<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1997
REGISTRATION NO. 333-27495
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GALILEO INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 36-4156005
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
9700 WEST HIGGINS ROAD, SUITE 400
ROSEMONT, ILLINOIS 60018
(847) 518-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BABETTA R. GRAY, ESQ.
SENIOR VICE PRESIDENT, LEGAL AND GENERAL COUNSEL
GALILEO INTERNATIONAL, INC.
9700 WEST HIGGINS ROAD, SUITE 400
ROSEMONT, ILLINOIS 60018
(847) 518-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<C> <C>
JOEL S. KLAPERMAN, ESQ. JEFFREY SMALL, ESQ.
SHEARMAN & STERLING DAVIS POLK & WARDWELL
599 LEXINGTON AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
(212) 848-4000 (212) 450-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [
] ____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ] ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with a United States and Canadian offering of the
registrant's Common Stock (the "U.S. Prospectus") and one to be used in
connection with a concurrent international offering of the Common Stock (the
"International Prospectus" and, together with the U.S. Prospectus, the
"Prospectuses"). The International Prospectus will be identical to the U.S.
Prospectus except that it will have a different front cover page. The U.S.
Prospectus is included herein and is followed by the front cover page to be used
in the International Prospectus. The front cover page for the International
Prospectus included herein has been labeled "Alternate Cover Page for
International Prospectus."
If required pursuant to Rule 424(b) of the General Rules and Regulations
under the Securities Act of 1933, as amended, ten copies of each of the
Prospectuses in the forms in which they are used will be filed with the
Securities and Exchange Commission.
<PAGE> 3
PROSPECTUS (Subject to Completion)
Issued July 17, 1997
[GALILEO LOGO]
31,998,000 Shares
Galileo International, Inc.
COMMON STOCK
------------------------
OF THE 31,998,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 12,000,000 SHARES
ARE BEING SOLD BY THE COMPANY AND 19,998,000 SHARES ARE BEING SOLD BY THE
SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL
NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES OF COMMON STOCK BY THE
SELLING STOCKHOLDERS. OF THE 31,998,000 SHARES OF COMMON STOCK BEING OFFERED
HEREBY, 22,398,600 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND
CANADA BY THE U.S. UNDERWRITERS AND 9,599,400 SHARES ARE BEING OFFERED INITIALLY
OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE PER SHARE WILL BE BETWEEN $20 AND $23. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE, ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "GLC."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
-------- -------------- ----------- -------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total(3)................ $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. Certain senior officers of the Company
will have the opportunity to purchase Shares of Common Stock in the Offering
at the initial public offering price less underwriting discounts and
commissions. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $3,000,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
4,799,700 additional Shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
See "Underwriters."
------------------------
The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the Shares will be made on or about , 1997
at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against
payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
SBC WARBURG INC.
, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
<PAGE> 4
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING STOCKHOLDER OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE
TAKEN IN ANY JURISDICTION BY THE COMPANY, BY ANY SELLING STOCKHOLDER OR BY ANY
UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR
POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION
FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO
WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY, THE SELLING
STOCKHOLDERS AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY
RESTRICTIONS AS TO THE OFFERING OF THE COMMON STOCK AND THE DISTRIBUTION OF THIS
PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 10
The Company........................... 16
Recent Developments................... 19
Use of Proceeds....................... 20
Dividend Policy....................... 21
Dilution.............................. 21
Capitalization........................ 22
Selected Historical Consolidated
Financial and Operating Data........ 23
Pro Forma Condensed Combined Financial
Information......................... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 32
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The CRS Industry...................... 39
Business.............................. 40
Management............................ 51
Relationship with Airline Stockholders
and Certain Transactions............ 66
Principal and Selling Stockholders.... 70
Description of Capital Stock.......... 71
Shares Eligible for Future Sale....... 78
Underwriters.......................... 79
Certain United States Tax
Considerations for Non-United States
Holders............................. 84
Legal Matters......................... 86
Experts............................... 86
Additional Information................ 86
Index to Financial Statements......... F-1
</TABLE>
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
------------------------
Galileo, Apollo, CarMaster, Client File Plus, Focalpoint, GlobalFares,
Inside Availability, LeisureShopper, RoomMaster, Travelpoint and the Globe
Device are either registered trademarks and service marks or trademarks and
service marks of the Company in the United States and/or other countries. All
other trademarks and service marks appearing in this Prospectus are the property
of their respective holders.
------------------------
Certain statements contained herein under "Prospectus Summary," "Risk
Factors," "The Company," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" including, without
limitation, those concerning the Company's strategy and the Company's expansion
plans, contain certain forward-looking statements concerning the Company's
operations, economic performance and financial condition. Because such
statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause such differences include, but are not limited to, those discussed
under "Risk Factors."
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Unless otherwise indicated,
references in this Prospectus to the "Company" and "Galileo International" mean,
at all times prior to the time of the consummation of the Offering, Galileo
International Partnership and its consolidated subsidiaries (the "Galileo
Partnership") and, at all times thereafter, Galileo International, Inc. and its
consolidated subsidiaries. Unless otherwise indicated, the information set forth
in this Prospectus assumes no exercise of the U.S. Underwriters' over-allotment
option.
Prior to the Offering, the Company was owned by direct or indirect
subsidiaries of 11 major North American and European airlines: United Airlines,
British Airways, SAirGroup (Swissair), KLM Royal Dutch Airlines ("KLM"), US
Airways, Alitalia, Olympic Airways, Air Canada, Aer Lingus, TAP Air Portugal and
Austrian Airlines. The term "airline stockholders," when used in this Prospectus
in the context of direct and immediate ownership of any equity interest in the
Company, means such subsidiaries. When used in any other context, including
commercial arrangements with the Company, the term "airline stockholders" may
mean such airlines, such subsidiaries or any of their respective affiliates, as
the context may require. No reference in this Prospectus to the "airline
stockholders" or any such airline is intended to create the implication that any
person other than such subsidiaries directly and immediately owns any equity
interest in the Company attributed to the applicable airline stockholder. Those
airline stockholders that are selling shares of Common Stock in the Offering are
referred to in this Prospectus as the "Selling Stockholders." See "Principal and
Selling Stockholders."
THE COMPANY
Galileo International is one of the world's leading providers of electronic
global distribution services for the travel industry utilizing a computerized
reservation system ("CRS"). The Company provides travel agencies at
approximately 36,000 locations, as well as other subscribers, with the ability
to access schedule and fare information, book reservations and issue tickets for
525 airlines. Galileo International also provides subscribers with information
and booking capability covering 48 car rental companies and more than 200 major
hotel chains with approximately 35,000 properties throughout the world. The
Company completed more than 300 million bookings in 1996, representing an
estimated $50 billion in travel services. The Company's travel agency
subscribers operate more than 148,000 computer terminals, all of which are
linked to the Company's Data Center, one of the world's largest commercial data
processing complexes, a system with an uptime performance record of better than
99.9%. The Company's estimated share of 1996 CRS airline bookings in the United
States was 27%; in Europe its estimated share was 39%.
Galileo International was founded by 11 major North American and European
airlines and, as of March 31, 1997, distributed its products in 73 countries on
six continents. The Company believes that, based on revenues, it is currently
the most internationally diversified provider of electronic global distribution
services for the travel industry. More than one-half of the Company's 1996
revenues were derived from bookings made by subscribers outside of the United
States. The Company believes that it has attained significant market share in
many of the most important and competitive markets for travel services,
including the United States and markets in Europe, the Middle East, Africa and
the Asia/Pacific region. The Company has entered into and competes in many of
these markets using its network of national distribution companies ("NDCs"), a
distribution structure that has enabled the Company to work closely with
associates that possess detailed knowledge of local travel market conditions.
The Company believes that its extensive international business experience, as
well as its experience in operating with an internationally diverse group of
airline stockholders, provides a firm base for expansion into new overseas
markets, many of which offer strong growth potential.
In addition to its core electronic global distribution services business,
the Company offers travel industry-related information services that draw upon
the Company's in-depth knowledge of the industry and its expertise in developing
and operating complex, mission-critical transaction processing systems. The
Company provides the internal reservation system used by United Airlines and
operates GlobalFares, a fares quotation system used by approximately 100
airlines worldwide.
4
<PAGE> 6
THE NDC ACQUISITIONS
The Company has identified opportunities to acquire NDCs in certain mature
CRS markets in which it has significant market share. Vertical integration
through the acquisition of these NDCs offers the Company an attractive
opportunity to further enhance customer service by allowing the Company to
improve its understanding of customers' product and service requirements, as
well as to increase its control over product design, service delivery and costs.
In particular, the Company believes that ownership of NDCs in these markets will
allow it to provide better and more consistent service to multinational travel
agencies at locations throughout the world. In addition, vertical integration
will enable the Company to capture profits derived from the distribution of its
products and to realize certain operational and overhead synergies.
