<PAGE>
800 TRAVEL SYSTEMS, INC.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
------------ -------------
COMMISSION FILE NUMBER 1-13271
800 TRAVEL SYSTEMS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-3343338
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4802 GUNN HIGHWAY TAMPA, FLORIDA 33624
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 908-0404
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR
IF CHANGED SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes |X| No | |
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,616,296 shares of Common Stock,
$.01 par value, were outstanding, as of October 31, 1999.
Transitional Small Business Disclosure Format (check one):
Yes | | No |X|
<PAGE>
800 TRAVEL SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance sheets - September 30, 1999 (unaudited) and
December 31, 1998 3
Condensed Statements of Earnings - Three and nine months ended
September 30, 1999 and September 30, 1998 (unaudited) 4
Condensed Statement of Stockholders' Equity- Nine months ended
September 30, 1999 (unaudited) 5
Condensed Statements of Cash Flows- Nine months ended
September 30, 1999 and September 30, 1998 (unaudited) 6
Notes to Condensed Financial Statements- September 30, 1999 7-8
(unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-20
PART II. OTHER INFORMATION 20-22
SIGNATURES 22
</TABLE>
<PAGE>
800 TRAVEL SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
September 30, December 31,
1999 1998
------------- -------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,743,496 $ 2,387,273
Commissions receivable 1,198,557 501,555
Prepaids 154,500 166,547
------------- -------------
Total current assets 4,096,553 3,055,375
------------- -------------
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET 784,507 815,225
------------- -------------
EXCESS OF COST OVER NET ASSETS ACQUIRED, NET 4,611,202 4,762,864
------------- -------------
OTHER ASSETS
Trademarks, net 330,220 350,971
Capitalized software 643,938 397,194
Other 95,770 209,765
------------- -------------
Total other assets 1,069,928 957,930
------------- -------------
TOTAL ASSETS $ 10,562,190 $ 9,591,394
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 31,193 $ 61,645
Accounts payable 479,399 354,892
Accrued liabilities 533,668 394,733
Unearned revenue 92,799 -
------------- -------------
Total current liabilities 1,137,059 811,270
UNEARNED REVENUE 330,254 -
DEFERRED RENT 127,850 75,641
LONG-TERM DEBT - excluding current maturities - 24,818
------------- -------------
Total liabilities 1,595,163 911,729
------------- -------------
STOCKHOLDERS' EQUITY
Common stock 76,163 75,971
Additional paid-in capital 12,137,150 12,067,342
Accumulated deficit (3,246,286) (3,463,648)
------------- -------------
Total stockholders' equity 8,967,027 8,679,665
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,562,190 $ 9,591,394
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
3
<PAGE>
800 TRAVEL SYSTEMS, INC.
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES
Commissions $ 2,223,908 $ 2,347,417 $ 6,059,909 $ 5,921,691
Ticket delivery and service fees 1,252,769 1,156,676 3,348,620 2,657,720
------------- ------------- ------------- -------------
Total revenues 3,476,677 3,504,093 9,408,529 8,579,411
OPERATING EXPENSES
Employee costs 1,592,910 1,685,053 4,499,629 4,012,845
Other SG&A 1,706,749 1,639,862 4,764,612 4,493,730
------------- ------------- ------------- -------------
Total operating expenses 3,299,659 3,324,915 9,264,241 8,506,575
------------- ------------- ------------- -------------
EARNINGS FROM OPERATIONS 177,018 179,178 144,288 72,836
INTEREST INCOME, NET 27,791 20,163 73,074 58,073
------------- ------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES 204,809 199,341 217,362 130,909
Provision for income taxes - - - -
------------- ------------- ------------- -------------
NET EARNINGS $ 204,809 $ 199,341 $ 217,362 $ 130,909
============= ============= ============= =============
NET EARNINGS PER COMMON SHARE-BASIC $ .03 $ .03 $ .03 $ .02
============= ============= ============= =============
- DILUTED $ .03 $ .03 $ .03 $ .02
============= ============= ============= =============
AVERAGE OUTSTANDING COMMON SHARES-BASIC 7,616,296 7,497,096 7,615,756 7,451,035
============= ============= ============= =============
- DILUTED 7,865,485 7,942,043 8,016,903 7,834,070
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
4
<PAGE>
800 TRAVEL SYSTEMS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Stock
---------------------------- Paid-in Subscriptions Retained
Shares Amount Capital Receivable Deficit Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 5,959,709 $ 59,597 $ 5,297,424 $ (21,547) $ (3,765,514) $ 1,569,960
Sales of common stock and
warrants net of issuance expenses
of $2,252,602 1,350,000 13,500 4,872,024 - - 4,885,524
Joseph Stevens Group, Inc.
Acquisition 383,333 3,833 1,944,082 - - 1,947,915
Purchase and retirement of shares (204,615) (2,046) (405,954) - - (408,000)
Exercise of warrants 58,200 582 363,168 - - 363,750
Exercise of stock options 100,000 1,000 99,000 - - 100,000
Issuance of options for services - - 144,750 - - 144,750
Shares exchanged in payment of
Receivables (49,531) (495) (247,152) - - (247,647)
Payment of stock subscription - - - 21,547 - 21,547
Net earnings - - - - 301,866 301,866
------------- ------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 7,597,096 75,971 12,067,342 - (3,463,648) 8,679,665
Exercise of warrants (unaudited) 2,000 20 12,480 - - 12,500
Exercise of stock options (unaudited) 17,200 172 57,328 - - 57,500
Net earnings (unaudited) - - - - 217,362 217,362
------------- ------------- ------------- ------------- ------------- -------------
BALANCE, SEPTEMBER 30, 1999 (unaudited) 7,616,296 $ 76,163 $ 12,137,150 $ - $ (3,246,286) $ 8,967,027
============= ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of this condensed statement.
5
<PAGE>
800 TRAVEL SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
Increase (decrease) in cash
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 217,362 $ 130,909
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 313,816 284,130
Changes in assets and liabilities, net of acquisition:
(Increase) in receivables (697,002) (328,827)
Decrease (increase) in prepaids and other assets 126,043 (135,170)
Increase (decrease) in deferred rent and unearned revenue 475,262 (65,587)
Increase (decrease) in accounts payable and accrued liabilities 263,441 (1,139,290)
------------- -------------
Net cash provided by (used in) operating activities 698,922 (1,253,835)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of leasehold improvements and equipment (110,685) (188,307)
Software development costs (246,745) -
Cash paid for acquisition - (2,114,665)
------------- -------------
Net cash used in investing activities (357,430) (2,302,702)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt (55,269) -
Proceeds from exercise of options and warrants 70,000 (282,139)
Issuance of common stock - 6,657,847
Purchase of common stock - (408,000)
------------- -------------
Net cash provided by financing activities 14,731 5,967,708
------------- -------------
NET INCREASE IN CASH 356,223 2,411,171
CASH, AT THE BEGINNING OF PERIOD 2,387,273 18,710
------------- -------------
CASH, AT THE END OF THE PERIOD $ 2,743,496 $ 2,429,881
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest expense $ 2,362 $ 18,061
============= =============
NON-CASH FINANCING ACTIVITIES
Common stock received for payment of related party receivable $ - $ 247,647
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
6
<PAGE>
800 TRAVEL SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. They do not include all information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month period ended September 30, 1999
are not necessarily indicative of results that may be expected for the year
ending December 31, 1999 or any future period. The condensed financial
statements should be read in conjunction with the financial statements and the
notes thereto, together with management's discussion and analysis of financial
condition and results of operations, included in the annual report Form 10-KSB/A
for the year ended December 31, 1998.
NOTE B: NET EARNINGS (LOSS) PER COMMON SHARE
the following table reconciles the numerators and denominators of the basic and
diluted earnings (loss) per share computations, as computed in accordance with
FAS 128:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net earnings (loss) - (numerator) $ 204,809 199,341 $ 217,362 $ 130,909
Basic:
Average common shares outstanding
(denominator) 7,616,296 7,497,096 7,615,756 7,451,035
============= ============= ============= =============
Net earnings(loss) per
Common share - basic $ .03 $ .03 $ .03 $ .02
============= ============= ============= =============
Diluted:
Average common shares outstanding 7,616,296 7,497,096 7,615,756 7,451,035
Effect of dilutive options 249,189 444,947 401,147 383,035
------------- ------------- ------------- -------------
Adjusted average common shares
(denominator) 7,865,485 7,942,043 8,016,903 7,834,070
============= ============= ============= =============
Net earnings (loss) per
common share-diluted $ .03 $ .03 $ .03 $ .02
============= ============= ============= =============
</TABLE>
All options and warrants outstanding for the three and nine months ended
September 30, 1999 and 1998 are included in the calculation of diluted weighted
average shares.
7
<PAGE>
800 TRAVEL SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE C: COMMITMENTS AND CONTINGENCIES
Software Agreements
In May 1999, 800 Travel Systems entered into a five-year agreement with its
reservation system provider. Pursuant to this agreement, the reservation system
provider agreed to pay 800 Travel Systems an incentive that is recorded as
unearned revenue. This incentive will be recognized as revenue ratably over the
life of the agreement. If 800 Travel Systems should terminate or be deemed in
default upon the terms of this agreement, 800 Travel Systems agrees to repay
this incentive in full.
Agreements with Related Parties
In April 1999, 800 Travel Systems entered into a $60,000 loan agreement and a
$100,000 deferred compensation agreement with Mr. Mark Mastrini, President and
CEO of 800 Travel Systems. The loan amount will be forgiven in two $30,000
installments if Mr. Mastrini is employed by 800 Travel Systems as of January 1,
2000 and 2001. The total deferred compensation will be paid if Mr. Mastrini is
employed by 800 Travel Systems as of April 1, 2009.
Phone Agreements
In August 1999, the Company entered into a new agreement with its telephone
provider which provided an agreed upon rate for its services. This rate is based
upon the Company reaching an annual minimum charge for its long-distance
services. The Company anticipates reaching this annual minimum charge.
8
<PAGE>
800 TRAVEL SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
800 Travel Systems operates as a direct marketer of travel-related services,
primarily providing low-priced airline tickets for domestic and international
travel through its easy to remember, toll-free numbers "1-800-LOW-AIR-FARE"
(1-800-569-2473), "1-800-FLY-4-LESS" (1-800-359-4537) and "1-888-999-VUELA"
(1-888-999-8835). To answer and service these incoming telephone calls from
customers, 800 Travel Systems operates call centers in Tampa, Florida and San
Diego, California. 800 Travel Systems' operating revenues presently consist of
commissions on air travel tickets, override commissions on air travel tickets
booked on certain airlines, segment incentives under 800 Travel Systems'
agreement with its reservation system provider, co-op promotions with suppliers
of travel related products and services and service fees charged to customers.
The management of 800 Travel Systems is currently formulating a strategy to
diversify its revenues.
800 Travel Systems' new diversified strategy will leverage its core competencies
of low cost, call center operations, travel industry expertise and Internet
technologies. As anticipated by the management of 800 Travel Systems, airline
commissions were further reduced in October 1999 and will negatively impact
future revenues to the extent that such reduced revenues may be partially offset
by increases in service fees charged to customers. This diversified strategy
should lessen the current dependency on air travel reservations and should help
offset the anticipated continued pressure on margins from airline commission
reductions and other competitive forces. To facilitate the changes needed to
successfully complete this new diversified "brick and mortar" and Internet
initiative, together commonly called "click and mortar", 800 Travel Systems has
started to recruit and reorganize management talent, redesign the existing
organization and pursue strategic alliances and acquisitions.
