of
common stock from which it derived gross proceeds of $2,845,000. In connection
therewith the Company paid total sales commissions of $591,250 of which Messrs.
Gaggi, Guadagno and a former director received $10,000, $55,000 and $10,000
respectively. In addition, in connection with such private placement the
Company paid commissions to Mark Mastrini and Jerrold Sendrow of $2,000 each.
Perry Trebatch, who beneficially owns more than 5% of the Company's
outstanding capital stock, has purchased shares of the Company's Common Stock
and loaned money to the Company on various occasions.
In August 1995, Mr. Trebatch loaned $200,000 to the Predecessor
Business for which he received notes bearing interest at the rate of 10% per
annum. The obligation under these notes was assumed by the Company in
connection with the acquisition of the assets of the Predecessor Business. In
addition to its agreement to pay the principal and interest accrued, the
Company issued 200,000 shares of its Common Stock to Mr. Trebatch in
consideration for his agreement to allow the Company to assume this loan.
Such shares were valued at $2.20 per share for purposes of determining the
purchase price of the Predecessor Business. As a result of the Company's
failure to timely repay these notes, in 1996, the principal amount thereof was
increased to $300,000 and the Company accrued interest expense of $100,000. As
a result of the Company's failure to timely repay a portion of the principal
amount of these notes, at the time a partial principal payment was made, the
remaining principal balance of $200,000 was increased to $250,000 and the
Company accrued interest expense of $50,000.
In April 1996, Mr. Trebatch purchased 100,000 shares of Common Stock
at a price of $2.00 per share. In January 1997, Mr. Trebatch was issued 60,000
shares in consideration of his agreement to extend the due date of the
Company's notes in respect of which the Company accrued interest expense of
$120,000. Immediately prior to the filing of the Registration Statement of
which this Prospectus is a part, the Company agreed to redeem 250,000 shares of
Common Stock held by Mr. Trebatch for a promissory note in the amount of
$1,000,000 payable within five (5) days of the closing of this Offering. In
the redemption agreement the Company also agreed to register for sale in this
Registration Statement 210,000 of the remaining shares of Common Stock held by
Mr. Trebatch and granted to him options to purchase 300,000 shares of Common
Stock at an exercise price of equal to 110% of the initial public offering
price of the shares in respect of which the Company accrued an interest expense
of $37,500. At the election of Mr. Trebatch any time prior to the first
anniversary of the date of this Prospectus, such options may be exchanged for
300,000 Warrants. In addition, notwithstanding the registration of the 210,000
shares of Common Stock, Mr. Trebatch agreed that 100,000 of such shares would
remain subject to the lock-up provisions
39
<PAGE> 40
provided for in the Subscription Agreement pursuant to which such shares were
acquired and, with respect to the remaining 110,000 shares, that he would sell
no shares in the first month after the Effective Date, no more than 30,000
shares in the second month after the Effective Date without the
Representative's consent, and no more than 20,000 shares during each
consecutive 30-day period thereafter.
Michael Cantor, who beneficially owns more than 5% of the Company's
outstanding capital stock, has purchased shares of the Company's Common Stock
and loaned money to the Company on various occasions.
In October 1995, Mr. Cantor loaned the Predecessor Business $100,000.
This obligation was assumed by the Company in connection with the acquisition
of the assets of the Predecessor Business. As a result of the Company's failure
to timely repay this amount, in June 1996 Mr. Cantor was issued 220,600 shares
of Common Stock in respect of which the Company accrued interest expense of
$551,500. In January 1996, Mr. Cantor loaned the Company $100,000. In addition
to interest at the rate of 10% per annum, the Company issued Mr. Cantor 10,000
shares of Common Stock in consideration of this loan in respect of which the
Company accrued interest expense of $12,000.
The terms of Mr. Cantor's agreements with the Company contain certain
anti-dilution provisions which require that the Company issue to him additional
shares upon completion of this Offering and in the event that the Company
issues any additional shares during the 90-day period commencing upon
completion of this Offering. In satisfaction of its obligations under these
provisions the Company has agreed to issue, and Mr. Cantor has agreed to
accept, 138,000 shares of Common Stock, except that the Company shall issue
additional shares to Mr. Cantor if the Warrants offered hereby are exercised or
the Company issues additional shares not contemplated hereby within 90 days of
the completion of this Offering. In addition, the Company agreed to redeem
upon completion of this Offering an aggregate of 569,000 shares of Common Stock
held by Mr. Cantor at a redemption price of $3.75 per share.
In December 1995, Dr. Jose Colon (a shareholder who is not an officer,
director, promoter, or affiliate of the Company), bought 40,000 shares of
Common Stock from the Company at $1.25 per share. In January 1996, in
connection with a loan made by Dr. Colon, the Company issued 2,500 shares of
Common Stock to Dr. Colon, valued at $1.20 per share in connection with which
it accrued interest expense of $3,000. In July 1996, as a result of its
failure to timely repay this loan the Company issued 30,000 shares of Common
Stock to Dr. Colon, in respect of which the Company accrued interest expense of
$75,000. The terms of Mr. Colon's agreements with the Company contain certain
anti-dilution provisions which require that the Company issue to him additional
shares upon completion of this offering and if the Company should issue any
additional shares during the 90-day period commencing upon completion of this
offering. In satisfaction of its obligations under these provisions the
Company has agreed to issue and Mr. Colon has agreed to accept 12,500 shares of
Common Stock, except that the Company shall issue additional shares to Mr.
Colon if the Warrants offered hereby are exercised or the Company issues
additional shares not contemplated hereby within 90 days of the completion of
this Offering. In addition, the Company agreed to redeem upon completion of
this offering an aggregate of 85,000 shares of Common Stock held by Mr. Colon
at a redemption price of $3.75 per share.
In 1996 the Company sold and issued 1,387,500 shares of Common Stock
to investors in a private placement conducted through various broker-dealers
retained by the Company. The Common Stock was sold at an average price per
share of $2.22. The offering was made in reliance on Section 4(2) of the
Securities Act and Regulation D promulgated thereunder, as an offering only to
"accredited investors" (as such term is defined in Rule 501 of the Securities
Act) without general solicitation or advertisements.
In 1996, the Company issued options to purchase 100,000 shares of
Common Stock at $1.00 per share to each of Messrs. Gaggi and Guadagno (each a
director of the Company) and to Mr. Vito Balsamo, a principal shareholder of
the Company.
The Company believes that each of the foregoing transactions was
completed on terms at least as favorable to the Company as those which would
have been obtained from an unaffiliated party.
40
<PAGE> 41
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock by (a) each person who beneficially
owns more than five percent of the Company's outstanding Common Stock, (b) each
executive officer who owns beneficially any shares, and (c) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SHARES BENEFICIAL OWNERSHIP(2)
BENEFICIALLY ---------------------------------------
NAME AND ADDRESS(1) OWNED(1) BEFORE OFFERING AFTER OFFERING
---------------- ----------------------- --------------- --------------
<S> <C> <C> <C>
o Michael Gaggi (3)(4) 670,000 11.7% 9.1%
o Pasquale Guadagno (4) 829,900 14.4% 11.3%
o Vito Balsamo (4) 809,566 14.1% 11.0%
o Mark D. Mastrini (5) 125,000 2.2% 1.7%
o Jerrold B. Sendrow (6) 112,500 2.2% 1.7%
o Biagio Bellizzi (6) 62,500 1.1% .8%
o Michael Cantor (7) 569,000 7.6% 5.9%
o Perry Trebatch (8) 480,000 8.5% 6.6%
o Mees Pierson (Bahamas) Ltd. 425,000 7.5% 5.8%
o Officers and Directors as a Group (9) 1,799,900 31.8% 24.8%
(5 persons)
</TABLE>
- ----------------------
*Less than 1%
(1) Unless otherwise indicated, the address of each of the beneficial
owners identified is c/o the Company at 4802 Gunn Highway, Suite 140,
Tampa, Florida 33624.
(2) Unless otherwise indicated, each person has sole voting and investment
power with respect to all such shares.
(3) Does not include 2,500 shares owned beneficially by Rose Gaggi,
Mr. Gaggi's mother, as to which shares Mr. Gaggi disclaims beneficial
ownership.
(4) Includes 100,000 shares purchasable pursuant to options immediately
exercisable at a price of $1.00 per share.
(5) Includes 25,000 shares purchasable pursuant to options immediately
exercisable at a price of $5.00 per share.
(6) Includes 12,500 shares purchasable pursuant to options
immediately exercisable at a price of $5.00 per share.
(7) Includes 138,000 shares issuable upon completion of this Offering.
The percentage indicated in the "After Offering" column does not give
effect to the redemption of all 569,000 shares held by Mr. Cantor.
See "Risk Factors - Benefits to Existing Shareholders and
Affiliates," "Use of Proceeds" and "Certain Transactions."
(8) The percentage indicated in the "After Offering" column assumes no
sale of (i) the 210,000 shares being registered in the offering by the
Selling Stockholders covered by the Prospectus Supplement which is
part of the Registration Statement of which this Prospectus is a part
or (ii) the 250,000 shares being redeemed at the closing of this
Offering. See "Risk Factors - Benefits to Existing Shareholders and
Affiliates," "Use of Proceeds" and "Certain Transactions." Of the
remaining 230,000 shares, 210,000 shares are being registered hereby.
(9) Includes 350,000 shares purchasable pursuant to the options referred
to in footnotes 4, 5 and 6.
41
<PAGE> 42
CONCURRENT OFFERING
The Registration Statement of which this Prospectus forms a part also
includes the Prospectus Supplement with respect to an offering by the Selling
Stockholders. The 984,134 Registered Shares are being registered, at the
Company's expense (except for legal fees and expenses for counsels to the
Selling Stockholders), under the Securities Act and are expected to become
tradeable on or about the date of this Prospectus, subject to lock-up
agreements pursuant to which certain of the Registered Shares may not be sold
for varying periods after the date of this Prospectus without the
Representative's prior consent. See "Shares Eligible for Future Sale." The
Company will not receive any proceeds from the sale of the Registered Shares.
Sales of Registered Shares or even the potential of such sales could have an
adverse effect on the market prices of the Shares and the Warrants.
Except with respect to Perry Trebatch, a stockholder of the Company,
there are no material relationships between any holders of the Registered
Shares and the Company, nor have any such material relationships existed within
the past three years. See "Principal Stockholders" and "Certain Transactions
and Other Matters. The Company has been informed by the Representative that
there are no agreements between the Representatives and any Selling
Stockholders. See "Shares Eligible for Future Sales."
The Selling Stockholders may from time to time sell all or a portion
of their share of Common stock in the over-the-counter market or on any
national securities exchange or automated interdealer quotation system on which
the Common Stock may hereafter be listed or traded, in negotiated transactions
or other wise, at prices then prevailing or related to the then current market
price or at negotiated prices. The shares of Common Stock may be sold directly
or through brokers or dealers or in a distribution by one or more underwriters
on a firm commitment of best efforts basis. The methods by which the shares of
Common Stock may be sold include (i) a block trade (which may involve crosses)
in which the broker or dealer engaged will attempt to sell the shares of Common
Stock as agent but may position and resell a portion of the block as principal
to facilitate the transaction, (ii) purchases by a broker or dealer as
principal and resales by such broker dealer for its account pursuant to this
Prospectus Supplement and the accompanying Prospectus, (iii) ordinary brokerage
transactions and transactions in which the broker solicits purchasers or to or
through marketmakers, (iv) transactions in put or all options or other rights
(whether exchange-listed or otherwise) established after the effectiveness of
the Registration Statement of which this Prospectus is a part and (v) privately
negotiated transactions. In addition, any of the shares of Common Stock that
qualify for sale pursuant to Rule 144 under the Securities Act may be sold in
transactions complying with such Rule, rather than pursuant to this Prospectus
Supplement and the accompanying Prospectus.
In the case of the sales of the shares of Common Stock effected to or
through broker-dealers, such broker-dealer may receive compensation in the
form of discounts, concessions or commissions from the Selling Stockholders or
the purchasers of the shares of Common Stock, sold by or through such
broker-dealers, or both. The Company has advised the Selling Stockholders that
the anti-manipulative Regulation M under the Exchange Act may apply to their
sales in the market and has informed them of the need for delivery of copies of
this Prospectus Supplement and the accompanying Prospectus. The Company is not
aware as of the date of this Prospectus Supplement of any agreements between
any of the Selling Stockholders and any broker-dealers with respect to the sale
of the shares of Common Stock. The Selling Stockholders and any broker-dealers
or agents participating in the distribution of the Securities may be deemed to
be "underwriters" within the meaning of the Securities Act and any commissions
received by any such broker-dealers or agents and profit on any resale of
shares of Common Stock may be deemed to be underwriting commissions under the
Securities Act. The commissions received by a broker-dealer or agent may be in
excess of customary compensation. The Company will receive no part of the
proceeds from the sale of any of the shares of Common Stock by the Selling
Stockholders.
The Company will pay all costs and expenses incurred in connection
with the registration under the Securities Act of the shares of Common Stock
offered by the Selling Stockholders, including without limitation all
registration and filing fees, listing fees, printing expenses, fees and
disbursements of counsel and accountants for the Company. Each Selling
Stockholder will pay all brokerage fees and commissions, if any, incurred in
connection with the sale of the shares of Common Stock owned by the Selling
Stockholder. In addition, the Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including liabilities under the
Securities Act.
There is no assurance that any of the Selling Stockholders will sell
any or all of the shares Common Stock offered by them.
DESCRIPTION OF SECURITIES
As of the date hereof, the authorized capital stock of the Company
consists of (i) 20,000,000 shares of Common Stock, par value $.01 per share,
5,650,600 shares of which are issued and outstanding, and (ii) 1,000,000
shares of Preferred Stock, of which none are outstanding. The following
summary description of the capital stock of the Company is qualified in its
entirety by reference to the Amended and Restated Certificate
42
<PAGE> 43
<PAGE> 44
of Incorporation and Amended and Restated Bylaws of the Company, copies of
which are filed as exhibits to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
COMMON STOCK
Subject to the rights of the holders of any Preferred Stock which may
be outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of liquidation, to
share pro rata in any distribution of the Company's assets after payment or
providing for the payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. Each holder of Common Stock is entitled to one
vote for each share held of record on the applicable record date on all matters
presented to a vote of stockholders, including the election of directors.
Holders of Common Stock have no cumulative voting rights or preemptive rights
to purchase or subscribe for any stock or other securities. There are no
conversion rights or redemption or sinking fund provisions with respect to the
Common Stock. All outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will be when issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without any action of the
stockholders, to provide for the issuance of one or more series of Preferred
Stock and to fix the designation, preferences, powers and relative,
participating, optional and other rights, qualifications, limitations and
restrictions thereof including, without limitation, the dividend rate, voting
rights, conversion rights, redemption price and liquidation preference per
series of Preferred Stock. Any series of Preferred Stock so issued may rank
senior to the Common Stock with respect to the payment of dividends or amounts
to be distributed upon liquidation, dissolution or winding up. There are no
agreements or understandings for the issuance of Preferred Stock, and the Board
of Directors has no present intent to issue any Preferred Stock. The existence
of authorized but unissued Preferred Stock may enable the Board of Directors to
render more difficult or to discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise. For
example, if in the due exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal is not in the Company's
best interests, the Board of Directors could cause shares of Preferred Stock to
be issued without stockholder approval in one or more private offerings or
other transactions that might dilute the voting or other rights of the proposed
acquiror or insurgent stockholder or stockholder group. The issuance of shares
of Preferred Stock pursuant to the Board of Directors' authority described
above could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and adversely affect the rights and
powers, including voting rights, of such holders and may have the effect of
delaying, deferring or preventing a change in control of the Company.
WARRANTS
The Warrants will be issued in registered form pursuant to an
agreement dated the date of this Prospectus (the "Warrant Agreement"), between
the Company and Continental Stock Transfer Corporation, as Warrant Agent (the
"Warrant Agent"). The following discussion of certain terms and provisions of
the Warrants is qualified in its entirety by reference to the Warrant
Agreement. A form of the certificate representing the Warrants which form a
part of the Warrant Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
Each of the Warrants entitles the registered holder to purchase one
share of Common Stock. The Warrants are exercisable at a price equal to 150% of
the Share Offering Price (which exercise price has been arbitrarily determined
by the Company and the Representative) subject to certain adjustments. The
Warrants are entitled to the benefit of adjustments in their exercise prices
and in the number of shares of Common Stock or other securities deliverable
upon the exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization, consolidation or merger.
The Warrants may be exercised at any time and continuing thereafter
until the close of five years from the date hereof, unless such period is
extended by the Company. After the expiration date, Warrant holders shall have
no further rights. Warrants may be exercised by surrendering the certificate
evidencing such Warrant, with the form of election to purchase on the reverse
side of such certificate properly completed and executed, together with payment
of the exercise price and any transfer tax, to the Warrant Agent. If less than
all of the Warrants evidenced by a warrant certificate are exercised, a new
certificate will be issued for the remaining number of Warrants. Payment of the
exercise price may be made by cash, bank draft or official bank or certified
check equal to the exercise price.
Warrant holders do not have any voting or any other rights as
shareholders of the Company. The Company has the right at any time beginning
six months from the date hereof to redeem the Warrants, at a price of $.05 per
Warrant, by written notice to the registered holders thereof, mailed not less
than 30 nor more than 60 days prior
43
<PAGE> 45
to the Redemption Date. The Company may exercise this right only if the closing
bid price for the Common Stock for seven trading days during a 10 consecutive
trading day period ending no more than 15 days prior to the date that the
notice of redemption is given, equals or exceeds $___ per share, subject to
adjustment. If the Company exercises its right to call Warrants for redemption,
such Warrants may still be exercised until the close of business on the day
immediately preceding the Redemption Date. If any Warrant called for redemption
is not exercised by such time, it will cease to be exercisable, and the holder
thereof will be entitled only to the repurchase price. Notice of redemption
will be mailed to all holders of Warrants of record at least 30 days, but not
more than 60 days, before the Redemption Date. The foregoing notwithstanding,
the Company may not call the Warrants at any time that a current registration
statement under the Securities Act is not then in effect. Any redemption of the
Warrants during the one-year period commencing on the date of this Prospectus
shall require the written consent of the Representative.
The Warrant Agreement permits the Company and the Warrant Agent
without the consent of Warrant holders, to supplement or amend the Warrant
Agreement in order to cure any ambiguity, manifest error or other mistake, or
to address other matters or questions arising thereafter that the Company and
the Warrant Agent deem necessary or desirable and that do not adversely affect
the interest of any Warrant holder. The Company and the Warrant Agent may also
supplement or amend the Warrant Agreement in any other respect with the written
consent of holders of not less than a majority in the number of the Warrants
then outstanding; however, no such supplement or amendment may (i) make any
modification of the terms upon which the Warrants are exercisable or may be
redeemed; or (ii) reduce the percentage interest of the holders of the Warrants
without the consent of each Warrant holder affected thereby.
In order for the holder to exercise a Warrant, there must be an
effective registration statement, with a current prospectus on file with the
Commission covering the shares of Common Stock underlying the Warrants, and the
issuance of such shares to the holder must be registered, qualified or exempt
under the laws of the state in which the holder resides. If required, the
Company will file a new registration statement with the Commission with respect
to the securities underlying the Warrants prior to the exercise of such
Warrants and will deliver a prospectus with respect to such securities to all
holders thereof as required by Section 10(a)(3) of the Securities Act. See
"Risk Factors--Necessity to Maintain Current Prospectus" and "State Blue Sky
Registration Required to Exercise Warrants."
In connection with the Stevens Merger, on the Effective Date, the
Company will issue warrants exercisable for 250,000 shares to Joseph Stevens
Group, Inc., exercisable at the same price and entitled and subject to the
same terms and conditions as the Warrants described above.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law prevents an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a publicly-held Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved either the transaction in which
the interested stockholder became an interested stockholder or the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation or by employee stock plans
that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer); or (iii) following the transaction in which such person became
an interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of the stockholders by
the affirmative vote of the holders of two-thirds of the outstanding voting
stock of the corporation not owned by the interested stockholder.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS
Certain provisions of the Certificate and Bylaws of the Company
summarized in the following paragraphs may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
stockholders.
Classified Board of Directors.
The Certificate provides for the Board of Directors to be divided into
three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year.
Moreover, under the Delaware General Corporation Law, in the case of a
corporation having a classified board, stockholders may remove a director only
for cause. This provision, when coupled with the provision of the Bylaws
authorizing only the Board of Directors to fill vacant directorships, will
preclude a stockholder from removing
44
<PAGE> 46
incumbent directors without cause and simultaneously gaining control of the
Board of Directors by filling the vacancies created by such removal with its
own nominees.
Special Meeting of Stockholders.
The Certificate provides that special meetings of stockholders of the
Company may be called only by the Board of Directors or the Company's Chief
Executive Officer. This provision will make it more difficult for stockholders
to take actions opposed by the Board of Directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations.
The Bylaws provide that stockholders seeking to bring business before
an annual meeting of stockholders, or to nominate candidates for election as
directors at an annual or special meeting of stockholders, must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder, to be timely, must be received no later than the
close of business on the day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made. The Bylaws also
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions may preclude some stockholders from bringing matters
before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS AND INDEMNIFICATION.
The Company's Certificate of Incorporation eliminates, to the fullest
extent now or hereafter permitted by Delaware law, liability of a director to
the Company or its stockholders for monetary damages for a breach of such
Director's fiduciary duty as a Director. The Delaware General Corporation Law
presently permits such limitation of a Director's liability except where a
Director (i) breaches his or her duty of loyalty to the Company or its
stockholders, (ii) fails to act in good faith or engages in intentional
misconduct or a knowing violation of law, (iii) authorizes payment of an
unlawful dividend or stock repurchase, or (iv) obtains an improper personal
benefit.
This provision is intended to afford Directors additional protection,
and limit their potential liability, from suits alleging a breach of the duty
of care by a Director. The Company believes this provision will assist it in
maintaining and securing the services of Directors who are not employees of the
company. As a result of the inclusion of such a provision, stockholders may be
unable to recover monetary damages against Directors for actions taken by them
that constitute negligence or gross negligence or that are in violation of
their fiduciary duties, although it may be possible to obtain injunctive or
other equitable relief with respect to such actions. If equitable remedies are
found not to be available to stockholders for any particular case, stockholders
may not have any effective remedy against the challenged conduct. The Company's
Bylaws also provide that Directors and officers shall be indemnified against
liabilities arising from their service as Directors or officers to the fullest
extent permitted by law, which generally requires that the individual act in
good faith and in a manner he or she reasonably believes to be in or not
opposed to the Company's best interests.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The transfer agent and registrar for the Common Stock, and the Warrant
Agent for the Warrants is Continental Stock Transfer & Trust Company.
45
<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon the closing of this Offering, the Company will have 7,901,100
shares of Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option). Of these shares, the 1,800,000 shares being offered by
the Company hereby and the 984,134 shares being offered by the selling
Stockholders pursuant to the Prospectus Supplement which is a part of the
Registration Statement of which this Prospectus is a part (the "Registered
Shares") will be freely tradeable without restriction (except as to affiliates
of the Company) or registration under the Securities Act, subject to the
restrictions on the sale of the Registered Shares described below. The
remaining outstanding shares of Common Stock will be "restricted shares" as
defined in Rule 144 under the Securities Act.
All of the shares of previously issued and outstanding Common Stock
will become available for resale 90 days after the effectiveness of this
Offering, subject in all events to the provisions of Rule 144 under the
Securities Act ("Rule 144"). The holders of 50,000 shares have agreed not to
offer, sell or otherwise dispose of ("Sell") such shares for a period of 90
days after the Effective Date; the holders of 713,750 shares have agreed not to
Sell such shares for one year after the Effective Date; the holders of 715,625
shares have agreed not to Sell such shares for 18 months after the Effective
Date; and the holders of 2,334,466 shares have agreed not to Sell such shares
for 2 years after the Effective Date.
The holders of the Registered Shares have agreed with the
Representative not to sell such Registered Shares for a period of 30 days after
the Effective Date and for an additional period of thirty (30) days thereafter
without the consent of the Representative. With respect to 110,000 of his
Registered Shares, one Selling Stockholder has agreed not to Sell more than
30,000 Registered Shares in the second month after the Effective Date without
the Representative's consent, and more than 20,000 Registered Shares during
each consecutive 30-day period thereafter. In addition, with respect to
100,000 of his Registered Shares, such Selling Stockholder has agreed not to
Sell such shares within 180 days of the Effective Date. Another Selling
Stockholder has agreed not to Sell more than 4,564 shares per month during the
11-month period after the first month following the Effective Date and not to
sell more than 20,833 shares per month during the 12-month period thereafter.
The Representative has no current plans or understandings to waive, shorten or
modify the foregoing lock-up arrangements.
The Company has also agreed that, without the prior written consent of
the Underwriters, it will not offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, for a period of 180 days after
the effective date of this Prospectus, subject to certain limited exceptions.
See "Underwriting."
In general, under Rule 144 as currently in effect, if one year has
elapsed since the later of the date of acquisition of restricted shares from
the Company or any "affiliate" of the Company, as that term is defined under
the Securities Act, the acquiror or subsequent holder is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Company's Common Stock
(approximately 78,000 shares immediately after this Offering) or the average
weekly trading volume of the Company's Common Stock on all exchanges and/or
reported through the automated quotation system of a registered securities
association during the four calendar weeks preceding the date on which notice
of the sale is filed with the Commission. Sales under Rule 144 are also subject
to certain manner of sales provisions, notice requirements and the availability
of current public information about the Company. If two years have elapsed
since the later of the date of acquisition of restricted shares from the
Company or from any affiliate of the Company, and the acquiror or subsequent
holder thereof is deemed not to have been an affiliate of the Company at any
time during the 90 days preceding a sale, such person would be entitled to sell
such shares in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements.
Since there has been no public market for shares of Common Stock of
the Company, the Company is unable to predict the effect that sales made under
Rule 144, pursuant to future registration statements, or otherwise, may have on
any then prevailing market price for shares of the Common Stock. Nevertheless,
sales of a substantial amount of the Common Stock in the public market, or the
perception that such sales could occur, could adversely affect market prices.
46
<PAGE> 48
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom First London Securities Corporation is
acting as Representative, have severally agreed to purchase from the Company
1,800,000 shares of Common Stock ("Shares") and 1,800,000 Warrants
(collectively, the "Securities"). The number of Shares and Warrants which each
Underwriter has agreed to purchase is set forth opposite its name.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME OF UNDERWRITER SHARES WARRANTS
------------------- ------ --------
<S> <C> <C>
First London Securities Corporation . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . .
============ ============
</TABLE>
The Securities are offered by the Underwriters subject to prior sale,
when, as and if delivered to and accepted by the Underwriters and subject to
approval of certain legal matters by counsel and certain other conditions. The
Underwriters are committed to purchase all Securities offered by this
Prospectus, if any are purchased.
The Company has been advised by the Representative that the
Underwriters propose initially to offer the Securities offered hereby to the
public at the offering price set forth on the cover page of this Prospectus.
The Representative has advised the Company that the Underwriters propose to
offer the Securities through members of the NASD, and may allow a concession,
in their discretion, to certain dealers who are members of the NASD and who
agree to sell the Securities in conformity with the NASD Conduct Rules. Such
concessions shall not exceed the amount of the underwriting discount that the
Underwriters are to receive.
The Company has granted to the Representative an option, exercisable
for 45 days from the date of this Prospectus, to purchase up to an additional
270,000 Shares and an additional 270,000 Warrants at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus
(the "Over-Allotment Option"). The Representative may exercise the
Over-Allotment Option solely to cover over-allotments in the sale of the
Securities being offered by this Prospectus.
Officers and directors of the Company may introduce the Representative
to persons to consider the Offering and purchase Securities either through the
Representative, other Underwriters, or through participating dealers. In this
connection, officers and directors will not receive any commissions or any
other compensation.
The Company has agreed to pay the Representative a commission of 10%
of the gross proceeds of the offering (the "Underwriting Discount"), including
the gross proceeds from the sale of the Over-Allotment Option, if exercised. In
addition, the Company has agreed to pay to the Representative a non-accountable
expense allowance of three percent (3%) of the gross proceeds of this Offering,
including proceeds from any Securities purchased pursuant to the Over-Allotment
Option. The Representative's expenses in excess of the non-accountable expense
allowance will be paid by the Representative. To the extent that the expenses
of the Representative are less than the amount of the non-accountable expense
allowance received, such excess shall be deemed to be additional compensation
to the Representative. The Company has also agreed to pay the Representative
upon the exercise or redemption of the Warrants a fee equal to 5% of the gross
proceeds received by the Company from the exercise of the Warrants and 5% of
the aggregate redemption price for the Warrants redeemed. Additionally, the
Representative will have the right to nominate a Director to the Company's
Board of Directors, subject to the Company's approval which shall not be
unreasonably withheld. The Representative has informed the Company that it
does not expect sales to discretionary accounts to exceed 5% of the total
number of Securities offered by the Company hereby.
At the closing of this Offering, the Company will issue to the
Representative or persons related to the Representative, for nominal
consideration, a Representative's Warrant to purchase up to 180,000 Shares and
180,000 Warrants ("Underlying Warrants"). The Representative's Warrant will be
exercisable for a four-year period commencing one year from the effective date
of this Offering at an exercise price of 120% of the price at which the Common
Stock and Warrants are sold to the public, subject to adjustment. Each
Underlying Warrant will be exercisable for a four-year period commencing one
year from the effective date of this Prospectus to purchase one share of Common
Stock at an exercise price of $___ per share of Common Stock. (150% of the
Offering Price of the Common Stock) The Representative's Warrant will not be
transferable for one year from the date of this Prospectus, except (i) to
officers of the Representative, other Underwriters, and officers and partners
thereof; (ii) by will; or (iii) by operation of law.
47
<PAGE> 49
The Representative's Warrant contains provisions providing for
appropriate adjustment in the event of any merger, consolidation,
recapitalization, reclassification, stock dividend, stock split or similar
transaction. The Representative's Warrant contain net issuance provisions
permitting the holders thereof to elect to exercise the Representative's
Warrant in whole or in part and instruct the Company to withhold from the
securities issuable upon exercise, a number of securities, valued at the
current fair market value on the date of exercise, to pay the exercise price.
Such net exercise provision has the effect of requiring the Company to issue
shares of Common Stock without a corresponding increase in capital. A net
exercise of the Representative's Warrant will have the same dilutive effect on
the interests of the Company's shareholders as will a cash exercise. The
Representative's Warrant does not entitle the holders thereof to any rights as
a shareholder of the Company until such Representative's Warrant is exercised
and shares of Common Stock are purchased thereunder.
The Company has also agreed that, without the prior written consent of
the Underwriters, it will not offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, for a period of 180 days after
the effective date of this Prospectus, subject to certain limited exceptions.
The Company has agreed to indemnify the Underwriters against any costs
or liabilities incurred by the Underwriters by reasons of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement and the Prospectus. The Underwriters have in turn agreed
to indemnify the Company against any liabilities by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Prospectus, based on information relating to the Underwriters and furnished in
writing by the Underwriters. To the extent that this section may purport to
provide exculpation from possible liabilities arising from the federal
securities laws, in the opinion of the Commission, such indemnification is
contrary to public policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to
copies of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."
DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common
Stock or Warrants. The public offering price of the Common Stock and the
Warrants and the exercise price of the Warrants, as well as the exercise price
of the warrants underlying the Representative's Warrant, have been determined
solely by negotiations between the Company and the Representative. Among the
factors considered in determining these prices were the Company's current
financial condition and prospects and the general condition of the securities
market. However, the public offering price of the Common Stock and the Warrants
and the exercise price of the Warrants and the warrants underlying
Representative's Warrant do not necessarily bear any relationship to the
Company's assets, book value, earnings or any other established criterion of
value. See "Risk Factors."
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for
the Company by Phillips Nizer Benjamin Krim & Ballon LLP, New York, New York.
Certain legal matters with respect to the Securities offered hereby will be
passed upon for the Underwriters by Jackson Walker, L.L.P., Dallas, Texas.
EXPERTS
The audited Financial Statements and schedules of the Company included
in this Prospectus and elsewhere in the Registration Statement have been
audited by Killman, Murrell & Company, P.C., independent certified public
accountants, except with respect to the Statement of Operations, Statement of
Stockholders' Equity (Deficit) and Statement of Cash Flows for the year ended
December 31, 1994, which have been audited by Feldman Radin & Co., P.C.,
certified public accountants ("Feldman"), as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of such
firms as experts in accounting and auditing in giving said reports. Effective
on or about August 15, 1995 the Company dismissed Feldman as the Company's
principal independent accountants. The decision to change independent
accountants was made in connection with the Company's relocation of its
headquarters from New York City to Tampa, Florida, and was recommended by the
Company's Board of Directors. In connection with audits of the financial
statements of the Company for the year ended December 31, 1994, there were no
disagreements with Feldman on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures which, if not
resolved to Feldman's satisfaction, would have caused them to make reference to
the matter in their report. The report of Feldman on the Company's financial
statements for the year ended December 31, 1994 did not contain an adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles.
48
<PAGE> 50
Further, during this period, there were no events of the type required to be
reported pursuant to Item 304(a)(1)(iv)(B) of Regulation S-B.
The audited Financial Statements and Schedules of Stevens included in
this Prospectus and elsewhere in the Registration Statement have been audited
by Accetta and Olmsted, Accountancy Corporation, certified public accountants,
as indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of such firms as experts in accounting and auditing
in giving said reports.
49
<PAGE> 51
800 TRAVEL SYSTEMS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants (800 Travel Systems, Inc.) F-2
Report of Independent Certified Public Accountants (1-800 Low Airfare, Inc.) F-3
Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (Unaudited) F-4
Statements of Operations for the Fiscal Year Ended December 31, 1994, Eleven
Months Ended November 30, 1995, One Month Ended December 31, 1995, Fiscal
Year Ended December 31, 1996, and Three Months Ended March 31, 1996
and 1997 (Unaudited) F-6
Statements of Stockholders' Equity (Deficit) for Fiscal Year Ended December 31,
1994, Eleven Months Ended November 30, 1995, One Month Ended December 31,
1995, Fiscal Year Ended December 31, 1996, and Three Months Ended March 31,
1997 (Unaudited) F-7
Statements of Cash Flows for the Fiscal Year Ended December 31, 1994, Eleven
Months Ended November 30, 1995, One Month Ended December 31, 1995, Fiscal
Year Ended December 31, 1996, and Three Months Ended March 31, 1996
and 1997 (Unaudited) F-8
Notes to Financial Statements F-10
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
800 Travel Systems, Inc.
Tampa, Florida
We have audited the accompanying balance sheets of 800 Travel Systems. Inc. as
of December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1996 and
the one month ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 800 Travel Systems, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash
flows for the year ended December 31, 1996 and the one month ended December 31,
1995, in conformity with generally accepted accounting principles.
Dallas, Texas
April 20, 1997
F-2
<PAGE> 53
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
800 Travel Systems, Inc.
Tampa, Florida
We have audited the accompanying consolidated statements of operations,
stockholders' (deficit) and cash flows of 1-800-Low Airfare, Inc. and
Subsidiary (Predecessor Business) for the elven months ended November 30, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of 1-800-Low Airfare, Inc. and Subsidiary's
operations and changes in its stockholders' (deficit) and its cash flows for
the elven months ended November 30, 1995, in conformity with generally accepted
accounting principles.
Dallas, Texas
April 20, 1997
F-3
<PAGE> 54
800 TRAVEL SYSTEMS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------- March 31,
1995 1996 1997
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 19,593 $ 588,960 $ 243,720
Commissions Receivable 19,613 118,390 322,852
Receivable from AT&T -- 213,980 --
Prepaids -- 28,804 23,542
----------- ----------- -----------
TOTAL CURRENT ASSETS 39,206 950,134 590,114
----------- ----------- -----------
LEASEHOLD IMPROVEMENTS AND EQUIPMENT - NOTE 3 32,418 403,964 450,667
Less Accumulated Depreciation (733) (39,734) (52,448)
----------- ----------- -----------
Net Leasehold Improvements and Equipment 31,685 364,230 398,219
----------- ----------- -----------
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED
Less accumulated amortization of $3,725,
$48,425 and $59,600, respectively - Note 2 1,113,786 1,069,086 1,057,911
----------- ----------- -----------
DEFERRED OFFERING COSTS 25,502 50,000 60,378
----------- ----------- -----------
OTHER ASSETS
Trademarks, net of accumulated amortization of $1,111,
$15,276 and $18,861, respectively 198,889 199,724 196,139
Related Party Receivables 9,000 109,000 109,000
Bonds and Security Deposits 26,230 31,007 31,007
Merger Deposit and Deferred Acquisition Costs - Note 10 -- 99,341 99,341
Prepaid Rent - Note 5 -- 80,000 77,000
----------- ----------- -----------
TOTAL OTHER ASSETS 234,119 519,072 512,487
----------- ----------- -----------
TOTAL ASSETS $ 1,444,298 $ 2,952,522 $ 2,619,109
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
(Continued)
F-4
<PAGE> 55
800 TRAVEL SYSTEMS, INC.
BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
-------------------------- March 31,
1995 1996 1997
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current Maturities of Long-Term Debt -
Related Parties - Note 4 $ 431,750 $ 280,750 $ 280,750
Accounts Payable 96,056 641,592 534,149
Accrued Liabilities 242,610 227,241 280,575
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 770,416 1,149,583 1,095,474
DEFERRED RENT -- 108,721 144,844
LONG-TERM DEBT - Excluding Current Installments - Note 4 60,000 30,000 30,000
----------- ----------- -----------
TOTAL LIABILITIES 830,416 1,288,304 1,270,318
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES - Notes 7 and 10
STOCKHOLDERS' EQUITY - NOTE 5
Preferred Stock, $100.00 par value, 400 shares authorized;
none issued -- -- --
Common stock, $.01 par value, 10,000,000 shares authorized;
3,550,000 and 5,951,209 shares issued and outstanding,
respectively 35,500 59,512 59,512
Additional Paid-in-Capital 741,276 4,976,259 4,976,259
Stock Subscriptions Receivable (32,296) (32,296) (32,296)
Retained Deficit (130,598) (3,339,257) (3,654,684)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 613,882 1,664,218 1,348,791
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,444,298 $ 2,952,522 $ 2,619,109
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE> 56
800 TRAVEL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Predecessor Business The Company
--------------------------- --------------------------------------------------------
Eleven Months One Month Three Months Ended
Year Ended Ended Ended Year Ended March 31,
December 31, November 30, December 31, December 31, --------------------------
1994 1995 1995 1996 1996 1997
----------- ------------ ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Commissions $ 622,017 $ 898,479 $ 115,986 $ 2,814,237 $ 303,945 $ 1,338,935
Ticket Delivery Income -- 192,459 17,984 421,540 60,448 300,261
----------- ----------- ----------- ----------- ----------- -----------
Total Revenues 622,017 1,090,938 133,970 3,235,777 364,393 1,639,196
----------- ----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Payroll, commissions and
employee benefits 790,859 1,115,403 175,604 2,490,770 581,590 848,243
Telephone 165,979 392,869 14,527 539,118 122,496 245,551
Ticket Delivery Expense -- 138,798 17,896 407,579 51,422 178,967
Advertising 459,657 333,520 437 137,223 10,709 45,545
General and administrative - Note 7 1,053,530 1,156,777 53,869 1,768,058 508,902 593,073
Interest expense 46,417 168,857 4,017 1,114,298 264,449 45,890
----------- ----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,516,442 3,306,224 266,350 6,457,046 1,539,568 1,957,269
----------- ----------- ----------- ----------- ----------- -----------
(LOSS) BEFORE OTHER INCOME (1,894,425) (2,215,286) (132,380) (3,221,269) (1,175,175) (318,073)
OTHER INCOME -- 41,959 1,782 12,610 -- 2,646
----------- ----------- ----------- ----------- ----------- -----------
NET (LOSS) $(1,894,425) $(2,173,327) $ (130,598) $(3,208,659) (1,175,175) (315,427)
=========== =========== =========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 3,830,000 3,830,000 3,840,000 5,247,823 4,116,875 6,251,209
=========== =========== =========== =========== =========== ===========
(Loss) Per Common Share $ (.50) $ (.57) $ (.03) $ (.61) $ (.29) $ (.05)
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE> 57
800 TRAVEL SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional Stock
---------------------- Paid-in Subscriptions
Shares Amount Capital Receivable Deficit Total
--------- ------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR BUSINESS
BALANCE, JANUARY 1, 1994 751,702 $ 752 $ 205,748 $ -- $ (39,210) $ 167,290
Issuance of common stock 248,298 248 194,252 -- -- 194,500
Distribution (Note 5) -- -- -- -- (93,500) (93,500)
Net Loss, year ended
December 31, 1994 -- -- -- -- (1,894,425) (1,894,425)
--------- ------- ---------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1994 1,000,000 1,000 400,000 -- (2,027,135) (1,626,135)
Net loss, eleven months
ended November 30, 1995 -- -- -- -- (2,173,327) (2,173,327)
--------- ------- ---------- -------- ----------- -----------
BALANCE, NOVEMBER 30, 1995 1,000,000 $ 1,000 $ 400,000 $ -- $(4,200,462) $(3,799,462)
========= ======= ========== ======== =========== ===========
THE COMPANY
Issuance of common stock - Note 5 3,229,600 $32,296 $ -- $(32,296) $ -- $ --
Issuance of common stock in
connection with debt - Note 5 20,000 200 23,800 -- -- 24,000
Purchase of predecessor - Note 2 300,400 3,004 717,476 -- -- 720,480
Net loss, one month ended
December 31, 1995 -- -- -- -- (130,598) (130,598)
--------- ------- ---------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1995 3,550,000 35,500 741,276 (32,296) (130,598) 613,882
Sale of common stock -
net of expenses of $620,348 -
Note 5 1,387,500 13,875 2,442,027 -- -- 2,455,902
Issuance of common stock in
connection with debt issuance
and services rendered - Note 5 1,013,709 10,137 1,458,581 -- -- 1,468,718
Issuance of options and warrants
for services and interest -- -- 334,375 -- -- 334,375
Net loss, year ended
December 31, 1996 -- -- -- -- (3,208,659) (3,208,659)
--------- ------- ---------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1996 5,951,209 59,512 4,976,259 (32,296) (3,339,257) 1,664,218
Net loss, three months ended
March 31, 1997 (unaudited) -- -- -- -- (315,427) (315,427)
--------- ------- ---------- -------- ----------- -----------
BALANCE, MARCH 31, 1997
(UNAUDITED) 5,951,209 $59,512 $4,976,259 $(32,296) $(3,654,684) $ 1,348,791
========= ======= ========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-7
<PAGE> 58
800 TRAVEL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Predecessor Business
---------------------------------
Eleven Months The Company
Year Ended Ended -----------------
December 31, November 30, One Month Ended
1994 1995 December 31, 1995
----------- ------------ -----------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) $(1,894,425) $(2,173,327) $ (130,598)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and Amortization 9,606 6,752 5,569
Stock, options and warrants issued for
expenses and debt redemption -- -- --
Prepaid Rent Amortization -- -- --
Changes in operating assets and liabilities,
net of effects of acquisition:
(Increase) decrease in receivables (10,782) 8,793 (17,764)
(Increase) decrease in prepaids and
other assets (18,701) (8,055) --
Decrease in deferred financing fees -- 92,833 --
Increase in related party receivables -- -- (5,000)
Increase (Decrease) in deferred rent
liability -- (59,929) --
Increase (Decrease) in accounts payable and
accrued expenses 815,967 909,874 77,138
--------- --------- ------
NET CASH USED IN
OPERATING ACTIVITIES (1,098,335) (1,223,059) (70,655)
--------- --------- ------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment (22,846) (7,963) --
Purchase of Trademark -- -- --
Merger deposit and deferred acquisition costs -- -- --
--------- --------- ------
NET CASH FLOW USED BY
INVESTING ACTIVITIES (22,846) (7,963) --
--------- --------- ------
<CAPTION>
The Company
--------------------------------------------------
Three Months Ended
Year Ended March 31,
December 31, -------------------------------
1996 1996 1997
------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) $(3,208,659) $(1,175,175) $(315,427)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and Amortization 97,866 16,523 27,474
Stock, options and warrants issued for
expenses and debt redemption 1,803,093 171,000
Prepaid Rent Amortization 8,000 -- 3,000
Changes in operating assets and liabilities,
net of effects of acquisition:
(Increase) decrease in receivables (312,757) (37,172) 9,518
(Increase) decrease in prepaids and
other assets (21,581) (37,299) 5,262
Decrease in deferred financing fees --
Increase in related party receivables (100,000) (62,355) --
Increase (Decrease) in deferred rent
liability 108,721 -- 36,123
Increase (Decrease) in accounts payable and
accrued expenses 530,167 366,972 (54,109)
--------- -------- --------
NET CASH USED IN
OPERATING ACTIVITIES (1,095,150) (757,506) (288,159)
--------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment (371,546) (5,500) (46,703)
Purchase of Trademark (15,000) (15,000) --
Merger deposit and deferred acquisition costs (99,341) -- --
--------- -------- --------
NET CASH FLOW USED BY
INVESTING ACTIVITIES (485,887) (20,500) (46,703)
--------- -------- --------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
(Continued)
F-8
<PAGE> 59
800 TRAVEL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Predecessor Business The Company
---------------------------- ---------------------------------------------------------
Eleven Months Three Months Ended
Year Ended Ended Year Ended March 31,
December 31, November 30, One Month Ended December 31, ------------------------
1994 1995 December 31, 1995 1996 1996 1997
------------ ----------- ----------------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES
Deferred offering cost $ (97,833) $ -- $ (25,502) $ (50,000) $ -- (10,378)
Proceeds from borrowings, net -- 1,202,250 125,750 -- 125,000 --
Principal payments on debt (18,944) -- -- (281,000) -- --
Issuance of common stock 194,500 -- -- 2,481,404 983,550 --
Proceeds from private placement, net 1,000,000 -- -- -- -- --
Acquisition of Predecessor Business -- -- (10,000) --
Capital distribution (93,500) -- -- -- -- --
----------- ----------- ------------- ----------- ---------- ---------
NET CASH FLOW FROM
FINANCING ACTIVITIES 984,223 1,202,250 90,248 2,150,404 1,108,550 (10,378)
----------- ----------- ------------- ----------- ---------- ---------
NET INCREASE (DECREASE) IN CASH (136,958) (28,772) 19,593 569,367 330,544 (345,240)
CASH AT THE BEGINNING OF PERIOD 169,795 32,837 -- 19,593 19,593 588,960
----------- ----------- ------------- ----------- ---------- ---------
CASH AT THE END OF PERIOD $ 32,837 $ 4,065 $ 19,593 $ 588,960 $ 350,137 $ 243,720
=========== =========== ============= =========== ========== =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest Expense $ 46,417 $ 168,857 $ 4,017 $ 67,205 $ 11,449 $ 45,890
=========== =========== ============= =========== ========== =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-9
<PAGE> 60
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
DECEMBER 31, 1996 AND 1995
NOTE 1: BUSINESS AND BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
800 Travel Systems, Inc. (the "Company") is a telemarketing travel company
which provides air transportation reservation services. The Company was formed
in November 1995 to acquire certain of the assets and assume certain
liabilities of 1-800-Low Airfare, Inc. (the Predecessor Business), which
occurred December 1, 1995.
The Company, and the Predecessor Business strive to furnish the lowest air fare
available at the time of reservation within the parameters provided by a
customer.
The Company incorporated LAF Financial Services, Inc. ("LAF") on January 16,
1996, in the State of Delaware. At December 31, 1996, LAF had not issued any
stock and had conducted no business activities.
Leasehold Improvements and Equipment
Leasehold improvements and equipment is stated at cost, less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the respective assets, five to ten years.
Excess of Cost Over Fair Value of Net Assets
The excess of cost over fair value of net assets acquired is amortized over a
period of twenty-five (25) years. The Company periodically reviews the carrying
amount of this asset and evaluates its recoverability based upon future
estimated operating cash flows.
Trademarks
The cost of the trademarks is being amortized using the straight-line method
over their useful estimated lives of fifteen (15) years.
Revenue Recognition
Revenues, which consist of commissions, are recognized when travel services are
ticketed.
Net Loss Per Common Share
Net loss per common share is based on the weighted average number of common
shares outstanding, as adjusted for the effects of the application of
Securities and Exchange Commission Staff Accounting Bulletin (SAB) No.83 and
unissued shares in connection with the purchase of the Predecessor Business (at
December 31, 1995).
At December 31, 1996 the Company had issued stock options for 300,000 shares of
stock and stock warrants for 275,000 shares of stock, the earnings per share
computation did not include the exercise of the stock options and warrants due
to the antidilutive effect.
The net loss per share computations for the year ended December 31, 1996, and
the three months ended March 31, 1997, includes the 300,000 shares of stock to
be issued to the Joseph Stevens Group, Inc. in 1997, subject to the successful
completion of the proposed public offering.
F-10
<PAGE> 61
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 1: BUSINESS AND BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Taxes on Income
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" which utilizes an
asset and liability approach in determining income tax expense.
Stock Based Compensation
In October 1995, the Financial Accounting Standard Board issued Statement
No.123, "Accounting for Stock Based Compensation." Statement No 123 established
a fair value method for accounting for stock-based compensation plans either
through recognition or disclosure. The Company has recognized in the
accompanying statements of operations the fair value amounts applicable to
stock-based compensation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
estimated amounts.
Reclassifications
Certain prior year balances have been reclassified to conform with the current
presentation.
NOTE 2: ACQUISITION
The Company acquired certain of the assets, assumed certain liabilities and
assumed all operations of the Predecessor Business effective December 1, 1995.
The $820,480 purchase price consisted of $10,000 in cash, $90,000 in notes
payable and 600,400 shares of the Company's common stock (valued at $1.20 per
share). The Company, acting on behalf of the Predecessor Business, agreed to
issue 300,000 of the shares of common stock to those remaining creditors of the
Predecessor Business who elected to convert their claim into stock at the rate
of $10 per share. In 1996, the Creditors representing 153,934 shares of common
stock have converted their claim into stock and 146,066 shares have been issued
to the Predecessor Business. The Company assumed $536,253 of liabilities
pursuant to the purchase agreement and has subsequently agreed to assume
certain additional liabilities aggregating $50,275. Costs in excess of net
assets acquired aggregated $1,117,511.
F-11
<PAGE> 62
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 2: ACQUISITION (CONTINUED)
The following summarizes the Predecessor Business's balance sheet at November
30, 1995 and those assets acquired and liabilities assumed by the Company from
the Predecessor Business:
1-800 LOW AIRFARE, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
Assets
Net Assets Acquired
And
Predecessor Net Liabilities Assumed
Business By the Company
----------- -----------------------
<S> <C> <C>
Current Assets $ 12,429 $ 5,850
Equipment, net of accumulated
depreciation of $11,472 32,418 32,418
Deposits 51,229 51,229
----------- -----------
Total Assets $ 96,076 $ 89,497
=========== -----------
Liabilities and Stockholders' (Deficit)
Current Liabilities $ 1,693,788 $ 286,528
Notes Payable 2,201,750 300,000
Stockholders' (Deficit)
Common Stock 1,000 --
Paid in Capital 400,000 --
Deficit (4,200,462) --
----------- -----------
Total Liabilities and Stockholders' (Deficit) $ 96,076 $ 586,528
=========== -----------
Excess of Liabilities over Assets Acquired 497,031
Shares issued to Predecessor Business to
satisfy its trade creditors (300,000 shares
at $1.20) 360,000
Shares issued to satisfy claims of certain
note holders (300,400 shares at $1.20) 360,480
Cash Payment 10,000
Notes Payable issued to Predecessor Stockholders 90,000
-----------
1,317,511
Less Cost Allocated to Trademarks 200,000
Cost in Excess of Assets Acquired $ 1,117,511
===========
</TABLE>
(Continued)
F-12
<PAGE> 63
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 2: ACQUISITION (CONTINUED)
During the acquisition negotiations, the holders of certain notes payable in
the Predecessor Business settled for 300,400 shares of common stock, which was
given a settlement value of $1.20 per share. The $1.20 per share was also used
to determine the number of shares to be issued to the Predecessor Business to
settle claims with its trade creditors.
Proforma results of operations as if the Company had acquired the Predecessor
Business on January 1, 1995 would not have been materially different than the
results of operations of the Predecessor for the eleven months ended November
30, 1995 and accordingly, are not presented.
NOTE 3: LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment by major classification are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------- March 31, 1997
1995 1996 (Unaudited)
--------- ---------- --------------
<S> <C> <C> <C>
Leasehold improvements $ -- $ 155,885 $ 155,885
Telephone Equipment -- 147,133 155,100
Furniture and fixtures 18,734 78,106 78,106
Computer equipment 7,703 14,858 14,858
Office equipment 5,981 7,982 7,982
Sabre Equipment -- -- 38,736
--------- --------- ---------
32,418 403,964 450,667
Less accumulated depreciation (733) (39,734) (52,448)
--------- --------- ---------
TOTAL LEASEHOLD IMPROVEMENTS
AND EQUIPMENT $ 31,685 $ 364,230 $ 398,219
========= ========= =========
</TABLE>
F-13
<PAGE> 64
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 4: NOTES PAYABLE - RELATED PARTIES
<TABLE>
<CAPTION>
December 31,
--------------------- March 31, 1997
1995 1996 (Unaudited)
-------- -------- --------------
<S> <C> <C> <C>
10% purchase money notes, payable in three
annual installments of $30,000 plus interest,
due November 1998, unsecured $ 90,000 $ 60,000 $ 60,000
10% note payable, principal and interest due
March 14, 1996, less unamortized discount of
$29,000 attributable to issuance of 20,000 shares
of common stock in 1995 21,000 -- --
10% note payable, interest and principal due
July 1, 1997 -- 250,000 250,000
10% note payable, interest and principal due
February 28, 1996 100,000 -- --
10% note payable, interest and principal due
on demand 80,000 -- --
10% note payable, interest and principal due
December 31, 1996 100,000 -- --
10% note payable, interest and principal
due December 31, 1996 100,000 -- --
Other 750 750 750
-------- -------- --------
491,750 310,750 310,750
Less current maturities 431,750 280,750 280,750
-------- -------- --------
$ 60,000 $ 30,000 $ 30,000
======== ======== ========
</TABLE>
Approximate maturities of notes payable-related parties at December 31, 1996
are as follows:
1997 $280,750
1998 30,000
--------
$310,750
========
F-14
<PAGE> 65
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 5: STOCKHOLDERS' EQUITY
In connection with the initial capitalization of the Company 3,229,600 shares
of common stock were issued in exchange for subscriptions receivable of $32,296
(par value). The $32,296 had not been paid as of December 31, 1996.
During February 1996, the Company initiated a private placement of shares of
common stock. As of December 31, 1996, a total of 1,387,500 shares of common
stock had been sold and issued. These shares carry certain resale restrictions.
The total sales price of these shares was $3,076,250. Sales commissions
amounting to $591,250 were paid to related parties.
In February 1996, the Company issued 20,000 shares valued at $50,000 as a
rollover of a past due note payable.
During 1996, the Company issued 100,000 shares of stock to an officer of the
Company as a bonus. An expense of $120,000 has been recognized in connection
this transaction.
A total of 180,000 shares have been issued in 1996, for consulting services for
which an expense of $336,000 has been recognized.
A total of 12,500 shares have been issued in connection with loans obtained.
The value of $15,000 was amortized as additional interest expense over the term
of the loans.
During 1996, the Company issued 40,000 shares of common stock, valued at
$100,000, to its landlord in connection with a lease. This amount will be
amortized as additional rent expense at the rate of $1,000 per month. The
$92,000 unamortized balance is included in prepaid expenses and other assets in
the accompanying December 31, 1996 balance sheet.
In connection with late penalties for past due loans, two related party
creditors received during 1996, 361,209 shares of common stock valued at
$847,718.
In 1996, the Company issued 275,000 warrants to purchase 275,000 shares of the
Company's common stock at a price of 110% of the public offering price. The
warrants can be exercised beginning on the first anniversary date of the public
offering. The fair value of the warrants was twelve and one half cents ($.125)
per warrant (aggregate fair value $34,375). The warrants were issued as
incentive to extend a certain note payable; therefore, the fair value was
recognized as interest expense in 1996.
In 1996, the Company issued options to purchase 300,000 shares of its common
stock at a price of $1.00 per share. These options can be exercised beginning
one year from date of grant. The fair value of the common stock at the date of
issuance of the options was $2.00 per share; therefore, the accompanying
statement of operations for the year ended December 31, 1996, recognized a
consulting expense of $300,000 applicable to the difference between the option
exercise price and the fair value of the shares at the date of the grant of the
option.
(Continued)
F-15
<PAGE> 66
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 5: STOCKHOLDERS' EQUITY (CONTINUED)
In May 1995, the Predecessor Business completed a Bridge Financing of units for
a total of $800,000, in promissory notes and common stock purchase warrants.
Each unit consisted of a $25,000 12% promissory note and warrants to purchase
6,250 shares of common stock at an exercise price of $5.00. In connection with
this financing, various placement agents received an aggregate total of $90,000
in commissions and warrants to purchase 37,500 shares of stock.
In April 1994, the Predecessor Business purchased all of the rights, title and
interest in the telephone number 1-800-LOW-AIRFARE from a principal
shareholder. The purchase price was $250,000 of which $93,500 was paid and
accounted for as a dividend, with payment of the remaining balance contingent
on the completion of a private placement of equity securities which did not
occur.
NOTE 6: INCOME TAXES
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
--------- --------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards $ 779,000 $ 44,300
Less valuation allowance (779,000) (44,300)
--------- --------
NET DEFERRED TAX ASSET $ -- $ --
========= ========
</TABLE>
At December 31, 1996 and 1995, the Company has a tax net operating loss
carryforward of approximately $2,423,000 and $132,000 respectively, to offset
future taxable income. The tax net operating loss carryforwards begin to expire
in 2010. Realization of any portion of the deferred tax asset resulting from
the Company's net operating loss carryforward is not considered more likely
than not. Accordingly, a valuation allowance has been established for the full
amount of the deferred tax asset.
F-16
<PAGE> 67
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 7: COMMITMENTS AND CONTINGENCIES
The minimum future office rental commitment for leases approximates the
following:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1997 180,183
1998 196,877
1999 196,877
2000 213,571
2001 213,571
Thereafter 1,218,102
----------
$2,219,181
==========
</TABLE>
Rent expense totaled approximately $109,000, $109,000, $5,000, $170,000 and
$54,000 for the year ended December 31, 1994, the eleven months ended November
30, 1995, the one month ended December 31, 1995, the year ended December 31,
1996, and the three months ended March 31, 1997, respectively.
The Company entered into a services agreement with a stockholder. The agreement
expired on December 31, 1996, and required $3,000 payments per week plus
expenses. This stockholder was paid services fees amounting to $152,700, a
common stock bonus of 150,000 shares of common stock (fair market value of
$300,000), commissions for sale of stock of $221,000, plus expenses of $199,853
for the year ended December 31, 1996, and $12,000 in services fees for the one
month ended December 31, 1995. For the three month period ended March 31, 1997,
the same stockholder was paid $40,800 as services fees, plus expenses of
$65,898. This stockholder also received from the predecessor business services
fees totaling $26,000 for the eleven months ended November 30, 1995.
Additionally, certain stockholders received fees of $5,000, $3,500 and $37,900
for consulting services rendered during the one month ended December 31, 1995,
the eleven months ended November 30, 1995 and the year ended December 31, 1994,
respectively.
The Predecessor Business is a defendant in various law suits. The Company has
not contractually assumed any of the potential liabilities from the Predecessor
Business' lawsuits and in management's opinion will not be affected by the
outcome of these legal proceedings.
The Company is dependent on two (2) airlines for approximately forty-five
percent (45%) of its revenues, and the Company's ability to quote air travel
ticket prices, make reservations and sell tickets is dependent upon the
performance of Sabre electronic travel reservation system.
F-17
<PAGE> 68
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 8: SUPPLEMENTAL CASH FLOW INFORMATION
For the one month ended December 31, 1995:
1) In connection for the acquisition of the asset and assumption of certain
liabilities of the predecessor business, the Company issued a note
payable of $90,000 and 300,400 shares of stock valued at $720,480 (an
additional 300,000 shares was issued in 1996). The Company acquired
assets totaling $89,499 and assumed liabilities of $586,825. Costs in
excess of net assets acquired, aggregated $1,317,511.
2) The Company issued 20,000 shares of common stock valued at $24,000 in
connection with the placement of debt.
3) A stock subscription receivable of $31,796 for the initial
capitalization of the Company was issued.
For the year ended December 31, 1996:
1) The Company issued 20,000 shares of common stock valued at $50,000 for
a note payable.
2) The Company issued 12,500 shares of common stock for past due interest
totaling $15,000 on two notes payable.
3) There were 40,000 shares of common stock issued to JFJ Realty as prepaid
rent of $100,000.
4) Various creditors of the Predecessor Business and the Predecessor
Business were issued 300,000 shares of common stock.
5) The Company issued 361,209 shares of common stock valued at $847,718 for
two past due notes payable.
6) The Company issued 100,000 shares of common stock with a value of
$120,000 as a bonus to the Company's President.
7) Two shareholders were issued 180,000 shares of common stock valued at
$336,000 for consulting services.
8) The Company issued 300,000 stock options with a fair value of $1.00 for
services.
9) The Company issued 275,000 warrants with a fair value of $.125 in
recognition of a loan extension.
NOTE 9: FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including commissions receivable,
accounts payable, and debt approximated fair value due to the relatively short
maturity.
F-18
<PAGE> 69
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 10: MERGER AGREEMENT
In November, 1996, Company entered into a merger agreement with the Joseph
Stevens Group, Inc. ("Stevens"). The agreement calls for all of the capital
stock of Stevens to be acquired in exchange for shares of the Company's common
stock and a note payable of $1,578,000 (subject to adjustment for assumed
liabilities). The merger will become effective on the effective date of the
Company's planned initial public offering. The Company has made an escrow
payment of $46,665 to the seller in connection with the anticipated merger. In
addition the Company has incurred costs and expenses associated with the merger
of $52,676, which were deferred at December 31, 1996.
Upon the effective date, the Company shall issue to the Selling Shareholder the
greater of (i) 300,000 shares of the company's stock or (ii) that number of
shares of the common stock having an aggregate value of $1,500,000 using the
initial public offering price in calculating the per share value of the company
stock. If, on the second anniversary date of the public offering, the value of
the Company's shares then held by the Selling Shareholder, together with the
aggregate amount of cash and the fair market value of any assets or properties
received by the Selling Shareholder in connection with the sale prior to the
second anniversary of the closing date of all or any of the shares received in
the merger, is less than $2,571,429, then the Company shall issue to the
Selling Shareholder, on the second anniversary of the public offering closing,
additional shares of the Company, using the price of the Company's common stock
on the second anniversary of the public offering closing and an appropriate
number of additional common shares of the Company shall be issued to the
Selling Shareholder based upon such price in order to make up any such
deficiency.
As part of the merger agreement, the Company entered into an operating
agreement with Stevens, whereby, the Company assumed all operations of Stevens
as of January 1, 1997, and assumed any economic gains or losses from these
operating activities. The financial statement for the three months ended March
31, 1997, include the operations of Steven from January 1, 1997 to March 31,
1997. The following summarizes the operations for Stevens for the three month
period ended March 31, 1997 (unaudited):
<TABLE>
<S> <C>
Revenues $ 522,200
Direct Operating Costs and Expenses 648,370
----------
Net Loss $ (126,170)
==========
</TABLE>
F-19
<PAGE> 70
800 TRAVEL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
DECEMBER 31, 1996 AND 1995
NOTE 11: GROSS RESERVATIONS
For the various periods presented in the statements of operations, the gross
dollar amounts for reservations of airline tickets were as follows:
<TABLE>
<CAPTION>
Period Amount
<S> <C>
Three Months ended March 31,
1997 $11,165,266
===========
1996 $ 3,779,151
===========
Year ended December 31, 1996 $23,590,782
===========
One month ended December 31, 1995 $1,609,426
==========
Eleven months ended November 30, 1995 $9,647,090
==========
Year ended December 31, 1994 $5,924,310
==========
</TABLE>
NOTE 12: INTERIM FINANCIAL DATA (UNAUDITED)
The balance sheet of March 31, 1997, and the statements of operations and cash
flows for the three month period ended March 31, 1997 and 1996, and the
statement of stockholders' equity for the three month period ended March 31,
1997, are unaudited. The March 31, 1997 statements of operations include the
operations of the Joseph Stevens Group, Inc. for the period January 1, 1997 to
March 31, 1997. In the opinion of management, these statements have been
prepared on the same basis as the audited financial statements and includes all
adjustments, consisting only of normal recurring adjustments necessary to state
fairly the information set forth therein. The data disclosed in the notes to
financial statements for these periods are unaudited. Operating results for the
three months ended March 31, 1997, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
F-20
<PAGE> 71
800 TRAVEL SYSTEMS, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
In November 1996, 800 Travel Systems, Inc. ("Travel") entered into a
merger agreement to acquire all the outstanding shares of Joseph Stevens Group,
Inc. ("Group"), a provider of travel ticketing services and telemarketing
services, for a note in the amount of $1,578,000 and approximately 300,000
shares of Travel. The acquisition of Group will be accounted for by Travel as a
purchase whereby the basis for accounting for Group's assets and liabilities
will be based upon their fair market values at the date of the acquisition
(expected to be the date of the initial public offering of Travel).
The unaudited Pro Forma Condensed Combined Statement of Operations (Pro
Forma Statement of Operations) for the year ended December 31, 1996 and the
three months ended March 31, 1997, gives pro forma effect to the acquisition of
Group (and other adjustments as described in the accompanying notes) as if it
had occurred on January 1, 1996 and 1997, respectively. The Pro Forma
Statements of Operations are based on the historical results of operations of
Travel and Group for the year ended December 31, 1996 and the three months
ended March 31, 1997. The Pro Forma Condensed Combined Balance Sheets as of
December 31, 1996 and March 31, 1997 (Pro Forma Balance Sheet) gives pro forma
effect to the acquisition of Group as if it had occurred on those dates. The
Pro Forma Statements of Operations and the Pro Forma Balance Sheets and the
accompanying notes (Pro Forma Financial Information) should be read in
conjunction with and are qualified by the historical financial statements of
Travel included in its Form SB-2 as of July __, 1997, and the historical
financial statements of Group and notes thereto appearing elsewhere herein.
The Pro Forma Information is intended for informational purposes only and is
not necessarily indicative of the future financial position or results of
operations of Travel after the acquisition of Group, or the financial position
or the results of operations of Travel that would have actually occurred had
the acquisition of Group been effected as of the date or for the period
presented.