In connection with this vertical integration strategy, simultaneously with
the consummation of the Offering, the Company expects to acquire Apollo Travel
Services Partnership ("ATS") at a purchase price of $700.0 million, Traviswiss
AG ("Traviswiss") at a purchase price of $8.0 million (as adjusted for cash to
be retained by Traviswiss) and, subject to receipt of Dutch regulatory approval,
Galileo Nederland BV ("Galileo Nederland") at a purchase price of $2.0 million.
ATS, Traviswiss and Galileo Nederland are the NDCs that market the Company's
products in the United States, Mexico, certain islands of the Caribbean,
Switzerland and The Netherlands. In the event that the Dutch regulatory approval
is not received prior to the consummation of the Offering, the Company expects
to receive such approval shortly thereafter. The Company intends to acquire
Galileo Nederland immediately following receipt of such approval. The Company
will use the net proceeds it receives from the Offering, together with
borrowings under the Credit Agreement (as defined herein), to pay the aggregate
purchase price for these acquisitions (the "NDC Acquisitions").
In connection with the NDC Acquisitions, the Company will enter into
services agreements with the sellers of ATS, Traviswiss and Galileo Nederland
whereby such sellers will provide the Company certain marketing and other
services designed to assist the Company in growing the businesses of the
acquired NDCs. Pursuant to such services agreements, the Company will be
required to pay the sellers of ATS, Traviswiss and Galileo Nederland fees of up
to $200.0 million, $6.8 million and $4.7 million (each on a present value
basis), respectively, in the sixth year following such NDC acquisitions, based
on improvements in the Company's airline booking fee revenue in the sellers'
respective NDC territories over the five-year period following such NDC
acquisitions. In addition, in connection with the Company's acquisitions of
Traviswiss and Galileo Nederland, the Company will terminate certain revenue
sharing obligations in exchange for the agreement to pay Swissair and KLM, in
four annual installments, the aggregate amounts of $22.4 million and $14.8
million, respectively.
For more information regarding the NDC Acquisitions, see "The Company --
The NDC Acquisitions" and "Use of Proceeds."
STRATEGY
The Company intends to reinforce its position as a leading provider of
electronic global distribution services and to continue to capitalize on its
competitive advantages, the key elements of which are: (i) a leading market
share, (ii) a well-balanced and global presence, (iii) established relationships
with a diverse group of travel vendors and subscribers, (iv) a technologically
advanced information system operated by a highly skilled technical staff, (v) a
comprehensive offering of innovative products and (vi) a strong business
partnership, reinforced through equity ownership, with 11 of the world's leading
airlines. From this base of competitive strengths, the Company plans to pursue a
strategy that includes the following initiatives:
- Expanding its influence through vertical integration and strategic
alliances;
- Expanding its core business through enhanced customer service;
- Accelerating product introduction;
- Strengthening its technological capabilities;
- Participating in emerging distribution channels; and
- Identifying and pursuing travel-related business opportunities.
See "Business -- Strategy."
5
<PAGE> 7
RECENT DEVELOPMENTS
The Galileo Partnership's revenues, operating income and net income for the
quarter ended June 30, 1997 were $307.2 million, $53.6 million and $53.1
million, respectively, compared to $278.0 million, $49.9 million and $46.7
million, respectively, for the quarter ended June 30, 1996.
On a pro forma basis, after giving effect to (i) the merger of the Galileo
Partnership into a wholly owned limited liability company subsidiary of Galileo
International, Inc.; (ii) the Offering at an assumed initial public offering
price of $21.50 per share of Common Stock; (iii) the incurrence of $474.9
million of indebtedness under the Credit Agreement; and (iv) the NDC
Acquisitions, revenues, operating income, net income and net income per share
for the quarter ended June 30, 1997 would have been $348.3 million, $77.6
million, $42.6 million and $.43, respectively, compared to $315.6 million, $65.8
million, $33.4 million and $.33, respectively, for the quarter ended June 30,
1996.
For more information, including results for the six months ended June 30,
1997, see "Recent Developments."
6
<PAGE> 8
THE OFFERING
The offering hereby of 22,398,600 shares of common stock, par value $.01
per share, of the Company (the "Common Stock") in the United States and Canada
(the "U.S. Offering") and the concurrent offering of 9,599,400 shares of Common
Stock outside of the United States and Canada (the "International Offering") are
collectively referred to as the "Offering." The closing of each of the U.S.
Offering and the International Offering is conditioned upon the closing of the
other.
<TABLE>
<S> <C> <C>
Common Stock offered by the Company:
U.S. Offering...................................... 8,400,000 shares(1)
International Offering............................. 3,600,000 shares
----------
Total......................................... 12,000,000 shares(1)
----------
Common Stock offered by the Selling Stockholders:
U.S. Offering...................................... 13,998,600 shares
International Offering............................. 5,999,400 shares
----------
Total......................................... 19,998,000 shares
----------
Total Offering....................................... 31,998,000 shares(1)
==========
Common Stock outstanding after the Offering....... 100,000,000 shares(1),(2)
Use of proceeds................................... The net proceeds to the Company from the
Offering, together with borrowings under the
Credit Agreement, will be used to fund the
aggregate purchase price for the NDC
Acquisitions and to fund the initial payments
due in connection with the termination of
certain revenue sharing obligations. See "The
Company -- The NDC Acquisitions" and "Use of
Proceeds."
Dividend policy................................... The Company intends to pay regular quarterly
cash dividends of $.05 per share, beginning
with the dividend payable in the fourth
quarter of 1997 with respect to the operations
of the Company in the third quarter of 1997.
However, the declaration and payment of
dividends, as well as the amount thereof, are
subject to the discretion of the Company and
will depend upon a number of factors,
including the Company's results of operations
and financial condition. See "Dividend
Policy."
Risk factors...................................... Prospective investors should consider the
risks involved in an investment in the
Company's Common Stock, including factors
involving the Company's: (i) dependence upon
air travel; (ii) dependence upon large travel
agencies; (iii) relationship with airline
stockholders; (iv) technology investment; (v)
dependence upon facilities and network; (vi)
year 2000 compliance; (vii) competition;
(viii) expansion into developing and new CRS
markets; (ix) government regulation; and (x)
intellectual property rights. See "Risk
Factors."
NYSE symbol....................................... GLC
</TABLE>
- -------------------------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised. See
"Underwriters."
(2) Excludes 8,140,000 shares of Common Stock reserved for issuance pursuant to
the Company's 1997 Stock Incentive Plan and 500,000 shares of Common Stock
reserved for issuance pursuant to the Company's 1997 Non-Employee Director
Stock Plan. See "Management -- 1997 Stock Incentive Plan" and
"-- Non-Employee Director Stock Plan."
7
<PAGE> 9
SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary historical consolidated financial data presented below as of
and for each of the years ended December 31, 1994, 1995 and 1996 have been
derived from the consolidated financial statements of the Galileo Partnership,
which have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The summary historical consolidated financial data presented below
as of and for the three months ended March 31, 1996 and 1997 have been derived
from the unaudited consolidated financial statements of the Galileo Partnership.