In addition to its traditional "brick and mortar" call center facilities, 800
Travel Systems is developing its Internet initiative which includes both
interactive as well as stand-alone technologies. 800 Travel Systems anticipates
that this Internet initiative will enable consumers to make electronic purchases
by utilizing its web site at http://www.lowairfare.com. This web site is
expected to utilize technology that is currently being co-developed by 800
Travel Systems. This web site was released for testing in October 1998 and then
for limited operations in January 1999 and is currently being enhanced to
improve certain features and functions. In addition to the convenience of
on-line purchasing, this reservation system provides the consumer with
interactive, human intervention with 800 Travel Systems' reservation agents who
can make suggestions that may improve the customer's travel experience and/or
reduce the cost of travel. Management believes this human intervention will
improve agents' close ratios, increase sales and give 800 Travel Systems a
competitive advantage in the fast-growing, electronic commerce marketplace. In
addition to the current technologies being utilized to provide its traditional
services, 800 Travel Systems is exploring prevailing technologies such as
wireless and broadband to further market these services.
Gross reservations represent the aggregate retail value of the tickets sold to
consumers, excluding delivery and service fees charged by the Company. For
comparative purposes, it is important to recognize that certain other travel
companies report their gross reservations as revenues. Gross reservations are
not required by generally accepted accounting principles (GAAP) and should not
be considered in isolation or as a substitute for other information prepared in
accordance with GAAP. Gross reservations for the three and nine months ended
September 30, 1999 and 1998 were $21,455,622, $23,265,047, $60,195,762 and
$59,234,429, respectively.
800 Travel Systems' 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 the service charge imposed on
customers. As a result of its agreements to sell discounted tickets with
airlines directly, as well as other ticket suppliers, 800 Travel Systems is able
to charge its customers a service charge, while still offering low-priced
tickets. Since 800 Travel Systems is a broker for tickets it does not purchase
or inventory tickets and accordingly, has no costs and/or risks associated with
such inventory. 800 Travel Systems' operating expenses include primarily those
items necessary to advertise its services, maintain and staff its travel
reservation centers including payroll, commissions and benefits, telephone,
ticket delivery, general and administrative expenses including rent and computer
maintenance fees; and interest, fees and expenses associated with 800 Travel
Systems' financing activities.
9
<PAGE>
800 TRAVEL SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Set forth below for the periods indicated are the revenues as a percentage of
gross reservations, and operating expenses, other income and net earnings (loss)
as a percentage of revenues, for the three and nine month periods ended
September 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Commissions 10.4% * 10.1% * 10.1% * 10.0% *
Ticket delivery and service fees 5.8% 5.0% 5.6% 4.5%
--------- --------- --------- ---------
Total Revenue 16.2% 15.1% 15.7% 14.5%
Operating Expenses
Employee costs 45.8% ** 48.1% ** 47.8% ** 46.8% **
SG & A, other 49.1% 46.8% 50.7% 52.4%
--------- --------- --------- ---------
Total Operating Expenses 94.9% 94.9% 98.5% 99.2%
--------- --------- --------- ---------
Other Income 0.8% 0.6% 0.8% 0.7%
Net Earnings 5.9% 5.7% 2.3% 1.5%
========= ========= ========= =========
</TABLE>
* Revenues as a percentage of gross reservations.
** Expenses as a percentage of revenues.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Revenues for the three months ended September 30, 1999 were
approximately equal to the revenues for the three months ended September 30,
1998. The average revenue per ticket increased and was offset by a decrease in
the volume of tickets sold. The increased average revenue per ticket is
attributed to additional delivery and service fees charged to customers and
commissions related to the new contract with 800 Travel Systems' reservation
system provider and was partially offset by a reduction in airline commissions.
The decreased volume of tickets sold was primarily due to increased competitive
pressures from Internet-based, on-line travel agencies, less productive, new
reservation agents who were hired as a result of normal attrition, reduced
reservation agent hours worked as a result of schedule adjustments and new
reservation agents who were hired to replace certain experienced agents that
were reassigned to develop 800 Travel Systems' Internet initiative. To increase
the volume of ticket sales, 800 Travel Systems is continuing to develop its
Internet initiative by improving its web site (http://www.lowairfare.com) which
currently enables customers to make reservations on-line with human
intervention. 800 Travel Systems' web site when fully implemented will allow for
"stand-alone" and/or human intervention, which Management believes will result
in more reservations booked. To increase the volume of ticket sales in its
traditional "brick and mortar" operations, 800 Travel Systems intends to improve
certain core competencies such as negotiated discounted ticket pricing with
airlines, hiring additional reservation agents, increasing reservation agent
hours worked through schedule adjustments, increasing travel-related products to
sell and increasing and/or reallocating advertising dollars to new advertising
programs. Revenues as a percentage of gross reservations increased to 16.2% for
the three months ended September 30, 1999 from 15.1% for the three months ended
September 30, 1998. This increase represents a 7.3% improvement in the mix of
revenues generated by commissions and fees on gross reservations. Gross
reservations booked for the three months ended September 30, 1999 decreased $1.8
million or 7.8% to $21.5 million. This decrease resulted from a lower volume of
tickets sold and was partially offset by an increase in the average reservation
price per ticket.
10
<PAGE>
800 TRAVEL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
OPERATING EXPENSES. Operating expenses for the three months ended September 30,
1999 were approximately equal to the operating expenses for the three months
ended September 30, 1998. Operating expenses as a percentage of revenues
remained relatively constant. Employee costs decreased to $1.6 million (or 45.8%
of revenues) for the three months ended September 30, 1999 from $1.7 million (or
48.1% of revenues) for the three months ended September 30, 1998. This $.1
million decrease resulted primarily from lower reservation agent wages and was
partially offset by increases in quality control and corporate wages. Employee
costs as a percentage of revenues decreased primarily from an increase in
revenue per ticket sold and was partially offset by new reservation agents, who
are initially less productive, that were hired to replace experienced agents who
were reassigned to the Internet initiative. Employee costs as a percentage of
revenues were also negatively impacted by increased competitive pressures
resulting in customers making more telephone calls to compare prices before
deciding to purchase. Management believes the percentage of operating expenses
to revenues will improve as new reservation agents mature and efficiencies from
certain operational improvements are realized. Other selling, general and
administrative ("SG&A") expenses increased to $1.7 million (or 49.1% of
revenues) for the three months ended September 30, 1999 from $1.6 million (or
46.8% of revenues) for the three months ended September 30, 1998. This $.1
million increase resulted primarily from additional advertising, professional
fees, travel and training expenses and was partially offset by decreases in
telephone and ticket delivery expenses. Other SG&A expenses as a percentage of
revenues increased primarily from the additional advertising required in the
increasingly competitive marketplace. Effective May 1999, 800 Travel Systems
signed a new contract with its reservation system provider. According to this
new contract, 800 Travel Systems must now maintain its reservation computer
hardware, therefore Management expects the related operating expenses associated
with such maintenance to increase and be offset by an increase in commission
revenues from this reservation system provider.
INCOME TAXES. No provision for income taxes has been recorded since 800 Travel
Systems expects earnings before income taxes for the year ended December 31,
1999 to be offset with operating loss carry forwards from prior years.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Revenues increased $.8 million, or 9.7%, to $9.4 million for the nine
months ended September 30, 1999. This increase resulted from an increase in the
average revenue per ticket and was partially offset by a decrease in the volume
of tickets sold. The increased average revenue per ticket is attributed to
increased delivery and service fees charged to customers and commissions related
to the new contract with 800 Travel Systems' reservation system provider and was
partially offset by a reduction in airline commissions. The decreased volume of
tickets sold was primarily due to increased competitive pressures from
Internet-based, on-line travel agencies, less productive, new reservation agents
who were hired as a result of normal attrition, reduced reservation agent hours
worked as a result of schedule adjustments and by less productive, new
reservation agents who were hired to replace certain experienced agents that
were reassigned to develop 800 Travel Systems' Internet initiative. Revenues as
a percentage of gross reservations increased to 15.7% for the nine months ended
September 30, 1999 from 14.5% for the nine months ended September 30, 1998. This
increase represents a 8.3% increase in the mix of revenues generated by
commissions and fees on gross reservations. Gross reservations booked for the
nine months ended September 30, 1999 increased $1 million or 1.6% to $60.2
million. This increase resulted from a higher average reservation price per
ticket and was partially offset by a decrease in the volume of tickets sold.
OPERATING EXPENSES. Operating expenses increased $.8 million, or 8.9%, to $9.3
million for the nine months ended September 30, 1999. Operating expenses as a
percentage of revenues remained relatively constant. Employee costs increased to
$4.5 million (or 47.8% of revenues) for the nine months ended September 30, 1999
from $4.0 million (or 46.8% of revenues) for the nine months ended September 30,
1998. This $.5 million increase resulted primarily from higher reservation
agent, quality control and corporate wages. Employee costs as a percentage of
revenues increased primarily from less productive, new reservation agents who
were hired as a result of normal attrition. New reservation agents, who are
initially less productive, were also hired to replace experienced agents who
were reassigned to 800 Travel Systems' Internet initiative. Employee costs as a
percentage of revenues were also negatively impacted by increased competitive
pressures resulting in customers making more telephone calls to compare prices
before deciding to purchase. Other selling, general and administrative ("SG&A")
expenses increased to $4.8 million (or 50.7% of revenues) for the nine months
ended September 30, 1999 from $4.5 million (or 52.4% of revenues) for the nine
months ended September 30, 1998. This $.3 million increase resulted primarily
11
<PAGE>
800 TRAVEL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
from additional advertising, professional fees, travel and training expenses and
was partially offset by decreases in ticket delivery expenses. Other SG&A
expenses as a percentage of revenues decreased primarily from an increase in
revenue per ticket sold.
INCOME TAXES. No provision for income taxes has been recorded since 800 Travel
Systems expects earnings before income taxes for the year ended December 31,
1999 to be offset with operating loss carry forwards from prior years.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $.7 million for the nine months
ended September 30, 1999 primarily as a result of net earnings and depreciation
and increases in accounts payable and unearned revenues and offset by an
increase in receivables. For the nine months ended September 30, 1998, net cash
used in operating activities was $1.3 million primarily as a result of a
decrease in accounts payable and an increase in receivables.
Net cash used in investing activities was $.4 million for the nine months ended
September 30, 1999 primarily as a result of software development costs incurred
in connection with the development of its Internet initiative. For the nine
months ended September 30, 1998, net cash used in investing activities was $2.3
million primarily as a result of the acquisition of the San Diego, California
call center operation in January 1998.
Net cash provided by financing activities was $14,731 for the nine months ended
September 30, 1999 primarily as a result of net proceeds received from the
exercise of options and warrants. For the nine months ended September 30, 1998
net cash provided by financing activities was $6 million primarily as a result
of net proceeds received from the initial public offering (IPO) in January 1998.
In April 1999, 800 Travel Systems entered into a $60,000 loan agreement and a
$100,000 deferred compensation agreement with Mr. Mark Mastrini, President and
CEO of 800 Travel Systems. The total loan amount will be forgiven and the
deferred compensation will be paid if Mr. Mastrini is employed by 800 Travel
Systems as of January 1, 2001 and April 1, 2009, respectively.
Management believes that the existing cash and cash expected to be provided by
operating activities will be sufficient to fund both the short and long-term
capital and liquidity needs of 800 Travel Systems for the foreseeable future.
800 Travel Systems has budgeted approximately $3.5 million for capital
expenditures, nearly all of which is intended for the Internet initiative and
necessary computer hardware relating to the new contract with the reservation
system provider effective May 1999. Approximately $.6 million has been expended
through September 30, 1999 with the remainder to be expended within the next 18
months. If cash expected to be provided by operating activities is not
sufficient to satisfy 800 Travel Systems' liquidity and capital requirements,
800 Travel Systems may seek to sell additional equity or debt securities. The
sale of equity securities or convertible debt could result in additional
dilution to 800 Travel Systems' shareholders. There is no assurance that
financing will be available in amounts or on terms acceptable to 800 Travel
Systems, if at all.