F-21
<PAGE> 72
800 TRAVEL SYSTEMS, INC.
PRO FORMA BALANCE SHEETS
DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
800 Travel Pro Forma
Pro Forma Systems, Inc. Adjustments-
800 Travel Joseph Stevens Adjustments- on a Pro Stock Pro Forma
Systems, Inc. Group, Inc. Acquisition Forma Basis Redemption Total
------------ ----------- ---------- ----------- ---------- ------------
(A)
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 588,960 116,268 (116,268)(G) $ 588,960 $(2,452,500)(H) $(1,863,540)
Trade Commissions Receivable 118,390 151,761 (151,761)(G) 118,390 - 118,390
Receivable from AT&T 213,980 - - 213,980 - 213,980
Prepaids 28,804 62,790 (62,790)(G) 28,804 - 28,804
---------- --------- --------- ---------- ----------- -----------
TOTAL CURRENT ASSETS 950,134 330,819 (330,819) 950,134 (2,452,500) (1,502,366)
---------- --------- ---------- ---------- ----------- -----------
LEASEHOLD IMPROVEMENTS AND
EQUIPMENT 403,964 690,725 (190,725)(C) 903,964 - 903,964
Less Accumulated Depreciation (39,734) (321,580) 321,580 (C) (39,734) - (39,734)
---------- --------- ---------- ---------- ----------- -----------
Net Leasehold Improvements
and Equipment 364,230 369,145 130,855 864,230 - 864,230
---------- --------- ---------- ---------- ----------- -----------
EXCESS OF COST OVER FAIR
VALUE OF NET ASSETS
ACQUIRED 1,069,086 - 2,477,341 (B) 3,546,427 - 3,546,427
---------- --------- ---------- ---------- ----------- -----------
DEFERRED OFFERING COSTS 50,000 - - 50,000 - 50,000
---------- --------- ---------- ---------- ----------- -----------
OTHER ASSETS
Related Party Receivables 109,000 - - 109,000 - 109,000
Bonds and Security Deposits 31,007 28,640 (28,640)(G) 31,007 - 31,007
Merger Deposit and Deferred
Acquisition Costs 99,341 - (99,341)(F) - - -
Prepaid Rent 80,000 - - 80,000 - 80,000
Trademarks 199,724 158,600 41,400 (E) 399,724 - 399,724
---------- ---------- ---------- ---------- ----------- -----------
TOTAL OTHER ASSETS 519,072 187,240 (86,581) 619,731 - 619,731
---------- ---------- ---------- ---------- ----------- -----------
TOTAL ASSETS $2,952,522 $ 887,204 $2,190,796 $6,030,522 $(2,452,500) $ 3,578,022
========== ========== ========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Adjustments- Pro Forma
Stock Sale Total
------------ ---------
<S> <C> <C>
CURRENT ASSETS
Cash $4,799,750(I) $2,936,210
Trade Commissions Receivable - 118,390
Receivable from AT&T - 213,980
Prepaids - 28,804
---------- ----------
TOTAL CURRENT ASSETS 4,799,750 3,297,384
---------- ----------
LEASEHOLD IMPROVEMENTS AND
EQUIPMENT - 903,964
Less Accumulated Depreciation - (39,734)
---------- ----------
Net Leasehold Improvements
and Equipment - 864,230
---------- ----------
EXCESS OF COST OVER FAIR
VALUE OF NET ASSETS
ACQUIRED - 3,546,427
---------- ----------
DEFERRED OFFERING COSTS (50,000)(I) -
---------- ----------
OTHER ASSETS
Related Party Receivables - 109,000
Bonds and Security Deposits - 31,007
Merger Deposit and Deferred
Acquisition Costs - -
Prepaid Rent - 80,000
Trademarks - 399,724
---------- ----------
TOTAL OTHER ASSETS S - 619,731
---------- ----------
TOTAL ASSETS $4,749,750 $8,327,772
========== ==========
</TABLE>
(Continued)
F-22
<PAGE> 73
800 TRAVEL SYSTEMS, INC.
PRO FORMA BALANCE SHEETS
(Continued)
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
800 Travel
Pro Forma Systems, Inc.
800 Travel Joseph Stevens Adjustments- on a Pro
Systems, Inc. Group, Inc. Acquisition Forma Basis
------------- ------------- -------------- -----------
(A)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Current Maturities of
Long-Term Debt $ 280,750 $ 779,995(G) $ (779,995)(G) $ 1,858,750
1,578,000 (B)
Accounts Payable and
Accrued Expenses 868,833 362,257 (362,257)(G) 868,833
----------- ----------- ----------- -----------
TOTAL CURRENT
LIABILITIES 1,149,583 1,142,252 435,748 2,727,583
DEFERRED RENT 108,721 -- 108,721 --
LONG-TERM DEBT -
Excluding Current Installments 30,000 1,054,195 (1,054,195)(G) 30,000
----------- ----------- ----------- -----------
TOTAL LIABILITIES 1,288,304 2,196,447 (618,447) 2,866,304
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock -- -- -- --
Common Stock 59,512 88,000 (88,000)(G) 62,512
3,000 (B)
Additional Paid-in-Capital 4,976,259 369,312 (369,312)(G) 6,473,259
1,497,000 (B)
Stock Subscriptions Receivable (32,296) -- -- (32,296)
Retained Deficit (3,339,257) (1,766,555) 1,766,555 (G) (3,339,257)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) 1,664,218 (1,309,243) 2,809,243 3,164,218
----------- ----------- ----------- -----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 2,952,522 $ 887,204 $ 2,190,796 $ 6,030,522
=========== =========== =========== ===========
<CAPTION>
Pro Forma
Adjustments- Pro Forma
Stock Pro Forma Adjustments- Pro Forma
Redemption Total Stock Sale Total
---------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Current Maturities of
Long-Term Debt $1,000,000 (H) $ 2,858,750 $(2,828,000)(I) $ 30,750
Accounts Payable and
Accrued Expenses -- 868,833 -- 868,833
----------- ----------- ----------- -----------
TOTAL CURRENT
LIABILITIES 1,000,000 3,727,583 (2,828,000) 899,583
DEFERRED RENT -- 108,721 -- 108,721
LONG-TERM DEBT -
Excluding Current Installments -- 30,000 -- 30,000
----------- ----------- ----------- -----------
TOTAL LIABILITIES 1,000,000 3,866,304 (2,828,000) 1,038,304
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock -- -- -- --
Common Stock (9,040)(H) 53,472 18,000(I) 71,472
Additional Paid-in-Capital (3,443,460)(H) 3,029,799 7,559,750(I) 10,589,549
Stock Subscriptions Receivable -- (32,296) -- (32,296)
Retained Deficit -- (3,339,257) -- (3,339,257)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) (3,452,500) (288,282) 7,577,750 7,289,468
----------- ----------- ----------- -----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY (DEFICIT) $(2,452,500) $ 3,578,022 $ 4,749,750 $ 8,327,772
=========== =========== =========== ===========
</TABLE>
F-23
<PAGE> 74
800 TRAVEL SYSTEMS, INC.
NOTES TO THE PRO FORMA BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1996
(A) Represents the historical balance sheet information of Group.
(B) Adjusts the assets acquired and liabilities assumed in the acquisition of
Group to reflect the allocation of the estimated purchase price. The
resulting goodwill was calculated as follows:
<TABLE>
<S> <C>
Estimated purchase price:
Amount paid by Note $ 1,578,000
Issuance of 300,000 shares of Travel
with a fair market value at the date of
acquisition of $5.00 per share 1,500,000
Direct costs of acquisition 99,341
3,177,341
Less assets acquired:
Equipment (500,000)
Trademarks (200,000)
Plus liabilities assumed:
Current liabilities -
Long-term debt -
------------
Goodwill $ 2,477,341
============
</TABLE>
Goodwill will be amortized ratably over twenty-five (25) years.
(C) Adjust Group's leasehold improvements and equipment to their fair market
value of $500,000.
(D) Adjustment to eliminate historical accumulated depreciation.
(E) Adjust Group's trade mark to its $200,000 fair market value. The trade
mark will be amortized over a period of fifteen (15) years.
(F) Eliminate direct costs of acquisition.
(G) Adjustment to eliminate assets not acquired and liabilities not assumed
from Group.
(H) Adjustment to reflect the Company's committment to redeem 904,000 shares
of its common stock for a total redemption value of $3,452,500.
(I) Adjustment to reflect the sale of 1,800,000 shares of common stock at a
price of $5.00 plus sale of 1,800,000 warrants at $.125. The offering
costs will approximate $1,647,250. This pro forma adjustment does not
include proceeds from the sale of underwriters' overallotment shares and
warrants.
F-24
<PAGE> 75
800 TRAVEL SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
800 Travel
Systems, Inc.
800 Travel Joseph Stevens Pro Forma on a Pro
Systems, Inc. Group, Inc. Adjustments Forma Basis
-------------- --------------- -------------- -------------
(A)
<S> <C> <C> <C> <C>
REVENUES $ 3,235,777 $ 1,664,959 $ - $ 4,900,736
----------- ------------ --------- -----------
OPERATING EXPENSES
General and Administrative 5,244,882 1,640,388 6,885,270
Interest Expense 1,114,298 107,128 157,800 (C) 1,379,226
Amortization and Depreciation 97,866 113,268 84,780 (B) 295,914
----------- ------------ --------- -----------
TOTAL OPERATING EXPENSES 6,457,046 1,860,784 242,580 8,560,410
----------- ------------ --------- -----------
(LOSS) BEFORE OTHER INCOME (3,221,269) (195,825) (242,580) (3,659,674)
OTHER INCOME 12,610 - - 12,610
----------- ------------ --------- -----------
NET (LOSS) $(3,208,659) $ (195,825) $(242,580) $(3,647,064)
=========== ============ ========= ===========
Weighted Average Number of
Common Shares Outstanding 5,247,823 N/A N/A 5,247,823(D)
=========== ============ ========= ===========
(Loss) Per Common Share $ (.61) N/A N/A $ (.69)
=========== ============ ========= ===========
</TABLE>
F-25
<PAGE> 76
800 TRAVEL SYSTEMS, INC.
NOTES TO THE PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(A) Represents the historical income statement information of Group.
(B) Represent the amortization of goodwill on a straight line basis over 25
years, amortization of trade mark over fifteen (15) years and depreciation
of assets over five (5) years.
(C) Accrue interest on note payable at ten percent (10%).
(D) Adjusted to reflect the issuance of the 300,000 shares issued in the
acquisition of Group as if it occurred in the beginning of fiscal year
1996.
F-26
<PAGE> 77
800 TRAVEL SYSTEMS, INC.
PRO FORMA BALANCE SHEETS
MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
800 Travel
Pro Forma Systems, Inc.
800 Travel Joseph Stevens Adjustments- on a Pro
Systems, Inc. Group, Inc. Acquisition Forma Basis
------------- --------------- ------------- -----------
(A)
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 243,720 $ - $ - $ 243,720
Trade Commissions Receivable 322,852 - - 322,852
Prepaids 23,542 - - 23,542
---------- --------- ---------- ----------
TOTAL CURRENT ASSETS 590,114 - - 590,114
---------- --------- ---------- ----------
LEASEHOLD IMPROVEMENTS AND
EQUIPMENT 450,667 690,725 (190,725) (B) 950,667
Less Accumulated Depreciation (52,448) (321,580) 321,580 (B) (52,448)
---------- --------- ---------- ----------
Net Leasehold Improvements
and Equipment 398,219 369,145 130,855 898,219
---------- --------- ---------- ----------
EXCESS OF COST OVER FAIR
VALUE OF NET ASSETS
ACQUIRED 1,057,911 - 2,477,341 3,535,252
---------- --------- ---------- ----------
DEFERRED OFFERING COSTS 60,378 - - 60,378
---------- --------- ---------- ----------
OTHER ASSETS
Related Party Receivables 109,000 - - 109,000
Bonds and Security Deposits 31,007 - - 31,007
Merger Deposit and Deferred
Acquisition Costs 99,341 - (99,341)(C) -
Prepaid Rent 77,000 - - 77,000
Trademarks 196,139 158,600 41,400 (B) 396,139
---------- --------- ---------- ----------
TOTAL OTHER ASSETS 512,487 158,600 (57,941) 613,146
---------- --------- ---------- ----------
TOTAL ASSETS $2,619,109 $ 527,745 $2,550,255 $5,697,109
========== ========= ========== ==========
<CAPTION>
Pro Forma
Adjustments- Pro Forma
Stock Pro Forma Adjustments- Pro Forma
Redemption Total Stock Sale Total
---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $(2,452,500)(D) $(2,208,780) $4,810,128(E) $2,601,348
Trade Commissions Receivable - 322,852 - 322,852
Prepaids - 23,542 - 23,542
----------- ----------- ---------- ----------
TOTAL CURRENT ASSETS (2,452,500) (1,862,386) 4,810,128 2,947,742
----------- ----------- ---------- ----------
LEASEHOLD IMPROVEMENTS AND
EQUIPMENT - 950,667 - 950,667
Less Accumulated Depreciation - (52,448) - (52,448)
----------- ----------- ---------- ----------
Net Leasehold Improvements
and Equipment - 898,219 - 898,219
----------- ----------- ---------- ----------
EXCESS OF COST OVER FAIR
VALUE OF NET ASSETS
ACQUIRED - 3,535,252 - 3,535,252
----------- ----------- ---------- ----------
DEFERRED OFFERING COSTS - 60,378 (60,378)(E) -
----------- ----------- ---------- ----------
OTHER ASSETS
Related Party Receivables - 109,000 - 109,000
Bonds and Security Deposits - 31,007 - 31,007
Merger Deposit and Deferred
Acquisition Costs - - - -
Prepaid Rent - 77,000 - 77,000
Trademarks - 396,139 - 396,139
----------- ----------- ---------- ----------
TOTAL OTHER ASSETS - 613,146 - 613,146
----------- ----------- ---------- ----------
TOTAL ASSETS
$(2,452,500) $ 3,244,609 $4,749,750 $7,994,359
=========== =========== ========== ==========
</TABLE>
F-27
<PAGE> 78
800 TRAVEL SYSTEMS, INC.
PRO FORMA BALANCE SHEETS
(CONTINUED)
MARCH 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
800 Travel
Pro Forma Systems, Inc.
800 Travel Joseph Stevens Adjustments- on a Pro
Systems, Inc. Group, Inc. Acquisition Forma Basis
------------- --------------- -------------- -----------
(A)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Current Maturities of
Long-Term Debt $ 280,750 $ - $1,578,000 $1,858,750
Accounts Payable and
Accrued Expenses 814,724 - - 814,724
---------- -------- ---------- -----------
TOTAL CURRENT
LIABILITIES 1,095,474 - 1,578,000 2,673,474
---------- -------- ---------- ----------
DEFERRED RENT 144,844 - - 144,844
LONG-TERM DEBT -
Excluding Current Installments 30,000 - - 30,000
---------- -------- ---------- ----------
TOTAL LIABILITIES 1,270,318 - 1,578,000 2,848,318
---------- -------- ---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock - - - -
Common Stock 59,512 - 3,000 62,512
Additional Paid-in-Capital 4,976,259 - 1,497,000 6,473,259
Stock Subscriptions Receivable (32,296) - - (32,296)
Retained Deficit (3,654,684) - - (3,654,684)
---------- -------- ---------- ----------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) 1,348,791 - 1,500,000 2,848,791
---------- -------- ---------- ----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY (DEFICIT) $2,619,109 $ - $3,078,000 $5,697,109
========== ======== ========== ==========
<CAPTION>
Pro Forma
Adjustments- Pro Forma
Stock Pro Forma Adjustments- Pro Forma
Redemption Total Stock Sale Total
---------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Current Maturities of
Long-Term Debt $ 1,000,000 (D) $2,858,750 $(2,828,000) $ 30,750
Accounts Payable and
Accrued Expenses - 814,724 - 814,724
----------- ---------- ----------- -----------
TOTAL CURRENT
LIABILITIES 1,000,000 3,673,474 (2,828,000) 845,474
----------- ---------- ----------- -----------
DEFERRED RENT - 144,844 - 144,844
LONG-TERM DEBT -
Excluding Current Installments - 30,000 - 30,000
----------- ---------- ----------- -----------
TOTAL LIABILITIES 1,000,000 3,848,318 (2,828,000) 1,020,318
----------- ---------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock - - - -
Common Stock (9,040)(D) 53,472 18,000 (E) 71,472
Additional Paid-in-Capital (3,443,460)(D) 3,029,799 7,559,750 (E) 10,589,549
Stock Subscriptions Receivable - (32,296) - (32,296)
Retained Deficit - (3,654,684 - (3,654,684)
----------- ---------- ----------- -----------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) (3,452,500) (603,709) 7,577,750 6,974,041
----------- ---------- ----------- -----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY (DEFICIT) $(2,452,500) $3,244,609 $ 4,749,750 $ 7,994,359
=========== ========== =========== ===========
</TABLE>
F-28
<PAGE> 79
800 TRAVEL SYSTEMS, INC.
NOTES TO THE PRO FORMA BALANCE SHEET
(UNAUDITED)
MARCH 31, 1997
(A) Group sold to Travel its leasehold improvements and equipment and its
trademarks for 300,000 shares of common stock of Travel (valued at $5.00
per share) and a note for $1,578,000. A complete historical balance of
Group has been previously disclosed at December 31, 1996.
(B) Adjustment to record purchase value as follows:
<TABLE>
<S> <C>
Leasehold Improvements and Equipment $500,000
Trademarks 200,000
--------
$700,000
========
</TABLE>
(C) Adjustment to recognize cost of acquisition.
(D) Adjustment to recognize redemption of 904,000 shares of common stock of
Travel prior to public offering. The redemption is as follows:
<TABLE>
<S> <C>
Cash Payment $2,452,500
Note Payable 1,000,000
----------
$3,452,500
==========
</TABLE>
(E) Adjustment to reflect the sale of 1,800,000 shares of common stock at a
price of $5.000 plus sale of 1,800,000 warrants at $.125. The offering
cost will approximate $1,647,250. This pro forma adjustment does not
include proceeds from the sale of underwriters' overallotment shares and
warrants.
F-29
<PAGE> 80
800 TRAVEL SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Pro Forma 800 Travel
Adjustments for Systems, Inc.
800 Travel Joseph Stevens on a Pro
Systems, Inc. Group, Inc. Forma Basis
------------- --------------- -------------
(A)
<S> <C> <C> <C>
REVENUES $ 1,639,196 $ -- $ 1,639,196
----------- -------- -----------
OPERATING EXPENSES
General and Administrative 1,834,393 -- 1,834,393
Interest Expense 45,890 39,450(B) 85,340
Amortization and Depreciation 27,474 -- 27,474
Amortization and Depreciation
expense applicable to Joseph
Stevens Group, Inc. assets 49,512 -- 49,512
----------- -------- -----------
TOTAL OPERATING EXPENSES 1,957,269 39,450 1,996,719
----------- -------- -----------
(LOSS) BEFORE OTHER INCOME (318,073) (39,450) (357,523)
OTHER INCOME 2,646 -- 2,646
----------- -------- -----------
NET (LOSS) $ (315,427) $(39,450) $ (354,877)
=========== ======== ============
Weighted Average Number of
Common Shares Outstanding 6,251,209(D) N/A 6,251,209
=========== ======== ============
(Loss) Per Common Share $ (.05) N/A $ (.06)
=========== ======== ============
</TABLE>
F-30
<PAGE> 81
800 TRAVEL SYSTEMS, INC.
NOTES TO THE PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997
(A) Group's operations were merged into Travel during the three month period
ended March 31, 1997; therefore, no statement of operations is available
for Group.
(B) Adjustment to recognize interest on purchase note at the rate of ten
percent (10%).
(C) The March 31, 1997 statement of operations included in the following
amortization and depreciation applicable to the Joseph Stevens operations:
<TABLE>
<CAPTION> March 31,
1997
Description Cost Life Expense
----------- ----------- --------- -----------
<S> <C> <C> <C>
Equipment $ 500,000 5 years $25,000
Trademarks $ 200,000 15 years 3,333
Goodwill $ 2,477,341 25 years 21,179
-------
$49,512
=======
</TABLE>
(D) Balance includes the 300,000 shares of Travel's common stock to be issued
when Group purchase is completed.
F-31
<PAGE> 82
JOSEPH STEVENS GROUP, INC.
CONTENTS
Report of Independent Certified Public Accountants F-33
Financial Statements
Balance Sheets F-34
Statements of Operations F-36
Statements of Capital Deficit F-37
Statements of Cash Flows F-38
Notes to Financial Statements F-40
F-32
<PAGE> 83
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
JOSEPH STEVENS GROUP, INC.
San Diego, California
We have audited the accompanying balance sheets of JOSEPH STEVENS GROUP, INC.
as of December 31, 1996 and 1995, and the related statements of operations,
capital deficit, and cash flows for the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JOSEPH STEVENS GROUP, INC. as
of December 31, 1996 and 1995 and the results of its operations and its cash
flows for the two years then ended, in conformity with generally accepted
accounting principles.
Accetta and Olmsted
Accountancy Corporation
Fountain Valley, California
April 23, 1997
F-33
<PAGE> 84
BALANCE SHEET
JOSEPH STEVENS GROUP, INC.
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $116,268 $ 60,346
Accounts receivable (Less allowance for
doubtful accounts of $41,098, and $41,098
for 1996 and 1995, respectively) 151,761 80,707
Prepaid expenses 62,790 1,920
-------- --------
TOTAL CURRENT ASSETS 330,819 142,975
-------- --------
PROPERTY AND EQUIPMENT
Furniture and fixtures 61,657 8,562
Office equipment 591,299 309,177
Automobiles 37,769 37,769
-------- --------
690,725 355,508
Less accumulated depreciation (321,580) (215,313)
-------- --------
TOTAL PROPERTY AND EQUIPMENT 369,145 140,195
-------- --------
OTHER ASSETS
Trademarks (Net of amortization of $13,975 and $9,675
for 1996 and 1995) 158,600 162,315
Warranty -- Note A 28,640 -0-
-------- --------
TOTAL OTHER ASSETS 187,240 162,315
-------- --------
TOTAL ASSETS $887,204 $445,485
======== ========
</TABLE>
F-34
<PAGE> 85
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Accounts payable and
accrued expenses $ 175,595 $ 230,247
Accrued interest payable 186,662 104,839
Current portion of long-term
debt-Note C 779,995 383,760
--------- --------
TOTAL CURRENT LIABILITIES 1,142,252 718,846
--------- --------
LONG-TERM DEBT, LESS CURRENT
PORTION-Note C 1,054,195 937,459
--------- --------
COMMITMENTS AND CONTINGENCIES-Note F
CAPITAL DEFICIT-Note D
Common stock, stated value
.05 per share, 20,000,000
shares authorized; 1,760,000
shares issued and outstanding 88,000 88,000
Additional paid in capital 369,312 271,910
Deficit (1,766,555) (1,570,730)
----------- ----------
TOTAL CAPITAL DEFICIT (1,309,243) (1,210,820)
----------- ----------
TOTAL LIABILITIES AND CAPITAL DEFICIT $ 887,204 $ 445,485
=========== ==========
</TABLE>
See accompanying notes
F-35
<PAGE> 86
STATEMENT OF OPERATIONS
JOSEPH STEVENS GROUP, INC.
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES $1,664,959 $ 876,739
---------- ----------
OPERATING EXPENSES
General and Administrative 1,639,588 1,164,933
Interest 107,128 94,883
Depreciation 113,268 69,026
---------- ----------
TOTAL OPERATING EXPENSES 1,859,984 1,328,842
---------- ----------
OTHER INCOME
Liability Reduction -- Note E -0- 200,083
---------- ----------
TOTAL OTHER INCOME -0- 200,083
---------- ----------
(LOSS) BEFORE TAXES (195,025) (252,020)
INCOME TAX BENEFITS (EXPENSE) -- Notes A and B (800) (2,579)
---------- ----------
NET (LOSS) $ (195,825) $ (254,599)
========== ==========
</TABLE>
See accompanying notes
F-36
<PAGE> 87
STATEMENTS OF CAPITAL DEFICIT
JOSEPH STEVENS GROUP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Paid in Capital
--------------------
Common Common Common
Stock Stock Stock Deficit Total
------- -------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 88,000 271,910 -- (1,316,131) (956,221)
Net loss for 1995 -- -- -- (254,599) (254,599)
------- -------- ------- ----------- -----------
Balances at December 31, 1995 88,000 271,910 -- (1,570,730) (1,210,820)
Issuance of Stock Warrants - Note D -- -- 97,402 -- 97,402
Net loss for 1996 -- -- -- (195,825) (195,825)
------- -------- ------- ----------- -----------
Balances at December 31, 1996 $88,000 $271,910 $97,402 $(1,766,555) $(1,309,243)
======= ======== ======= =========== ===========
</TABLE>
See accompanying notes
F-37
<PAGE> 88
\
STATEMENT OF CASH FLOWS
JOSEPH STEVENS GROUP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 25,748,283 $ 16,484,303
Cash paid to suppliers (23,991,835) (15,451,991)
Cash paid to employees (1,948,994) (1,312,647)
Cash paid to interest (25,305) (16,294)
Cash paid for income taxes (800) (2,579)
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (218,651) (299,208)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (48,815) (15,602)
Trademark (585) --
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (49,400) (15,602)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 381,977 362,691
Repayment of debt (58,006) (38,184)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 323,971 324,507
------------ ------------
NET INCREASE IN CASH 55,920 9,697
CASH AT BEGINNING OF PERIOD 60,348 50,651
------------ ------------
CASH AT END OF PERIOD $ 116,268 $ 60,348
============ ============
</TABLE>
F-38
<PAGE> 89
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
NET LOSS $(195,825) $(254,599)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED BY OPERATING ACTIVITIES
Depreciation & amortization 113,268 69,026
Change in assets and liabilities:
(Increase) in accounts receivable (71,054) (27,787)
(Increase) in other prepaid expenses (60,870) 4,306
(Increase) in prepaid warranty (28,640) -0-
Increase in accrued interest 81,823 78,589
(Decrease) in accounts payable and
accrued expenses (57,353) (168,743)
--------- ---------
TOTAL ADJUSTMENTS $ (22,826) $ (44,609)
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES $(218,651) $(299,208)
========= =========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING TRANSACTIONS
Property and equipment acquired through
financing agreements & stock
warrants-Note D $ 286,402 $ -0-
</TABLE>
See accompanying notes
F-39
<PAGE> 90
NOTES TO FINANCIAL STATEMENTS
JOSEPH STEVENS GROUP, INC.
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Joseph Stevens Group, Inc. (the Company) was incorporated on January 8, 1990 in
the state of California, under the name of Creative Telemarketing Concepts,
Inc. On August 1, 1991, the Company changed its name to Joseph Stevens Group,
Inc.
The Company has two primary operating divisions. The first FLY-4-LESS, a travel
agency, derives income for travel ticketing. The second division, Creative
Telemarketing Concepts, derives income from fees charged for telemarketing
services; however for the years ended December 31, 1996 and 1995 the revenues
derived from this division were less than one percent (1%) of revenues.
Travel Ticket Revenue Recognition
The Company derives substantially all of its income as a travel agency from
travel ticketing. The commissions earned are recognized when travel services
are ticketed.
Property And Equipment
Property and equipment are recorded at cost and depreciated or amortized
utilizing the straight-line method or accelerated methods for all assets over
their estimated useful lives as follows:
Office equipment 5 years
Furniture and fixtures 7-10 years
Vehicles 5 years
Expenditures that materially increase the asset life are capitalized, while
ordinary maintenance and repairs are charged to operations as incurred. When
assets are sold or retired, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss in included in
earnings.
Trademarks
The cost of trademarks acquired are being amortized on the straight-line method
over their estimated useful lives, 40 years.
Warranty
In 1996, the Company paid $28,640 for an extended warranty on the acquisition
of an ACD switch. The equipment is warranted for three years. The extended
warranty provides benefits in years four and five. The extended warranty will
be amortized over 24 months beginning in 1999.
Income Taxes
Income taxes are accounted for in accordance with statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Texas, issued by the
Financial Accounting Standards Board (FASB).
Deferred income taxes have been provided for the timing differences between
reporting methods for financial and tax purposes. The items which give rise to
these differences are the use of Modified Accelerated Cost Recovery System
(MACRS) for depreciation for federal income tax purposes, the timing of
California Franchise taxes as a federal deduction, the use of bonus
depreciation for California income tax purposes and net operating loss carry
forwards for both Federal and California income tax purposes.
F-40
<PAGE> 91
NOTES TO FINANCIAL STATEMENTS -- continued
JOSEPH STEVENS GROUP, INC.
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE B -- INCOME TAXES
Income tax benefits (expense) consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Federal Tax Benefit:
Currently Payable $ -0- $ -0-
Deferred Benefit 66,413 85,687
Valuation Allowance (66,413) (85,687)
-------- --------
-0- -0-
State Tax Benefit:
Currently Payable (800) (2,579)
Deferred Benefit 9,083 11,719
Valuation Allowance (9,083) (11,719)
-------- --------
(800) (2,579)
-------- --------
Income Tax Benefit (Expense) $ (800) $ (2,579)
======== ========
</TABLE>
The deferred tax asset is due to the tax benefits to be derived form the net
operating loss carry forwards. However, a valuation allowance has been provided
as realization of the deferred tax asset is not considered more likely than
not.
The statutory rates used to calculate the deferred benefit were 34% Federal and
9.3% State. The State of California only allows 50% of losses to be carried
forward.
For tax return purposes, at December 31, 1996, the Company has total net
operating loss carry forwards of approximately $1,698,093 for federal purposes
and $852,680 for state purposes, which may be applied against future taxable
income, expiring in the years 2006 through 2011 for federal and 1997 through
2001 for state.
F-41
<PAGE> 92
NOTES TO FINANCIAL STATEMENT - continued
JOSEPH STEVENS GROUP, INC.
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE C - LONG-TERM LIABILITIES
<TABLE>
1996 1995
---- ----
<S> <C> <C>
A summary of long-term debt, less current
maturities is as follows:
Loan payable to GMAC, commenced September 29,
1992, principal and interest payable monthly
at $283, effective interest rate 2.9%,
secured by automobile, maturing
August 29, 1996. $ 0 $ 2,236
Capitalized leases payable to finance companies,
principal and interest payable monthly at
$2,471, effective interest rates from 13%
to 27.5%, secured by equipment, maturing
March 25, 1999. 30,779 56,292
Note payable to Western Horizons, Ltd.,
(shareholder), commenced August 1,
1994, interest only payable monthly beginning
June 1, 1995, effective interest rate 7%,
balance due in full at maturity, July 31, 1999 900,000 900,000
Various notes payable to shareholders,
commencing in 1995 and 1996, principal
and interest due at maturity, effective
interest rate 7.5%, maturing December 31, 1996. 635,191 312,691
Note payable to individual, commencing December
1995 and November 1996, principal and interest
due at maturity, effective interest rate 7.5%,
maturing June 30, 1996, and December 31, 1996. 100,000 50,000
Note Payable to related party, Trans West
Communication Systems, Inc., commencing January
1996, principal and interest due monthly at
$4,459, effective interest rate 17.9%,
maturing April 1, 2001, with a residual
payment of $28,640. 168,221 0
--------- ---------
Total debt 1,834,191 1,321,219
Loss current maturities (779,995) (383,760)
--------- ---------
Long-term debt 1,054,196 937,459
========== =========
</TABLE>
The maturity of loans payable at December 31, 1997 is as follows:
<TABLE>
<S> <C>
1997 $ 779,995
1998 40,409
1999 937,618
2000 43,319
2001 32,850
Thereafter 0
----------
Total $1,834,191
==========
</TABLE>
The company has not maintained the terms of the notes payable to Western
Horizons, Ltd., shareholders, or individual. Per verbal agreement, Western
Horizons, Ltd. is allowing for a deferral of interest payments. The company is
currently negotiating a revised loan agreement. Per verbal agreement, the
shareholders and individual lender have extended the terms on their notes.
Management is currently negotiating revised maturity dates.
F-42
<PAGE> 93
NOTES OF FINANCIAL STATEMENTS - continued
JOSEPH STEVENS GROUP, INC.
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE D - STOCK OPTIONS AND STOCK WARRANTS
The Company has granted stock options to key members of management and to
members of its Board of Directors. As of December 31, 1996, the Company has
granted options for 64,000 shares of common stock. The exercise price of each
option is $1.00 per share of common stock. The options do not have an
expiration date.
In connection with the financing of $286,402 of equipment, $97,402 was paid
with the issuance of detachable stock warrants. Warrants to purchase 70,691
shares of common stock were issued. Upon surrender of a warrant, the holder is
entitled to purchase common stock at $1.375 per share. The warrants expire
December 31, 1999.
NOTE E - LIABILITY REDUCTION
In prior years, the Company had accrued for disputed liabilities existing with
various vendors in the amount of $235,392. All amounts disputed were in regards
to quality of services rendered to the Company. Due to negotiated agreements,
vendor concessions, and lack of action from the vendors, management believes it
is highly doubtful that these obligations exist. As a precaution, the Company
has accrued for contingent liabilities of 15% of the originally accrued amount,
$35,309. This is included in accounts payable and accrued expenses. The
write-down of the accrued liability of $200,083, is reflected in earnings in
1995.
NOTE F - COMMITMENTS AND CONTINGENCIES
Lease Commitment
The Company entered into a three year lease for its operating facility
beginning December 20, 1994. The Company has also entered into a three year
automobile lease beginning September 1, 1995.
As of December 31, 1996, the future minimum rental payments pertaining to these
leases are as follows:
<TABLE>
<CAPTION>
Facility Automobile Total
-------- ---------- -----
<S> <C> <C> <C>
December 31, 1997 $69,744 $3,980 $73,724
December 31, 1998 -0- 2,653 2,653
Thereafter -0- -0- -0-
------- ------ -------
$69,744 $6,633 $76,377
======= ====== =======
</TABLE>
Rental expense for all operating leases for the year ended December 31, 1996
amounted to approximately $89,257.
F-43
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS - continued
JOSEPH STEVENS GROUP, INC.
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE G - SUBSEQUENT EVENTS
Sale of Significant Assets
On January 13, 1997, the Company sold assets to a related company (the
Joseph Stevens Group, LLC, a California limited liability company) for
assumption of debt. The market value of the assets were less than the assumed
debt. Accordingly, as part of this transaction, the Company has entered into a
promissory note payable to the related company. Management is still negotiating
the terms of the note.
The following summarization reflects the December 31, 1996 condensed balance
sheet separating assets and liabilities to be sold and liabilities assumed:
<TABLE>
<CAPTION>
THE JOSEPH
800 TRAVEL STEVENS JOSEPH STEVENS
SYSTEMS, INC. GROUP, LLC GROUP, INC.
------------- ----------- --------------
<S> <C> <C> <C>
Current Assets $ -- $ 330,819 $ 330,819
--------- ---------- ----------
Leasehold Improvements and Equipment 690,725 -- 690,725
Less Accumulated Depreciation (321,580) -- (321,580)
--------- ---------- ----------
369,145 -- 369,145
--------- ---------- ----------
Other Assets 158,600 28,640 187,240
--------- ---------- ----------
Total Assets $ 527,745 359,459 $ 887,204
========= ========== ==========
Accounts Payable and Accrued Expenses -- $ 362,257 $ 362,257
Long Term Debt -- 1,834,190 1,834,190
--------- ---------- ----------
Total Liabilities -- 2,196,447 2,196,447
--------- ---------- ----------
Stockholders' Deficit -- -- (1,309,243)
--------- ---------- ----------
Total Liabilities and
Stockholders' Deficit -- $2,196,447 $ 887,204
========= ========== ==========
</TABLE>
Merger
The Company is currently in negotiations with 800 Travel Systems, Inc. to
perfect a type A merger. The Company will merge into 800 Travel Systems, Inc.
Upon filing the Articles of Merger with the Department of the State of Delaware
in accordance with the laws of the State of Delaware and the filing of the
Certificate of Merger with the Secretary of State of California. On the merger
becoming effective, the Company and 800 Travel Systems, Inc. shall become a
single corporation with 800 Travel Systems, Inc. being the surviving
corporation.
At the effective date, all the shares of the capital stock of the Company issued
and outstanding will be converted into shares of 800 Travel Systems, Inc. In
return, the shareholders of the Company will receive the greater of 1) 300,000
shares of 800 Travel Systems, Inc. stock, or 2) the number of shares of 800
Travel Systems, Inc. having an aggregate total of $1,500,000, using the IPO
opening price.
Interim Operating Agreement
The Company entered into an interim operating agreement with Joseph Stevens
Group LLC, a California Limited Liability Company, and 800 Travel Systems,
Inc., a Delaware Corporation, in January 1997. The terms of this agreement
require 800 Travel Systems, Inc. to maintain the operation of the Joseph
Stevens Group, Inc. until the merger. The interim operating entity will be
required to keep separate books in accordance with generally accepted
accounting principles. Termination of this agreement may only be made with
cause as per Paragraph 3.2 of the interim operating agreement.
NOTE H - RELATED PARTY TRANSACTIONS
As detailed in Note C, the Company has borrowings from shareholders of
$1,535,191 plus accrued interest as of December 31, 1996.
Additionally, in 1996 the Company purchased equipment in the amount of $286,402
from Trans West Communication Systems, Inc. One of the owners of Trans West
Communication Systems, Inc. is a member of the Company's Board of Directors and
is a holder of stock options and stock warrants.
F-44
<PAGE> 95
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company, the Selling
Stockholders or any Underwriter. This Prospectus does not constitute an offer
to sell or solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful to make such offer in
such jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof or
that there has been no change in the affairs of the Company since such date.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Stevens Merger . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Historical Financial Data . . . . . . . . . . . . . . . .
Unaudited Pro Forma Combined
Financial Information . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . .
Principal and Selling
Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . .
Concurrent Offering . . . . . . . . . . . . . . . . . . . . . . . .
Description of Securities . . . . . . . . . . . . . . . . . . . . .
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . .
Index to Financial Statements . . . . . . . . . . . . . . . . . . .
</TABLE>
--------------------
Until , 1997 (25 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
================================================================================
800 TRAVEL
SYSTEMS, INC.
1,800,000 SHARES OF
COMMON STOCK
AND
1,800,000 REDEEMABLE
COMMON STOCK PURCHASE
WARRANTS
--------------------
PROSPECTUS
--------------------
FIRST LONDON
SECURITIES CORPORATION
, 1997
================================================================================
<PAGE> 96
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED _______________, 1997)
SUBJECT TO COMPLETION, DATED _____________, 1997
800 TRAVEL SYSTEMS, INC.
984,134 Shares of Common Stock
This Prospectus supplement relates to the offer and sale by certain selling
securityholders ("Selling Stockholders") named herein under "Selling
Stockholders" of up to 984,134 shares of common stock, $.01 par value per
share ("Common Stock"), of 800 Travel Systems, Inc. (the "Company").
The Company will not receive any of the proceeds from the sale of
securities by the Selling Stockholders. All expenses of registration incurred
in connection with this Offering are being borne by the Company, but all
selling and other expenses incurred by Selling Stockholders will be borne by
the Selling Stockholders. None of the shares of Common Stock has been
registered prior to the filing of the Registration Statement of which this
Prospectus is a part. The outstanding shares of Common Stock were originally
issued by the Company in private transactions. See "Selling Stockholders."
The Selling Stockholders may from time to time sell all or a portion of
their shares of Common Stock in the over-the-counter market or on any national
securities exchange or automated interdealer quotation system on which the
Common Stock may hereafter be listed or traded, in negotiated transactions or
otherwise, at prices then prevailing or related to the then current market
price or at negotiated prices. The shares of Common Stock may be sold directly
or through brokers or dealers or in a distribution by one or more underwriters
on a firm commitment or best efforts basis. Each Selling Stockholder and any
agent or broker-dealer participating in the distribution of the Securities may
be deemed to be an "underwriter" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"). Any commissions received by and any
profit on the resale of the shares of Common Stock may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Registration Statement, of which this Prospectus forms a part, also
covers the offering by the Company of 1,800,000 shares of Common Stock and
1,800,000 Redeemable Common Stock Purchase Warrants (in each case without
giving effect to the Representative's Over-Allotment Option) being sold by the
Company.
Brokers or dealers effecting transactions in the shares of Common Stock on
behalf of the Selling Stockholders should confirm the registration thereof
under the securities laws of the state in which such transactions occur or the
existence of an exemption from registration.
The Company has filed applications for listing of the Common Stock on the
Nasdaq Small Cap Market System ("NASDAQ") and the Boston Stock Exchange. No
assurance can be given that the applications will be approved. There is no
current established market for the Common Stock.
SEE "RISK FACTORS" ON PAGE ___ OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
- -------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is __________________, 1997.
<PAGE> 97
USE OF PROCEEDS
The Company will not receive any of the proceeds from sales of any of the
shares of Common Stock by the Selling Stockholders.
SELLING STOCKHOLDERS
The Prospectus Supplement relates to the offer and sale from time to time
by certain stockholders of the Company of up to 984,134 outstanding shares of
Common Stock.
TRANSFER RESTRICTIONS
The Holders of the Common Stock offered hereby (the "Registered Shares")
have agreed with the representative of the underwriters of the offering of the
Company's securities (the "Representative") not to offer, sell or otherwise
dispose of ("Sell") such Registered Shares for a period of 30 days after the
Effective Date and for an additional period of thirty (30) days thereafter
without the consent of the Representative. With respect to 110,000 of his
Registered Shares, Perry Trebatch has agreed not to Sell more than 30,000
Registered Shares within in the second month following the Effective Date
without the Representative's consent and more than 20,000 Registered Shares
during each consecutive 30-day period thereafter. In addition, with respect to
100,000 of his Registered Shares, Mr. Trebatch has agreed not to Sell such
shares within 180 days of the Effective Date. In addition, The Joseph Stevens
Group, Inc. has agreed not to Sell more than 4,564 shares per month during the
11-month period following the first month following the Effective Date and not
to sell more than 20,833 shares per month during the 12-month period
thereafter. The Representative has no current plans or understandings to
waive, shorten or modify the foregoing lock-up arrangements. The Company will
(i) amend this Prospectus Supplement if these arrangements are waived for 10%
or more of the shares of the Selling Stockholders, and (ii) sticker this
Prospectus Supplement if these arrangements are waived for between 5% and 10%
of the shares of the Selling Stockholders.
IDENTITY AND OWNERSHIP OF SELLING STOCKHOLDERS
The following table provides certain information with respect to the
Selling Stockholders; and the number of shares of Common Stock owned, offered
and to be owned after the offering by each Selling Stockholder, subject to
certain transfer restrictions. See "--Transfer Restrictions."
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF SHARES OF COMMON
SHARES OF COMMON SHARES OF COMMON STOCK STOCK TO BE OWNED
STOCK OWNED BEFORE TO BE SOLD IN THE AFTER THE
SELLING STOCKHOLDERS OFFERING OFFERING OFFERING(1)
-------------------- ------------------ ---------------------- -----------------
<S> <C> <C> <C>
Steven Clarke 40,000 40,000 0
Silver Ltd. 20,000 20,000 0
Perry Trebatch (2) 480,000 210,000 20,000
Thomas J. Stalzer 25,000 25,000 0
Gaetano Grasso 49,568 49,568 0
Jerry Dowell 20,000 20,000 0
Scot Spencer 160,000 160,000 0
Kay Mahoney 20,000 20,000 0
SGII Corp 20,000 20,000 0
Adam Spencer 9,566 9,566 0
Audrey Spencer 10,000 10,000 0
George Spencer 290,000 290,000 0
The Joseph Stevens Group (3) 300,000 50,000 250,000
Eng-chye Low 20,000 20,000 0
</TABLE>
S-2
<PAGE> 98
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF SHARES OF COMMON
SHARES OF COMMON SHARES OF COMMON STOCK STOCK TO BE OWNED
STOCK OWNED BEFORE TO BE SOLD IN THE AFTER THE
SELLING STOCKHOLDERS OFFERING OFFERING OFFERING(1)
-------------------- ------------------ ---------------------- -----------------
<S> <C> <C> <C>
Charles H. Roeske 20,000 20,000 0
Roger Nitler 20,000 20,000 0
</TABLE>
(1) Assumes all shares registered herewith are sold by each Selling
Stockholder. The referenced offering is not the underwritten public
offering covered by the accompanying Prospectus.
(2) Immediately prior to the closing of this Offering, Mr. Trebatch will own
480,000 shares of Common Stock. Simultaneously with the closing of this
Offering, the Company will repurchase 250,000 shares of Mr. Trebatch's
shares. See "Risk Factors - Benefits to Existing Shareholders and
Affiliates," "Use of Proceeds" and "Certain Transactions." Of the
remaining 230,000 shares, 210,000 shares are being registered hereby.
(3) The sole stockholder of The Joseph Stevens Group, Inc. is The Joseph
Stevens Group, LLC.
Outstanding Common Stock.
Immediately after the effective date of this Prospectus Supplement, the
Company will have issued and outstanding 7,901,100 shares of Common Stock. See
"Capitalization."
PLAN OF DISTRIBUTION
The Selling Stockholders may from time to time sell all or a portion of
their shares of Common stock in the over-the-counter market or on any national
securities exchange or automated interdealer quotation system on which the
Common Stock may hereafter be listed or traded, in negotiated transactions or
otherwise, at prices then prevailing or related to the then current market
price or at negotiated prices. The shares of Common Stock may be sold directly
or through brokers or dealers or in a distribution by one or more underwriters
on a firm commitment or best efforts basis. The methods by which the shares of
Common Stock may be sold include (i) a block trade (which may involve crosses)
in which the broker or dealer engaged will attempt to sell the shares of Common
Stock as agent but may position and resell a portion of the block as principal
to facilitate the transaction, (ii) purchases by a broker or dealer as
principal and resales by such broker dealer for its account pursuant to this
Prospectus Supplement and the accompanying Prospectus, (iii) ordinary brokerage
transactions and transactions in which the broker solicits purchasers or sales
to or through marketmakers, (iv) transactions in put or call options or other
rights (whether exchange-listed or otherwise) established after the
effectiveness of the Registration Statement of which this Prospectus is a part
and (v) privately negotiated transactions. In addition, any of the shares of
Common Stock that qualify for sale pursuant to Rule 144 under the Securities
Act may be sold in transactions complying with such Rule, rather than pursuant
to this Prospectus Supplement and the accompanying Prospectus.
In the case of the sales of the shares of Common Stock effected to or
through broker-dealers, such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Stockholders or
the purchasers of the shares of Common Stock, sold by or through such
broker-dealers, or both. The Company has advised the Selling Stockholders that
the anti-manipulative Regulation M under the Exchange Act may apply to their
sales in the market and has informed them of the need for delivery of copies of
this Prospectus Supplement and the accompanying Prospectus. The Company is not
aware as of the date of this Prospectus Supplement of any agreements between
any of the Selling Stockholders and any broker-dealers with respect to the sale
of the shares of Common Stock. The Selling Stockholders and any broker-dealers
or agents participating in the distribution of the Securities may be deemed to
be "underwriters" within the meaning of the Securities Act and any commissions
received by any such broker-dealers or agents and the profit on any resale of
shares of Common Stock may be deemed to be underwriting commissions under the
Securities Act. The commissions received by a broker-dealer or agent may be in
excess of customary compensation. The Company will receive no part of the
proceeds from the sale of any of the shares of Common Stock by the Selling
Stockholders.
S-3
<PAGE> 99
The Company will pay all costs and expenses incurred in connection with the
registration under the Securities Act of the shares of Common Stock offered by
the Selling Stockholders, including without limitation all registration and
filing fees, listing fees, printing expenses, fees and disbursements of counsel
and accountants for the Company. Each Selling Stockholder will pay all
brokerage fees and commissions, if any, incurred in connection with the sale of
the shares of Common Stock owned by the Selling Stockholder. In addition, the
Company has agreed to indemnify the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act.
There is no assurance that any of the Selling Stockholders will sell any or
all of the shares Common Stock offered by them.
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Phillips Nizer Benjamin Krim & Ballon LLP, New York,
New York.
S-4
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under Section 145 of the Delaware General
Corporations Law to indemnify its directors and officers to the extent provided
in such statute. The Registrant's Amended and Restated Certificate of
Incorporation provides that the Registrant shall indemnify its executive
officers and directors to the fullest extent permitted by law either now or
hereafter. The Registrant has also entered into an agreement with each of its
directors and certain of its officers wherein it has agreed to indemnify each
of them to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification by any officer or director.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the
directors, officers and controlling persons of the Registrant against certain
civil liabilities that may be incurred in connection with this Offering,
including certain liabilities under the Securities Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission
registration fee . . . . . . . . . . . . . . . $ 14,000
NASD filing fee . . . . . . . . . . . . . . . . . . 10,000
NASDAQ listing fee . . . . . . . . . . . . . . . . . 10,000
Boston Stock Exchange Listing Fee . . . . . . . . . 10,000
Printing and engraving expenses . . . . . . . . . . 200,000
Accounting fees and expenses . . . . . . . . . . . . 50,000
Legal fees and expenses . . . . . . . . . . . . . . 150,000
Fees and expenses (including legal fees) for
qualifications under state securities laws . . . . ______
Registrar and Transfer Agent's fees and expenses . . ______
Miscellaneous . . . . . . . . . . . . . . . . . . . 4,000
Total . . . . . . . . . . . . . . . . . . . . . . . $448,000
</TABLE>
All amounts except the Securities and Exchange Commission registration fee, the
NASD filing fee and the NASDAQ listing fee and the Boston Stock Exchange
listing fee are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the initial capitalization of the Company, the Company
issued 3,229,600 shares of Common Stock to the officers and directors of the
Company in exchange for subscriptions receivable of $32,296 (par value). The
offering was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering.
In December 1995, in connection with the purchase of assets of 1-800
Low-Airfare, Inc. and its wholly-owned subsidiary S. Travel, Inc.
(collectively, the "Predecessor Business") and the assumption by the Company of
certain of its liabilities, the Company agreed to issue an aggregate of 300,000
shares of Common Stock to creditors of the
II-1
<PAGE> 101
Predecessor Business who chose to convert debt held by them at the rate of
$10.00 of such debt in the Predecessor Business per share of the Company's
Common Stock. Approximately 50 creditors of the Predecessor Business elected to
convert $1,664,340 of such indebtedness for 166,434 shar+es of Common Stock.
The remaining 133,566 shares were issued to S. Travel, Inc. The offering was
made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering to investors believed by the Company to be
sophisticated business-persons and investors.
In November and December 1995, the Company sold and issued 360,000 shares
of Common Stock to 7 investors at a price per share of $1.25. The offering was
made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering, as the offering was made to a limited number of
"accredited investors" (as such term is defined in Rule 501 of the Securities
Act) without general solicitation or advertisements.
In December 1995 through January 1996, in connection with bridge
financings, Company sold and issued 312,500 shares of Common Stock to 4
investors. The offering was made in reliance on Section 4(2) of the Securities
Act as a transaction not involving any public offering, as the offering was
made to a limited number of accredited investors without general solicitation
or advertisements.
In 1996 the Company sold and issued 1,387,500 shares of Common Stock to
investors in a private placement conducted through various broker-dealers
retained by the Company. The Common Stock was sold at an average price per
share of $2.22. The offering was made in reliance on Section 4(2) of the
Securities Act and Regulation D promulgated thereunder, as an offering only to
accredited investors.
During 1996, the Company issued a total of 280,000 shares to officers of
the Company and options to purchase 300,000 shares of Common Stock to a
consultant. Such issuances were made in reliance on Section 4(2) of the
Securities Act as transactions not involving any public offerings, as such
sales was made to a single accredited investor without general solicitation or
advertisements.
During 1996, the Company issued (i) 20,000 shares of Common Stock in
connection with a note payable to an existing lender; (ii) warrants to purchase
275,000 shares of Common Stock to lenders in recognition of extensions on loans
made by such lenders; (iii) 361,209 shares of Common Stock to creditors of the
Company for penalties for past due loans; and (iv) 40,000 shares of Common
Stock to its landlord, valued at the rate of $2.50 of indebtedness per share,
in exchange for a portion of its obligations to the landlord under its lease.
Such issuances were made in reliance on Section 4(2) of the Securities Act as
transactions not involving any public offerings, as such sales was made to a
limited number of sophisticated or accredited investors without general
solicitation or advertisements.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------- -----------
<S> <C>
1.1 Proposed form of Underwriting Agreement
1.2 Agreement Among Underwriters
1.3 Selected Dealer Agreement
2.1 Asset Purchase Agreement dated as of November 13, 1995 among 1-800
Low-Air Fare, Inc., S. Travel, Inc. and the Company (2)
2.2 Amended and Restated Agreement and Plan of Merger dated November 11,
1996 among the Company, The Joseph Stevens Group, Inc. and The
Joseph Stevens Group, LLC
2.3 Amended and Restated Interim Operating Agreement between the Company
and Joseph Stevens Group, Inc.
3.1 Proposed form of Registrant's Amended and Restated Certificate of
Incorporation
3.2 Proposed form of Registrant's Amended and Restated Bylaws
</TABLE>
II-2
<PAGE> 102
<TABLE>
<S> <C>
4.1 Specimen Common Stock certificate (1)
4.2 Specimen Warrant Certificate and Form of Warrant Agreement
5.1 Opinion of Phillips Nizer Benjamin Krim & Ballon LLP as to the
validity of the Common Stock being registered (1)
10.1 Form of Registrant's 1997 Stock Option Plan (2)
10.2 Promissory Note of the Company dated November 7, 1995 in the amount
of $30,000 to the order of S. Travel, Inc. due and payable November
7, 1997 (2)
10.3 Promissory Note of the Company dated November 7, 1995 in the amount
of $30,000 to the order of S. Travel, Inc. due and payable November
7, 1998 (2)
10.4 Redemption Agreement between the Company and Michael Cantor (2)
10.5 Form of Redemption Agreement between the Company and Jose Colon
10.6 Agreement between the Company and Perry Trebatch (2)
10.7 Lease dated February 10, 1996 by and between JFJ Real Estate Limited
Partnership and the Company (2)
10.8 Airlines Reporting Corporation ("ARC") Agent Reporting Agreement (2)
10.9 Letter dated March 6, 1996 from ARC approving change of ownership (2)
10.10 Subscriber Service Agreement dated November 27, 1995 between the
Company and Payroll Transfers Interstate, Inc. (2)
10.11 Form of Employment Agreement between the Company and Mark D.
Mastrini (2)
10.12 Form of Employment Agreement between the Company and Jerrold B.
Sendrow (2)
10.13 Form of Employment Agreement between the Company and Biagio Bellizzi
(2)
10.14 Form of Consulting Agreement between the Company and Lucien Bittar
10.15 Agreement dated as of March 1, 1997 by and between the Company and
Global Discount Travel Services
10.16 SABRE Subscriber Agreement dated as of January 28, 1994 by and
between S. Travel, Inc., (the Company's predecessor entity), and
American Airlines, Inc.
10.17 Amendment No. 1 to SABRE Subscriber Agreement dated February 14,
1994 by and between 1-800 Low-Air Fare Travel (predecessor entity of
the Company), and American Airlines, Inc.
10.18 Suspension of Service Agreement dated April 3, 1996 by and between
the Company and American Airlines, Inc.
10.19 Amendment to SABRE Subscriber Agreement dated July 19, 1996 by and
between the Company, and American Airlines, Inc.
10.20 SABRE Subscriber Agreement dated November 20, 1996 by and between
the Company and The SABRE Group, Inc.
10.21 Cluster Amendment to SABRE Subscriber Agreement dated November 20,
1996 by and between the Company and The SABRE Group, Inc.
10.22 Lease Agreement effective November 27, 1995 between the Company and
Roque De La Fuente Alexander Revocable Trust No. 1, and addendum
thereto dated June 27, 1995
11.1 Statement regarding computation of per share earnings (1)
12.1 Statement regarding computation of ratios (1)
21.1 Subsidiaries of the Registrant
23.1 Consent of Phillips Nizer Benjamin Krim & Ballon LLP (to be included
in its opinion to be filed as Exhibit 5.1)
23.2 Consent of Killman, Murrell & Company
23.3 Consent of Acetta and Olmstead, Accountancy Corporation (2)
23.4 Consent of Feldman Radin & Co., P.C. (2)
23.5 Consent of Feldman Radin & Co., P.C. regarding termination of
engagement
24.1 Reference is made to the Signatures section of the Registration
Statement filed on June 2, 1997 for the Power of Attorney contained
therein
</TABLE>
- ---------------------
(1) To be filed by amendment.
(2) Filed on June 2, 1997.
II-3
<PAGE> 103
(b) Financial Statement Schedules:
The following supplemental schedules can be found on the indicated pages
of this Registration Statement.
ITEM PAGE
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any additional or changed material information
with respect to the plan of distribution not previously disclosed in the
registration statement; and
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the Offering.
(b) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
II-4
<PAGE> 104
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on July 24, 1997.
800 TRAVEL SYSTEMS, INC.
By:/s/ Mark D. Mastrini
-------------------------------------
Mark D. Mastrini, President
Chief Operating Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Mark D. Mastrini President, July 24, 1997
- ---------------------------------- Chief Operating Officer
Mark D. Mastrini and Director
/s/ Jerrold B. Sendrow Vice President-Finance, Treasurer July 24, 1997
- ---------------------------------- and Secretary (principal accounting
Jerrold B. Sendrow officer)
* Director July 24, 1997
- ----------------------------------
Pasquale Guadagno
* Chairman of the Board July 24, 1997
- ----------------------------------
Michael Gaggi
*By: /s/ Jerrold B. Sendrow
-----------------------------
Jerrold B. Sendrow
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------- -----------
<S> <C>
1.1 Proposed form of Underwriting Agreement
1.2 Agreement Among Underwriters
1.3 Selected Dealer Agreement
2.1 Asset Purchase Agreement dated as of November 13, 1995 among 1-800
Low-Air Fare, Inc., S. Travel, Inc. and the Company (2)
2.2 Amended and Restated Agreement and Plan of Merger dated November 11,
1996 among the Company, The Joseph Stevens Group, Inc. and The
Joseph Stevens Group, LLC
2.3 Amended and Restated Interim Operating Agreement between the Company
and Joseph Stevens Group, Inc.
3.1 Proposed form of Registrant's Amended and Restated Certificate of
Incorporation
3.2 Proposed form of Registrant's Amended and Restated Bylaws
4.1 Specimen Common Stock certificate (1)
4.2 Specimen Warrant Certificate and Form of Warrant Agreement
5.1 Opinion of Phillips Nizer Benjamin Krim & Ballon LLP as to the
validity of the Common Stock being registered (1)
10.1 Form of Registrant's 1997 Stock Option Plan (2)
10.2 Promissory Note of the Company dated November 7, 1995 in the amount
of $30,000 to the order of S. Travel, Inc. due and payable November
7, 1997 (2)
10.3 Promissory Note of the Company dated November 7, 1995 in the amount
of $30,000 to the order of S. Travel, Inc. due and payable November
7, 1998 (2)
10.4 Redemption Agreement between the Company and Michael Cantor (2)
10.5 Form of Redemption Agreement between the Company and Jose Colon
10.6 Agreement between the Company and Perry Trebatch (2)
10.7 Lease dated February 10, 1996 by and between JFJ Real Estate Limited
Partnership and the Company (2)
10.8 Airlines Reporting Corporation ("ARC") Agent Reporting Agreement (2)
10.9 Letter dated March 6, 1996 from ARC approving change of ownership (2)
10.10 Subscriber Service Agreement dated November 27, 1995 between the
Company and Payroll Transfers Interstate, Inc. (2)
10.11 Form of Employment Agreement between the Company and Mark D.
Mastrini (2)
10.12 Form of Employment Agreement between the Company and Jerrold B.
Sendrow (2)
10.13 Form of Employment Agreement between the Company and Biagio Bellizzi
(2)
10.14 Form of Consulting Agreement between the Company and Lucien Bittar
10.15 Agreement dated as of March 1, 1997 by and between the Company and
Global Discount Travel Services
10.16 SABRE Subscriber Agreement dated as of January 28, 1994 by and
between S. Travel, Inc., (the Company's predecessor entity), and
American Airlines, Inc.
10.17 Amendment No. 1 to SABRE Subscriber Agreement dated February 14,
1994 by and between 1-800 Low-Air Fare Travel (predecessor entity of
the Company), and American Airlines, Inc.
10.18 Suspension of Service Agreement dated April 3, 1996 by and between
the Company and American Airlines, Inc.
10.19 Amendment to SABRE Subscriber Agreement dated July 19, 1996 by and
between the Company, and American Airlines, Inc.
10.20 SABRE Subscriber Agreement dated November 20, 1996 by and between
the Company and The SABRE Group, Inc.
10.21 Cluster Amendment to SABRE Subscriber Agreement dated November 20,
1996 by and between the Company and The
SABRE Group, Inc.
10.22 Lease Agreement effective November 27, 1995 between the Company and
Roque De La Fuente Alexander Revocable Trust No. 1, and addendum
thereto dated June 27, 1995
</TABLE>
II-7
<PAGE> 107
<TABLE>
<S> <C>
11.1 Statement regarding computation of per share earnings (1)
12.1 Statement regarding computation of ratios (1)
21.1 Subsidiaries of the Registrant
23.1 Consent of Phillips Nizer Benjamin Krim & Ballon LLP (to be included
in its opinion to be filed as Exhibit 5.1)
23.2 Consent of Killman, Murrell & Company
23.3 Consent of Acetta and Olmstead, Accountancy Corporation (2)
23.4 Consent of Feldman Radin & Co., P.C. (2)
23.5 Consent of Feldman Radin & Co., P.C. regarding termination of
engagement
24.1 Reference is made to the Signatures section of the Registration
Statement filed on June 2, 1997 for the Power of Attorney contained
therein
</TABLE>
- ---------------------
(1) To be filed by amendment.
(2) Filed on June 2, 1997.
II-8
<PAGE> 1
EXHIBIT 1.1
800 TRAVEL SYSTEMS, INC.
1,800,000 SHARES OF COMMON STOCK AND
1,800,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(AND 1,800,000 SHARES OF COMMON STOCK ISSUABLE UNDER THE WARRANTS)
UNDERWRITING AGREEMENT
Dallas, Texas
__________, 1997
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Gentlemen:
800 Travel Systems, Inc. (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein, hereby
proposes to issue and sell to such Underwriters as named in Schedule A (the
"Underwriters") to this Underwriting Agreement (the "Agreement"), for whom
First London Securities Corporation is acting as the representative (the
"Representative"), pursuant to the terms of this Agreement, on a "firm
commitment" basis, 1,800,000 shares of Common Stock (the "Shares") at $5.00 per
Share (the "Initial Public Offering Price") and 1,800,000 Redeemable Common
Stock Purchase Warrants (the "Warrants") at $.125 per Warrant. The Shares and
the Warrants are collectively referred to as the "Securities". Each Warrant is
exercisable to purchase one share of Common Stock (the "Common Stock") at 150%
of the Initial Public Offering Price per share at any time during the period
between the Effective Date and five years from the Effective Date. The date
upon which the Securities and Exchange Commission ("Commission") shall declare
the registration statement of the Company effective shall be the "Effective
Date". The Warrants are subject to redemption under certain circumstances. In
addition, the Company proposes to grant to the Underwriters (or, at the option
of the Representative, to the Representative, individually) the option referred
to in Section 2(b) to purchase all or any part of an aggregate of 270,000
additional Shares and/or 270,000 additional Warrants (the "Option Securities").
You have advised the Company that you and the other Underwriters desire
to purchase, severally, the Securities, and that you have been authorized by
the Underwriters to execute this Agreement on their behalf. The Company
confirms the agreements made by it with respect to the purchase of the
Securities by the several Underwriters on whose behalf you are signing this
Agreement, as follows:
<PAGE> 2
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. 333-28237) on Form SB-2
relating to the public offering of the Securities, including a preliminary form
of the prospectus, copies of which have heretofore been delivered to you, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Commission thereunder, and has been filed
with the Commission under the Act. The Company has prepared in the same manner
and proposes to file, prior to the Effective Date of such registration
statement, an additional amendment or amendments to such registration
statement, including a final form of Prospectus, copies of which shall be
delivered to you. "Preliminary Prospectus" shall mean each prospectus filed
pursuant to the Rules and Regulations under the Act prior to the Effective
Date. The registration statement (including all financial schedules and
exhibits) as amended at the time it becomes effective and the final prospectus
included therein are respectively referred to as the "Registration Statement"
and the "Prospectus", except that (i) if the prospectus first filed by the
Company pursuant to Rule 424(b) of the Rules and Regulations shall differ from
said prospectus as then amended, the term "Prospectus" shall mean the
prospectus first filed pursuant to Rule 424(b), and (ii) if such registration
statement or prospectus is amended or such prospectus is supplemented, after
the effective date of such registration statement and prior to the Option
Closing Date (as hereinafter defined), the terms "Registration Statement" and
"Prospectus" shall include such registration statement and prospectus as so
amended, and the term "Prospectus" shall include the prospectus as so
supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to
the Option Closing Date, if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or Selected Dealers: (i) the Registration Statement and Prospectus
will in all respects conform to the requirements of the Act and the Rules and
Regulations; and (ii) neither the Registration Statement nor the Prospectus
will include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that the Company makes no representations,
warranties or agreement as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity with,
written information furnished to the Company by the Underwriters specifically
for use in the preparation thereof. It is understood that the statements set
forth in the Prospectus with respect to stabilization, under the heading
"Underwriting" and regarding the identity of counsel to the Underwriters under
the heading "Legal Matters" constitute the only information furnished in
writing by the Underwriters for inclusion in the Prospectus.
(c) Each of the Company and each subsidiary has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with full power and
authority (corporate and other) to own its properties and conduct its business
as described in the Prospectus and is duly qualified to do business as a
foreign corporation and is in
<PAGE> 3
good standing in all other jurisdictions in which the nature of its business or
the character or location of its properties requires such qualification, except
where failure to so qualify will not materially affect the Company's business,
properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company
as of the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respects with applicable
Federal and state securities laws; the holders thereof have no rights of
rescission against the Company with respect thereto, and are not subject to
personal liability by reason of being such holders; none of such securities
were issued in violation of the preemptive rights of any holders of any
security of the Company or similar contractual rights granted by the Company;
except as set forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any securities of the Company have been
granted or entered into by the Company; and all of the securities of the
Company, issued and to be issued as set forth in the Registration Statement,
conform to all statements relating thereto contained in the Registration
Statement and Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company. Neither the filing of the Registration Statement nor
the offering or sale of the Securities as contemplated in this Agreement gives
rise to any rights, other than those which have been waived or satisfied, for
or relating to the registration of any securities of the Company, except as
described in the Registration Statement and Prospectus.
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance and when
issued in accordance with the terms of the Warrants and Warrant Agreement, will
be duly and validly authorized, validly issued, fully paid and non-assessable,
free of preemptive rights and no personal liability will attach to the
ownership thereof. The Warrant exercise period and the Warrant exercise price
may not be changed or revised by the Company without the prior written consent
of the Representative. The Warrant Agreement has been duly authorized and,
when executed and delivered pursuant to this Agreement will constitute the
valid and legally binding obligation of the Company enforceable in accordance
with its terms.