The unaudited consolidated financial statements of the Galileo Partnership have
been prepared on a basis consistent with the audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of such information. The results for any interim period are not
necessarily indicative of the results for a full fiscal year. The unaudited
summary pro forma consolidated financial data presented below as of and for the
year ended December 31, 1996 and the three months ended March 31, 1997 give
effect to (i) the merger of the Galileo Partnership into a wholly owned limited
liability company subsidiary of Galileo International, Inc.; (ii) the Offering
at an assumed initial public offering price of $21.50 per share of Common Stock;
(iii) the incurrence of $474.9 million of indebtedness under the Credit
Agreement; and (iv) the NDC Acquisitions. See "Pro Forma Condensed Combined
Financial Information." All of the summary data presented below should be read
in conjunction with "Pro Forma Condensed Combined Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of the Galileo Partnership,
the consolidated financial statements of ATS and the other financial information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------- --------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
------ ------ -------- --------- --------------------------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues(1)...................... $813.8 $966.4 $1,088.3 $1,230.8 $279.2 $307.6 $ 346.9
Operating expenses(2)............ 744.5 826.1 912.9 1,000.3 227.2 241.3 257.4
------ ------ -------- -------- ------ ------ --------
Operating income................. 69.3 140.3 175.4 230.5 52.0 66.3 89.5
Other income (expense), net(3)... (16.1) (16.6) (8.3) (35.6) (2.0) (.4) (8.1)
------ ------ -------- -------- ------ ------ --------
Income before income taxes....... 53.2 123.7 167.1 194.9 50.0 65.9 81.4
Income taxes(4).................. 4.4 2.6 1.9 79.5 .5 .4 32.4
------ ------ -------- -------- ------ ------ --------
Net income....................... $ 48.8 $121.1 $ 165.2 $ 115.4 $ 49.5 $ 65.5 $ 49.0
====== ====== ======== ======== ====== ====== ========
Pro forma net income per share... $ 1.15 $ .49
======== ========
Pro forma weighted average number of
shares outstanding (in millions)... 100.0 100.0
======== ========
BALANCE SHEET DATA
(AT END OF PERIOD):
Current assets................... $133.8 $187.3 $ 240.8 $249.2 $278.5 $ 320.2
Total assets..................... 555.5 569.0 599.9 618.7 631.4 1,465.9
Current liabilities.............. 191.5 227.6 199.6 224.5 167.0 276.7
Long-term debt................... 239.8 134.2 70.0 134.2 70.0 544.9
Other long-term obligations...... 84.7 77.6 74.9 80.7 72.7 170.3
Partners' capital................ 39.5 129.6 255.4 179.3 321.7 --
Pro forma stockholders' equity... 474.0
OTHER DATA:
Operating income as a percentage
of revenue..................... 8.5% 14.5% 16.1% 18.7% 18.6% 21.5% 25.8%
Percentage of revenue from non-
affiliated customers........... 61.7% 61.6% 64.2% 63.8% 64.5%
Net CRS bookings (in millions)(5)... 255.0 285.4 315.5 83.3 88.5
Net cash provided by operating
activities..................... $135.8 $172.6 $ 214.1 $ 17.6 $ 60.4
Capital expenditures(6).......... $ 33.2 $ 64.5 $ 40.0 $ 6.3 $ 11.7
Number of employees.............. 1,951 1,891 1,849 -- --
Revenue per employee............. $ .4 $ .5 $ .6 -- --
</TABLE>
(footnotes appear on following page)
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(footnotes from previous page)
- -------------------------
(1) Revenues include significant transactions with the airline stockholders and
certain of their affiliates. See Note 3 to the consolidated financial
statements of the Galileo Partnership appearing elsewhere in this
Prospectus.
(2) Operating expenses are categorized into cost of operations and commissions,
selling and administrative expenses in the consolidated financial
statements.
(3) Other income (expense), net includes interest expense related to the
issuance of $340 million of debt in connection with the 1993 combination of
Covia Partnership and The Galileo Company Ltd. See "The Company -- The
Galileo Partnership." At March 31, 1997, $70.0 million of debt was
outstanding.
(4) No provision for income taxes at the Galileo Partnership level is reflected
in the historical financial information, as such liability is the
responsibility of the partners. Certain of the Company's non-U.S.
subsidiaries are subject to income tax.
(5) Transactions in respect of bookings made in the United States, Canada,
Mexico and Japan have been converted to a net segment equivalent basis.
Bookings made in the rest of the world are reported on a net segment basis.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Overview."
(6) Capital expenditures include purchases of property and equipment and
purchases of computer software. In addition, the capitalization of
internally developed computer software was $25.7 million, $24.5 million, and
$21.6 million for the years ended December 31, 1994, 1995 and 1996,
respectively. Capitalization of internally developed computer software was
$4.8 million for each of the three months ended March 31, 1996 and 1997.
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RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors.
DEPENDENCE UPON AIR TRAVEL
The Company derives substantially all of its revenues from the travel
industry. Accordingly, events affecting the travel industry can significantly
affect the Company's earnings. In particular, because a significant portion of
the Company's revenues is derived from fees generated by airline bookings, the
Company's earnings are especially sensitive to events that affect airline travel
and the airlines that participate in the Company's systems. Any adverse
occurrence, including political instability, armed hostilities, terrorism,
recession, excessive inflation, or strikes, lockouts or other labor
disturbances, that results in a significant decline in the volume of air travel
or in an overall downturn in the business and operations of the Company's
customers in the travel industry could have a material adverse effect on the
business, financial condition and results of operations of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
DEPENDENCE UPON LARGE TRAVEL AGENCIES
Travel agencies are the primary channel of distribution for the services
offered by travel vendors. In the United States, nearly all travel agencies
utilize a CRS, whether operated by the Company or by one of its competitors. The
Company's five largest travel agency subscribers, measured in terms of number of
1996 bookings, are American Automobile Association, Inc., American Express
Travel Related Services Company, Inc., Business Travel International, S.A.
Compagnie Internationale Des Wagon-Lits Et Du Tourisme (Carlson Wagonlit Travel)
and Rosenbluth International, Inc., which together accounted for approximately
21% of the bookings through the Company. No single travel agency generated more
than 10% of the bookings through the Company in 1996. If the Company were to
lose and not replace the bookings generated by one or more of these travel
agencies, its business, financial condition and results of operations could be
materially adversely affected.
RELATIONSHIP WITH AIRLINE STOCKHOLDERS
Contribution to the Company's Revenue
Each airline stockholder participates in the Company's systems for the
distribution of its travel services, and in 1996, booking fees charged to the
airline stockholders represented, in the aggregate, approximately 32% of the
Company's revenue. United Airlines is the largest single travel vendor utilizing
the Company's systems, as measured by booking fee revenue, generating booking
fees that accounted for approximately 12% of the Company's revenue in 1996. No
other travel vendor accounted for 10% or more of the Company's revenue and no
other airline stockholder accounted for 5% or more of the Company's revenue in
1996. Although the Company believes that, as a regulatory matter for certain
airline stockholders, and as a practical matter for all airline stockholders,
each airline stockholder will continue to distribute its travel services through
the Company's systems, the loss of booking fees from United Airlines or a number
of the other airline stockholders could have a material adverse effect on the
business, financial condition and results of operations of the Company.
Control of the Company
Upon completion of the Offering, the airline stockholders will own, in the
aggregate, approximately 68% of the outstanding Common Stock (65% if the U.S.
Underwriters' over-allotment option is exercised in full). The airline
stockholders controlled by United Airlines and KLM will be the Company's two
largest stockholders, owning approximately 33% and 11% of the outstanding Common
Stock, respectively (32% and 10%, respectively, if the U.S. Underwriters'
over-allotment option is exercised in full). No other airline stockholder will
own more than 10% of the outstanding Common Stock. See "Principal and Selling
Stockholders." In addition, the Special Voting Preferred Stock (as defined
herein) will allow certain of the
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<PAGE> 12
airline stockholders to elect a total of seven of the 13 members of the
Company's Board of Directors. The airline stockholder controlled by United
Airlines will own three shares of such Special Voting Preferred Stock and the
airline stockholders controlled by KLM, US Airways, British Airways and
SAirGroup will each own one share, each such share entitling the holder thereof
(or in certain circumstances, such holder's transferee) to elect one director.
As to the remaining six directors, the airline stockholders have agreed,
pursuant to the Stockholders' Agreement (as defined herein), to vote their
shares of Common Stock in favor of the election of three independent directors
who will be nominated by the Board of Directors and three management directors.
As a result, as long as the Stockholders' Agreement remains in effect and the
airline stockholders own in the aggregate more than 50% of the outstanding
Common Stock, the airline stockholders will control the election of the entire
Board of Directors. See "Management -- Board Composition," "Relationship with
Airline Stockholders and Certain Transactions -- Stockholders' Agreement" and
"Description of Capital Stock -- Special Voting Preferred Stock."
Commercial Arrangements
Simultaneously with the consummation of the Offering, the Company will
enter into sales representation agreements with each of United Airlines and US
Airways pursuant to which these airlines will supply the sales force for the
Company's Apollo brand reservations products to subscribers in the United States
and Mexico. Any failure on the part of United Airlines or US Airways to provide
such services in an effective manner, coupled with the Company's inability to
replace such services, could weaken the Company's sales efforts in these
countries. This, in turn, could have a material adverse effect on the business,
financial condition and results of operations of the Company.
The Company distributes its products in certain territories through NDCs,
some of which will be owned in whole or in part by affiliates of the airline
stockholders following consummation of the Offering. At such time, distributor
sales and services agreements between the Company and the NDCs controlled by
Austrian Airlines, Air Canada, Olympic Airways, Aer Lingus, Alitalia and British
Airways (collectively, the "Distribution Agreements") will be in effect covering
Austria, Canada, Greece, Ireland, Italy and the United Kingdom, respectively.
The Distribution Agreements generally provide that they will remain in effect
for so long as the relevant airline stockholder continues to own an interest in
the Company and the relevant NDC remains an affiliate of such airline
stockholder. There can be no assurance that such Distribution Agreements will
continue in effect. The termination of certain Distribution Agreements could
leave the Company without an effective means of marketing its products in the
relevant territory. This, in turn, could have a material adverse effect on the
business, financial condition and results of operations of the Company.
Simultaneously with the consummation of the Offering, the Company will
enter into a non-competition agreement with each of the airline stockholders
which will prohibit the airline stockholders and their affiliates from competing
with the Company in providing reservations services to neutral travel agencies.
However, the non-competition agreements include certain exceptions that permit
the airline stockholders and their affiliates to, among other things, provide
and market certain reservations services to certain customers of the airline
stockholders.