YEAR 2000 READINESS
The economy in general, and the travel and transportation industry in
particular, may be adversely affected by risks associated with the onset of the
Year 2000. 800 Travel Systems' business, financial condition, and results of
operations could be materially adversely affected if systems that it operates or
systems that are operated by other parties (e.g., SABRE, members of the airline
industry, air traffic controllers, utilities, telecommunications service
providers, data providers, credit card transaction processors) with which 800
Travel Systems' systems interface, are not Year 2000 compliant in time. There
can be no assurance that the systems of 800 Travel Systems or the systems of
these other parties will continue to properly function and interface and will
otherwise be Year 2000 compliant. Although 800 Travel Systems is not aware of
any threatened claims related to the Year 2000, 800 Travel Systems may be
subject to litigation arising from such claims and, depending on the outcome,
such litigation could have a material adverse affect on 800 Travel Systems. 800
12
<PAGE>
800 TRAVEL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Travel Systems has no insurance coverage to offset these and other business
risks related to the Year 2000. The key systems integral to the operations of
800 Travel Systems' business are the SABRE computer reservation system and its
telephone switching equipment. Because 800 Travel Systems books tickets in
advance (in certain cases up to ten months in advance), Year 2000 problems could
have surfaced as early as the three months ended September 30, 1999, but have
not yet materialized. Representatives of SABRE have completed the project to
ensure that the SABRE system is Year 2000 compliant. 800 Travel Systems,
together with its telephone equipment vendors, has already completed service
intended to ensure its telephone switching equipment is Year 2000 compliant. 800
Travel Systems has substantially completed testing its systems and does not see
a need for substantial future expenditures with respect to its systems.
The expected costs and completion dates for the Year 2000 projects are forward
looking statements based on management's best estimates, which were derived
using numerous assumptions of future events, including the continued
availability of resources, third party modification plans and other factors.
Actual results could differ materially from these estimates as a result of
factors such as the availability and cost of trained personnel, the ability to
locate and correct all relevant computer codes and similar uncertainties.
Contingency Plans.
Given the interdependence of 800 Travel Systems and certain third parties, for
example SABRE, ARC and other members of the airline industry, 800 Travel Systems
may be unable to maintain continuous operations if the systems of one or more of
these parties is not Year 2000 compliant. To the extent practicable and cost
beneficial, 800 Travel Systems has developed contingency plans designed to
minimize the disruption to operations in the event of failure of 800 Travel
Systems' or third parties' systems to be Year 2000 Compliant. For example, 800
Travel Systems plans to have dedicated staff available at crucial dates to
remedy unforeseen problems and may install defensive code to protect its
real-time systems from improperly formatted date data supplied by third parties.
800 Travel Systems' total costs of its year 2000 project are not material,
however, there can be no assurances that the costs resulting from year 2000
issues will not have a material impact on 800 Travel Systems' business,
operations or financial condition in future periods.
Seasonality.
Based upon the results of its operations during 1998 and 1999 to date and its
knowledge of the travel industry, 800 Travel Systems anticipates its business
may be affected by seasonality. Travel bookings typically are low in the months
January through March, increase in April through September as consumers plan
their vacations and typically decline in October through December. In response,
800 Travel Systems will vary the number of agents on staff at any time. During
1998, 800 Travel Systems was able to decrease the number of its reservation
agents during the fourth quarter through attrition. There can be no assurance
that 800 Travel Systems may not have to take pro-active steps to reduce its work
force in response to seasonal fluctuations in the future. Notwithstanding 800
Travel Systems' efforts, the seasonality of the travel industry is likely to
adversely impact 800 Travel Systems' business. Moreover, as a consequence of
such seasonality and other factors, 800 Travel Systems' quarterly revenue and
operating results will be difficult to forecast and period to period comparisons
of results may not be relevant or informative.
FORWARD-LOOKING STATEMENTS - RISK FACTORS
Certain oral statements made by management from time to time and certain
statements contained herein that are not historical facts are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and, because such statements
involve risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. The terms "800 Travel
Systems," "company," "we," "our," and "us" refer to 800 Travel Systems, Inc. The
words "expect", "believe", "goal", "plan", "intend", "anticipate", "estimate",
"will" and similar expressions and variations thereof if used, are intended to
specifically identify forward-looking statements. Forward-looking statements,
including those in Management's Discussion and Analysis of Financial Condition
13
<PAGE>
800 TRAVEL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
and Results of Operations, are statements regarding the intent, belief or
current expectations, estimates or projections of 800 Travel Systems, its
Directors or its Officers about 800 Travel Systems and the industry in which it
operates, and assumptions made by management, and include among other items, (i)
our strategies regarding growth, including our intention to further develop and
improve our Internet capabilities and diversify revenues utilizing our call
center operation and travel industry expertise; (ii) our financing plans; (iii)
trends affecting our financial condition or results of operations; (iv) our
ability to continue to control costs and to meet our liquidity and other
financing needs; (v) our Year 2000 readiness plans and costs; and (vi) our
ability to respond to changes in customer demand, including as a result of
increased competition and the increase of Internet activity. Although we believe
our expectations are based on reasonable assumptions, we can give no assurance
that the anticipated results will occur. We disclaim any intention or obligation
to update or revise forward-looking statements, whether as a result of new
information, future events or otherwise.
Investors and prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in the
forward-looking statements as a result of various factors which include, among
others, (i) general economic conditions, particularly those affecting fuel and
other travel costs and their effect on the volume of consumer air travel; (ii)
conditions in the capital markets, including the interest rate environment and
the availability of capital, which could affect our internal growth and
possibilities for strategic alliances in the travel and telemarketing areas;
(iii) changes in the competitive marketplace that could affect our revenue
and/or cost bases, such as increased competition from traditional and
Internet-based travel agencies, consolidators and the airlines themselves,
changes in the commissions paid by airlines, and increased labor, marketing,
computer software/hardware and telecommunications costs; (iv) the availability
and capabilities of the SABRE electronic travel reservation system and ancillary
software; (v) the success of our Internet initiatives; (vi) changes in
commission rates; (vii) the improved productivity of our reservation agents as
they gain experience and utilize technological improvements; (viii) our Year
2000 readiness and the Year 2000 readiness of third parties with which we have
material relationships, particularly SABRE; (ix) our rights to the use of
software and other intellectual property and the potential for others to
challenge and otherwise adversely affect such rights; and (x) other factors
including those identified in our filings with the SEC including but not limited
to information under the heading "Risk Factors" in the Form SB-2 Registration
Statement and Prospectus for 800 Travel Systems' initial public offering as
amended, "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Other Considerations in 800 Travel Systems' Form 10-QSB
for the quarter ended June 30, 1999", "Business" in 800 Travel Systems' Form
10-KSB for the year ended December 31, 1998, and the following risk factors:
Investors should carefully consider the following risk factors, in addition to
the other information concerning the factors affecting forward looking
statements. Each of these risk factors could adversely affect our business,
operating results and financial condition as well as adversely affect the value
of an investment in the company.
We have a limited operating history; history of losses; future operating
results.
We have been operating for less than four years and during that time we have
generated a significant accumulated operating loss. There can be no assurance
that we will be able to operate profitably, particularly if we seek to expand
through acquisitions or the addition of new Internet services. We only recently
expect to initiate our online operations and, accordingly, our prospects in this
field must be considered in light of the difficulties encountered in any new
business.
We are dependent on the SABRE System.
Our 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 May 1999, 800 Travel Systems
entered into a five-year agreement with SABRE, Inc. to lease the SABRE system in
its Tampa and San Diego reservation centers. If the SABRE system were to cease
functioning, or if we were to lose our contractual right to use the SABRE system
through our inability to renew the agreement, upon expiration thereof or through
a default by us or other termination event under the agreement during the term
thereof, we would not be able to conduct operations until a replacement system
14
<PAGE>
800 TRAVEL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
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 on comparable terms or if
obtained, installed in time to successfully continue operations.
During any interruption in the operation of SABRE, 800 Travel Systems would lose
revenues. Other travel agencies using other travel reservation systems would not
be subject to such interruption of their operations, and we may lose market
share to such competitors. Upon the interruption of the operation of the SABRE
system, we could decide to commence operations with another travel reservation
system. Substantial expenses could be required for acquiring the right to use a
new system and retraining reservation agents. In addition, any impairment of the
SABRE system which does not cause us to cease operations could, nevertheless,
adversely affect the quality of our services, resulting in lost revenues or
market share and could require us to subscribe to a different travel reservation
system.
We are subject to adjustments in airline commissions.
In October 1999, the major airlines announced reductions in the commissions they
will pay travel agents from approximately 8% to 5%. We anticipate continued
downward pressure on airline commission rates. Such reductions and future
reductions, if any, could have a material adverse effect on our operations.
If travel related Internet services or the diversified use of our call center
operations do not achieve widespread market acceptance, our business may not
grow.
Our success will depend in large part on widespread market acceptance of the
Internet as a vehicle for the buying of airline tickets and other travel related
products and services as well as the diversified use of our call center
operations. If the online market develops more slowly than expected, or if our
services do not achieve widespread market acceptance, our business will grow
more slowly than expected. Our future growth, if any, will depend on critical
factors including but not limited to: (i) the growth of the Internet as a tool
used in the process of buying airline tickets and other travel related products
and services; (ii) our ability to successfully and cost-effectively market our
services to a sufficiently large number of people; and (iii) our ability to
consistently deliver high quality and fast and convenient service at competitive
prices.
Our revenues will not grow as much as we anticipate if the market for our
services does not continue to develop, our services do not continue to be
adopted or consumers fail to significantly increase their use of the Internet as
a tool in the process of buying airline tickets and other travel related
products and services.
We may be unable to develop new relationships with strategic partners and
maintain our existing relationships.
Our business depends on establishing and maintaining relationships with
airlines, SABRE and others. As a result of our agreements to sell discounted
tickets with airlines directly, as well as other ticket suppliers, 800 Travel
Systems is able to charge its customers a service charge, while still offering
low-priced tickets. We cannot assure you that we will be able to establish new
relationships or maintain existing relationships. If we fail to establish or
maintain these relationships, it could adversely affect our business.
We operate in a highly competitive market with low barriers to entry which could
harm our business.
While the market for buying airline tickets and other travel related products
and services on the Internet is relatively new and rapidly evolving, it is
already competitive and characterized by entrants that may develop services
similar to ours. Many of our existing competitors, as well as our potential
competitors, have longer operating histories on the Web, greater name
recognition, higher amounts of user traffic and significantly greater financial,
technical and marketing resources than we do. In addition, there are relatively
low barriers to entry to our business. We do not have patents or other
intellectual property that would preclude or inhibit competitors from entering
the market. Moreover, due to the low cost of entering the market, competition
may intensify and increase in the future. We compete against other online travel
web sites. We also compete with traditional methods used by travel agents to
market airline tickets, including yellow pages, classified ads, travel
15
<PAGE>
800 TRAVEL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
brochures and other media advertising. This competition may limit our ability to
become profitable or result in the loss of market share.
Our sales affiliates and employees are not subject to noncompetition agreements.
In addition, our business model does not involve the use of a large amount of
proprietary information. As a result, we are subject to the risk that our sales
affiliates or employees may leave us and may start competing businesses. The
emergence of these enterprises will further increase the level of competition in
our market and could harm our growth and financial performance.
We may not be able to maintain our Web domain name, which may cause confusion
among Web users and decrease the value of our brand name.
We currently hold a Web domain name relating to our brand. Currently, the
acquisition and maintenance of domain names is regulated by governmental
agencies and their designees. The regulation of domain names in the U.S. and in
foreign countries is expected to change in the near future. As a result, we may
not be able to maintain our domain name. These changes could include the
introduction of additional top level domains, which could cause confusion among
Web users trying to locate our sites. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. We may be unable to prevent third parties from
acquiring domain names that are similar to ours. The acquisition of similar
domain names by third parties could cause confusion among Web users attempting
to locate our site and could decrease the value of our brand name.