The Common Stock Representative's Warrants, the Warrant Representative's
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Representative's Warrants, and the shares of
Common Stock issuable upon exercise of the Underlying Warrants (all as defined
in the Representative's Warrant Agreement described in Section 12 herein), have
been duly authorized and, when issued, delivered and paid for, will be validly
3
<PAGE> 4
issued, fully paid, non-assessable, free of preemptive rights and no personal
liability will attach to the ownership thereof, and will constitute valid and
legally binding obligations of the Company enforceable in accordance with their
terms and entitled to the benefits provided by the Representative's Warrant
Agreement.
(f) This Agreement, the Warrant Agreement and the Representative's
Warrant Agreement have been duly and validly authorized, executed and delivered
by the Company, and assuming due execution of this Agreement by the other party
hereto, constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally. The Company has full power and lawful authority to
authorize, issue and sell the Securities to be sold by it hereunder on the
terms and conditions set forth herein, and no consent, approval, authorization
or other order of any third party or any governmental authority is required in
connection with such authorization, execution and delivery or with the
authorization, issuance and sale of the Securities or the securities to be
issued pursuant to the Representative's Warrant Agreement, except such as may
be required under the Act or state securities laws, or as otherwise have been
obtained.
(g) Except as described in the Prospectus, neither the Company nor
any subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of the
Company or each subsidiary or any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or each subsidiary is a party or by which the Company or each
subsidiary may be bound or to which any of the property or assets of the
Company or each subsidiary is subject, nor will such action result in any
material violation of the provisions of the articles of incorporation or bylaws
as amended of the Company or each subsidiary, or any statute or any order, rule
or regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the
Company and each subsidiary have good and marketable title to all properties
and assets described in the Prospectus as owned by each of them, free and clear
of all liens, charges, encumbrances or restrictions, except such as are not
materially significant or important in relation to its business; all of the
material leases and subleases under which the Company or each subsidiary is the
lessor or sublessor of properties or assets or under which the Company or each
subsidiary holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, neither the Company nor each subsidiary is in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone, adverse to
rights of the Company or each subsidiary as lessor, sublessor, lessee, or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company or each subsidiary to continued possession
of the leased or subleased premises or assets under any such lease or sublease
except as described or referred to in the Prospectus; and
4
<PAGE> 5
the Company and each subsidiary owns or leases all such properties described in
the Prospectus as are necessary to its operations as now conducted and, except
as otherwise stated in the Prospectus, as proposed to be conducted as set forth
in the Prospectus.
(i) Deloitte & Touche LLP, who have given their report on certain
financial statements filed and to be filed with the Commission as part of the
Registration Statement, and which are included in the Prospectus, are with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration Statement present
fairly the financial position and results of operations and changes in
financial position of the Company on the basis stated in the Registration
Statement, at the respective dates and for the respective periods to which they
apply. Said statements and related notes and schedules have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent during the periods involved. The Company's internal
accounting controls and procedures are sufficient to cause the Company and each
subsidiary to prepare financial statements which comply in all material
respects with generally accepted accounting principles applied on a basis which
is consistent during the periods involved. During the preceding five year
period, nothing has been brought to the attention of the Company's management
that would result in any reportable condition relating to the Company's
internal accounting procedures, weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or,
to the knowledge of the Company or any subsidiary, threatened, any material
action, suit, proceeding, inquiry, arbitration or investigation against the
Company or any subsidiary, or any of the officers or directors of the Company
or any subsidiary, or any material action, suit, proceeding, inquiry,
arbitration, or investigation, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth, or
properties of the Company or any subsidiary.
5
<PAGE> 6
(m) Except as disclosed in the Prospectus, each of the Company and
each subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company or any subsidiary that has not been provided for
in the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and
each subsidiary has material licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use
all material patents, patent applications, trademarks, service marks, trade-
names, trademark registrations, service mark registrations, copyrights, and
licenses necessary for the conduct of such business and has not received any
notice of conflict, with the asserted rights of others in respect thereof. To
the best of the Company's knowledge, none of the activities or business of the
Company or any subsidiary are in violation of, or cause the Company or any
subsidiary to violate, any law, rule, regulation or order of the United States,
any state, county or locality, or of any agency or body of the United States or
of any state, county or locality, the violation of which would have a material
adverse impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution, in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments or contributions required or
allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the several
Underwriters hereunder will have been fully paid or provided for by the Company
and all laws imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
(r) Except as described in the Registration Statement and Prospectus,
no holders of Common Stock or of any other securities of the Company have the
right to include such Common Stock or other securities in the Registration
Statement and Prospectus.
(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor any subsidiary has any
material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in
the Registration Statement and Prospectus, nor has it any equity interest in
any partnership, joint venture, association or other entity except as disclosed
in the Registration Statement or Prospectus. Except as described
6
<PAGE> 7
in the Registration Statement and Prospectus, the Company owns all of the
outstanding securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending
the use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriters against any losses, claims,
damages or liabilities, joint or several, which shall include, but not be
limited to, all costs to defend against any such claim, so long as such claim
arises out of agreements made or allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or 5% or greater stockholder of the Company or any
subsidiary has any direct or indirect affiliation or association with any
member of the National Association of Securities Dealers, Inc. ("NASD"), except
as disclosed to the Representative in writing, and no beneficial owner of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member except as disclosed to the Representative in
writing. The Company will advise the Representative and the NASD if any 5% or
greater shareholder of the Company or any subsidiary is or becomes an affiliate
or associated person of an NASD member participating in the distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department
of Labor, or any other governmental agency responsible for the enforcement of
such federal, state or local laws and regulations. There is no unfair labor
practice charge or complaint against the Company or any subsidiary pending
before the National Labor Relations Board or any strike, picketing, boycott,
dispute, slowdown or stoppage pending or to the knowledge of the Company,
threatened against or involving the Company or any subsidiary or any
predecessor entity.
7
<PAGE> 8
No question concerning representation exists respecting the employees of the
Company or any subsidiary and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or any
subsidiary. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any
subsidiary, if any.
(aa) Neither the Company nor any subsidiary maintains, sponsors nor
contributes to, nor is it required to contribute to, any program or arrangement
that is an "employee pension benefit plan" an "employee welfare benefit plan",
or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(i) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). Neither the Company nor any subsidiary
maintained or contributed to a defined benefit plan, as defined in Section
3(35) of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of
the Company or any subsidiary have been:
(1) Subject of a petition under the Federal bankruptcy
laws or any state insolvency law filed by or against them, or by
a receiver, fiscal agent or similar officer appointed by a court
for their business or property, or any partnership in which
either or them was a general partner at or within two years
before the time of such filing, or any corporation or business
association of which either of them was an executive officer at
or within two years before the time of such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
either of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity
pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any
of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or
practice in connection with any such activity;
(ii) engaging in any type of business practice; or
8
<PAGE> 9
(iii) engaging in any activity in connection with
the purchase or sale of any security or commodity or in
connection with any violation of Federal or State
securities law or Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or
State authority barring, suspending or otherwise limiting for
more than 60 days either of their right to engage in any activity
described in paragraph (3)(i) above, or be associated with
persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to have
violated any Federal or State securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to have violated
any Federal Commodities Law, and the judgment in such civil action or finding
by the Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
(ac) Based upon written representations received from the officers and
directors of the Company, each of the officers and directors of the Company has
reviewed the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained therein
is true and accurate.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement and upon
the basis of the representations, warranties and agreements herein contained,
the Company hereby agrees to issue and sell to the Underwriters an aggregate of
1,800,000 Shares at $4.50 per Share and 1,800,000 Warrants at $.112 per
Warrant, (the public offering price less 10%), at the place and time
hereinafter specified, in accordance with the number of Shares and/or Warrants
set forth opposite the names of the Underwriters in Schedule A attached hereto
plus any additional Securities which such Underwriters may become obligated to
purchase pursuant to the provisions of Section 9 hereof. The Securities shall
consist of 1,800,000 Shares and 1,800,000 Warrants to be purchased from the
Company, and the price at which the Underwriters shall sell the Securities to
the public shall be $5.00 per Share and $.125 per Warrant.
Delivery of the Securities against payment therefor shall take place at
the offices of First London Securities Corporation, 2600 State Street, Dallas,
Texas 75204 (or at such other place as may be designated by the Representative)
at 10:00 a.m., Eastern Time, on such date after the Effective Date as the
Representative shall designate, but not later than ten business days (holidays
excepted) following the first date that any of the Securities are released to
you, such time and date of payment and delivery for the Securities being herein
called the "Closing Date".
9
<PAGE> 10
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants the "Option" to the Underwriters
(or, at the option of the Representative, to the Representative, individually)
to purchase all or any part of an aggregate of an additional 270,000 Shares and
270,000 Warrants at the same price per Share and Warrant as the Underwriters
shall pay for the Securities being sold pursuant to the provisions of
subsection (a) of this Section 2 (such additional Securities being referred to
herein as the "Option Securities"). This Option may be exercised within 45 days
after the Effective Date upon notice by the Underwriters (or the
Representative, individually) to the Company advising as to the amount of
Option Securities as to which the Option is being exercised, the names and
denominations in which the certificates for such Option Securities are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Underwriters (or the
Representative, individually) but shall not be later than ten full business
days after the exercise of the Option, nor in any event prior to the Closing
Date, and such time and date is referred to herein as the "Option Closing
Date". Delivery of the Option Securities against payment therefor shall take
place at the offices of the Representative. The Option granted hereunder may
be exercised only to cover over-allotments in the sale by the Underwriters of
the Securities referred to in subsection (a) above. In the event the Company
declares or pays a dividend or distribution on its Common Stock, whether in the
form of cash, shares of Common Stock or any other consideration, prior to the
Option Closing Date, such dividend or distribution shall also be paid on the
Option Closing Date.
(c) The Company will make the certificates for the Securities to be
sold hereunder available to you for inspection at least two full business days
prior to the Closing Date and the Option Closing Date, respectively, at the
offices of the Representative, and such certificates shall be registered in
such names and denominations as you may request. Time shall be of the essence
and delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company or
by wire transfer in New York Clearing House funds.
In addition, in the event the Underwriters (or the Representative,
individually) exercise the Option to purchase from the Company all or any
portion of the Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made payable in New York Clearing
House funds at the offices of the Representative, or by wire transfer, at the
time and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities
by the Representative for the respective accounts of the several Underwriters
registered in such names and in such denominations as the Representative may
request.
It is understood that the Representative, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by
10
<PAGE> 11
the Representative at the time of delivery of the Securities to be purchased by
such Underwriter or Underwriters. Any such payment by the Representative shall
not relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder. It is also understood that the Representative
individually, rather than all of the Underwriters, may (but shall not be
obligated to) purchase the Option Securities referred to in subsection (b) of
this Section 2, but only to cover over-allotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement is declared effective by the Commission.
3. Covenants of the Company. The Company covenants and agrees with
the several Underwriters that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to
the later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the
Company will prepare and file with the Commission, promptly upon your request,
any amendments or supplements to the Registration Statement or Prospectus which
may be necessary or advisable in connection with the distribution of the
Securities and as mutually agreed to by the Company and the Representative.
After the Effective Date and as soon as the Company is advised thereof,
the Company will advise you, and confirm the advice in writing, of the receipt
of any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such
purposes, and will use its best efforts to prevent the issuance of any such
order, and, if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each Preliminary
Prospectus and Definitive Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriters and Selected Dealers to use the Prospectus
in connection with the sale of the Securities for such period as in the opinion
of counsel to the Underwriters the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within
11
<PAGE> 12
such period as a Prospectus is required under the Act to be delivered in
connection with sales by the Underwriters or Selected Dealers, of any event of
which the Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel for the Company
or counsel for the Underwriters, should be set forth in an amendment to the
Registration Statement or a supplement to the Prospectus, in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Securities, or in case it shall be necessary to amend or supplement the
Prospectus to comply with law or with the Act and the Rules and Regulations,
the Company will notify you promptly and forthwith prepare and furnish to you
copies of such amended Prospectus or of such supplement to be attached to the
Prospectus, in such quantities as you may reasonably request, in order that the
Prospectus, as so amended or supplemented, will not contain any untrue
statement of a material fact or omit to state any material facts necessary in
order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
furnishing of any such amendment or supplement to the Registration Statement or
amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriters.
The Company will comply with the Act, the Rules and Regulations
thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the rules
and regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will qualify to register the Securities for sale
under the securities or "blue sky" laws of such jurisdictions as the
Representative may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent to service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Securities. The Company will, from time to time, prepare and file
such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriters may reasonably
request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8(a) and 8(c) hereof, and the out-of-
pocket expenses up to $25,000 of the Representative and expenses up to $25,000
of the counsel to the Representative, if the offering for any reason is
terminated. For the purposes of this sub-paragraph, the Representative shall
be deemed to have assumed such expenses when they are billed or incurred,
regardless of whether such expenses have been paid. The Representative shall
not be responsible for any expenses of the Company or others, or for any
charges or claims relative to the proposed public offering whether or not
consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the several Underwriters, from
time to time until the Effective Date of the Registration Statement, as many
copies of any Preliminary Prospectus filed with the Commission prior to the
Effective Date
12
<PAGE> 13
of the Registration Statement as the Underwriters may reasonably request. The
Company will deliver to the Underwriters on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required
to be delivered under the Act, from time to time, as many copies of the
Prospectus, in final form, or as thereafter amended or supplemented as the
several Underwriters may from time to time reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to
the Representative during the period ending five years from the Effective Date,
(i) as soon as practicable after the end of each fiscal year, a balance sheet
of the Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and cash flow of the Company and
any subsidiaries for such fiscal year, all in reasonable detail and accompanied
by a copy of the certificate or report thereon of independent accountants; (ii)
as soon as they are available, a copy of all reports (financial or other)
mailed to security holders; (iii) as soon as they are available, a copy of all
non-confidential documents, including annual reports, periodic reports and
financial statements, furnished to or filed with the Commission under the Act
and the 1934 Act; (iv) copies of each press release, news item and article with
respect to the Company's affairs released by the Company; and (v) such other
information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will make generally available to its stockholders and
to the registered holders of its Warrants and deliver to you as soon as it is
practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary
action to become a reporting company under Section 12 of the 1934 Act, and the
Company will make all filings required to, and will have obtained approval for,
the listing of the Shares and Warrants on The Nasdaq Small Cap Market or a
listing on a national market, and will use its best efforts to maintain such
listing for at least five years from the date of this Agreement.
(i) For such period as the Company's securities are registered under
the 1934 Act, the Company will hold an annual meeting of stockholders for the
election of Directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by Rule 14a-3 under
the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
13
<PAGE> 14
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption
"Use of Proceeds" in the Prospectus, and will file such reports with the
Commission with respect to the sale of the Securities and the application of
the proceeds therefrom as may be required by Sections 12, 13 and/or 15 of the
1934 Act and pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of counsel to the Underwriters and the Company
may be reasonably necessary or advisable in connection with the distribution of
the Securities and will use its best efforts to cause the same to become
effective as promptly as possible.
(l) On the Closing Date the Company shall execute and deliver to you
the Representative's Warrant Agreement. The Representative's Warrant Agreement
and Warrant Certificates will be substantially in the form of the
Representative' s Warrant Agreement and Warrant Certificates filed, as an
exhibit to the Registration Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable
upon exercise of the Representative's Warrant outstanding from time to time.
(n) All beneficial owners of the Company's securities (including
Warrants, Options and Common Stock of the Company), as of the Effective Date,
shall agree in writing, in a form satisfactory to the Representative, not to
sell, transfer or otherwise dispose of any of such securities or underlying
securities (except to a transferee who agrees to be bound by this provision)
for a period of twenty-four months from the Effective Date (the "lock-up
period"), or any longer period required by any State, without the prior written
consent of the Representative. Any of such securities which are originally
registered in a name of a original beneficial owner and are subsequently
registered under a different name will be subject to the twenty-four month
lock-up period. Sales of the Company's securities by officers and/or directors
of the Company prior to the expiration of the lock-up period shall be effected
through the Representative.
(o) The Company shall pay to the Representative upon the exercise or
redemption of the Warrants a fee equal to 5% of the gross proceeds of this
offering received by the Company from the exercise of the Warrants and 5% of
the aggregate redemption price for the Warrants redeemed. Such fee will be
paid to the Representative or its designees no soon than 12 months after the
Effective Date. Additionally, the Representative or its designee must be
designated in writing by the Warrant holder as having solicited the Warrant in
order to receive the fee.
(p) Prior to the Closing Date, the Company shall at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and
such other manuals as the Representative may designate, such listings to
contain the information required by such manuals and the Uniform Securities
Act. The Company hereby agrees to use its best efforts to maintain such listing
for a period of not less than
14
<PAGE> 15
five years unless the Company's securities otherwise qualify for a secondary
market trading exemption. The Company shall take such action as may be
reasonably requested by the Representative to obtain a secondary market trading
exemption in such states as may be reasonably requested by the Representative.
(q) During the 180 day period commencing on the Closing Date, the
Company will not, without the prior written consent of the Representative,
grant options or warrants to purchase the Company's Common Stock at a price
less than the initial per share public offering price.
(r) During the twelve month period commencing on the Closing Date,
the Company will not, without the prior written consent of the Representative,
issue any additional securities of the Company except for securities issued in
connection with an acquisition or merger by the Company or upon the issuance of
Common Stock upon the exercise of Warrants.
(s) Prior to the Closing Date, neither the Company nor any subsidiary
will issue, directly or indirectly, without your prior consent, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering of the Securities other than routine
customary advertising of the Company's products and services, and except as
required by any applicable law or the directives of any relevant regulatory
authority in any relevant jurisdiction.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the
financial statements to be included in any registration statement or similar
disclosure document to be filed by the Company hereunder, or any amendment or
supplement thereto. For a period of five years from the Effective Date, the
Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
quarterly report and the filing of quarterly financial information to
stockholders.
(u) The Company shall retain Continental Stock Transfer Corporation
as the transfer agent for the securities of the Company, or such other transfer
agent as you may agree to in writing. In addition, the Company shall direct
such transfer agent to furnish the Representative with daily transfer sheets as
to each of the Company's securities as prepared by the Company's transfer agent
and copies of lists of stockholders and warrantholders as reasonably requested
by the Underwriter, for a five year period commencing from the Closing Date.
(v) The Company shall cause the Depository Trust Company, or such
other depository of the Company's securities, to deliver a "special security
position report" to the Representative on a daily and weekly basis at the
expense of the Company, for a five year period from the Effective Date.
(w) Following the Effective Date, the Company shall, at its sole cost
and expense, prepare and file such Blue Sky applications with such
jurisdictions as the Representative shall designate and the Company may
reasonably agree.
15
<PAGE> 16
(x) On the Effective Date and for a period of three years thereafter,
the Company's Board of Directors shall consist of a minimum of five persons,
two of whom shall be independent and not otherwise affiliated with the Company
or associated with any of the Company's affiliates. First London Securities
Corporation shall have the right for a period of three years from the Effective
Date to nominate one Director to the Board of Directors.
(y) For such period as any Warrants are outstanding, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement or a new Registration Statement to become effective in
compliance with the Act and without any lapse of time between the effectiveness
of any such post-effective amendments and cause a copy of each Prospectus, as
then amended, to be delivered to each holder of record of a Warrant and to
furnish to each of the Underwriters and each dealer as many copies of each such
Prospectus as such Underwriter or such dealer may reasonably request. Such
post-effective amendments or new Registration Statements shall also register
the Representative's Warrant and all the securities underlying the
Representative's Warrant. The Company shall not call for redemption of any of
the Warrants unless a Registration Statement covering the securities underlying
the Warrants or Representative's Warrant has been declared effective by the
Commission and remains current at least until the date fixed for redemption.
In addition, the Warrants or Representative's Warrant shall not be redeemable
during the first year after the Effective Date without the written consent of
the Representative.
(z) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange, Nasdaq National Market or the
American Stock Exchange, the Company shall engage the Company's legal counsel
to deliver to the Representative a written opinion detailing those states in
which the Shares and Warrants of the Company may be traded in non-issuer
transactions under the Blue Sky laws of the fifty states ("Secondary Market
Trading Opinion"). The initial Secondary Market Trading opinion shall be
delivered to the Representative on the Effective Date, and the Company shall
continue to update such opinion and deliver same to the Representative on a
timely basis, but in any event at the beginning of each fiscal year, for a five
year period, if required.
4. Conditions of Underwriters, Obligations. The obligations of the
several Underwriters to purchase and pay for the Securities which they have
agreed to purchase hereunder from the Company are subject, as of the date
hereof and as of the Closing Date and the Option Closing Date, to the
continuing accuracy of, and compliance with, the representations and warranties
of the Company herein, to the accuracy of statements of officers of the Company
made pursuant to the provisions hereof, to the performance by the Company of
its obligations hereunder, and to the following conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such
later time or on such later date as you may agree to in writing; (ii) at or
prior to the Closing Date or Option Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and no proceeding for that purpose shall have been initiated or
pending, or shall be threatened, or to the knowledge of the Company,
contemplated by the Commission; (iii) no stop order suspending the
effectiveness of the qualification or registration of the Securities under the
16
<PAGE> 17
securities or "blue sky" laws of any jurisdiction (whether or not a
jurisdiction which you shall have specified) shall be threatened or to the
knowledge of the Company contemplated by the authorities of any such
jurisdiction or shall have been issued and in effect; (iv) any request for
additional information on the part of the Commission or any such authorities
shall have been complied with to the satisfaction of the Commission and any
such authorities, and to the satisfaction of counsel to the Underwriters; and
(v) after the date hereof no amendment or supplement to the Registration
Statement or the Prospectus shall have been filed unless a copy thereof was
first submitted to the Underwriters and the Underwriters did not object
thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any subsidiary except as set forth in or
contemplated by the Registration Statement, (ii) there shall not have been any
material adverse change in the general affairs, business, properties, condition
(financial or otherwise), management, or results of operations of the Company
or any subsidiary, whether or not arising from transactions in the ordinary
course of business, in each case other than as set forth in or contemplated by
the Registration Statement or Prospectus; (iii) neither the Company nor any
subsidiary shall have sustained any material interference with its business or
properties from fire, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree, which is not set forth in the
Registration Statement and Prospectus; and (iv) the Registration Statement and
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations, and shall in all material respects conform to
the requirements thereof, and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstance under which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending or,
to the knowledge of the Company or any subsidiary, threatened, any material
action, suit, proceeding, inquiry, arbitration or investigation against the
Company or any subsidiary, or any of the officers or directors of the Company
or any subsidiary, or any material action, suit, proceeding, inquiry,
arbitration, or investigation, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth, or
properties of the Company or any subsidiary.
(d) Each of the representations and warranties of the Company
contained herein shall be true and correct as of this date and at the Closing
Date as if made at the Closing Date, and all covenants and agreements herein
contained to be performed on the part of the Company and all conditions herein
contained to be fulfilled or complied with by the Company at or prior to the
Closing Date and Option Closing Date shall have been duly performed, fulfilled
or complied with.
(e) At each Closing Date, you shall have received the opinion,
together with copies of such opinion for each of the other several
Underwriters, dated as of each Closing Date, from Phillips
17
<PAGE> 18
Nizer Benjamin Krim & Ballon LLP, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, to the effect that:
(i) the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation, with full corporate power and
authority to own its properties and conduct its business as described in
the Registration Statement and Prospectus and is duly qualified or
licensed to do business as a foreign corporation and is in good standing
in each other jurisdiction in which the ownership or leasing of its
properties or conduct of its business requires such qualification except
for jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company and each subsidiary as a whole;
(ii) the authorized capitalization of the Company is as set
forth under "Capitalization" in the Prospectus; all shares of the
Company's outstanding stock and other securities requiring authorization
for issuance by the Company's Board of Directors have been duly
authorized, validly issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock of the Company and other securities
have not been issued in violation of the preemptive rights of any
shareholder and the shareholders of the Company do not have any
preemptive rights or, to such counsel's knowledge, other rights to
subscribe for or to purchase securities of the Company, nor, to such
counsel's knowledge, are there any restrictions upon the voting or
transfer of any of the securities of the Company, except as disclosed in
the Prospectus; the Common Stock, the Shares, the Warrants, and the
securities contained in the Representative's Warrant Agreement conform
to the respective descriptions thereof contained in the Prospectus; the
Common Stock, the Shares, the Warrants, the shares of Common Stock to be
issued upon exercise of the Warrants and the securities contained in the
Representative's Warrant Agreement, have been duly authorized and, when
issued, delivered and paid for, will be duly authorized, validly issued,
fully paid, non-assessable, free of preemptive rights and no personal
liability will attach to the ownership thereof; all prior sales by the
Company of the Company's securities have been made in compliance with or
under an exemption from registration under the Act and applicable state
securities laws and no shareholders of the Company have any rescission
rights against the Company with respect to the Company's securities; a
sufficient number of shares of Common Stock has been reserved for
issuance upon exercise of the Warrants and the Representative's
Warrants, and to the best of such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which have been
waived or satisfied or described in the Registration Statement;
(iii) this Agreement, the Representative's Warrant Agreement and
the Warrant Agreement have been duly and validly authorized, executed
and delivered by the Company and, assuming the due authorization,
execution and delivery of this Agreement by the Representative, are the
valid and legally binding obligations of the Company, enforceable in
accordance with their terms, except (a) as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization
or similar laws from time to time in
18
<PAGE> 19
effect which effect creditors, rights generally; and (b) no opinion is
expressed as to the enforceability of the indemnity provisions or the
contribution provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding securities of
the Company, the Shares, the Common Stock and the Warrants are in valid
and proper legal form;
(v) to the best of such counsel's knowledge, except as set
forth in the Prospectus, there is not pending or, to the knowledge of
the Company, threatened, any material action, suit, proceeding, inquiry,
arbitration or investigation against the Company or any subsidiary or
any of the officers of directors of the Company or any subsidiary, nor
any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might materially and adversely affect the condition
(financial or otherwise), business prospects, net worth, or properties
of the Company or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Representative's Warrant Agreement and the Warrant Agreement, and the
incurrence of the obligations herein and therein set forth and the
consummation of the transactions herein or therein contemplated, will
not result in a violation of, or constitute a default under (a) the
Articles of Incorporation or By-Laws of the Company and each subsidiary;
(b) to the best of such counsel's knowledge, any material obligations,
agreement, covenant or condition contained in any bond, debenture, note
or other evidence of indebtedness or in any contract, indenture,
mortgage, loan agreement, lease, joint venture or other agreement or
instrument to which the Company or any subsidiary is a party or by which
it or any of its properties is bound; or (c) to the best of such
counsel's knowledge, any material order, rule, regulation, writ,
injunction, or decree of any government, governmental instrumentality or
court, domestic or foreign;
(vii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for that purpose have been instituted or are pending
before, or threatened by, the Commission; the Registration Statement and
the Prospectus (except for the financial statements and other financial
data contained therein, or omitted therefrom, as to which such counsel
need express no opinion) comply as to form in all material respects with
the applicable requirements of the Act and the Rules and Regulations;
and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Securities by the Company, in connection with the execution,
delivery and performance of this Agreement by the Company or in
connection with the taking of any action contemplated herein, or the
issuance of the Representative's Warrant or the Securities underlying
the Representative's Warrant, other than registrations or qualifications
of the Securities under applicable state or foreign securities or Blue
Sky laws and registration under the Act.
19
<PAGE> 20
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriters. The opinion of such
counsel to the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representative and they
are justified in relying thereon.
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment
thereto at the time it became effective contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading or that the Prospectus
or any supplement thereto contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make statements therein, in light of the circumstances under which
they are made, not misleading (except, in the case of both the Registration
Statement and any amendment thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto and other financial
information and statistical data contained therein, as to which such counsel
need express no opinion).
(f) You and the several Underwriters shall have received on each
Closing Date a certificate dated as of each Closing Date, signed by the Chief
Executive Officer and the Chief Financial officer of the Company and such other
officers of the Company as the Underwriters may request, certifying that:
(i) No order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities in effect
and no proceedings for such purpose are pending or are, to their
knowledge, threatened by the Commission;
(ii) To their knowledge there is no litigation instituted or
threatened against the Company or any subsidiary or any officer or
director of the Company or any subsidiary of a character required to be
disclosed in the Registration Statement which is not disclosed therein;
to their knowledge there are no contracts which are required to be
summarized in the Prospectus which are not so summarized; and to their
knowledge there are no material contracts required to be filed as
exhibits to the Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any amendment
or supplement to either of the foregoing contains an untrue statement of
any material fact or omits to state any material fact required to be
stated therein or necessary to make the statement therein, in light of
the circumstances under which they are made, not misleading; and since
the Effective Date, to the best of their knowledge, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth;
20
<PAGE> 21
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any material adverse change in the condition of the Company or any
subsidiary, financial or otherwise, or in the results of its operations,
except as reflected in or contemplated by the Registration Statement and
the Prospectus and except as so reflected or contemplated since such
date, there has not been any material transaction entered into by the
Company or any subsidiary;
(v) The representations and warranties set forth in this
Agreement are true and correct in all material respects and the Company
has complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in
the filing of any federal, state and municipal tax return or the payment
of any federal, state or municipal taxes; they know of no proposed re-
determination or reassessment of taxes, adverse to the Company or any
subsidiary, and the Company and each subsidiary has paid or provided by
adequate reserves for all known tax liabilities except such delinquency
that will not have a material adverse affect on the Company;
(vii) They know of no material obligation or liability of the
Company or any subsidiary, contingent or otherwise, not disclosed in the
Registration Statement and Prospectus;
(viii) This Agreement, the Representative's Warrant Agreement and
the Warrant Agreement, the consummation of the transactions herein of
therein contemplated, and the fulfillment of the terms hereof or
thereof, will not result in a breach by the Company of any terms of, or
constitute a default under, its Articles of Incorporation or By-Laws,
any indenture, mortgage, lease, deed or trust, bank loan or credit
agreement or any other material agreement or undertaking of the Company
or any subsidiary including, by way of specification but not by way of
limitation, any agreement or instrument to which the Company or any
subsidiary is now a party or pursuant to which the Company or any
subsidiary has acquired any right and/or obligations by succession or
otherwise;
(ix) The financial statements and schedules filed with and as
part of the Registration Statement present fairly the financial position
of the Company as of the dates thereof all in conformity with generally
accepted principles of accounting applied on a consistent basis
throughout the periods involved. Since the respective dates of such
financial statements, there have been no material adverse change in the
condition or general affairs of the Company, financial or otherwise,
other than as referred to in the Prospectus;
(x) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein, neither the Company nor any subsidiary
has, prior to the Closing Date, either (i) issued any securities or
incurred any material liability or obligation, direct or contingent, for
borrowed money, or (ii) entered into any material transaction other than
in the ordinary course of
21
<PAGE> 22
business. The Company has not declared, paid or made any dividend or
distribution of any kind on its capital stock;
(xi) Based upon written representation from the offices and
directors of the Company and each subsidiary they have reviewed the
sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained
therein is true and accurate; and
(xii) Based upon written representation from the offices and
directors of the Company and each subsidiary except as disclosed in the
Prospectus, during the past five years, they have not been:
(1) Subject of a petition under the Federal bankruptcy
laws or any state insolvency law filed by or against them, or by
a receiver, fiscal agent or similar officer appointed by a court
for their business or property, or any partnership in which
either or them was a general partner at or within two years
before the time of such filing, or any corporation or business
association of which either of them was an executive officer at
or within two years before the time of such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
either of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity
pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any
of the foregoing, or as an investment adviser,
underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or
practice in connection with any such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with
the purchase or sale of any security or commodity or in
connection with any violation of Federal or State
securities law or Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or
State authority barring, suspending or otherwise limiting for
more than 60 days either of their right to engage in any
22
<PAGE> 23
activity described in paragraph (3) (i) above, or be associated
with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to have
violated any Federal or State securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any Federal Commodities Law, and the judgment in
such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(g) The Underwriters shall have received from Killman, Murrell &
Company, P.C.,, independent auditors to the Company, certificates or letters,
one dated and delivered on the Effective Date and one dated and delivered on
the Closing Date, in form and substance satisfactory to the Underwriters,
stating, that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
(ii) the financial statements and the schedules included in the
Registration Statement and the Prospectus were examined by them and, in
their opinion, comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and Regulations
and instructions of the Commission with respect to Registration
Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available
unaudited interim financial statements or other financial information of
the Company (with an indication of the date of the latest available
unaudited interim financial statements), inquiries of officers of the
Company who have responsibility for financial and accounting matters,
review of minutes of all meetings of the shareholders and the Board of
Directors of the Company and other specified inquiries and procedures,
nothing has come to their attention as a result of the foregoing
inquiries and procedures that causes them to believe that:
(a) during the period from (and including) the date of
the financial statements in the Registration Statement and the
Prospectus to a specified date not more than five days prior to
the date of such letters, there has been any change in the Common
Stock, long-term debt or other securities of the Company (except
as specifically contemplated in the Registration Statement and
Prospectus) or any material decreases in net current assets, net
assets, shareholder's equity, working capital or in any other
item appearing in the Company's financial statements as to which
the Underwriters may request advice, in each case as compared
with amounts
23
<PAGE> 24
shown in the balance sheet as of the date of the financial
statement in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or will occur;
(b) during the period from (and including) the date of
the financial statements in the Registration Statement and the
Prospectus to such specified date there was any material decrease
in revenues or in the total or per share amounts of income or
loss before extraordinary items or net income or loss, or any
other material change in such other items appearing in the
Company's financial statements as to which the Underwriters may
request advice, in each case as compared with the corresponding
period in the preceding year, except in each case for increases,
changes or decreases which the Prospectus discloses have occurred
or will occur;
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letter and found them to be in agreement.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriters. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the several
Underwriters, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the several
Underwriters hereunder.
(h) Upon exercise of the Option provided for in Section 2(b) hereof,
the obligation of the several Underwriters (or, at its option, the
Representative, individually) to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose shall
have been instituted or shall be pending, or, to your knowledge or the
knowledge of the Company, shall be contemplated by the Commission, and
any reasonable request on the part of the Commission for additional
information shall have been complied with to the satisfaction of counsel
to the Underwriters.
(ii) At the Option Closing Date, there shall have been
delivered to you the signed opinion from Phillips Nizer Benjamin Krim &
Ballon, LLP, counsel for the Company, dated as of the Option Closing
Date, in form and substance satisfactory to counsel to the Underwriters,
which opinion shall be substantially the same in scope and substance as
the
24
<PAGE> 25
opinion furnished to you at the Closing Date pursuant to Section 4 (e)
hereof, except that such opinion, where appropriate, shall cover the
Option Securities.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and Chief
Financial Officer of the Company, dated the Option Closing Date, in form
and substance satisfactory to counsel to the Underwriters, substantially
the same in scope and substance as the certificate furnished to you at
the Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you from
Killman, Murrell & Company, P.C., independent auditors to the Company,
dated the Option Closing Date and addressed to the several Underwriters
confirming the information in their letter referred to in Section 4(g)
hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter
to a date not more than five business days prior to the Option Closing
Date, which would require any change in said letter if it were required
to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance to the Underwriters, and the
Underwriters and counsel to the Underwriters shall have been furnished
with all such documents, certificates, and opinions as you may request
in connection with this transaction in order to evidence the accuracy
and completeness of any of the representations, warranties or statements
of the Company or its compliance with any of the covenants or conditions
contained herein.
(i) No action shall have been taken by the Commission or the NASD,
the effect of which would make it improper, at any time prior to the Closing
Date, for members of the NASD to execute transactions (as principal or agent)
in the Common Stock and no proceedings for the taking of such action shall have
been instituted or shall be pending, or, to the knowledge of the several
Underwriters or the Company, shall be contemplated by the Commission or the
NASD. The Company represents that at the date hereof it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD. The
Company shall advise the Representative of any NASD affiliations of any of its
officers, directors, or stockholders or their affiliates in accordance with
paragraph 1(y) of this Agreement.
(j) At the Effective Date, you shall have received from counsel to
the Company, dated as of the Effective Date, in form and substance satisfactory
to counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in non-
issuer transactions under the Blue Sky laws of the 50 states after the
Effective Date, in accordance with paragraph 3(z) of this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the several Underwriters, and such counsel shall be furnished with such
25
<PAGE> 26
documents, certificates and opinions as they may reasonably request to enable
them to pass upon the matters referred to in this sub-paragraph.
(l) Prior to the Effective Date, the Representative shall have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Representative, as described in the Registration Statement.
(m) If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated, this Agreement and all
obligations of the several Underwriters under this Agreement may be canceled
at, or at any time prior to, the Closing Date and/or the Option Closing Date by
the Representative and/or the Underwriters notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the several
Underwriters to the Company.
5. Conditions of the Obligations of the Company. The obligation of
the Company to sell and deliver the Securities is subject to the following
conditions:
(i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or on
such later time or date as the Company and the Representative may agree
in writing; and
(ii) At the Closing Date and the Option Closing Date, no stop
orders suspending the effectiveness of the Registration Statement shall
have been issued under the Act or any proceedings therefore initiated or
threatened by the Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the Closing Date but are not fulfilled after the
Closing Date and prior to the Option Closing Date, then only the obligation of
the Company to sell and deliver the Securities on exercise of the Option
provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds harmless
each Underwriter and each person, if any, who controls the Underwriter within
the meaning of the Act against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include but
not be limited to, all reasonable costs of defense and investigation and all
attorneys' fees), to which the Underwriter or such controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in (i) the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, (ii) any blue sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company and filed in
any state or other jurisdiction in order to qualify any or all of the
Securities under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or arise out of
or are based upon the omission or alleged omission to state in the Registration
Statement, any Preliminary Prospectus, Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, a material fact required to
be stated therein or
26
<PAGE> 27
necessary to make the statements therein not misleading; provided, however,
that the Company will not be liable in any such cases to the extent, but only
to the extent, that any such losses, claim, damages or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. Notwithstanding the foregoing, the Company shall have no
liability under this section if such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus and the Prospectus is not
delivered to the person or persons alleging the liability upon which
indemnification is being sought. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter, severally, but not jointly, indemnifies and
holds harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include, but not
be limited to, all costs of defense and investigation and all attorneys' fees)
to which the Company or any such director, nominee, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statements or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by you or by any
Underwriter through you specifically for use in the preparation thereof.
Notwithstanding the foregoing, the Underwriters shall have no liability under
this Section if such untrue statement or omission made in a Preliminary
Prospectus is cured in the Prospectus and the Prospectus is not delivered to
the person or persons alleging the liability upon which indemnification is
being sought through no fault of the Underwriter. This indemnity agreement
will be in addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such
27
<PAGE> 28
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that if the indemnified party is an Underwriter or a person who controls such
Underwriter within the meaning of the Act, the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both the Underwriter or such controlling person and the
indemnifying party and in the reasonable judgment of the Representative, it is
advisable for the Representative or such Underwriters or controlling persons to
be represented by separate counsel (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
Underwriter or such controlling person, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for
all such Underwriters and controlling persons, which firm shall be designated
in writing by you). No settlement of any action against an indemnified party
shall be made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such
indemnifying party.
7. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) each Underwriter makes
claim for indemnification pursuant to Section 6 hereof but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case,
notwithstanding the fact that the express provisions of Section 6 provide for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of any Underwriter, then the Company and each person who
controls the Company, in the aggregate, and any such Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all reasonable costs of defense and investigation and
all reasonable attorneys, fees) in either such case (after contribution from
others) in such proportions that all such Underwriters are responsible in the
aggregate for that portion of such losses, claims, damages or liabilities
represented by the percentage that the underwriting discount per Share
appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company shall be responsible for the remaining
portion, provided, however, that (a) if such allocation is not permitted by
applicable law then the relative fault of the Company and the Underwriter and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an
untrue statement of a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company, or
the Underwriter and the
28
<PAGE> 29
parties, relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if the respective
obligations of the Company and the Underwriters to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages (even if the Underwriters and their controlling persons in
the aggregate were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in the first sentence of this Section; and (b) that the
contribution of each contributing Underwriter shall not be in excess of its
proportionate share (based on the ratio of the number of Securities purchased
by such Underwriter to the number of Securities purchased by all contributing
Underwriters) of the portion of such losses, claims, damages or liabilities for
which the Underwriters are responsible. No person ultimately determined to be
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who is nor
ultimately determined to be guilty of such fraudulent misrepresentation. As
used in this paragraph, the term "Underwriter" includes any officer, director,
or other person who controls the Underwriter within the meaning of Section 15
of the Act, and the word "Company" includes any officer, director, or person
who controls the Company within the meaning of Section 15 of the Act. If the
full amount of the contribution specified in this paragraph is not permitted by
law, then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law. This foregoing
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriter. No contribution shall be requested with regard to the settlement
of any matter from any party who did not consent to the settlement; provided,
however, that such consent shall not be unreasonably withheld in light of all
factors of importance to such party.
8. Costs and Expenses. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriters is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
the counsel to the Company or of the Company's accountants; the costs and
expenses incident to the preparation, printing, filing and distribution under
the Act of the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), Preliminary Prospectus and
the Prospectus, as amended or supplemented; the fee of the NASD in connection
with the filing required by the NASD relating to the offering of the Securities
contemplated hereby; all state filing fees, expenses and disbursements and
legal fees of counsel to the Company who shall serve as Blue Sky counsel to the
Company in connection with the filing of applications to register the
Securities under the state securities or blue sky laws; the cost of printing
and furnishing to the several Underwriters copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, the
Selected Dealers Agreement, the Agreement Among Underwriters, Underwriters
Questionnaire, Underwriters Power of Attorney and the Blue Sky Memorandum; the
cost of printing the certificates evidencing the securities comprising the
Securities; the cost of preparing and delivering to the Underwriters and its
counsel bound volumes containing copies of all documents and appropriate
correspondence filed with or received from the Commission and the NASD and all
closing documents; and the fees and disbursements of the transfer agent for the
Company's securities. The Company shall pay any and all taxes (including any
original issue, transfer, franchise, capital stock or other tax imposed by any
jurisdiction) on sales to
29
<PAGE> 30
the Underwriters hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus. The Company shall also engage the Company's
counsel to provide the Representative with a written Secondary Market Trading
Opinion in accordance with paragraphs 3(z) and 4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Representative a non-accountable expense allowance
equal to 3% of the gross proceeds received from the sale of the Securities, of
which an advance of $__________ has been paid to date. In the event the over-
allotment option is exercised, the Company shall pay to the Representative at
the Option Closing Date an additional amount equal to 3% of the gross proceeds
received upon exercise of the over-allotment option.
(c) Other than as disclosed in the Registration Statement, no person
is entitled either directly or indirectly to compensation from the Company,
from the Representative or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Representative and the other Underwriters against any losses,
claims, damages or liabilities, joint or several which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys, fees, to which the Representative or such
other Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Substitution of Underwriters. If any of the Underwriters shall
for any reason not permitted hereunder cancel their obligations to purchase the
Securities hereunder, or shall fail to take up and pay for the number of
Securities set forth opposite their respective names in Schedule A hereto upon
tender of such Securities in accordance with the terms hereof, then:
(a) if the aggregate number of Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
number of Securities, the other Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the
Securities which such defaulting Underwriter or Underwriters agreed but failed
to purchase.
(b) If any Underwriter or Underwriters so default and the agreed
number of Securities with respect to which such default or defaults occurs is
more than 10% of the total number of Securities, the remaining Underwriters
shall have the right to take up and pay for (in such proportion as may be
agreed upon among them) the Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase. If such remaining Underwriters do
not, at the Closing Date, take up and pay for the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the Securities shall be extended to the next business day to
allow the several Underwriters the privilege of substituting within twenty-four
hours (including non-business hours) another Underwriter or Underwriters
satisfactory to the Company. If no such Underwriter or Underwriters shall have
been substituted as aforesaid, within such twenty-four period, the time of
delivery of the Securities may, at the option of the Company, be again extended
30
<PAGE> 31
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including non-business hours)
another Underwriter or Underwriters to purchase the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the Securities of the defaulting Underwriter or Underwriters as
provided in this Section, (i) the Company or the Representative shall have the
right to postpone the time of delivery for a period of not more than seven
business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary; and (ii) the respective numbers of Securities to
be purchased by the remaining Underwriters or substituted Underwriters shall be
taken at the basis of the underwriting obligation for all purposes of this
Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Securities agreed
to be purchased by the defaulting Underwriters or substitute another
Underwriter or Underwriters as aforesaid, and the Company shall not find or
shall not elect to seek another Underwriter or Underwriters for such Securities
as aforesaid, then this Agreement shall terminate.
If, following exercise of the Option provided in Section 2(b) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Securities at the Option Closing
Date, or shall fail to take up and pay for the number of Option Securities,
which they become obligated to purchase at the Option Closing Date upon tender
of such Option Securities in accordance with the terms hereof, then the
remaining Underwriters or substituted Underwriters may take up and pay for the
Option Securities of the defaulting Underwriters in the manner provided in
Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters
shall not take up and pay for all Option Securities, the Underwriters shall be
entitled to purchase the number of Option Securities for which there is no
default or, at their election, the option shall terminate, the exercise thereof
shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of
termination, there shall be no liability on the part of any non-defaulting
Underwriter to the Company, provided that the provisions of this Section 9
shall not in any event affect the liability of any defaulting Underwriter to
the Company arising out of such default.
10. Effective Date. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the
effective date of the Registration Statement, or at such earlier time after the
effective date of the Registration Statement as you in your discretion shall
first commence the public offering by the Underwriters of any of the
Securities. The time of the public offering shall mean the time after the
effectiveness of the Registration Statement when the Securities are first
generally offered by you to the other Underwriters and Selected Dealers. This
Agreement may be
31
<PAGE> 32
terminated by you at any time before it becomes effective as provided above,
except that Sections 3(c), 6, 7, 8, 13, 14, 15, 16, 17 and 18 shall remain in
effect notwithstanding such termination.
11. Termination. (a) This Agreement, except for Sections 3(c), 6, 7,
8, 13, 14, 15, 16, 17, and 18 hereof, may be terminated at any time prior to
the Closing Date, and the Option referred to in Section 2(b) hereof, if
exercised, may be canceled at any time prior to the Option Closing Date, by you
if in your judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriters for the resale of the Securities agreed to
be purchased hereunder by reason of: (i) the Company having sustained a
material adverse loss, whether or not insured, by reason of fire, earthquake,
flood, accident or other calamity, or from any labor dispute or court or
government action, order or decree; (ii) trading in securities on the New York
Stock Exchange or the American Stock Exchange having been suspended or limited;
(iii) material governmental restrictions having been imposed on trading in
securities generally (not in force and effect on the date hereof); (iv) a
banking moratorium having been declared by Federal or New York or Florida state
authorities; (v) an outbreak of major international hostilities or other
national or international calamity having occurred which is reasonably believed
likely by the Representative to have a material adverse impact on the business,
financial condition or financial statements of the Company or the market for
the securities offered hereby; (vi) the passage by the Congress of the United
States or by any state legislative body of similar impact, of any act or
measure, or the adoption of any orders, rules or regulations by any
governmental body or any authoritative accounting institute or board, or any
governmental executive; (vii) any material adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement; (viii) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification having been received by the Company of the threat of any such
proceeding or action, which could, in the reasonable judgment of the
Representative, materially adversely affect the Company; (ix) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
or (x) the Company shall not have complied in all material respects with any
term, condition or provisions on their part to be performed, complied with or
fulfilled (including but not limited to those set forth in this Agreement)
within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
12. Representative's Warrant Agreement. At the Closing Date, the
Company will issue to the Representative and/or persons related to the
Representative, for an aggregate purchase price of $100, and upon the terms and
conditions set forth in the form of Representative's Warrant Agreement annexed
as an exhibit to the Registration Statement, a Representative's Warrant to
purchase up to an aggregate of 180,000 Shares and 180,000 Warrants, in such
denominations as the Representative shall designate. In the event of conflict
in the terms of this Agreement and the Representative's Warrant Agreement, the
language of the form of Representative's Warrant Agreement shall control.
32
<PAGE> 33
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and
the Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriters, the Company or any of its officers or directors or any
controlling person and will survive delivery of and payment for the Securities
and the termination of this Agreement.
14. Notice. All communications hereunder will be in writing and,
except as otherwise expressly provided herein, will be mailed, delivered or
telegraphed and confirmed:
If to the Underwriters: Douglas R. Nichols
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Copy to: Richard F. Dahlson
Jackson Walker, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
If to the Company: Mark D. Mastrini, President
800 Travel Systems, Inc.
4802 Gunn Highway
Tampa, Florida 33624
Copy to: Vincent J. McGill
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103-0084
15. Parties in Interest. This Agreement herein set forth is made
solely for the benefit of the several Underwriters, the Company and, to the
extent expressed, any person controlling the Company or of the Underwriters,
and directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of the Securities, as
such purchaser, from the several Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
16. Applicable Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Texas applicable to contracts made
and to be performed entirely within the State of Texas. The parties agree that
any action brought by any party against another party in connection with any
rights or obligations arising out of this Agreement shall be instituted
properly in a federal or state court of competent jurisdiction with venue only
in the State District Court of Dallas, County, Texas or the United States
District Court for the Northern District of Texas. A party
33
<PAGE> 34
to this Agreement named as a Defendant in any action brought in connection with
this Agreement in any court outside of the above named designated county or
district shall have the right to have the venue of said action changed to the
above designated county or district or, if necessary, have the case dismissed,
requiring the other party to re-file such action in an appropriate court in the
above designated county or federal district.
17. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counter-parts shall together constitute but one and
the same instrument.
18. Entire Agreement. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
19. Representative as Underwriter. In the event the Representative
acts as the sole Underwriter ("Underwriter") in connection with the
underwriting of the securities being offered pursuant to the Registration
Statement, all references to the Representative in this Agreement shall be
replaced by reference to the "Underwriter", and (i) any consents required to be
obtained from the Representative shall be required to be obtained solely from
the Underwriter; (ii) all compensation to be received by the Representative
shall instead be received by the Underwriter; and (iii) the provisions of
section nine (9) of this Agreement shall not apply.
34
<PAGE> 35
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the several Underwriters in
accordance with its terms.
Very truly yours,
800 TRAVEL SYSTEMS, INC.
BY:
----------------------------
Mark D. Mastrini, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
FIRST LONDON SECURITIES CORPORATION
BY:
----------------------------
Douglas R. Nichols, President
For itself and as
Representative of the several
Underwriters
35
<PAGE> 36
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
UNDERWRITER SHARES
- ----------- ------
First London Securities Corporation. . . . . . . . . . . . . .
1,800,000
UNDERWRITER WARRANTS
- ----------- --------
First London Securities Corporation. . . . . . . . . . . . . .
1,800,000
<PAGE> 1
EXHIBIT 1.2
800 TRAVEL SYSTEMS, INC.
1,800,000 SHARES OF COMMON STOCK AND
1,800,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
AGREEMENT AMONG UNDERWRITERS
Dallas, Texas
______, 1997
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Dear Sirs:
1. Underwriting Agreement. We understand that 800 Travel Systems,
Inc. (the "Company"), proposes to enter into an underwriting agreement attached
hereto as Exhibit A (the "Underwriting Agreement") with First London Securities
Corporation (the "Representative") and the other underwriters named in Schedule
A to the Underwriting Agreement (the "Underwriters"), acting severally and not
jointly, with respect to the purchase of an aggregate of 1,800,000 Shares of
Common Stock (the "Shares") and 1,800,000 Redeemable Common Stock Purchase
Warrants (the "Warrants"). The Shares and Warrants are hereinafter also
referred to collectively as the "Securities". The Securities and the terms
under which they are to be offered for sale by the several Underwriters are
more particularly described in the Registration Statement, Underwriting
Agreement and Prospectus.
Unless the context indicates otherwise, the term Securities shall also
include an additional 270,000 Shares and an additional 270,000 Warrants (the
"Option Securities"), all or any part of which the Representative and/or the
Underwriters are entitled to purchase from the Company upon exercise of the
Representative's over-allotment option referred to in Section 2(b) of the
Underwriting Agreement.
This is to confirm that we agree to purchase, in accordance with the
terms hereof and of the Underwriting Agreement, the number of Securities set
forth opposite our name in Schedule A, plus such number of Securities, if any,
which we may become obligated to purchase pursuant to Section 2(b) of the
Underwriting Agreement and Section 4 hereof ("our Securities"). The ratio
which the number of our Securities bears to the total number of Securities
purchased pursuant to the Underwriting Agreement is herein called "our
underwriting proportion".
2. Registration Statement and Prospectus. We have heretofore
received and examined
<PAGE> 2
a copy of the registration statement, as amended to the date hereof, and the
related prospectus in respect of the Securities, as filed with the Securities
and Exchange Commission. The registration statement as amended at the time it
becomes effective, including financial statements and exhibits, is hereafter
referred to as the "Registration Statement", and the prospectus in the form
first filed with the Securities and Exchange Commission pursuant to its Rule
424(b) after the Registration Statement becomes effective is referred to as the
"Prospectus".
We confirm that the information furnished to you by us for use in the
Registration Statement and in the Prospectus is correct and is not misleading
insofar as it relates to us. We consent to being named as an Underwriter in
such Registration Statement and we are willing to accept our responsibilities
under the Securities Act of 1933 (the "Act"), as a result thereof. We confirm
that we have authorized you to advise the Company on our behalf (a) as to the
statements to be included in any preliminary prospectus and in the Prospectus
under the heading "Underwriting" insofar as they relate to us and (b) that
there is no other information about us required to be stated in the
Registration Statement or Prospectus. We further confirm that, upon request by
you as Representative, we have furnished a copy of any amended preliminary
prospectus to each person to whom we have furnished a copy of any previous
prospectus, and we confirm that we have delivered, and we agree that we will
deliver, all preliminary and final Prospectuses required for compliance with
the provisions of Rule 15c2-8 under the Securities Exchange Act of 1934 (the
"1934 Act")
3. Authority of the Representative. We authorize you, acting as
Representative of the Underwriters, to execute and deliver on our behalf, the
Underwriting Agreement, and to agree to any variation of its terms (except as
to the purchase price and the number of our Securities) which, in your
judgment, is not a variation which materially and adversely affects our rights
and obligations. We also authorize you, in your discretion and on our behalf,
with approval of counsel for the Underwriters, to approve the Prospectus and to
approve of, or object to, any further amendments to the Registration Statement,
or amendments or supplements to the Prospectus. We further authorize you to
exercise all the authority and discretion vested in the Underwriters and in you
by the provisions of the Underwriting Agreement and to take all such action as
you in your discretion may believe desirable to carry out the provisions of the
Underwriting Agreement and of this Agreement including the extension of any
date specified in the Underwriting Agreement, the exercise of any right of
cancellation or termination and to determine all matters relating to the public
advertisement of the Securities; provided, however, that, except with the
consent of Underwriters who shall have agreed to purchase in the aggregate 50%
or more of the Securities, no extension of the time by which the Registration
Statement is to become effective as provided in the Underwriting Agreement
shall be for a period in excess of two business days. We authorize you to take
such action as in your discretion may be necessary or desirable to effect the
sale and distribution of the Securities, including, without limiting the
generality of the foregoing, the right to determine the terms of any proposed
offering, the concession to Selected Dealers (as hereinafter defined) and the
reallowance, if any, to other dealers and the right to make the judgments
provided for in the Underwriting Agreement.
2
<PAGE> 3
4. Authority of Representative as to Defaulting Underwriters. Until
the termination of this Agreement, we authorize you to arrange for the purchase
by other persons, who may include you or any of the other Underwriters, of any
Securities not taken up by any defaulting Underwriter. In the event that such
arrangements are made, the respective amounts of the Securities to be purchased
by the non-defaulting Underwriters and by such other person or persons, if any,
shall be taken as the basis for all rights and obligations hereunder; but this
shall not in any way affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from its default, nor shall any such
default relieve any other Underwriter of any of its obligations hereunder or
under the Underwriting Agreement except as herein or therein provided.
In the event of default by one or more Underwriters in respect of their
obligations (a) under the Underwriting Agreement to purchase the Securities
agreed to be purchased by them thereunder, (b) under this Agreement to take up
and pay for any Securities purchased or (c) to deliver any Securities sold or
over-allotted by you for the respective accounts of the Underwriters pursuant
to this Agreement, or to bear their respective share of expenses or liabilities
pursuant to this Agreement, and to the extent that arrangements shall not have
been made by you for any persons to assume the obligations of such defaulting
Underwriter or Underwriters, we agree to assume our proportionate share of the
obligations of each defaulting Underwriter (subject in the case of clause (a)
above to the limitations contained in the Underwriting Agreement) without
relieving any such defaulting Underwriter of its liability therefor.
5. Offering of Securities. We understand that you will notify us
when the public offering of the Securities is to be made and of the initial
public offering price. We hereby authorize you to fix the concession to
dealers and the reallowance to dealers and in your sole discretion after the
public offering to change the public offering price, the concession and the
reallowance. The offering price at any time in effect is hereinafter referred
to as the "public offering price". We agree that we will not offer any of the
Securities for sale at a price other than the public offering price or allow
any discount therefrom except as herein otherwise specifically provided.
We agree that public advertisement of the offering shall be made by you
on behalf of the Underwriters on such date as you shall determine. We have not
advertised the offering and will not do so until after such date. We
understand that any advertisement we may then make will be on our own
responsibility and at our own expense.
We authorize you to reserve and offer for sale to institutions and other
retail purchasers and to dealers (the "Selected Dealers") to be selected by you
(such dealers may include any Underwriter ) such of our Securities as you in
your sole discretion shall determine. Any such offering to Selected Dealers
may be made pursuant to a Selected Dealer Agreement, in the form attached
hereto as Exhibits, or otherwise, as you may determine. The form of Selected
Dealer Agreement attached hereto as Exhibit B is satisfactory to us.
3
<PAGE> 4
We authorize you to make purchases and sales of the Securities from or
to any Selected Dealers or Underwriters at the public offering price less all
or any part of the concession and, with your consent, any Underwriter may make
purchases or sales of the Securities from or to any Selected Dealer or
Underwriter at the public offering price less all or any of the concession.
We understand that you will notify each Underwriter promptly upon the
release of the Securities for public offering as to the amount of Securities
reserved for sale to Selected Dealers and retail purchasers. Securities not so
reserved may be sold by each Underwriter for its own account, except that from
time to time you may, in your discretion, add to the Securities reserved for
sale to Selected Dealers and retail purchasers any Securities retained by an
Underwriter remaining unsold. We agree to notify you from time to time upon
request of the amount of our Securities retained by us remaining unsold. If
all the Securities reserved for offering to Selected Dealers and retail
Purchasers are not promptly sold by you, any Underwriter may from time to time,
with your consent, obtain a release of all or any Securities of such
Underwriter then remaining unsold and Securities so released shall thereafter
be deemed not to have been reserved. Securities of any Underwriter so reserved
which remain unsold, or, if sold, have not been paid for at any time prior to
the termination of this Agreement may, in your discretion or upon the request
of such Underwriter, be delivered to such Underwriter for carrying purposes
only, but such Securities shall remain subject to redelivery to you upon demand
for disposition by you until this Agreement is terminated.
We agree that in connection with sales and offers to sell the
Securities, if any, made by us outside the United States or its territories or
possessions, (a) we will furnish to each person to whom any such offer or sale
is made such Prospectus, advertisement or other offering document containing
information relating to the Securities or the Company as may be required under
the laws, of the jurisdiction in which such offer or sale is made and (b) we
will furnish to each person to whom any such offer is made a copy of the then
current Preliminary Prospectus and to each person to whom any such sale is made
a copy of the Prospectus referred to in the Underwriting Agreement (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto). Any Prospectus, advertisement or other offering document
(other than any such preliminary prospectus or Prospectus) furnished by us to
any person in accordance with the preceding sentence and all such additional
offering material, if any, as we may furnish to any person (i) shall comply in
all respects with the laws of the jurisdiction in which it is so furnished,
(ii) shall be prepared and so furnished at our sole risk and expense and, (iii)
shall not contain information relating to the Securities or the Company which
is inconsistent in any respect with information contained in the then current
preliminary prospectus or in the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) as the
case may be.
We recognize the importance of a broad distribution of the Securities
among bona fide investors and we agree to use our best efforts to obtain such
broad distribution and to that end, to the extent we deem practicable, to give
priority to small orders.
4
<PAGE> 5
We agree that we will not sell to any account over which we exercised
discretionary authority any of the Securities which we have agreed to purchase
pursuant to the Underwriting Agreement.
6. Compensation to Representative. We authorize you to charge to
our account, as compensation for your services as Representative in connection
with this offering, including the purchase from the Company of the Securities
and the management the offering, an amount equal to _____ per Share and/or
$____
per Warrant in respect to each of our Securities.
7. Payment and Delivery. At or about 9:00 a.m., Eastern Time, on
the Closing Dates (including the first Closing Date and any Option Closing
Date, as defined in the Underwriting Agreement), we agree to deliver to you at
your office by wire transfer to the account of the Representative or by a
certified or official bank check payable in New York Clearing House funds to
your order in an amount equal to the initial public offering price, less the
concession to the Selected Dealers in respect of that portion of our Securities
which has been retained by or released to us for direct sales.
In the event that our funds are not received by you when required, you
are authorized, in your discretion, but shall not be obligated, to make payment
for our account pursuant to the Underwriting Agreement by advancing your own
funds. Any such payment by you shall not relieve us from any of our
obligations hereunder or under the Underwriting Agreement.
We authorize you to hold and deliver against payment any of our
Securities which have been sold or reserved for sale to Selected Dealers or
retail purchasers. Any of our Securities not sold or reserved by you as
aforesaid, will be available for delivery to us at your office as soon as
practicable after such Securities have been delivered to you.
Upon the termination of this Agreement, or prior thereto at your
discretion, you will deliver to us any of our Securities reserved by you for
sale to Selected Dealers or retail purchasers but not sold and paid for against
payment by us of an amount equal to the initial public offering price of such
Securities, less the concession to the Selected Dealers in respect thereof.
8. Authority to Borrow. We authorize you to arrange loans for our
account and to execute and deliver any notes or other instruments in connection
therewith, and to pledge as security therefor all or any part of our
Securities, as you may deem necessary or advisable to carry out the purchase,
carrying and distribution of the Securities, and to advance your own funds,
charging current interest rates.
9. Over-allotment; Stabilization. We authorize you, for the account
of each Underwriter, prior to the termination of this Agreement, and for such
longer period as may be necessary to cover any short position incurred for the
accounts of the several Underwriters pursuant to this Agreement, (a) to over-
allot in arranging for sales of Securities to Selected Dealers and others and,
if necessary, to purchase Securities (whether pursuant to exercise of the
option set
5
<PAGE> 6
forth in Section 2(b) of the Underwriting Agreement or otherwise) at such
prices as you may determine for the purpose of covering such over-allotments,
and (b) for the purpose of stabilizing the market in the Securities, to make
purchases and sales of Securities on the open market or otherwise, for long or
short account, on a when-issued basis or otherwise, at such prices, in such
amounts and in such manner as you may determine provided, however, that at no
time shall our net commitment, either for long or short account, under this
Section exceed 15% of the amount of our Securities. Such purchases, sales and
over-allotments shall be made for the respective accounts of the several
Underwriters as nearly as practicable to their respective underwriting
proportions. We agree to take up on demand at cost any Securities so purchased
for our account and deliver on demand any Securities so sold or over-allotted
for our account. We authorize you to sell for the account of the Underwriters
any Securities purchased pursuant to this Section, upon such terms as you may
deem advisable, and any Underwriter, including yourselves, may purchase such
Securities. You are authorized to charge the respective accounts of the
Underwriters with broker's commissions or dealer's mark-up on purchases and
sales effected by you.
If pursuant to the provisions of the preceding paragraph and prior to
the termination of this Agreement (or prior to such earlier date as you may
have determined) you purchase or contract to purchase for the account of any
Underwriter in the open market or otherwise any Securities which were retained
by, or released to, us for direct sale, or any Securities which may have been
issued in exchange for such Securities, we authorize you either to charge our
account with an amount equal to the concession to Selected Dealers with respect
thereto, which amount shall be credited against the cost of such Securities, or
to require us to repurchase such Securities at a price equal to the total cost
of such purchase, including transfer taxes and broker's commissions or dealer's
markup, if any. In lieu of such action you may, in your discretion, sell for
our account the Securities so purchased and debit or credit our account for the
loss or profit resulting from such sale.
You will notify us promptly if and when you engage in any stabilization
transaction pursuant to this Section or otherwise and will notify us of the
date of termination of stabilization. We agree to file with you any reports
required of us including "Not as Manager" reports pursuant to Rule 17a-2 under
the 1934 Act not later than five business days following the date upon which
stabilization was terminated, and we authorize you to file on our behalf with
the Securities and Exchange Commission any reports required by such Rule.
10. Limitation on Transactions by Underwriters. Except as permitted
by you, we will not during the term of this Agreement bid for, purchase, sell
or attempt to induce others to purchase or sell, directly or indirectly, any
Securities other than (i) as provided in the Underwriting Agreement and in this
agreement, (ii) purchases from or sales to dealers of the Securities at the
public offering price less all or any part of the reallowance to dealers or
(iii) purchases or sales by us of any Securities as broker or unsolicited
orders for the account of others.
6
<PAGE> 7
We represent that we have not participated in any transaction prohibited
by the preceding paragraph and that we have at all times complied with the
provisions of Rule 10b-6 and Rule 10b-6A under the 1934 Act applicable to this
offering.
We may, with your prior consent, make purchases of the Securities from
and sales to other Underwriters at the public offering price, less all or any
part of the concession to dealers.
11. Allocation and Payment of Expenses. We understand that all
expenses of a general nature incurred by you, as Representative, in connection
with the purchase, carrying, marketing and sale of the Securities shall be
borne by the Underwriters in accordance with their respective share of the
underwriting obligations. We authorize you to charge our account with our
share, based on our underwriting obligation, of the aforesaid expenses
including all transfer taxes paid of our behalf on sales or transfers made for
our account.
As promptly as possible after the termination of this Agreement, the
accounts arising pursuant hereto shall be settled and paid. Your ascertainment
of all expenses and the apportionment thereof shall be conclusive.
Notwithstanding any settlement or settlements hereunder, we will remain liable
for our share of all expenses and liabilities which may be incurred by or the
accounts of the Underwriters, including any expenses and liabilities referred
to in Sections 13 and 14 hereof, which shall be determined as provided in this
Section.
12. Termination. Unless this Agreement or any provision hereof is
earlier terminated by you and except for provisions herein that contemplate
obligations surviving the termination hereof as noted in the next paragraph,
this Agreement will terminate at the close of business on the 45th day after
the date hereof, but in your discretion may be extended by you for a further
period not exceeding 30 days with the consent of the Underwriters who have
agreed to purchase in the aggregate 50% or more of the Securities. No
termination or suspension pursuant to this Section shall affect your authority
to cover any short position under this Agreement.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder shall cease, except (i) the mutual obligations to settle
accounts under Section 11, our obligation to pay any transfer taxes which may
be assessed and paid on account of any sales thereunder for our account, (ii)
our obligation with respect to purchases which may be made by you from time to
time thereafter to cover any short position incurred under this Agreement, (iv)
the provisions of Sections 13 and 14 and (v) the obligations of any defaulting
Underwriter, all of which shall continue until fully discharged.