If an airline stockholder believes it will be materially disadvantaged in
relation to one of its airline competitors by not being able to engage in an
activity that is prohibited by the non-competition agreement, such entity may
seek approval to engage in the activity from the Company's Airline Affiliate
Review Board (the "AARB"). The AARB, which will be comprised of a representative
of each of United Airlines, KLM, Swissair, British Airways and US Airways (so
long as the relevant airline stockholder is a beneficial owner of a share of
Special Voting Preferred Stock and is not the airline seeking relief), may
permit the airline stockholder to engage in the prohibited activity if it
determines that the damage to the airline stockholder from continued prohibition
of such activity would be greater than the damage that would be suffered by the
Company if such activity were allowed. The AARB may condition its permission
upon divestiture of the airline stockholder's interest in the Company's capital
stock, termination of its right to distribute the Company's products and
services or the payment of compensation to the Company.
The non-competition agreements may be terminated upon 12 months' notice
given at any time after the second anniversary of the consummation of the
Offering, or upon six months' notice after the third anniversary of such date,
provided that the agreements may not be terminated while the airline stockholder
controls one of
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<PAGE> 13
the Company's NDCs. Each non-competition agreement also terminates automatically
at such time as the airline stockholder that is a party to such agreement ceases
to own any shares of Common Stock, although the agreement will continue to be
binding on any NDC of the Company in which such airline stockholder owns an
interest. There can be no assurance that the non-competition agreements will
remain in effect or that the AARB will not permit an airline stockholder to
compete with the Company in a manner detrimental to the Company. This, in turn,
could have a material adverse effect on the business, financial condition and
results of operations of the Company. See "Relationship with Airline
Stockholders and Certain Transactions -- Non-Competition Agreements."
Because the Company is controlled by the airline stockholders, the
foregoing agreements and the other commercial agreements between the Company and
the airline stockholders were not the result of arm's-length negotiations
between independent parties. In addition, certain of these agreements may be
modified, and additional agreements may be entered into by the Company and the
various airline stockholders, after completion of the Offering. The Company
believes that, to the extent the airline stockholders modify any such
arrangements, such modifications would be made in a manner fair to both the
Company and the airline stockholders. However, because of the influence over the
business and affairs of the Company that has been and may continue to be
exercised by the airline stockholders, there can be no assurance that the terms
and conditions of such agreements are, and in the future will be, at least as
favorable to the Company as could have been or would be obtained in agreements
with unaffiliated third parties.
TECHNOLOGY INVESTMENT
The Company's future results will depend, in part, upon its ability to make
timely and cost-effective enhancements and additions to its technology and to
introduce new products that meet the business demands of travel vendors and
subscribers. The success of new products is dependent on several factors,
including proper identification of travel vendors' and subscribers' needs, the
cost of developing new products, timely completion and implementation of new
products, differentiation of new products from those of the Company's
competitors and market acceptance of new products. In addition, maintaining the
flexibility to respond to technological and market changes may require
substantial expenditures and lead time. There can be no assurance that the
Company will successfully identify and develop new products in a timely manner,
that products developed by others will not render the Company's offerings
obsolete or noncompetitive or that the technologies in which the Company invests
will achieve broad acceptance in the marketplace.
The Company has made a significant investment in its technology
infrastructure. This infrastructure results in an operating expense structure
that is largely fixed. As a result, in the event of a significant reduction in
booking volumes, technology costs would remain relatively constant. If such a
reduction continued for a prolonged period, the Company's business, financial
condition and results of operations could be materially adversely affected.
DEPENDENCE UPON FACILITIES AND NETWORK
The Company's data and transaction processing services are dependent on the
Company's Data Center, located near Denver, Colorado. Although the Company
believes it has taken sufficient precautions to protect this facility and to
achieve network security, a natural or manmade disaster or other calamity that
causes significant damage to the facility or the Company's systems would have a
material adverse effect on the business, financial condition and results of
operations of the Company.
The Company relies on several communications companies in the United States
and internationally to provide network connections between the Data Center and
subscribers' access terminals. In particular, the Company relies upon Societe
Internationale de Telecommunications Aeronautiques ("SITA"), which is owned by a
consortium of airlines and other travel-related businesses, to maintain its data
communications and to provide network services for many countries served by the
Company. Any significant failure or inability of SITA or other communications
companies to provide and maintain network access could have a material adverse
effect on the business, financial condition and results of operations of the
Company.
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<PAGE> 14
YEAR 2000 COMPLIANCE
The Company has implemented a program designed to ensure that all software
used in connection with the Company's products will manage and manipulate data
involving the transition of dates from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such dates. However, with
regard to bookings for travel beginning in the year 2000, any failure on the
part of the Company, its travel vendor customers or NDCs to ensure that any such
software complies with year 2000 requirements, regardless of when such bookings
occur, could have a material adverse effect on the business, financial condition
and results of operations of the Company.
COMPETITION
The Company competes in the provision of electronic global distribution
services primarily against other large and well-established CRSs in a highly
competitive market. The Company's principal competitor in the United States is
SABRE, and its competitors in the rest of the world include Abacus,
Amadeus/System One, SABRE and Worldspan, each of which offers many products
similar to those of the Company. In addition, although there are certain
barriers to entry to the CRS market, such as the need for significant capital
investment to acquire or develop the hardware, software and network facilities
necessary to effectively operate a CRS, as well as subscriber reluctance to
change systems once established, the Company is always faced with the
possibility that new competitors will enter the CRS market, particularly as new
channels for travel distribution develop. Factors affecting the competitive
success of electronic global distribution services systems include the depth and
breadth of the information offered, the reliability and ease of use of the CRS,
the incentives paid to travel agencies and the range of products available to
travel vendors, travel agencies and other subscribers. The Company believes it
competes effectively with respect to each of these factors. However, increased
competition could require the Company to increase spending on marketing or
product development or to take other actions that could have a material adverse
effect on the business, financial condition and results of operations of the
Company.
Competitive factors could also lead the Company to decrease the amount it
charges as booking fees in response to pressure from travel vendors. Any
decrease in the amount of such fees, or a change in related booking or billing
practices that results in an effective reduction in such fees, could have a
material adverse effect on the business, financial condition and results of
operations of the Company.
Competition to attract and retain travel agency subscribers is intense. In
highly competitive markets, the Company and other CRSs offer incentive payments
to travel agency subscribers if certain productivity or booking volume growth
targets are achieved. Although expansion of the use of such incentive payments
could adversely affect the Company's profitability, the Company's failure to
continue to make such incentive payments could result in the loss of some travel
agency subscribers. If the Company were to lose a significant portion of its
current base of travel agencies to a competing CRS or if the Company were forced
to increase the amounts of such incentive payments significantly, the Company's
business, financial condition and results of operations could be materially
adversely affected.
In addition to the traditional competitors described above, the emergence
of direct access has provided the Company with new competition from both
technology firms and from travel vendors themselves. Competition within the
direct access channel currently takes two forms. The first consists of on-line
services that provide a link between the end user and the CRS. These entities
generate competition among CRSs to provide the "engine" for such booking
services. The use of these on-line services, while potentially causing a bypass
of the traditional travel agency channel, does not typically divert bookings
away from CRSs. The Company believes it competes effectively with other CRSs for
business from on-line services providers.
The second form of competition within the direct access channel is from
travel vendors themselves, who may provide consumers with direct access to their
internal reservation systems. The Company believes that the features of CRS
products which allow subscribers to comparison shop and to obtain greater
functionality and more information for the end user reduce the potential that
the direct access products sponsored by travel vendors will divert bookings away
from CRSs. However, any significant diversion could have a material adverse
effect on the business, financial condition and results of operations of the
Company.
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EXPANSION INTO DEVELOPING AND NEW CRS MARKETS
A core component of the Company's strategy involves penetrating developing
and new CRS markets. These markets generally exhibit lower levels of technology
and less developed communications infrastructures than mature CRS markets. The
Company is likely to be faced with different cost structures in these markets
from those that exist elsewhere. In particular, communications costs in
developing and new CRS markets may be higher than in mature markets.
Furthermore, in attempting to penetrate these markets, the Company may be faced
with other challenges inherent in international expansion, including hiring and
training qualified employees, consumer acceptance of technology and political
risk. If it is unable to respond to these risks, the Company may not be able to
effectively pursue its strategy of penetrating such markets or may not be able
to derive sufficient benefit from expansion into these markets. See
"Business -- Electronic Global Distribution Services -- Product Distribution."