We may not be able to recruit and retain the personnel we need to succeed.
We may be unable to retain our key employees and consultants and key sales
agents or attract, assimilate or retain other highly qualified employees and
sales agents in the future. Our future success depends on our ability to
attract, retain and motivate highly skilled employees and sales agents. If we do
not succeed in attracting new personnel or retaining and motivating our current
personnel, it may be difficult for us to manage our business and meet our
objectives.
A failure in the performance of our Web hosting facility systems could harm our
business and reputation.
We depend upon a third party Internet service provider to host and maintain our
web site. Any system failure, including network, software or hardware failure,
that causes an interruption in the delivery of our web site or a decrease in
responsiveness of our web site service could result in reduced revenue, and
could be harmful to our reputation and brand. Our Internet service provider does
not guarantee that our Internet access will be uninterrupted, error free or
secure. Any disruption in the Internet service provided by such provider could
significantly harm our business. In the future, we may experience interruptions
from time to time. Our insurance may not adequately compensate us for any losses
that may occur due to any failures in our system or interruptions in our
service. Our Web servers must be able to accommodate a high volume of traffic
and we may in the future experience slower response times for a variety of
reasons. If we are unable to add additional software and hardware to accommodate
increased demand, this could cause unanticipated system disruptions and result
in slower response times. Ticket buyers may become dissatisfied by any system
failure that interrupts our ability to provide access or results in slower
response time.
Our Internet software development efforts may not succeed.
We are in the process of working to enhance and expand our business and
opportunities through the use of the Internet and we are exposed to various
risks and uncertainties related to our arrangements or agreements with third
parties for the co-development or development of software systems for use in
conjunction with our Internet initiatives. Such risks and uncertainties include
but are not limited to the following: (i) we may expend significant funds for
co-development or development of software that exceed the benefits, if any,
ultimately derived from such software; (ii) any software co-developed by us or
developed for us may be functionally or technologically obsolete by the time
co-development or development is completed; (iii) the timetables necessary to
attain the advantages anticipated from such co-development or development may
not be achieved; (iv) others may develop similar software and make such software
16
<PAGE>
800 TRAVEL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
available to our competitors or our competitors may develop similar software or
the software developed by others may have features and benefits beyond the
capabilities of the software co-developed, licensed or otherwise utilized by us;
(v) our rights with respect to any co-development or development arrangement may
become the subject of disputes and may result in our not having any rights in or
to such software and result in claims of violations of intellectual property
rights which could result in significant defense cost and the possibility of
damages being assessed against us; and (vii) key individuals involved in
connection with any software co-development arrangement with us could become
unable to complete or continue the co-development, which could cause the
co-development to end, or result in significant delays and increases in costs to
continue such co-development.
We may be liable for infringing the intellectual property rights of others.
We may receive in the future, notice of claims of infringement of other parties'
proprietary rights. Infringement or other claims could be asserted or prosecuted
against us in the future and it is possible that past or future assertions or
prosecutions could harm our business. Any such claims, with or without merit,
could be time consuming, resulting in costly litigation and diversion of
technical and management personnel, cause delays in the development and release
of new products or services, or require us to develop non-infringing technology
or enter into royalty or licensing arrangements. Such royalty or licensing
arrangements, if required, may not be available on terms acceptable to us, or at
all. For these reasons, infringement claims could harm our business.
Our failure to protect our intellectual property could adversely affect our
brand and our business.
We rely on a combination of trademark and copyright law and trademark
protection. Despite our efforts, we cannot be sure that we will be able to
prevent misappropriation of our intellectual property. It is possible that
litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Litigation could result in substantial costs
and diversion of our resources away from the operation of our business.
Risks Related To The Internet Industry
Our business will suffer if we fail to adapt to evolving standards and
technologies.
The standards and technologies that make up the Internet will evolve and change
over time. We must adapt our services to maintain compatibility in the future to
assure that we can continue to deliver high quality services on the Web. We may
expend significant amounts of our capital to maintain and adapt our Web services
without achieving any benefit in return. Our inability to deliver high quality
services would lead to a decline in the demand for our services.
Third party breaches of database security could disrupt our operations and
increase our capital expenditures.
A party who is able to circumvent our security measures could misappropriate
proprietary database information or cause interruptions in our operations. As a
result we may be required to expend significant capital and other resources to
protect against such security breaches or to alleviate problems caused by such
breaches, which could harm our business.
We would lose revenues and incur significant costs if our systems or material
third-party systems are not Year 2000 compliant.
The Year 2000 issue generally describes the various problems that may result
from system and processing failures of date-related data and as a result of the
computer-controlled systems using two digits rather than four to define the
applicable year. This could result in system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in other routine business
activities.
17
<PAGE>
800 TRAVEL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
We do not have formal contingency plans to address Year 2000 issues. We depend
on third party providers for Web hosting and related services. We generally do
not have any specific contractual rights with third party providers should their
equipment or software fail due to Year 2000 issues. If this third party
equipment or software does not operate properly with regard to Year 2000, we may
incur unexpected expenses to remedy any problems.
Until the year 2000 occurs, we will not know for sure that all systems will then
function adequately. We are unable to predict to what extent our business may be
affected if our systems or the systems that operate in conjunction with them
experience a material Year 2000 failure. Known or unknown errors or defects that
affect the operation of our systems could result in delay or loss of revenue,
interruption of services, cancellation of customer contracts, diversion of
development resources, damage to our reputation, increased service or warranty
costs, and litigation costs, any of which could harm our business. The worst
case scenario is that air traffic controller systems, the Internet, the SABRE
system and telecommunications lines all fail and we are unable to deliver our
products and services. There can be no assurances that 800 Travel Systems'
computer systems, contingency plans and third parties compliance will
substantially reduce the risk of Year 2000 non-compliance.
Internet related regulatory and legal uncertainties could harm our business.
There are an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, domain name registration, online content regulation, user privacy,
taxation and quality of products and services. Moreover, the applicability to
the Internet of existing laws governing issues including intellectual property
ownership and infringement, copyright, patent, trademark, trade secret,
obscenity, libel, employment and person privacy is uncertain and developing.
Our ability to generate business depends on continued growth of online commerce.
Our ability to generate business through our web site depends on continued
growth in the use of the Internet and in the acceptance and volume of commerce
transactions on the Internet. We cannot assure you that the number of Internet
users will continue to grow or that commerce over the Internet will become more
widespread or that our sales will grow at a comparable rate. As is typical in
the case of a new and rapidly evolving industry, demand and market acceptance
for recently introduced services are subject to a high level of uncertainty. The
Internet may not prove to be a viable commercial marketplace for a number of
reasons including but not limited to: (i) the lack of acceptable security
technologies; (ii) the lack of access and ease of use; (iii) congestion of
traffic; inconsistent quality of service and the lack of availability of
cost-effective, high-speed service; (iv) potentially inadequate development of
the necessary infrastructure; (v) governmental regulation; and (vi) uncertainty
regarding intellectual property ownership.
We cannot assure you that the Internet will support increasing use or will prove
to be a viable commercial marketplace.
Information displayed on our web site may subject us to litigation and the
related costs.
We may be subject to claims for defamation, libel, copyright or trademark
infringement or based on other theories relating to information published on our
web site. We could also be subject to claims based upon the content that is
accessible from our web site through links to other web sites. Defending against
any such claims could be costly and divert the attention of management from the
operation of our business.
Additional Risks
We may need future capital.
18
<PAGE>
800 TRAVEL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
We intend to increase sales volumes by expanding our business with both our
Internet initiatives as well as our traditional "bricks and mortar" call center
operations. There can be no assurance that our revenues will increase as a
result thereof or even continue at their current levels. As we expend
significant resources to expand our operations, it is possible that we would
incur losses and negative cash flow. In such event it is likely that we would
require additional capital. There is no assurance that such capital will be
available to us or, if available, be on terms acceptable to us.
Our revenues are unpredictable and are subject to fluctuation.
As a result of 800 Travel Systems' limited operating history, 800 Travel Systems
is unable to accurately forecast its revenues. 800 Travel Systems' current and
future expense levels are based on its operating plans and estimates of future
revenues and are to a large extent fixed. 800 Travel Systems may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues would likely have
an immediate material adverse effect on 800 Travel Systems' business, operating
results and financial condition. Further, if 800 Travel Systems should
substantially increase its operating expenses to offer expanded services, to
fund increased sales and marketing or to develop its technology and
transaction-processing systems, and such expenses are not subsequently followed
by increased revenues, 800 Travel Systems' operating results may deteriorate.
We will experience seasonality in our business, reflecting seasonal fluctuations
in the travel industry. Seasonality in the travel industry is likely to cause
quarterly fluctuations in our operating results and could have a material
adverse effect on our business, operating results and financial condition.
We are unable to predict the effect, if any, that anticipated problems relating
to Year 2000 may have on gross reservations. If consumers perceive Year 2000
problems as a potential risk associated with air transportation, our revenues
may be adversely affected.
Dependence upon key personnel.
Our success is substantially dependent upon the continuing services of Mark D.
Mastrini, as well as other key personnel. While 800 Travel Systems has employed
a number of executives with industry experience, the loss of Mr. Mastrini or
other significant members of management could have a material adverse effect on
our business, financial condition and results of operations.
Shares eligible for future sale.
800 Travel Systems is unable to predict the effect, if any, that future sales of
Common Stock (or the potential for such sales), whether those currently subject
to lock-up agreements 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 our ability to raise capital
through an offering of securities and may adversely affect the market price of
the Common Stock.
Necessity to maintain current prospectus and registration statement.
800 Travel Systems must maintain an effective registration statement on file
with the Commission before the holder of any of the warrants sold in its IPO
(the "Warrants") may be redeemed or exercised. It is possible that 800 Travel
Systems 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 could be acquired by persons residing in states where 800 Travel
Systems 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. There can be no assurance that we
will be able to maintain an effective registration statement covering the
issuance of Common Stock upon redemption or exercise of the Warrants. If we are
unable to maintain an effective registration for the issuance of Common Stock
upon redemption of exercise of the Warrants, we may be subject to claims by the
Warrant holders.
19
<PAGE>
800 TRAVEL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
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. 800 Travel Systems cannot issue shares of Common
Stock to holders of the Warrants in states where such shares are not qualified,
registered or exempt. 800 Travel Systems has qualified the Warrants for listing
on the Boston Stock Exchange, which provides for blue sky registration in over
20 states.
Redeemable warrants and impact on investors.
The Warrants are subject to redemption by 800 Travel Systems in certain
circumstances. 800 Travel Systems' 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 800 Travel Systems will forfeit their right to purchase
the shares of Common Stock underlying the Warrants. The foregoing
notwithstanding, 800 Travel Systems 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. There can be no assurance that we will be able to maintain an effective
registration statement covering the issuance of Common Stock upon redemption or
exercise of the Warrants. If we are unable to maintain an effective registration
for the issuance of Common Stock upon redemption of exercise of the Warrants, we
may be subject to claims by the Warrant holders.
PART II. OTHER INFORMATION
Item 6. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits:
Exhibit Description
- ------- -----------
3.1 -- Amended and Restated Certificate of Incorporation (1)
3.2 -- Amended and Restated Bylaws (1)
10.1 -- Form of Registrant's 1997 Stock Option Plan (1)
10.2 -- Promissory Note of 800 Travel Systems dated November 7, 1995 in the
amount of $30,000 to the order of S. Travel, Inc. due and payable
November 7, 1997 (1)
10.3 -- Promissory Note of 800 Travel Systems dated November 7, 1995 in the
amount of $30,000 to the order of S. Travel, Inc. due and payable
November 7, 1998 (1)
10.4 -- Redemption Agreement between 800 Travel Systems and Michael Cantor (1)
10.5 -- Form of Redemption Agreement between 800 Travel Systems and Jose
Colon (1)
10.6 -- Agreement between 800 Travel Systems and Perry Trebatch (1)
10.7 -- Lease dated February 10, 1996 between JFJ Real Estate L.P. and the
Company (1)
10.8 -- Airlines Reporting Corporation ("ARC") Agent Reporting Agreement (1)
10.9 -- Letter dated march 6, 1996 from ARC approving change of ownership (1)
10.10 -- Subscriber Service Agreement dated November 27, 1995 between the
Company and Payroll Transfers Interstate, Inc. (1)
10.11 -- Form of Employment Agreement between 800 Travel Systems and Mark D.