13. Liability of Representative and Underwriters. Neither as
Representative nor individually shall you be under any liability whatsoever to
any other Underwriter nor shall you be under any liability in respect of any
matters connected herewith or action taken by you pursuant hereto, except for
the obligations expressly assumed by you in this Agreement. You shall be under
no liability for or in respect of the value for the Securities or the of the
form thereof, the Registration Statement, the Prospectus, or agreements or
other instruments executed by the
7
<PAGE> 8
Company or others; or for or in respect of the delivery of the Securities; or
for the performance by the Company or others of any agreement on its or their
part.
Nothing herein contained shall constitute the several Underwriters an
association, or partners with us or with each other, or, except as herein
expressly provided, render any Underwriter liable for the obligation of any
other Underwriter. The rights, obligations and liabilities of each of the
Underwriters are several, in accordance with their respective obligations, and
not joint. Notwithstanding any settlement of accounts under this Agreement, we
agree to pay our underwriting proportion of the amount of any claim demand or
liability which may be asserted against and discharged by the Underwriters or
any of them, based on the claim that the Underwriters constitute an
association, unincorporated business or other entity, and also to pay our
underwriting proportion of expenses approved by you incurred by the
Underwriters, or any of them, in contesting any such claims, demands or
liabilities. If the Underwriters shall be deemed to constitute a partnership
for income tax purposes, it is the intent of each Underwriter to be excluded
from the application of Subchapter K, Chapter 1, Subtitle A of the Internal
Revenue Code of 1954, as amended. Each Underwriter elects to be so excluded
and agrees not to take any position inconsistent with such election. Each
Underwriter authorizes you, in your discretion, to execute and file on behalf
of the Underwriters such evidence of election as may be required by the
Internal Revenue Service.
14. Indemnification and Future Claims.
(a) We agree to indemnify and hold harmless you and each other
Underwriter, and each person, if any, who controls you and such other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, and
to reimburse their expenses, to the extent and upon the terms that we agree to
indemnify and hold harmless the Company and to reimburse expenses as set forth
in the Underwriting Agreement. Our indemnity agreements set forth in this
Section remain in full force and effect regardless of any investigation made by
or on behalf of such other Underwriter or controlling person and shall survive
the delivery of and payment for the Securities and the termination of this
Agreement.
(b) In the event that at any time any claim or claims shall be
asserted against you, as Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
Preliminary Prospectus or the Prospectus, as such may be from time to time
amended or supplemented, the public offering of the Securities or any of the
transactions contemplated by this Agreement, we authorize you to take such
other action as you shall deem necessary or desirable under the circumstances,
including settlement of any such claim or claims if such course of action shall
be recommended by counsel retained by you. We agree to pay to you on request,
our underwriting proportion of all expenses incurred by you (including, but not
limited to, disbursements and fees of counsel so retained) in investigating and
defending against such claim or claims and our underwriting proportion of any
liability incurred by you in respect of such claim or claims, whether such
liability shall be the result of a judgment or as a result of any such
settlement.
8
<PAGE> 9
15. Title to Securities. The Securities purchased by, or on behalf
of, the respective Underwriters shall remain the property of such Underwriters
until sold, and title to any such Securities shall not in any event pass to the
Representative by virtue of any of the provisions of this Agreement.
16. Blue Sky Matters. It is understood that you assume no
responsibility with respect to the right of any Underwriter or other person to
offer or to sell Securities in any jurisdiction, not withstanding any
information which you may furnish as to the jurisdictions under the securities
laws of which it is believed the Securities may be sold.
17. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Texas.
18. Capital Requirements. We confirm that the incurrence by us of
our obligation under this Agreement and under the Underwriting Agreement will
not place us in violation of the net capital requirements of Rule 15c3-1 under
the 1934 Act or of any applicable rules relating to capital requirements of any
securities exchange to which we are subject.
19. Miscellaneous. Any notice from you to us shall be deemed to have
been duly given if telefaxed, telephoned or telegraphed, and confirmed by mail
to us at the address set forth in the Underwriters Questionnaire furnished by
us to you. Any notice from us to you shall be deemed to have been duly given
if telefaxed or telegraphed, and confirmed by mail to you at 2600 State Street,
Dallas, Texas 75204.
We understand that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"). We hereby confirm that we
are actually engaged in the investment banking or securities business and are
either (i) a member in good standing of the NASD or (ii) a dealer with its
principal place of business located outside the United States, its territories
and its possession and not registered as a broker or dealer under the 1934 Act
who agrees not to make any sales within the United States, its territories or
its possessions or to persons who are nationals thereof or residents therein
(except that we may participate in sales to Selected Dealers and others under
Section 5 of this Agreement). We hereby agree that if we are members of the
NASD, we will comply with all of the provisions of the NASD Conduct Rules. If
we are a foreign dealer, we agree to comply with Rule 2740 of the NASD Conduct
Rules. If we are a foreign dealer and not a member of the NASD, we agree to
comply with the NASD's interpretation with respect to free-riding and
withholding, as though we were a member of the NASD, with the provisions of
Rules 2730 and 2750 of the NASD Conduct Rules, and to comply with Rule 2420 of
the NASD Conduct Rules as that applies to a non-member foreign dealer. In
connection with sales and offers to sell Securities made by us outside the
United States, its territories and possessions (i) we will either furnish to
each person to whom any such sale or offer is made a copy of the then current
Preliminary Prospectus or the Prospectus, as the case may be, or inform such
person that such Preliminary Prospectus or Prospectus will be available upon
request, and (ii) we will furnish to each person to whom any such sale or offer
is made such
9
<PAGE> 10
Prospectus, advertisement or other offering document containing information
relating to the Securities or the Company as may be required under the law of
the jurisdiction in which such sale or offer is made. Any Prospectus,
advertisement or other offering document furnished by us to any person in
accordance with the preceding sentence and any such additional offering
material as we may furnish to any person (i) shall comply in all respects with
the law of the jurisdiction in which it is so furnished, (ii) shall be prepared
and so furnished at our sole risk and expenses and (iii) shall not contain
information relating to the Securities or the Company which is inconsistent in
any respect with the information contained in the then current preliminary
Prospectus or in the Prospectus, as the case may be.
We understand that, in consideration of your services in connection with
the public offering of the Securities, the Company has agreed with you
individually, and not as Representative of the Underwriters (a) to sell to you
the Representative's Warrants referred to in the Underwriting Agreement for the
sum of $100; and (b) to pay to you a non-accountable expense allowance referred
to in the Underwriting Agreement. In addition, you may, at your sole
discretion, elect to exercise the over-allotment option individually. We
confirm to you that we shall make no claim to the Representative's Warrants (or
any offering of the Company's securities related thereto, or any right to
participate in any capacity in any offering resulting therefrom), any rights
related thereto, the Company's securities underlying the Representative's
Warrants or the non-accountable expense allowance or the over allotment option
to the extent you elect to exercise such option individually. You confirm to
us that we shall have no obligation or liabilities with respect to the purchase
of the Representative's Warrants, the exercise thereof, the Company's
securities underlying the Representative's Warrants (or any offering of the
Company's securities related thereto, unless we shall subsequently agree to
become an underwriter for, or otherwise participate in any such offering) or
the non-accountable expense allowance, or, the over-allotment option, to the
extent you elect to exercise such option individually.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
By:
------------------------------
(Attorney-in-fact for each of
the several Underwriters named
in Schedule A to the attached
Underwriting Agreement.)
Confirmed as of the date first
above written:
FIRST LONDON SECURITIES CORPORATION
By:
----------------------------------
Douglas R. Nichols, President
10
<PAGE> 11
EXHIBIT A
UNDERWRITING AGREEMENT
<PAGE> 12
EXHIBIT B
FORM OF SELECTED DEALER
<PAGE> 1
EXHIBIT 1.3
800 TRAVEL SYSTEMS, INC.
1,800,000 SHARES OF COMMON STOCK AND
1,800,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
SELECTED DEALER AGREEMENT
Dallas, Texas
________, 1997
Gentlemen:
1. First London Securities Corporation (the "Representative") and
the other Underwriters named in the Prospectus (collectively the
"Underwriters"), acting through us as the Representative, are severally
offering for sale an aggregate of 1,800,000 Shares of Common Stock (the
"Shares") and 1,800,000 Redeemable Common Stock Warrants (the "Warrants")
(collectively the "Firm Securities") of 800 Travel Systems, Inc. (the
"Company"), which we have agreed to purchase from the Company, and which are
more particularly described in the Registration Statement, Underwriting
Agreement and Prospectus. In addition, the several Underwriters have been
granted an option to purchase from the Company up to an additional 270,000
Shares and an additional 270,000 Warrants (the "Option Securities") to cover
over-allotments in connection with the sale of the Firm Securities. The Firm
Securities and any Option Securities purchased are herein called the
"Securities". The Securities and the terms under which they are to be offered
for sale by the several Underwriters are more particularly described in the
Prospectus.
2. The Securities are to be offered to the public by the several
Underwriters at the price per Share and price per Warrant set forth on the
cover page of the Prospectus (the "Public Offering Price"), in accordance with
the terms of offering set forth in the Prospectus.
3. Some or all of the several Underwriters are severally
offering, subject to the terms and conditions hereof, a portion of the
Securities for sale to certain dealers who are actually engaged in the
investment banking or securities business and who are either (a) members in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"), or (b) dealers with their principal places of business located outside
the United States, its territories and its possessions and not registered as
brokers or dealers under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), who have agreed not to make any sales within the United States,
its territories or its possessions or to persons who are nationals thereof or
residents therein (such dealers who shall agree to sell Securities hereunder
being herein called "Selected Dealers") at the public offering price, less a
selling concession (which may be changed) of not in excess of $_______ per
Share and/or $________ per Warrant payable as hereinafter provided, out of
which concession an amount not exceeding $_________ per Share and/or
$__________ per Warrant may
<PAGE> 2
be reallowed by Selected Dealers to members of the NASD or foreign dealers
qualified as aforesaid. The Selected Dealers who are members of the NASD agree
to comply with all of the provisions of the NASD Conduct Rules. Foreign
Selected Dealers agree to comply with the provisions of Rule 2740 of the NASD
Conduct Rules, and, if any such dealer is a foreign dealer and not a member of
the NASD, such Selected Dealer also agrees to comply with the NASD's
Interpretation with Respect to Free-Riding and Withholding, and to comply, as
though it were a member of the NASD, with the provisions of Rules 2730 and 2750
of the NASD Conduct Rules, and to comply with Rule 2420 of the NASD Conduct
Rules as that Rule applies to non-member foreign dealers. Some or all of the
Underwriters may be included among the Selected Dealers. Each of the
Underwriters has agreed that, during the term of this Agreement, it will be
governed by the terms and conditions hereof whether or not such Underwriter is
included among the Selected Dealers.
4. First London Securities Corporation shall act as
Representative on behalf of the Underwriters and shall have full authority to
take such action as we may deem advisable in respect to all matters pertaining
to the public offering of the Securities.
5. If you desire to act as a Selected Dealer, and purchase any of
the Securities, your application should reach us promptly by telefax or
telegraph at the offices of First London Securities Corporation, 2600 State
Street, Dallas, Texas 75204, facsimile (214) 220-0695. We reserve the right to
reject subscriptions in whole or in part, to make allotments, and to close the
subscription books at any time without notice. The Securities allotted to you
will be confirmed, subject to the terms and conditions of this Agreement.
6. The privilege of subscribing for the Securities is extended to
you only on behalf of such of the Underwriters, if any, as may lawfully sell
the Securities to Selected Dealers in your state or other applicable
jurisdiction.
7. Any Securities to be purchased by you under the terms of this
Agreement may be immediately re-offered to the public in accordance with the
terms of offering as set forth herein and in the Prospectus, subject to the
securities or Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the accounts of the several
Underwriters an amount equal to the Selected Dealer concession as to any
Securities purchased by you hereunder which, prior to the completion of the
public offering as defined in paragraph 8 below, we may purchase or contract to
purchase for the account of any Underwriter and, in addition, we may charge you
with any broker's commission and transfer tax paid in connection with such
purchase or contract to purchase. Certificates for Securities delivered on
such repurchases need not be the identical certificates originally purchased.
You agree to advise us from time to time, upon request, of the number
of Securities purchased by you hereunder and remaining unsold at the time of
such request, and, if in our opinion any such Securities shall be needed to
make delivery of the Securities sold or over-allotted for the account of one or
more of the Underwriters, you will, forthwith upon our request, grant
2
<PAGE> 3
to us for the account or accounts of such Underwriter or Underwriters the
right, exercisable promptly after receipt of notice from you that such right
has been granted, to purchase, at the Public Offering Price less the selling
concession or such part thereof as we shall determine, such number of
Securities owned by you as shall have been specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer
tax, if payable, upon the sale of the Securities by the respective Underwriters
to you will be paid when such Securities are delivered to you. However, you
shall pay any transfer tax on sales of Securities by you and you shall pay your
proportionate share of any transfer tax (other than the single transfer tax
described above) in the event that any such tax shall from time to time be
assessed against you and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will terminate
when we shall have determined that the public offering of the Securities has
been completed and upon telefax notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the
30th full business day after the date hereof; provided, however, that we shall
have the right to extend such provisions for a further period or periods, not
exceeding an additional 30 days in the aggregate upon telefax notice to you.
9. For the purpose of stabilizing the market in the Securities,
we have been authorized to make purchases and sales of the Securities of the
Company, in the open market or otherwise, for long or short account, and, in
arranging for sales, to over-allot.
10. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to
the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and
will comply therewith.
We hereby confirm that we will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or the
rules and regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but neither we nor any of the Underwriters assume any
obligation or responsibility as to the right of any Selected Dealer to sell the
Securities in any state or other jurisdiction or as to the eligibility of the
Securities for sale therein. We will, if requested, file a Further State
Notice in respect of the Securities pursuant to Article 23-A of the General
Business Law of the State of New York.
3
<PAGE> 4
12. No Selected Dealer is authorized to act as our agent or as
agent for the Underwriters, or otherwise to act on our behalf or on behalf of
the Underwriters, in offering or selling the Securities to the public or
otherwise or to furnish any information or make any representation except as
contained in the Prospectus.
13. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with the Underwriters, or with each other,
but you will be responsible for your share of any liability or expense based on
any claim to the contrary. We and the several Underwriters shall not be under
any liability for or in respect of value, validity or form of the Securities,
or the delivery of the certificates for the Securities, or the performance by
anyone of any agreement on its part, or the qualification of the Securities for
sale under the laws of any jurisdiction, or for or in respect of any other
matter relating to this Agreement, except for lack of good faith and for
obligations expressly assumed by us or by the Underwriters in this Agreement
and no obligation on our part shall be implied here from. The foregoing
provisions shall not be deemed a waiver of any liability imposed under the 1933
Act.
14. Payment for the Securities sold to you hereunder is to be made
at the Public Offering Price less the above-mentioned selling concession on
such time and date as we may advise, at the office of First London Securities
Corporation, 2600 State Street, Dallas, Texas 75204, by wire transfer to the
account of the Representative or by a certified or official bank check in
current New York Clearing House funds, payable to the order of First London
Securities Corporation, as Representative, against delivery of certificates for
the Securities so purchased. If such payment is not made at such time, you
agree to pay us interest on such funds at the prevailing broker's loan rate.
15. Notices to us should be addressed to us at the offices of
First London Securities Corporation, 2600 State Street, Dallas, Texas 75204,
Attention: Douglas Nichols. Notices to you shall be deemed to have been duly
given if telephoned, telefaxed, telegraphed or mailed to you at the address to
which this letter is addressed.
4
<PAGE> 5
16. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
choice of law or conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a Selected
Dealer, please confirm your application by signing and returning to us your
confirmation on the duplicate copy of this letter enclosed herewith, even
though you may have previously advised us thereof by telephone or telegraph.
Our signature hereon may be by facsimile.
Very truly yours,
FIRST LONDON SECURITIES CORPORATION As
Representative of the Several
Underwriters
By:
--------------------------------
Authorized Officer
5
<PAGE> 6
Douglas Nichols, President
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
We hereby subscribe for _____________ Shares and/or __________
Warrants of 800 Travel Systems, Inc. in accordance with the terms and
conditions stated in the foregoing Selected Dealer Agreement. We hereby
acknowledge receipt of the Prospectus referred to in the Selected Dealer
Agreement. We further state that in purchasing said Shares and/or Warrants we
have relied upon said Prospectus and upon no other statement whatsoever,
whether written or oral. We confirm that we are a dealer actually engaged in
the investment banking or securities business and that we are either (i) a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); or (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions and not registered as a
broker or dealer under the Securities Exchange Act of 1934, as amended, who
hereby agrees not to make any sales within the United States, its territories
or its possessions or to persons who are nationals thereof or residents
therein. As a member of the NASD, we hereby agree to comply with all of the
provisions of NASD Conduct Rules. If we are a foreign Selected Dealer, we
agree to comply with the provisions of Rule 2740 of the Conduct Rules, and if
we are a foreign dealer and not a member of the NASD, we agree to comply with
the NASD's interpretation with respect to free-riding and withholding, and
agree to comply, as though we were a member of the NASD, with provisions of
Rules 2730 and 2750 of such Conduct Rules, and to comply with Rule 2420
thereof, as that Rule applies to non-member foreign dealers.
Firm:
-------------------------------
By:
---------------------------------
(Name and Position)
Address:
-------------------------------------
-------------------------------------
Telephone No.:
-------------------------------------
Dated: , 1997
---------------
<PAGE> 1
EXHIBIT 2.2
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
THE JOSEPH STEVENS GROUP, INC.
THE JOSEPH STEVENS GROUP, LLC
AND
800 TRAVEL SYSTEMS, INC.
List of Exhibits:
Exhibit "A": List of Assets
Exhibit "B": Note to Joseph Stevens Group, LLC, and Assumed Liabilities
Exhibit "C": Indemnity and Release Agreement
Exhibit "D": Release Agreement
Exhibit "E": Promissory Note
Exhibit "F": Escrow Agreement
Exhibit "F-1": Interim Operating Agreement
Exhibit "G": Security Agreement, Memorandum of Security Agreement and UCC-1
Exhibit "G-1"" List of Put Assets and Liabilities
Exhibit "H": Telephone Transfer Documents
<PAGE> 2
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement") is dated as of November 11, 1996, among THE JOSEPH STEVENS GROUP,
LLC (the "Selling Shareholder"), a California limited liability company; The
Joseph Stevens Group, Inc. ("Stevens"), a California corporation, and 800
TRAVEL SYSTEMS, INC. ("Travel Systems"), a Delaware corporation. For purposes
hereof, Stevens and Travel Systems are sometimes hereinafter referred to as the
"Constituent Corporations."
BACKGROUND STATEMENT
The parties hereto are parties to that certain Agreement and Plan of
Merger dated November 11, 1996, as amended by that certain Amendment Agreement
dated March 31, 1997 among such parties (together, the "Original Agreement").
The purpose of this Agreement is to amend and restate the Original Agreement in
its entirety. This Agreement shall supersede the Original Agreement in all
respects and for all purposes. Except as otherwise provided in Article XV-A
hereof, this Agreement shall be deemed effective as of November 11, 1996.
W I T N E S S E T H:
WHEREAS, the Selling Shareholder owns all of the issued and
outstanding shares of Stevens, which is engaged primarily in the telemarketing
travel business providing reservation services for domestic and international
flights under the mark "Fly 4 Less" (the "Business").
WHEREAS, the Boards of Directors of Stevens and Travel Systems deem it
advisable that Stevens be merged with and into Travel Systems pursuant to this
Agreement and the applicable provisions of the laws of the States of California
and Delaware (such transaction being hereinafter referred to as the "Merger");
and
WHEREAS, the Boards of Directors of Stevens and Travel Systems deem
the Merger advisable and in the best interests of each such entity and their
respective shareholders and the Boards of Directors of Stevens and Travel
Systems have approved the Merger.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
<PAGE> 3
ARTICLE I
THE MERGER
Upon the terms and subject to the conditions set forth herein, Stevens
shall merge with and into Travel Systems upon the filing of Articles of Merger
with the Department of State of the State of Delaware in accordance with the
laws of the State of Delaware and the filing of a Certificate of Merger with
the Secretary of State of the State of California (such time of filing
hereinafter referred to as the "Effective Time"), with Travel Systems being the
corporation surviving the Merger (the "Surviving Corporation") as a corporation
organized and existing under the laws of the State of Delaware.
ARTICLE II
CERTAIN RESULTS OF THE MERGER
1. Succession By Surviving Corporation. Upon the Merger becoming
effective and by virtue thereof:
(a) Stevens and Travel Systems shall become and be a
single corporation, with Travel Systems as the Surviving Corporation, and the
separate corporate existence of Stevens shall cease.
(b) Travel Systems shall, in addition to all rights,
privileges, powers and properties vested in it prior to the Merger, succeed to
and possess, as a result of the Merger, all rights, privileges, powers,
immunities and properties (whether real, personal or mixed) of Stevens, and
such rights, privileges, powers, immunities and properties shall be vested in
it without further act or deed.
(c) All rights of creditors and all liens upon any
property of the Constituent Corporations shall be preserved unimpaired; Travel
Systems, as the Surviving Corporation, shall be subject to all the
restrictions, disabilities and duties existing immediately prior to the Merger
with respect to Stevens; and all of the debts, liabilities and obligations of
the Constituent Corporations existing immediately before the Merger shall
thenceforth attach to the Surviving Corporation and may be enforced against the
Surviving Corporation to the same extent as if said debts, liabilities and
obligations had been incurred or contracted by the Surviving Corporation;
provided, however, that nothing herein is intended to or shall extend or
enlarge any obligation or the lien of any indenture, agreement or other
instrument executed or assumed prior to the Merger.
2
<PAGE> 4
2. Articles of Incorporation, By-Laws and Officers and Directors
of Surviving Corporation. Upon the Merger becoming effective:
(a) The Articles of Incorporation of Travel Systems in
effect immediately prior to the Merger becoming effective shall be the Articles
of Incorporation of the Surviving Corporation until amended in the manner
provided by law.
(b) The Bylaws of Travel Systems in effect immediately
prior to the Merger becoming effective shall be the Bylaws of the Surviving
Corporation until amended in the manner provided by law, the Articles of
Incorporation of the Surviving Corporation and said bylaws.
(c) After the Effective Time, the directors of the
Surviving Corporation shall be the directors of Travel Systems, and they shall
hold office until their successors have been duly elected and have qualified in
the manner provided by law and the bylaws of the Surviving Corporation. The
officers of the Surviving Corporation after the Effective Time shall be the
officers of Travel Systems, and they shall hold office until new officers are
duly appointed by the Board of Directors.
ARTICLE III
EFFECT OF MERGER UPON ISSUED
SHARES OF CONSTITUENT CORPORATIONS
1. Stock of Acquisition. At the Effective Time, all of the
shares of the capital stock of Stevens issued and outstanding immediately prior
to the Effective Time shall be converted into and become shares of the voting
common stock of Travel Systems (the "Travel Stock"), as provided in subsection
2., below. Each share of such voting common stock of Travel Systems issued
pursuant to this section shall be fully paid and nonassessable and shall be
registered under the Securities Act of 1933, as amended (the "1933 Act")
pursuant to a registration statement filed with, and declared effective by, the
U.S. Securities and Exchange Commission (the "SEC").
2. Number of Shares to be Issued. At the Effective Time, the
parties agree that Travel System shall issue and deliver to the Selling
Shareholder the greater of (i) 300,000 shares of Travel Stock or (ii) that
number of shares of Travel Stock having an aggregate value of $1,500,000, using
the IPO Opening Price (defined in Article IX below) in calculating the per
share value of the Travel Stock at the Effective Time (as applicable, the
"Initial Travel Shares").
3
<PAGE> 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER
The Selling Shareholder hereby represents and warrants to Travel
Systems as follows:
1. Organization and Standing: Authority. Stevens is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California. Stevens has full power and authority to carry
on its business as a corporation and to own, hold and operate its properties
and assets, and to enter into this Agreement and to consummate the transactions
contemplated herein. Stevens has full power and authority to execute, deliver,
and perform this Agreement in accordance with its terms, and this Agreement
constitutes a valid and binding obligation of Stevens and is enforceable in
accordance with its terms.
2. Capital Stock. Stevens' authorized capital stock consists
solely of 20 million shares of common stock, no par value, of which 1,760,000
shares are issued and outstanding. All the issued and outstanding shares of
such common stock are validly issued, fully paid and non-assessable.
Immediately prior to the Effective Time there will be 1,760,000 shares of the
capital stock of Stevens issued and outstanding, all of which shall be owned by
the Selling Shareholder, free and clear of all liens, security interests,
adverse claims, demands and encumbrances of every kind and nature. No warrants,
options, or other such rights to purchase or subscribe for additional shares of
the capital stock of Stevens shall be outstanding at the Effective Time.
Stevens has no commitment to issue or sell any of its capital stock or any
securities or obligations convertible into, or exchangeable for, Stevens'
capital stock. No shares of Stevens capital stock has or is entitled to
preemptive rights.
3. Due Execution. The execution, delivery, and performance of
this Agreement has been duly authorized by the Selling Shareholder and by the
Board of Directors of Stevens. The performance and observance of and
compliance with the terms and provisions hereof by said parties will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under the Articles of Incorporation or
By-laws of Stevens or the Articles of Organization or Operating Agreement of
the Selling Shareholder, or any agreement, indenture, deed of trust,
instrument, judgment, obligation, order or decree to which Stevens or Selling
Shareholder is a party or by which Stevens or Selling Shareholder may be bound
or affected.
4. Financial Statements. All financial statements furnished by
Stevens to Travel Systems have been prepared in accordance with generally
accepted accounting principles, applied on a consistent
4
<PAGE> 6
basis, and fairly present the financial position and the profit and loss of
Stevens as provided therein.
5. No Subsidiaries. Stevens has no equity interest in any
corporation, partnership, joint venture, trust or other entity and has entered
into no binding agreements to obtain any such equity interest.
6. Assets and Properties. At the Effective Time, Stevens will
have good and marketable title in and to the assets described on Exhibit "A"
hereto (together, the "Assets"), and all of the Assets shall be free and clear
of all liens, security interests, adverse claims, limitations, restrictions,
demands and encumbrances, of every kind and nature. Before the Effective Time,
Stevens will have sold or otherwise transferred all of its other assets not
included in Exhibit "A" hereto to others, including but not limited to the
Selling Shareholder, in exchange for the assumption of all of Stevens'
liabilities to such persons and entities, except for the JSG Debt (defined
below) and other liabilities specifically assumed and identified on Exhibit
"B."
7. No Debts, Obligations or Agreements. Except as provided
below, and as identified on attached Exhibit "B" hereto at the Effective Time,
Stevens shall have no outstanding debts, liabilities, obligations or
contractual commitments of any kind or nature. Without limiting the generality
of the foregoing, Stevens shall, at the Effective Time, have no outstanding
liability to any person or entity for any payroll expense, vacation expense,
sick pay expense, employee or dependent medical expense or contribution,
pension or profit sharing plan contribution or expense or employment tax,
incurred or accrued at any time prior to the Effective Time; provided, however,
that, as the sole exception to the foregoing, Stevens shall be indebted to the
Selling Shareholder at the Effective Time in an amount not to exceed $650,000
(the "JSG Debt"), which indebtedness shall be due and payable not later than
the closing date of the IPO and evidenced by a promissory note in the form of
Exhibit "B-1" hereto, to be executed and delivered by Stevens immediately prior
to the Effective Time.
8. Operations. At the Effective Time (and without limiting any
other warranties and representations set forth herein):
(a) Stevens will not be a party to any employment
agreement or contract; and
(b) Stevens will be in full compliance with all
applicable laws, regulations and ordinances.
9. Litigation. There are (and, at the Effective Date, there will
be) no actions, suits, proceedings or investigations at law or in equity
pending, or to the knowledge of the Selling Shareholder, directly or indirectly
threatened against Stevens by or before any
5
<PAGE> 7
federal, state, municipal or other governmental department, commission, board,
agency or instrumentality.
10. ERISA. Stevens has no employee benefit plans as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended.
11. Taxes.
(a) Returns and Payment of Taxes. All tax returns
required to be filed on or prior to the Effective Time by Stevens have been or
prior to the Effective Time will have been filed; and all taxes shown to be due
and payable on such returns, all other taxes, duties and governmental charges
payable by Stevens, and all deficiencies, assessments, penalties and interest
relating thereto that are accrued or due and payable at or before the Effective
Time, will have been paid by Stevens at or before the Effective Date.
(b) Withholding of Taxes. There has been withheld or
collected from each payment made to each employee of Stevens the full amount of
all taxes (including without limitation federal income taxes, Federal Insurance
Contributions Act taxes and state and local income, payroll and wage taxes)
required to be withheld or collected therefrom and the same have been (or will
timely be) paid to the proper tax depositories or collecting authorities.
12. Trademark. The Trademark (as defined in Exhibit "A" hereto)
is duly registered exclusively in the name of Stevens with the U.S. Patent and
Trademark Office, as Reg. No. 1,662,796, and the Trademark and related
registration are free and clear of all liens, encumbrances, restrictions and
adverse claims of any kind or nature.
13. Phone Number. Stevens has the sole and exclusive rights to
the telephone number "1-800 359-4537" in the United States of America, and such
rights are free and clear of all liens, restrictions, limitations, adverse
claims, demands and encumbrances, of every kind and nature, subject only to
regulatory restrictions. Stevens is (and will, through the Effective Time,
continue to be) in full compliance with all documents and agreements relating
to its acquisition, ownership and/or utilization of such number.
14. No Material Changes. From the date hereof until the Effective
Time there shall be no material change in the assets, liabilities, business, or
financial condition of Stevens, except as provided in the Interim Operating
Agreement (as defined in Article XIII) and as except as otherwise provided or
contemplated herein.
6
<PAGE> 8
ARTICLE V
TRAVEL SYSTEMS' WARRANTIES
AND REPRESENTATIONS TO THE SELLING SHAREHOLDER
1. Corporate Organization and Authority. Travel Systems is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with full corporate power and authority to
conduct its business as now conducted and enter into and perform its
obligations under this Agreement. Travel Systems' execution, delivery and
performance of this Agreement and its acquisition of the capital stock of
Stevens hereunder have been duly authorized by all requisite corporate action
on the part of Travel Systems, and this Agreement constitutes, and all
agreements and other instruments and documents to be executed and delivered by
Travel Systems hereunder will constitute, Travel Systems' legal, valid and
binding obligations, enforceable against Travel Systems in accordance with
their terms, except as may be limited by applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and principles of equity.
Travel Systems is duly qualified to do business in the State of Florida and,
prior to undertaking obligations under the Interim Operating Agreement will be
qualified to do business in the State of California.
2. Absence of Conflicts and Consent Requirements. Travel
Systems' execution and delivery of this Agreement and performance of its
obligations hereunder, including the purchase of and payment for the capital
stock of Stevens hereunder, do not and will not conflict with, violate or
result in any default under Travel Systems' articles of incorporation or bylaws
or any mortgage, indenture, agreement, instrument or other contract to which
Travel Systems is a party or by which Travel Systems or its property is bound,
nor will they violate any judgment, order, decree, law, statute, regulation or
other judicial or governmental restriction to which Travel Systems is subject.
Travel Systems' execution and delivery of this Agreement and performance of its
obligations hereunder, including the purchase of and payment for the capital
stock of Stevens hereunder, do not and will not require the consent of, or any
prior filing with or notice to, any governmental authority or other third
party, except as contemplated hereby.
3. Absence of Litigation. Except as disclosed in writing to
Stevens, no claim, action, proceeding or investigation is pending or, to the
knowledge of Travel Systems, threatened against Travel Systems or its business.
4. Financial Statements. All financial statements furnished by
Travel Systems to the Selling Shareholder have been prepared in accordance with
generally accepted accounting principles, applied on a consistent basis, and
fairly present the financial position and the profit and loss of Travel Systems
as provided therein.
7
<PAGE> 9
5. Taxes.
(a) Returns and Payment of Taxes. All tax returns
required to be filed on or prior to the Effective Time by Travel Systems has
been or prior to the Effective Time will have been filed; and all taxes shown
to be due and payable on such returns, all other taxes, duties and governmental
charges payable by Travel Systems, and all deficiencies, assessments, penalties
and interest relating thereto due and payable on or before the Effective Time,
will have been paid.
(b) Withholding of Taxes. There has been withheld or
collected from each payment made to each employee of Travel Systems the full
amount of all taxes (including without limitation federal income taxes, Federal
Insurance Contributions Act taxes and state and local income, payroll and wage
taxes) required to be withheld or collected therefrom and the same have been
paid to the proper tax depositories or collecting authorities.
6. Stock of Travel Systems. The authorized capital stock of
Travel Systems consists of 10 million shares of common stock, having a par
value of $.01 per share each, of which 5,380,600 shares are issued and
outstanding; and 400 shares of preferred stock, par value $100.00 per share,
all of which are outstanding. All issued and outstanding shares are validly
issued, fully paid and nonassessable, and such shares have been so issued in
full compliance with all federal and state securities laws. There are no
outstanding subscriptions, options, rights, warrants (except those described in
Article VIII Section 3 below), convertible securities or other agreements or
commitments obligating Travel Systems to issue or to transfer from treasury any
additional shares of its capital stock of any class.
7. Absence of Undisclosed Liabilities. Travel Systems does not
have any debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, that is
not reflected or reserved against in Travel Systems' balance sheet as of
September 30, 1996, included in the financial statements referred to in Section
4 of this Article, except for (1) those that may have been incurred after the
date of such balance sheet and which are either (a) incurred in the ordinary
course of Travel Systems' business, or (b) disclosed in writing to Stevens, and
(2) those that are not required by generally accepted accounting principles to
be included in the balance sheet. All debts, liabilities and obligations
incurred after such date were incurred in the ordinary course of business and
are usual and normal in amount both individually and in the aggregate.
8. Trademarks. All of the trademarks, service marks, logos and
other identifying features of Travel Systems' business are owned exclusively by
Travel Systems, free and clear of all liens,
8
<PAGE> 10
encumbrances, restrictions and adverse claims of any kind or nature.
9. Phone Number. Travel Systems has the sole and exclusive
rights to the telephone number 1-800-569-2473 in the United States of America,
and such rights are free and clear of all liens, restrictions, limitations,
adverse claims, demands and encumbrances, of every kind and nature, subject
only to regulatory restrictions. Travel Systems is (and will, through the
Effective Time, continue to be) in full compliance with all documents and
agreements relating to its acquisition, ownership and/or utilization of such
number.
10. No Material Changes. From the date hereof until the Effective
Time there shall be no material change in the assets, liabilities, business, or
financial condition of Travel Systems, except as provided in the Interim
Operating Agreement (as defined in Article XIII) and as except as otherwise
provided or contemplated herein.
ARTICLE VI
INDEMNIFICATION BY SELLING SHAREHOLDER
1. Indemnification by the Selling Shareholder. Subject to the
procedures and limitations set forth in this Article VI, the Selling
Shareholder agrees to indemnify and save harmless Travel Systems and its agents
and representatives from and against any and all Net Economic Loss (herein
defined) incurred by Travel Systems or any of the other indemnified persons or
entities arising after the Closing (defined below) out of (i) the breach of any
representation or warranty made by the Selling Shareholder in this Agreement or
in any instrument or documents required to be delivered by the Selling
Shareholder to Travel Systems pursuant to this Agreement, (ii) the Selling
Shareholder's failure to duly perform any covenant or agreement to be performed
by it under this Agreement or under any instrument or document required to be
delivered by the Selling Shareholder to Travel Systems pursuant to this
Agreement, and (iii) any liabilities or obligations, contingent or otherwise,
of Stevens which exist at the Effective Time and which are based upon any act,
state of facts or condition which occurred or existed before the Effective
Time, known or unknown, due or payable, except to the extent such liabilities
and/or obligations are specifically assumed hereunder by Travel Systems.
2. Net Economic Loss Defined. As used in this Agreement, the
term "Net Economic Loss" means the amount of any loss, liability, damage, cost
or expense (including reasonably attorneys' fees) incurred by Travel Systems or
any of the other indemnified persons or entities arising out of the matters or
circumstances referred to in Article VI, Section 1., hereof, less the amount of
9
<PAGE> 11
the economic benefit (if any) received by Travel Systems in connection with
such loss, liability, damage, cost or expense (including without limitation
benefits obtained under federal, state and local tax laws, amounts recovered
under insurance policies net of deductibles and incidental expenses and premium
increases resulting therefrom, recovery or potential recovery by setoffs or
counterclaims, and other economic benefits). The amount of any such economic
benefit received by Travel Systems after the calculation of Net Economic Loss
shall be subtracted from any amount payable by the Selling Shareholder under
this Article VI or shall be payable to the Selling Shareholder in reimbursement
for amounts already paid by the Selling Shareholder under this Article. In
determining the amount of such economic benefit, due consideration shall be
given to, among other things, appropriate discount for timing factors.
3. Indemnity Claims by Travel Systems or Others.
(a) Notice of Claim. If any matter shall arise which, in
the opinion of Travel Systems or any of the other indemnified persons or
entities, constitutes or may give rise to a Net Economic Loss subject to
indemnification by the Selling Shareholder as provided herein (an "Indemnity
Claim"), Travel Systems shall give written notice (the "Notice of Claim") of
such Indemnity Claim to the Selling Shareholder, setting forth the relevant
facts and circumstances of each Indemnity Claim in reasonable detail and the
amount of indemnity sought from the Selling Shareholder with respect thereto,
and shall give continuing notice promptly thereafter as to developments coming
to Travel Systems' attention materially affecting any matter relating to such
Indemnity Claim.
(b) Mitigation of Loss. Travel Systems shall use
reasonable efforts to mitigate its Net Economic Loss in connection with any
Indemnity Claim, to the same extent as would a reasonable and prudent person to
whom no indemnity were available. This Section VI.3(b) shall not apply with
respect to a Third Party Claim (hereinafter defined) for which the Selling
Shareholder did not elect to assume the defense as provided in the following
subsection (c).
(c) Third Party Claims. If any Indemnity Claim is based
upon any claim, demand, suit or action of any third party against Travel
Systems or any of the other indemnified persons or entities or the Assets (a
"Third Party Claim"), then Travel Systems, at the time it gives the Selling
Shareholder the Notice of Claim with respect to such Third Party Claim shall
offer to the Selling Shareholder the option to have the Selling Shareholder
assume the defense of the Third Party Claim, which option may be exercised by
the Selling Shareholder by written notice to Travel Systems within fifteen (15)
days after Travel Systems gives written notice to the Selling Shareholder
thereof. If the Selling Shareholder so exercises the option, then the Selling
Shareholder shall at its own
10
<PAGE> 12
expense assume the defense of the Third Party Claim, shall upon the final
determination thereof fully discharge at their own expense all liability of
Travel Systems and the other indemnified persons and entities with respect to
the Third Party Claim, and shall be entitled, in their sole discretion and at
their sole expense but without any liability of Travel Systems or any of the
other indemnified persons or entities therefor, to compromise or settle the
Third Party Claim upon terms acceptable to the Selling Shareholder. From the
time the Selling Shareholder so assumes such defense and while such defense is
pursued diligently and in good faith, the Selling Shareholder shall have no
further liability for attorneys' fees or other costs of defense thereafter
incurred by Travel Systems and the other indemnified persons and entities in
connection with such Third Party Claim. If the Selling Shareholder does not
exercise the option to defend such Third Party Claim, then Travel Systems or
any of the other indemnified persons or entities shall undertake to defend such
Third Party Claim itself. Travel Systems and/or the other persons and entities
indemnified hereunder shall conduct such defense as would a reasonable and
prudent person to whom no indemnity were available, shall permit the Selling
Shareholder (at the Selling Shareholder's expense) to participate in (but not
control) such defense, and shall not settle or compromise such Third Party
Claim without the Selling Shareholder's consent (but such consent shall not of
itself establish the Selling Shareholder's indemnity liability therefor).
ARTICLE VI-A
INDEMNIFICATION BY TRAVEL SYSTEMS
1. Indemnification by the Travel Systems. Subject to the
procedures and limitations set forth in this Article VI-A, Travel Systems
agrees to indemnify and save harmless the Selling Shareholder and agents and
representatives from and against any and all Net Economic Loss (herein defined)
incurred by the Selling Shareholder or any of the other indemnified persons or
entities arising after the Closing (defined below) out of (i) the breach of any
representation or warranty made by Travel Systems in this Agreement or in any
instrument or documents required to be delivered by Travel Systems to the
Selling Shareholder pursuant to this Agreement, (ii) Travel Systems' failure to
duly perform any covenant or agreement to be performed by it under this
Agreement or under any instrument or document required to be delivered by
Travel Systems to the Selling Shareholder pursuant to this Agreement, and
(iii) any liabilities or obligations, contingent or otherwise, of Travel
Systems which exist at the Effective Time and which are based upon any act,
state of facts or condition which occurred or existed before the Effective
Time, known or unknown, due or payable, except to the extent such liabilities
and/or obligations are specifically assumed hereunder by the Selling
Shareholder.
11
<PAGE> 13
2. Net Economic Loss Defined. As used in this Agreement, the
term "Net Economic Loss" means the amount of any loss, liability, damage, cost
or expense (including reasonably attorneys' fees) incurred by the Selling
Shareholder or any of the other indemnified persons or entities arising out of
the matters or circumstances referred to in Article VI - A Section 1., hereof,
less the amount of the economic benefit (if any) received by the Selling
Shareholder in connection with such loss, liability, damage, cost or expense
(including without limitation benefits obtained under federal, state and local
tax laws, amounts recovered under insurance policies net of deductibles and
incidental expenses and premium increases resulting therefrom, recovery or
potential recovery by setoffs or counterclaims, and other economic benefits).
The amount of any such economic benefit received by the Selling Shareholder
after the calculation of Net Economic Loss shall be subtracted from any amount
payable by Travel Systems under this Article VI-A or shall be payable to Travel
Systems in reimbursement for amounts already paid by Travel Systems under this
Article. In determining the amount of such economic benefit, due consideration
shall be given to, among other things, appropriate discount for timing factors.
3. Indemnity Claims by the Selling Shareholder or Others.
(a) Notice of Claim. If any matter shall arise which, in
the opinion of the Selling Shareholder or any of the other indemnified persons
or entities, constitutes or may give rise to a Net Economic Loss subject to
indemnification by Travel Systems as provided herein (an "Indemnity Claim"),
the Selling Shareholder shall give written notice (the "Notice of Claim") of
such Indemnity Claim to Travel Systems, setting forth the relevant facts and
circumstances of each Indemnity Claim in reasonable detail and the amount of
indemnity sought from Travel Systems with respect thereto, and shall give
continuing notice promptly thereafter as to developments coming to the Selling
Shareholder's attention materially affecting any matter relating to such
Indemnity Claim.
(b) Mitigation of Loss. The Selling Shareholder shall use
reasonable efforts to mitigate its Net Economic Loss in connection with any
Indemnity Claim, to the same extent as would a reasonable and prudent person to
whom no indemnity were available. This Section VI-A.3(b) shall not apply with
respect to a Third Party Claim (hereinafter defined) for which Travel Systems
did not elect to assume the defense as provided in the following subsection
(c).
(c) Third Party Claims. If any Indemnity Claim is based
upon any claim, demand, suit or action of any third party against the Selling
Shareholder or any of the other indemnified persons or entities or the Assets
(a "Third Party Claim"), then the Selling Shareholder, at the time it gives
Travel Systems the Notice of Claim with respect to such Third Party Claim shall
offer to Travel
12
<PAGE> 14
Systems the option to have Travel Systems assume the defense of the Third Party
Claim, which option may be exercised by Travel Systems by written notice to the
Selling Shareholder within fifteen (15) days after the Selling Shareholder
gives written notice to Travel Systems thereof. If Travel Systems so exercises
the option, then Travel Systems shall at its own expense assume the defense of
the Third Party Claim, shall upon the final determination thereof fully
discharge at their own expense all liability of the Selling Shareholder and the
other indemnified persons and entities with respect to the Third Party Claim,
and shall be entitled, in their sole discretion and at their sole expense but
without any liability of the Selling Shareholder or any of the other
indemnified persons or entities therefor, to compromise or settle the Third
Party Claim upon terms acceptable to Travel Systems. From the time Travel
Systems so assumes such defense and while such defense is pursued diligently
and in good faith, Travel Systems shall have no further liability for
attorneys' fees or other costs of defense thereafter incurred by the Selling
Shareholder and the other indemnified persons and entities in connection with
such Third Party Claim. If Travel Systems does not exercise the option to
defend such Third Party Claim, then the Selling Shareholder or any of the other
indemnified persons or entities shall undertake to defend such Third Party
Claim itself. The Selling Shareholder and/or the other persons and entities
indemnified hereunder shall conduct such defense as would a reasonable and
prudent person to whom no indemnity were available, shall permit Travel Systems
(at Travel Systems' expense) to participate in (but not control) such defense,
and shall not settle or compromise such Third Party Claim without Travel
Systems' consent (but such consent shall not of itself establish Travel
Systems' indemnity liability therefor).
ARTICLE VI-B
OTHER INDEMNITIES AND RELEASES
1. Former Shareholder Indemnity and Release; Note Holder Release.
(a) To induce Travel Systems to enter into this
Agreement, the Selling Shareholder shall, at the Closing (defined below), cause
those of its Members who are former shareholders of Stevens from whom the
Selling Shareholder acquired the stock of Stevens to execute and deliver to
Travel Systems an indemnity and release agreement in the form of Exhibit "C"
hereto (the "Indemnity Agreement"). For purposes hereof, said former
shareholders of Stevens consist of the following persons and entities: Steve
Rohrlick; Sovova Beach, Inc.; Joe Elizondo; MOHS, Inc.; and WH/JSG L.L.C. (the
"Former Shareholders).
(b) To induce Travel Systems to enter into this
Agreement, the Selling Shareholder shall, at the Closing (defined below) cause
all of the Note Holders of Stevens to execute and
13
<PAGE> 15
deliver to Travel Systems a release agreement in the form of Exhibit "D" hereto
(the "Release Agreement"). For purposes hereof, the aforesaid Note Holders of
Stevens consist of the following persons and entities: Western Horizons, Ltd.;
MOHS, Inc.; Sovova Beach, Inc.; 800 Ways to Fly; Joan Robinson; and Howard
Rohrlick (the "Note Holders").
ARTICLE VII
CONDITIONS TO CLOSING
1. Travel Systems' Obligations. The obligations of Travel Systems
to consummate the Merger hereunder are subject to its satisfaction with respect
to each of the following conditions:
(a) The representations and warranties of the Selling
Shareholder set forth herein shall be true and correct in all material respects
on the date hereof and at the Effective Time, and the Selling Shareholder shall
have complied in all material respects with all covenants and agreements set
forth herein to be performed by it, prior to the Effective Time or the Closing.
(b) On the date hereof until immediately prior to the
Effective Time, no injunction, restraining order or other order of any federal
or state court in the United States which prevents the consummation of the
Merger shall be in effect and no litigation shall be pending seeking any such
order.
(c) On the date hereof until immediately prior to the
Effective Time, no statute, rule or regulation shall have been enacted by any
state or federal government or governmental agency in the United States which
would prevent the consummation of the Merger.
(d) The Former Shareholders shall have executed and
delivered to Travel Systems the Indemnity Agreement.
(e) The Note Holders shall have executed and delivered to
Travels Systems, the Release Agreement.
(f) The IPO shall have occurred.
2. Selling Shareholder's Obligations. The obligations of the
Selling Shareholder to consummate the Merger hereunder are subject to its
satisfaction with respect to each of the following conditions:
(a) The representations and warranties of Travel Systems
set forth herein shall be true and correct in all material respects on the date
hereof and at the Effective Time, and Travel Systems shall have complied in
all material respects with all covenants and
14
<PAGE> 16
agreements set forth herein to be performed by Travel Systems prior to the
Effective Time.
(b) On the date hereof and until immediately prior to the
Effective Time no injunction, restraining order or other order of any federal
or state court in the United States which prevents the consummation of the
Merger shall be in effect and no litigation shall be pending seeking any such
order.
(c) On the date hereof and until immediately prior to the
Effective Time no statute, rule or regulation shall have been enacted by any
state or federal government or governmental agency in the United States which
would prevent the consummation of the Merger.
(d) The IPO shall have occurred.
ARTICLE VIII
COVENANTS OF THE PARTIES
1. No Reg. S Offerings. Travel Systems agrees that none of its
common stock shall be registered under the provisions of SEC Regulation S at
any time that the Selling Shareholder is a holder of the common stock of Travel
Systems acquired under the terms of this Agreement.
2. Nonsolicitation. If Travel Systems does not register its
common stock with the SEC and this Agreement terminates under the provisions of
Section 1(b) of Article IX hereof, then Travel Systems agrees that it shall not
for a period of three years from March 31, 1997, use or disclose to any other
person or entity any Trade Secrets of Stevens. For purposes hereof, "Trade
Secrets" shall mean any information or material that is (a) confidential in
nature, (b) not generally known in the industry, and (c) identified or marked
as a Trade Secret by Stevens upon delivery thereof to Travel Systems.
3. Issuance of Warrants.
(i) At the Closing, Travel Systems shall issue to the
Selling Shareholder 250,000 warrants for 250,000 shares of Travel Systems'
common stock, which warrants shall not be registered with the SEC (except as
otherwise provided in Subparagraph (ii) of this Section 3) and shall have the
same exercise price and the same terms and conditions as the warrants to be
sold to the public pursuant to the Registration Statement.
(ii) Travel Systems agrees that, at its sole cost and
expense, Travel Systems shall file to register with the SEC all of the warrants
issued to the Selling Shareholder under Article VIII, Section 3(i) above,
within 180 days after the closing date of the
15
<PAGE> 17
IPO, and shall diligently pursue to complete such registration as expeditiously
as possible. If such filing is not made by Travel Systems within said 180-day
period, Travel Systems shall immediately pay to the Selling Shareholder the sum
of $100,000 and shall promptly file to register the aforesaid warrants with the
SEC and diligently pursue to complete such registration as expeditiously as
possible.
4. Advance of Fees. Travel Systems hereby agrees to advance to
the Company the sum of $100,000 for the payment of legal, accounting and other
expenses incurred by the Company and/or the Selling Shareholder in connection
with the transactions contemplated hereby, which sum shall be advanced as
follows:
<TABLE>
<CAPTION>
Payment Date Amount
------------ ------
<S> <C>
May 30, 1997 $50,000
June 13, 1997 $50,000
</TABLE>
ARTICLE IX
TERMINATION AND ABANDONMENT
1. General. Anything in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Merger abandoned at
any time prior to the Effective Time as follows:
(a) Mutual Consent. By the mutual consent of the
Constituent Corporations.
(b) IPO; Expiration Date. Travel Systems represents to
the Selling Shareholder that Travel Systems currently plans to file a
registration statement with the SEC on SEC Form SB-2 (the "Registration
Statement") and it is anticipated that the effective date of the initial public
offering (the "IPO") will occur no later than August 31, 1997 (the initial IPO
price per Share is referred to herein as the "Initial IPO Price").
Notwithstanding any other provision to the contrary herein contained, the
parties hereto agree and understand that, if the effective date of the IPO does
not occur by August 31, 1997 (the "IPO Deadline"), then this Agreement shall
automatically terminate and expire and no party shall have any liability
whatsoever to the other party under this Agreement, other than to terminate the
Escrow Agreement (defined below) and the Interim Operating Agreement in
accordance with their respective terms.
2. Expenses if Merger Terminated. Anything herein or elsewhere to
the contrary notwithstanding, in the event of the termination of this Agreement
under the provisions of this Article, each party hereto shall pay its own
expenses, including, without limiting the generality of the foregoing, the fees
and expenses of its agents, representatives, counsel, and accountants
incidental to
16
<PAGE> 18
the preparation of this Agreement and all matters related thereto, and no party
shall be liable to any other party for any expenses or damages incurred in
connection with the Agreement or the termination thereof.
ARTICLE X
CLOSING DATE AND PROCEDURES
1. Closing Date. The consummation of the Merger contemplated
hereby (the "Closing") shall be held at Stevens' executive offices in San
Diego, California at 10:00 a.m. (local time) on or before the closing date of
the IPO. The date on which the Closing occurs is referred to herein as the
"Closing Date."
2. Closing Procedures. On or immediately prior to the Closing
Date, the parties hereto shall exchange applicable documents pursuant to the
terms of this Agreement and as may be reasonably requested by any party hereto
and shall cause to be executed, delivered, and, as reasonably promptly as
possible, filed and recorded all instruments and shall cause all other acts to
be done, as shall be required to make the Merger effective under the laws of
the State of Delaware.
ARTICLE XI
ESCROW PROCEDURES
1. Escrow Provisions. Concurrently with the execution and
delivery of this Agreement, the parties shall execute and deliver an escrow
agreement in the form of Exhibit "F" attached hereto (the "Escrow Agreement"),
pursuant to which (I) Travel Systems shall deliver to the escrow agent
thereunder the following: (a) cash in the amount of $46,665.00 (the "Cash
Deposit"); (b) a promissory note (the "Note") in the form of Exhibit "E" hereto
from Travel Systems to the Selling Shareholder (which Note shall have an
initial outstanding principal balance as calculated in Article XV below and be
payable to the Selling Shareholder on the closing date of the IPO); (c)
Security Agreement, Memorandum of Security Agreement and UCC-1 (Exhibit "G"),
Telephone Transfer Documents (Exhibit "H"); and (d) certificates representing
the shares of the authorized but previously unissued voting common stock of
Travel Systems to be issued to the Selling Shareholder in the Merger; and (II)
the Selling Shareholder shall deliver to the escrow agent serving under the
Escrow Agreement all of the certificates representing the outstanding capital
stock of Stevens, the Indemnity Agreement signed by all of the Former
Shareholders, and the Release Agreement signed by all of the Note Holders. The
aforesaid documents, agreements and certificates shall be executed by the party
or parties tendering the same to the escrow agent, but such instruments shall
be undated. The parties agree that the Cash Deposit, when disbursed from
escrow to the Selling Shareholder,
17
<PAGE> 19
shall constitute the license fee due the Interim License Agreement between
Travel Systems and Stevens.
2. Escrow Agent. The escrow agent under the Escrow Agreement
will be Mission Valley Escrow, with any and all escrow fees and expenses of
such agent and its counsel to be shared equally by the Selling Shareholder and
Travel Systems.
3 Disbursement from Escrow. At the Closing, the parties will
cause the Escrow Agent to disburse the Note, the Security Agreement, UCC-1 and
Memorandum of Service Mark Assignment and the certificates described above to
the appropriate party or parties under the terms of this Agreement. The
parties acknowledge that they have caused the Escrow Agent to disburse the Cash
Deposit to the Selling Shareholder in accordance with this Agreement and the
Escrow Agreement.
ARTICLE XII
CONTINGENT SHARES
1. Two Year Provision. If, on the second annual anniversary date
of the Closing Date, the value of the Initial Travel Shares then held by the
Selling Shareholder (or its members), together with the aggregate amount of
cash and the fair market value of any assets or properties received by the
Selling Shareholder (or its members) in connection with the sale of all or any
of the Initial Travel Shares (at the then existing fair market value thereof)
prior to the second annual anniversary of the Closing Date, is less than
$2,571,429.00, then Travel Systems shall issue to the Selling Shareholder, on
the second annual anniversary of the Closing Date, additional shares of Travel
Systems' voting common stock, using the bid price of Travel Systems' stock on
the second annual anniversary of the Closing Date (or, if such date is a
Saturday, Sunday or Federal Holiday, the immediately preceding business day on
which Travel Systems' stock shall have been traded); and an appropriate number
of additional shares of Travel Systems' voting common stock shall be issued to
the Selling Shareholder based upon such price in order to make-up any such
deficiency (the "Additional Shares").
2. 120-Day Estimate. The parties agree that not later than 120
days prior to the second annual anniversary date of the IPO, the parties will
estimate the number of Additional Shares to be issued to the Selling
Shareholder by Travel Systems under this Article, using the latest bid price of
Travel Systems' stock. Within 90 days prior to such second anniversary date,
Travel Systems will take whatever action is necessary to register the projected
number of Additional Shares under the 1933 Act, by filing a registration
statement with the SEC, it being the intent that, on the such anniversary date,
the Additional Shares issued to the Selling Shareholder under this Article will
be registered under the 1933 Act pursuant to a registration statement filed
with the SEC
18
<PAGE> 20
and declared effective by the SEC on or before, or no later than 30 days after,
such second anniversary date with the SEC or that such registration will be
imminent. Travel Systems shall update its estimate of the Additional Shares to
be issued, if any, at least 10 days prior to such second anniversary date.
3. Transfer Restrictions. The Selling Shareholder hereby agrees
that all of the Initial Travel Shares shall be subject to the following
transfer restrictions (which restrictions shall be expressly set forth in a
legend on each certificate representing all or any part of the Initial Travel
Shares):
(a) During the first 30-day period immediately following the
closing date of the Merger (the "First Month"), all of the
Initial Travel Shares shall be non-transferable;
(b) During the consecutive 11-month period immediately following
the expiration of the First Month (the "First Year"), the
Selling Shareholder may sell, transfer or convey up to 4,546
Initial Travel Shares per month in bonafide arm's length
transactions for cash only (and if, during any such month, the
actual number of such shares sold, transferred or conveyed by
the Selling Shareholder in less than 4,546, the difference
thereof may be carried forward and added to the minimum number
of Initial Travel Shares that may be sold by the Selling
Shareholder in any subsequent month, without regard to the
restrictions set forth herein);
(c) During the consecutive 12-month period immediately following
the expiration of the First Year (the Second Year"), the
Selling Shareholder may sell, transfer or convey up to 20,833
Initial Travel Shares per month in bonafide arm's length
transactions for cash only(and if, during any such month, the
actual number of such shares sold, transferred or conveyed by
the Selling Shareholder is less than 20,833, the difference
thereof may be carried-forward and added to the minimum number
of Initial Travel Shares that may be sold by the Selling
Shareholder in any subsequent month, without regard to the
restrictions set forth herein); and
(d) There shall be no transfer restrictions imposed upon the
Initial Travel Shares under the terms hereof after the
expiration the Second Year.
Provided, however, that trades of common stock not effectuated on an exchange,
shall not be subject to the limitations of this Article XII, Section 3, so long
as such shares are subject to the limitations as set forth in the hands of the
transferee of such shares. Provided, further, however, that the Selling
Shareholder may exceed the volume transfer restrictions imposed under this
19
<PAGE> 21
Section with, and only with, the prior written consent of the Travel Systems,
which consent may not be reasonably withheld. The parties hereto, in
determining the reasonableness of a consent, shall examine average daily
trading volumes, and price fluctuations created by certain volume trades.
Travel Systems shall use its best efforts to remove a legend from stock
certificates to facilitate the expeditious sale of stock under this Article
XIII, Section 3.
ARTICLE XIII
INTERIM OPERATING AGREEMENT
On the date hereof, the parties hereto shall enter into and deliver an
interim operating agreement in the form of Exhibit "F-1" hereto, and certain
related agreements specified therein, (the "Interim Operating Agreements"),
pursuant to which Travel Systems shall operate the Business as therein
provided.
ARTICLE XIV
PUT OPTION AND RIGHT
1. Put Option and Right. For a period of 120 days after the
Closing Date (the "Option Period"), the Selling Shareholder shall have the
option and right (the "Put Option") to require Travel Systems to purchase from
the Selling Shareholder, and Travel Systems shall be obligated to purchase from
the Selling Shareholder, the Put Assets described on Exhibit "G-1" hereto,
subject only to the Put Liabilities described on said Exhibit "G-1" that arise
after the effective date of the Interim Operating Agreements. If the Selling
Shareholder elects to exercise the Put Option, the Selling Shareholder shall
give written notice thereof ("Notice of Exercise") to Travel Systems prior to
the expiration of the Option Period. Upon the timely giving of such notice as
provided herein, Selling Shareholder shall be obligated to sell to Travel
Systems, and Travel Systems shall be obligated to purchase from the Selling
Shareholder, the Put Assets, subject only to the Put Liabilities that arise on
or after the effective date of the Interim Operating Agreements, and otherwise
free and clear of all liens and encumbrances of any kind or nature. The
closing of the Put Option shall take place within 15 days after the Notice of
Exercise and shall take place at the executive offices of Stevens (the "Closing
Location"). At such closing, Travel Systems shall pay the entire purchase
price of $50,000 (payable in cash by cashier's check or by wire transfer) for
the Put Assets and the Selling Shareholder shall execute and deliver to Travel
Systems a bill of sale and/or assignments for the Put Assets, in form and
substance reasonably satisfactory to Travel Systems, together with the Put
Assets, at the Closing Location. Travel Systems shall, at
20
<PAGE> 22
such closing, execute and deliver to the Selling Shareholder whatever documents
or agreements may be necessary to evidence its assumption of the Put
Liabilities, in form and substance reasonably satisfactory to the Selling
Shareholder.
ARTICLE XV
CALCULATION OF PROMISSORY NOTE; OFFSET RIGHTS
The parties hereto agree and understand that the principal amount of
the Note shall be calculated as follows: $1,653,335 less the sum of (y) and (z)
where (y) is equal to the amount of the JSG Debt on the Closing Date and (z) is
equal to the amount advanced by Travel Systems under the provision of Article
VIII, Section 4 hereof (but the amount of (z) shall not under any circumstances
exceed $75,000).
ARTICLE XV-A
MUTUAL RELEASE
Effective as of May 30, 1997 (the date on which the agreement is
executed and delivered by the parties), each party does hereby fully release,
acquit and forever discharge each of the other parties hereto, including their
respective successors and assigns, of and from any and all claims, demands,
damages, actions, and causes of action, of any kind or nature whatsoever,
arising from any breach, default, violation, or alleged breach, default, or
violation, by any such other party or parties that occurred, or is alleged to
have occurred, on or prior to May 30, 1997 and arising under or pursuant to
this Agreement or the Original Agreement or any of the documents or agreements
executed in connection therewith, including, without limitation, the Interim
Operating Agreement. Without limiting the generality of the foregoing, Travel
Systems releases the Selling Shareholder and the Company from all of the
matters described in its letter dated February 28, 1997 to Mr. Steve Rohrlick,
Chairman of the Board. The Joseph Stevens Group, INC., and the Selling
Shareholder releases Travel Systems and the Company from all of the matters
described in its letter of March 6, 1997 to Mr. Mark Mastrini, President, 800
Travel Systems, Inc.
ARTICLE XVI
MISCELLANEOUS
1. Survival of Representations and Warranties. The warranties,
representations, covenants and indemnities of the parties hereto shall survive
for a period of 24 months after the Closing of the Merger and may survive such
period only if a written claim alleging a breach or violation of any such
warranty, representation, covenant or indemnity is given by an aggrieved
21
<PAGE> 23
party to the parties hereto before the expiration of such 24-month period.
2. Counterparts. For the convenience of the parties, this
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original.
3. Waiver of Compliance. Any failure of any party hereto to
comply with any obligation, covenant, agreement or condition herein may be
expressly waived in writing to the other parties, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of or estoppel with respect to any
subsequent or other failure.
4. Notices. Any notices or other communications required or
permitted under this Agreement shall be sufficiently given if hand delivered or
sent by first class certified mail, return receipt requested, or by facsimile,
overnight courier or telegram, addressed as follows:
800 Travel Systems, Inc.
4802 Gunn Highway
Suite 140
Tampa, Florida 33624
Facsimile No : (813)908-0080
With a copy to:
Vincent, Berg, Stalzer & Menendez
3399 Peachtree Road
Suite 1400
Atlanta, Georgia 30326
Attn: Thomas Stalzer, Esq.
Facsimile No: 404-812-5699
The Selling Shareholder/Stevens
Messrs. Steven Rohrlick and Joe G. Elizondo
5440 Morehouse Drive, Suite 2000
San Diego, California 92121
Facsimile Nos.: (619) 459-4749
(619) 453-5713
With a copy to:
Richard Weintraub, Esq,
Goode & Peterson, PLC
4225 Executive Square, Suite 200
La Jolla, California 92037-1483
Facsimile No.: (619) 550-3035
22
<PAGE> 24
5. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented by mutual written consent
of the parties.
6. Partial Invalidity. If any term, provision, section, sentence
or paragraph of this Agreement shall be found to be invalid or unenforceable by
a court of competent jurisdiction, the remainder of this Agreement shall remain
valid and enforceable to the fullest extent possible by law.
7. Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assignable by any of
the parties hereto without the prior written consent of the other parties.
8. Governing Law. This Agreement and the legal relations between
the parties shall be governed by and construed in accordance with the laws of
the State of Delaware, both substantive and remedial, without giving effect to
the principles of conflicts of law and choice of law thereof.
9. Headings. The headings of the section and articles of this
Agreement are inserted for convenience only and shall not constitute a part
hereof or be used in the interpretation of the language of this Agreement.
10. Entire Agreement. This Agreement, including any documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, warranties, covenants or undertakings other than
those expressly set forth herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
11. Attorneys' Fees. If a party commences or is made a party to
an action or arbitration proceedings to enforce or interpret the terms of this
Agreement, or to obtain a declaration of rights under this Agreement, the
prevailing party in such action or proceeding shall be entitled to recover from
the other party all attorneys' fees, costs and expenses incurred in connection
with such action or proceeding or any appeal or enforcement of such action or
proceeding.
12. Escrow Agreement. The parties agree forthwith to deposit this
Agreement and the other documents executed in connection therewith with the
Escrow Agent and to amend the Escrow Agreement as and to the extent necessary
to comply with the terms hereof.
23
<PAGE> 25
IN WITNESS WHEREOF, each of the parties, hereto has caused this
Agreement and Plan of Merger to be executed on the first date above written.
"Stevens"
THE JOSEPH STEVENS GROUP, INC.
By: /s/ Steve Rohrlick
--------------------------
President
Attest: /s/ Joe Elizondo
-------------------------
,Secretary
"Travel Systems"
800 TRAVEL SYSTEMS, INC.
By: /s/ Mark Mastrini
-----------------------------
Its: President
Attest:
,Secretary
"Selling Shareholder"
THE JOSEPH STEVENS GROUP, LLC
By: /s/ Steve Rohrlick
-----------------------------
Manager
24
<PAGE> 26
EXHIBIT "A"
o The service mark 1-800 FLY 4 LESS, U.S. Department of
Commerce, Patent and Trademark Office, Registration No.
1,662,796, Serial No. 74/108480 (the "Service Mark"); and
o The telephone number 1-800-359-4537 (the "Number"), and
related service marks, logos and other identifying features
associated with the Service Mark and the Number.
o All miscellaneous office supplies.
25
<PAGE> 27
EXHIBIT "B"
NOTE TO JOSEPH STEVENS GROUP, LLC AND ASSUMED LIABILITIES
Yellow Page, Radio and Lowfare map agreements; promissory note
from The Joseph Stevens Group, Inc., payable to The Joseph
Stevens Group, LLC dated on or about the date hereof and
described more particularly in Exhibit "I" hereto.