GOVERNMENT REGULATION
United States
U.S. Department of Transportation regulations (the "U.S. CRS Rules") govern
several elements of the CRS industry. To the extent that a CRS is offered to
travel agencies within the United States, the U.S. CRS Rules apply to the
operation of that system and its marketing to travel agencies and airlines. The
U.S. CRS Rules require an airline that directly or indirectly owns five percent
or more of a CRS to participate in all other airline-owned CRSs at the same
level of functionality at which it participates in its own CRS. Accordingly, CRS
owners such as American Airlines, Continental Airlines, Delta Air Lines,
Northwest Airlines and TWA all participate at high levels of functionality
within the Company's systems. Although the Company does not believe that any of
these airlines would terminate its participation in the Company's systems
entirely, certain airlines have indicated that they would not participate
equally in all CRSs in the absence of the U.S. CRS Rules. The U.S. CRS Rules are
scheduled to expire on December 31, 1997; however, the Company believes these
rules will be extended. Nonetheless, in the event that such rules were to
expire, the decision by several airlines to downgrade their participation in the
Company's systems could result in a significant decrease in fees from such
airlines. This, in turn, could have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Business --
Legal and Regulatory Matters -- Regulation."
European Union
The Company is also subject to detailed regulation in the European Union
(the "EU CRS Rules"). The main purpose of the EU CRS Rules is to encourage free
competition among airline vendors by ensuring that all airline vendors and
subscribers have equal access to all CRSs operating in the European Union and
that the systems and displays of CRSs are neutral and non-discriminatory to all
airline vendors, regardless of the size of the airline and whether or not it is
an owner of a CRS.
The EU CRS Rules state that fees charged by CRSs must be
non-discriminatory, reasonably structured and reasonably related to the cost of
the service provided and used and, in particular, must be the same for the same
level of service. CRS bills must be sufficiently detailed to allow participating
airlines and subscribers to see exactly which services have been used and
participating airlines may disallow certain bookings unless they have previously
accepted them. There can be no assurance that the European Commission will not
challenge the Company's fee structure or put pressure on the Company to reduce
fees charged to certain vendors. Any such action could have the effect of
decreasing revenues earned by the Company in Europe. This, in turn, could have a
material adverse effect on the business, financial condition and results of
operations of the Company. See "Business -- Legal and Regulatory Matters --
Regulation."
INTELLECTUAL PROPERTY RIGHTS
Among the Company's significant assets are its software and other
proprietary information and intellectual property rights. The Company relies on
a combination of copyright, trademark and patent laws, trade secrets,
confidentiality procedures and contractual provisions to protect these assets.
The Company's software and related documentation, however, are protected
principally under trade secret and copyright laws,
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which afford only limited protection. In addition, the laws of some foreign
jurisdictions may provide less protection for the Company's proprietary rights
than the laws of the United States. Unauthorized use of the Company's
intellectual property could have a material adverse effect on the business,
financial condition and results of operations of the Company, and there can be
no assurance that the Company's legal remedies would adequately compensate it
for the damages caused by such use.
The Company does not believe that any of its products infringes upon the
proprietary rights of third parties in any material respect. There can be no
assurance, however, that third parties will not claim infringement by the
Company with respect to current or future products. Any such claim, with or
without merit, could result in substantial costs and diversion of management
resources, and a successful claim could effectively block the Company's ability
to use or license products in the United States or abroad. Any such claim,
therefore, could have a material adverse effect on the business, financial
condition and results of operations of the Company.
Licenses for a number of software products have been granted to the
Company. Certain of these licenses, individually and in the aggregate, are
material to the business of the Company. Although the Company believes that the
risk that it will lose any material license is remote, any such loss could have
a material adverse effect on the business, financial condition and results of
operations of the Company.
POSSIBLE FUTURE SALES OF COMMON STOCK BY THE AIRLINE STOCKHOLDERS
Subject to applicable federal securities laws, the Stockholders' Agreement
and the restrictions set forth below, any airline stockholder may sell any or
all of the Common Stock owned by it after completion of the Offering. Sales or
distributions of substantial amounts of Common Stock in the public market, or
the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock. The airline stockholders are not subject to
any contractual obligation to retain their Common Stock, except that they have
agreed along with the Company, subject to certain exceptions, not to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Morgan Stanley
& Co. Incorporated on behalf of the Underwriters. See "Underwriters." The
airline stockholders will have registration rights with respect to the Common
Stock owned by them following the Offering, which would facilitate any future
disposition. As a result, after 180 days, there can be no assurance concerning
the period of time during which the airline stockholders will retain their
ownership of Common Stock. See "Shares Eligible for Future Sale."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE AND OF THE
SECURITIES MARKET
Prior to the Offering, there has been no public market for the shares of
Common Stock. Although the Common Stock has been approved for listing, subject
to official notice of issuance, on the New York Stock Exchange, there can be no
assurance that a regular trading market for the shares of Common Stock will
develop after the Offering or, if developed, that a public trading market can be
sustained. There can be no assurance that the prices at which the Common Stock
will sell in the public market after the Offering will not be lower than the
price at which it is offered by the Underwriters in the Offering. The initial
public offering price for the Common Stock will be determined by negotiations
among the Company, the Selling Stockholders and the representatives of the
Underwriters and may not be indicative of the market price for the Common Stock
after the Offering. See "Underwriters -- Pricing of Offering."
The market price for the Common Stock may be highly volatile. The Company
believes that factors such as announcements by it, or by its competitors or
travel vendors, of quarterly variances in financial results could cause the
market price of the Common Stock to fluctuate substantially. In addition, the
stock market may experience extreme price and volume fluctuations which often
are unrelated to the operating performance of specific companies. Market
fluctuations, perceptions regarding the electronic global distribution services
industry and travel-related industries and general economic or political
conditions may adversely affect the market price of the Common Stock.
DILUTION
Purchasers of Common Stock in the Offering will experience an immediate
dilution of $25.71 per share (assuming an initial public offering price of
$21.50 per share) in the net tangible book value of their shares of Common
Stock. See "Dilution."
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THE COMPANY
Galileo International is one of the world's leading providers of electronic
global distribution services for the travel industry. The Company provides
travel agencies at approximately 36,000 locations, as well as other subscribers,
with the ability to access schedule and fare information, book reservations and
issue tickets for 525 airlines. Galileo International also provides subscribers
with information and booking capability covering 48 car rental companies and
more than 200 major hotel chains with approximately 35,000 properties throughout
the world. The Company completed more than 300 million bookings in 1996,
representing an estimated $50 billion in travel services. The Company's travel
agency subscribers operate more than 148,000 computer terminals, all of which
are linked to the Company's Data Center, one of the world's largest commercial
data processing complexes, a system with an uptime performance record of better
than 99.9%. The Company's estimated share of 1996 CRS airline bookings in the
United States was 27%; in Europe its estimated share was 39%.
The Company's principal executive office is located at 9700 West Higgins
Road, Suite 400, Rosemont, Illinois 60018 and its telephone number is (847)
518-4000.
THE GALILEO PARTNERSHIP
The Galileo Partnership, a Delaware general partnership, was formed in
September 1993 through the combination of Covia Partnership and The Galileo
Company Ltd. Covia Partnership owned the Apollo CRS, which began in 1971 as
United Airlines' internal reservation system. United Airlines later established
the Apollo business as a separate operating company, and over time sold 50% of
the business to affiliates of six other airlines. The Apollo CRS was marketed in
North America and Japan. The Galileo Company Ltd. was incorporated in England
and Wales in 1987 by five airlines in response to the growing need for CRS
automation. Its CRS, the Galileo system, was designed to provide services to the
travel industry outside of North America and Japan, principally in Europe. The
1993 combination created a global organization by bringing together two
companies which already shared certain common airline owners. This combination
resulted in the Company achieving significant synergies, particularly through
the consolidation of the data centers operated by each company. In connection
with the 1993 combination, ATS was formed to become the NDC for the United
States, Mexico and certain islands of the Caribbean.
GALILEO INTERNATIONAL, INC.
Galileo International, Inc., the issuer of the Common Stock being offered
hereby, is a newly organized Delaware corporation formed to be a holding company
for the business of the Galileo Partnership. Immediately prior to the
consummation of the Offering, the Galileo Partnership will merge with and into a
wholly owned limited liability company subsidiary of Galileo International, Inc.
Pursuant to such merger, the airline stockholders will receive shares of Common
Stock in the same proportion as that of their respective partnership interests
in the Galileo Partnership. In addition, certain of the airline stockholders
will receive shares of Special Voting Preferred Stock entitling them to elect
directors to the Company's Board of Directors. See "Management -- Board
Composition" and "Description of Capital Stock -- Special Voting Preferred
Stock." The airline stockholders and the Company will also enter into a
Stockholders' Agreement, a Registration Rights Agreement, non-competition
agreements and various commercial arrangements. See "Relationship with Airline
Stockholders and Certain Transactions."
THE NDC ACQUISITIONS
The Company has identified opportunities to acquire NDCs in certain mature
CRS markets in which it has significant market share. Vertical integration
through the acquisition of these NDCs offers the Company an attractive
opportunity to further enhance customer service by allowing the Company to
improve its understanding of customers' product and service requirements, as
well as to increase its control over product design, service delivery and costs.