Mastrini (1)
10.12 -- Form of Employment Agreement between 800 Travel Systems and Jerrold B.
Sendrow (1)
10.13 -- Form of Employment Agreement between 800 Travel Systems and Biagio
Sendrow (1)
10.14 -- Form of Consulting Agreement between 800 Travel Systems and Lucien
Bittar (1)
10.15 -- Agreement of March 1, 1997 between 800 Travel Systems and Global
20
<PAGE>
800 TRAVEL SYSTEMS INC.
Discount Travel Services (1)
10.16 -- Lease Agreement effective November 27, 1995 between 800 Travel Systems
and Roque De La Fuente Alexander Revocable Trust No. 1, and addendum
thereto dated June 27, 1995 (1)
10.17 -- Form of Promissory Note in amount of $50,000 issued by Michael Gaggi
to 800 Travel Systems (1)
10.18 -- Form of Promissory Note in amount of $9,000 issued by Lucien Bittar to
800 Travel Systems (1)
10.19 -- Form of Promissory Note in amount of $50,000 issued by Vito Balsamo to
800 Travel Systems (1)
10.20 -- Form of Registration Rights Agreement among 800 Travel Systems,
Michael Gaggi and Pasquale Guadagno (1)
10.21 -- Amended Release and Redemption Agreement, dated September 4, 1997,
between 800 Travel Systems and Michael Cantor (amending the agreement
listed as Exhibit 10.4 above (1)
10.22 -- Amended Release and Redemption Agreement, dated September 4, 1997,
between 800 Travel Systems and Jose Colon (amending the agreement
listed as Exhibit 10.5 above) (1)
10.23 -- Form of Amendment to Agreement, dated September __, 1997, between
the Company and Perry Trebatch (amending the agreement listed as
Exhibit 10.6 above) (1)
10.24 -- Form of Amendment to Agreement, dated November __, 1997, between the
Company and Perry Trebatch (amending the agreement listed as Exhibit
10.6 above, as amended by the agreement listed as Exhibit 10.29
above) (1)
10.25 -- Amended and Restated Release and Redemption Agreement, dated
November __, 1997, between 800 Travel Systems and Michael Cantor
(amending the agreement listed as Exhibit 10.4 above, as amended by
amended agreement listed as Exhibit 10.27 above) (1)
10.26 -- Amended and Restated Release and Redemption Agreement, dated
November __, 1997, between 800 Travel Systems and Jose Colon (amending
the agreement listed as Exhibit 10.5 above, as amended by amended
agreement listed as Exhibit 10.28 above) (1)
10.27 -- Agreement dated March 20, 1998 between 800 Travel Systems and Joseph
Stevens Group, LLC (2)
10.28 -- Pledge Agreement dated March 22, 1998 between 800 Travel Systems,
Joseph Stevens Group, LLC and Phillips Nizer Benjamin Krim & Ballon
LLP (2)
10.29 -- 1998 Stock Option Plan (3)
10.30* -- SABRE Subscriber Agreement dated May 1, 1999 between 800 Travel
Systems and SABRE, Inc. (5)
10.31 -- Loan and Pledge Agreement dated April 1, 1999 between 800 Travel
Systems and Mark Mastrini (5)
10.32 -- Deferred Compensation Agreement dated April 20, 1999 between 800
Travel Systems and Mark Mastrini (5)
10.33* -- Phone Agreement dated August 24, 1999 between 800 Travel Systems and
AT&T
10.34 -- Employment agreement dated September 16, 1999 between 800 Travel
Systems and Robert B. Morgan
27.1 -- Financial Data Schedule (for SEC use only)
(1) Incorporated by reference to 800 Travel Systems' Registration Statement on
Form SB-2 No. 333-28237.
(2) Incorporated by reference to 800 Travel Systems' Report on Form 8-K filed
March 30, 1998.
(3) Incorporated by reference to 800 Travel Systems' Registration Statement on
Form S-8 filed December 15, 1998.
21
<PAGE>
800 TRAVEL SYSTEMS INC.
(4) Incorporated by reference to 800 Travel Systems' Report on Form 10-KSB/A
filed March 31, 1999.
(5) Incorporated by reference to 800 Travel Systems' Report on Form 10-QSB
filed August 14, 1999.
* Portions of this exhibit are the subject of a confidential treatment
request.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: November 11, 1999
800 TRAVEL SYSTEMS, INC.
------------------------------------
(Registrant)
By: /s/ Mark D. Mastrini
--------------------------------
Mark D. Mastrini, President, Chief Executive
Officer and Chief Operating Officer
By: /s/ Robert B. Morgan
--------------------------------
Robert B. Morgan, Chief Financial Officer
22
EXHIBIT 10.33
CONFIDENTIAL TREATMENT REQUESTED BY 800 TRAVEL SYSTEMS, INC. FOR PORTIONS OF
THIS AGREEMENT INDICATED BY [**..**] AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
AT&T COMMUNICATIONS CONTRACT TARIFF NO. XXXX
Adm. Rates and Tariffs Original Title Page
Bridgewater, NJ 08807
Issued: Iii Effective: Eee
** All material on this page is new. **
CONTRACT TARIFF NO. XXXX
TITLE PAGE
This Contract Tariff applies to AT&T UNIPLAN Service OneRate Pricing Option IV
and Associated Optional AT&T 800 Services; AT&T ACCUNET T1.5 Service Access
Connections and AT&T Terrestrial 1.544 Mbps Local Channel Services for
interstate or foreign communications in accordance with the Communications Act
of 1934, as amended.
Telecommunication services provided under this Contract Tariff are furnished by
means of wire, radio, satellite, fiber optics or any suitable technology or
combination of technologies.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. XXXX
Adm. Rates and Tariffs Original Page 1
Bridgewater, NJ 08807
Issued: Iii Effective: Eee
** All material on this page is new. **
CONTRACT TARIFF NO. XXXX
CHECK SHEET
The Title Page and Pages 1 through 9 inclusive of this tariff are effective as
of the date shown.
TABLE OF CONTENTS
Page
----
Check Sheet........................................................ 1
List of Concurring, Connecting and Other Participating Carriers.... 1
Explanation of Symbols - Coding of Tariff Revisions................ 1
Trademarks and Service Marks....................................... 2
Explanation of Abbreviations....................................... 2
General Provisions................................................. 2
Contract Summary................................................... 4
LIST OF CONCURRING, CONNECTING AND OTHER PARTICIPATING CARRIERS
CONCURRING CARRIERS - NONE
CONNECTING CARRIERS - NONE
OTHER PARTICIPATING CARRIERS - NONE
EXPLANATION OF SYMBOLS - Coding of Tariff Revisions
Revisions to this tariff are coded through the use of symbols. These symbols
appear in the right margin of the page. The symbols and their meanings are:
R - to signify reduction.
I - to signify increase.
C - to signify changed regulation.
T - to signify a change in text but no change in rate or regulation.
S - to signify reissued matter.
M - to signify matter relocated without change.
N - to signify new rate or regulation.
D - to signify discontinued rate or regulation.
Z - to signify a correction.
Other marginal codes are used to direct the tariff reader to a footnote for
specific information. Codes used for this purpose are lower case letters of the
alphabet, e.g., x, y and z. These codes may appear beside the page revision
number in the page header or in the right margin opposite specific text.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. XXXX
Adm. Rates and Tariffs Original Page 2
Bridgewater, NJ 08807
Issued: Iii Effective: Eee
** All material on this page is new. **
TRADEMARKS AND SERVICE MARKS - The following marks, to the extent, if any, used
throughout this tariff, are trademarks and service marks of AT&T Corp.
Trademarks Service Marks
---------- -------------
None ACCUNET
UNIPLAN
EXPLANATION OF ABBREVIATIONS
Adm. - Administrator
Mbps - Megabits per second
GENERAL PROVISIONS
------------------
I. CUSTOMER'S INITIAL SERVICE DATE - The date on which the term of this Contract
Tariff begins is referred to as the Customer's Initial Service Date (CISD). The
rates and discounts specified in this Contract Tariff will apply commencing at
the CISD. The CISD is the first day of the Customer's first full billing cycle
for the Services Provided under this Contract Tariff
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. XXXX
Adm. Rates and Tariffs Original Page 3
Bridgewater, NJ 08807
Issued: Iii Effective: Eee
** All material on this page is new. **
GENERAL PROVISIONS (CONTINUED)
------------------------------
II. DETARIFFING - If during the term of this Contract Tariff, the AT&T Tariffs
referenced herein ("Applicable AT&T Tariffs") are detariffed in whole or in part
pursuant to a statutory change, order or requirement of a governmental or
judicial authority of competent jurisdiction, then following such detariffing:
(i) the terms and conditions for the Services Provided will remain the same as
those in this Contract Tariff, except that the relevant terms and conditions
contained in the Applicable AT&T Tariffs will remain the same as those in effect
as of the date AT&T detariffs in whole or in part those Applicable AT&T Tariff
provisions, and will be incorporated as part of this Contract Tariff, and
(ii) the rates for the Services Provided will be:
(a) to the extent Applicable AT&T Tariff provisions remain filed and
effective, those rates specified in such Applicable AT&T Tariff
provisions, as amended from time to time; and
(b) to the extent that this Contract Tariff contains specific rates or
rate schedules that would apply in lieu of (or in addition to) the
rates or rate schedules in Applicable AT&T Tariffs, such specific
Contract Tariff rates and rate schedules; and
(c) to the extent Applicable AT&T Tariff provisions are detariffed, and
(b) preceding does not apply, those rates specified in the applicable
AT&T Price Lists, as amended from time to time.
In all cases (a, b or c), the applicable rates shall continue to be subject to
any discounts, waivers, credits, and restrictions on rate changes that may be
contained in this Contract Tariff. Where rates and rate changes (both increases
and decreases) would have been calculated by reference to a tariff rate that has
been detariffed, rates and rate changes shall instead be calculated during the
term of this Contract Tariff by reference to applicable AT&T Price Lists and (to
the extent changes to tariff rates were permitted under this Contract Tariff)
AT&T shall have the right to change its Price Lists from time to time.
All references to the AT&T Tariffs in this Contract Tariff shall be construed to
mean the AT&T Tariffs specified herein, as well as the documents which will
replace those tariffs, including the AT&T Price Lists, when AT&T cancels those
tariffs.
1
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. XXXX
Adm. Rates and Tariffs Original Page 4
Bridgewater, NJ 08807
Issued: Iii Effective: Eee
** All material on this page is new. **
CONTRACT TARIFF NO. XXXX
1. SERVICES PROVIDED:
A. AT&T UNIPLAN Service OneRate Pricing Option IV (ORPO IV) and Associated
Optional Domestic AT&T 800 Services (AT&T Tariff F.C.C. Nos. 1, 2 and 14)
B. AT&T ACCUNET T1.5 Service Access Connections (AT&T Tariff F.C.C. No. 9)
C. AT&T Terrestrial 1.544 Mbps Local Channel Services (AT&T Tariff F.C.C.
No.11)
2. CONTRACT TERM; RENEWAL OPTIONS - The term of this Contract Tariff (CT) is
[**..**]. No renewal option is available for this CT.