26
<PAGE> 28
EXHIBIT "B-1"
JSG NOTE
27
<PAGE> 29
EXHIBIT "C"
INDEMNITY AND RELEASE AGREEMENT
28
<PAGE> 30
EXHIBIT "D"
RELEASE AGREEMENT
29
<PAGE> 31
EXHIBIT "E"
PROMISSORY NOTE
30
<PAGE> 32
EXHIBIT "F"
ESCROW AGREEMENT
31
<PAGE> 33
EXHIBIT "F-1"
INTERIM OPERATING AGREEMENT
32
<PAGE> 34
EXHIBIT "G"
MEMORANDUM OF SECURITY AGREEMENT AND UCC-1
33
<PAGE> 35
EXHIBIT "G-1"
THE PUT ASSETS
2. Telephone switch and equipment.
2. All AT&T computer equipment.
4. All Excell printers and all office furniture.
5. Master lease time clock system.
6. All miscellaneous office supplies and equipment.
7. All manufacturer's and other warranties relating to any of the
foregoing.
THE PUT LIABILITIES
1. Financing and service arrangements for telephone switch and
equipment described in Exhibit "G" to this Agreement -
Schedule 1 attached hereto.
2. Frontier long distance contract - Schedule 2 attached hereto.
3. San Diego building lease - Schedule 3 attached hereto.
4. Tokai copier lease - Schedule 4 attached hereto.
5. All liabilities arising after the effective date of the
Interim Operating Agreement under other leases relating to the
"Put Assets."
34
<PAGE> 1
EXHIBIT 2.3
May 30, 1997
The Joseph Stevens Group, Inc.
The Joseph Stevens Group, LLC
c/o Mr. Steven Rohrlick
5440 Morehouse Drive
Suite 2000
San Diego, California 92121
Re: Interim Operating Agreement dated November 11, 1996 among 800
Travel Systems, Inc. ("Travel Systems"), the Joseph Stevens
Group, LLC (the "Selling Shareholder") and the Joseph Stevens
Group, Inc. (the "Company")(the "Interim Operating Agreement")
Dear Steve:
The purpose of this letter is to set forth the agreement of the
above-referenced parties to supplement the Interim Operating Agreement as
follows:
Specifically, if the merger described in that certain Amended and
Restated Agreement and Plan of Merger dated as of November 11, 1996, does not
close on or before August 31, 1996 [sic], Travel Systems may terminate the
Interim Operating Agreement by giving 60 days' advance written notice thereof
to the Selling Shareholder and the Company, whereupon the Interim Operating
Agreement shall terminate at midnight (California time) on the 60th day after
such written notice is so given (such 60-day period is hereinafter referred to
as the "Notice Period"). During the Notice Period, Travel Systems shall pay
the expenses of the Business in the ordinary course, subject only to the
following:
(a) The Selling Shareholder shall be responsible for paying, when
due, all costs and expenses associated with any additional
staffing or personnel needs of the Business that arise at any
time during the Notice Period;
(b) The Selling Shareholder shall be responsible for paying, when
due, the wages, salaries and related taxes and expenses
associated with the employees described in Section 1 (ii) of
the Interim Operating Agreement; and
<PAGE> 2
The Joseph Stevens Group, Inc.
The Joseph Stevens Group, LLC
July 21, 1997
Page 2
(c) Travel Systems shall pay on or before August 31, 1997, the
telephone bill described on Exhibit A attached hereto.
Without limiting the generality of the foregoing, the parties agree
that the Worldspan debt described on Exhibit B hereto constitutes one of the
expenses of the Business that will be paid in the ordinary course by Travel
Systems during term of the Notice Period.
The parties further agree that the March 31, 1997 letter agreement
supplementing the Interim Operating Agreement as described therein is null and
void and has been superseded in its entirety by the terms and conditions of the
Amended and Restated Agreement in Plan of Merger among the parties hereto,
dated as of November 11, 1996.
Except as amended hereby, the parties hereto hereby ratify and confirm
the Interim Operating Agreement. Terms used but not defined herein shall have
the same meanings as described to them in the Interim Operating Agreement.
If the foregoing meets with your understanding of our agreement,
please sign and date where indicated on behalf of the Selling Shareholder and
the Company and return a fully executed copy of this document to me.
Sincerely
800 TRAVEL SYSTEMS, INC.
By: /s/ Mark Mastrini
------------------------------
Its: President
---------------------
Agreed to and accepted this
/s/ 30th day of May, 1997.
"Selling Shareholder"
THE JOSEPH STEVENS GROUP, LLC
By: /s/ Joe Elizondo
-------------------------
Its: Manager
-------------------
"Company"
THE JOSEPH STEVENS GROUP, INC.
By: /s/ Steve Rohrlick
-------------------------
Its: President
-------------------
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
800 TRAVEL SYSTEMS, INC.
800 Travel Systems, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
as follows:
1. The Corporation was originally incorporated under the
name "800 Travel Systems, Inc." and the original Certificate of Incorporation
of the Corporation was filed with the Secretary of State of the State of
Delaware on November 13, 1995.
2. Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware, this Amended and Restated Certificate
of Incorporation restates and integrates and amends the provisions of the
Certificate of Incorporation of the Corporation and has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
3. The text of the Certificate of Incorporation is
hereby amended and restated to read in its entirety as follows:
FIRST: NAME.
The name of the corporation is 800 Travel Systems, Inc.
(hereinafter referred to as the "Corporation").
SECOND: ADDRESS.
The address of the Corporation's registered office in the
State of Delaware is 32 Loockerman Square, Suite L-100, Dover, Kent County,
Delaware 19901. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: PURPOSE.
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: CAPITALIZATION.
SECTION 1. Authorized Capital. The total number of shares of
all classes of capital stock which the Corporation shall have authority to
issue is 21,000,000, of which 20,000,000 shares shall be common stock of the
par value of $.01 per share (the "Common Stock") and 1,000,000 shares shall be
preferred stock of the par value of $.01 per share (the "Preferred Stock").
<PAGE> 2
SECTION 2. Preferred Stock. The Board of Directors is
expressly authorized to provide for the issue of all or any shares of the
Preferred Stock, in one or more series, and to fix for each such series such
voting powers, full or limited, and such designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereon as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such series (a "Preferred Stock Designation") and as
may be permitted by the General Corporation Law of Delaware. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the voting power of all of the then outstanding
shares of the capital stock of the Corporation entitled to vote generally in
the election of directors (the "Voting Stock"), voting together as a single
class, without a separate vote of the holders of the Preferred Stock, or any
series thereof, unless a vote of any such holders is required pursuant to any
Preferred Stock Designation.
SECTION 3. Common Stock. Except as otherwise required by law
or as otherwise provided in any Preferred Stock Designation, the holders of the
Common Stock shall exclusively posses all voting power and each share of Common
Stock shall have one vote.
SECTION 4. Preemptive Right. No holder of Common Stock shall
have any preemptive right to purchase or subscribe for any part of any issue of
stock or of securities of the Corporation convertible into stock of any class
whatsoever, whether now or hereafter authorized.
FIFTH: BOARD OF DIRECTORS.
SECTION 1. Number. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. The number of directors of the initial Board of Directors shall be
[ ]. The number of directors thereafter shall be fixed from time to time
by the Board of Directors pursuant to the By-Laws.
SECTION 2. Classification. The Board of Directors shall be
divided into three classes, as nearly equal in number as the then total number
of directors constituting the whole board permits, with the term of office of
one class expiring each year. At the next election of directors, whether by
shareholders, directors or the incorporator of the Corporation, directors of
the first class shall be elected to hold office for a term expiring at the next
succeeding annual meeting, directors of the second class shall be elected to
hold office for a term expiring at the second succeeding annual meeting and the
directors of the third class shall be elected to hold office for a term
expiring at the third succeeding annual meeting. Subject to the foregoing, at
each annual meeting of stockholders, the successors to the class of directors
whose term shall then expire shall be elected to hold office for a term
expiring at the third succeeding annual meeting and each director so elected
shall hold office until his successor is elected and qualified, or until his
earlier resignation or removal.
If the number of directors is changed, any increase or
decrease in the number of directors shall be apportioned among the three
classes so as to make all classes as nearly equal
2
<PAGE> 3
in number as possible, and the Board of Directors shall decide which class
shall contain an unequal number of directors.
SECTION 3. Vacancies. Newly created directorships resulting
from death, resignation, retirement, disqualification, removal from office or
other cause, may be filled by a majority vote of the remaining directors then
in office, although less than a quorum, or by the sole remaining director, and
each director so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which he or she has
been elected expires and until such director's successor shall have been duly
elected and qualified. No decrease in the authorized number of directors shall
shorten the term of any incumbent director.
SECTION 4. Removal. A director may be removed only for
cause. A director may be removed for cause only by the holders of a majority
of the outstanding shares of all classes of capital stock of the Corporation
entitled to vote in the election of directors, considered for this purpose as
one class.
SIXTH: LIABILITY OF DIRECTORS.
No director shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that to the extent required by the provisions of
Section 102(b)(7) of the General Corporation Law of the State of Delaware or
any successor statute, or any other laws of the State of Delaware,this
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the General Corporation Law of the State of Delaware hereafter is amended to
authorize the further elimination or limitation on personal liability of
directors, then the liability of a director of the Corporation, in addition to
the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended. Any repeal or modification of this Article Sixth by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
SEVENTH: INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
SECTION 1. Indemnification. The Corporation shall indemnify
each person who was or is made a party or is threatened to be made a party to
or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of which he or she is the legal representative, is or was a director or
officer, or had agreed to serve as a director or officer, of the Corporation or
is or was serving or has agreed to serve at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to
3
<PAGE> 4
employee benefit plans, or by reason of any act alleged to have been taken or
omitted in such capacity, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or
alleged action in any other capacity while serving as a director, officer,
employee or agent, to the maximum extent authorized by the General Corporation
Law of the State of Delaware, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
cost, expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred by such person or on his or her behalf in connection with
such proceeding and such indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators. The right to
indemnification conferred in this Article Seventh shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided
that, if the General Corporation Law of the State of Delaware so requires, the
payment of such expenses incurred by a director or officer in advance of the
final disposition of a proceeding shall be made only upon receipt by the
Corporation of an undertaking by or on behalf of such person to repay all
amounts so advanced if it shall ultimately be determined that such person is
not entitled to be indemnified by the Corporation as authorized in this Article
Seventh or otherwise. The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not meet any
standard of conduct for indemnification imposed by the General Corporation Law.
SECTION 2. Indemnification for Costs, Charges and Expenses
for Successful Party. Notwithstanding the other provisions of this Article
Seventh, to the extent that a director or officer of the Corporation has been
successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 1 of this Article Seventh, or in the defense
of any claim, issue or matter therein, he shall be indemnified against all
costs, charges and expenses (including attorneys' fees) actually and reasonably
incurred by him or on his behalf in connection therewith.
SECTION 3. Determination of Right to Indemnification. Any
amounts payable pursuant to the indemnification provisions of Section 1 and 2
of this Article Seventh (unless ordered by a court) shall be paid by the
Corporation unless a determination is made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable,
by a quorum of disinterested directors who so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders, that indemnification
of the director or officer is not proper in the circumstances because he has
not met the applicable standards of conduct set forth in the General
Corporation Law.
SECTION 4. Advance of Costs, Charges and Expenses. Costs,
charges and expenses (including attorneys' fees) incurred by a person referred
to in Section 1 of this Article Seventh in defending a civil or criminal
proceeding (including investigations by any government
4
<PAGE> 5
agency and all costs, charges and expenses incurred in preparing for any
threatened proceeding) shall be paid by the Corporation in advance of the final
disposition of such proceeding; provided, however, that the payment of such
costs, charges and expenses incurred by a director or officer in his capacity
as a director or officer (and not in any other capacity in which service was or
is rendered by such person while a director or officer) in advance of the final
disposition of such proceeding shall be made only upon receipt of an
undertaking by or on behalf of the director or officer to repay all amounts so
advanced in the event that it shall ultimately be determined that such director
or officer is not entitled to be indemnified by the Corporation as authorized
in this Article Seventh. No security shall be required for such undertaking
and such undertaking shall be accepted without reference to the recipient's
financial ability to make repayment. The Board of Directors may, in the manner
set forth above, and subject to the approval of such director or officer,
authorize the Corporation's counsel to represent such person, in any
proceeding, whether or not the Corporation is a party to such proceeding.
SECTION 5. Procedure for Indemnification. Any
indemnification under Section 1 or advance of costs, charges and expenses under
Section 4 of this Article Seventh shall be made promptly, and in any event
within 60 days, upon the written request of the director or officer directed to
the Secretary of the Corporation. The right to indemnification or advances as
granted by this Article Seventh shall be enforceable by the director or officer
in any court of competent jurisdiction if the Corporation denies such request,
in whole or in part, or if no disposition thereof is made within 60 days. Such
person's costs and expenses incurred in connection with successfully
establishing his right to indemnification or advances, in whole or in part, in
any such proceeding shall also be indemnified by the Corporation. It shall be
a defense to any such proceeding (other than a proceeding brought to enforce a
claim for the advance of costs, charges and expenses under Section 4 of this
Article Seventh where the required undertaking, if any, has not been received
by the Corporation) that the claimant has not met the standard of conduct, if
any, set forth in the General Corporation Law, but the burden of proving that
such standard of conduct has not been met shall be on the Corporation. Neither
the failure of the Corporation (including its Board of Directors, its
independent legal counsel, and its stockholders) to have made a determination
prior to the commencement of such proceeding that indemnification of the
claimant is proper in the circumstances because he has met the applicable
standard of conduct, if any, set forth in the General Corporation Law, nor the
fact that there has been an actual determination by the Corporation (including
its Board of Directors, its independent legal counsel, and its stockholders)
that the claimant has not met such applicable standard of conduct, shall be a
defense to the proceeding or create a presumption that the claimant has not met
the applicable standard of conduct.
SECTION 6. Other Rights; Continuation of Right of
Indemnification. The indemnification provided by this Article Seventh shall
not be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under any law (common or statutory), agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
office, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the estate, heirs, executors and
administrators of such person. All rights to indemnification under this
Article Seventh shall be deemed to be a contract between the Corporation and
each director and officer of the Corporation who serves or served in such
capacity at any time while
5
<PAGE> 6
this Article Seventh is in effect. No amendment or repeal of this Article
Seventh or of any relevant provisions of the Delaware General Corporation Law
or any other applicable laws shall adversely affect or deny to any director or
officer any rights to indemnification which such person may have, or change or
release any obligations of the Corporation, under this Article Seventh with
respect to any costs, charges, expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement which arise out of a proceeding based in
whole or substantial part on any act or failure to act, actual or alleged,
which takes place before or while this Article Seventh is in effect. The
provisions of this Section 6 shall apply to any such action, suit or proceeding
whenever commenced, including any such proceeding commenced after any amendment
or repeal of this Article Seventh. The right to indemnification and
advancement of expenses conferred on any person by this Article Seventh shall
not limit the Corporation from providing any other indemnification permitted by
law.
SECTION 7. Definitions. For purposes of this Article
Seventh:
a. "the Corporation" includes any constituent
corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate
existence continued, would have had power and authority to
indemnify its directors or officers, so that any person who is
or was a director or officer of such constituent corporation,
or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the
provisions of this Article Seventh with respect to the
resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate
existence had continued;
b. "other enterprises" includes employee benefit
plans, including but not limited to any employee benefit plan
of the Corporation;
c. "serving at the request of the Corporation"
includes, but is not limited to, any service which imposes
duties on, or involves services by, a director or officer of
the Corporation with respect to an employee benefit plan, its
participants, or beneficiaries, including acting as a
fiduciary thereof;
d. "fines" shall include any penalties and any
excise or similar taxes assessed on a person with respect to
an employee benefit plan;
e. a person who acted in good faith and in a manner
he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the
best interests of the Corporation" as referred to in Section
145 of the General Corporation Law of the State of Delaware;
f. service as a partner, trustee or member of
management or similar committee of a partnership or joint
venture, or as a director, officer, employee or agent of a
corporation which is a partner, trustee or joint venturer,
shall be
6
<PAGE> 7
considered service as a director, officer, employee or agent
of the partnership, joint venture, trust or other enterprise.
SECTION 8. Saving Clause. If this Article Seventh or any
portion hereof shall be invalidated on any ground by a court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director
and officer of the Corporation as to costs, charges and expenses (including
attorneys' fees) judgments, fines and amounts paid in settlement with respect
to any proceeding, whether civil, criminal, administrative or investigative,
including a proceeding by or in the right of the Corporation, to the full
extent permitted by any applicable portion of this Article Seventh that shall
not have been invalidated and to the full extent permitted by applicable law.
SECTION 9. Indemnification of Other Persons. If authorized
by the Board of Directors, the Corporation may indemnify and advance expenses
to any other person whom it has the power to indemnify under Section 145 of the
General Corporation Law to the fullest extent permitted by such statute.
SECTION 10. Insurance. The Corporation may purchase and
maintain insurance, at its expense, to protect itself and any director,
officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person pursuant to the General Corporation Law of the State of
Delaware.
EIGHTH: ARRANGEMENTS WITH CREDITORS.
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
7
<PAGE> 8
NINTH: AMENDMENT OF CERTIFICATE OF INCORPORATION.
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
IN WITNESS WHEREOF, the undersigned have executed this Amended
and Restated Certificate of Incorporation on behalf of the Corporation and
hereby affirm that the statements made herein are true under the penalties of
perjury, this day of 1997.
-------------------------------
Mark D. Mastrini
President
8
<PAGE> 1
EXHIBIT 3.2
800 TRAVEL SYSTEMS, INC.
(a Delaware corporation)
-----------------------------------
AMENDED AND RESTATED BY-LAWS
-----------------------------------
ARTICLE I
OFFICES
1.1 Registered Office. The registered office of the Corporation
within the State of Delaware shall be located at the principal place of
business in said state of the corporation or individual acting as the
Corporation's registered agent in Delaware.
1.2 Other Offices. The Corporation may also have offices and places
of business at such other places, within and without the State of Delaware, as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
2.1 Record Date. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion, or exchange of stock or for the purpose
of any other lawful action, the directors may fix, in advance, a record date,
which shall not be more than 60 days nor less than 10 days before the date of
such meeting, nor more than 60 days prior to any other action. If no record
date is fixed, the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held; the record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed; and the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at any
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
<PAGE> 2
2.2 Meaning of Certain Terms. As used herein in respect of the right
to notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the Corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the Certificate of Incorporation, as
from time to time amended and/or restated and in effect (the "Certificate of
Incorporation"), confers such rights where there are two or more classes or
series of shares of stock or upon which or upon whom the General Corporation
Law confers such rights notwithstanding that the Certificate of Incorporation
may provide for more than one class or series of shares of stock, one or more
of which are limited or denied such rights thereunder; provided, however, that
no such right shall vest in the event of an increase or a decrease in the
authorized number of shares of stock of any class or series which is otherwise
denied voting rights under the provisions of the Certificate of Incorporation,
except as any provision of law may otherwise require.
2.3 Stockholder Meetings.
2.3.1 Time. The annual meeting of stockholders for the election
of directors shall be held on the date and at the time fixed, from time to
time, by the directors, provided that the first annual meeting shall held on a
date within thirteen months after the organization of the Corporation, and each
successive annual meeting shall be held on a date within thirteen months after
the date of the preceding annual meeting. A special meeting shall be held on
the date and at the time fixed, from time to time, by the directors.
2.3.2 Place. Annual meetings and special meetings shall be held
at such place, within or without the State of Delaware, as the directors may,
from time to time, fix. Whenever the directors shall fail to fix such place,
the meeting shall be held at the registered office of the Corporation in the
State of Delaware.
2.3.3 Call. Annual meetings and special meetings may be called
by the directors or by any officer instructed by the directors to call the
meeting.
2.3.4 Notice or Waiver of Notice. Written notice of all
meetings shall be given, stating the place, date, and hour of the meeting and
stating the place within the city or other municipality or community at which
the list of stockholders of the Corporation may be examined. The notice of an
annual meeting shall state that the meeting is called for the election of
directors and for the transaction of other business which may properly come
before the meeting, and shall, if any other action which could be taken at a
special meeting is to be taken at such annual meeting, state the purpose or
purposes. The notice of a special meeting shall in all instances state the
purpose or purposes for which the meeting is called. The notice of any meeting
shall also include, or be accompanied by, any additional statements,
information, or
<PAGE> 3
documents prescribed by the General Corporation Law. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than 10 days nor more than 60
days before the date of the meeting, unless the lapse of the prescribed period
of time shall have been waived, and directed to each stockholder of record
entitled to vote at such meeting at his record address or at such other address
which he may have furnished by request in writing to the Secretary of the
Corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. Notice need not be given
to any stockholder who submits a written waiver of notice signed by him before
or after the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
2.3.5 Stockholder List. The officer or agent who has charge of
the stock ledger of the Corporation shall prepare and make, at least 10 days
before every meeting of stockholders, a complete list of the stockholders,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city or other municipality
or community where the meeting is to be held, which place shall be specified in
the notice of the meeting, or if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present. The stock ledger shall be the only evidence as
to who are the stockholders entitled to examine the stock ledger, the list
required by this section or the books of the Corporation, or to vote at any
meeting of stockholders.
2.3.6 Conduct of Meeting. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting: the Chairman of the Board, if any; the Vice-Chairman of the
Board, if any; a Co-Chief Executive Officer; the President; a Vice-President;
or, if none of the foregoing is in office and present and acting, by a chairman
to be chosen by the stockholders. The Secretary of the Corporation, or in his
absence, an Assistant Secretary, shall act as secretary of every meeting, but
if neither the Secretary nor an Assistant Secretary is present the Chairman of
the meeting shall appoint a secretary of the meeting.
2.3.7 Proxy Representation. Every stockholder may authorize
another person or persons to act for him by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after three years from
its date unless such proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states
3
<PAGE> 4
that it is irrevocable and, if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A proxy may be
made irrevocable regardless of whether the interest with which it is coupled is
an interest in the stock itself or an interest in the Corporation generally.
2.3.8 Inspectors. The directors, in advance of any meeting,
may, but need not, appoint one or more inspectors of election to act at the
meeting or any adjournment thereof. If an inspector or inspectors are not
appointed, the person presiding at the meeting may, but need not, appoint one
or more inspectors. In case any person who may be appointed as an inspector
fails to appear or act, the vacancy may be filled by appointment made by the
directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors, if
any, shall make a report in writing of any challenge, question or matter
determined by him or them and execute a certificate of any fact found by him or
them.
2.3.9 Quorum. The holders of a majority of the issued and
outstanding shares of stock of the Corporation entitled to vote, represented in
person or by proxy, shall be necessary to and shall constitute a quorum at a
meeting of stockholders for the transaction of any business. If, however, such
quorum is not present or represented at any meeting of stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally noticed. Notwithstanding the foregoing, if after
any such adjournment the Board of Directors shall fix a new record date for the
adjourned meeting, or if the adjournment is for more than thirty (30) days, a
notice of such adjourned meeting shall be given as provided in Section 2.3.4 of
these By-Laws.
2.3.10 Voting. Each share of stock shall entitle the holder
thereof to one vote. In the election of directors, a plurality of the votes
cast shall elect. Any other action shall be authorized by a majority of the
votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the Certificate of
Incorporation.
4
<PAGE> 5
ARTICLE III
DIRECTORS
3.1 Functions and Definition. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors of the Corporation. The Board of Directors shall have the authority
to fix the compensation of the members thereof. The use of the phrase "whole
board" herein refers to the total number of directors which the Corporation
would have if there were no vacancies.
3.2 Qualifications and Number. A director need not be a stockholder,
a citizen of the United States, or a resident of the State of Delaware. The
number of directors constituting the whole Board of Directors shall be fixed
from time to time by action of the directors. The number of directors may be
increased or decreased by action of the Board of Directors.
3.3 Nomination, Classification, Election, Term Removal and Vacancies.
The nomination, classification, election, term and removal of directors and the
filling of newly created directorships and vacancies in the Board of Directors
shall be governed by the Certificate of Incorporation. Any director may resign
at any time upon written notice to the Corporation. Directors who are elected
at an annual meeting of stockholders, and directors who are elected in the
interim to fill vacancies and newly created directorships, shall hold office
for the term prescribed in the Certificate of Incorporation and until their
successors are elected and qualified or until their earlier resignation or
removal. In the interim between annual meetings of stockholders or of special
meetings of stockholders called for the election of directors and/or for the
removal of one or more directors and for the filling of any vacancy in that
connection, newly created directorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the removal of directors
for cause or without cause, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
3.4 Meetings.
3.4.1 Time. Meetings shall be held at such time as the Board
shall fix, except that the first meeting of a newly elected Board shall be held
as soon after its election as the directors may conveniently assemble.
3.4.2 Place. Meetings shall be held at such place within or
without the State of Delaware as shall be fixed by the Board.
3.4.3 Call. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by or
at the direction of the Chairman of the Board, if any, the President, if any,
or the Chief Executive Officer, or by a majority of the directors in office.
5
<PAGE> 6
3.4.4 Notice or Actual or Constructive Waiver. No notice shall
be required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of a
majority of the directors thereat. Notice need not be given to any director or
to any member of a committee of directors who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of
any such person at a meeting shall constitute a waiver of notice of such
meeting, except when he attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
directors need be specified in any written waiver of notice.
3.4.5 Quorum and Action. A majority of the whole Board shall
constitute a quorum except when a vacancy or vacancies prevents such majority,
whereupon a majority of the directors in office shall constitute a quorum,
provided, that such majority shall constitute at least one-third of the whole
Board. A majority of the directors present, whether or not a quorum is
present, may adjourn a meeting to another time and place. Except as herein
otherwise provided the vote of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board. The quorum
and voting provisions herein stated shall not be construed as conflicting with
any provisions of these By-Laws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors. In the event of any conflict between the quorum and
voting provisions contained herein and the General Corporation Law, the
provisions of the General Corporation Law shall govern.
3.4.6 Telephone Participation. Any member or members of the
Board of Directors or of any committee designated by the Board, may participate
in a meeting of the Board, or any such committee, as the case may be, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other.
3.4.7 Chairman of the Meeting. The Chairman of the Board, if
any and if present and acting, shall preside at all meetings. Otherwise, the
Chief Executive Officer or the President, if present and acting, or any other
director chosen by the Board, shall preside.
3.5 Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board,
6
<PAGE> 7
shall have and may exercise the powers and authority of the Board of Directors
in the management of the business and affairs of the Corporation with the
exception of any authority the delegation of which is prohibited by Section 141
of the General Corporation Law, and may authorize the seal of the Corporation
to be affixed to all papers which may require it.
3.6 Written Action. Any action required or permitted to be taken at
any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE IV
OFFICERS
4.1 Officers. The officers of the Corporation shall consist of a
[Chief Executive Officer,] a President, a Chairman of the Board, a Secretary, a
Chief Financial Officer, and, if deemed necessary, expedient, or desirable by
the Board of Directors, a Vice-Chairman of the Board, an Executive Vice-
President, one or more other Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers with
such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board
of Directors choosing him, no officer other than the Chairman of the Board, if
any, need be a director. Any number of offices may be held by the same person,
as the directors may determine.
4.2 Term of Office. Unless otherwise provided in the resolution
choosing him, each officer shall be chosen for a term which shall continue
until the meeting of the Board of Directors following the next annual meeting
of stockholders and until his successor shall have been chosen and qualified.
4.3 Duties. The officers of the Corporation shall each have such
powers and duties as are set forth in these By-Laws and as generally pertain to
their respective offices, and as from time to time may be conferred upon them
by the Board of Directors. The Chairman of the Board of Directors, if there be
a Chairman, shall preside at all meetings of the Board of Directors and shall
have such other powers and duties as may from time to time be assigned by the
Board of Directors. The Chief Executive Officer shall have the general
management and superintendence of the affairs of the Corporation, subject to
the direction of the Board of Directors. He shall preside at all meetings of
the shareholders and, in the absence or disability of the Chairman of the Board
of Directors, or if there be no Chairman, shall preside at all meetings of the
Board of Directors. The President shall be responsible for the general
management of the day to day affairs of the Corporation, subject to directions
of the Chief Executive Officer or, in the absence of a Chief Executive Officer,
the Board of Directors. In the absence or disability of the Chief Executive
Officer, the President shall preside at all meetings of the shareholders. The
Secretary shall keep the minutes of meetings of the Board of Directors and of
the shareholders; shall be the custodian of the records and of the seal of the
7
<PAGE> 8
Corporation; shall attend to all correspondence and shall perform other duties
incidental to such office. The Treasurer shall have care and custody of the
funds and securities of the Corporation; shall keep complete and accurate books
of account and financial records of the Corporation; shall render financial
reports to the Board of Directors and the shareholders and shall perform other
duties incidental to such office. The Vice-President or Vice-Presidents, the
Assistant Secretary or Assistant Secretaries, the Assistant Treasurer or
Assistant Treasurers shall, in the order of their respective seniorities, in
the absence or disability of the President, Secretary or Treasurer,
respectively, perform the duties of such officer and shall generally assist the
President, Secretary or Treasurer, respectively.
4.4 Delegation of Duties. Unless otherwise ordered by the Board of
Directors, the President, or, in the event of his inability to act, the Vice-
President designated by the Board of Directors to act in the absence of the
President, shall have full power and authority on behalf of the Corporation to
attend and to act and to vote at any meetings of security holders of
corporations in which the Corporation may hold securities, and at such meetings
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities, and which as the owner thereof the Corporation
might have possessed and exercised, if present. The Board of Directors by
resolution from time to time may confer like powers upon any other person or
persons.
ARTICLE V
STOCK CERTIFICATES
5.1 Certificates Representing Stock.
5.1.1 Signatures. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of, the
Corporation by the Chairman of the Board of Directors, if any, or by the Chief
Executive Officer or President and by the Chief Financial Officer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation certifying the number of shares owned by him in the Corporation.
Any and all signatures on any such certificate may be facsimiles. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
5.1.2 Issuance in Series. Whenever the Corporation shall be
authorized to issue more than one class of stock or more than one series of any
class of stock, and whenever the Corporation shall issue any shares of its
stock as partly paid stock, the certificates representing shares of any such
class or series or of any such partly paid stock shall set forth thereon the
statements prescribed by the General Corporation Law. Any restrictions on the
transfer or registration of transfer of any shares of stock of any class or
series shall be noted conspicuously on the certificate representing such
shares.
8
<PAGE> 9
5.1.3 Lost, Stolen or Destroyed Certificates. The Corporation
may issue a new certificate of stock in place of any certificate theretofore
issued by it, alleged to have been lost, stolen, or destroyed, and the Board of
Directors may require the owner of any lost, stolen, or destroyed certificate,
or his legal representative, to give the Corporation a bond sufficient to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss, theft, or destruction of any such certificate or
the issuance of any such new certificate.
5.2 Stock Transfers. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the Corporation shall be made
only on the stock ledger of the Corporation by the registered holder thereof,
or by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for such
shares of stock properly endorsed and the payment of all taxes due thereon.
ARTICLE VI
GENERAL PROVISIONS
6.1 Corporate Seal. The corporate seal shall be in such form as the
Board of Directors shall prescribe.
6.2 Fiscal Year. The fiscal year of the Corporation shall be fixed,
and shall be subject to change, by the Board of Directors.
6.3 Facsimile Signatures. In addition to the provisions for the use
of facsimile signatures elsewhere specifically authorized in these By-Laws,
facsimile signatures of any officer or officers of the Corporation may be used
in any manner and for any purpose authorized by the Board of Directors or a
committee thereof.
6.4 Time Periods. In applying any provision of these By-Laws which
requires that an act be done or not done a specified number of days prior to an
event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded and the day of the event shall be included.
ARTICLE VII
CONTROL OVER BY-LAWS
7.1 Subject to the provisions of the General Corporation Law, the
power to make, amend, alter or repeal these By-Laws and to adopt new By-Laws
may be exercised by the Board of Directors or by the stockholders.
9
<PAGE> 1
EXHIBIT 4.2
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Agreement") is made and entered into as of
this___ day of _______ 1997, by and between 800 Travel Systems, Inc., a
Delaware corporation ("Company"), and Continental Stock Transfer Corporation, a
New York corporation, as warrant agent ("Warrant Agent").
WHEREAS, the Company proposes to offer and sell a maximum of 2,070,000
shares of common stock ("Common Stock"), $.01 par value per share, (which
includes 270,000 shares of Common Stock pursuant to the Underwriters'
over-allotment option) at a purchase price of $____ per share and 2,070,000
Redeemable Common Stock Purchase Warrants ("Warrants") (which includes 270,000
Warrants pursuant to the Underwriters' over-allotment option) at a purchase
price of $.125 per Warrant pursuant to a Registration Statement on Form SB-2
(the "Prospectus"), File Number 333-28237, filed with the Securities and
Exchange Commission; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, registration of transfer, exchange and exercise of the
Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
2. Form of Warrants. The text and the terms of the Warrants, and
the form of election to purchase shares of Common Stock appearing on the
reverse side thereof shall be substantially as set forth in Exhibit A attached
hereto and made a part hereof. The Warrants shall be executed on behalf of the
Company by the manual or facsimile signature of the Chairman, Vice Chairman of
the Company or President or Chief Executive Officer and by the manual or
facsimile of the secretary or assistant secretary of the Company under its
corporate seal, affixed or in facsimile.
The Warrants shall be dated by the Warrant Agent as of the initial
date of issuance thereof, and upon transfer or exchange, the Warrant shall be
dated as of such subsequent issuance date.
The Warrants shall expire at 5:00 p.m. (New York time) on
____________, 2002. If such date shall, in the State of New York, be a holiday
or a day in which banks are authorized to close, then the Warrants shall expire
the next following day which in the State of New York is not a holiday or a day
on which banks are authorized to close.
<PAGE> 2
3. Registration and Countersignature. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register
the Warrants in the names of the respective registered holders, and upon
subsequent issuance, such Warrants shall be registered in the names of the
respective succeeding registered holders. The Warrants shall be countersigned
by the Warrant Agent (or by any successor to the Warrant Agent then acting as
warrant agent under this Agreement) and shall not be valid for any purpose
unless so countersigned. Warrants may be so countersigned, however, by the
Warrant Agent (or by its successor as warrant agent) and be delivered by the
Warrant Agent, notwithstanding that the persons whose manual or facsimile
signature appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature or delivery. Until a
Warrant is transferred on the books of the Warrant Agent, the Company and the
Warrant Agent may treat any registered holder of Warrants as the absolute owner
thereof for all purposes, notwithstanding any notice to the contrary.
4. Registration of Transfers and Exchanges. The Warrant Agent
shall transfer any outstanding Warrants on the books to be maintained by the
Warrant Agent for that purpose, upon surrender thereof for transfer, properly
endorsed or accompanied by appropriate instructions for transfer with proper
documentary stamps affixed thereto, if requested. Upon any such transfer, a
new Warrant shall be issued to the transferee, and the surrendered Warrant
shall be canceled by the Warrant Agent. Warrants so canceled shall be
delivered by the Warrant Agent to the Company from time to time. Warrants may
be exchanged at the option of the holder thereof when surrendered at the office
of the Warrant Agent, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of shares of Common Stock. The Warrant Agent is hereby
irrevocably authorized to countersign and deliver the Warrants in accordance
with the provisions of this Paragraph 4, and the Company, whenever required by
the Warrant Agent, will supply the Warrant Agent with Warrants duly executed on
behalf of the Company for such purpose.
5. Exercise of Warrants. Subject to the provisions of this
Agreement, each registered holder of Warrants shall have the right, which right
may be exercised as in such Warrants as expressed, to purchase from the
Company, and the Company shall issue and sell to such registered holder of
Warrants, the number of fully paid and nonassessable shares of Common Stock
specified in such Warrants, upon surrender to the Company at the office of the
Warrant Agent, with the form of election to purchase on the reverse side
thereof duly completed and signed, and upon payment to the Warrant Agent for
the account of the Company of the Exercise Price for the number of shares of
Common Stock in respect of which such Warrants are then exercised. Payment of
such Exercise Price may be made in cash or by certified check, bank draft, or
postal or express money order, payable in United States dollars, to the order
of the Company. Subject to the provisions of Paragraph 8 hereof, upon such
surrender of Warrants and payment of the Exercise Price as aforesaid, the
Company, acting through the Warrant Agent, shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the
registered holder of such Warrants and in such name or names as such registered
holder may designate, a certificate or certificates for the number of full
shares of Common Stock so purchased upon the exercise of such Warrants. Such
certificates
2
<PAGE> 3
shall be deemed to have been issued, and any person so designated to be named
therein shall be deemed to have become a holder of record of such Common Stock,
as of the date of surrender of such Warrants and payment of the Exercise Price,
as aforesaid; provided, however, that if, at the date of surrender of such
Warrants and the payment of such Exercise Price, the transfer books for the
Common Stock purchasable upon the exercise of such Warrants shall be closed,
the certificates for the Common Stock in respect of which such Warrants are
then exercised shall be issuable as of the date on which such books shall next
be opened, and until such date the Company shall be under no duty to deliver
any certificate for such shares; provided further, however, that the transfer
books aforesaid, unless otherwise required by law, shall not be closed at any
one time for a period longer than 20 days. The right of purchase represented
by the Warrants shall be exercisable, at the election of the registered holders
thereof, either as an entirety or, from time to time, for only part of the
Common Stock specified therein, and in the event that any Warrant is exercised
in respect of less than all of the Common Stock specified therein at any time
prior to the date of expiration of the Warrants, a new Warrant or Warrants will
be issued for the remaining number of Common Stock specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Paragraph 5 and of Paragraph 3 of this Agreement, and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent with
Warrants duly executed on behalf of the Company for such purposes.
Notwithstanding anything contained herein to the contrary, no Warrant
may be exercised if the issuance of Common Stock in connection therewith would
constitute a violation of the registration provisions of federal or state
securities laws.
Upon 30 days prior written notice to all holders of the Warrants, the
Company shall have the right to reduce the exercise price and/or extend the
term of the Warrants in compliance with the requirements of Rule 13e-4 to the
extent applicable.
The "Exercise Price" of the Warrants shall mean the exercise price
specified in the Warrants until the occurrence of a re-capitalization or
reclassification that, pursuant to the provisions hereof, shall require an
increase or decrease in the exercise price of the Warrants, and thereafter
shall mean said price as adjusted from time to time in accordance with the
provisions hereof. No such adjustment shall be made unless such adjustment
would change the then purchase price per share by ten cents ($.10) or more;
provided, however, that all adjustments not so made shall be deferred and made
when the aggregate thereof would change the then purchase price per share by
ten cents ($.10) or more. No adjustment made pursuant to any provision hereof
shall have the effect of increasing the total consideration payable upon
exercise of any of the Warrants.
6. Adjustments in Certain Cases. In case the Company shall at
any time prior to the exercise or termination of any of the Warrants effect a
recapitalization or reclassification of such character that its Common Stock
shall be changed into or become exchangeable for a larger or smaller number of
shares, then, upon the effective date thereof, the number of shares of Common
Stock that the holders of the Warrants shall be entitled to purchase upon
exercise thereof shall be
3
<PAGE> 4
increased or decreased, as the case may be, in direct proportion to the
increase or decrease in such number of shares of Common Stock by reason of such
recapitalization or reclassification, and the purchase price per share of such
recapitalized or reclassified Common Stock shall, in the case of an increase in
the number of shares, be proportionately decreased and, in the case of a
decrease in the number of shares, be proportionately increased.
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants distribute to holders of its Common Stock
cash, evidences of indebtedness, or other securities or assets, other than as
dividends or distributions payable out of current or accumulated earnings,
then, in any such case, the holders of the Warrants shall be entitled to
receive, upon exercise thereof, with respect to each share of Common Stock
issuable upon such exercise, the amount of cash or evidences of indebtedness or
other securities or assets that such holder would have been entitled to receive
with respect to the Common Stock as a result of the happening of such event,
had the Warrants been exercised immediately prior to the record date or other
date fixing shareholders to be affected by such event (without giving effect to
any restriction upon such exercise).
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants consolidate or merge with any other
corporation or transfer all or substantially all of its assets to any other
corporation preparatory to a dissolution, then the Company shall, as a
condition precedent to such transaction, cause effective provision to be made
so that the holders of the Warrants, upon the exercise thereof after the
effective date of such transaction, shall be entitled to receive the kind and
amount of shares, evidences of indebtedness, and/or other property receivable
on such transaction by a holder of the number of shares of Common Stock as to
which the Warrants were exercisable immediately prior to such transaction
(without giving effect to any restriction upon such exercise); and, in any such
case, appropriate provision shall be made with respect to the rights and
interests of the holders thereof to the effect that the provisions of the
Warrants shall thereafter be applicable (as nearly as may be practicable) with
respect to any shares, evidences of indebtedness, or other securities or assets
thereafter deliverable upon exercise of the Warrants.
Whenever the number of shares of Common Stock or other types of
securities or assets purchasable upon exercise of any of the Warrants shall be
adjusted as provided herein, the Company shall forthwith obtain and file with
its corporate records a certificate or letter from a firm of independent public
accountants of recognized standing setting forth the computation and the
adjusted number of shares of Common Stock or other securities or assets
purchasable hereunder resulting from such adjustments, and a copy of such
certificate or letter shall be mailed to each of the registered holders of the
Warrants. Any such certificate or letter shall be conclusive evidence as to
the correctness of the adjustment or adjustments referred to therein and shall
be available for inspection by the holders of the Warrants on any day during
normal business hours.
In the event that at any time as a result of an adjustment made
pursuant hereto the holders of the Warrants shall become entitled to purchase
upon exercise thereof shares, evidences of indebtedness, or other securities or
assets (other than Common Stock), then, wherever appropriate,
4
<PAGE> 5
all references herein to Common Stock shall be deemed to refer to and include
such shares, evidences of indebtedness, or other securities or assets, and
thereafter the number of such shares, evidences of indebtedness, or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions
hereof.
7. Redemption. The Warrants may be redeemed at the option of the
Company, at a redemption price of $.05 per Warrant, upon not less than 30 days
nor more than 60 days prior written notice, if the closing price of the Common
Stock, as reported by the principal exchange on which the Common Stock is
traded, the Nasdaq Small Cap Market or the National Quotation Bureau,
Incorporated, as the case may be, for 7 days during any 10 consecutive trading
day period ending not more than 15 days prior to the date the notice of
redemption is marked equals or exceeds $_____ per share (200% of the Share
Offering Price), subject to adjustment under certain circumstances during a
period of 30 consecutive trading days ending not earlier than 10 days before
the date of the Warrants are called for redemption and provided there is a
current registration statement under the Securities Act of 1933, as amended,
with respect to the issuance and sale of Common Stock upon the exercise of the
Warrants. Any redemption of the Warrants during the one-year period commencing
on _____, 1997 shall require the written consent of First London Securities
Corporation the representative of the Underwriters (the "Representative"). On
and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to the Warrants except to receive the $.05 per Warrant upon
surrender of this Warrant Certificate.
8. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of securities upon the
exercise of the Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes that may be payable in respect of any transfer
involved in the issuance or delivery of any securities in a name other than
that of the registered holder of Warrants in respect of which such securities
are issued and, in such case, neither the Company nor the Warrant Agent shall
be required to issue or deliver any certificate representing such securities or
any Warrant until the person requesting the same has paid to the Company or the
Warrant Agent the amount of such tax or has established to the Company's
satisfaction that such tax has been paid.
9. Mutilated or Missing Warrants. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Warrant Agent may
countersign and deliver in exchange and substitution for and upon cancellation
of the mutilated Warrant or in lieu of and substitution for the Warrant lost,
stolen or destroyed, a new Warrant of like tenor and representing an equivalent
right or interest, but only upon receipt of evidence satisfactory to the
Warrant Agent of such loss, theft or destruction of such Warrants and
indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations
and pay such other reasonable charges as the Company or the Warrant Agent may
prescribe.
10. Reservation of Common Stock. Prior to the issuance of any
Warrants, there shall have been reserved, and the Company shall at all times
keep reserved out of the authorized and unissued Common Stock, a number of
shares of Common Stock sufficient to provide for the exercise
5
<PAGE> 6
of the rights of purchase represented by the Warrants, and the transfer agent
for the Common Stock and every subsequent transfer agent for any of the
Company's Common Stock issuable upon the exercise of any of the rights of
purchase aforesaid are hereby irrevocably authorized and directed at all times
to reserve such number of authorized and unissued Common Stock as shall be
requisite for such purpose. The Company agrees that all Common Stock issued
upon exercise of the Warrants shall be, at the time of delivery of the
certificates representing such Common Stock, validly issued and outstanding,
fully paid and non-assessable. The Company will keep a copy of this Agreement
on file with the transfer agent for the Common Stock and with every subsequent
transfer agent for the Company's Common Stock issuable upon the exercise of the
right of purchase represented by the Warrants. The Warrant Agent is hereby
irrevocably authorized to requisition from time to time from such transfer
agent stock certificates required to honor outstanding Warrants that have been
exercised. The Company will supply such transfer agent with duly executed
stock certificates for such purpose. All Warrants surrendered in the exercise
of the rights thereby evidenced shall be canceled by the Warrant Agent and
shall thereafter be delivered to the Company, and such canceled Warrants shall
constitute sufficient evidence of the number of shares of Common Stock that
have been issued upon the exercise of such Warrants. All Warrants surrendered
for transfer, exchange or partial exercise shall be canceled by the Warrant
Agent and delivered to the Company. Promptly after the date of expiration of
the Warrants, the Warrant Agent shall certify to the Company the total
aggregate amount of Warrants then outstanding and, thereafter, no Common Stock
shall be subject to reservation in respect of such Warrants.
11. Disposition of Proceeds on Exercise of Warrants. Unless
otherwise instructed by the Company in writing, the Warrant Agent shall account
promptly to the Company with respect to Warrants exercised and shall promptly
deposit in an account for the benefit of the Company, in a bank designated by
the Company, all moneys received by the Warrant Agent for the purchase of
Common Stock through the exercise of such Warrants.
12. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation or company that may succeed to the business of the Warrant
Agent by merger or consolidation or otherwise to which the Warrant Agent shall
be a party, or any corporation or company or otherwise succeeding to the
business of the Warrant Agent shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further act on
the part of any of the parties hereto; provided, however, that such corporation
would be eligible for appointment as a successor Warrant Agent under the
provision of Paragraph 14 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement or in case at any time the name of the Warrant Agent shall be
changed, and any of the Warrants shall have been countersigned but not
delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent and deliver such Warrants so
countersigned; and in case at the time any of the Warrants shall not have been
countersigned, the successor to the Warrant Agent may countersign such
Warrants, either in the name of the predecessor Warrant Agent or in the name of
the successor Warrant Agent; and in all such cases, such Warrants shall have
the full force provided in the Warrants and in this Agreement.
6
<PAGE> 7
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrants so countersigned; and if at that time any of the
Warrants shall not have been countersigned, the Warrant Agent may countersign
such Warrants either in its prior name or in its changed name; and in all such
cases, such Warrants shall have the full force provided in the Warrants and
this Agreement.
13. Duties of the Warrant Agent.
(a) The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company shall be bound:
(i) The statements contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same, except such
as describe the Warrant Agent or action or actions taken or to be taken by it.
The Warrant Agent assumes no responsibility with respect to the distribution of
the Warrants, except as herein otherwise provided.
(ii) The Warrant Agent shall not be responsible
for any failure of the Company to comply with any of the covenants contained in
this Agreement or in the Warrants to be complied with by the Company.
(iii) The Warrant Agent may execute and exercise
any of the rights or powers hereby vested in it or perform any duty hereunder,
either itself, or by or through its attorneys, agents or employees.
(iv) The Warrant Agent may consult at any time
with counsel satisfactory to it (who may be counsel for the Company), and the
Warrant Agent shall incur no liability or responsibility to the Company or to
any holder of any Warrant in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the opinion or advice of
such counsel, provided the Warrant Agent shall have exercised reasonable care
in the selection and continued employment of such counsel.
(v) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant for any action
taken in reliance upon any notice, resolution, waiver, consent, order,
certificate or other paper, document or instrument reasonably believed by it to
have been signed, sent or presented by the proper party or parties.
(vi) The Company agrees to pay the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in the
execution of this Agreement; to reimburse the Warrant Agent for all expenses,
taxes, governmental charges and other charges of any kind and nature incurred
by the Warrant Agent in the execution of this Agreement; and to indemnify the
Warrant Agent and save it harmless from and against any and all liabilities,
including judgments,
7
<PAGE> 8
costs and reasonable attorneys' fees for anything done or omitted by the
Warrant Agent in the execution of this Agreement, except as a result of the
Warrant Agent's negligence or bad faith.
(vii) The Warrant Agent shall be under no
obligation to institute any action, suit or legal proceeding, or to take any
other action likely to involve expense, unless the Company or one or more
registered holders of Warrants shall furnish the Warrant Agent with reasonable
security and indemnity. All rights of action under this Agreement or under any
of the Warrants or in the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by the
Warrant Agent shall be brought in its name as Warrant Agent, and any recovery
of judgment shall be for the benefit of the registered holders of the Warrants,
as their respective rights or interests may appear.
(viii) The Warrant Agent and any shareholder,
director, officer, partner or employee of the Warrant Agent may buy, sell or
deal in any of the Warrants or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to or otherwise act as fully and
freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(ix) The Warrant Agent shall act hereunder solely
as agent, and its duties shall be determined solely by the provisions hereof.
The Warrant Agent shall not be liable for anything that it may do or refrain
from doing in connection with this Agreement, except for its own negligence or
bad faith.
(x) The Warrant Agent shall keep copies of this
Agreement available for inspection by holders of the Warrants during normal
business hours at its principal office in New York.
14. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving notice in writing to
the Company and by giving notice by mailing to holders of the Warrants at their
addresses as such addresses appear on the Warrant register of such resignation,
specifying a date when such resignation shall take effect, which date shall not
be less than 30 days after the mailing of said notice. The Warrant Agent may
be removed at the discretion of the Company by like notice to the Warrant Agent
from the Company and by like mailing of notice to the holders of the Warrants.
If the Warrant Agent shall resign or be removed or otherwise become incapable
of acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal, or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the registered
holder of a Warrant (who shall, with such notice, submit his Warrant for
inspection by the Company), then the registered holder of any Warrant may apply
to any court of competent jurisdiction for the appointment of a successor to
the Warrant Agent. After appointment, any successor Warrant Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent without further act or deed,
8
<PAGE> 9
but the former Warrant Agent shall deliver and transfer to the successor
Warrant Agent any property at the time held by it hereunder, and execute and
deliver any further assurance, conveyance act or deed necessary for the
purpose. Not later than the effective date of any such appointment, the
Company shall give notice thereof to the predecessor Warrant Agent and each
transfer agent for the Common Stock, and shall forthwith give notice to the
holders of the Warrants in the manner prescribed in this section. Failure to
file or mail any notice provided for in this Section 14, however, or any defect
therein, shall not affect the legality or validity of the resignation or
removal of the Warrant Agent or the appointment of any successor Warrant Agent,
as the case may be.
15. Identity of Transfer Agent. Forthwith upon the appointment of
any transfer agent other than the Warrant Agent for the Common Stock of the
Company issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting
forth the name and address of such transfer agent.
16. Notices. Any notice pursuant to this Agreement to be given or
made by the Warrant Agent or by the registered holder of any Warrant to
the Company shall be deemed to have been sufficiently given or made if sent by
certified mail, return receipt requested, postage prepaid, addressed (until
another address is filed in writing by the Company with the Warrant Agent) as
follows:
To the Company: 800 Travel Systems, Inc.
4802 Gunn Highway
Tampa, Florida 33624
Attention: President
To the Warrant Agent: Continental Stock Transfer Corporation
2 Broadway, 1th Floor
New York, New York 10004
Attention:
Any notice pursuant to this Agreement to be given or made by the Company or by
the registered holder of any Warrant to the Warrant Agent shall be deemed to
have been sufficiently given or made if sent by certified mail, return receipt
requested, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company) to the Warrant Agent as set
forth above.
17. Standard of Conduct. Notwithstanding any implication to the
contrary elsewhere herein, whenever the Company or the Warrant Agent are
required or permitted to make any judgment or to take any action, no such
judgment or action shall be made or taken in bad faith or in any arbitrary or
capricious fashion.
18. Supplements and Amendments. The Company and the Warrant Agent
may, from time to time, supplement or amend this Agreement without the approval
of any of the holders of the Warrants in order to cure any ambiguity or to
correct or supplement any provision contained herein that may be defective or
inconsistent with any other provision herein, or to make any other
9
<PAGE> 10
provisions in regard to matters or questions arising hereunder that the Company
and the Warrant Agent may deem necessary or desirable, that shall not be
inconsistent with the provisions of the Warrants, and that shall not materially
adversely affect the rights of the holders of the Warrants.
19. Successors. All of the covenants and provisions hereof by or
for the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
20. Merger or Consolidation of the Company. The Company will not
merge or consolidate with or into any other corporation, unless the corporation
resulting from such merger or consolidation (if not the Company) shall
expressly assume, by supplemental agreement satisfactory in form to the Warrant
Agent and executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
21. New York Contract. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and for all purposes shall be construed in accordance with the laws of
said state.
22. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give any person or corporation, other than the Company, the
Warrant Agent and the registered holders of the Warrants, any legal or
equitable right, remedy or claim under this Agreement, but this Agreement shall
be for the sole and exclusive benefit of the Company and the Warrant Agent and
their respective successors and of the holders of the Warrant Certificates.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
800 TRAVEL SYSTEMS, INC.
By:
-------------------------------
Its:
------------------------------
ATTEST:
- -------------------------
CONTINENTAL STOCK AND TRANSFER
CORPORATION
By:
------------------------------
Its:
-----------------------------
ATTEST:
- -------------------------
11
<PAGE> 12
EXHIBIT A
<PAGE> 13
NO. W ____ VOID AFTER______, 2002
_________ WARRANTS
REDEEMABLE COMMON STOCK PURCHASE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
800 TRAVEL SYSTEMS, INC.
CUSIP______________
THIS CERTIFIES THAT, FOR VALUE RECEIVED the holder hereof or registered assigns
(the "Registered Holder") is the owner of the number of Redeemable Common Stock
Purchase Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.01 par
value, of 800 Travel Systems, Inc., a Delaware corporation (the "Company"), at
any time between _____, 1997 (the "Initial Warrant Exercise Date"), and the
Expiration Date (as hereinafter defined) upon the presentation and surrender of
this Warrant Certificate with the Election to Purchase on the reverse hereof
duly executed, at the corporate office of Continental Stock Transfer
Corporation, a corporation , as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $______ subject to adjustment (the "Purchase
Price"), in lawful money of the United States of America in cash or by check
made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated_______,
1997, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time)
on_________, 2002. If such date shall in the State of New York be a holiday or
a day on which the banks are authorized to close, then the Expiration Date
shall mean 5:00 p.m. (New York time) the next following day which in the State
of New York is not a holiday or a day on which banks are authorized to close.
13
<PAGE> 14
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver
a prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate of Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may
be redeemed at the option of the Company, at the redemption price of $.05 per
Warrant, on not less than 30 nor more than 60 days written notice ("Notice of
Redemption") if the closing price for the Common Stock for seven trading days
during a 10 consecutive trading day period ending not more than 15 days prior
to the date notice of redemption is mailed equals or exceeds $______ per share
(200% of the initial offering price to the public) subject to adjustment under
certain circumstances and provided there is then a current registration
statement under the Securities Act of 1933, as amended, with respect to the
issuance and sale of Common Stock upon the exercise of the Warrants. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to the Warrants except to receive the $.05 per Warrant upon
surrender of this Warrant Certificate.
Under certain circumstances, the Representative (as that term is
defined in the Warrant Agreement) or their designees collectively shall be
entitled upon the exercise or redemption of the Warrants to receive a fee equal
to 5% of the gross proceed received by the Company from the exercise of the
Warrants and 5% of the aggregate redemption for the Warrants represented
hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant
14
<PAGE> 15
represented hereby (notwithstanding any notations of ownership or writing
hereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary, except as provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ________, 1997
[SEAL] 800 TRAVEL SYSTEMS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
CORPORATION
as Warrant Agent
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
15
<PAGE> 16
ELECTION TO PURCHASE
(To be signed only upon exercise of Warrant)
TO: 800 Travel Systems, Inc.
4802 Gunn Highway
Tampa, Florida 33624
The undersigned, the Holder of Warrant Certificate Number ____ (the
"Warrant"), representing ______________ Warrants of 800 Travel Systems, Inc.
(the "Company"), which Warrant Certificate is being delivered herewith, hereby
irrevocably elects to exercise the purchase right provided by the Warrant
Certificate for, and to purchase thereunder, _____________ shares of Common
Stock of the Company, and herewith makes payment of $____________ therefor, and
requests that the certificates for such securities be issued in the name of,
and delivered to, ___________________________________
__________________________ whose address is
________________________________________________________, all in accordance
with the Warrant Agreement and the Warrant Certificate.
Dated:
----------------------
------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
------------------------------
(Address)
16
<PAGE> 17
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
________________________________________________ Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, and full
power of substitution.
Dated: Signature:
- ----------------------- -----------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
------------------------------
(Insert Social Security or
Other Identifying Number
of Assignee)
17
<PAGE> 1
EXHIBIT 10.5
STOCK REDEMPTION AGREEMENT
AGREEMENT, made this 18th day of July, 1997, by and between 800 TRAVEL
SYSTEMS, INC., a Delaware corporation having offices at 4802 Gunn Highway,
Suite 140, Tampa, Florida 33624 (the "Company"), and JOSE COLON, an individual
residing at Llewellyn Park, 80 Glen Avenue, West Orange, New Jersey 07052 (the
"Shareholder").
W I T N E S S E T H
WHEREAS, the Shareholder is currently the beneficial and record holder
of 72,500 shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), and upon completion of the contemplated public offering of
1,800,000 shares of the Company's Common Stock (the "IPO") shall be entitled to
receive additional shares of Common Stock (collectively, the "Shares"); and
WHEREAS, the Company and the Shareholder mutually desire that the
Company redeem all, and not less than all, of the Shares of Common Stock
currently held by the Shareholder and which the Shareholder will be entitled to
receive upon completion of the IPO on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises and other good and valuable considerations hereinafter contained, the
parties hereto agree as follows:
1. Additional Shares. Notwithstanding the terms of the
prior agreements between the Shareholder and the Company, upon completion of
the IPO the Company shall issue to the Shareholder 12,500 shares of its Common
Stock (collectively, with the 72,500 shares currently held by the Shareholder,
the "Shares"). The issuance to the Shareholder of the 12,500 shares of Common
Stock provided for herein shall be deemed to satisfy all of the Company's
obligations to issue shares to the Shareholder pursuant to the anti-dilution
provisions of the existing agreements between the parties, provided, however,
the Company shall issue additional shares to the Shareholder if the warrants
included in the IPO are exercised or the Company issues additional shares not
contemplated by the IPO within 90 days of the closing of the IPO.
2. Redemption and Redemption Price. Subject to the conditions
set forth in paragraph 5 of this Agreement, at the Closing (as hereinafter
defined) the Company shall redeem from the Shareholder all, but not less than
all, of the Shares at a redemption price (the "Redemption Price") of Three
Dollars and Seventy-Five Cents ($3.75) per share, for an aggregate redemption
price of $318,750.
<PAGE> 2
3. Closing.
(a) Date, Time and Place. Subject to the provisions of
paragraphs 5(a) and 6 of this Agreement, the closing of the redemption
contemplated by this Agreement (the "Closing") shall take place at the offices
of Phillips Nizer Benjamin Krim & Ballon LLP, 666 Fifth Avenue, New York, New
York 10103 and shall occur simultaneously with the closing of the Company's
contemplated initial public offering of 1,800,000 shares of the Company's
Common Stock (the "IPO").
(b) Deliveries. At the Closing: (i) the Shareholder
shall sell, transfer and deliver the Shares to the Company, surrender and
deliver to the Company all certificates representing the Shares or any portion
of the Shares, together with stock powers separate from certificates, duly
endorsed in blank by the Shareholder, and deliver to the Company the
certificate required by paragraph 5(d) hereof; and (ii) the Company shall pay
to the Shareholder the Redemption Price, in full, in lawful money of the United
States of America, by causing a wire transfer of the Redemption Price to be
delivered by the clearing agent for the representative for the underwriters to
such bank account as shall be designated by the Shareholder for such purpose,
and shall deliver to the Shareholder the certificate required by paragraph 5(c)
hereof.
4. Representation and Warranties.
(a) The Company represents and warrants to the
Shareholder that:
(i) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware;
(ii) The Company has full corporate power and
authority and has taken all corporate action necessary to authorize, execute
and deliver this Agreement and to consummate the transaction contemplated
hereby; and this Agreement has been duly executed and delivered by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms, except as may be limited by bankruptcy, insolvency, moratorium
and similar laws affecting the enforcement of creditors' rights generally and
subject to the qualification that the availability of equitable remedies is
subject to the discretion of the court before which any proceeding therefor may
be brought;
(iii) Neither the execution and delivery of this
Agreement, nor the consummation of the transaction contemplated hereby, does or
will violate any provision of the Company's Certificate of Incorporation or By-
laws, or violate or result in the breach of any agreement or any federal or
state law, rule, regulation, judgment, decree or order of any governmental
authority or court to which the Company is subject or by which it is bound;
(iv) The capital of the Company is, and at the
Closing will be, in excess of the Redemption Price, and the payment of the
Redemption Price will not impair the Company's capital; and
- 2 -
<PAGE> 3
(v) The Shares have been duly authorized and
validly issued to the Shareholder and are non-assessable.
(b) The Shareholder represents and warrants to the
Company that:
(i) He is the sole beneficial and record holder
of the Shares, and has not granted or sold any options or other rights to
purchase any of the Shares to any individual, person or entity, other than to
the Company under this Agreement;
(ii) The Shares are not subject to any liens or
other encumbrances, and at the Closing will be delivered free and clear of the
same;
(iii) Neither the execution and delivery of this
Agreement nor the consummation of the transaction contemplated hereby does or
will violate or result in the breach of any agreement or any federal or state
law, rule, regulation, judgment, order or decree of any governmental authority
or court to which the Shareholder is subject or by which he is bound;
(iv) This Agreement has been duly executed and
delivered by the Shareholder and is a valid and binding obligation of the
Shareholder enforceable in accordance with its terms, except as may be limited
by bankruptcy, insolvency, moratorium and similar laws affecting the
enforcement of creditors' rights generally and subject to the qualification
that the availability of equitable remedies is subject to the discretion of the
court before which any proceeding therefor may be brought; and
(v) The shares referred to in the Preamble
hereto represent all of the shares which the Shareholder is entitled to receive
pursuant to the various agreements between the Shareholder and the Company,
and, subject to the closing of the IPO as contemplated by the Company's
registration statement filed with the Securities and Exchange Commission on
June 2, 1997, and payment for the Shares as contemplated hereby, the
Shareholder hereby releases the Company from any claims it has against the
Company for any additional shares of capital stock of the Company.
5. Conditions to Closing. The obligations of the parties to
consummate the transaction contemplated by this Agreement shall be subject to
satisfaction, on or before the Closing, of each of the following conditions
unless waived in writing by the party to be so satisfied:
(a) The IPO shall have been consummated and closed and
the Company shall have wired the Redemption Price to the Shareholder;
(b) The representations and warranties of each of the
Company and the Shareholder contained herein shall be true and accurate in all
material respects as of the date when made and at and as of the Closing as
though made at and as of such date;
- 3 -
<PAGE> 4
(c) The Company shall have furnished to the Shareholder a
certificate of the Company's President to the effect that: (i) the IPO has been
consummated, and (ii) all representations and warranties of the Company
contained in this Agreement are true and accurate in all material respects at
and as of the Closing; and
(d) The Shareholder shall have furnished to the Company
his certificate to the effect that all representations and warranties of the
Shareholder contained in this Agreement are true and accurate in all material
respects at and as of the Closing.
6. Termination. Anything contained in this Agreement to the
contrary notwithstanding, in the event the IPO has not been consummated and
closed on or before September 30, 1997, then either party may, upon not less
than two (2) weeks' prior written notice, terminate this Agreement.
7. Notices. Any notice given or required to be given pursuant to
this Agreement shall be in writing and shall be deemed given three (3) days
after being deposited in the U.S. Mail, first-class postage prepaid, addressed
to the parties at the respective address first above written or such other
address as may be established by written notice given in accordance with the
provisions of this paragraph 7.
8. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof,
supersedes all prior such agreements whether written or oral, and may not be
amended or otherwise modified except by a subsequent written instrument duly
executed by the parties hereto.
(b) No Waiver. No delay or failure by either party to
exercise any right hereunder, and no partial or single exercise of any such
right, shall constitute a waiver of that right or any other right, unless
expressly waived in writing.
(c) Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York, without
giving effect to the conflict of laws provisions thereof.
(d) Binding Effect. The provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties and their
respective successors, representatives and assigns.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
800 TRAVEL SYSTEMS, INC.
--------------------------------
Mark D. Mastrini
President
------------------------------
JOSE COLON
- 5 -
<PAGE> 1
EXHIBIT 10.14
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
this [12]th day of January, 1997 by and between 800 TRAVEL SYSTEMS, INC.
("Contractor"), a Delaware corporation, and LUCIEN A. BITTAR ("Consultant"), an
individual resident of the State of Florida.
Background Statement
(A) Immediately prior to this Agreement, Consultant was the President of
the Contractor and, on the date hereof, Consultant tendered his resignation to
the Contractor, which resignation has been accepted. Consultant is the
registered owner of 200,000 shares of Contractor's common stock (together, the
"Shares").
(B) The Contractor wishes to engage the services of Consultant to serve as
an independent contractor and to perform the duties and functions hereinafter
set forth, and Consultant is willing to accept such engagement, all subject to,
and in accordance with, the terms and conditions of this Agreement.
Agreement
FOR AND IN CONSIDERATION of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto do hereby agree as follows:
1. Nature of Agreement. Contractor hereby retains Consultant to provide
certain consulting services as are assigned to Consultant from time to time by
the President of Contractor (collectively, the "Services"). Contractor hereby
agrees to be retained an independent contractor, and to perform the Services on
the terms and conditions hereinafter set forth.
2. Term. This Agreement shall be effective as of the date hereof and shall
continue for a period of thirty-six (36) consecutive months, unless earlier
terminated in accordance with the provisions of Section 3 hereof.
3. Termination.
(a) Contractor shall have the right (in addition to all other
rights and remedies, howsoever existing) to terminate this Agreement prior to
the end of the term of the Agreement in the event that Consultant (i) shall
breach or violate any term or condition of this Agreement (other than those set
forth in Section 7 below) and the same is not cured within 15 days after
written notice thereof from Contractor to Consultant or (ii) shall breach
<PAGE> 2
or violate any covenant, term or condition set forth in Section 7 below (in
which event there shall be no cure period).