In particular, the Company believes that ownership of NDCs in these markets will
allow it to provide better and more consistent service to multinational travel
agencies at locations
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throughout the world. In addition, vertical integration will enable the Company
to capture profits derived from the distribution of its products and to realize
certain operational and overhead synergies.
In connection with this vertical integration strategy, the Company expects
to acquire ATS, Traviswiss and, subject to receipt of Dutch regulatory approval,
Galileo Nederland simultaneously with the consummation of the Offering. In the
event that the Dutch regulatory approval is not received prior to the
consummation of the Offering, the Company expects to receive such approval
shortly thereafter. The Company intends to acquire Galileo Nederland immediately
following receipt of such approval. The Company will use the net proceeds it
receives from the Offering to pay a portion of the aggregate purchase price for
the NDC Acquisitions and will use borrowings under the Credit Agreement to pay
the balance of the aggregate purchase price. In addition, the Company has
entered into a non-binding letter of intent with Air Canada for the purchase of
its wholly owned NDC, Galileo Canada Distributions Systems Inc. The Company is
currently evaluating and will continue to evaluate acquisitions and joint
ventures involving other NDCs. See "Business -- Strategy -- Expanding Influence
Through Vertical Integration and Strategic Alliances."
Apollo Travel Services Partnership
Prior to the consummation of the Offering, the Company will enter into an
agreement (the "ATS Acquisition Agreement") with United Airlines, US Airways and
Air Canada and certain of their affiliates (collectively, the "ATS Partners") to
acquire ATS at a purchase price of $700.0 million. Pursuant to the ATS
Acquisition Agreement, wholly owned subsidiaries of the Company will acquire all
of the outstanding general partnership interests in ATS. In connection with its
acquisition of ATS, the Company will also enter into an agreement with United
Airlines, US Airways and Air Canada, pursuant to which these airlines will
provide services related to growing the business of ATS and pursuant to which,
during the sixth year following the acquisition of ATS, the Company will pay
United Airlines, US Airways and Air Canada a fee of up to $200.0 million (on a
present value basis), based on improvements in the Company's air booking fee
revenues over the five-year period immediately following the acquisition of ATS.
See "Relationship with Airline Stockholders and Certain Transactions --
Commercial Arrangements -- Services Agreements."
The ATS Acquisition Agreement contains certain customary representations,
warranties and covenants. Certain of the representations and warranties made by
the ATS Partners will survive for two years after the closing, and certain of
the ATS Partners' covenants will survive the closing. The ATS Acquisition
Agreement provides that, to the extent the Company has actual knowledge prior to
the closing that any of the representations and warranties or covenants of the
ATS Partners that survive the closing are not true or have been breached, as the
case may be, its sole remedy will be not to consummate the acquisition of ATS.
With certain exceptions, the ATS Partners' obligations to indemnify the Company
for breaches of their representations, warranties and covenants in the ATS
Acquisition Agreement will only apply to the extent such breaches result in
liability in excess of $5.0 million, and will be subject to an aggregate limit
of $175.0 million.
Consummation of the acquisition of ATS is subject to the satisfaction (or
waiver) of certain conditions set forth in the ATS Acquisition Agreement,
including: (i) the accuracy of the representations and warranties of the ATS
Partners; (ii) the receipt of certain regulatory approvals; (iii) completion of
the Offering and the receipt by the Company of any other required financing; and
(iv) satisfaction of a net asset test.
ATS, based near Chicago, Illinois, is responsible for the marketing, sales
and support of the Company's Apollo brand products in the United States, Mexico
and certain islands of the Caribbean. ATS provides its services to approximately
13,000 travel agency locations, representing an estimated 60,000 terminals.
Approximately 27% of all 1996 CRS airline bookings in the United States were
made through the Company by subscribers served by ATS. ATS's revenue and
operating income for the year ended December 31, 1996 were $380.0 million and
$85.0 million, respectively. As of December 31, 1996, ATS had net assets of
approximately $136.1 million. As of March 31, 1997, ATS had 1,070 employees.
ATS was established in 1993, when Covia Partnership and The Galileo Company
Ltd. combined to form the Galileo Partnership. Previously, Covia Partnership was
responsible for all ATS functions.
17
<PAGE> 19
Traviswiss AG
Prior to the consummation of the Offering, the Company will enter into an
agreement with SAirGroup and one of its affiliates to acquire Traviswiss at a
purchase price of $8.0 million (as adjusted for cash to be retained by
Traviswiss). Traviswiss, based in Zurich, Switzerland, was incorporated in 1993
as a wholly owned subsidiary of SAirGroup. Traviswiss provides its services to
approximately 1,400 travel agency locations in Switzerland, representing an
estimated 6,000 terminals. Approximately 77% of all 1996 CRS airline bookings in
Switzerland were made through the Company by subscribers served by Traviswiss.
Traviswiss's revenue and operating income for the year ended December 31, 1996
were $29.9 million and $.6 million, respectively. As of December 31, 1996,
Traviswiss had net assets of $3.1 million. As of March 31, 1997, Traviswiss had
52 employees.
In connection with its acquisition of Traviswiss, the Company has agreed to
pay SAirGroup a total of $22.4 million in four annual installments, beginning
upon the acquisition of Traviswiss, in connection with the termination of
certain revenue sharing obligations. See "Relationship with Airline Stockholders
and Certain Transactions -- Commercial Arrangements -- Termination of Revenue
Sharing Obligations." In addition, in connection with its acquisition of
Traviswiss, the Company will enter into an agreement with Swissair, pursuant to
which SAirGroup will provide services related to growing the business of
Traviswiss and pursuant to which, during the sixth year following the
acquisition of Traviswiss, the Company will pay SAirGroup a fee of up to $6.8
million (on a present value basis), based on improvements in the Company's air
booking fee revenues over the five-year period immediately following the
acquisition of Traviswiss. See "Relationship with Airline Stockholders and
Certain Transactions -- Commercial Arrangements -- Services Agreements."
Galileo Nederland BV
Prior to the consummation of the Offering, subject to receipt of Dutch
regulatory approval, the Company will enter into an agreement with KLM and one
of its affiliates to acquire Galileo Nederland at a purchase price of $2.0
million. In the event that the Dutch regulatory approval is not received prior
to the consummation of the Offering, the Company expects to receive such
approval shortly thereafter. The Company intends to acquire Galileo Nederland
immediately following receipt of such approval. Galileo Nederland, based near
Amsterdam, The Netherlands, was incorporated in 1988 as a wholly owned
subsidiary of KLM. Galileo Nederland provides its services to approximately
1,200 travel agency locations in The Netherlands, representing an estimated
4,200 terminals. Approximately 87% of all 1996 CRS airline bookings in The
Netherlands were made through the Company by subscribers served by Galileo
Nederland. Galileo Nederland's revenue and operating income for the year ended
March 31, 1997 were approximately $8.1 million and $.8 million, respectively. As
of December 31, 1996, Galileo Nederland had net assets of approximately $1.4
million. As of March 31, 1997, Galileo Nederland had 41 employees.
In connection with its acquisition of Galileo Nederland, the Company has
agreed to pay KLM a total of $14.8 million in four annual installments,
beginning upon the acquisition of Galileo Nederland, in connection with the
termination of certain revenue sharing obligations. See "Relationship with
Airline Stockholders and Certain Transactions -- Commercial Arrangements --
Termination of Revenue Sharing Obligations." In addition, in connection with its
acquisition of Galileo Nederland, the Company will enter into an agreement with
KLM pursuant to which KLM will provide services related to growing the business
of Galileo Nederland and pursuant to which, during the sixth year following the
acquisition of Galileo Nederland, the Company will pay KLM a fee of up to $4.7
million (on a present value basis), based on improvements in the Company's air
booking fee revenues over the five-year period immediately following the
acquisition of Galileo Nederland. See "Relationship with Airline Stockholders
and Certain Transactions -- Commercial Arrangements -- Services Agreements."
18
<PAGE> 20
RECENT DEVELOPMENTS
Set forth below are selected unaudited supplemental data of the Company for
the three months ended June 30, 1996 and 1997 and for the six months ended June
30, 1996 and 1997. This information is not necessarily indicative of financial
or operating results that may be expected for a full year.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1996 1997 1996 1997
---- ---- ---- ----
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
HISTORICAL GALILEO PARTNERSHIP DATA:
Revenues(1).............................................. $278.0 $307.2 $557.1 $614.8
Operating income......................................... 49.9 53.6 101.9 119.9
Net income............................................... 46.7 53.1 96.2 118.6
Net CRS bookings (in millions)(2)........................ 80.6 88.1 163.9 176.6
PRO FORMA DATA(3):
Revenues(1).............................................. $315.6 $348.3 $630.8 $695.2
Operating income......................................... 65.8 77.6 138.3 167.1
Net income............................................... 33.4 42.6 71.6 91.6
Net income per share..................................... .33 .43 .72 .92
Weighted average number of shares outstanding (in
millions)............................................. 100.0 100.0 100.0 100.0
Operating income as a percentage of revenue.............. 20.8% 22.3% 21.9% 24.0%
</TABLE>
- ---------------
(1) Revenues include significant transactions with the airline stockholders and
certain of their affiliates.