3. MINIMUM COMMITMENTS/CHARGES
A. AT&T UNIPLAN SERVICE ORPO IV AND ASSOCIATED OPTIONAL AT&T 800 SERVICES -
The Voice Minimum Annual Revenue Commitment (VMARC) for the AT&T UNIPLAN Service
ORPO IV and Associated Optional AT&T 800 Services under this CT is as follows:
CT TERM YEAR YEAR [**..**] YEAR [**..**] YEAR [**..**]
VMARC [**..**] [**..**] [**..**]
The VMARC will be satisfied by the Customer's total Gross Monthly Usage Charges
(GMUC) for the Services Provided under this CT. If, on any anniversary of the
CISD, the Customer has failed to satisfy the VMARC for the preceding year, the
Customer will be billed a shortfall charge in an amount equal to the difference
between the VMARC and the total of the actual GMUCs for that year.
4. CONTRACT PRICE - AT&T reserves the right to increase from time to time the
rates for the Services Provided under this CT, regardless of any provisions in
this CT that would otherwise stabilize rates or limit rate increases, relating
to charges imposed on AT&T stemming from an order, rule or regulation of the
Federal Communications Commission or a court of competent jurisdiction,
concerning: (i) payphone use charges, and (ii) presubscribed interexchange
carrier charges ("PICCs"). AT&T will make rate adjustments under this provision
as necessary.
A. The Contract Price for the AT&T Services provided under this CT is the same
as the undiscounted Recurring and Nonrecurring Rates and Charges specified in
AT&T Tariffs listed in Section 1., preceding, as amended from time to time,
except for those Rates specified in Section 7., following.
2
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. XXXX
Adm. Rates and Tariffs Original Page 5
Bridgewater, NJ 08807
Issued: Iii Effective: Eee
** All material on this page is new. **
5. DISCOUNTS - The following discounts are the only discounts for the Services
Provided under this CT.
A. AT&T UNIPLAN SERVICE ORPO IV AND ASSOCIATED OPTIONAL AT&T 800 SERVICES - The
Customer will receive the following discounts, each month, in lieu of the AT&T
UNIPLAN Service ORPO IV Term Plan Discounts.
1. A [**..**] discount on the total domestic interstate AT&T UNIPLAN Service
ORPO IV and Associated Optional domestic interstate AT&T 800 Services monthly
usage charges on amounts between $ [**..**] and [**..**]. No discount will apply
on amounts over [**..**].
2. A [**..**] discount on the total international AT&T UNIPLAN Service ORPO IV
and Associated Optional international AT&T 800 Services monthly usage charges on
amounts between $[**..**] and [**..**]. No discount will apply on amounts over
[**..**].
3. A [**..**] discount on the total of all other qualified AT&T UNIPLAN
Service ORPO IV and Associated Optional AT&T 800 Services monthly usage charges
not included in 1., above, on amounts between $ [**..**] and [**..**]. No
discount will apply on amounts over [**..**].
6. CLASSIFICATIONS, PRACTICES AND REGULATIONS
A. Except as otherwise provided in this CT, the Rates and Regulations that
apply to the Services Provided specified in Section 1., preceding, are as set
forth in the Applicable AT&T Tariffs that are referenced in Section 1.,
preceding, as such tariffs may be amended from time to time.
B. MONITORING CONDITIONS - The Customer must satisfy the following Service
Requirement(s) which will be monitored on each anniversary of the CISD. The
Monitoring Period is the [**..**] month period immediately preceding each
anniversary of the CISD.
1. The Customer must not exceed [**..**] Customer Premises which
generate/terminate calling from AT&T UNIPLAN Service ORPO IV and Associated
Optional AT&T 800 Services under this CT using switched access.
2. At least [**..**] of the Customer's annual domestic AT&T UNIPLAN Service
ORPO IV and Associated Optional domestic AT&T 800 Services minutes of use under
this CT must be interstate minutes of use.
3. At least [**..**] of the Customer's annual AT&T UNIPLAN Service ORPO IV and
Associated Optional AT&T 800 Services minutes of use under this CT must be usage
from services which generate/terminate at Customer Premises using dedicated
access.
3
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. XXXX
Adm. Rates and Tariffs Original Page 6
Bridgewater, NJ 08807
Issued: Iii Effective: Eee
** All material on this page is new. **
6.B. MONITORING CONDITIONS (CONTINUED)
If the Customer, during the Monitoring Period, has failed to satisfy the above
Service Requirement(s), the Customer will be billed an amount equal to [**..**]
of the Discounts specified in Section 5.A., preceding, that were received by the
Customer during the Monitoring Period. Any such bill must be paid by the
Customer within [**..**] days.
C. PROMOTIONS, CREDITS AND WAIVERS - The Customer is ineligible for any
promotions, credits or waivers for the Services Provided under this Contract
Tariff, which are filed or which may be filed in the AT&T tariffs specified in
Section 1, preceding, except for promotions in AT&T Tariff F.C.C. Nos. 9 and 11
which waive either: 1) installation charges only, 2) monthly recurring charges
only, or 3) installation and monthly recurring charges only for which the
Customer qualifies under those promotions.
The following credits and waivers will be applied to the Customer's bill subject
to the following limitations: (1) the Customer is current in payment to AT&T for
all services provided under this Contract Tariff at the time the credit is to be
applied. If the Customer is not current in its payment, the credit will not be
applied until payment is made. (2) all credits and waivers apply only to the
Services Provided under this CT and as specified below; (3) any waiver not
applied by the end of the CT will be declared null and void; (4) installation
and monthly charge waivers apply only to new service components and do not apply
to service components disconnected and reconnected after the CISD; and (5) the
service components must remain in service for a minimum period of [**..**]
months. If any of the installed services components are disconnected prior to
the end of the [**..**] -month minimum retention period, AT&T will bill the
Customer for the amount of the charges that had been waived under this section
for each service component disconnected. Any such bill must be paid by the
Customer within [**..**] days.
1. The following charges, as specified in AT&T Tariffs listed in Section 1.,
preceding, as amended from time to time, are waived.
(a) NONRECURRING CHARGES
I. The Service Establishment Charges associated with AT&T UNIPLAN Service
ORPO IV and Associated Optional AT&T 800 Services.
4
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. XXXX
Adm. Rates and Tariffs Original Page 7
Bridgewater, NJ 08807
Issued: Iii Effective: Eee
** All material on this page is new. **
6.C. PROMOTIONS, CREDITS AND WAIVERS (CONTINUED)
2. AT&T will apply a credit of $[**..**] in the [**..**] full billing month,
[**..**] in the [**..**] full billing month, and $[**..**] in the [**..**] full
billing month following the CISD. If the Customer discontinues this CT for any
reason during the [**..**] year of the CT Term, AT&T will bill the Customer, at
the time of discontinuance, an amount equal to the credit received. If the
Customer discontinues this CT for any reason after the year of the CT Term in
which the credit is applied, the Customer will be billed an amount equal to the
amount of the credit received divided by the number of months in the CT Term,
times the number of months remaining in the CT Term at the time of
discontinuance. Any such bill must be paid by the Customer within [**..**] days.
D. DISCONTINUANCE - In lieu of any Discontinuance With or Without Liability
provisions that are specified in the AT&T Tariffs referenced in Section 1.,
preceding, the following provisions shall apply.
The Customer may discontinue this CT prior to the end of the CT Term, provided
the Customer replaces this CT with other AT&T Tariffed Interstate Services or
another AT&T CT for AT&T Tariffed Interstate Services having: (i) an equal or
greater new annualized VMARC or a combined annualized revenue commitment for
Voice and Data Services equal to or greater than the annualized VMARC under this
CT, and (ii) a new term equal to or greater than the remaining term, but not
less than [**..**] years. However, the Customer will be billed an amount as
specified in Section 6.C.2., preceding. The Customer will also be billed a
Shortfall Charge equal to the difference between: (1) the prorated VMARC for the
year in which the Customer discontinues, and (2) the total of the actual GMUCs
under this CT for that year, provided the amount in (2) is less than the amount
in (1).
If the Customer discontinues this CT for any reason other than specified above,
prior to the expiration of the CT Term, a Termination Charge will apply. The
Termination Charge will be an amount equal to [**..**] of the unsatisfied VMARC
for the year in which the Customer discontinues this CT and [**..**] of the
VMARC for each year remaining in the CT Term. The Customer will also be billed
an amount as specified in Section 6.C.2., preceding. The Customer cannot
discontinue this CT without liability under the AT&T UNIPLAN Service Term Plan
Satisfaction Guarantee.
E. OTHER REQUIREMENTS - Not Applicable.
5
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. XXXX
Adm. Rates and Tariffs Original Page 8
Bridgewater, NJ 08807
Issued: Iii Effective: Eee
** All material on this page is new. **
6. CLASSIFICATIONS, PRACTICES AND REGULATIONS (CONTINUED)
F. AVAILABILITY - This CT is available only to Customers who: (1) will order
this CT only once, either by the Customer or any Affiliate of the Customer,
which is any entity that owns a controlling interest in either the Customer or
an Affiliate of the Customer, or any entity in which a controlling interest is
owned by either the Customer or an Affiliate of the Customer; (2) are current in
payment to AT&T for its existing tariffed telecommunications services; (3)
generates at least [**..**] in undiscounted other AT&T Services; and (4) order
service within [**..**] days after the effective date of this CT for initial
installation of the Services Provided under this CT within [**..**] days after
the date ordered.
6
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. XXXX
Adm. Rates and Tariffs Original Page 9
Bridgewater, NJ 08807
Issued: Iii Effective: Eee
** All material on this page is new. **
7. RATES
A. USAGE RATES - The Usage Rates in this section are in lieu of the
corresponding Usage Rates specified in AT&T Tariff F.C.C. No. 1, as amended from
time to time.
1. The following Usage Rates apply to domestic interstate AT&T UNIPLAN Service
ORPO IV (Outbound Calls) and Associated Optional AT&T 800 (Inbound Calls)
Services.
<TABLE>
<CAPTION>
Peak Off-Peak
---------------- --------------------
Initial Each Add'l Initial Each Add'l
[**..**] Seconds [**..**] Seconds [**..**] [**..**] Seconds
or Fraction or Fraction Seconds or Fraction
or Fraction
<S> <C> <C> <C> <C>
Outbound Calls
- --------------
Switched Access [**..**] [**..**] [**..**] [**..**]
Special Access [**..**] [**..**] [**..**] [**..**]
Inbound Calls
- -------------
Switched Access [**..**] [**..**] [**..**] [**..**]
Special Access [**..**] [**..**] [**..**] [**..**]
</TABLE>
The rates listed above will be increased or decreased by the same percentage as
any increase or decrease for the corresponding rates in AT&T Tariff F.C.C. No.
1. AT&T will automatically make rate adjustments under this provision as
necessary.
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
====================================================================================================================================
Customer Name (Full Legal Name): AT&T Corp. ("AT&T") Contract Tariff Serial Number:
800 Travel Systems, Inc.
("Customer") 0NJBR-4B3JY7
- ------------------------------------------------ ---------------------------------------------- ------------------------------------
Customer Address: AT&T Address: AT&T Contact Name:
Betsy Phillips-Lisk
4802 Gunn Hwy Suite 140 1715 N. Westshore Blvd. Suite 600
- ------------------------------------------------ ---------------------------------------------- ------------------------------------
City, State Zip Code City, State Zip Code AT&T Contact Telephone Number:
813-287-4714
Tampa, Fl 33624 Tampa, Fl 33607
====================================================================================================================================
====================================================================================================================================
EXISTING PRICING PLAN REPLACEMENT/DISCONTINUANCE:
[ ] Check here and identify below any AT&T CT or other AT&T pricing plan being discontinued in conjunction with this order. Also
specify the CT No., Plan ID No. or Main Billed Account No. (Note: Charges may apply as specified in the plan being discontinued.)