(b) Upon the occurrence of a breach or default described in
Section 3(a)(ii) above, Consultant shall be deemed to have forfeited
automatically and without further act or notice the Shares in their entirety
and Contractor agrees that, upon such occurrence, he shall surrender to
Contractor for cancellation the certificate or certificates representing the
Shares. Consultant's right to sell, transfer or convey the Shares, or any of
them, prior to the expiration of this Agreement shall require the prior written
consent of Contractor.
(c) The parties agree that, upon the occurrence of a breach or
violation by Consultant under the terms of this Agreement, all rights and
remedies of Contractor shall be cumulative and not elective.
(d) Consultant shall have the right to terminate this Agreement
immediately upon written notice to Contractor in the event that Contractor
fails to comply with any covenant or agreement of Contractor under this
Agreement, and such failure continues for a period of 10 days after written
notice thereof from Consultant to Contractor.
4. Services. Consultant shall commence to provide the Services on the date
hereof. Consultant shall devote its best and most diligent skills, abilities,
and judgment in rendering the Services. The manner in which the Services are to
be performed and the specific hours to be worked by Consultant shall be
determined by Consultant, in its sole discretion.
5. Compensation. Contractor agrees to pay Consultant, and Consultant
agrees to accept from Contractor, in full payment for the Services, a
consulting fee equal to $6,000 per month, payable in advance but deemed earned
ratably on a daily basis (the "Consulting Fees"). Upon termination of this
Agreement, Consulting Fees to be paid under this section shall cease; provided,
however, that Consultant shall be entitled to Consulting Fees for any Services
rendered prior to termination for which Consultant has not received payment.
Contractor agrees to provide Consultant appropriate documentation (e.g.,
Internal Revenue Service Form 1099) to evidence the Consulting Fees paid
pursuant to this Agreement.
6. Support Services. Contractor shall provide at Contractor's expense all
support services required by Consultant to perform the Services while at
Contractor's place of business, including, but not limited to, the following:
(a) office space; (b) telephone; (c) printing and copying facilities; (d)
office supplies; (e) secretarial support; (f) facsimile; and (g) postage and
overnight mailing services.
-2-
<PAGE> 3
7. Nondisclosure; No Wrongful Acts.
(a) Consultant hereby agrees never to use or disclose any Trade
Secrets (defined below) of Contractor during the term of this Agreement and for
so long afterwards as the pertinent information or data shall remain a Trade
Secret, whether or not such Trade Secrets are in written or tangible form,
except as may be authorized in the course of the performance of Consultant's
duties hereunder. Consultant, further, agrees never to use or disclose any
Confidential Information (defined below) of Contractor during the term of this
Agreement and for so long afterwards as the pertinent information or data shall
remain Confidential Information. For purposes hereof, "Trade Secret" shall mean
any information that: (1) derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use, and (2) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. For purposes
hereof, "Confidential Information shall mean all proprietary information that
is secret and of value to Contractor and that does not for any reason
constitute a Trade Secret (as defined herein).
(b) Wrongful Acts. Consultant agrees that, during the term of this
Agreement, Contractor shall not do or allow to be done any act or event that
adversely affects the reputation, business, affairs, credit, assets,
obligations or liabilities of Contractors.
(c) Upon the request of Contractor at any time, and in any event
upon the expiration or termination of this Agreement, Consultant will deliver
and leave with Contractor all memoranda, notes, records, drawings, manuals or
other documents (including all copies of such materials) pertaining to
Contractor or Consultant's duties or obligations hereunder. Without limitation,
Consultant agrees to leave with Contractor all materials containing or relating
to any Trade Secrets or Confidential Information upon the expiration or
termination of this Agreement.
8. Independent Contractor. During the terms of this Agreement,
Consultant's relationship to Contractor shall be that of an independent
contractor. Contractor shall neither have nor exercise any control or direction
over the methods by which Consultant shall perform the Services. Neither party
intends to establish an employer-employee relationship by means of this
Agreement or by the transactions contemplated by this Agreement, and Contractor
shall not be liable for any taxes, assessments or other fees incurred by or on
behalf of Consultant, including without limitation federal or state withholding
or FICA taxes. Consultant agrees to report, for all applicable income tax
purposes, any payment received by it from Contractor. Consultant shall not be
entitled to participate in any plans, arrangement, or distributions by
Contractor relating to or in any connection with
-3-
<PAGE> 4
any pension, stock, bonus, profit sharing, disability, or any other similar
plan or benefit for Contractor's employees, except as otherwise specifically
provided herein.
9. Insurance. During the term of this Agreement, for the benefit of
Contractor and his spouse, Consultant shall carry and maintain, at Consultant's
expense, the same health and dental insurance, if any, as Contractor from time
to time provides to and for the benefit of its employees.
10. Automobile. During the term hereof, Consultant shall have the right to
use the automobile previously provided by Contractor, all on the same terms and
conditions relating to such
use as were in effect between the parties immediately prior to this
Agreement.
11. Entire Agreement. This Agreement represents the entire agreement
between the parties with respect to the subject matter hereof, and all prior
agreements and negotiations are hereby superseded.
12. Severability. If any part or portion of this Agreement shall be
determined to be invalid, illegal or unenforceable in whole or in part, neither
the validity of the remaining part of such term nor the validity of any other
term of this Agreement shall in any way be affected thereby.
13. Binding Effect; Assignment. This Agreement shall be binding upon the
parties hereto and upon their respective executors, administrators, successors
and assigns; provided, however, the rights ad obligations of the parties to
this Agreement may not be assigned or delegated by a party without the prior
written consent of the other party.
14. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such
term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
15. Amendment. This Agreement may be modified only by a writing signed by
Contractor and Consultant.
16. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or on the third business day after being mailed by certified or registered
mail, postage prepaid, return receipt requested to the parties at the following
addresses, or at such other addresses as the parties may designate by written
notice in the manner aforesaid:
-4-
<PAGE> 5
If to Contractor:
800 Travel Systems, Inc.
4802 Gunn Highway
Suite 140
Tampa, Florida 33624
If to Consultant:
Lucien A. Bittar
[1300 Gulf Blvd. #501
Indian Rocks Beach, Florida 33785]
17. Applicable Law. This Agreement shall be governed by the substantive
laws of the State of Florida, without regard to conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
CONSULTANT
800 TRAVEL SYSTEMS, INC.
By:/s/ Michael Gaggi
------------------------------------
Title: [C.O.B.]
CONTRACTOR
/s/ Lucien A. Bittar
------------------------------------
LUCIEN A. BITTAR
-5-
<PAGE> 1
EXHIBIT 10.15
980 Kelly Johnson Drive
Las Vegas, NV 89119
Bus: (702) 260-3600
Fax: (702) 260-3750
RENEWAL
INDEPENDENT TRAVEL AGENCY AGREEMENT
<TABLE>
======================================================================================================
<S> <C> <C> <C>
Global Discount Travel and (Travel Agency:) 800 Travel Systems, Inc.
Services LLC
dba: 1-800 Low Air Fare
- ------------------------------------------------------------------------------------------------------
980 Kelly Johnson Drive (Address:) 4802 Gunn Highway, Suite 140
- ------------------------------------------------------------------------------------------------------
Las Vegas, Nevada 89119 (City, State & Zip:) Tampa, FL 33624
- ------------------------------------------------------------------------------------------------------
702-260-3600 (Phone:) (813) 908-0404
- ------------------------------------------------------------------------------------------------------
(ARC No.:) 10884845
- ------------------------------------------------------------------------------------------------------
(Automation) Sabre
- ------------------------------------------------------------------------------------------------------
(Pseudo City Code:) B8T3/I944
======================================================================================================
</TABLE>
TERMS
Effective Date: March 1, 1997 through Termination Date: February 28,
1998
This INDEPENDENT TRAVEL AGENCY AGREEMENT (the "AGREEMENT") is being
entered into as of the 1st day of March, 1997 by and between Global Discount
Travel Services LLC, a Nevada limited-liability company ("GLOBAL DISCOUNT
TRAVEL") and 800 Travel Systems, Inc., an New York [state of organization]
Corporation [entity type] ("TRAVEL AGENT"). For good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Global Discount Travel and Travel Agent agree as follows:
1. Global Discount Travel will sell tickets for passenger travel on
Trans World Airlines, Inc. ("TWA") at discounted fares ("TICKET(S)"), and
Travel Agent will solicit customers to purchase Ticket(s) from Global Discount
Travel and businesses, including corporations, partnerships, limited liability
companies, sole proprietorships, associations, unincorporated organizations or
other business vehicles (each a "COMPANY" and collectively, "COMPANIES"), to
enter into agreements with Global Discount Travel providing for the sale of
Tickets to such Companies (the "CORPORATE AGREEMENT(S)"). ALL TICKETS SHALL BE
SOLD WITHOUT ANY PUBLIC ADVERTISEMENT OR PUBLIC PROMOTION REFERRING DIRECTLY OR
INDIRECTLY TO TWA IN ANY WAY. ANY PUBLIC ADVERTISEMENT OR PUBLIC PROMOTION
REFERRING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, GLOBAL DISCOUNT TRAVEL OR
ANY OF ITS AFFILIATES MUST BE APPROVED IN WRITING BY GLOBAL DISCOUNT TRAVEL.(1)
TRAVEL AGENT AGREES AND ACKNOWLEDGES THAT IT MAY BE LIABLE IN MONETARY DAMAGES
FOR ANY BREACH OF THIS PROVISION.
2. ALL TICKETS SHALL BE NON-COMMISSIONABLE BY TWA.
- --------------------
(1) See paragraph 16 of this Agreement.
<PAGE> 2
3. Travel Agent agrees to notify Global Discount Travel regarding
any Company that expresses interest in signing a Corporate Agreement, including
notifying Global Discount Travel of the appropriate contact person at such
Company. After a Company signs a Corporate Agreement, Global Discount Travel
will request that TWA establish a separate TWA Air Travel Plan account ("ATP
Account") for such Company for the purpose of tracking Company's purchase from
Global Discount Travel of Tickets issued by Travel Agent in accordance with
this Agreement ("CORPORATE TICKET(S)").
4. Travel Agent may issue Corporate Tickets to any Company which is
party to a Corporate Agreement and has an ATP Account. Each Corporate Ticket
will show TWA's full transportation fare, including transportation taxes, plus
all other fees and charges associated with the particular flight for which the
Corporate Ticket is purchased. Each Corporate Ticket shall also indicate the
appropriate ATP Account number in the form of payment box of the Ticket. Travel
Agent agrees and acknowledges that Global Discount Travel will charge Company
for all Corporate Tickets, and Travel Agent may not accept any form of payment,
other than the ATP Account number, for Corporate Tickets.
5. Travel Agent agrees to bridge its unique pseudo city code within
its computer reservation system to Global Discount Travel's computer
reservation system. Prior to issuing any Corporate Ticket, Travel Agent will
queue each passenger name record ("PNR") to Global Discount Travel. Global
Discount Travel will then perform a quality check with respect to such PNR and
return the applicable PNR to Travel Agent with any corrections to the PNR
noted. Upon receipt of the applicable PNR from Global Discount Travel, Travel
Agent will make all corrections noted and issue the Corporate Ticket to
Company. After issuance of any Corporate Ticket, Travel Agent agrees to queue
the applicable PNR to Global Discount Travel a second time to ensure that the
appropriate Corporate Ticket number is inserted in Global Discount Travel's
records. Global Discount Travel agrees not to access any PNR other than a PNR
queued to Global Discount Travel.
6. All Tickets shall be plated for travel on TWA and shall be issued
on standard industry or TWA ticket stock or through any other electronic or
"ticketless" method that TWA may from time to time adopt.
7. Travel Agent may order on behalf of customers additional TWA
Tickets, other than Corporate Tickets, from Global Discount Travel by calling
Global Discount Travel reservations at 1-800-497-6678 for domestic tickets,
1-800-497-7132 for international tickets, or by ordering such Tickets
electronically. To order Tickets electronically, Travel Agent must queue the
PNR, including the applicable term of payment in the PNR form of payment field,
to Global Discount Travel. Global Discount Travel will then perform a quality
check with respect to such PNR and establish the purchase price for each
Ticket. Global Discount Travel will communicate the price and any rules or
regulations related to such Tickets when the Tickets are ordered. Global
Discount Travel will accept from customers Visa, Mastercard, Diners Club,
American Express, Discover Card and such other credit cards as Global Discount
Travel shall designate by notice to Travel Agent from time to time as the sole
form of payment for all Tickets other than Corporate Tickets.
8. All Tickets, other than Corporate Tickets, will be issued by
Global Discount Travel and delivered to Travel Agent or Travel Agent's
customer, as per the customer's request. Travel Agent shall either authorize
Global Discount Travel in writing to use Travel Agent's unique Federal Express
billing number for the shipping and handling of Tickets or Travel Agent will be
charged a shipping and handling fee of $10.00 per 8 ounce Ticket order (which
may be amended from time to time in accordance with Federal Express' rules and
rates) for all Tickets issued by Global Discount Travel. This shipping and
handling fee shall be deducted from commissions paid in accordance with
paragraph 9 of this Agreement; provided, however, that if Travel Agent enters
into a separate arrangement with a Company pursuant to which Company agrees to
pay to Travel Agent a fee in lieu of Global Discount Travel paying commissions
to Travel Agent, Global Discount Travel shall bill Travel Agent for all
shipping and handling fees.
- 2 -
<PAGE> 3
9. For each Corporate Ticket issued by Travel Agent or other Ticket
ordered by Travel Agent from Global Discount Travel, Global Discount Travel
will pay to Travel Agent on a monthly basis (or such other basis as Global
Discount Travel and Travel Agent may agree) the following commission on the
transportation fare (exclusive of any taxes, fees and other charges) charged
and collected by Global Discount Travel, except where Travel Agent enters into
a separate arrangement with a Company pursuant to which Company agrees to pay
to Travel Agent a fee:
TICKET TYPE COMMISSION
Other 15% With Advertising/ 10% Without
10. PRIOR TO ANY SALE, TRAVEL AGENT MUST MAKE ALL CUSTOMERS AWARE OF
THE FOLLOWING:
a. All Tickets shall:
(1) BE VALID ONLY ON TWA FLIGHTS, WILL BE NON-ASSIGNABLE TO
ANY OTHER CARRIER AND NON-ENDORSABLE, EXCEPT WHEN INDUSTRY
RULE 240 OR ANY OTHER SIMILAR RULE, TERM OR CONDITION
APPLIES;
(2) NOT INCLUDE TICKETS ON FLIGHTS WHICH ORIGINATE OR
TERMINATE TRANSPORTATION IN ST. LOUIS, MISSOURI;
(3) BE SUBJECT TO AVAILABILITY AND TO TWA S NORMAL SEAT
ASSIGNMENT AND BOARDING PASS RULES AND REGULATIONS;
(4) NOT BE COMBINED WITH ANY OTHER SPECIAL OR PROMOTIONAL FARE
OFFER, DISCOUNT CERTIFICATE, COUPON OR SENIOR CITIZENS
DISCOUNT; AND
(5) NOT INCLUDE ANY TRANS WORLD EXPRESS FLIGHTS (7,000
SERIES), BLOCK SPACE FLIGHTS OR CODE SHARE AIRLINE
FLIGHTS.
b. Corporate Tickets are regular TWA tickets sold at a
discount. Accordingly, Corporate Tickets are subject to all the rules,
regulations and penalties associated with the particular ticket purchased,
except that any Corporate Ticket purchased pursuant to this Agreement that is
refundable may only be refunded through Global Discount Travel or the Travel
Agent that originally issued the Corporate Ticket. Further, Corporate Tickets
purchased pursuant to this Agreement which are totally non-refundable may be
applied in full to the purchase of other TWA Tickets sold pursuant to this
Agreement. Company may be charged a fee for any refund or reissuance of a
Corporate Ticket by Global Discount Travel or Travel Agent.
11. The TWA Frequent Flyer Bonus Program will apply to most Tickets,
subject to applicable rules as provided for by the TWA Frequent Flyer Bonus
Program. Travel Agent must inquire from Global Discount Travel as to whether
the TWA Frequent Flyer Bonus Program is applicable to particular Tickets.
12. Global Discount Travel or Travel Agent may terminate this
Agreement at any time upon fifteen (15) days prior written notice to the other.
The Agreement shall, in any case, terminate immediately and without notice upon
the occurrence of any of the following:
a. the breach by Travel Agent of any material term,
condition, representation or obligation under this Agreement; or
- 3 -
<PAGE> 4
b. in the event that any of the following occurs:
(1) a receiver is appointed for the Travel Agent or its
property;
(2) Travel Agent becomes insolvent or unable to pay debts as
they mature, ceases to pay debts as they mature in the
ordinary course of business or makes an assignment for the
benefit of its creditors;
(3) any proceedings, either voluntary or involuntary, are
commenced against Travel Agent under any bankruptcy,
insolvency or debtor relief laws; or
(4) travel Agent is, voluntarily or involuntarily, dissolved
or liquidated.
13. Travel Agent agrees and acknowledges that it will be responsible
for any costs or expenses incurred by Global Discount Travel, its members,
managers, subsidiaries, affiliates, employees, agents, consultants and
independent contractors arising out of Travel Agent's failure to act in
accordance with the terms of this Agreement, including, but not limited to, any
unauthorized use of an ATP Account or any other violation of the rules or
regulations regarding the issuance of Tickets.
14. Travel Agent is an independent contractor. Neither Travel Agent
nor Global Discount Travel shall be, nor shall either hold themselves out to
be, the agent of the other for any purpose whatsoever, and neither party has
the right or the authority to make or underwrite any promise, warranty or
representation, to execute any contract or otherwise to assume any obligation
or responsibility in the name of or on behalf of the other party, except to the
extent specifically authorized in writing by the other party. Neither Travel
Agent nor Global Discount Travel shall be bound by or liable to any third
persons for any act or for any obligation or debt incurred by the other toward
such third party, except to the extent specifically agreed to in writing by the
party to be bound.
15. The failure of Global Discount Travel or Travel Agent to enforce
at any time, or for any period of time, any provision of this Agreement shall
not be construed as a waiver of such provision or of the right of such party
thereafter to enforce each and every provision.
16. Any notice, demand or communication required, permitted or
desired to be given under this Agreement, including any request with respect to
approval of a public advertisement or public promotion, shall be in writing and
shall be deemed effectively given when personally delivered, sent by facsimile
transmission (receipt confirmed by phone) or mailed by prepaid certified mail,
return receipt requested, addressed as follows:
GLOBAL DISCOUNT TRAVEL
Global Discount Travel Services LLC
980 Kelly Johnson Drive
Las Vegas, Nevada 89119
Attention: Terry O'Neil
FAX: 702-260-3750
With a copy to: Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street, 20th Floor
New York, New York 10036
Attention: Marc Weitzen
FAX: 212-626-0799
TRAVEL AGENT
800 Travel Systems, Inc.
4802 Gunn Highway, Suite 140
Tampa, FL 33624
Attention: Mr. Mark Mastrini
FAX: (813) 908-0080
- 4 -
<PAGE> 5
or to such other address, and to the attention of such other person or officer,
as any party may designate, with copies thereof to the respective counsel
thereof as notified by such party. Upon receipt by Global Discount Travel of a
request by Travel Agent for approval of a public advertisement or public
promotion, Global Discount Travel will respond in writing to Travel Agent as
soon as practicable in the manner set forth above.
17. This Agreement constitutes the entire agreement among the parties
hereto and supersedes all prior agreements and understandings among the parties
with respect to the subject matter hereof. THE PARTIES AGREE THAT THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
IN WITNESS WHEREOF, each of the parties have caused this
Agreement to be executed on its behalf by its duly authorized officers, as of
the date hereinabove first written.
GLOBAL DISCOUNT TRAVEL SERVICES LLC
By:/s/ Terry O'Neil
------------------------------------------
Name: Terry O'Neil /s/6/24/97
Title: Manager
800 Travel Systems, Inc.
By:/s/ Mark Mastrini
------------------------------------------
Name: Mr. Mark Mastrini
David Bowers Title: President
Regional Sales Director
[Signature Page for Independent Travel Agency Agreement]
- 5 -
<PAGE> 1
EXHIBIT 10.16
SABRE SUBSCRIBER AGREEMENT - (UNITED STATES)
This SABRE(ct,R)(1) Subscriber Agreement (the "Agreement") is entered
into by and between the SABRE Travel Information Network, a division of
American Airlines, Inc. ("American") and the undersigned ("Customer"), as of
the date executed by American below ("Effective Date") regarding the provision
of products and services set forth herein to Customer's locations within the
United States and its territories.
Article 1 - Lease Term
1.1 Lease. For the term specified in 1.2 below, American shall lease to
Customer the System, as defined herein.
1.2 Term. The lease term of the System identified on Schedule A shall
commence on the date of installation and shall continue for [60] months
("Initial Term"). Any additional System installed subsequent to the date of
execution of this Agreement by American shall be subject to the terms and
conditions of this Agreement and shall have a term of [60] months commencing on
the date of installation ("Additional Term").
Article 2 - Definitions
The following terms shall have the following meanings in this Agreement:
2.1 Agreement means this SABRE Subscriber Agreement, and all Amendments,
Schedules and Supplements made a part hereof.
2.2 Confidential Information means this Agreement, any and all applicable
rights to patents, copyrights, trademarks and trade secrets, proprietary and
confidential information of American or its affiliates, subsidiaries,
successors or assigns concerning their past, present or future research,
development, business activities or affairs, finances, properties, methods of
operation, processes and systems, agreements (including without limitation
private fare or special discount agreements) related to the business of
American.
2.3 Instructions means any and all manuals, operating procedures,
manufacturer's recommendations, rules, and instructions delivered or made
available to Customer (either in hard copy or via SABRE), all of which must be
complied with by Customer. Such Instructions may be unilaterally revised or
amended by American at any time in its sole discretion.
SABRE is a Registered Trademark of American Airlines, Inc.
1
<PAGE> 2
2.4 Participant means an air carrier, hotel or rental car company which has
an agreement with American for the sale of its products or services through
SABRE.
2.5 SABRE Bookings means the number of airline, hotel, or rental car
segments (which obligates a Participant to pay a booking fee to American)
created in or processed through SABRE by Customer per video agent set during
any one calendar month.
2.5.1 For airline segments only, SABRE Bookings shall be counted in the month
that they are processed through SABRE, less cancellations made prior to the
date of departure during the same calendar month. Multiple passengers within
the same PNR ("Passenger Name Record") segment shall constitute multiple SABRE
airline bookings. For example, one passenger on a direct flight constitutes
one SABRE airline booking; one passenger on a two segment connecting flight
constitutes two SABRE airline bookings; and two passengers under the same PNR
on a direct flight constitutes two SABRE airline bookings.
2.5.2 A SABRE car or hotel booking shall mean the total automated segments
processed through the SABRE CAARS or SHAARP package by (or secured to) a SABRE
subscriber which contain an action status code of HK, KK or KL. Car and hotel
bookings shall be counted in the month in which the PNR that contains the
booking is purged from SABRE. A PNR will purge forty-eight hours after the
last segment date (including any segments cancelled prior to activity date).
For hotel bookings only, a segment booking means one room, suite or other
accommodation booked for the quantity of occupants using the accommodation for
the entire duration of the booking. For example, if a PNR stipulates three
suites for three persons for six nights then this constitutes three bookings.
For car bookings only, a segment booking means one vehicle booked for the
entire duration of its use.
2.6 SABRE Component means all memory, disk storage space, ports and any other
element of the Standard Equipment.
2.7 SABRE Promotional Support means the total dollar value of incentives
provided to Customer as identified on Schedule A and any Supplement.
2.8 Schedule A means the document reflecting the Charges and any applicable
discounts for the System as amended by any Supplement(s).
2.9 Standard Equipment means the items of computer hardware leased to
Customer in accordance with this Agreement.
2.10 Supplement means the document reflecting any changes to the System,
and/or Charges or discounts related thereto. The Supplement shall incorporate
all terms and conditions of the
2
<PAGE> 3
Agreement. The parties agree that any such Supplement need not be signed
unless requested by either party and that completion of the change specified on
such Supplement, or the payment of the revised Charges, whichever occurs first,
constitutes acceptance and ratification of the terms and conditions of the
Supplement as though it was fully set forth herein.
2.11 System means the Standard Equipment, SABRE Component, and/or the System
Software as identified on Schedule A and all Supplements.
2.12 System Software means that Software delivered by American to Customer as
identified on Schedule A and all Supplements.
2.13 Transaction means a grouping of characters transmitted to SABRE whether
such transmission is made in SABRE manually or automated. Each transmission to
SABRE from Customer constitutes one Transaction. No input message may exceed
three hundred characters in length.
Article 3 - Charges and Payments
3.1 Prepayment. Upon execution, Customer shall pay to American the
prepayment as shown on Schedule A. If the System is installed, the prepayment
shall be credited against the Customer's first Charges.
3.2 Charges. All amounts payable to American ("Charges") shall be due and
payable within fifteen days of the date of American's invoice, without setoff
or counterclaim.
3.3 Additional Charges. Customer agrees to pay to American an additional
charge at American's then prevailing rate for services and materials including
without limitation the following: (a) the installation or removal of Standard
Equipment; (b) Standard Equipment relocation within the site; (c) each site
disconnect or relocation to different premises; (d) modifications, upgrades,
enhancements or additions of Standard Equipment and/or System Software; (e)
excess cable required for installation; (f) installation of peripheral devices
requested by Customer, and (g) processing Transactions which exceed the level
of one hundred-five Transactions per SABRE Booking.
3.4 Increases. American shall have the right to increase the Charges for the
remaining term of this Agreement upon thirty days written notice to Customer.
If the increase exceeds [ * ] of the Charges in any consecutive twelve month
period, Customer may terminate this Agreement upon written notice to American
within fifteen days of receipt of American's notice of the increase.
Notwithstanding the foregoing, the communication access charge in such Charges
shall be subject to increase, at any time and
3
<PAGE> 4
without limitation, to cover any increase in the cost imposed upon American.
3.5 SABRE Services. If Customer elects to use certain of SABRE's services
(such as, but not limited to, Ticketing and Invoice/Itinerary functions,
Microfiche), Customer shall pay all charges for such services based on
American's then prevailing rate.
3.6 Interest. Charges not paid when due shall accrue interest at the rate of
eighteen percent per annum or the highest rate permitted by Texas law,
whichever is less.
3.7 Taxes. Customer shall pay any taxes, or assessments including any
interest or penalty thereon levied as a result of this Agreement, excluding
taxes measured by the net income of American. Customer shall indemnify and
hold harmless American from all costs fines and expenses (including reasonable
legal costs) incurred by American resulting from Customer's failure to pay
taxes as provided in this Article.
Article 4 - Installation and Delivery
4.1 Delivery. American shall arrange for delivery of the System F.O.B. the
site, on the estimated installation date, as identified on Schedule A and all
Supplements thereto.
4.2 Installation. Subject to Article 4.3, American shall install, or cause
to be installed, the System at the site.
4.3 Customer's Obligations Prior to Installation. Customer, at its expense,
shall be responsible for preparing, on or before the estimated installation
date, the site for the System in accordance with the Instructions. If
installation of the System is prevented or delayed because of Customer's
failure to prepare the site, American shall use reasonable efforts to install
the System upon Customer's compliance with this Article and upon payment of all
reasonable expenses incurred by American resulting from Customer's failure to
prepare the site.
4.4 Relocation and Possession. Customer shall at all times keep the System
in its sole possession and control at the site. Customer shall not move any
part of the System from the site without first obtaining the written consent of
American.
4.5 Communication Access. American or its designated third party shall
install the necessary communication access device to connect the System to
SABRE. All such devices are either owned by American or such third-party, are
subject to this Agreement, and shall be returned to American or the third-party
as American directs upon termination of the Agreement.
4
<PAGE> 5
4.6 Non-Standard System. Customer shall not connect or use any hardware,
software, or firmware not acquired from American with SABRE or the System
without American's prior written consent, which shall be granted provided that
such hardware, software, or firmware is approved by American for use with SABRE
and Customer executes the Non-Standard System Amendment.
4.7 Acceptance of System. Upon installation of the System and establishment
of a successful connection with SABRE, Customer shall be deemed to have
accepted the System. Any use of the System, additional System and/or
non-standard system further constitutes acceptance of the Agreement and
applicable Amendments and Supplements by the Customer.
Article 5 Repairs and Maintenance
5.1 Repairs and Maintenance. Upon prompt notification from Customer,
American, or its designated agent, shall repair and maintain or replace the
Standard Equipment and shall keep it in good working order provided that the
Standard Equipment has been subject to reasonable operation. Customer shall
not make any modifications nor attempt to perform repairs or maintenance of any
kind.
5.2 Notification. Customer shall promptly inform American of any breakdown
of the Standard Equipment by contacting SABRE Customer Services. Customer
shall maintain a record of all occasions upon which repair or maintenance
service is performed and make such records available to American upon request.
5.3 Charges. Repair or maintenance services on Standard Equipment during
normal business hours (9:00 a.m. to 6 00 p.m. local time, Monday through
Friday, excluding legal holidays) are included in the Charges, provided that
the Customer has not been negligent and the Standard Equipment has been subject
to reasonable operation; otherwise, Customer will be charged a service fee in
accordance with American's or its independent contractor's then prevailing
rates.
Article 6 - Title and Ownership of System
6.1 Title and Ownership of System. The System leased hereunder shall remain
the property of American. Customer shall not in any other manner dispose of the
System or any part thereof or suffer any lien or legal process to be incurred
or levied on the System.
6.2 Risk of Loss. Risk of loss for and damage to the System shall pass to
the Customer upon delivery of the System to the site.
5
<PAGE> 6
Article 7 - Insurance
7.1 General. Upon delivery of the System to the site, Customer shall
maintain Comprehensive General Liability (including bodily injury, product
liability, property damage and contractual liability) and All Risk Property
Insurance.
7.2 Comprehensive General Liability. The Comprehensive General Liability
coverage shall be in an amount not less than one million dollars combined
single limit. The coverage shall include the following special provisions: (a)
American, its officers, agents and employees, shall be named as additional
insureds; (b) The policy(ies) shall specifically insure the indemnification
provision included in this Agreement; (c) Such insurance shall be primary
without any right of contribution from any insurance maintained by the
additional insureds; and (d) Insurers will provide American with thirty days'
prior written notice of any cancellation or material change.
7.3 All Risk Property. The All Risk Property insurance shall be in an amount
to cover the replacement value of the Standard Equipment as set forth in
Schedule A and all Supplements. Such policy shall: (a) name American as
additional insured; (b) name American as the sole loss payee for loss of the
Standard Equipment; (c) specifically insure the indemnity obligation assumed
by Customer herein; (d) be primary without right of contribution from any
insurance carried by American; and (e) provide that American will be given
thirty days' prior written notice of any cancellation or material change of
such policy.
7.4 Certificates. Customer will provide to American, on or before delivery
of the System to the site, a Certificate issued by its insurer(s), evidencing
the insurance coverage required by this Article. If American does not receive
such Certificate of Insurance prior to delivery of the System, American may
obtain insurance and Customer shall reimburse American for all amounts paid by
American to obtain such insurance.
Article 8 - Title and Ownership of Confidential Information
8.1 The Confidential Information shall remain American's exclusive property.
8.2 Customer shall maintain in perpetuity the confidentiality of the
Confidential Information using the highest degree of care. Customer shall not
use, sell, sublicense, transfer, publish, disclose, display, or otherwise make
available to others, except as authorized in this Agreement, the Confidential
Information or any other material relating to the Confidential Information at
any time before or after the termination of this Agreement nor shall Customer
permit its officers, employees, agents,
6
<PAGE> 7
contractors or subcontractors to divulge the Confidential Information without
prior written consent of American.
8.3 Customer shall use the data transmitted under this Agreement ("data")
solely for the benefit of its customers in connection with rendering the
following services: (i) air carrier, hotel, car and rail reservations,
including schedule quotations; (ii) customer accounting and record keeping
activities; or (iii) the sale of or reservations for other miscellaneous
products or services offered in SABRE. Customer shall not publish, disclose or
otherwise make available to any third party any compilation of data obtained
from SABRE. However, Customer may use specific data for the benefit of its
customers in connection with any reservation or schedule quotation production
of a hard copy travel itinerary, invoice, statement or ticket.
Article 9 - System Software License
9.1 Ownership of System Software. Customer acknowledges that American or
the original manufacturer of the System Software, as applicable, owns or has
licensed from the owner, copyrights in the respective System Software and that
ownership and title are retained by the manufacturer or its licensor. All
applicable rights to patents, copyrights, trademarks, and trade secrets
inherent in the System Software and pertinent thereto are and shall remain
American's or the original manufacturer's sole and exclusive property. Any copy
of such Software must incorporate any copyright, trade secret, or trademark
notices or legends appearing in the original version delivered to Customer.
9.2 Grant of License. Subject to the provisions of this Agreement and for
the term specified in Article 1.2, either American or the original manufacturer
grants to Customer a non-transferable, non-exclusive limited license to use the
System Software subject to the following restrictions. (a) Customer shall use
the System Software solely in connection with its use of SABRE, (b) the System
Software shall be used and installed solely at the site and solely used on the
Standard Equipment, or other equipment authorized by American, (c) the System
Software shall be used solely for internal purposes and only in the ordinary
course of business, (d) Customer shall not compile, reverse compile, decompile,
disassemble, reverse assemble or reverse engineer the System Software or any
portion thereof, (e) the System Software shall not be copied or reprinted in
whole or in part except (i) a reasonable number of copies of each program may
be made in machine readable form for reasonable archival or backup purposes or
(ii) when American has granted permission to do so, and (f) Customer shall not
lease, sell, license, sublicense or otherwise transfer the System Software to
any other party. Nothing in this Agreement shall convey title to the System
Software to Customer.
7
<PAGE> 8
9.3 Modification Rights. Customer shall not modify the System Software or
merge such software into other programs or create derivative works based on
such software. Additionally, Customer shall not delete or cause to be deleted
the System Software from the System. Notwithstanding anything to the contrary
contained herein, noncompliance with this provision shall constitute an Event
of Default under this Agreement and this Agreement shall immediately terminate
and Customer shall be obligated to pay American damages as specified in Article
14 hereof.
9.4 Upgrades and Modifications. All tangible objects containing or relating
to the System Software are the sole and exclusive property of American or the
manufacturer. In the event American, in its sole discretion, modifies the
System Software, it may deliver such modified System Software to Customer at
its then current charge, if any, and Customer shall promptly return to American
any and all tangible objects relating to the System Software as provided in
Article 15.7. Customer shall be solely responsible for protecting all software
not obtained from American hereunder and the data related thereto in the event
of a software upgrade. Customer, in order to receive an upgraded or updated
program, shall comply with any and all terms and conditions and Instructions
imposed by American.
9.5 Fileserver. Customer shall use the System Software solely on a single
processing unit (the "Fileserver"). In the event a Fileserver is upgraded,
Customer shall be solely responsible for moving and protecting all software not
obtained from American and the data related thereto.
9.6 Operating Program
9.6.1 Customer acknowledges that the System Software incorporates, in part,
copyrighted materials pertinent to the Operating Program as identified on
Schedule A. Customer agrees that such copyrighted portions shall be subject to
the Operating Program copyright and license.
9.6.2 If Customer requires additional Operating Programs, Customer shall
notify American and American will provide Customer with additional programs via
Supplements to support additional video agent sets pursuant to this Agreement.
9.6.3 Customer will look only to American and not to the manufacturer for any
support, maintenance, assistance and upgrades and the like with respect to the
Operating Program and the manufacturer shall have no liability to Customer in
relation to this program.
9.6.4 No action, regardless of form, arising out of the license of the
Operating Program may be brought more than two years after the cause of action
has arisen.
8
<PAGE> 9
9.6.5 Customer shall physically retain a copy of the Conditions of Use for
SABRE Users (Attachment I) with the applicable video agent sets or dedicated
fileserver/processor eligible to use such Operating Program.
9.6.6 THE LICENSE OF THE OPERATING PROGRAM, IF MANUFACTURED BY IBM, SHALL BE
CONSTRUED AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE UNITED
STATES OF AMERICA NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT.
9.7 System Software.
9.7.1 Customer acknowledges and agrees that Customer is not entitled to any
greater warranty with respect to the System Software than the warranty received
by American from its supplier of the respective System Software.
9.7.2 EXCEPT AS SPECIFICALLY PROVIDED BELOW, THE SYSTEM SOFTWARE IS PROVIDED
TO CUSTOMER AS IS AND WITH ALL ITS FAULTS WITHOUT ANY WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THOSE IMPLIED WARRANTIES
ARISING OUT OF COURSE OF PERFORMANCE, COURSE OF DEALING, USAGE OF TRADE OR ANY
OTHER WARRANTY. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE
SYSTEM SOFTWARE IS WITH THE CUSTOMER. SHOULD THE SYSTEM SOFTWARE PROVE
DEFECTIVE, CUSTOMER SHALL ASSUME THE ENTIRE COST OF ALL NECESSARY SERVICING,
REPAIR OR CORRECTION. SOME STATES DO NOT ALLOW THE EXCLUSION OF IMPLIED
WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO CUSTOMER. THIS WARRANTY
GIVES CUSTOMER SPECIFIC LEGAL RIGHTS AND CUSTOMER MAY ALSO HAVE OTHER RIGHTS
WHICH VARY FROM STATE TO STATE. ADDITIONALLY, CUSTOMER ASSUMES RESPONSIBILITY
FOR THE SELECTION OF THE SYSTEM SOFTWARE TO ACHIEVE CUSTOMER'S INTENDED
RESULTS, AND FOR THE INSTALLATION AND USE OF AND THE RESULTS OBTAINED FROM THE
SYSTEM SOFTWARE.
9.7.3 Notwithstanding the above, the media on which the SABRE Emulation
Software, SABREworks, SABREmail (if applicable) and the LAN Program are encoded
is warranted to the Customer against defects in material or workmanship for a
period of three months from the date of original purchase by Customer. If
during such period, Customer discovers any defect in the media, Customer may
return the media to American and American shall, as Customer's sole and
exclusive remedy, repair or replace the defective media.
Article 10 - Operation of SABRE and the System
10.1 Operation of System.
10.1.1 SABRE and the System shall be operated by Customer solely for the
purposes and functions expressly permitted by this Agreement and in strict
accordance with the Instructions.
9
<PAGE> 10
10.1.2 Customer shall access SABRE only on the System or another system or
device authorized in writing by American.
10.1.3 Customer shall take all precautions necessary to prevent unauthorized
operation or misuse of SABRE or the System, including without limitation,
speculative booking, shell bookings, reservation of space in anticipation of
demand, or improper record or access. In the event of misuse of SABRE or the
System, American reserves the right, in addition to all rights under the
Agreement, to terminate the Agreement.
10.1.4 Customer shall not enter SABRE Bookings into SABRE as GK or HK or YK
("passive bookings") when no corresponding space has been reserved within the
transporting carrier's internal reservation system. Bookings so entered shall
not be calculated in determining productivity levels herein. All passive
bookings shall be removed from SABRE should corresponding space be cancelled
direct via telephone with the transporting carrier.
10.2 Non-Exclusivity. This Agreement is not exclusive and nothing in the
Agreement is intended to preclude or prohibit Customer from using any other
computerized reservation system. The parties agree that Customer's expected use
of the System is the Fixed Monthly Discount Booking Level stated in the
Schedule A and any subsequent Supplements.
10.3 Transaction Volume. Notwithstanding the provisions of Article 3.3(g),
American shall have the right, upon thirty days notice to Customer to limit
Customer to generating no more than one hundred-five Transactions per SABRE
Booking.
10.4 Training. For Standard Equipment leased hereunder, American will make
available the following training allotments:
(a) Two training allotments per video agent set and each
non-standard video agent set triple A which includes a choice of the following
SABRE instructional levels: Fundamental, Intermediate, Accelerated;
(b) One training allotment per Customer site for Train the
Trainer;
(c) Access via Standard Equipment to SABRE Assisted
Instruction ("SAI") lessons to assist Customer in performing recurrent training
and training of new employees.
For purposes of this Article, training allotment shall mean one training class.
10.4.1 Upon written request from Customer, at such time that Customer's free
allotments have been exhausted, additional training allotments will be offered
subject to availability and
10
<PAGE> 11
at American's then prevailing rate per person, per class. The additional
training charge will be assessed on Customer's monthly invoice. Training
allotments for Standard Equipment and non-standard video agent set triple A's
installed subsequent to the Effective Date shall be determined as specified in
10.4(a) above.
10.4.2 The training described in Article 10.4 shall be performed at a location
designated by American.
10.4.3 Except as otherwise provided herein, Customer is responsible for all
training of all its employees in the proper use of SABRE.
10.4.4 In addition to the training described in Article 10.4, American may
offer to Customer supplemental training programs on a local level. Such
training may consist of, but not be limited to, workshops, seminars, and
individual consultations.
10.4.5 Customer and its trainees agree to comply with all training procedures
and rules established by American, and American reserves the right to remove
any Customer trainee from the training program if such trainee fails to comply
with such procedures and rules.
10.4.6 American may, at its discretion, monitor or test Customer's employee's
training levels. If American determines the training level of any one or more
of Customer's employees to be insufficient, then Customer will institute such
additional training at its own expense (including, if necessary, additional
training by American at American's then prevailing charges) as may be necessary
to bring Customer's employees to the level of training required by American.
Article 11 - Warranty, and Limitation of Warranty,
Liability and Remedy
11.1 SABRE Warranty. American agrees to use reasonable efforts to maintain
the availability of SABRE, but shall have no liability for interruptions in the
operation of SABRE except as specifically provided herein. Subject to the terms
hereof, in the event that SABRE is not operable at least ninety-five percent of
the total normal business hours each month, excluding periods for maintenance
of Standard Equipment or other scheduled down time ("Normal Time"), American
will reduce the monthly charges (on a pro-rata basis according to the
percentage of Normal Time during which SABRE was not operable at least
ninety-five percent of the Normal Time. For purposes of this paragraph, normal
business hours shall be 9:OO a.m. to 6:00 p.m., local time, Monday through
Saturday. SABRE shall be deemed inoperable if Customer is unable, after calling
SABRE Customer Service to make any SABRE Bookings as a result of a failure
attributable to SABRE. To request a
11
<PAGE> 12
reduction under this Article ll.1, Customer shall submit a written record to
American and request an adjustment in the monthly charges. Customer's written
records must be submitted in a timely manner and include, at a minimum, the
date and time which the outage occurred, the time the outage was reported to
SABRE Customer Service, the time SABRE was restored (within normal business
hours as defined above) and the type of outage.
11.2 Data. CUSTOMER ACKNOWLEDGES THAT NEITHER AMERICAN NOR THE OFFICIAL
AIRLINE GUIDE INC. ("OAG"), THE SUPPLIER OF CERTAIN DATA PROVIDED UNDER THE
AGREEMENT, WARRANTS THE ACCURACY, MERCHANTABILITY, OR THE FITNESS FOR A
PARTICULAR PURPOSE OR THE NON-INFRINGEMENT OF ANY DATA PROVIDED UNDER THIS
AGREEMENT. NEITHER AMERICAN NOR OAG SHALL BE LIABLE TO CUSTOMER FOR ANY
INJURY, LOSS, CLAIM OR DAMAGE CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE, OF
AMERICAN OR OAG OR BY CONTINGENCIES BEYOND THEIR RESPECTIVE CONTROL IN
PROCURING, COLLECTING, COMPILING, ABSTRACTING, INTERPRETING, COMMUNICATING,
PROCESSING OR DELIVERING ANY SUCH DATA. HOWEVER, IF ANY ERRORS IN DATA
TRANSMITTED ARE DUE TO CIRCUMSTANCES UNDER AMERICAN'S DIRECT CONTROL, AMERICAN
SHALL USE REASONABLE EFFORTS TO CORRECT SUCH ERRORS IN A TIMELY MANNER. IN THE
EVENT A PASSENGER USES A CONFIRMED TICKET FOR AIR TRANSPORTATION ISSUED BY
CUSTOMER BY MEANS OF SABRE AND IS REFUSED CARRIAGE BECAUSE OF AN OVERSALE OF
SEATS OR THE LACK OF RECORD OF SUCH RESERVATION, THE SOLE REMEDY OF CUSTOMER
SHALL BE AS SET FORTH IN THE TARIFF OF THE REFUSING CARRIER OR APPLICABLE TERMS
AND CONDITIONS OF THE CARRIER'S CONTRACT OF CARRIAGE.
11.3 Standard Equipment. The Standard Equipment shall be delivered and
installed in good working order.
11.4 Limitation of Warranty. THE LIMITED EXPRESS WARRANTIES SPECIFIED HEREIN
ARE THE ONLY WARRANTIES MADE BY AMERICAN AND THE MANUFACTURER AND THERE ARE NO
OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR INTENDED USE BY OPERATION OF LAW
OR OTHERWISE OF SABRE OR THE SYSTEM OR ANY COMPONENTS THEREOF. NO
REPRESENTATION OR OTHER AFFIRMATION OF FACT, INCLUDING WITHOUT LIMITATION
STATEMENTS REGARDING CAPACITY, SUITABILITY FOR USE, OR PERFORMANCE OF SABRE,
THE SYSTEM OR ANY COMPONENTS THEREOF, WHETHER MADE BY AMERICAN OR OTHERWISE,
WHICH IS NOT CONTAINED IN THIS AGREEMENT, SHALL BE DEEMED TO BE A WARRANTY FOR
ANY PURPOSE OR GIVE RISE TO ANY LIABILITY OF AMERICAN OR THE MANUFACTURER.
11.5 Limitation of Remedies. In the event of a material malfunction or
defect in an unaltered component of the System that can be reproduced by
American, American will provide reasonable services to correct such malfunction
or defect. Customer will supply American with such input files and other
materials as may be necessary to enable American to diagnose and correct the
malfunction or defect. THE FOREGOING SHALL BE
12
<PAGE> 13
CUSTOMER'S SOLE AND EXCLUSIVE PRIMARY REMEDY FOR ANY MALFUNCTION OR DEFECT IN
THE SYSTEM. IF SUCH MALFUNCTION OR DEFECT MATERIALLY IMPAIRS CUSTOMER'S USE OF
THE SYSTEM AND CANNOT BE CURED AS PROVIDED IN THIS PARAGRAPH, THEN CUSTOMER'S
ALTERNATE SOLE AND EXCLUSIVE REMEDY SHALL BE TO TERMINATE THIS AGREEMENT
WITHOUT FURTHER LIABILITY TO AMERICAN FOR DAMAGES HEREUNDER.
11.6 Limitation of Liability. CUSTOMER WAIVES ALL LIABILITY IN TORT, OF
AMERICAN AND THE RESPECTIVE MANUFACTURER INCLUDING WITHOUT LIMITATION ANY
LIABILITY ARISING FROM NEGLIGENCE. NOTWITHSTANDING THE FOREGOING, AMERICAN'S
LIABILITY TO CUSTOMER HEREUNDER SHALL BE LIMITED TO THE TOTAL AMOUNT OF CHARGES
ACTUALLY PAID BY CUSTOMER TO AMERICAN PURSUANT TO THIS AGREEMENT. NEITHER
AMERICAN NOR ANY MANUFACTURER SHALL BE LIABLE TO CUSTOMER FOR ANY INCIDENTAL,
OR CONSEQUENTIAL DAMAGES, UNDER ANY CIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO
LOST PROFITS, REVENUE OR SAVINGS, OR THE LOSS OF USE OF ANY DATA, EVEN IF
AMERICAN OR THE MANUFACTURER HAS BEEN ADVISED OF, KNEW, OR SHOULD HAVE KNOWN,
OF THE POSSIBILITY THEREOF.
Article 12 - Indemnification
12.1 Each of Customer and American ("Indemnitor") hereby agree to indemnify
and hold each other, their affiliates, subsidiaries, successors and assigns and
their officers, directors, agents and employees ("Indemnitees") harmless from
and against third-party liabilities, including, but not limited to, attorneys'
fees, and other expenses incident thereto, ("Claims") which may be threatened
against, or recoverable from the Indemnitees by reason of any injuries to or
death of persons or loss of, damage to, or destruction of property to the
extent arising out of or in connection with any act, or omission of the
Indemnitor.
12.2 Customer will indemnify American for any Claims arising from Customer's
misuse of SABRE including without limitation, making fraudulent bookings.
Article 13 - Assignment
13.1 Assignment Or Sublease By Customer. CUSTOMER SHALL NOT SUBLEASE,
TRANSFER OR ASSIGN THIS AGREEMENT OR ANY PORTION THEREOF, OR ANY RIGHT OR
OBLIGATION HEREUNDER, UNLESS CUSTOMER HAS OBTAINED THE PRIOR WRITTEN CONSENT OF
AMERICAN. ANY ATTEMPTED ASSIGNMENT IN VIOLATION OF THIS ARTICLE SHALL BE VOID.
13.2 Assignment by American. American shall have the right to sell, transfer,
assign or delegate its interests, rights and/or obligations, without the prior
consent of Customer, and, provided that such transferee or assignee assumes all
of American's obligations, American shall be released of all obligations after
the effective date of such sale, transfer, delegation or assignment.
13
<PAGE> 14
Article 14 - Termination and Default
14.1 Default By Customer. The occurrence of any one or more of the following
events shall constitute a non-exclusive event of default (the "Event of
Default") pursuant to the terms of this Agreement.
14.1.1 Customer fails to pay any amount when due;
14.1.2 Any representation by Customer is discovered to be materially
misleading or inaccurate, or Customer fails to perform any material covenant,
agreement, obligation, term or condition contained herein;
14.1.3 Customer terminates or cancels this Agreement or any portion thereof,
except as expressly permitted in Article 14.3;
14.1.4 Customer ceases to do business as a going concern, makes an assignment
for the benefit of creditors, admits in writing its inability to pay debts as
they become due, acquiesces in the appointment of a trustee, receiver or
liquidator for it or any substantial part of its assets or properties. Sells,
or executes an agreement to sell all or substantially all of its assets without
the consent of American.
14.1.5 Fails to secure and maintain ARC/BSP/SSP accreditation for ticketing of
reservations;
14.1.6 Events of Default described in 14.1.1, 14.1.2, and 14.1.4 shall not be
cause for termination if Customer cures such failure within fifteen days after
date of written notice from American. If Customer cures its failure as provided
in this provision, said failure shall not be considered to be an Event of
Default for the purposes of Article 14.2.
14.2 American's Rights Upon Termination. Upon the occurrence of an Event of
Default and subject to Article 14.1.6, American shall have the right to any one
or more of the following remedies; (i) terminate this Agreement and Customer's
access to SABRE; (ii) seek all legal and equitable remedies to which it is
entitled, and (iii) retake immediate possession of the System. If Customer's
Event of Default results in termination Customer agrees to pay to American, in
full settlement of the damages American will suffer as a result of such Event
of Default, an amount calculated to estimate American's damages as liquidated
damages as follows:
14.2.1 the applicable charge to disconnect the Standard Equipment; plus
14.2.2 the amount of the Total Fixed Monthly Charges, multiplied by the number
of months remaining under the term of the lease of
14
<PAGE> 15
the Standard Equipment, including any renewal thereof, and the product thereof
multiplied by .80; plus
14.2.3 the total number of Customer's video agent sets and video agent set
triple A's multiplied by Customer's expected Fixed Monthly Discount Booking
Level as described in Schedule A and any subsequent Supplements multiplied by
the prevailing booking fee that American charges to airlines that participate
in the full availability features of SABRE, and the product thereof multiplied
by the number of months of the term remaining under this Agreement, including
any renewal thereof; plus
14.2.4 the amount of SABRE Promotional Support provided to Customer together
with interest at the rate of eighteen percent per annum compounded annually and
applied from the date of the provision of the SABRE Promotional Support until
the date of payment.
14.3 Termination By Customer. In the event that American breaches any
material term of this Agreement, which breach continues for a period of fifteen
days after date of written notice from Customer, then Customer may terminate
this Agreement immediately upon written notice to American. Except as limited
by this Agreement, upon termination, Customer may seek all legal and equitable
remedies to which it is entitled. Customer may not otherwise cancel, terminate,
modify, repudiate, excuse or substitute this Agreement without American's prior
written consent, which American may withhold in its absolute discretion.
Article 15 - Miscellaneous
15.1 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF TEXAS AND THE UNITED STATES OF AMERICA. CUSTOMER HEREBY SUBMITS AND
CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS AND THE COURTS OF THE STATE OF TEXAS IN ANY
DISPUTE ARISING OUT OF THIS AGREEMENT AND AGREES THAT SERVICE OF PROCESS SHALL
BE SUFFICIENT IF MADE ON THE SECRETARY OF STATE OF THE STATE OF TEXAS WITH A
COPY TO BE SENT, REGISTERED MAIL TO THE CUSTOMER AT THE ADDRESS SET FORTH IN
SCHEDULE A OR SUCH OTHER ADDRESS AS CUSTOMER MAY LATER SPECIFY BY WRITTEN
NOTICE TO AMERICAN.
15.2 Binding Effect. Except as otherwise provided, this Agreement shall
inure to the benefit of and bind the successors and assigns of the parties
hereto.
15.3 Deletion of Equipment. During the term of the Agreement, Customer may
delete up to [ * ] of the productive video agent sets and video agent set
triple A's, with a minimum of [ * ], and [ * ] of the printers identified
on Schedule A and/or subsequent Supplements, provided that Customer complies
with the
15
<PAGE> 16
following conditions: (a) Customer provides documentation, satisfactory to
American, of a substantial decrease in the number of SABRE Bookings, which
decrease is solely the result of a loss of its commercial accounts and/or
customer base; (b) Customer notifies American, in writing, of the description
and location of the equipment to be deleted (the "Deleted Equipment"); (c)
Customer pays to American the then current deinstallation charges for the
Deleted Equipment. In addition, Customer shall pay to American any outstanding
Charges for such Deleted Equipment up through the Stop Billing Date; (d)
Customer will forfeit all right and equity, if any, in the Deleted Equipment
removed from Customer's location.
15.3.1 If Customer complies with the requirements identified in 15.3 above,
American shall deinstall the Deleted Equipment and disconnect it from the
System.
15.3.2 American shall defer Customer's obligation to pay the Charges
identified in Schedule A and any Supplement thereto (the "Deferred Payment"),
which would otherwise be due and payable to American with regard to the Deleted
Equipment, provided that Customer complies with the following conditions: (a)
If Customer installs additional computer reservations equipment after it
deletes the Deleted Equipment such equipment, up to the amount of the Deleted
Equipment (or such lesser amount as agreed by American) shall be Standard
Equipment and shall be installed and reconnected by American; (b) Customer
shall pay to American its then current installation charges with respect to the
Deleted Equipment which is reinstalled and reconnected; (c) Customer shall pay
to American its then current equipment lease and maintenance and use charges
with respect to such equipment and such equipment shall be deemed covered by
the provisions of the Agreement; and (d) Customer does not breach any term or
provision of the Agreement.
15.3.3 The Deferred Payment shall be deemed waived by American at the end of
the Initial Term of the Agreement or any renewal thereof if Customer has not
breached or otherwise failed to comply with the Agreement. If Customer fails
to comply with the Agreement, American shall be entitled to exercise all of its
rights under law and under the Agreement, including the collection of all
liquidated damages identified in Article 14 of the Agreement with respect to
the Deleted Equipment. Interest shall accrue on the Deferred Payment at the
maximum rate allowed by applicable law from the date of the deferral until
payment.
15.4 Entire Agreement. This Agreement and the Instructions constitute the
entire agreement of the parties as to the matters set forth herein and shall
supersede any previous understandings, agreements, representations, statements,
negotiations and undertakings, whether written or oral, between the parties
relating to the matters set forth herein. Any amendment to this
16
<PAGE> 17
Agreement must be in writing and signed by the authorized representatives of
both parties.
15.5 Force Majeure. American shall be relieved of its obligations hereunder
in the event and to the extent that performance is delayed or prevented by any
cause reasonably beyond its control, including, but not limited to, acts of
God, public enemies, war, civil disorder, fire, flood, explosion, labor
disputes or strikes, or any acts or orders of any governmental authority,
inability to obtain supplies and materials (including without limitation
computer hardware) or any delay or deficiency caused by the electrical or
telephone line suppliers or other third parties.
15.6 Notices. Unless otherwise stated, notices given or required under this
Agreement must be in writing and shall be deemed delivered (i) upon deposit
through the United States Mail, to American at P.0. Box 619616, MD 3562,
Dallas/Fort Worth, Texas, 75261-9616 (to be sent to the attention of SABRE
Travel Information Network, Financial Services) or to the Customer at the
address set forth in Schedule A, or (ii) upon dispatch, if sent by SABRE as
follows: If to American: QP/ZFSC and if to Customer: to the Pseudo City Code as
set forth in Schedule A or Supplement.
15.7 Return of System. Upon the termination of this Agreement for any
reason, Customer, at its sole cost and expense, shall return the System and all
Confidential Information as requested by American, in good repair, condition
and working order, less normal and ordinary wear and tear, by delivering it to
a common carrier selected and designated by American, F.O.B. the destination
designated by American in writing.
15.8 SABRE Modification. American retains the right to modify the System,
at its discretion at any time during the term of this Agreement. However, such
modifications will not materially impair Customer's ability to access and use
SABRE in the manner expressly permitted in this Agreement.
15.9 Severability. Any provision of this Agreement which may be determined
by a court or other competent governmental authority to be prohibited or
unenforceable in ally jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions thereof, unless said prohibition or
unenforceability materially alters the rights or obligations of either party.
15.10 Subsequent Acts of Government. In the event that there is any change in
any statute, rule, regulation or order governing the operation of airline
computerized reservations systems, or air transportation generally or the
System, which in any way
17
<PAGE> 18
materially impairs the benefits of this Agreement to American, then the parties
hereto will commence consultation in order to determine what, if any, changes
to this Agreement are necessary or appropriate, including, but not limited to,
early termination of this Agreement. If the parties hereto are unable to agree
upon changes in the Agreement in response to such new statute, rule, order or
regulation within ten days after commencement of such consultation, this
Agreement may be cancelled by American upon giving Customer thirty days prior
written notice of such cancellation. If American elects to terminate the
Agreement pursuant to this Article 15.10, except for Customer's obligation to
pay any and all charges incurred through the date of termination, each party
shall be relieved of any future obligations under this Agreement as of the
effective date of cancellation. Each party shall bear its own costs and
expenses incurred as a result of said termination. Upon termination, Customer
shall return the pro-rata portion of the SABRE Promotional Support calculated
for the remainder of the term of the Agreement. Customer does not have the
right to terminate the Agreement under this provision.
15.11 Surviving Sections. If the term of the Agreement expires or is
otherwise terminated for any reason before Customer has paid to American all of
the sums due, the Agreement the Schedule A and all Supplements shall survive
such expiration or termination to the extent necessary to protect American's
rights until all sums owed to American have been paid. Notwithstanding
anything to the contrary referenced herein, Articles 6, 8, 11 and 12 shall
survive the termination of this Agreement.
15.12 Waiver. A failure or delay of either party to require strict performance
to enforce a provision of this Agreement or a previous waiver or forbearance by
either party shall in no way be construed as a waiver or continuing waiver of
any provision of this Agreement.
15.13 Acknowledgment. Customer hereby acknowledges that American has offered
Customer a SABRE Subscriber Agreement with a three year term with reasonable
terms and conditions.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth below.
AMERICAN AIRLINES, INC.
By:[/s/ GURRIERO SALVATORE] By: [/s/ JEANNE M. HALL]
---------------------------- -------------------------------
(Signature) (Signature)
Name: [GURRIERO SALVATORE] Name: [JEANNE M. HALL]
------------------------- -----------------------------
(Print Name) (Print Name)
Title:[PRES.] Title: Manager - Financial
------------------------- Services
SABRE Travel
Information Network
Date: [01/28/94] Date: [2/24/94]
------------------------- -----------------------------
Agency Name: [S TRAVEL INC.] PCC: [4C62]
--------------------------
19
<PAGE> 20
ATTACHMENT I
Conditions of Use for SABRE Users
1. Qualifying Use. The manufacturer has made this package available to you
through the vendor, whether directly or indirectly, on the understanding that
it is being supplied to you primarily for use with the vendors' SABRE
reservation system, and not with a view to resale or other remarketing.
2. Other Terms and Conditions. Any other Terms and Conditions and/or
Program License Agreement, which may appear printed inside the package, is
inapplicable and should be ignored.
Copyright and Other Rights
The manufacturer's programs contain material in which the manufacturer and in
many cases the manufacturer's suppliers, retain proprietary rights. The
manufacturer wants these programs to be fully usable by you for the purpose for
which they are supplied, that is, in connection with a computer. No
infringement of the rights of the manufacturer or of the manufacturer's
suppliers will occur provided that the following conditions are observed with
respect to each program:
1. The program is used only on:
(a) a single machine; or
(b) on any workstation connected to a single fileserver which is
primarily used in connection with the SABRE reservation system.
2. The program is copied into machine-readable or printed form for backup
or modification purposes only in support of use on a single machine, or on a
workstation connected to the SABRE reservation system;
However, certain diskettes marked "Copy Protected" may include mechanisms to
limit or inhibit copying of the program;
3. The program is modified or merged into another program only for use on a
single machine or on a workstation connected to the SABRE reservation system.
Any portion so merged continues to be subject to these conditions;
4. The copyright notice is reproduced and included in any copy or
modifications made of the program and in any program merged into other
programs; and
20
<PAGE> 21
5. If the program package is transferred to another party, all copies and
modifications made of the program must be transferred or destroyed. You do not
retain any right with respect to the transferred package. The other party
agrees to observe all of these Conditions of Use.
Any other act involving reproduction or use of, or other dealing in the program
is prohibited.
You are reminded that it may be necessary to obtain local and United States
licenses to export or re-export this package.
No statements contained in this package shall affect the statutory rights of
any person.
PSEUDO CITY CODE: [4C62]
00102
By [/s/ GURRIERO SALVATORE] By [/s/ JEANNE M. HALL]
------------------------- ----------------------------
(Signature) (Signature)
Name [GURRIERO SALVATORE] Name [JEANNE M. HALL]
------------------------- ----------------------------
(Print Name) (Print Name)
Title: [PRES.] Title [MANAGER]
------------------------ ------------------------------
SABRE Travel Information
Network
Date: [01/28/94] Date: [2/24/94]
-- -- -- - -- --
21
<PAGE> 22
===============================================================================
SCHEDULE A
- -------------------------------------------------------------------------------
To SABRE Subscriber Agreement between Customer and American (The
"Agreement").
ARC #..:33-884841
CUSTOMER NAME: S TRAVEL INC PSEUDO :
(include DBA): 1-800-LOW-AIR-FARE ORDER #:O/U 9540605
SITE (Loc.)..: 100 WALL ST, 15TH FLOOR
NEW YORK, NY 10005
EFFECTIVE DATE:
(For Contract Renewal Only)
CONTRACT TERM : 60 Months
ESTED. INSTALL: 02/01/94
1) SYSTEM DESCRIPTION:
======================
<TABLE>
<CAPTION>
QTY. Rate per Unit Total Total
- -------- ------------- Monthly Insurance
Lea Own DESCRIPTION Lease SMU Charges Value
=== === ========================= ===== ===== ======= =========
<S> <C> <C> <C> <C> <C> <C>
A) HARDWARE:
------------
[*] SABRE/IBT TWO-WAY DATA LINE(S) [*] [*] [*] [*]
[*] DF/S GRID 486/25.425MG/8MB... [*] [*] [*] [*]
[*] G/W GRID 486/25.....DL/4MB... [*] [*] [*] [*]
[*] W/S GRID 486/25.....DL/4MB... [*] [*] [*] [*]
[*] W/S GRID 486/25.....FD/4MB... [*] [*] [*] [*]
[*] W/S GRID 486/25..240MB/4MB... [*] [*] [*] [*]
[*] NoAAA GRID 486/25 120MB/4MB+. [*] [*] [*] [*]
[*] Printer Brother.............. [*] [*] [*] [*]
[*] Printer Datamax 5000-OCR..... [*] [*] [*] [*]
[*] Printer TI 885-Basic......... [*] [*] [*] [*]
[*] Printer TI 8920.............. [*] [*] [*] [*]
[*] Tape Backup Unit............. [*] [*] [*] [*]
[*] DM 1000 Coupon Output Hopper. [*] [*] [*] [*]
[*] Optical Storage Unit-OSU..... [*] [*] [*] [*]
[*] Controller Card-LG ATT/GRID.. [*] [*] [*] [*]
[*] Graphic Card(s)-Initial/Del.. [*] [*] [*] [*]
----- ----- -------
[*] Total Hardware Monthly Charge [*] [*] [*]
----- ----- ------- ---------
Total Insurance Value...............................$ [*]
=========
2) ONE-TIME CHARGES:
====================
A) PREPAYMENT:
--------------
Prepayment (New SABRE Location Only)......................
B) SYSTEM:
----------
SABRE Installation Charges................................
Integrated Business Technologies (IBT) Interface..........
SABREvision Install/Deinstall Charges.....................
C) SYSTEM SOFTWARE:
-------------------
SABRE Emulation Software...@ [*]................. [*]
MS-DOS/SABRE with Windows).@ [*]................. [*]
NetWare (LAN Program)......@ [*]................. [*]
[*] SABREworks.................@ [*]Per Fileserver... [*]
[*] SABREmail Plus.............@ [*]Per Fileserver... [*]
---------
Total One-Time Charges...................................$ [*]
=========
</TABLE>
===============================================================================
[SSI SKI] Rvsd. 9/20/93 Page 1
<PAGE> 23
PSEUDO CITY CODE: 4CG2
G0102
3) DISCOUNTS:
=========
A) FIXED MONTHLY DISCOUNTS:
-----------------------
Fixed Monthly Discount - Booking Level ....... [*]
Fixed Monthly Discount - SABRE ............... $ [*]
Fixed Monthly Discount - IBT ................. $ [*]
-------
Total Fixed Monthly Discount .............. $ [*]
=======
American agrees to provide Customer a fixed monthly discount to such Total
Monthly Charges if Customer meets all the terms and conditions of this
Agreement.
B) SUSPENDED CHARGES - INITIAL TERM: MONTHLY TOTAL
-------------------------------- ------- -----
Ticketing...................... 60 Months @ $ [*] $ [*]
I/I ........................... 60 Months @ [*] [*]
Option 6 ...................... 60 Months @ [*] [*]
SRM: Major Mkt. Bkg. Net. 60 Months @ [*] [*]
SRM: Major Mkt. Bkg. Prg. 60 Months @ [*] [*]
Microfiche .................... 60 Months @ [*] [*]
Bargain Finder Plus ........... 60 Months @ [*] [*]
------- -------
Total Suspended Charges-Initial Term..... $ [*] [*]
------- -------
C) ONE-TIME CHARGES DISCOUNTED:
---------------------------
SABRE Installation/Implementation ....................... [*]
Integrated Business Technologies - IBT Instl/Interface... [*]
SABREvision Hardware Installation/Deinstallation ........ [*]
Application Software(s) ................................. [*]
-------
Total One-Time Charges Discounted .......................$ [*]
-------
Customer acknowledges that the Total SABRE Promotional Support constitutes the
full value of incentive received in consideration of Customer's execution and
complete performance and compliance with all provisions of the Agreement.