(2) Transactions in respect of bookings made in the United States, Canada,
Mexico and Japan have been converted to a net segment equivalent basis.
Bookings made in the rest of the world are reported on a net segment basis.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Overview."
(3) The pro forma information gives effect to (i) the merger of the Galileo
Partnership into a wholly owned limited liability company subsidiary of
Galileo International, Inc.; (ii) the Offering at an assumed initial public
offering price of $21.50 per share of Common Stock; (iii) the incurrence of
$474.9 million of indebtedness under the Credit Agreement; and (iv) the NDC
Acquisitions.
19
<PAGE> 21
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 12,000,000
shares of Common Stock in the Offering are estimated to be approximately $240.8
million (approximately $338.3 million if the U.S. Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$21.50 per share. The net proceeds to the Company from the Offering, together
with an additional $474.9 million of borrowings under the Credit Agreement, will
be used by the Company to fund the aggregate purchase price for the NDC
Acquisitions and to fund the initial payments due in connection with the
termination of certain revenue sharing obligations. See "The Company -- The NDC
Acquisitions" and "Pro Forma Condensed Combined Financial Statements."
The following table illustrates the Company's sources and uses of funds:
<TABLE>
<CAPTION>
AMOUNT
------
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Net proceeds from the Offering......................... $240.8
Borrowings under the Credit Agreement.................. 474.9
------
Total sources..................................... $715.7
======
USES OF FUNDS:
ATS acquisition........................................ $700.0
Traviswiss acquisition................................. 8.0
Galileo Nederland acquisition.......................... 2.0
Initial payments related to the termination of revenue
sharing obligations................................... 5.4
Estimated fees and expenses related to borrowings under
the Credit Agreement.................................. .3
------
Total uses........................................ $715.7
======
</TABLE>
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.
20
<PAGE> 22
DIVIDEND POLICY
Although the Company expects to reinvest a substantial portion of its
earnings in its business, the Company currently intends to pay regular quarterly
cash dividends of $.05 per share, beginning with the dividend payable in the
fourth quarter of 1997 with respect to the operations of the Company in the
third quarter of 1997. However, the declaration and payment of dividends, as
well as the amount thereof, are subject to the discretion of the Board of
Directors of the Company and will depend upon the Company's results of
operations, financial condition, cash requirements, future prospects and other
factors deemed relevant by the Board of Directors. There can be no assurance
that the Company will declare and pay any dividends.
DILUTION
The deficit in pro forma net tangible book value of the Company at March
31, 1997 was $662.3 million, or $6.62 per share of Common Stock after giving
effect to (i) the merger of the Galileo Partnership into a wholly owned limited
liability company subsidiary of Galileo International, Inc.; (ii) the incurrence
of $474.9 million of indebtedness under the Credit Agreement; and (iii) the NDC
Acquisitions. Net tangible book value per share of Common Stock represents the
amount of total tangible assets less total liabilities, divided by the total
number of shares of Common Stock outstanding.
After giving effect to the sale of 12,000,000 shares of Common Stock
pursuant to the Offering at an assumed initial public offering price of $21.50
per share, the adjusted pro forma deficit in net tangible book value of the
Company at March 31, 1997 would have been approximately $421.4 million or $4.21
per share of Common Stock. Such amount represents an immediate dilution of
$25.71 per share of Common Stock to investors purchasing shares in the Offering.
Dilution per share represents the difference between the amount per share paid
by purchasers of Common Stock in the Offering and the pro forma net tangible
book value per share of Common Stock immediately after completion of the
transactions noted above.
The following table illustrates the dilution in pro forma net tangible book
value per share to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common
Stock..................................................... $21.50
Pro forma net tangible book value (deficit) per share of
Common Stock(1)........................................... (6.62)
Increase in pro forma net tangible book value per share
attributable to sale of shares of Common Stock in the
Offering.................................................. 2.41
------
Pro forma net tangible book value (deficit) per share of
Common Stock after the Offering........................... (4.21)
------
Dilution per share of Common Stock to new investors......... $25.71
======
</TABLE>
- ---------------
(1) Pro forma net tangible book value (deficit) per share of Common Stock gives
effect to (i) the merger of the Galileo Partnership into a wholly owned
limited liability company subsidiary of Galileo International, Inc.; (ii)
the incurrence of $474.9 million of indebtedness under the Credit Agreement;
and (iii) the NDC Acquisitions.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth information regarding the Company's
short-term debt and capitalization (i) at March 31, 1997; (ii) as adjusted to
give pro forma effect to the merger of the Galileo Partnership into a wholly
owned limited liability company subsidiary of Galileo International, Inc.
(including the effect of estimated distributions to the Galileo Partnership's
partners of undistributed earnings of the Galileo Partnership through March 31,
1997 of approximately $76.3 million), assuming such merger and distribution were
consummated at March 31, 1997; and (iii) as further adjusted to give pro forma
effect to (a) the Offering at an assumed initial public offering price of $21.50
per share of Common Stock; (b) the incurrence of $474.9 million of indebtedness
under the Credit Agreement; and (c) the NDC Acquisitions, assuming such
transactions were consummated at March 31, 1997. This table should be read in
conjunction with "Pro Forma Condensed Combined Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of the Galileo Partnership,
the consolidated financial statements of ATS and the other financial information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------------
HISTORICAL AS ADJUSTED AS FURTHER ADJUSTED
---------- ----------- -------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Capital lease obligations, current portion............. $ 7.0 $ 7.0 $ 7.3
Long-term debt, current portion........................ -- -- --
------ ------ --------
$ 7.0 $ 7.0 $ 7.3
====== ====== ========
Capital lease obligations, less current portion........ $ 32.2 $ 32.2 $ 32.2
Long-term debt, less current portion................... 70.0 70.0 544.9
Stockholders' equity:
Special Voting Preferred Stock: $.01 par value; 7
shares authorized; 7 shares issued and outstanding
as adjusted and as further adjusted............... -- * *
Ordinary Preferred Stock: $.01 par value; 25,000,000
shares authorized; no shares issued............... -- -- --
Common Stock: $.01 par value; 250,000,000 shares
authorized; 88,000,000 shares issued and
outstanding as adjusted; 100,000,000 shares issued
and outstanding as further adjusted(1)............ -- .9 1.0
Additional paid-in capital........................... -- 244.6 485.3
Retained earnings (accumulated deficit).............. -- (12.3) (12.3)
------ ------ --------
Total stockholders' equity...................... -- 233.2 474.0
Partners' capital, including cumulative translation
losses............................................... 321.8 -- --
------ ------ --------
Total capitalization................................... $424.0 $335.4 $1,051.1
====== ====== ========
</TABLE>
- -------------------------
* Less than $100,000
(1) Excludes 8,140,000 shares of Common Stock reserved for issuance pursuant to
the Company's 1997 Stock Incentive Plan and 500,000 shares of Common Stock
reserved for issuance pursuant to the Company's 1997 Non-Employee Director
Stock Plan. See "Management -- 1997 Stock Incentive Plan" and
"-- Non-Employee Director Stock Plan."
22
<PAGE> 24
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected historical consolidated financial data presented below as of
December 31, 1993 and for the period September 16 to December 31, 1993 and as of
and for each of the years ended December 31, 1994, 1995 and 1996 have been
derived from the consolidated financial statements of the Galileo Partnership,
which have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The selected historical consolidated financial data presented below
as of September 15, 1993 (the date immediately prior to the combination of Covia
Partnership and The Galileo Company Ltd.) and for the period January 1 to
September 15, 1993 have been derived from the consolidated financial statements
of Covia Partnership, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The selected historical consolidated
financial data presented below as of and for the year ended December 31, 1992
have been derived from the audited consolidated financial statements of Covia
Partnership. The selected historical consolidated financial data presented below
as of and for the three months ended March 31, 1996 and 1997 have been derived
from the unaudited consolidated financial statements of the Galileo Partnership.