====================================================================================================================================
</TABLE>
1. Services will be provided under the Contract Tariff ("CT") ordered hereunder,
subject to the rates, terms and conditions in the CT as well as the AT&T tariffs
(if any) referenced in the CT ("Applicable Tariffs"), as those Applicable
Tariffs may be modified from time to time.
2. This Form (including its addenda, if any), the CT and the Applicable Tariffs
constitute the entire agreement (collectively the "Agreement") between Customer
and AT&T with respect to the services provided under the CT and supersede any
and all prior agreements, proposals, representations, statements, or
understandings, whether written or oral, concerning such services or the rights
and obligations relating to such services. In the event of any inconsistency
between the terms of this Form (including its addenda, if any) and the CT or
Applicable Tariffs, the terms of the Applicable Tariffs and CT shall prevail. In
the event of any inconsistency between the terms of the CT and the Applicable
Tariffs, the terms of the CT shall prevail. Except for changes to rates ( to the
extent permitted under the CT ) and changes to the Applicable Tariffs, no
change, modification or waiver of any of the terms of this Agreement shall be
binding unless reduced to writing and signed by authorized representatives of
both parties and, to the extent required by law, filed with the FCC.
3. Except to the extent that federal law applies, the construction,
interpretation and performance of this Agreement shall be governed by the
substantive law of the State of New York, excluding its choice of law rules.
4. EXCEPT FOR ANY WARRANTIES EXPRESSLY MADE IN THIS AGREEMENT, AT&T EXCLUDES ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. AT&T DOES
NOT AUTHORIZE ANYONE TO MAKE A WARRANTY OF ANY KIND ON ITS BEHALF AND CUSTOMER
SHOULD NOT RELY ON ANYONE MAKING SUCH STATEMENTS.
5. As to new CTs, Customer may, as its sole remedy, cancel this order for the CT
without liability before the CT becomes effective if, without Customer's
consent: (a) AT&T fails to file the CT with the FCC within 30 days after the
date this Form is signed by both parties; (b) the CT as filed is not consistent
with the attached illustrative copy; or (c) the CT does not go into effect
within 30 days after filing. 6. Orders for existing CTs will be accepted and
implemented by AT&T only if the specified CT is available when ordered and
Customer is eligible for the CT. 7. Customer shall provide installation
instructions and other information as required by AT&T.
<TABLE>
<CAPTION>
<S> <C>
====================================================================================================================================
YOUR SIGNATURE ACKNOWLEDGES THAT YOU HAVE READ, UNDERSTAND AND AGREE TO THE PROVISIONS OF THIS AGREEMENT AND THAT YOU ARE DULY
AUTHORIZED TO SIGN THIS AGREEMENT.
====================================================================================================================================
CUSTOMER AT&T CORP.
Full Legal Name: 800 Travel Systems, Inc.
--------------------------------------------
By: By:
-------------------------------------------------------- -----------------------------------------------------
(Authorized Customer Signature) (Authorized AT&T Signature)
-------------------------------------------------------- -----------------------------------------------------
(Typed or Printed Name and Title) (Typed or Printed Name and Title)
Date: Date:
-------------------------------------------------------- -----------------------------------------------------
</TABLE>
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, dated as of the 16th day of
September, 1999 (the "Agreement"), by and between 800 TRAVEL SYSTEMS, INC., a
Florida corporation, (the "Company") with its principle corporate office located
at 4802 Gunn Highway, Tampa, Florida 33624, and ROBERT B. MORGAN ("Employee")
residing at 857 180th Avenue East, Redington Shores, FL 33708.
WHEREAS, the Company is presently engaged in the business of
providing travel related services, primarily air transportation reservation
services;
WHEREAS, the Employee has had many years of experience as a
senior management employee and has the experience and skills to serve as the
Chief Financial Officer of the Company;
WHEREAS, the Company wishes to assure itself of the continued
services of Employee for the period provided in this Agreement and the Employee
is willing to serve in the employ of the Company for such period upon the terms
and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT
----------
The Company hereby agrees to continue to employ the Employee
upon the terms and conditions herein contained, and the Employee hereby agrees
to accept such employment for the term described below. The Employee agrees to
serve as the Company's Chief Financial Officer, and to perform the duties and
functions customarily performed by the Chief Financial Officer during the term
of this Agreement. In such capacity, the Employee shall report only to the
Company's Chief Executive Officer, President and Board of Directors ("Board"),
and shall have such powers, responsibilities and duties consistent with and
customarily assigned to the position of Chief Financial Officer as the Chief
Executive Officer and Board may assign to him.
Throughout the term of this Agreement, the Employee shall
devote his best efforts and substantially all of his business time and services
to the business and affairs of the Company. Neither the principle place of
business of the Company nor Employee will be relocated outside of the
Hillsborough and Pinellas County metropolitan area.
2. TERM OF AGREEMENT
-----------------
The two (2) year initial term of Employee's employment under
this Agreement shall commence as of September 8, 1999 (the "Effective Date").
After the expiration of such initial two (2) year employment period, the term of
the Employee's employment hereunder shall automatically be extended without
further action by the parties for successive one (1) year renewal terms,
provided that if either party gives the other party at least thirty (30) days
advance written notice of his or its intention to not renew this Agreement for
an additional term, the Agreement shall terminate upon the expiration of the
current term.
Notwithstanding the foregoing, the Company shall be entitled
to terminate this Agreement immediately, subject to a continuing obligation to
make any payments required under Section 5 below, if the Employee (i) becomes
disabled as described in Section 5(b), (ii) is terminated for Cause, as defined
in Section 5(c), or (iii) voluntarily terminates his employment before the
current term of this Agreement expires, as described in Section 5(d).
<PAGE>
3. SALARY AND BONUS
----------------
(a) SALARY. The Employee shall receive a base salary of
not less than $86,000.00 per annum during the First Contract Year. As used in
this Agreement, the "First Contract Year" means the period commencing on the
Effective Date and ending on September 8, 2000; the "Second Contract Year" means
the one year period immediately following the First Contract Year. In the Second
Contract Year the Employee shall be paid a base salary computed by the following
formula: ($86,000 + ($86,000 multiplied by the percentage increase in the
consumer price index + 5%)). For example if the consumer price index increased
5%, Employee's salary would be $94,600 computed as ($86,000 + ($86,000 x 10%)).
This base salary shall be payable in installments consistent with the Company's
normal payroll schedule.
(b) BONUS. The Employee shall also be eligible to receive
an annual incentive bonus from the Company for each fiscal year of the Company
during the term of this Agreement, in an amount up to 20 percent of his annual
base salary in effect on the last day of the year, with the actual amount of
such bonus to be determined by the Compensation Committee of the Company's
Board.
4. ADDITIONAL COMPENSATION AND BENEFITS
------------------------------------
The Employee shall receive the following additional
compensation and welfare and fringe benefits:
(a) STOCK OPTIONS. The Employee shall be granted common
stock options with respect to 10,000 shares of common stock of the Company or
its successor pursuant to the terms of the Company's Stock Option Plan with
options to vest in two installments with the first installment vesting in six
months from the Effective Date and with the second installment vesting within
fifteen (15) months from the Effective Date, provided, however, the options
granted shall vest so long as Employee is employed by the Company. The first
installment shall be for 5,000 options and the second installment shall be for
5,000 options. The options may be exercised in accordance with the Stock Option
Plan, but no later than 10 years from the date hereof, at which time such
options shall lapse. The exercise price of the stock options shall be $5.00 per
share. During the remaining term of the Agreement, any additional stock option
awards under a proposed Stock Option Plan shall be at the discretion of the
Compensation Committee of the Company's Board of Directors.
(b) MEDICAL INSURANCE. The Company shall provide the
Employee with the health insurance coverage plan offered to employees in the
Company's Employee Manual.
(c) EDUCATIONAL LEAVE AND EXPENSES. Company shall
reimburse the Employee for expenses incurred by the Employee while attending
continuing education courses in accordance with the Company's Employee Manual.
(d) VACATION. The Employee shall be entitled to up to
three (3) weeks of vacation during his first year of employment and three (3)
weeks for each year thereafter during the term of this Agreement.
(e) BUSINESS EXPENSES. The Company shall reimburse the
Employee for all reasonable expenses he incurs in promoting the Company's
business, including expenses for travel, entertainment of business associates
cellular telephone and similar items, upon presentation by the Employee from
time to time of an itemized account of such expenditures.
(f) CAR ALLOWANCE. Employee shall be entitled to a car
allowance of $250.00 per month payable by the Company to cover Employee's
reasonable travel expenses. In addition, Employee shall be entitled to
reimbursement from the Company for his annual auto insurance premium not to
exceed $2,000 per year.
(g) EQUITY PERFORMANCE BONUSES. Employee shall be
eligible to receive performance bonuses at the discretion of the Compensation
Committee in the form of grants of Company common stock.
In addition to the benefits provided pursuant to the preceding
paragraphs of this Section 4, the Employee shall be eligible to participate in
such other executive compensation and retirement plans of the Company as are
2
<PAGE>
applicable generally to other officers, and in such other non-compensatory
welfare benefit plans, programs, practices and policies of the Company as are or
may be generally applicable in the future to other key employees.
5. PAYMENTS UPON TERMINATION
-------------------------
(a) INVOLUNTARY TERMINATION. If the Employee's employment
is involuntarily terminated by the Company during the term of this Agreement as
a result of Employee's death or pursuant to paragraphs (b) or (c) hereof,
Employee shall be entitled to receive his base salary accrued through the date
of such involuntary termination. The Employee shall also receive any
nonforfeitable benefits already earned and payable to him under the terms of any
deferred compensation, incentive or other benefit plan maintained by the
Company, payable in accordance with the terms of the applicable plan.
If the termination is not for death, disability as described
in paragraph (b), for Cause as described in paragraph (c) or a voluntary
termination by the Employee as described in paragraph (d), the Company shall be
obligated to make a series of twelve monthly payments to the Employee (the
"Severance Payments"), each monthly payment to be equal to one-twelfth (1/12th)
of the Employee's annual base salary, as in effect on the date of such
termination, which Severance Payments shall be made notwithstanding that
Employee obtains a replacement position with any new employer (including a
position as an officer, employee, consultant, or agent, or self-employment as a
partner or sole proprietor).
(b) DISABILITY. The Company shall be entitled to
terminate this Agreement, if the Board determines that the Employee has been
unable to attend to his duties for at least ninety (90) days because of a
medically diagnosable physical or mental condition, and has received a written
opinion from a physician acceptable to the Board that such condition prevents
the Employee from resuming full performance of his duties and is likely to
continue for an indefinite period. Upon such termination, the Company shall pay
to Employee a monthly disability benefit equal to one-twenty-fourth (1/24th) of
his current annual base salary at the time he became permanently disabled.
Payment of such disability benefit shall commence on the last day of the month
following the date of the termination by reason of permanent disability and
cease with the earliest of (i) the month in which the Employee returns to active
employment, either with the Company or otherwise, (ii) the end of the initial
term of this Agreement, or the current renewal term, as the case may be, or
(iii) the sixth month after the date of the termination. Any amounts payable
under this Section 5(b) shall be reduced by any amounts paid to the Employee
under any long-term disability plan or other disability program or insurance
policies maintained or provided by the Company. The Employee is unaware of any
existing medical factors for which he has been diagnosed which are likely to
create an event of disability during this term.
(c) TERMINATION FOR CAUSE. If the Employee's employment
is terminated by the Company for Cause, the amount the Employee shall be
entitled to receive from the Company shall be limited to his base salary accrued
through the date of termination, and any nonforfeitable benefits already earned
and payable to the Employee under the terms of deferred compensation or
incentive plans maintained by the Company.