TOTAL SABRE PROMOTIONAL SUPPORT ..................................$ [*]
=======
4) OTHER CONDITIONS OF DISCOUNT:
============================
A. The SABRE Booking level is based on all productive Video Agent Sets
and Video Agent Sets AAAs installed at the above stated Pseudo City
Code (PCC).
B. American shall perform the SABRE Booking measurements at the end of
each measurement period. In the event that the Agreement terminates
during a measurement period, the measurement will be from the
beginning of the current measurement period to the date of termination.
Measurement period every ......... 6 Months
Commencing ....................... 6 Months After Installation
C. Add-On productive Video Agent Sets will be added at the same SABRE
Booking level as the original productive Video Agent
[ SS1 SK1 ] Rvsd. 9/20/93 Page 2
<PAGE> 24
PSEUDO CITY CODE: 4CG2
00102
Sets.
D. Deletion of Standard Equipment will be in accordance with the
provisions identified in Articles 15.3 through 15.3.3 of the Agreement.
E. Customer must be current in its SABRE/IBT payments due under the
Agreement in order to receive the above stated discount.
F. The discounts for all additional Video Agent Sets and/or Video Agent
Sets AAA's that are associated with SABRE access will be calculated as a
standard percentage based on the length of the Agreement at the time
of order placement. The percentage that will be applied to the total
monthly charges are as follows:
36 month Agreement [*] Discount
60 month Agreement [*] Discount
The above discount percentages are not available for the addition of
Video Agent Sets that are not capable of generating SABRE Bookings. All
Video Agents Sets and/or Video Agent Sets AAA's added under this
provision will be subject to the booking level(s) stated in the
Discounts section of this Schedule A or Supplement of, if applicable,
in the Cluster Amendment. Measurement for additional Video Agent Sets
and/or Video Agent Set AAA's installed or implemented in a calendar
month will commence on the first day of the next month.
5) BOOKINGS BELOW FIXED MONTHLY DISCOUNT BOOKINGS LEVEL:
====================================================
IF CUSTOMER DOES NOT ACHIEVE [*] OF THE FIXED MONTHLY DISCOUNT BOOKING
LEVEL, AS STATED IN 3) A) ABOVE, FOR ANY MEASUREMENT PERIOD, AMERICAN
WILL CHARGE CUSTOMER AN AMOUNT EQUAL TO THE PREVAILING BOOKING FEE THAT
AMERICAN CHARGES TO AIRLINES THAT PARTICIPATE IN THE FULL AVAILABILITY
FEATURES OF SABRE MULTIPLIED BY THE DIFFERENCE BETWEEN THE FIXED
MONTHLY DISCOUNT BOOKING LEVEL IN 3) A) ABOVE AND THE ACTUAL SABRE
BOOKING LEVEL, MULTIPLIED FURTHER BY THE TOTAL NUMBER OF PRODUCTIVE
VIDEO AGENT SETS AND VIDEO AGENT SET TRIPLE A'S AT THE PSEUDO CITY CODE
IDENTIFIED ON PAGE 1 OF THIS SCHEDULE A AND BY THE NUMBER OF MONTHS IN
THE MEASUREMENT PERIOD. HOWEVER, AMERICAN AGREES THAT AS LONG AS
CUSTOMER PROCESSES AN AVERAGE OF [*] SABRE BOOKINGS PER VIDEO AGENT SET
AND VIDEO AGENT SET TRIPLE A'S PER MONTH DURING THE MEASUREMENT PERIOD,
THE MAXIMUM AMOUNT CHARGED WILL NOT EXCEED THE TOTAL FIXED MONTHLY
DISCOUNT, STATED IN 3) A), MULTIPLIED BY THE NUMBER OF MONTHS IN THE
MEASUREMENT PERIOD.
APPLICABLE TAXES NOT INCLUDED IN ABOVE RATES
STANDARD EQUIPMENT ORDERED IS CONTINGENT UPON AVAILABILITY
IF CUSTOMER DELETES STANDARD EQUIPMENT, THE CHARGES AND ANY DISCOUNTS SHALL BE
DELETED.
ALL CHARGES AND APPLICABLE DISCOUNTS ARE STATED AND PAYABLE IN U.S. DOLLARS.
ALL SIGNATURES MUST BE IN BLACK INK
CUSTOMER AMERICAN AIRLINES, INC.
- -------------------------- --------------------------
[ SS1 SK1 ] Rvsd. 9/30/93 Page 3
<PAGE> 1
EXHIBIT 10.17
AMENDMENT NO. 1 TO SABRE SUBSCRIBER AGREEMENT
This Amendment to the SABRE Subscribed Agreement made and entered into
this [14] day of [FEB] 1994, between American Airlines, Inc. ("American") and
1-800 Low Air Fare Travel ("Customer").
RECITALS
WHEREAS, American and Customer have entered into that certain SABRE
Subscriber Agreement, dated as of __________ _; (the "Agreement") and
WHEREAS, it is in the best interest of the parties to modify certain
provisions of the Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, American and Customer agree as follows:
1. Effective Date. The effective date of this Amendment is [UPON
INSTALL].
2. Credit Bank. American and Customer agree that when Customer exceeds
the SABRE Booking level of [ * ] per video agent set and video agent set
triple A's per month for each measurement period, as described in the Schedule
A and Supplement, American shall establish a credit of [ * ] per SABRE
Booking per video agent set and video agent set triple A's in excess of the
SABRE Booking level stated herein. This amount will be applied automatically
toward the payment of SABRE Charges. This credit may be converted to cash upon
completion of each measurement period; provided, however, that Customer is
current in its payments due American including any charges due American should
Customer not achieve the minimum SABRE Booking level as described on the
Schedule A. Any unused portion of the credit bank shall revert to American and
be unavailable for Customer's use upon the happening of either of the following
events: (i) the expiration of the Initial Term as defined in the Agreement or
(ii) termination of the Agreement for any reason.
3. Confidentiality. It is expressly understood and agreed that this
Amendment and the Agreement, and each and every provision hereof, shall be held
and treated as confidential and shall not be disclosed by Customer to any other
person, firm, organization, association, or entity, of any and every kind,
whether public, private or governmental, for any reason, or at any time,
without the prior written consent of American, unless such disclosure is
requested by law or legal process relating to proceedings between a party
hereto and any third party. In the event of such disclosure, this Amendment
and the Agreement may be terminated immediately by American, without notice to
Customer, and American
1
<PAGE> 2
shall have the right to pursue any remedies available to it in law or in
equity.
4. Defined Terms. The defined terms not otherwise defined in this
Amendment shall have the meaning given to them as in the Agreement.
5. Agreement. Except as otherwise provided herein, all other terms of
the Agreement remain in full force and effect. In the event of any conflict
between the terms of the Agreement and this Amendment, the Amendment shall
control.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year written above.
1-800-LOW AIR FARE TRAVEL AMERICAN AIRLINES, INC.
By:[/s/ GEORGE CARAPELLA V.P.] By: [/s/ JEANNE M. HALL]
--------------------------- -------------------------
(Signature) (Signature)
Name: [GEORGE CARAPELLA] Name: [JEANNE M. HALL]
------------------------ -----------------------
(Print Name) (Print Name)
Title:[VICE PRESIDENT] Title:[MANAGER]
------------------------ -----------------------
SABRE Travel
Information Network
Date: [2/15/94] Date: [2-24-94]
------------------------ -----------------------
PCC: 4C62
2
<PAGE> 1
EXHIBIT 10.18
SUSPENSION OF SERVICE AGREEMENT
DATE: April 3, 1996
CUSTOMER NAME: 800 Travel Systems Inc. ("Customer")
(include DBA) 1 800 Low Air Fare
E (location): 3018 US Highway 301 North PSEUDO CITY CODE; 4CG2
Tampa, FL 33619 BILLING CUSTOMER:
NUMBER: N/A
ARR - 10884845
As to certain financial considerations you have requested that all
SABRE Agreement(s) ("Agreement") between Customer and American be suspended.
American will suspend the Agreement(s) on the following terms and conditions:
American, or its designated agents, will remove from SABRE access, all
Standard Equipment as defined in the Agreement(s) and listed on the signature
page of this document, as of a stop billing date of 04/01/96. The Standard
Equipment will be physically removed from your place of business as soon as
practical at the convenience of American, if the Standard Equipment is deemed
returnable by American.
Customer hereby forfeits all rights and equity, if any, in the Standard
Equipment removed from Customer's place of business whether owned or unowned.
Customer hereby agrees to pay to American all costs associated with
removal of the Standard Equipment prior to such removal. The removal fee for
your Standard Equipment is as follows (with a minimum charge of $[*]USD for [*]
devices or [*]. Please note that Raytheon and ICOT 260 Processors count
as two (2) devices:
$[*]USD per data line
$[*]USD per video agent set
$[*]USD per printer or any other device
Customer hereby agrees to pay to American all charges due under the
Agreement, including, but not limited to, unpaid amounts due American for
not achieving the established SABRE Booking level through the stop billing date
as indicated in paragraph 1 above. Thereafter, during the suspension period
Customer will not be required to pay monthly charges or liquidated damage
under the Agreement.
If Customer decides to reinstall a computer reservation system at any
time during the term of the Agreement, Customer thereby agrees to accept from
American an equal number of devices (or such lesser amount as agreed by
American) of whatever equipment provides the same capabilities as the Standard
Equipment previously installed under the suspended Agreement. Customer further
agrees to pay American's then current installation charge and will contract
that equipment under terms and conditions offered at the time of that
reinstallation.
Customer hereby agrees to indemnify and hold harmless American, its
employees and agents from any and all liabilities, damages, losses,
expenses, claims, fines, demands, suits and judgments, including but not
limited to attorneys' fees, costs and expenses incident thereto suffered by
or recoverable against American or its employees or agents arising out of or
related to the suspension of the Agreement.
If Customer should sell or otherwise transfer or assign the assets or
legal ownership of the location(s) subject to the Agreement, in whole or in
part, Customer agrees that all contractual obligations suspended under the
Agreement shall automatically resume and become fully enforceable retroactive
to the stop billing date indicated in paragraph 1 above. Further, without
limitation, this Suspension of Service Agreement shall not accrue to the
benefit of any of Customer's successors or signs.
<PAGE> 2
The individual signing this Suspension of Service Agreement on behalf
of Customer, or if more than one, each of them, represents and warrants that
(i) he is duly authorized to execute this Suspension of Service Agreement on
behalf of Customer, (ii) he has full power and authority to bind the Customer
to the terms and conditions hereof; (iii) Customer has not sold, reffered or
otherwise assigned the assets or legal ownership of the company either in whole
or in part; and (iv) no representatives or warranties of Customer or the
undersigned, nor any statements, written or oral, made or furnished to American
nor herein or with respect to the organization or business of Customer,
contains any untrue statement of a material fact or a material fact necessary
to make the representation, warranty, or statement not misleading.
Customer agrees to keep the terms of this Suspension of Service
Agreement in the strictest confidence and secrecy. Customer shall not disclose,
in whole or in part, the terms of this Suspension of Service Agreement to any
third party (except the attorneys, accountants, and tax return preparers)
without the prior written consent of American, or unless disclosure is spelled
by subpoena or other lawful order.
If Customer fails to comply with any term or condition of this
Suspension of Service Agreement or if any representation warranty contained in
Paragraph 8 proves not be true and correct, then all contractual obligations
under the Agreement will automatically resume and become fully enforceable.
THE ABOVE TERMS AND CONDITIONS ARE ACCEPTABLE, AND THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN PARAGRAPH 8 ARE TRUE AND CORRECT, PLEASE INDICATE YOUR
CONSENT BY EXECUTING AND RETURNING THIS SUSPENSION OF SERVICE AGREEMENT TO:
SABRE TRAVEL INFORMATION NETWORK
???? Box 619616 MD 3553
??? Airport, TX 75261-9616
PROVED AND ACCEPTED:
CUSTOMER AMERICAN AIRLINES, INC.
/s/ LUCIEN BITTAR By: /s/ S. McPHERSON
- --------------------------- ---------------------------------
(Signature) (Signature)
Name: Lucien Bittar Name: S. McPherson
--------------------- --------------------------------
(Print Name) (Print Name)
Title: President Title: Manager Financial Services
--------------------- --------------------------------
SABRE Travel Information Network
Date: 4-10-96 Date: 4-22-96
--------------------- --------------------------------
???signment Configuration Covered by this Suspension of Service Agreement:
_Video Agent Set(s) - Model Type: DED AST 730/16MB FS To Be Returned: __No__
_Video Agent Set(s) - Model Type: DED AST FD GW To Be Returned: __No__
_Video Agent Set(s) - Model Type: AST 170MB WS To Be Returned: __No__
_Video Agent Set(s) - Model Type: AST 170MB WS To Be Returned: __No__
_Video Agent Set(s) - Model Type: ADMIN AST 170MB WS To Be Returned: __No__
_Printer(s) - Model Type: TI1600 To Be Returned: __No__
_Printer(s) - Model Type: DOCUMAX 3300 To Be Returned: __No__
_Printer(s) - Model Type: TI8920 To Be Returned: __No__
_Printer(s) - Model Type: TI885/BASIC To Be Returned: __No__
_Misc - Model Type: BACKUP TAPE UNIT To Be Returned: __No__
ALL EQUIPMENT BEING ADDED/CONSOLIDATED AT BSTE**
??Rvsd 8/1/95 2
<PAGE> 1
EXHIBIT 10.19
AMENDMENT TO SABRE SUBSCRIBER AGREEMENT
This Amendment to that certain SABRE Subscriber Agreement is made and
entered into this ____ day of _________________, 1996 between American
Airlines, Inc. ("American") and 800 Travel Systems Inc DBA 1-800 Low Air Fare
("Customer").
RECITALS
WHEREAS, American and Customer have entered into that certain SABRE
Subscriber Agreement, dated as of April 1, 1996 (the "Agreement"); and
WHEREAS, it is in the best interest of the parties to modify certain
provisions of the Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, American and Customer hereby agree as follows:
1. EFFECTIVE DATE. The effective date of this Amendment is April 1, 1996.
2. CASH ADVANCE. American agrees to pay to Customer, as SABRE
Promotional Support, the sum of [ * ] within 30 days after (i) the Agreement
and this Amendment have been signed by both Customer and American, and (ii) any
applicable installation has been completed. If an event of default, as
described in Article 14.1 of the Agreement occurs, American's obligations under
this Amendment are nullified and Customer will be immediately obligated to
repay to American all monies paid by American to Customer pursuant to this
Amendment.
3. PRODUCTIVITY CASH ADVANCE. American agrees to pay to Customer [ * ]
as SABRE Promotional Support, on the first anniversary of the Effective Date of
the Agreement provided that (i) the Agreement and this Amendment have been
signed by both Customer and American, and (ii) any applicable installation has
been completed, and (ii) Customer has processed a minimum of [ * ] SABRE
Bookings based on all of Customer's video agent sets and video agent set
terminal addresses. Further, American agrees to provide an additional annual
payment to Customer, provided that Customer has processed SABRE Bookings based
on the following schedule:
[ * ] provided that Customer has processed a minimum of
[ * ] SABRE Bookings, or
[ * ] provided that Customer has processed a minimum of
[ * ] SABRE Bookings, or
[ * ] provided that Customer has processed a minimum of
[ * ] SABRE Bookings, or
[ * ] provided that Customer has processed a minimum of
[ * ] SABRE Bookings, or
[ * ] provided that Customer has processed a minimum of
[ * ] SABRE Bookings
If an event of default, as described in Article 14.1 of the Agreement, occurs
American's obligations under this Amendment are nullified and Customer will be
immediately obligated to repay to American all monies paid by American to
Customer pursuant to this Amendment and American shall have no obligation to
pay Customer any amounts stated herein after such termination.
4. LINES OF CREDIT. American shall extend to Customer lines of credit in
the amount of (i) [ * ] which amount will be applied automatically toward the
payment of TurboSABRE Charges only, and (ii) [ * ] per year for years
1996-1999 for a total of [ * ] which amount will be applied automatically
toward the payment of TurboSABRE Charges only for the Additional Standard
Equipment as described in Paragraph 6 below.
Such lines of credit shall be applied each month until the total amount is
exhausted; provided, however that the unused portion of such lines of credit
shall revert to American and be unavailable for Customer's use upon the
happening of either of the following events: (i) the expiration of the Initial
Term of the Agreement or (ii) termination of the Agreement for any reason.
5. CREDIT BANK. American and Customer agree that when Customer exceeds
the Fixed Monthly Discount Booking Level of [ * ] SABRE Bookings per video
agent set and video agent set terminal address per month for the measurement
period, as
<PAGE> 2
described in the Schedule A and any subsequent Supplement, American will
establish a credit of [ * ] per SABRE Booking per video agent set and video
agent set terminal address in excess of [ * ] SABRE Bookings.
In addition, American and Customer agree that when Customer (i) exceeds [ * ]
SABRE Bookings per video agent set and video agent set terminal address per
month for the measurement period, American will establish a credit of [ * ]
per SABRE Booking per video agent set and video agent set terminal address in
excess of [ * ] SABRE Bookings, and (ii) exceeds [ * ] SABRE Bookings per
video agent set and video agent set terminal address per month for the
measurement period, American will establish a credit of [ * ] per SABRE
Booking per video agent set and video agent set terminal address in excess of
[ * ] SABRE Bookings.
This amount will be applied automatically toward the payment of SABRE/ADS/IBT
Charges. However, this credit may be converted to cash upon completion of each
measurement period; provided, however, that Customer is current in its payments
due American including any Charges due American should Customer not achieve the
Fixed Monthly Discount Booking Level as described on the Schedule A. Any
unused portion of the credit bank shall revert to American and be unavailable
for Customer's use upon the happening of either of the following events: (i)
the expiration of the Initial Term as defined in the Agreement or (ii)
termination of the Agreement for any reason.
6. LEASE CHARGES FOR ADDITIONAL STANDARD EQUIPMENT. Upon request from
Customer, American shall lease to Customer, as additional Standard Equipment, a
maximum of [ * ] video agent sets (referred to herein as the "Additional
Standard Equipment") for use at Customer's current and future locations on the
following terms and conditions:
A. The Additional Standard Equipment must be available for
purchase by American on reasonable terms and conditions from
the manufacturer;
B. The Customer shall receive, as SABRE Promotional Support, an
offsetting discount in an amount equal to the monthly lease
Charge and the installation Charge for the Additional Standard
Equipment,
C. The Additional Standard Equipment shall have an Initial Term
of 60 months from the date of installation.
7. MAINTENANCE AND USE CHARGES FOR ADDITIONAL STANDARD EQUIPMENT. With
respect to the Additional Standard Equipment provided under paragraph 6 above
American shall provide, as SABRE Promotional Support, an offsetting discount in
an amount equal to the monthly SMU Charge and [ * ] data line Charges for
such Additional Standard Equipment for a period of 60 months from the date of
installation of the Additional Standard Equipment.
8. SABRE WITH WINDOWS.(TM) American agrees to provide Customer SABRE
with Windows for the Additional Standard Equipment, described in Paragraph 6
above, at no charge to Customer.
9. VARIABLE CHARGES. American agrees to suspend Customer's obligation to
pay the prevailing Charges for the following variables, for a period of sixty
(60) months from the date of installation of the Additional Standard Equipment
described in Paragraph 6 above: Invoice and Itinerary, Interface, Ticketing,
and Bargain Finder Plus.
10. CONFIDENTIALITY. It is expressly understood and agreed that this
Amendment and the Agreement, and each and every provision hereof, shall be held
and treated as confidential and shall not be disclosed by Customer to any other
person, firm, organization, association, or entity, of any and every kind,
whether public, private or governmental, for any reason, or at any time,
without the prior written consent of American, unless such disclosure is
requested by law or legal process relating to proceedings between a party
hereto and any third party. In the event of such disclosure, this Amendment and
the Agreement may be terminated immediately by American, without notice to
Customer, and American shall have the right to pursue any remedies available to
it in law or in equity.
11. DEFINED TERMS. The defined terms used in this Amendment shall have
the meaning assigned to such terms in the Agreement.
12. AGREEMENT. Except as otherwise provided herein, all other terms of
the Agreement remain in full force and effect. In the event of any conflict
between the terms of the Agreement and this Amendment, the Amendment shall
control.
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year written above.
<TABLE>
<S> <C>
800 TRAVEL SYSTEMS INC AMERICAN AIRLINES, INC.
By: /s/ Lucien Bittar By: /s/ Bob Quinn
-------------------------- --------------------------------
(Signature) (Signature)
Name: [Lucien Bittar] By: [Bob Quinn]
-------------------------- --------------------------------
(Print Name) (Print Name)
Title:[President] Title:[Manager]
-------------------------- -----------------------------
SABRE Travel Information Network
Date: [July 19, 1996] Date: [07/25/96]
-------------------------- ------------------------------
PCC:
--------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.20
SABRE SUBSCRIBER AGREEMENT - (UNITED STATES)
This SABRE Subscriber Agreement (the "Agreement") is entered into
by and between the SABRE Travel Information Network, a division of The SABRE
Group, Inc. ("SGI") and the undersigned ("Customer"), as of the date executed
by SGI Below ("Effective Date") regarding the provision of products and
services set forth herein to Customer's locations within the United States and
its territories.
ARTICLE 1 - LEASE TERM
1.1 LEASE. For the term specified in 1.2 below, SGI shall lease to Customer
the System, as defined herein.
1.2 TERM. The lease term of the System identified on Schedule A shall
commence on the date of installation and shall continue for [60] months
("Initial Term"). Any additional System installed subsequent to the date of
execution of this Agreement by SGI shall be subject to the same terms and
conditions as this Agreement and shall have a term of [60] months commencing on
the date of installation ("Additional Term").
ARTICLE 2 - DEFINITIONS
The following terms shall have the following meanings in this Agreement:
2.1 AGREEMENT means this SABRE Subscriber Agreement, and all Amendments,
Schedules and Supplements made a part hereof.
2.2 CONFIDENTIAL INFORMATION means this Agreement, any and all applicable
rights to patents, copyrights, trademarks and trade secrets, proprietary and
confidential information of SGI its affiliates, subsidiaries, successors or
assigns concerning their past, present or future research, development,
business activities or affairs, finances, properties, methods of operation,
processes and systems, agreements (including without limitation private fare or
special discount agreements) related to the business of SGI.
2.3 INSTRUCTIONS means any and all manuals, operating procedures,
manufacturer's recommendations, rules, and instructions delivered or made
available to Customer either in hard-copy or via the SABRE system, and which
must be complied with by Customer. Such Instructions may be unilaterally
revised or amended by SGI at any time in its sole discretion.
2.4 PNR means a passenger name record created in the SABRE system.
2.5 PARTICIPANT means any air carrier (including scheduled, charter,
domestic and international airlines) care rental company, surface
transportation carrier, hotel or lodging provider, railroad, steamship company,
cruise or tour operator or other vendor of travel related products, information
or services which has an agreement with SGI for the display of information
regarding its products or services in the SABRE system.
2.6 PROHIBITED SEGMENT means a Travel Service Segment for which no
corresponding space has been reserved within the transporting carrier's
internal reservations system.
2.7 SABRE BOOKING means an airline, hotel, tour, rental car or any other
product or service Segment that obligates a Participant to pay a booking fee to
SGI and that is created in or processed through the SABRE system by Customer
per video agent set during any one calendar month or that is secured to
Customer's location, less cancellations made prior the Segment Activity Date.
Bookings are credited in the latter of (i) the calendar month in which the
Segment Activity Date occurs or (ii)the calendar month in which the Segment is
actually processed by the SABRE system for booking fee purposes.
SABRE is a trademark of a subsidiary of the SABRE GROUP, INC.
2.8 SABRE COMPONENT means all memory, disk storage space, ports and any
other element of the Standard Equipment.
<PAGE> 2
2.9 SABRE PROMOTIONAL SUPPORT means the total dollar value of incentives
provided to Customers as identified on Schedule A and any Supplement.
2.10 SCHEDULE A means the document reflecting the Charges an any applicable
discounts for the System as amended by any Supplement(s).
2.11 SEGMENT means (a) for airline bookings, each separate flight segment
reservation identified by a separate flight number in a PNR, multiplied by the
number of passengers booked in such PNR for such flight segment: (b) for hotel
bookings, each separate reservation that is processed through SABRE SHARP with
an action status code of HK, KK or KL regardless of the number of rooms, suites
or other accommodations or the number of persons or the duration of stay; (c)
for car rental bookings, each separate reservation that is processed through
SABRE CARS with an action status code of HK, KK or KL regardless of the number
of vehicles or persons or the duration of the rental; and (d) for any other
product or service, each separate reservation for such product or service that
is processed through the SABRE system with an action status code of HK, KK or
KL regardless of the number of product or services or the number of persons or
the duration of the products or services. The term Segment does not include
Prohibited Segments.
2.12 SEGMENT ACTIVITY DATE means the first date listed in a PNR for the
relevant Segment.
2.13 STANDARD EQUIPMENT means the items of computer hardware leased to
Customer in accordance with this Agreement.
2.14 SUPPLEMENT means the document reflecting any changes to the System,
and/or Charges or discounts related thereto. The Supplement shall incorporate
all terms and conditions of the Agreement. The parties agree that any such
Supplement need not be signed unless requested by either party and that
completion of the change specified on such Supplement, or the payment of the
revised Charges, whichever occurs first, constitutes acceptance and
ratification of the terms and conditions of the Supplement as though it was
fully set forth herein.
2.15 SYSTEM means the Standard Equipment, SABRE Component, and/or the System
Software as identified on Schedule A and all Supplements.
2.16 SYSTEM SOFTWARE means that Software delivered by SGI to Customer as
identified on Schedule A and all Supplements.
2.17 TRANSACTION means a grouping of characters transmitted to the SABRE
system whether such transmission is made in the SABRE system manually or
automated. Each transmission to the SABRE system from Customer constitutes one
Transaction. No input message may exceed three hundred characters in length.
2.18 TRAVEL SERVICE SEGMENT means a booking segment entered in the SABRE
system with an action status code of GK, GL, BK, BL, YK, HK*, or HL*.
ARTICLE 3 - CHARGES AND PAYMENTS
3.1 PREPAYMENT. Upon execution, Customer shall pay to SGI the prepayment as
shown on Schedule A. If the System is installed, the prepayment credited
against the Customer's first Charges.
3.2 CHARGES. All amounts payable to SGI ("Charges") shall be due and
payable on the within fifteen days of the date of SGI's invoice, without setoff
or counterclaim.
3.3 ADDITIONAL CHARGES. Customer agrees to pay to SGI an additional charge
at SGI's then prevailing rate for services and materials including without
limitation the following: (a) the installation or removal of Standard
Equipment; (b) Standard Equipment relocation within the site; (c) each site
disconnect or relocation to different premises; (d) modifications, upgrades,
enhancements or additions of Standard Equipment and/or System Software; (e)
installation of peripheral devices requested by Customer; (f) materials for use
with the Standard Equipment, including, but not limited to, ticket stock for
use with thermal ticket printers; and (g) processing Transactions which exceed
the level of one hundred twenty-five Transactions per SABRE Booking.
2
<PAGE> 3
3.4 INCREASES. SGI shall have the right to increase the Charges for the
remaining term of this Agreement upon thirty days written notice to Customer.
If the increase exceeds [ * ] of the Charges in any consecutive twelve month
period, Customer may terminate this Agreement upon written notice to SGI within
fifteen days of receipt of SGI's notice of the increase. Notwithstanding the
foregoing, the communication access charge in such Charges shall be subject to
increase, at any time and without limitation, to cover any increase in the cost
imposed upon SGI.
3.5 SABRE SERVICES. If Customer elects to use certain of SGI's services
such as, but not limited to, Ticketing and Invoice/Itinerary functions,
Microfiche, Customer shall pay Charges for such services based on SGI's then
prevailing rates.
3.6 INTEREST. Charges not paid when due shall accrue interest at the rate
of eighteen percent per annum or the highest rate permitted by Texas law,
whichever is less.
3.7 TAXES. Customer shall pay any taxes, or assessments including any
interest or penalty thereon levied as a result of this Agreement, excluding
taxes measured by the net income of SGI. Customer shall indemnify and hold
harmless SGI from all costs, fines and expenses (including reasonable legal
costs) incurred by SGI resulting from Customer's failure to pay taxes as
provided in this Article.
ARTICLE 4 - INSTALLATION AND DELIVERY
4.1 DELIVERY. SGI shall arrange for delivery of the System F.O.B. the site,
on the estimated installation date, as identified on Schedule A and all
Supplements thereto.
4.2 INSTALLATION. Subject to Article 4.3, SGI shall install, or cause to be
installed, the System at the site. Customer shall allow installation of the
System at the site. Customer's failure to do so or to give adequate assurance
that it will do on the estimated installation date, will constitute an Event of
Default pursuant to Article 14.1.2.
4.3 CUSTOMER'S OBLIGATIONS PRIOR TO INSTALLATION. Customer, at its expense,
shall be responsible for preparing, on or before the estimated installation
date, the site for the System in accordance with the Instructions. If
installation of the System is prevented or delayed because of Customer's
failure to prepare the site, SGI shall use reasonable efforts to install the
System upon Customer's compliance with this Article and upon payment of all
reasonable expenses incurred by SGI resulting from Customer's failure to
prepare the site.
4.4 RELOCATION AND POSSESSION. Customer shall at all times keep the System
in its sole possession and control at the site. Customer shall not move any
part of the System from the site without first obtaining the written consent of
SGI.
4.5 COMMUNICATION ACCESS. SGI or its designated third party shall install
the necessary communication access device to connect the System to the SABRE
system. All such devices are either owned by SGI or such third-party, are
subject to this Agreement, and shall be returned to SGI or the third-party as
SGI directs upon termination of the Agreement.
4.6 NON-STANDARD SYSTEM. Customer shall not connect or use any hardware,
software, or firmware not acquired from SGI with SABRE or the System without
SGI's prior written consent, which shall be granted provided that such
hardware, software, or firmware is approved by SGI for use with SABRE and
Customer executes the Non-Standard System Amendment.
4.7 ACCEPTANCE OF SYSTEM. Upon installation of the System and establishment
of a successful connection with the SABRE System, Customer shall be deemed to
have accepted the System. Any use of the System, additional System and/or non-
standard system further constitutes acceptance of the Agreement and applicable
Amendments and Supplements by the Customer.
3
<PAGE> 4
ARTICLE 5 - REPAIRS AND MAINTENANCE
5.1 REPAIRS AND MAINTENANCE. Upon prompt notification from Customer, SGI,
or its designated agent, shall repair and maintain or replace the Standard
Equipment and shall keep it in good working order provided that the Standard
Equipment has been subject to reasonable operation. Customer shall not make
any modifications nor attempt to perform repairs or maintenance of any kind.
5.2 NOTIFICATION. Customer shall promptly inform SGI of any breakdown of
the Standard Equipment by contacting SABRE Customer Services. Customer shall
maintain a record of all occasions upon which repair or maintenance service is
performed and make such records available to SGI upon request.
5.3 CHARGES. Repair or maintenance services on Standard Equipment during
normal business hours (9:00 a.m. to 6:00 p.m. local time, Monday through
Friday, excluding legal holidays) are included in the Charges, provided that
the Customer has not been negligent and the Standard Equipment has been subject
to reasonable operation, otherwise, Customer will be charged a service fee in
accordance with SGI's or its independent contractor's then prevailing rates.
ARTICLE 6 - TITLE AND OWNERSHIP OF SYSTEM
6.1 TITLE AND OWNERSHIP OF SYSTEM. The System leased hereunder shall remain
the property of SGI. Customer shall not in any other manner dispose of the
System or any part thereof or suffer any lien or legal process to be incurred
or levied on the System.
6.2 RISK OF LOSS. Risk of loss for and damage to the System shall pass to
the Customer upon delivery of the System to the site.
ARTICLE 7 - INSURANCE
7.1 GENERAL. Upon delivery of the System to the site, Customer shall
maintain Comprehensive General Liability (including bodily injury, product
liability, property damage and contractual liability) and All Risk Property
Insurance.
7.2 COMPREHENSIVE GENERAL LIABILITY. The Comprehensive General Liability
coverage shall be an amount not less than one million dollars combined single
limit. The coverage shall include the following special provisions: (a) SGI,
its officers, agents and employees, shall be named as additional insureds; (b)
The policy(ies) shall specifically insure the indemnification provision
included in this Agreement; (c) Such insurance shall be primary without any
right of contribution from any insurance maintained by the additional insureds;
and (d) Insureds will provide SGI with thirty days' prior written notice of any
cancellation of material change.
7.3 ALL RISK PROPERTY. The All Risk Property insurance shall be in an
amount to cover the replacement value of the Standard Equipment as set forth in
Schedule A and all Supplements. Such policy shall: (a) name SGI as additional
insured; (b) name SGI as the sole loss payee for loss of the Standard
Equipment; (c) specifically insure the indemnity obligation assumed by Customer
herein; (d) be primary without right of contribution from any insurance carried
by SGI; and (e) provide that SGI will be given thirty days' prior written
notice of any cancellation or material change of such policy.
7.4 CERTIFICATES. Customer will provide to SGI, on or before delivery of
the System to the site, a Certificate issued by its insurer(s), evidencing the
insurance coverage required by this Article. If SGI does not receive such
Certificate of insurance prior to delivery of the System, SGI may obtain
insurance and Customer shall reimburse SGI for all amounts paid by SGI to
obtain such insurance.
ARTICLE 8 - TITLE AND OWNERSHIP OF CONFIDENTIAL INFORMATION
8.1 The Confidential Information shall remain SGI's exclusive property.
4
<PAGE> 5
8.2 Customer shall maintain in perpetuity the confidentiality of the
Confidential Information using the highest degree of care. Customer shall not
use, sell, sublicense, transfer, publish, disclose, display, or otherwise make
available to others, except as authorized in this Agreement, the Confidential
Information or any other material relating to the Confidential Information at
any time before or after the termination of this Agreement nor shall Customer
permit its officers, employees, agents, contractors or subcontractors to
divulge the Confidential Information without prior written consent of SGI.
8.3 Customer shall use the data transmitted under this Agreement ("data")
solely for the benefit of its customers in connection with rendering the
following services: (i) air carrier, hotel, car and rail reservations,
including schedule quotation; (ii) customer accounting record keeping
activities; or (iii) the sale of or reservations for other miscellaneous
products or services offered in the SABRE system. Customer shall not publish,
disclose or otherwise make available to any third party any compilation of data
obtained from the SABRE system. However, Customer may use specific data for
the benefit of its customers in connection with any reservation or schedule
quotation production of a hard copy travel itinerary, invoice, statement or
ticket.
ARTICLE 9 - SYSTEM SOFTWARE LICENSE
9.1 OWNERSHIP OF SYSTEM SOFTWARE. Customer acknowledges that SGI or the
original manufacturer of the System Software, as applicable, owns has licensed
from the owner, copyrights in the respective System Software and that ownership
and title are retained by the manufacturer or its licensor. All applicable
right to patents, copyrights, trademarks, and trade secrets inherent in the
System Software and pertinent thereto are and shall remain SGI's the original
manufacturer's sole and exclusive property. Any copy of such Software must
incorporate any copyright, trade secret, or trademark notices or legends
appearing in the original version delivered to Customer.
9.2 GRANT OF LICENSE. Subject to the provisions of this Agreement and for
the term specified in Article 1.2, either SGI or the original manufacturer
grants to Customer a non-transferable, non-exclusive limited license to use the
System Software subject to the following restrictions: (a) Customer shall use
the System Software solely in connection with its use of the SABRE system, (b)
the System Software shall be used and installed solely at the site and solely
used on the Standard Equipment, or other equipment authorized by SGI, (c) the
System Software shall be used solely for internal purposes and only in the
ordinary course of business, (d) Customer shall not compile, reverse compile,
decompile, disassemble or reverse engineer the System Software or any portion
thereof, (e) the System Software shall not be copied or reprinted in whole or
in part except (i) a reasonable number of copies of each program may be made in
machine readable form for reasonable archival or backup purposes or (ii) when
SGI has granted permission to do so, and (f) Customer shall not lease, sell,
license, sublicense or otherwise transfer the System Software to any other
party, (g) the terms of this Agreement shall govern the System Software license
unless modified by a license which may be associated with a particular software
product, wherein the license associated with that particular software product
shall govern. Nothing in this Agreement shall convey title to the System
Software to Customer.
9.3 MODIFICATION RIGHTS. Customer shall not modify the System Software or
merge such software into other programs or create derivative works based on
such software. Additionally, Customer shall not delete or cause to be deleted
the System Software from the System. Notwithstanding to the contrary contained
herein, noncompliance with this provision shall constitute an Event of Default
under this Agreement and this Agreement shall immediately terminate and
Customer shall be obligated to pay SGI damages as specified in Article 14
hereof.
9.4 UPGRADES AND MODIFICATIONS. All tangible objects containing or relating
to the System Software are the sole and exclusive property of SGI or the
manufacture. In the event SGI, in its sole discretion, modifies the System
Software, it may deliver such modified System Software to Customer at its then
current charge, if any, and Customer shall promptly return to SGI any and all
tangible objects relating to the System Software as provided in Article 15.7.
Customer shall be solely responsible for protecting all software not obtained
from SGI hereunder and the data related thereto in the event of a software
upgrade. Customer, in order to receive an upgraded or updated program, shall
comply with any and all terms and conditions and Instructions imposed by SGI.
5
<PAGE> 6
9.5 FILESERVER. Customer shall use the System Software solely on a single
processing unit (the "Fileserver"). In the event a Fileserver is upgraded,
Customer shall be solely responsible for moving and protecting all software not
obtained from SGI and the data related thereto.
9.6 OPERATING PROGRAM.
9.6.1 Customer acknowledges that the System Software incorporates, in part,
copyrighted materials pertinent to the Operating Program as identified on
Schedule A. Customer agrees that such copyrighted portions shall be subject to
the Operating Program copyright and license.
9.6.2 If Customer requires additional Operating Programs, Customer shall
notify SGI and SGI will provide Customer with additional programs to support
additional video agent sets pursuant to this Agreement.
9.6.3 Customer will look only to SGI and not to the manufacturer for any
support, maintenance, assistance and upgrades and the like with respect to the
Operating Program and the manufacturer shall have no liability to Customer in
relation to this program.
9.6.4 No action, regardless of form, arising out of the license of the
Operating Program may be brought more than two years after the cause of action
has arisen.
9.6.5 Customer shall physically retain a copy of the Conditions of Use for
SABRE Users (Attachment) with the applicable video agent sets or dedicated
fileserver/processor eligible to use such Operating Program.
9.6.6 THE LICENSE OF THE OPERATING PROGRAM, IF MANUFACTURED BY IBM, SHALL BE
CONSTRUED AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE UNITED
STATES OF AMERICA NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT.
9.7 SYSTEM SOFTWARE.
9.7.1 Customer acknowledges and agrees that Customer is not entitled to any
greater warranty with respect to the System Software that the warranty received
by SGI from its supplier of the respective System Software.
9.7.2 EXCEPT AS SPECIFICALLY PROVIDED BELOW, THE SYSTEM SOFTWARE IS PROVIDED
TO CUSTOMER AS IS AND WITH ALL ITS FAULTS WITHOUT ANY WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THOSE IMPLIED WARRANTIES
ARISING OUT OF COURSE OF PERFORMANCE, COURSE OF DEALING USAGE OF TRADE OR ANY
OTHER WARRANTY. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE
SYSTEM SOFTWARE IS WITH THE CUSTOMER. SHOULD THE SYSTEM SOFTWARE PROVE
DEFECTIVE CUSTOMER SHALL ASSUME THE ENTIRE COST OF ALL NECESSARY SERVICING
REPAIR OR CORRECTION. SOME STATES DO NOT ALLOW THE EXCLUSION OF IMPLIED
WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO CUSTOMER. THIS WARRANTY
GIVE CUSTOMER SPECIFIC LEGAL RIGHTS AND CUSTOMER MAY ALSO HAVE OTHER RIGHTS
WHICH VARY FROM STATE TO STATE. ADDITIONALLY, CUSTOMER ASSUMES RESPONSIBILITY
FOR THE SELECTION OF THE SYSTEM SOFTWARE TO ACHIEVE CUSTOMER'S INTENDED
RESULTS, AND FOR THE INSTALLATION AND USE OF AND THE RESULTS OBTAINED FROM THE
SYSTEM SOFTWARE.
9.7.3 Notwithstanding the above, the media on which the SABRE Emulation
Software, SABREworks, SABREmail (if applicable) and the LAN Program are encoded
is warranted to the Customer against defects in material or workmanship for a
period of three months from the date of original purchase by Customer. If
during such period, Customer discovers any defect in the media, Customer may
return the media to SGI and SGI shall as Customer's sole and exclusive remedy,
repair or replace the defective media.
6
<PAGE> 7
ARTICLE 10 - OPERATION OF SABRE AND THE SYSTEM
10.1 OPERATION OF SYSTEM.
10.1.1 The SABRE system and the System shall be operated by Customer solely for
the purposes and functions expressly permitted by this Agreement and in strict
accordance with the Instructions.
10.1.2 Customer shall access the SABRE system only on the System or another
system or device authorized in writing by SGI.
10.1.3 Customer shall take all precautions necessary to prevent unauthorized
operation or misuse of the SABRE system or the System, including without
limitation, speculative booking, shell bookings, reservation of space in
anticipation of demand, or improper record or access. In the event of misuse
of the SABRE system or the System, SGI reserves the right, in addition to all
rights under the Agreement, to terminate the Agreement.
10.1.4 Customer shall not enter any Prohibited Segments in the SABRE system.
Prohibited Segments so entered shall not be calculated in determining
productivity levels under the Agreement. All Travel Service Segments shall be
removed from the SABRE system should corresponding space be cancelled direct
via telephone with the transporting carrier.
10.2 NON-EXCLUSIVITY. This Agreement is not exclusive and nothing in the
Agreement is intended to preclude or prohibit Customer from using any other
computerized reservation system. The parties agree that Customer's expected
use of the System is the Fixed Monthly Discount Booking Level stated in the
Schedule A or as amended by another document and any subsequent Supplements.
10.3 TRANSACTION VOLUME. Notwithstanding the provisions of Article 3.3(g),
SGI shall have the right, upon thirty days notice to Customer to limit Customer
to generating no more than one hundred twenty-five Transactions per SABRE
Booking.
10.4 TRAINING. SGI will make available introductory SABRE training during
the installation process. For purposes of this Article, the installation
process is defined as anytime between contract signing by both Customer and SGI
through two months after installation is complete.
10.4.1 Upon written request from Customer, at such time that installation is
complete, additional training may be offered subject to availability and at
SGI's then prevailing rate per person, per class. The additional training
charge will be assessed on Customer's monthly invoice.
10.4.2 The training described in Article 10.4 shall be performed at a location
designed by SGI.
10.4.3 Except as otherwise provided herein, Customer is responsible for all
training of all its employees in the proper use of the SABRE system.
10.4.4 In addition to the training described in Article 10.4, SGI may offer to
Customer supplemental training programs on a local level at SGI's then
prevailing rate and method of delivery. Such training may consist of, but not
be limited to, workshops, seminars, self-paced instruction and individual
consultations.
10.4.5 Customer and its trainees agree to comply with all training procedures
and rules established by SGI, and SGI reserves the right to remove any Customer
trainee from the training program if such trainee fails to comply with such
procedures and rules.
10.4.6 SGI may, at its discretion, monitor or test Customer's employee's
training levels. If SGI determines the training level of any one or more of
Customer's employees to be insufficient, then Customer will institute such
additional training at its own expense (including, if necessary, additional
training by SGI at SGI's then prevailing charges) as may be necessary to bring
Customer's employees to the level of training required by SGI.
7
<PAGE> 8
ARTICLE 11 - WARRANTY, AND LIMITATION OF WARRANTY, LIABILITY AND REMEDY
11.1 SABRE WARRANTY. SGI agrees to use reasonable efforts to maintain the
availability of the SABRE system, but shall have no liability for interruptions
in the operation of the SABRE system except as specifically provided herein.
Subject to the terms hereof, in the event that the SABRE system is not operable
ninety-five percent of the total normal business hours each month, excluding
periods for maintenance of Standard Equipment or other scheduled down time
("Normal Time"), SGI will reduce the monthly charges (on a pro-rata basis
according to the percentage of Normal Time during which the SABRE system was
not operable at least ninety-five percent of the Normal Time. For purposes of
this article, normal business hours shall be 9:00 a.m. to 6:00 p.m. local time,
Monday through Saturday. The SABRE system shall be deemed inoperable if
Customer is unable, after calling SABRE Customer Service to make any SABRE
Bookings as a result of a failure attributable to the SABRE system. To request
a reduction under this Article 11.1, Customer shall submit a written record to
SGI and request an adjustment in the monthly charges. Customer's written
records must be submitted in a timely manner and include, at a minimum, the
date and time which the outage occurred, the time the outage was reported to
SABRE Customer Service, the time the SABRE system was restored (within normal
business hours as defined above) and the type of outage.
11.2 DATA. CUSTOMER ACKNOWLEDGES THAT NEITHER SGI NOR REED ELSEVIER, INC.
("REED") THE PUBLISHER OF THE OFFICIAL AIRLINE GUIDE AND SUPPLIER OF CERTAIN
DATA PROVIDED UNDER THE AGREEMENT, WARRANTS THE ACCURACY, MERCHANTABILITY, OR
THE FITNESS FOR A PARTICULAR PURPOSE OR THE NON-INFRINGEMENT OF ANY DATA
PROVIDED UNDER THIS AGREEMENT. NEITHER SGI NOR REED SHALL BE LIABLE TO
CUSTOMER FOR ANY INJURY, LOSS, CLAIM OR DAMAGE CAUSED IN WHOLE OR IN PART BY
THE NEGLIGENCE, OF SGI OR REED OR BY CONTINGENCIES BEYOND THEIR RESPECTIVE
CONTROL IN PROCURING, COLLECTING, COMPILING, ABSTRACTING, INTERPRETING,
COMMUNICATING, PROCESSING OR DELIVERING ANY SUCH DATA. HOWEVER, IF ANY ERRORS
IN DATA TRANSMITTED ARE DUE TO CIRCUMSTANCES UNDER SGI'S DIRECT CONTROL, SGI
SHALL USE REASONABLE EFFORTS TO CORRECT SUCH ERRORS IN A TIMELY MANNER. IN THE
EVENT A PASSENGER USES A CONFIRMED TICKET FOR AIR TRANSPORTATION ISSUED BY
CUSTOMER BY MEANS OF THE SABRE SYSTEM AND IS REFUSED CARRIAGE BECAUSE OF AN
OVERSALE OF SEATS OR THE LACK OF RECORD OF SUCH RESERVATION, THE SOLE REMEDY OF
CUSTOMER SHALL BE SET FORTH IN THE TARIFF OF THE REFUSING CARRIER OR APPLICABLE
TERMS AND CONDITIONS OF THE CARRIER'S CONTRACT OF CARRIAGE.
11.3 STANDARD EQUIPMENT. The Standard Equipment shall be delivered and
installed in good working order.
11.4 LIMITATION OF WARRANTY. THE LIMITED EXPRESS WARRANTIES SPECIFIED HEREIN
ARE THE ONLY WARRANTIES MADE BY SGI AND THE MANUFACTURER AND THERE ARE NO OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION AND IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR INTENDED USE BY OPERATION OF LAW
OR OTHERWISE OF THE SABRE SYSTEM OR THE SYSTEM OR ANY COMPONENTS THEREOF. NO
REPRESENTATION OR OTHER AFFIRMATION OF FACT, INCLUDING WITHOUT LIMITATION
STATEMENTS REGARDING CAPACITY, SUITABILITY FOR USE, OR PERFORMANCE OF THE SABRE
SYSTEM, THE SYSTEM OR ANY COMPONENTS THEREOF, WHETHER MADE BY SGI OR OTHERWISE,
WHICH IS NOT CONTAINED IN THIS AGREEMENT, SHALL BE DEEMED TO BE A WARRANTY FOR
ANY PURPOSE OR GIVE RISE TO ANY LIABILITY OF SGI OR THE MANUFACTURER.
11.5 LIMITATION OF REMEDIES. In the event of a material malfunction or
defect in an unaltered component of the System that can be reproduced by SGI,
SGI will provide reasonable services to correct such malfunction or defect.
Customer will supply SGI with such input files and other materials as may be
necessary to enable SGI to diagnose and correct the malfunction or defect. THE
FOREGOING SHALL BE CUSTOMER'S SOLE AND EXCLUSIVE PRIMARY REMEDY FOR ANY
MALFUNCTION OR DEFECT IN THE SYSTEM. IF SUCH MALFUNCTION OR DEFECT MATERIALLY
IMPAIRS CUSTOMER'S USE OF THE SYSTEM AND CANNOT BE CURED AS PROVIDED IN THIS
PARAGRAPH, THEN CUSTOMER'S ALTERNATE SOLE AND EXCLUSIVE REMEDY SHALL BE TO
TERMINATE THIS AGREEMENT WITHOUT FURTHER LIABILITY TO SGI FOR DAMAGES
HEREUNDER.
8
<PAGE> 9
11.6 LIMITATION OF LIABILITY. CUSTOMER WAIVES ALL LIABILITY IN TORT, OF SGI
AND THE RESPECTIVE MANUFACTURER INCLUDING WITHOUT LIMITATION ANY LIABILITY
ARISING FROM NEGLIGENCE. NOTWITHSTANDING THE FOREGOING, SGI'S LIABILITY TO
CUSTOMER HEREUNDER SHALL BE LIMITED TO THE TOTAL AMOUNT OF CHARGES ACTUALLY
PAID BY CUSTOMER TO SGI PURSUANT TO THIS AGREEMENT. NEITHER SGI NOR ANY
MANUFACTURER SHALL BE LIABLE TO CUSTOMER FOR ANY ACCIDENTAL, OR CONSEQUENTIAL
DAMAGES, UNDER ANY CIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO LOST PROFITS,
REVENUE OR SAVINGS, OR THE LOSS OF USE OF ANY DATA, EVEN IF SGI OR THE
MANUFACTURER HAS BEEN ADVISED, OF, KNEW, OR SHOULD HAVE KNOWN, OF THE
POSSIBILITY THEREOF.
ARTICLE 12 - INDEMNIFICATION
12.1 Customer and SGI ("Indemnitor") hereby agree to indemnify and hold each
other, their affiliates, subsidiaries, successors and assigns and their
officers, directors, agents and employees ("Indemnitees") harmless from and
against third-party liabilities, including, but not limited to, attorneys'
fees, and other expenses incident thereto. ("Claims") which may be threatened
against, or recoverable from the Indemnitees by reason of any injuries to or
death of persons or loss of, damage to, or destruction of property to the
extent arising out of or in connection with any act, or omission of the
Indemnitor.
12.2 Customer will indemnify SGI for any Claims arising from Customer's
misuse of the SABRE system including without limitation, making fraudulent
bookings.
ARTICLE 13 - ASSIGNMENT
13.1 ASSIGNMENT OR SUBLEASE BY CUSTOMER SHALL NOT SUBLEASE, TRANSFER OR
ASSIGN THIS AGREEMENT OR ANY PORTION THEREOF, OR ANY RIGHT OR OBLIGATION
HEREUNDER, UNLESS CUSTOMER HAS OBTAINED THE PRIOR WRITTEN CONSENT OF SGI. ANY
ATTEMPTED ASSIGNMENT IN VIOLATION OF THIS ARTICLE SHALL BE VOID.
13.2 ASSIGNMENT BY SGI. SGI shall have the right to sell, transfer, assign
or delegate its interests, rights and/or obligations without the prior consent
of Customer, and, provided that such transferee or assignee assumes all of
SGI's obligations, SGI shall be released of all obligations after the effective
date of such sale, transfer, delegation or assignment.
ARTICLE 14 - TERMINATION AND DEFAULT
14.1 DEFAULT BY CUSTOMER. The occurrence of any one or more of the following
events shall constitute a non-exclusive event of default (the "Event of
Default") pursuant to the terms of this Agreement.
14.1.1 Customer fails to pay any amount when due;
14.1.2 Any representation by Customer is discovered to be materially misleading
or inaccurate, or Customer fails to perform any material covenant, agreement,
obligation, term or condition contained herein;
14.1.3 Customer terminates or cancels this Agreement or any portion thereof,
except as expressly permitted in Article 14.3;
14.1.4 Customer ceases to do business as a going concern, makes an assignment
for the benefit of creditors, admits in writing its inability to pay debts as
they become due, acquiesces in the appointment of a trustee, receiver or
liquidator for it or any substantial part of its assets or properties. Sells,
or executes an agreement to sell all or substantially all of its assets without
the consent of SGI.
9
<PAGE> 10
14.1.5 Fails to secure and maintain Airlines Reporting Corporation ("ARC")
accreditation for ticketing of reservations.
14.1.6 Events of Default described in 14.1.1, 14.1.2 and 14.1.4 shall not be
cause for termination if Customer cures such failure within fifteen days after
date written notice from SGI. If Customer cures its failure as provided in this
provision, said failure shall not be considered to be an Event of Default for
the purposes of Article 14.2
14.2 SGI's Rights Upon Termination. Upon the occurrence of an Event of
Default and subject to Article 14.1.6, SGI shall have the right to any one or
more of the following remedies; (i) terminate this Agreement and Customer's
access to SABRE; (ii) seek all legal and equitable remedies to which it is
entitled, and (iii) retake immediate possession of the System. If Customer's
Event of Default results in termination, Customer agrees to pay to SGI damages
suffered by SGI as a result of such Event of Default.
14.3 TERMINATION BY CUSTOMER. In the event that SGI breaches any material
term of this Agreement, which breach continues for a period of fifteen days
after SGI receives from Customer written notice which sets forth the legal and
equitable intent to terminate the Agreement if such breach is not cured, then
Customer may immediately terminate the Agreement upon separate written notice
to SGI. Except as limited by this Agreement, upon termination, Customer may
seek a remedies to which it is entitled. Customer may not otherwise cancel,
terminate, modify, repudiate, excuse or substitute this Agreement without SGI's
prior written consent, which SGI may withhold in its absolute discretion.
ARTICLE 15 - MISCELLANEOUS
15.1 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF TEXAS AND THE UNITED STATES OF AMERICA. CUSTOMER HEREBY SUBMITS AND
CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS AND THE COURTS OF THE STATE OF TEXAS IN ANY
DISPUTE ARISING OUT OF THIS AGREEMENT AND AGREES THAT SERVICE OF PROCESS SHALL
BE SUFFICIENT IF MADE ON THE SECRETARY OF STATE OF THE STATE OF TEXAS WITH A
COPY TO BE SENT, REGISTERED MAIL TO THE CUSTOMER AT THE ADDRESS SET FORTH IN
SCHEDULE A OR SUCH OTHER ADDRESS AS CUSTOMER MAY LATER SPECIFY BY WRITTEN
NOTICE TO SGI.
15.2 BINDING EFFECT. Except as otherwise provided, this Agreement shall
inure to the benefit of and bind the successors and assigns of the parties
hereto.
15.3 DELETION OF EQUIPMENT. During the term of the Agreement, Customer may
delete up to [ * ] of the productive video agent sets and video agent set
terminal addresses and [ * ] of the printers, with a minimum of [ * ],
identified on Schedule A and/or subsequent Supplements, provided that Customer
complies with the following conditions: (a) Customer provides documentation,
satisfactory to SGI, of a substantial decrease in the number of SABRE Bookings,
which decrease is solely the result of a loss of its commercial accounts and/or
customer base; (b) Customer notifies SGI, in writing, of the description and
location of the equipment to be deleted (the "Deleted Equipment"); (c) Customer
pays to SGI the then current deinstallation charges for the Deleted Equipment.
In addition, Customer shall pay to SGI any outstanding Charges for such Deleted
Equipment up through the Stop Billing Date; (d) Customer will forfeit all right
and equity, if any, in the Deleted Equipment removed from Customer's location.
15.3.1 If Customer complies with the requirements identified in 15.3 above, SGI
shall deinstall the Deleted Equipment and disconnect it from the System.
15.3.2 SGI shall defer Customer's obligation to pay the Charges identified in
Schedule A and any Supplement thereto (the "Deferred Payment"), which would
otherwise be due and payable to SGI with regard to the Deleted Equipment,
provided that Customer complies with the following conditions: (a) If Customer
installs additional computer reservations equipment after it deletes the
Deleted Equipment such equipment, up to the amount of the Deleted Equipment (of
such lesser amount as agreed by SGI) shall be Standard Equipment and shall be
installed and reconnected by SGI; (b) Customer shall pay to SGI its then
current installation charges with respect to the Deleted Equipment which is
reinstalled and reconnected; (c) Customer shall pay to SGI its then current
equipment lease and maintenance and use charges with respect to such equipment
and such equipment shall be deemed covered by the provisions of the Agreement;
and (d) Customer does not breach any term or provision of the Agreement.
10
<PAGE> 11
15.3.3 The Deferred Payment shall be deemed waived by SGI at the end of the
Initial Term of the Agreement or any renewal thereof if Customer has not
breached or otherwise failed to comply with the Agreement. If Customer fails
to comply with the Agreement, SGI shall be entitled to exercise all of its
rights under law and under the Agreement, including the collection of all
damages identified in Article 14 of the Agreement with respect to the Deleted
Equipment. Interest shall accrue on the Deferred Payment at the maximum rate
allowed by applicable law from the date of the deferral until payment.
15.4 ENTIRE AGREEMENT. This Agreement and the Instructions constitute the
entire agreement of the parties as to the matters set forth herein and shall
supersede any previous understandings, agreements, representations, statements,
negotiations and undertakings, whether written or oral between the parties
relating to the matters set forth herein. Any amendment to this Agreement must
be in writing and signed by the authorized representatives of both parties.
15.5 FORCE MAJEURE. SGI shall be relieved of its obligations hereunder in
the event and to the extent performance is delayed or prevented by any cause
reasonably beyond its control, including, but not limited to, acts of God,
public enemies, war, civil disorder, fire, flood, explosion, labor disputes or
strikes, or any acts or orders of any governmental authority, inability to
obtain supplies and materials (including without limitation computer hardware)
or any delay or deficiency caused by the electrical or telephone line suppliers
or other third parties.
15.6 NOTICES. Unless otherwise stated, notices given or required under this
Agreement must be in writing and shall be deemed delivered (i) upon deposit
through the United States Mail, to The SABRE Group, Inc. at P.O. Box 619616, MD
_______________, Dallas/Fort Worth, Texas 75261-9616 (to be sent to the
attention of SABRE Travel Information Network, Financial Services) or to the
Customer at the address set forth in Schedule A, or (ii) upon dispatch, if sent
by SABRE as follows: If to SGI: QP/_______ and if to Customer: to Customer's
Pseudo City Code as set forth in Schedule A or Supplement.
15.7 RETURN OF SYSTEM. Upon the termination of this Agreement for any
reason, Customer, at its sole cost and expense, shall return the System and all
Confidential Information as requested by SGI, in good repair, condition and
working order, less normal and ordinary wear and tear, by delivering it to a
common carrier selected and designated by SGI, F.O.B. the destination
designated by SGI in writing.
15.8 SABRE MODIFICATION. SGI retains the right to modify the SABRE system,
at its discretion at any time during the term of this Agreement. However, such
modifications will not materially impair Customer's ability to access and use
the SABRE system in the manner expressly permitted in this Agreement.
15.9 SEVERABILITY. Any provision of this Agreement which may be determined
by a court or other competent governmental authority to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability, without
invalidating the remaining provisions thereof, unless said prohibition or
unenforceability materially alters the rights or obligations if either party.
15.10 SUBSEQUENT ACTS OF GOVERNMENT. In the event that there is any change in
any statute, rule, regulation or order governing the operation of airline
computerized reservations systems, or air transportation generally or the
System, which in any way materially impairs the benefits of this Agreement to
SGI, then the parties hereto will commence consultation in order to determine
what if any, changes to this Agreement are necessary or appropriate, including,
but not limited to, early termination of this Agreement. If the parties hereto
are unable to agree upon changes in the Agreement in response to such new
statute, rule, order or regulation within ten days after commencement of such
consultation, this Agreement may be canceled by SGI upon giving Customer thirty
days prior written notice of such cancellation. If SGI elects to terminate the
Agreement pursuant to this Article 15.10, except for Customer's obligation to
pay any and all charges incurred through the date of termination, each party
shall be relieved of any future obligations under this Agreement as of the
effective date of cancellation. Each party shall bear its own costs and
expenses incurred as a result of said termination. Customer does not have the
right to terminate the Agreement under this provision.
15.11 SURVIVING SECTIONS. If the term of the Agreement expires or is
otherwise terminated for any reason before Customer has paid to SGI all of the
sums due, the Agreement, the Schedule A and all Supplements shall survive such
expiration or termination to
11
<PAGE> 12
the extent necessary to protect SGI's rights until all sums owed to SGI have
been paid. Notwithstanding anything to the contrary referenced herein,
Articles 6, 8, 11 and 12 shall survive the termination of this Agreement.
15.12 WAIVER. A failure or delay of either party to require strict
performance to enforce a provision of this Agreement or a previous waiver or
forbearance of either party shall in no way be construed as a waiver or
continuing waiver of any provision of this Agreement.
15.13 ACKNOWLEDGMENT. Customer hereby acknowledges that SGI has offered
Customer a SABRE Subscriber Agreement with a three year term with reasonable
terms and conditions.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth below.
SGI RESERVES THE RIGHT TO CHANGE THE SABRE GUARANTEE PROGRAM RULES,
REGULATIONS, AND SPECIAL OFFERS WITHOUT NOTICE, AND TO END THE SABRE GUARANTEE
PROGRAM WITHOUT NOTICE
ALL SIGNATURES MUST BE IN BLACK INK
<TABLE>
<CAPTION>
CUSTOMER THE SABRE GROUP, INC.
<S> <C>
By: /S/ Jerry Sendrow /S/ Scott Eley
-------------------------------------------------------------------------------------------
(Signature) (Signature)
Name: [Jerry Sendrow] [Scott Eley]
------------------------------------ ---------------------------------------------
(Print Name) (Print Name)
Title: [Vice-President/CFO] [Manager]
------------------------------------ ---------------------------------------------
Date: [11/20/96] [11/25/96]
------------------------------------ ---------------------------------------------
AGENCY NAME: [800 TRAVEL SYSTEM INC.,] PCC:[I944]
------------------------------ -----------------------------------------
[d.b.a 1-800 Low Air Fare]
[a.k.a. 800 Fly For Less]
</TABLE>
12
<PAGE> 13
ATTACHMENT I
CONDITIONS OF USE FOR SABRE USERS
1. QUALIFYING USE. The manufacturer has made this package available to you
through the vendor, whether directly or indirectly, on the understanding
that it is being supplied to you primarily for use with the vendors'
SABRE reservation system, and not with a view to resale or other
remarketing.
2. OTHER TERMS AND CONDITIONS. Any other Terms and Conditions and/or
Program License Agreement, which may appear printed inside the package,
is inapplicable and should be ignored.
COPYRIGHT AND OTHER RIGHTS
The manufacturer's programs contain material in which the manufacturer and in
many cases the manufacturer's suppliers, retain proprietary rights. The
manufacturer wants these programs to be fully usable by you for the purpose of
which they are supplied, that is, in connection with a computer. No
infringement of the rights of the manufacturer or of the manufacturer's
suppliers will occur provided that the following conditions are observed with
respect to each program.
1. The program is used only on:
(a) a single machine; or
(b) on any workstation connected to a single fileserver which is
primarily used in connection with the SABRE reservation system.
2. The program is copied into machine-readable or printed form for backup
or modification purposes only in support of use on a single machine, or on a
workstation connected to the SABRE reservation system;
However, certain diskettes marked "Copy Protected" may include mechanisms to
limit or inhibit copying of the program;
3. The program is modified or merged into another program only for use on a
single machine or on a workstation connected to the SABRE reservation system.
Any portion so merged continues to be subject to these conditions;
4. The copyright notice is reproduced and included in any copy or
modifications made of the program and in any program merged into other
programs; and
5. If the program package is transferred to another party, all copies and
modifications made of the program must be transferred or destroyed. You do not
retain any right with respect to the transferred package. The other party
agrees to observe all of these Conditions of Use.
Any other act involving reproduction or use of, or other dealing in the program
is prohibited.
You are reminded that it may be necessary to obtain local and United States
licenses to export re-export this package.
No statements contained in this package shall affect the statutory rights of
any person.
<PAGE> 14
I944
555
COVERED BY B8T3 EXPANSIONARY AGREEMENT
===============================================================================
[SS SK1] [AF-] SCHEDULE A PCC I944
===============================================================================
To SABRE Subscriber Agreement between Customer and American
(The Agreement).
CUSTOMER NAME: 800 TRAVEL SERVICES INC. PCC____: I944
(include DBA): 800 FLY FOR LESS ARC# REMOTE
SITE (Loc.)__: 5440 MOREHOUSE DRIVE
SAN DIEGO, CA. 92121
CONTRACT TERM : 60 Months
EFFECTIVE DATE: UPON INSTALL
Order Number: 2246206, 2247175, 2250473, ESTED. INSTALL : 12/01/96
2250916, 2250469
1 ) SYSTEM DESCRIPTION:
== ====================
A) HARDWARE:
-----------
<TABLE>
<CAPTION>
Rate per Unit
QTY. ------------- Total Total
- ------- Monthly Monthly Monthly Insurance
Lea Own DESCRIPTION Lease SMU Charges Value
=== === =========== ======= ======= ======= =========
<S> <C> <C> <C> <C> <C> <C>
[*] SABRE/IBT TWO-WAY DATA LINE(S) [*] [*] [*] [*]
[*] DF/S Pntium/100/1.2G/24MBwCD/ [*] [*] [*] [*]
[*] DG/W Pntium/100/1.2G/24MBwCD/ [*] [*] [*] [*]
[*] W/S Pentium/100/1.2G/16MB.... [*] [*] [*] [*]
[*] Printer Documax A3300 w/Stand [*] [*] [*] [*]
[*] 17" Monitor (Turbo SABRE Upgr) [*] [*] [*] [*]
----- ----- -----
Total Hardware Monthly Charge [*] [*] [*]
----- ----- ----- -----
Total Insurance Value .................................. $ [*]
=====
</TABLE>
2 ) ONE-TIME CHARGES:
== ==================
A) PREPAYMENT:
--------------
Prepayment (New SABRE Location Only)............................ [*]
B) SYSTEM:
----------
SABRE Installation Charges...................................... [*]
C) SYSTEM SOFTWARE/LICENSE:
---------------------------
Operating Prgm. MS-DOS.............@ [*] ................... [*]
Per Fileserver.....
Per Fileserver.....