For purposes of this Agreement, the term "Cause" shall be limited to (i) any
action by the Employee involving disloyalty to the Company, such as
embezzlement, fraud, misappropriation of corporate assets or a breach of the
covenants set forth in Sections 9 and 10 below; or (ii) the Employee being
indicted or otherwise charged with a felony; or (iii) the Employee being
convicted of any lesser crime or offense committed in connection with the
performance of his duties hereunder or involving moral turpitude; (iv) the
intentional and willful failure by the Employee to substantially perform his
duties hereunder as directed by the Chief Executive Officer (other than any such
failure resulting from the Employee's incapacity due to physical or mental
disability); (v) acts with respect to the property of the Company which
constitute larceny, fraud, theft, embezzlement or the acceptance of a bribe or
kickback; (vi) willful misrepresentation of a material matter to the Board; or
(vii) reckless disregard of his responsibilities under this Agreement.
(d) VOLUNTARY TERMINATION BY THE EMPLOYEE. If the
Employee resigns or otherwise voluntarily terminates his employment before the
end of the current term of this Agreement upon sixty (60) days written notice to
the Company, the amount the Employee shall be entitled to receive from the
Company shall be limited to his base salary accrued through the date of
termination, and any nonforfeitable benefits already earned and payable to the
Employee under the terms of any deferred compensation or incentive plans of the
Company.
3
<PAGE>
6. EFFECT OF CHANGE IN CORPORATE CONTROL
-------------------------------------
(a) In the event of a Change in Corporate Control as defined
below, the vesting of any stock options or other awards granted to the Employee
under the terms of any Stock Option Plan shall become immediately vested in full
and, in the case of stock options, exercisable in full.
In addition, if, at any time during the period of twelve (12)
consecutive months following the occurrence of a Change in Corporate Control as
defined below, the Employee is involuntarily terminated (other than for Cause,
death or disability) by the Company, the Employee shall be entitled to the
Severance Payments described in Section 5(a) above plus annual bonus paid to the
Employee with respect to the last fiscal year of the Company ending prior to the
Change in Corporate Control with the condition that should the Company structure
a standard Change in Corporate Control plan for the executive staff of the
Company, Employee shall be granted the same terms and conditions of that plan
which in no event shall be of lesser value to Employee than the terms and
conditions outlined in this immediate paragraph.
(b) For purposes of this Agreement, a "Change in Corporate
Control" shall include any of the following events:
(1) The acquisition in one or more transactions of
more than fifty percent of the Company's outstanding Common Stock by
any corporation, or other person or group (within the meaning of
Section 14(d)(3) of the Securities Exchange Act of 1934, as amended);
(2) Any merger or consolidation of the Company into
or with another corporation in which the Company is not the surviving
entity, or any transfer or sale of substantially all of the assets of
the Company or any merger or consolidation of the Company into or with
another corporation in which the Company is the surviving entity and,
in connection with such merger or consolidation, a majority of the
outstanding shares of Common Stock shall be changed into or exchanged
for other stock or securities of any other person, or cash, or any
other property.
(3) Any election of persons to the Board of Directors
which causes a majority of the Board of Directors to consist of persons
other than persons who are associated with the Company via contract as
of the date of this Agreement .
(4) Any person, group of persons or entity, purchases
at least fifty percent (50%) of the Company's Common Stock.
(c) Notwithstanding anything else in this Agreement, the
amount of severance compensation payable to the Employee as a result of a Change
in Corporate Control under this Section 6, or otherwise, shall be limited to the
maximum amount the Company would be entitled to deduct pursuant to Section 280G
of the Internal Revenue Code of 1986, as amended.
7. DEATH
-----
This Agreement shall automatically terminate upon Employee's
death. Upon termination of this Agreement due to Employee's death, any shares
and options granted to Employee shall be deemed vested and able to be exercised
by Employee's estate. If the Employee dies during the term of this Agreement,
the Company shall pay to the beneficiary designated by the Employee in
accordance with the terms of any applicable plan or plans of the Company's may
have instituted.
8. WITHHOLDING
-----------
The Company shall, to the extent permitted by law, have the
right to withhold and deduct from any payment hereunder any federal, state or
local taxes of any kind required by law to be withheld with respect to any such
payment.
4
<PAGE>
9. PROTECTION OF CONFIDENTIAL INFORMATION
--------------------------------------
The Employee agrees that he will keep all confidential and
proprietary information of the Company or relating to its business (including,
but not limited to, information regarding the Company's customers, pricing
policies, methods of operation, proprietary computer programs and trade secrets)
confidential, and that he will not (except with the Company's prior written
consent), while in the employ of the Company or thereafter, disclose any such
confidential information to any person, firm, corporation, association or other
entity, other than in furtherance of his duties hereunder, and then only to
those with a "need to know." The Employee shall not make use of any such
confidential information for his own purposes or for the benefit of any person,
firm, corporation, association or other entity (except the Company) under any
circumstances during or after the term of his employment. The foregoing shall
not apply to any information which is already in the public domain, or is
generally disclosed by the Company or is otherwise in the public domain at the
time of disclosure.
The Employee recognizes that because his work for the Company
will bring him into contact with confidential and proprietary information of the
Company, the restrictions of this Section 9 are required for the reasonable
protection of the Company and its investments and for the Company's reliance on
and confidence in the Employee.
10. NON-COMPETITION; CONFIDENTIALITY
--------------------------------
(a) Employee covenants and agrees with Company that he will
not, directly or indirectly:
(i) while he is in Company's employ and at any time after the
termination of his employment hereunder, disclose or use or otherwise
exploit for his own benefit or the benefit of any other person (other
than for the benefit of Company) any Confidential Information (as
hereinafter defined) disclosed to Employee or of which Employee becomes
aware by reason of his employment with Company;
(ii) while he is in Company's employ and through the period
ending one year after the termination of his employment hereunder,
solicit or divert or appropriate to any Competing Business (as
hereinafter defined), directly or indirectly, or attempt to solicit or
divert or appropriate to any such Competing Business, any person or
entity who was a customer or client of Company at any time during the
last six months of Employee's employment hereunder;
(iii) while he is in Company's employ and through the period
ending one year after the termination of his employment hereunder,
employ or attempt to employ or assist anyone else in employing any
person who, at any time within the period commencing six months prior
to the date of the termination of Employee's employment by Company and
ending one year after the date of such termination, was, is or shall be
an employee of Company (whether or not such employment is full time or
is pursuant to a written contract with Company); and
(iv) while he is in Company's employ and through the period
ending one year after his employment hereunder, as an individual or as
agent, employee, partner, officer director, owner or independent
contractor of any person or entity, engage in any Competing Business,
directly or indirectly.
(b) Employee agrees that upon the termination of his
employment (whether voluntarily or involuntarily) he will not take with him or
retain without the Company's written authorization, and will promptly deliver to
Company, originals and all copies of all papers, files or other documents
containing any Confidential Information and all other property belonging to
Company.
(c) For purposes of this Paragraph, the term "Competing
Business" means any business located within the United states providing services
substantially similar to those provided by the. Company in the same industry as
that engaged in by the Company from time to time. By way of example and not by
way of limitation, if the Company is then engaged in the business of booking
travel reservations through a centralized telephone call center, Employee will
not be deemed to be engaged in a Competing Business solely by virtue of becoming
5
<PAGE>
employed in a business that sells general merchandise through a centralized
telephone call center. The term "Confidential Information" means any and all
data and information relating to the business of the Company (whether
constituting a trade secret or not) which is or has been disclosed to Employee
or of which Employee becomes aware as a consequence of or through his
relationship with the Company and which has value to the Company and is not
generally known by its competitors. Confidential Information shall not include
any data or information that has been voluntarily disclosed to the public by
Company (except where such public disclosure has been made by Employee without
authorization) or that has been independently developed and disclosed by others,
or that otherwise enters the public domain through lawful means.
If a court of competent jurisdiction determines that any of
the provisions related to the right of Employee to compete with company upon
termination of his employment or to use information made known to him during the
course of his employment by Company are not enforceable because of their length
or territorial scope, Company and Employee agree that such court may limit the
term or scope of such provision to such extent as is necessary to render it
enforceable and that such provision, as so revised, shall be enforceable.
11. INJUNCTIVE RELIEF
-----------------
The Employee acknowledges and agrees that it would be
difficult to fully compensate the Company for damages resulting from the breach
or threatened breach of the covenants set forth in Sections 9 and 10 of this
Agreement and accordingly agrees that the Company shall be entitled to temporary
and injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, to enforce such provisions in any action
or proceeding instituted in the United States District Court for the Western
District of Florida or in any court in the State of Florida having subject
matter jurisdiction. This provision with respect to injunctive relief shall not,
however, diminish the Company's right to claim and recover damages. In addition,
any action or proceeding brought to enforce any provision of this Paragraph 11,
the prevailing party shall be entitled to recover from the non-prevailing party
the former's reasonable costs of enforcement, including legal fees.
It is expressly understood and agreed that although the
parties consider the restrictions contained in this Agreement to be reasonable,
if a court determines that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction on the activities of
the Employee, no such provision of this Agreement shall be rendered void but
shall be deemed amended to apply as to such maximum time and territory and to
such extent as such court may judicially determine or indicate to be reasonable.
12. MASTRINI DEPARTURE
------------------
Notwithstanding anything herein to the contrary, if at any
time during the term of this Agreement, Mark Mastrini shall cease to be employed
by the Company as its Chief Executive Officer, Employee may through notice
within ninety (90) days thereof, terminate this Agreement. Any such termination
by Employee pursuant to this paragraph shall be deemed an involuntary
termination for which the Severance Payments described in Section 5(a) herein
shall be paid to Employee.
13. SEPARABILITY
------------
If any provision of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
14. ASSIGNMENT
----------
This Agreement shall be binding upon and inure to the benefit
of the heirs and representatives of the Employee and the assigns and successors
of the Company, but neither this Agreement nor any rights hereunder shall be
assignable or otherwise subject to hypothecation by the Employee.
6
<PAGE>
15. ENTIRE AGREEMENT
----------------
This Agreement represents the entire agreement of the parties
and shall supersede any and all previous contracts, arrangements or
understandings between the Company and the Employee. The Agreement may be
amended at any time by mutual written agreement of the parties hereto.
16. GOVERNING LAW
-------------
This Agreement shall be construed, interpreted, and governed
in accordance with the laws of the State of Florida, other than the conflict of
laws provisions of such laws.
17. ARBITRATION
-----------
Subject to the Company's right to seek injunctive relief for
any violations of the covenants set forth in Sections 9 and 10 of this
Agreement, any controversy or claim arising out of this Agreement, or the breach
thereof, other than a claim for injunctive relief shall be settled by binding
arbitration in accordance with the Rules of the American Arbitration Association
which shall occur in Tampa, Florida or at such other location as may be mutually
agreed to by the parties.
18. NOTICES
-------
Any notices hereunder shall be in writing and delivered at the
addresses set forth above, or to such other address or addresses as may
hereafter be furnished in writing by one party to the other, by certified mail
return receipt requested, or by telecopier. All such notices shall be deemed
effective upon receipt.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed, and the Employee has hereunto set his hand, as of the day and
year first above written.
ATTEST: 800 TRAVEL SYSTEMS, INC.
By:
- --------------------------------- ---------------------------------
Secretary Mark Mastrini, Chief Executive Officer
WITNESS: EXECUTIVE:
- --------------------------------- ---------------------------------
Robert B. Morgan
7
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,743,496
<SECURITIES> 0
<RECEIVABLES> 1,198,557
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,096,553
<PP&E> 784,507
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,562,190
<CURRENT-LIABILITIES> 1,137,059
<BONDS> 127,850
0
0
<COMMON> 76,163
<OTHER-SE> 8,890,864
<TOTAL-LIABILITY-AND-EQUITY> 10,562,190
<SALES> 9,408,529
<TOTAL-REVENUES> 9,408,529
<CGS> 0
<TOTAL-COSTS> 9,264,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (73,074)
<INCOME-PRETAX> 217,362
<INCOME-TAX> 0
<INCOME-CONTINUING> 217,362
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 217,362
<EPS-BASIC> .03
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</TABLE>