[*] Turbo SABRE Software Pkg...........@ [*] Per License x CRT.. [*]
D) ACCESSORIES:
---------------
[*] Mouse & Pad Kit....................@ [*] each.............. [*]
-------
Total One-Time Charges.......................................... $ [*]
=======
3 ) DISCOUNTS:
== ===========
A) FIXED MONTHLY DISCOUNTS:
---------------------------
* Fixed Monthly Discount - Booking Level............ ......... [*]
(per video agent set and video agent set terminal address)
Fixed Monthly Discount Amount - SABRE....................... $ [*]
-------
Total Fixed Monthly Discount Amount..................... $ [*]
=======
<PAGE> 15
===============================================================================
[SS SK1] [AF-] SCHEDULE A PCC I944
===============================================================================
American agrees to provide Customer a fixed monthly discount to the
Total Fixed Monthly Charges if Customer meets all the terms and
conditions of those discounts as set forth in this Schedule A.
<TABLE>
<CAPTION>
B) SUSPENDED CHARGES - Initial Term: MONTHLY TOTAL
----------------------------------- ------- -------
<S> <C> <C>
Ticketing. . . . . . . . . . . . . . 60 Months @ [ * ] [ * ]
I/I. . . . . . . . . . . . . . . . . 60 Months @ [ * ] [ * ]
Option 6 . . . . . . . . . . . . . . 60 Months @ [ * ] [ * ]
Branch Access. . . . . . . . . . . . 60 Months @ [ * ] [ * ]
Bargain Finder Plus. . . . . . . . . 60 Months @ [ * ] [ * ]
------- -------
Total Suspended Charges-Initial Term . . . . . . $[ * ] $[ * ]
------- -------
C) ONE-TIME CHARGES DISCOUNTED:
------------------------------
SABRE Installation/Implementation. . . . . . . . . . . . . [ * ]
Application Software(s). . . . . . . . . . . . . . . . . . [ * ]
System Accessories . . . . . . . . . . . . . . . . . . . . [ * ]
-------
Total One-Time Charges Discounted. . . . . . . . . . . . . $[ * ]
-------
TOTAL SABRE PROMOTIONAL SUPPORT . . . . . . . . . . . . . . . . $[ * ]
=======
</TABLE>
* TAKEN FROM B8T3 EXPANSIONARY AGREEMENT
Customer acknowledges that the total SABRE Promotional Support constitutes
the full value of incentive received in consideration of Customer's
execution and complete performance and compliance with all provisions of
the Agreement.
4) OTHER CONDITIONS OF DISCOUNT:
===============================
A. The SABRE Booking level is based on all productive video agent sets
and video agent sets terminal address installed at the above stated
Pseudo City Code (PCC).
B. American shall perform the SABRE Booking measurements at the end of
each measurement period. In the event that the Agreement terminates
during a measurement period, the measurement will be from the
beginning of the current measurement period to the date of termination.
Measurement period every . . . 6 Months
Commencing . . . . . . . . . . Upon Installation
C. Add-On productive video agent sets will be added at the same SABRE
Booking level as the original productive video agent sets.
D. Deletion of Standard Equipment will be in accordance with the
provisions identified in Articles 15.3 through 15.3.3 of the Agreement.
E. Customer must be current in its SABRE/IBT payments due under the
Agreement in order to receive the above stated discounts.
F. The discounts for all additional video agent sets and/or video agent
sets terminal address that are associated with SABRE access will be
calculated as a standard percentage based on the length of the
Agreement at the time of order placement. The percentage that will be
applied to the total monthly charges are as follows:
36 month Agreement [ * ] Discount
60 month Agreement [ * ] Discount
[SS SK1] Rvsd. 10/31/95 Page
<PAGE> 16
================================================================================
[SS SK1][AF-] SCHEDULE A PCC I944
================================================================================
addition of vido agent sets that are not capable of generating SABRE
Bookings. All video agents sets and/or video agent sets terminal
address added under this provision will be subject to the booking
level(s) stated in the Discount section of this Schedule A or, if
applicable, in the Cluster Amendment. Measurement for additional video
agent sets and/or video agent set terminal address installed or
implemented in a calendar month will commence on the 1st day of the
next month.
G. Any discounts in section 3) above shall not be applicable until the
installation or access to SABRE has completed.
5) BOOKINGS BELOW FIXED MONTHLY DISCOUNT BOOKINGS LEVEL:
IF CUSTOMER DOES NOT ACHIEVE [*] OF THE FIXED MONTHLY DISCOUNT BOOKING
LEVEL PER VIDEO AGENT SET AND VIDEO AGENT SET TERMINAL ADDRESS, AS STATED
IN 3) A) ABOVE, FOR ANY MEASUREMENT PERIOD, AMERICAN WILL CHARGE CUSTOMER
AN AMOUNT EQUAL TO THE PREVAILING BOOKING FEE THAT AMERICAN CHARGES TO
AIRLINES THAT PARTICIPATE IN THE FULL AVAILABILITY FEATURES OF SABRE
MULTIPLIED BY THE DIFFERENCE BETWEEN THE FIXED MONTHLY DISCOUNT BOOKING
LEVEL IN 3) A) ABOVE AND THE ACTUAL SHARE BOOKING LEVEL, MULTIPLIED
FURTHER BY THE TOTAL NUMBER OF PRODUCTIVE VIDEO AGENT SETS AND VIDEO
AGENT SET TERMINAL ADDRESS AT THE PSEUDO CITY CODE IDENTIFIED ON PAGE
ONE OF THIS SCHEDULE A, AND MULTIPLIED BY THE NUMBER OF MONTHS IN THE
MEASUREMENT PERIOD. HOWEVER, AMERICAN AGREES THAT AS LONG AS CUSTOMER
PROCESSES AN AVERAGE OF [*] SABRE BOOKING PER VIDEO AGENT SET AND VIDEO
AGENT SET TERMINAL ADDRESS PER MONTH DURING THE MEASUREMENT PERIOD, THE
MAXIMUM AMOUNT CHAREGED WILL NOT EXCEED THE TOTAL FIXED MONTHLY DISCOUNT,
AS STATED IN 3) A), MULTIPLIED BY THE NUMBER OF MONTHS IN THE MEASUREMENT
PERIOD.
APPLICABLE TAXES NOT INCLUDED IN ABOVE RATES
STANDARD EQUIPMENT ORDERED IS CONTINGENT UPON AVAILABILITY
IF CUSTOMER DELETES STANDARD EQUIPMENT, THE CHARGES AND ANY
DISCOUNTS SHALL BE DELETED.
ALL CHARGES AND APPLICABLE DISCOUNTS ARE STATED AND PAYABLE
IN U.S. DOLLARS.
ALL SIGNATURES MUST BE IN BLACK INK
CUSTOMER AMERICAN AIRLINES, INC.
By : /s/ JERRY ANDREW By : /s/ SCOTT ELEY
------------------------ ---------------------
Name : JERRY ANDREW Name : SCOTT ELEY
------------------------ ---------------------
Title: Vice President/ CFO Title: Manager
------------------------ ---------------------
Date : 11/20/96 Date : 11/25/96
-- -- -- -- -- --
[SS SK1] Rvsd. 10/31/95 Page 3
<PAGE> 1
EXHIBIT 10.21
CLUSTER AMENDMENT TO SABRE SUBSCRIBER AGREEMENT
This Amendment to that certain SABRE Subscriber Agreement is made and
entered into this ______ day of ____________, 19 ____, between The SABRE Group,
Inc. ("SGI") and [800 Travel Systems, Inc., d.b.a., 1-800 Low Air
Fare]("Customer").
RECITALS
WHEREAS, SGI and Customer have entered into that certain SABRE
Subscriber Agreement, dated as of _______ (the "Agreement"); and
WHEREAS, it is in the best interests of the parties to modify certain
provisions of the Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, SGI and Customer hereby agrees as follows:
1. EFFECTIVE DATE. The effective date of this Amendment is [upon
install].
2. LOCATION IN CLUSTER. This Amendment will allow multiple locations of
a commonly owned travel agency to combine the SABRE Bookings from all noted
locations for purposes of measuring such SABRE Bookings. The following Pseudo
City Codes ("PCC") shall hereby designate all locations in the cluster:
Main Office PCC: [B8T3]
Branches:
<TABLE>
<CAPTION>
PCC LOCATION TYPE LOCATION ADDRESS
<S> <C> <C>
[I944] [Remote] [5440 Morehouse Drive, San Diego, CA 92121]
- ----------- ----------------- -------------------------------------------------
- ----------- ----------------- -------------------------------------------------
- ----------- ----------------- -------------------------------------------------
- ----------- ----------------- -------------------------------------------------
- ----------- ----------------- -------------------------------------------------
- ----------- ----------------- -------------------------------------------------
</TABLE>
3. Modification to the List of Locations in Cluster.
A. Locations being added or deleted from the cluster shall be
listed below by PCC, and identified with an "A" for add and "D" for delete.
B. This Amendment may be superseded from time to time to reflect
changes in the Fixed Monthly Discount Booking Level. Should a location leave
the cluster, the individual PCC"s Fixed Monthly Discount Booking Level shall be
in effect.
<PAGE> 2
<TABLE>
<CAPTION>
TYPE OF CHANGE PCC LOCATION TYPE LOCATION ADDRESS
- ------------------------------------------------------------------------------------------------------------------
(Branch, Remote, STP)
<S> <C> <C> <C>
[A] [I944] [Remote] [5440 Morehouse Drive, San Diego, CA 92121
-------- ---------- ------------------- ------------------------------------------------
-------- ---------- ------------------- ------------------------------------------------
-------- ---------- ------------------- ------------------------------------------------
-------- ---------- ------------------- ------------------------------------------------
-------- ---------- ------------------- ------------------------------------------------
-------- ---------- ------------------- ------------------------------------------------
-------- ---------- ------------------- ------------------------------------------------
</TABLE>
4. NEW CLUSTERED FIXED MONTHLY DISCOUNT BOOKING LEVEL. The Fixed Monthly
Discount Booking Level for each of the PCC's listed above shall be averaged.
This average shall be calculated by multiplying the Fixed Monthly Discount
Booking Level for each PCC by the total number of productive video agent sets
and video agent set terminal addresses for each PCC, and dividing the sum by
the total number of productive video agent sets and video agent set terminal
addresses at all PCC's. This average cluster Fixed Monthly Discount Booking
level is subject to change automatically, without notice, if any of the
following events occur (i) the Fixed Monthly Discount Booking Level changes,
(ii) the number of productive video agent sets video agent set terminal
addresses at any of the PCC's listed above changes, (iii) the number of
Customer's locations changes, (iv) a non-productive device is added to or
deleted from a location, (v) SABRE Services are added to or deleted from a
location. Currently, the average cluster Fixed Monthly Discount Booking level
is [ * ].
5. MEASUREMENT PERIOD. SGI shall perform the SABRE Booking measurements
at the end of each measurement period. In the event that the Agreement
terminates during a measurement period, the measurement period will be from the
beginning of the current measurement period to the date of termination.
Measurement period is every: [3] months commencing: [1-01-97]
----- -----------
6. DEFINED TERMS. The defined terms used in this Agreement shall have
the same meaning assigned to such terms in the Agreement.
7. AGREEMENT. Except as otherwise provided herein, all other terms
of the Agreement remain in full force and effect. In the event of any conflict
between the terms of the Agreement and this Amendment, the Amendment shall
control.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year written above.
CUSTOMER THE SABRE GROUP, INC.
By: /s/ Jerry Sendrow By: /s/ Scott Eley
Name: [Jerry Sendrow] Name: [Scott Eley]
Title: [Vice President/CFO] Title: [Manager]
Date: [11/20/96] Date: [11/25/96]
2
<PAGE> 1
EXHIBIT 10.22
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is entered into as of the date set forth in
Article 1 by and between Landlord and Tenant.
ARTICLE 1
BASIC LEASE PROVISIONS
<TABLE>
<S> <C>
1.1 EFFECTIVE DATE: November 27, 1995
1.2 LANDLORD: Roque De La Fuente Alexander Revocable Trust No. 1
1.3 TENANT: Joseph Stevens Group, Inc.
1.4 BUILDING: That certain four story building and the underlying realty located at 5440
Morehouse Drive, San Diego, CA, in the approximate 9,504 sq.ft. (Article 3)
1.5 PREMISES: Entire 2nd Floor with the exception of Suite 2900
1.6 COMMENCEMENT DATE: January 1, 1996
1.7 RENT: Nine Thousand Five Hundred Four Dollars and 00/100ths ($9,504.00) or $1.00 per
square foot.
[Less utilities paid to SOG&E]
1.8 TERM: [(36) Thirty-Six Months]
1.9 USE OF PREMISES: General office
1.10 PARKING: [6 Assigned spaces lower level]
[24 unassigned spaced upper level]
1.11 SECURITY DEPOSIT: Two Thousand Five Hundred Fifty Six Dollars and 00/100ths ($2,556.00) Landlord
acknowledges said deposit has been deposited already.
1.12 ADJUSTMENT TO
MINIMUM RENT: [See Section 19.18]
1.13 PRO RATA SHARE: N/A
1.14 BROKER(S): N/A
1.15 GUARANTOR: N/A
1.16 ADDRESSES FOR
NOTICES AND PAYMENTS:
</TABLE>
<TABLE>
<CAPTION>
LANDLORD TENANT
- -------- ------
<S> <C>
Notice to: The Premises:
Roque De La Fuente Alexander Mr. Steven Rohrlick
Revocable Trust No. 1 Joseph Stevens Group, Inc.
5440 Morehouse Drive - Suite 4000 5440 Morehouse Dr., Ste. 2000
San Diego, CA 92121 San Diego, CA 92121
</TABLE>
<PAGE> 2
This Article 1 is intended to supplement and/or summarize the
provisions set forth in the balance of this Lease. If there is any conflict
between any provisions contained in this Article 1 and the balance of this
Lease, the balance of this Lease shall control.
ARTICLE 2
EXHIBITS
The following Exhibits are attached to this Lease and, by this
reference, made a part of this Lease:
Exhibit "A"
ARTICLE 3
PREMISES
3.1 PREMISES. Landlord leases to Tenant and Tenant leases from
Landlord for the term, at the rental and upon the covenants and conditions set
forth in this Lease, the Premises described in Section 1.5, and more
particularly identified in Exhibit "A" attached hereto and fully incorporated
herein by this reference.
3.2 RESERVATION. Landlord reserves the right to use the
exterior walls, floor, roof and plenum in, above and below the Premises for the
installation, maintenance, use and replacement of pipes, ducts, conduits,
wires, alarm lines, heating, ventilating and air-conditioning lines, fire
protection lines and systems, electric power, telephone and communication lines
and systems, sanitary sewer lines and systems, gas lines and systems, water
lines and systems, and structural elements serving the Building and for such
other purposes as Landlord deems necessary.
ARTICLE 4
TERM
4.1 COMMENCEMENT DATE. This Lease shall be effective as of the
Effective Date specified in Section 1.1 and shall continue thereafter during
the Lease Term as specified in Section 1.8 unless sooner terminated as provided
herein. The Lease Term shall be computed from the Commencement Date specified
in Section 1.6.
ARTICLE 5
ALTERNATIVE COMMENCEMENT DATE
5.1 DELIVERY OF POSSESSION. If Landlord tenders the Premises to
Tenant prior to the Commencement Date, and Tenant elects to accept such tender,
then the date on which the Tenant takes possession or commences use of the
Premises shall be the Commencement Date, and Tenant shall there upon be subject
to all of the provisions of this Lease, including the payment of Minimum Annual
Rental and Additional Rental (as defined in Section 6.4). If Landlord is unable
to deliver possession of the Premises to Tenant on or before the Commencement
Date as a result of any act of omission of the Tenant, the Commencement Date
shall be the Commencement Date and Tenant shall thereupon be subject to all of
the provisions of this Lease, including the payment of Minimum Annual Rental
and Additional Rental. If for any other reason Landlord is unable to deliver
possession of the Premises to Tenant on or before the Commencement Date, this
Lease shall not be void or voidable, and Landlord shall not be subject to any
liability to Tenant for any loss of damage resulting therefrom. However, in
such event Tenant
- 2 -
<PAGE> 3
shall not be liable for any Minimum Annual Rental or Additional Rental until
such time as Landlord tenders the Premises to Tenant.
5.2 ACCEPTANCE OF PREMISES. Tenant's taking possession of the
Premises shall constitute Tenant's acknowledgement that the Premises are in
good working order and condition.
ARTICLE 6
RENTAL
6.1 MINIMUM ANNUAL RENTAL. Tenant agrees to pay as rental for
the use and occupancy of the Premises the Minimum Annual Rental specified in
Section 1.7, in the monthly installments so specified, in advance, on or before
the first day of each month, without prior demand, offset or deduction,
commencing on the Commencement Date. Should the Commencement Date be on a day
other than the first day of a calendar month, then the monthly installment of
Minimum Annual Rental for the first fractional month shall be equal to
one-thirtieth (1/30th) of monthly installment of Minimum Annual Rental for each
day from the Commencement Date to the end of the partial month
6.2 Deleted
6.3 PLACE OF PAYMENT. Tenant shall pay Minimum Annual Rental
and Additional Rental, as hereinafter defined, to Landlord at the addressed
specified in Section 1.14 or to such other address as Landlord may from time to
time designate in writing to Tenant.
6.4 ADDITIONAL RENT. Unless otherwise provided herein, all
monetary obligations owing by Tenant to Landlord under this Lease and Exhibits
hereto shall be designated as "Additional Rental". All Additional Rental shall
be payable on or before the first day of the first month during the Term hereof
following the date of occurrence of the event giving rise to the monetary
obligation, without prior demand, offset or deduction.
6.5 INTEREST ON PAST DUE OBLIGATIONS. Specifically provided in
this Lease, any amount due from the Tenant to Landlord under this Lease which
is not paid when due and any amount due as a reimbursement to Landlord for
costs incurred by Landlord in performing obligations of Tenant upon Tenants
failure to so perform shall bear interest at the rate of ten percent (10%) per
annum from the date originally due until paid.
6.6 LATE CHARGES. Tenant hereby acknowledge that the late
payment by Tenant to Landlord of Base Rent and Additional Rent will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Therefore, if any installment
of Base Rent or Additional Rent due from Tenant shall not be received by
Landlord within ten (10) days after such amount shall be due, then, without any
requirement of notice to Tenant, Tenant shall pay to Landlord a late charge
equal to six percent (6%) of such overdue amount. The parties hereto agree
that such late charge represents a fair and reasonable estimate of the cost
Landlord will incur by reason of such late payment by Tenant. Acceptance of
such late charge by Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount nor preclude Landlord from
exercising any of the rights and remedies hereunder.
ARTICLE 7
SECURITY DEPOSIT
7.1 SECURITY DEPOSIT. Upon execution of this Lease, Tenant
shall deposit with Landlord the sum specified in Section 1.11 as a
- 3 -
<PAGE> 4
security deposit (the "Security Deposit"). The Security Deposit shall be held
by Landlord without obligation or liability for payment of interest thereon as
security for the faithful performance by Tenant of all of the terms of this
Lease to be observed and performed by Tenant. The Security Deposit shall not
be mortgaged, assigned, transferred or encumbered by Tenant without the prior
written consent of Landlord. Landlord shall not be required to keep the
Security Deposit separated from its general funds. In order to protect the
interests of Landlord hereunder, within five (5) days after demand by Landlord,
Tenant shall deposit with Landlord a cash amount sufficient to ensure that the
balance of the Security Deposit is not less than the equivalent of one (1)
monthly installment of Minimum Annual Rental, as adjusted from time to time.
7.2 APPLICATION OF SECURITY DEPOSIT. Should Tenant at any time
during the Term hereof be in default under any provision of this Lease,
Landlord may, as its option and without prejudice to any other remedy which
Landlord may have at law or in equity, appropriate the Security Deposit, or the
portion thereof as may be deemed necessary, and apply same toward payment of
Minimum Annual Rental, Additional Rental, or to loss or damage sustained by
Landlord due to the default on the part of the Tenant. Within five (5) days
after written demand by Landlord, Tenant shall deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to the original sum
deposited, as adjusted under Section 7.1.
7.3 REFUND. Should Tenant perform all of its obligations under
this Lease, the Security Deposit, or any balance thereof then remaining, shall
be returned to Tenant, within sixty (60) days of the expiration of the Term of
the earlier termination thereof, or as otherwise prescribed by law.
ARTICLE 8
UTILITIES
8.1 UTILITY SERVICES AND CHARGES. Tenant agrees to make all
arrangements for and pay directly to the appropriate utility company all
charges for utility services supplied to Tenant for Tenant's use in or about
the Premises including, but not limited to, gas, electricity, water, telephone,
trash collection, and for all connection charges, fees or taxes. In the event
it is not possible for Tenant to pay directly for any utility or utilities,
those utility costs shall be obtained in the name of Landlord and charged to
Tenant as a Common Area expense pursuant to Article 6 above.
8.2 WAIVER OF LIABILITY. The failure or interruption of any
utility or service shall neither render Landlord liable in damages or otherwise
not entitled Tenant to terminate this Lease or discontinue making payments of
Base Rent or Additional Rental.
8.3 TENANT'S NONPAYMENT. If Tenant fails to pay any charges
referred to in this Article 8 when due as provided for in this Article 8,
Landlord may pay the charge, and Tenant agrees to reimburse Landlord as
Additional Rental for any amount paid by Landlord plus interest thereon at the
rate specified in Section 6.5 hereof.
ARTICLE 9
INSURANCE
9.1 TENANT'S INSURANCE. Tenant, at its sole cost and expense,
commencing on the earlier of (i) the Commencement Date, or (ii) the date Tenant
is given earlier access to the Premises, and
- 4 -
<PAGE> 5
continuing during the Term, shall procure, pay for and keep in full force and
effect the following types of insurance, in at least the amounts and in the
form specified below:
(a) Comprehensive liability insurance with coverage
limits of not less than One Million Dollars ($1,000,000) including combined
single limit bodily injury, personal injury, death and property damage
liability per occurrence, or current limit carried by Tenant, whichever is
greater, insuring against any and all liability of the insured with respect to
the Premises or arising out of the maintenance, use of occupancy of the
Premises or related to the exercise of any rights of Tenant pursuant to this
Lease, subject to increases in amount as Landlord may reasonably require from
time to time. All such comprehensive liability insurance shall specifically
insure the performance by Tenant of the indemnity agreement set forth in
Section 9.5 below as to liability for injury to or death of persons and injury
or damage to property.
(b) Standard form property insurance covering all
alterations, improvements, additions or utility installations permitted under
Article 11, and all of Tenant's trade fixtures, inventory, supplies, records
and personal property from time to time in, on or about the Premises, in an
amount not less than the full replacement value thereof, providing protection
against any peril included within the classification Fire and Extended
Coverage, sprinkler damage, vandalism, malicious "all risk" standard insurance
policy. Any policy proceeds shall be used for the repair of replacement of the
property damage or destroyed unless this Lease shall cease and terminate under
the provisions of Article 13.
(c) Worker's compensation and employer's liability
insurance (as required by state law).
(d) Any other form or forms of insurance as Landlord or
Tenant or any mortgages or beneficiaries of Landlord or Master Landlord may
reasonably require from time to time, in such form and amounts and for
insurance risks against which a prudent tenant would protect itself.
9.2 POLICY FORM. All policies of insurance provided for herein
shall be issued by insurance companies with a financial rating acceptable to
Landlord and which are qualified to do business in the State of California. All
such policies shall Landlord, Tenant, and Landlord's mortgage(s) or
beneficiary(ies) as additional named insured and shall be for the mutual and
joint benefit and protection of Landlord, Tenant and Landlord's Mortgagee(s) or
beneficiary(ies). Executed copies of the policies mortgagee(s) of insurance or
certificates thereof shall be delivered to Landlord prior to Tenant, its agents
or employers, entering the Premises for any purpose. Thereafter, executed
copies of renewal policies or certificates thereof shall be delivered to
Landlord within thirty (30) days prior to the expiration of the term of each
policy. All policies of insurance delivered to Landlord must contain a
provision that the company writing the policy will give to Landlord and any
mortgagee(s) or beneficiary(ies) of Landlord thirty (30) days' notice in
writing in advance of any cancellation or lapse or the effective date of any
reduction in the amounts of insurance. All public liability, property damage
and other casualty policies shall be written as primary policies and any
insurance carried by Landlord shall not be contributing with such policies.
Tenant's failure to provide and keep in force the aforementioned insurance
shall be regarded as a material default hereunder, entitling Landlord to
exercise any or all of the remedies as provided in this Lease in the event of
Tenant's default. In the alternative, Landlord may secure the appropriate
insurance policies and Tenant shall pay upon demand the cost of same to
Landlord, plus interest thereon at the maximum legal rate allowed under
applicable law, as Additional Rental.
- 5 -
<PAGE> 6
9.3 BLANKET POLICES. Notwithstanding anything to the contrary
contained in this Article 9, Tenant's obligations to carry insurance may be
satisfied by coverage under a so-called blanket policy of insurance; provided,
however, Landlord and Landlord's mortgagee(s) or beneficiary(ies) shall be
named as additional insured as their interests may appear, the coverage
afforded will not be reduced or diminished, and the requirements set forth in
this Lease are otherwise satisfied.
9.4 INCREASED PREMIUMS DUE TO USE OF PREMISES. Tenant shall not
do any act in or about the Premises which may result in an increase in the
insurance rates upon the Building of which the Premises are apart. Tenant
agrees to pay to Landlord upon demand the amount of any increase in premiums
for insurance resulting from Tenant's use of the premises, whether or not
Landlord shall have consented to the act on the part of Tenant.
9.5 INDEMNITY. To the fullest extent permitted by law, Tenant
covenants with Landlord that Landlord shall not be liable for any damage or
liability of any kind or for any injury to or death of persons, or damage to
property of Tenant or any other person (including a claim for rental value or
business interruption directly related to any such personal or property damage)
occurring from and after the Commencement Date (or such earlier date if Tenant
is given earlier access to the Premises), from any cause whatsoever, related to
the use, occupancy or enjoyment of the Premises by Tenant and Tenant's
employees, contractors or guests, or any person thereon or holding under
Tenant, and Tenant shall defend, indemnify and hold Landlord harmless from all
liability whatsoever on account of any real or alleged damage or injury and
from liens, claims and demands related to the use of the Premises and its
facilities, or any repairs, alterations or improvements which Tenant may make
or cause to be made upon the Premises; but Tenant shall not be liable for
damage or injury ultimately determined to be occasioned by the negligence of
Landlord or its designated agents, servants or employees. This obligation to
indemnify, defend and hold harmless shall include reasonable attorneys' fees
and investigation costs and all other reasonable costs, expenses and
liabilities incurred by Landlord or its counsel from the first notice that any
claim or demand is to be made or may be made.
9.6 WAIVER OF SUBROGATION. Landlord and Tenant each waive any
rights it may have against the other on account of any loss or damage
occasioned to Landlord or Tenant, as the case may be, their respective
property, the Premises or its contents, or to other portions of the Building,
arising from any risk covered by property insurance required to be carried by
them pursuant to this Lease; and each of the parties, on behalf of their
respective insurance companies insuring the property of either Landlord or
Tenant against any such loss, waives any right of subrogation that it may have
against the other. The waiver of subrogation referred to herein shall extend to
the agents of each party and its employees and, in the case of Tenant, shall
also extend to all other persons and entities occupying or using the Premises
in accordance with the terms of this Lease.
ARTICLE 10
TENANT'S CONDUCT OF BUSINESS
10.1 PERMITTED USE. Tenant shall use the Premises solely for the
use specified in Section 1.9. Tenant shall comply with all the laws concerning
the Premises or Tenant's use of the Premises. Tenant shall not use the Premises
in any manner that will constitute waste, nuisance or unreasonable annoyance.
10.2 COVENANT TO OPERATE. From and after the Commencement Date,
Tenant shall: (a) secure and maintain a business license and
- 6 -
<PAGE> 7
all other applicable governmental approvals relating to the conduct of Tenant's
business; and (b) operate continuously and uninterruptedly in the entire
Premises the business which it is permitted to operate under the provisions of
this Lease.
10.3 ADVERTISING MEDIA. Tenant shall not affix upon the Premises
or the Building any sign without Landlord's consent, [which consent shall not
be unreasonably withheld] advertising placard, name, insignia, trademark,
descriptive material or other like item. No advertising medium shall be
utilized by Tenant which can be heard or seen outside the Premises, including
without limitation, flashing lights, searchlights, loudspeakers, phonographs,
radios or televisions.
ARTICLE 11
MAINTENANCE, REPAIRS AND ALTERATIONS
11.1 LANDLORD'S RIGHT OF ENTRY. Landlord, its agents,
contractors, servants and employees, may enter the Premises at all reasonable
times (a) to examine the Premises; (b) to perform any obligation of, or
exercise any right or remedy of, Landlord under this Lease; (c) to make
repairs, alterations, improvements or additions to the Premises or to other
portions of the Building as Landlord deems necessary or desirable; (d) to
perform work necessary to comply with laws, ordinances, rules or regulations of
any public authority or of any insurance underwriter; (e) to serve, post or
keep posted any notices required or allowed under the provisions of this Lease,
including, but not limited to, notices of nonresponsibility for alterations,
improvements, additions as utility installations pursuant to Section 11.4; and
(f) to perform work that Landlord deems necessary to prevent waste, or
deterioration in connection with the Premises should Tenant fail to commence to
make, and diligently pursue to completion, its required repairs within three
(3) days after written demand by Landlord. If Landlord makes any repairs
required to be made by Tenant, Tenant shall pay the cost of the repair to
Landlord, plus interest thereon at the maximum legal rate under applicable law,
as Additional Rental, promptly upon receipt of a bill from Landlord for the
same.
Tenant shall not be entitled to an abatement or reduction of
Minimum Monthly Rental or Additional Rental if Landlord exercises any rights
reserved in this Section 11.2. Landlord shall conduct its activities on the
premises hereunder in a manner that will minimize any inconvenience, annoyance
or disturbance to Tenant. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance, or other damage arising
out of Landlords's entry on the Premises as provided in this section, except
damages resulting from the negligent acts or omissions of Landlord, or its
authorized representatives.
11.2 TENANT'S MAINTENANCE OBLIGATIONS. Tenant, at its sole cost
and expense, shall keep the Premises and every part thereof (except that
portion of the Premises to be maintained by Landlord hereunder) including,
without limitation, all fixtures, decorations, glass, walls, partitions,
shelves, closets, cabinets, signs, locks, doors, door frames, door checks,
windows, window frames, wall coverings and floor coverings in a first class
order, condition and repair and shall make replacements necessary to keep the
Premises in this condition. All replacements shall be of a quality equal to or
exceeding, that of the original. Should Tenant fail to make these repairs and
replacements or otherwise maintain the Premises in accordance with the
provisions of this Section 11.3 within three (3) days after written demand by
Landlord, or shall Tenant commence but fail to complete any repairs or
replacements within a reasonable time after written demand by Landlord.
Landlord may make the repairs or replacements without liability to Tenant for
any loss or damage that may accrue, and Tenant shall pay
- 7 -
<PAGE> 8
Landlord the costs incurred by Landlord in the making of any repairs or
replacements together with interest at the maximum lawful rate as Additional
Rental from the date of completion of the work. Tenant shall repair promptly at
its expense any damage to the Building caused by Tenant or its agents or
employees or caused by the installation or removal of Tenant's personal
property.
11.3 ALTERATIONS. Tenant shall not, without Landlord's prior
written consent, which consent shall not be unreasonably withheld, make any
alterations, improvements, additions or utility installations in, on or about
the Premises or the Building without Landlord's prior written consent, which
may be denied in the sole and absolute discretion of Landlord. As used in this
Section 11.4, the term "utility installation" shall mean power panels,
electrical distribution, systems, lighting fixtures, space heaters,
air-conditioning, computer lines, plumbing and fences. Landlord may require
that Tenant remove any or all of such alterations, improvements, additions or
utility installations at the expiration of the Terms of this Lease, and restore
the Premises or the Building to their prior condition. Should Tenant make any
alterations, improvements, additions or utility installments without the prior
approval of Landlord, Landlord may require that Tenant remove any or all of the
same upon written demand and restore the Premises or the Building to their
prior condition.
Any alterations, improvements, additions or utility
installments in, or about the Premises or the Building that Tenant shall desire
to make and which require the consent of the Landlord shall be presented to
Landlord in written form, with proposed detailed plans. Landlord may, as a
condition of its consent, require Tenant to make revisions in and to the plans
and to post a bond or other reasonably satisfactory to Landlord to insure the
completion of such change. If Landlord shall give its consent, the consent
shall be deemed conditioned upon Tenant, at Tenant's expense, acquiring a
permit to do so from appropriate governmental agencies, the furnishing of a
copy thereof to Landlord prior to the commencement of the work and the
compliance by Landlord of all conditions of such permit in a prompt and
expeditious manner. Landlord reserves the right to require its space planners,
architects, engineers and contractors to perform all or a portion of the
proposed alterations, improvements, additions and utility installations to the
Premises, or the Building, at Tenant's sole cost and expense.
Tenant shall pay, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Premises, or the Building, which claims are or may be secured by any
mechanic's lien against the Premises or the Building or any interest therein.
Tenant shall give Landlord nor less than ten (10) days' notice prior to the
commencement of any work, and Landlord shall have the right to post notices of
nonresponsibility as provided by law. If Tenant shall, in good faith, contest
the validity of any such lien, claim or demand, then Tenant shall, at its sole
expense, defend itself, Landlord, the Premises and the Building, upon the
condition that if Landlord shall require, Tenant shall furnish to Landlord a
surety bond satisfactory to Landlord in an amount equal to such contested lien
claim or demand indemnifying Landlord and Tenant against liability for the same
and holding the Premises and the Building free from the effect of such lien or
claim. In addition, Landlord may require Tenant to pay Landlord's attorney's
fees and costs in participating in such action if Landlord shall decide it is
to its best interest to do so.
Unless Landlord requires the removal as set forth in this
Section 11.4, all alterations, improvements, additions, and utility
installations shall become the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the Term. Notwithstanding
the provisions of this Section 11.4, Tenant's machinery and equipment, other
than that which is affixed
- 8 -
<PAGE> 9
to the Premises so that it cannot be removed without material damage to the
Premises, shall remain the property of Tenant and may be removed by Tenant
subject to the provisions of this Section 11.4.
ARTICLE 12
ASSIGNMENT AND SUBLETTING
12.1 ASSIGNMENT. Tenant shall not, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld, assign
or encumber this Lease or any of its rights or estates hereunder or any other
interest herein or sublet the Premises or any part thereof, or permit the use
or occupation of the Premises by any party other than Tenant. If Tenant is a
partnership, a withdrawal or change, voluntary or involuntary, of any partner
owning fifty percent (50%) or more of the partnership, or the dissolution of
the partnership, shall be deemed a voluntary assignment. If Tenant is a
corporation, any dissolution, merger, consolidation, or other reorganization of
Tenant, or the sale or transfer of fifty-one percent (51%) of the total
combined voting power of all classes of stock, shall be deemed a voluntary
assignment. Any of the foregoing acts without Landlord's consent shall be void
and shall, at the option of Landlord, constitute a default under this Lease.
This Lease shall not, nor shall any interest of Tenant herein, be assignable by
operation of law without the prior written consent of Landlord, which consent
may not be unreasonably withheld.
12.2 PROCEDURE. If at any time or from time to time during the
Term, Tenant desires to assign this Lease or sublet all or any part of the
Premises, Tenant shall give notice to Landlord setting forth the terms and
provisions of the proposed assignment or sublease, and the identity of the
proposed assignee or subtenant. Tenant shall promptly supply Landlord with such
information concerning the business background and financial condition of such
proposed assignee or subtenant as Landlord may reasonably request. Landlord
shall have the option, exercisable by notice given to Tenant within ten (10)
days after Tenant's notice is given, either to sublet such space from Tenant at
the rental and on the other terms set forth in this Lease for the term set
forth in Tenant's notice, or, in the case of an assignment, to terminate this
Lease. If Landlord does not exercise such option, and provided that Tenant is
not in default of any of Tenant's obligations under this Lease after notice and
any applicable grace period has expired, Tenant may assign the Lease or sublet
such space to such proposed assignees or subtenant on the following further
conditions:
(a) Landlord shall have the right to approve such
proposed assignee or subtenant, which approval shall not unreasonably withheld;
(b) The assignment or sublease shall be on the same
terms set forth in the notice given to Landlord;
(c) No assignment or sublease shall be valid and no
assignee or sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to Landlord;
(d) No assignee or sublessee shall have a further right
to assign or sublet except on the terms herein contained; and
(e) Any sums or economic consideration received by
Tenant as a result of such assignment or subletting, however denominated under
the assignment or sublease, which exceed, in the aggregate, (i) the total sums
which Tenant is obligated to pay Landlord under this Lease (prorated to reflect
obligations allocable to any portion of the Premises subleased), plus (ii) any
- 9 -
<PAGE> 10
real estate brokerage commissions or fees payable in connection with such
assignment or subletting, shall be paid to Landlord as Additional Rental under
this Lease without affecting or reducing any other obligations of Tenant
hereunder. The sums payable under this subdivision (e) of Section 12.2 shall
be paid to Landlord as and when payable by subtenant to the Tenant.
(f) Tenant shall reimburse Landlord on demand for any
reasonable costs that may be incurred by Landlord in connection with said
assignment or sublease, including the costs of making investigations as to the
acceptability of the proposed assignee or subtenant and legal costs incurred in
connection with the granting of any requested consent. In no event, however,
shall such costs exceed $500 in each instance.
12.3 PERMISSIBLE TRANSFERS. Notwithstanding the provisions of
Sections 12.1 and 12.2 above, Tenant may assign this Lease or sublet the
Premises or any portion thereof, without Landlord's consent and without
extending any recapture or termination option to Landlord to any corporation
which controls, is controlled by or is under common control with Tenant, or to
any corporation resulting from a merger or consolidation with Tenant, or to any
person or entity which acquires all the assets of Tenant's business as a going
concern, provided that (i) the assignee or sublessee assumes, in full, the
obligations of Tenant under this Lease; (ii) Tenant remains fully liable under
this Lease, and (iii) the use of the Premises under Section 1.9 remains
unchanged; (iv) the successor to Tenant has a net worth, computed in accordance
with generally accepted accounting principals, at least equal to the greater of
(1) net worth of Tenant immediately prior to such merger, consolidation, or
transfer or (2) the net worth of Tenant herein named on the date of this Lease;
and (v) proof satisfactory to Landlord of such net worth shall have been
delivered to Landlord at least ten (10) days prior to the effective date of any
such transaction.
12.4 NO RELEASE. No subletting or assignment shall release
Tenant of Tenant's obligations under this Lease or alter the primary liability
of Tenant to pay the minimum Annual Rent and Additional Rental and to perform
all other obligations to be performed by Tenant hereunder. The acceptance of
any monetary sums by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any future assignment or subletting.
In the event of default in the performance of any of the terms hereof, Landlord
may proceed directly against Tenant without necessity of exhausting remedies
against such assignee, subtenant or successor. Landlord may consent to
subsequent assignments of the Lease or subletting or amendments or
modifications to the Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto
and any such actions shall not relieve Tenant of liability under this Lease.
ARTICLE 13
DAMAGE OR DESTRUCTION
13.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean if the Premises
are damaged or destroyed to the extent that the cost of repair is less than
fifty percent of the then replacement costs of the Premises.
(b) "Premises Total Destruction" shall mean if the
Premises are damaged or destroyed to the extent that the cost of repair is
fifty percent or more of the then replacement cost of the Premises.
- 10 -
<PAGE> 11
(c) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost of the repair is less than fifty percent of the then replacement
cost of the building.
(d) "Premises Building Total Destruction" shall mean
the Building of which the Premises arc a part is damaged or destroyed to the
extent that the cost to repair is fifty percent or more of the then replacement
cost of the Building.
(e) "Insured Loss" shall mean damage or destruction
which was covered by an event required to be covered by the insurance described
in Article 9. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(f) "Replacement Costs" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring excluding all
improvements made by Tenant.
13.2 PREMISES PARTIAL DAMAGE:
PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of
paragraphs 13.4 and 13.5, if any at any time during the Term of this Lease
there is damage which is Insured Loss and which falls into the classification
of either Premises Partial Damage or Premises Building Partial Damage, then
Landlord shall, at Landlord's expense, repair such damage to the Premises, but
not Tenant's fixtures, equipment or tenant improvements, as soon as reasonably
possible and this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of
paragraphs 13.4 and 13.5, if at any time during the term of this Lease there is
damage which is not an Insured Loss and which falls into the classification of
either Premises Partial Damage or Premises Building Partial Damage, unless
caused by a negligent or willful act of Tenant (in which event Tenant shall
make the repairs at Tenant's expense), which damage prevents Tenant from using
the Premises, Landlord may at Landlord's option either (i) repair such damage
as soon as reasonably possible at Landlord's expense, in which event this Lease
shall continue in full force and effect, or (ii) give written notice to Tenant
within thirty (30) days after the date of the occurrence of such damage of
Landlord's intention to cancel and terminate this Lease on the date of the
occurrence of such damage. In the event Landlord elects to give such notice of
Landlord's intention to cancel and terminate this Lease, Tenant shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Landlord of Tenant's intention to repair such damage at Tenant's
expense, without reimbursements from Landlord, in which event this Lease shall
continue in full force and effect, and Tenant shall proceed to make such
repairs as soon as reasonably possible. If Tenant does not give such notice
within such 10-day period, this Lease shall be cancelled and terminated as of
the date of the occurrence of such damage.
13.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL
DESTRUCTION. Subject to the provisions to paragraphs 13.4 and 13.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classifications of either (i) Premises
Total Destruction, or (ii) Premises Building Total Destruction, then Landlord
may at Landlord's option either (i) repair such damage or destruction, but not
Tenant's fixtures, equipment or tenants improvements, as soon as reasonably
possible at Landlord's expense, and this Lease shall continue in full force and
effect, or (ii) given written notice to Tenant within thirty (30) days after
the date of occurrence of such damage of Landlord's intention to cancel and
terminate this Lease, in which case this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.
- 11 -
<PAGE> 12
13.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 13.4(b), if at any time during
the last six months of the Term of this Lease there is substantial damage,
whether or not an Insured Loss, which falls within the classification of
Premises Partial Damage, Landlord may at Landlord's option cancel and terminate
this Lease as of the date of occurrence of such damage by giving written notice
to Tenant of Landlord's election to do so within 30 days after the date of
occurrence of such damage.
(b) Notwithstanding paragraph 13.4(a), in the event that
Tenant has an option to extend or renew this Lease, and the time within which
said option may be exercised has not yet expired, Tenant shall exercise such
option, if it is to be exercised at all, no later than twenty (20) days after
the occurrence of an insured Loss falling within the classification of Premises
Partial Damage during the last six months of the term of this Lease. If Tenant
duly exercises such option during said twenty (20) day period, Landlord shall,
at Landlord's expense, repair such damage, but not Tenant's fixtures, equipment
or tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Tenant fails to exercise such option
during said twenty (20) day period, then Landlord may, at Landlord's option
terminate and cancel this Lease as of the expiration of said twenty (20) day
period by giving written notice to Tenant of Landlord's election to do so
within ten (10) days after the expiration of said Twenty (20) day period,
notwithstanding any term or provision in the grant of option to the contrary.
13.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Landlord repairs or restores the
Premises pursuant to the provisions of this Article 13, the rent payable
hereunder for the period during which such damage, repair or restoration
continues shall be abated in proportion to the degree to which Tenant's use of
the Premises is impaired. Except for abatement of rent, if any, Tenant shall
have no claim against Landlord for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Landlord shall be obligated to repair of restore
the Premises under the provisions of this Article 15, and shall not commence
such repair or restoration within ninety (90) days after such obligation shall
accrue, Tenant may at Tenant's option cancel and terminate this Lease by giving
Landlord written notice of Tenant's election to do so at any time prior to
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
13.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to this Article 13, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Tenant to Landlord.
Landlord shall, in addition, return to Tenant so much of Tenant's security
deposit as has not theretofore been applied by Landlord.
13.7 WAIVER. Landlord and Tenant waive the provisions of any
statute which relate to termination of leases when leased property is destroyed
and agree that such event shall be governed by the terms of this Lease.
ARTICLE 14
EMINENT DOMAIN
14.1 TAKING. The term "Taking" as used in this Article 16 shall
mean an appropriation or taking under the power of eminent domain by any public
or quasi-public authority or a voluntary sale
- 12 -
<PAGE> 13
or conveyance in lieu of condemnation but under threat of condemnation.
14.2 TOTAL TAKING. In the event of Taking the entire Premises,
this Lease shall terminate and expire as of the date possession is delivered to
the condemning authority, and Landlord and Tenant shall each be released from
any liability accruing pursuant to this Lease after the termination.
14.3 PARTIAL TAKING. If there is a Taking of more than
twenty-five percent (25%) of the net rentable area of the Premises, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes possession of that portion of the Premises subject to the
Taking, upon giving notice in writing of such election within thirty (30) days
after receipt by Tenant from Landlord of written notice that a portion of the
Premises have been so appropriated or taken.
14.4 TERMINATION OF LEASE. If this Lease is terminated as
provided above, Landlord shall be entitled to the entire award or compensation
in such condemnation proceedings, or settlement in lieu thereof, but the
Minimum Monthly Rental and Additional Rental for the last month of Tenant's
occupancy shall be prorated.
14.5 CONTINUATION OF LEASE. In the event neither Landlord nor
Tenant elect to terminate this Lease as provided above, or in the event less
than twenty-five percent (25%) of the net rentable area of the Premises was
subject to the Taking, then the Tenant shall continue to occupy the portion of
the premises which was not the subject of the Taking and the following
provisions shall apply: (a) the Minimum Monthly Rental shall be reduced in
proportion to the percentage decrease, if any, in the net rentable area of the
Premises by reason of the Taking; and (b) Landlord shall be entitled to receive
the award for compensation in such proceedings. Tenant hereby waives any
statutory rights of termination that may arise by reason of any partial Taking
of the Premises, under power of eminent domain.
ARTICLE 15
DEFAULTS BY TENANT
15.1 EVENTS OF DEFAULT. The occurrence of one or more of the
following events shall constitute a default by Tenant under this Lease:
(a) The failure by Tenant to pay when due any amount of
Minimum Annual Rental, Additional Rental, or any other monetary obligation
owing by Tenant to Landlord hereunder;
(b) The failure by Tenant to observe or perform any of
the express or implied covenants, obligations or conditions of this Lease to be
observed or performed by Tenant, where such failure shall continue for a period
of fifteen (15) days after written notice thereof from Landlord to Tenant. If
the nature of Tenant's default is such that more than fifteen (15) days are
reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant shall commence such cure within said fifteen (15) day period
and thereafter diligently prosecute such cure to completion, which completion
shall not occur later than thirty (30) days from the date of such notice from
Landlord;
(c) The vacation or abandonment of the premises by
Tenant. Abandonment is herein defined to include, but is not limited to, any
absence by Tenant from the Premises for five (5) business days or longer while
Tenant is in default under any other provision of this Lease;
- 13 -
<PAGE> 14
(d) The making by Tenant of any general assignment for
the benefit of creditors; or should there be filed against Tenant a petition to
have Tenant adjudged a bankrupt or a petition for reorganization of arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within thirty (30) days); or should an
appointed trustee or receiver take possession of substantially all of Tenant's
assets located at the Premises, or of Tenant's interest in this Lease, where
possession is not restored to Tenant within thirty (30) days; or should
substantially all of Tenant's assets located at the Premises or Tenant's
interest in this Lease have been attached or judicially seized, where the
seizure is not discharged within thirty (30) days.
15.2 REMEDIES UPON DEFAULT. Upon the occurrence of one or more
of the foregoing events of default, and in addition to any other rights or
remedies of Landlord provided by law or otherwise, without further notice or
demand of any kind to Tenant or any other person, Landlord may: (a) without
declaring this Lease terminated, re-enter the Premises and occupy the whole or
any part thereof for and on account of Tenant; collect any unpaid rentals and
other charges, which have become payable, or which may thereafter become
payable; and remove all persons and property from the Premises, and any such
property so removed may be restored in a public warehouse or elsewhere at the
cost of and for the account of Tenant; or (b) re-enter the Premises and elect
to terminate this Lease and all of the rights of Tenant in or to the Premises.
Landlord shall not be deemed to have terminated this Lease,
or the liability of Tenant to pay any Minimum Monthly Rental, Additional
Rental, or other charges later accruing, by any re-entry of the Premises, or by
any action in unlawful detainer or otherwise to obtain possession of the
Premises, unless Landlord shall have notified Tenant in writing that it has so
elected to terminate this Lease.
15.3 TERMINATION OF LEASE. Should Landlord elect to terminate
this Lease pursuant to the provisions of Section 15.2(b), Landlord may recover
from Tenant, as damages, the following: (a) the worth at the time of award of
any unpaid rental which has been earned at the time of termination; plus (b)
the worth at time of award of the amount which the unpaid rental which would
have been earned after termination until the time of award exceeds the amount
of rental loss Tenant proves could have been reasonably avoided; plus (c) the
worth at the time of award of the amount by which the unpaid rental for the
balance of the Term after the time of award exceeds the amount of the rental
loss that Tenant proves could be reasonably avoided; plus (d) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligation under this Lease or which in the
ordinary course of things would be likely to result therefrom, including, but
not limited to, any costs or expenses incurred by Landlord in (i) retaking
possession of the Premises, including reasonable attorneys' fees therefor, (ii)
maintaining or preserving the Premises after any default, (iii) preparing the
Premises for reletting to a new tenant, including repairs or alterations to the
Premises, (iv) leasing commission, or, (v) any other costs necessary or
appropriate to relet the Premises; plus (e) at Landlord's election, any other
amounts in addition to or in lieu of the foregoing as may be permitted from
time to time by the laws of the State of California.
As used in subparagraphs (a) and (b) above, the "worth at
the time of award" is computed by allowing interest at the maximum lawful rate.
As used in subparagraph (c) above, the "worth at the time of the award" is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank situated nearest to the location of the Building at the time of award plus
one percent (1%).
- 14 -
<PAGE> 15
ARTICLE 16
DEFAULTS BY LANDLORD
If Landlord fails to perform any of the covenants, provisions or
conditions contained in this Lease on its part to be performed, within thirty
(30) days after written notice of default or if more than thirty (30) days
shall be required because of the nature of the default, if Landlord shall fail
to proceed diligently to cure the default after written notice, then Landlord
shall be liable to Tenant for full damages sustained by Tenant as a proximate
result of Landlord's breach, however, it is expressly understood and agreed
that (1) any money judgement resulting from any default or other claim arising
under this Lease shall be satisfied only out of the proceeds of sale received
upon execution of such judgement and levy against the right, title and interest
of Landlord in the Building, and out of the net rents, issues, profits and
other income, actually received by Landlord from the operation of the Building;
and (2) no other real, personal or mixed property of Landlord, whatever
situated, shall be subject to levy on any such judgement obtained against
Landlord.
ARTICLE 17
SUBORDINATION, ATTORNMENT AND TENANT'S CERTIFICATE
17.1 SUBORDINATION. Upon written request of Landlord, or
Landlord's Mortgagee or the beneficiary of a deed of trust of Landlord, Tenant
will subordinate its rights pursuant to the Lease in writing to the lien of any
mortgage or deed of trust (or, in the alternative, cause the lien of said
mortgage or deed of trust to be subordinated to this Lease), and to all
advances made of thereafter to be made upon the security thereof.
17.2 ATTORNMENT. In the event any proceedings are brought for
foreclosure, or in the event of the exercise of the power of sale under any
mortgage or deed of trust made by Landlord covering the Premises, this Lease
shall not be terminated. Tenant shall attorn to the purchaser under this Lease
upon such foreclosure or sale, and recognize the purchaser or lessor as
Landlord under this Lease, provided that the purchaser shall acquire and accept
the Premises subject to this Lease.
17.3 TENANT'S CERTIFICATE. Tenant, within ten (10) days from
receipt of Landlord's written request, shall execute, acknowledge and deliver
to Landlord a written statement certifying (i) that this Lease is in full force
and effect, without modification (or, if there have been modifications, that
the same is in full force and effect as modified, and stating the
modifications), (ii) that there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counterclaim or deduction
against Minimum Monthly Rental and Additional Rental, and (iii) the date to
which the Minimum Monthly Rental and Additional Rental have been paid, and any
other matters reasonably requested by Landlord. Failure of Tenant to execute
and deliver this statement shall constitute at Landlord's option, either (i) a
breach of this Lease, or (ii) acceptance of the Premises by Tenant and Tenant's
acknowledgement that the statements referenced above are true and correct,
without exception.
ARTICLE 18
NOTICES
Except as otherwise required by Law, any notice, information, request
or reply (the "Notice" for purposes of this Article only) required or permitted
to be given under the provisions of this Lease shall be in writing and shall be
given or served either
- 15 -
<PAGE> 16
personally or by mail. If given or served by mail, such notice shall be deemed
sufficiently given if (a) deposited in the United States mail, certified mail,
returned receipt requested, postage paid, or (b) sent by express mail, or other
similar overnight services, provided proof of service is available, addressed
to the addresses of the parties specified in Section 1.14. Any Notice given or
served by mail shall be deemed given or served as of the date of deposit in the
mails. Either party may, by written notice to the other in the manner
specified herein, specify an address within the United States for Notices in
lieu of the address specified in Section 1.14.
ARTICLE 19
MISCELLANEOUS
19.1 WAIVER. Any waiver by Landlord of a breach of a covenant of
this Lease by Tenant shall not be construed as a waiver of a subsequent breach
of the same covenant. The consent or approval by Landlord to anything requiring
Landlord's consent or approval shall not be deemed a waiver of Landlord's right
to withhold consent or approval of any subsequent similar act by Tenant. No
breach by Tenant of a covenant of this Lease shall be deemed to have been
waived by Landlord unless the waiver is in writing signed by Landlord.
19.2 RIGHTS CUMULATIVE. Except as provided herein to the
contrary, the rights and remedies of Landlord specified in this Lease shall be
cumulative and in addition to any rights and remedies not specified in this
Lease.
19.3 ENTIRE AGREEMENT. It is understood that there are no oral or
written agreements or representations between the parties hereto affecting this
Lease, and this Lease supersedes and cancels any and all previous negotiations,
arrangement, representations, brochures, agreements and understandings, if any,
between Landlord and Tenant or displayed by Landlord to Tenant.
19.4 NO REPRESENTATION. Landlord reserves the absolute right to
effect such other tenancies in the Building as Landlord, in the exercise of its
sole business judgement, shall determine to best promote the interests of the
Building. Tenant does not rely on the fact, nor does Landlord represent, that
any specific tenant or number of tenants shall, during the Term of this Lease,
occupy any space in the Building.
19.5 AMENDMENTS IN WRITING. No provisions of this Lease may be
amended except by an agreement in writing signed by Landlord and Tenant.
19.6 NO PRINCIPAL AGENT RELATIONSHIP. Nothing contained in this
Lease shall be construed as creating the relationship of principal and agent,
employer and employee, affiliate, partnership or joint venture between Landlord
and Tenant.
19.7 LAWS OF CALIFORNIA TO GOVERN. This Lease shall be governed
by and construed in accordance with the laws of the State of California.
19.8 SEVERABILITY. If any provisions of this Lease of the
application of such provision to any person, entity or circumstances, is found
invalid or unenforceable by a court of competent jurisdiction, the
determination shall not effect the other provisions of this Lease and all other
provisions of this Lease shall be deemed valid and enforceable.
19.9 SUCCESSORS. All rights and obligations of Landlord and
Tenant under this Lease shall extend to and bind the respective heirs,
executors, administrators, and the permitted conces
-16-
<PAGE> 17
sionaires, successors, subtenants and assignees of the parties. If there is
more than one (1) Tenant, each shall be bound jointly and severally by the
terms, covenants and agreements contained in this Lease.
19.10 MISSING
19.11 WARRANTY OF AUTHORITY. If Tenant is a corporation or
partnership, each individual executing this Lease on behalf of the corporation
or partnership represents and warrants that he or she is duly authorized to
execute and deliver this Lease on behalf of the corporation or partnership, and
that this Lease is binding upon the corporation or partnership. If Tenant is a
corporation, the person executing this Lease on behalf of Tenant hereby
covenants and warrants that (i) Tenant is a duly qualified corporation and
steps have been taken prior to the date hereof to qualify Tenant to do business
in the State of California, (ii) all franchise and corporate taxes have been
paid to date, and (iii) all future forms, reports, fees and other documents
necessary to comply with applicable laws will be filed when due.
19.12 MORTGAGE CHANGES. It is mutually understood and
acknowledged that Landlord may, from time to time, finance the construction of,
and/or may obtain permanent financing on, the improvements constituting a
portion of the Premises herein by means of a loan or loans, and that before
said loan(s) are approved and closed, a financial institution must approve this
Lease, and, in order to receive such approval, this Lease may have to be
amended or modified. Provided that The Term hereof is not altered, and
Tenant's obligation to pay Minimum Monthly Rentals and Additional Rental is not
adversely affected thereby, Tenant agrees that it shall consent to, and
immediately execute, any such amendment or modification of this Lease as may be
requested by any said financial institution. In the event Tenant so fails to
consent to or execute any such amendment or modification, Landlord, at its
option, in addition to all other rights of Landlord by law, may cancel and
terminate this Lease on thirty (30) days' written notice to Tenant.
19.13 BROKERS. Tenant represents and warrants that it has not had
any dealings with any realtors, brokers or agents in connection with the
negotiation of this Lease except as may be specifically set forth in Section
1.13 and agrees to pay any realtors, brokers or agents not referenced in
Section 1.13 and to hold Landlord harmless from the failure to pay any
realtors, brokers or agents and from any cost, expense or liability for any
compensation, commission or charges claimed by any other realtors, brokers or
agents claiming by, through or on behalf of it with respect to this Lease
and/or the negotiations hereof.
19.14 RECORDING. Tenant shall not record this Lease or any short form
of this Lease. Tenant, upon the request of Landlord, shall execute and
acknowledge a short form memorandum of this Lease for recording purposes. Upon
the expiration of earlier termination of this Lease for any reason, Tenant,
within three (3) days of the date of request by Landlord, shall convey to
Landlord by quitclaim deed any and all interest Tenant may have under this
Lease.
19.15 RIGHT TO SHOW PREMISES. During the last one hundred twenty
(120) days of the Term, Landlord shall have the right to go upon the Premises
to show same to prospective tenants or purchasers and to post appropriate
signs.
19.16 FORCE MAJEURE. Any prevention, delay or stoppage due to
strikes, lockouts, labor disputes, acts of God, inability to obtain labor or
materials or reasonable substitutes therefor, governmental restrictions,
governmental regulations, governmental controls judicial orders, enemy or
hostile governmental action, civil commotion, fire or other casualty, and other
causes beyond the reasonable control of the party obligated to perform, shall
excuse the performance by that party for a period equal to the prevention,
- 17 -
<PAGE> 18
delay or stoppage, except the obligations imposed with regard to Minimum
Monthly Rental and Additional Rental to be paid by Tenant pursuant to this
Lease; provided the party prevented, delayed or stopped shall have given the
other party written notice thereof within thirty (30) days of such event
causing the prevention, delay or stoppage. Notwithstanding anything to the
contrary contained in this Section 19.16, in the event any work performed by
Tenant or Tenant's contractors results in a strike, lockout and/or labor
dispute, the strike, lockout and/or labor dispute shall not excuse the
performance by Tenant of the Provisions of thins Lease.
19.17 HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and should Tenant hold over in the
premises beyond this date, the holding over shall not constitute a renewal or
extension of this Lease or give Tenant any rights under this Lease. In such
event, Landlord may, in its sole discretion, treat Tenant as a tenant at will,
subject to all of the terms and conditions of this Lease, except that the
19.18 DELETED
19.19 DELETED
19.20 LANDLORD'S MAINTENANCE OBLIGATIONS. Subject to the
obligations of the Tenant set forth in Section 13.3, Landlord shall make all
necessary repairs to the exterior walls, exterior doors, roof, windows, utility
pipes, conduits, fixtures, exterior glass, stairs, corridors and other common
areas of the building, and Landlord shall keep the building in a safe, clean
and neat condition, and shall use reasonable efforts to keep all equipment used
in common with other tenants, such as elevators, plumbing, heating,
air-conditioning and similar equipment, in good condition and repair. Expect as
provided in Section 15.4, there shall be no abatement of Minimum Monthly Rental
or Additional Rental and in no event shall there be any liability to Landlord
by reason of any injury to or interference with Tenant's business arising from
the making of any repairs, alterations or improvements in of to any portion of
the Building, or in or to fixtures, appurtenances and equipment therein or
thereon.
Minimum annual Rental shall be an amount equal to one and
one half (1.5) times the sum of the Minimum Annual Rental and Additional Rental
which was payable for the twelve (12) month period immediately preceding the
expiration of the Lease. In the event Tenant fails to surrender the Premises
upon the expiration of this Lease, Tenant shall indemnify accrue therefrom,
including, without limitation, any claims made by any succeeding tenant founded
on or resulting from Tenant's failure to surrender. Acceptance by Landlord of
any Minimum Monthly Rental or Additional Rental after the expiration or earlier
termination of this Lease shall not constitute a consent to a hold over
hereunder, constitute acceptance of Tenant as a tenant at will or result in a
renewal of this Lease.
19.21 ATTORNEYS' FEES. In the event that at any time after the
date of this Lease either Landlord or Tenant shall institute any action or
proceeding against the other relating to the provisions of this Lease, or any
default hereunder, the party not prevailing in the action or proceeding shall
reimburse the prevailing party for the reasonable expenses of attorneys' fees
and all costs or disbursements incurred therein by the prevailing party,
including without limitation, any fees, costs or disbursements incurred on any
appeal from the action or proceeding.
- 18 -
<PAGE> 19
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
on the day and year first above written.
LANDLORD:
ROQUE DE LA FUENTE ALEXANDER
REVOCABLE TRUST NO. 1
By:/S/ Roque De La Fuente Alexander
-------------------------------------
Roque De La Fuente Alexander, Trustee
Date:
-----------------------------------
TENANT:
By: /S/ Dale Kostnian CEO/CFO
-------------------------------------
Date: /S/ 11/30/95
-----------------------------------
- 19 -
<PAGE> 20
ADDENDUM TO LEASE
This addendum is entered between Roque De La Fuente Alexander Revocable Trust
No. 1 ("Landlord") and Joseph Stevens Group ("Tenant").
Landlord and Tenant agree as follows:
1. Tenant
Improvements: Tenant to build-out Tenant-Improvements, using
building standard materials. The build-out shall
include entire 2nd floor with the exception of Suite
2900, per plans submitted by Tenant and approved by
Landlord and referenced as Exhibit "A"
LANDLORD:
ROQUE DE LA FUENTE ALEXANDER
REVOCABLE TRUST NO. 1
By:/S/ Roque De La Fuente Alexander
-------------------------------------
Roque De La Fuente Alexander, Trustee
Date:
-----------------------------------
TENANT:
JOSEPH STEVENS GROUP, INC.
By: /S/ Dale Kostnian
-------------------------------------
[Dale Kostnian COO/CFO]
Date:[11/30/95]
-----------------------------------
- 20 -
<PAGE> 21
EXHIBIT "A"
- ------------------- -----------------
Landlord's Initials Tenant's Initials
- 21 -
<PAGE> 22
The Joseph Stevens Group, Inc.
5440 Morehouse Drive
Stes. 2000, 2100, 2500, 2700 and 2800
San Diego, California 92121
[Nov 28, 1993]
LEASE ADDENDUM NO. 1
1. Landlord agrees to not lease space to another travel agency business
at 5440 Morehouse Drive (at the RFA Building) over the duration of
this lease which is set to [commence on January 1, 1995.]
Landlord: Tenant:
/S/ [5/19/93] /S/
- -------------------------- -------------------------
Initial and Date Initial Date
- 22 -
<PAGE> 23
TABLE OF CONTENTS
Page(s)
<TABLE>
<CAPTION>
ARTICLE
- -------
<S> <C> <C>
1 BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5 ALTERNATIVE COMMENCEMENT DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6 RENTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7 SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8 UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10 TENANT'S CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
11 MAINTENANCE, REPAIRS AND ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
12 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
13 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
14 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
15 DEFAULTS BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
16 DEFAULTS BE LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17 SUBORDINATION, ATTORNMENT AND TENANT'S CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
18 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
19 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
LEASE ADDENDUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
EXHIBIT "A" - FLOOR PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE> 24
LEASE ADDENDUM
This Addendum, dated June 27, 1995, corresponds to the lease
("original lease") executed on November 22, 1994 between ROQUE DE LA FUENTE
ALEXANDER REVOCABLE TRUST NO. 1, as "Lessor", and JOSEPH STEVENS GROUP, INC.,
as "Lessee".
1. Whereas the JOSEPH STEVENS GROUP, INC., is interested in leasing
additional space in suite 2900, consisting of 1130 square feet; Landlord is
willing to provide an incentive to lessee to facilitate the move, therefore;
LANDLORD AND TENANT Agree to amend the existing lease as follows;
Beginning July 1, 1995, lessee agrees to lease suite 2900 under the
following provisions:
A) The lease rate for the months of July, August and September,
1995 will be $5,812.00 plus $565.00 (.50c. for the 1130 square feet of suite
2900) for a total of $6,377.00.
B) Beginning October 1, 1995 and for the remaining term of the
lease, lease payment will be $6,942.00 ($5,812.00 plus $1,130.00).
C) All utilities and NNN are included as part of the rent
payment.
2. All terms and conditions contained in the original lease apply to this
amendment and any existing amendments of record.
Execution of this Addendum by the parties below is acknowledgement of
the amendment of the original lease for a period of ninety days to expire on
September 30, 1995 under the same terms and conditions.
JOSEPH STEVENS GROUP, INC. ROQUE DE LA FUENTE ALEXANDER
REVOCABLE TRUST
NO. 1
By:/S/ Joe Elizondo By:/S/ Roque De La Fuente Alexander
------------------------- --------------------------------
Joe Elizondo Roque De La Fuente Alexander
President Trustee
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name of Subsidiary Date of Incorporation State of Incorporation
- ------------------ --------------------- ----------------------
<S> <C> <C>
LAF Financial Services, Inc. January 16, 1996 Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form SB-2
of 800 Travel Systems, Inc. (the "Company") of our report dated April 20, 1997
on the balance sheets of the Company as of December 31, 1996 and 1995 and the
related statements of operations, stockholders' equity and cash flows for the
year ended December 31, 1996 and the one month ended December 31, 1995, and on
the consolidated statements of operations, stockholders' (deficit) and cash
flows of the Company and Subsidiary (Predecessor Business) for the eleven months
ended November 30, 1995. We also consent to the reference to our Firm under the
caption "Experts" in the Prospectus which is part of the Registration Statement.
KILLMAN, MURRELL & COMPANY, P.C.
Certified Public Accountants
Dallas, Texas
May 30, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
RE TERMINATION OF ENGAGEMENT
July 17, 1997
Securities and Exchange Commission
Office of Chief Accountant
Washington, D.C. 30549
Gentlemen:
We have read the disclosure under Experts in the Registration Statement on Form
SB-2 of 800 Travel Systems, Inc. to be filed approximately July 21, 1997
relating to our firm and agree with such statement.
Very truly yours,
/s/ Feldman Radin & Co., P.C.
Certified Public Accountants