The unaudited consolidated financial statements of the Galileo Partnership have
been prepared on a basis consistent with the audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of such information. The results for any interim period are not
necessarily indicative of the results for a full fiscal year. All of the
selected data presented below should be read in conjunction with "Pro Forma
Condensed Combined Financial Information," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the consolidated financial
statements of the Galileo Partnership, the consolidated financial statements of
ATS and the other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD PERIOD
JANUARY 1 SEPTEMBER 16 THREE MONTHS
YEAR ENDED TO TO YEAR ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, SEPTEMBER 15, DECEMBER 31, -------------------------- ---------------
1992 1993(1) 1993(1) 1994 1995 1996 1996 1997
------------ ------------- ------------ ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues(2).................... $527.4 $398.3 $ 188.4 $813.8 $966.4 $1,088.3 $279.2 $307.6
Operating expenses(3).......... 444.5 333.9 312.6 744.5 826.1 912.9 227.2 241.3
------ ------ ------- ------ ------ -------- ------ ------
Operating income (loss)........ 82.9 64.4 (124.2) 69.3 140.3 175.4 52.0 66.3
Other income (expense),
net(4)....................... 0.2 -- (16.4) (16.1) (16.6) (8.3) (2.0) (0.4)
------ ------ ------- ------ ------ -------- ------ ------
Income (loss) before income
taxes........................ 83.1 64.4 (140.6) 53.2 123.7 167.1 50.0 65.9
Income taxes(5)................ -- -- -- 4.4 2.6 1.9 0.5 0.4
------ ------ ------- ------ ------ -------- ------ ------
Income (loss) before cumulative
effect of accounting
change....................... 83.1 64.4 (140.6) 48.8 121.1 165.2 49.5 65.5
Cumulative effect of accounting
change(6).................... -- 17.4 -- -- -- -- -- --
------ ------ ------- ------ ------ -------- ------ ------
Net income (loss).............. $ 83.1 $ 47.0 $(140.6) $ 48.8 $121.1 $ 165.2 $ 49.5 $ 65.5
====== ====== ======= ====== ====== ======== ====== ======
BALANCE SHEET DATA (AT END OF
PERIOD):
Current assets................. $132.0 $167.6 $ 141.1 $133.8 $187.3 $ 240.8 $249.2 $278.5
Total assets................... 454.0 479.9 608.2 555.5 569.0 599.9 618.7 631.4
Current liabilities............ 98.2 76.8 170.2 191.5 227.6 199.6 224.5 167.0
Long-term debt................. -- -- 340.0 239.8 134.2 70.0 134.2 70.0
Other long-term obligations.... 12.4 49.7 102.8 84.7 77.6 74.9 80.7 72.7
Partners' capital (deficit).... 343.4 353.4 (4.8) 39.5 129.6 255.4 179.3 321.7
OTHER DATA:
Operating income (loss) as a
percentage of revenue........ 15.7% 16.2% (65.9)% 8.5% 14.5% 16.1% 18.6% 21.5%
Percentage of revenue from
non-affiliated customers..... 57.8% 57.2% 61.8% 61.7% 61.6% 64.2% 63.8% 64.5%
Net CRS bookings (in
millions)(7)................. 195.1 159.7 59.7 255.0 285.4 315.5 83.3 88.5
Net cash provided by operating
activities................... $167.5 $ 74.3 $ 26.3 $135.8 $172.6 $ 214.1 $ 17.6 $ 60.4
Capital expenditures(8)........ $ 59.5 $ 33.9 $ 14.9 $ 33.2 $ 64.5 $ 40.0 $ 6.3 $ 11.7
Number of employees............ -- -- -- 1,951 1,891 1,849 -- --
Revenue per employee........... -- -- -- $ .4 $ .5 $ .6 -- --
</TABLE>
(footnotes appear on following page)
23
<PAGE> 25
(footnotes from previous page)
- -------------------------
(1) On September 16, 1993, the Galileo Partnership was formed by combining Covia
Partnership and The Galileo Company Ltd., and distributing certain
operations to United Airlines and ATS, a newly formed entity. See "The
Company -- The Galileo Partnership." For the period September 16 to December
31, 1993, operating expenses include $120.7 million related to this business
combination.
(2) Revenues include significant transactions with the airline stockholders and
certain of their affiliates. See Note 3 to the consolidated financial
statements of the Galileo Partnership appearing elsewhere in this
Prospectus.
(3) Operating expenses are categorized into cost of operations and commissions,
selling and administrative expenses in the consolidated financial
statements.
(4) Other income (expense), net includes interest expense related to the
issuance of $340 million of debt in connection with the 1993 combination of
Covia Partnership and The Galileo Company Ltd. At March 31, 1997, $70.0
million of debt was outstanding.
(5) No provision for income taxes at the Galileo Partnership level is reflected,
as such liability is the responsibility of the partners. Certain of the
Company's non-U.S. subsidiaries are subject to income tax.
(6) Effective January 1, 1993, the Company adopted FAS 106, "Accounting for
Postretirement Benefits Other Than Pensions," changing the method of
accounting for these benefits. The cumulative effect of adopting FAS 106 as
of January 1, 1993 was a charge of $17.4 million.
(7) Transactions in respect of bookings made in the United States, Canada,
Mexico and Japan have been converted to a net segment equivalent basis.
Bookings made in the rest of the world are reported on a net segment basis.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Overview."
(8) Capital expenditures include purchases of property and equipment and
purchases of computer software. In addition, the capitalization of
internally developed computer software was $18.2 million for the year ended
December 31, 1992, $12.7 million for the period ended September 15, 1993,
$7.0 million for the period ended December 31, 1993, and $25.7 million,
$24.5 million and $21.6 million for the years ended December 31, 1994, 1995
and 1996, respectively. Capitalization of internally developed computer
software was $4.8 million for each of the three months ended March 31, 1996
and 1997.
24
<PAGE> 26
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The accompanying pro forma condensed combined financial statements consist
of the pro forma condensed combined balance sheet as of March 31, 1997 and the
pro forma condensed combined statements of income for the year ended December
31, 1996 and for the three months ended March 31, 1996 and 1997 and are based
upon the historical financial statements of the Galileo Partnership, ATS,
Galileo Nederland and Traviswiss. The pro forma condensed combined financial
statements give pro forma effect to (i) the merger of the Galileo Partnership
into a wholly owned limited liability company subsidiary of Galileo
International, Inc.; (ii) the Offering at an assumed initial public offering
price of $21.50 per share of Common Stock; (iii) the incurrence of $474.9
million of indebtedness under the Credit Agreement; and (iv) the NDC
Acquisitions, assuming such transactions were consummated on March 31, 1997,
with respect to the unaudited pro forma condensed combined balance sheet, and on
January 1, 1996, with respect to the unaudited pro forma condensed combined
statements of income.
THE ACCOMPANYING PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS DO NOT
PURPORT TO REPRESENT WHAT THE COMPANY'S FINANCIAL POSITION ACTUALLY WOULD HAVE
BEEN HAD THE TRANSACTIONS NOTED ABOVE OCCURRED ON THE DATES INDICATED OR TO
PROJECT THE COMPANY'S FINANCIAL POSITION AT ANY FUTURE DATE, NOR DO THEY PURPORT
TO REPRESENT WHAT THE COMPANY'S OPERATING RESULTS WOULD HAVE BEEN HAD SUCH
TRANSACTIONS OCCURRED ON THE DATES INDICATED OR TO PROJECT THE COMPANY'S
OPERATING RESULTS FOR ANY FUTURE PERIOD. The pro forma adjustments are based
upon available information and certain assumptions that the Company believes are
reasonable. The pro forma condensed combined financial statements should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements of the Galileo
Partnership, the consolidated financial statements of ATS and the other
financial information included elsewhere in this Prospectus.
25
<PAGE> 27
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1997
UNAUDITED
<TABLE>
<CAPTION>
GALILEO
NEDERLAND PRO FORMA ADJUSTMENTS
GALILEO AND -------------------------- PRO FORMA
PARTNERSHIP ATS TRAVISWISS DEBIT CREDIT COMBINED
----------- --- ---------- ----- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 71,163 $ 66,602 $ 670 $ 240,810(a) $ (710,000)(b) $ 106,163
474,590(c) (5,400)(g)
(32,272)(e)
Accounts receivable, net.......... 190,060 58,146 6,990 (40,882)(d) 214,314
Other current assets.............. 17,267 2,855 4,167 14,272(f) (3,867)(e) 34,694
-------- -------- ------- ---------- ---------- ----------
Total current assets................ 278,490 127,603 11,827 729,672 (792,421) 355,171
Property and equipment, at cost:
Land.............................. 5,070 2,430 -- 7,500
Buildings and improvements........ 64,752 2,292 -- 67,044
Equipment......................... 240,520 80,571 3,557 (312)(e) 324,336
Equipment held for lease.......... -- 329,953 1,377 331,330
-------- -------- ------- ---------- ---------- ----------
310,342 415,246 4,934 -- (312) 730,210
Less accumulated depreciation..... 203,828 327,433 -- (204)(e) 531,057
-------- -------- ------- ---------- ---------- ----------
Net property and equipment.......... 106,514 87,813 4,934 204 (312) 199,153
Computer software, net.............. 241,799 -- -- 241,799
Intangible assets................... -- -- -- 372,000(g) 616,468
244,468(g)
Other noncurrent assets............. 4,637 17,864 -- 28,293(f) 88,294
37,200(g)
300(c)
-------- -------- ------- ---------- ---------- ----------
$631,440 $233,280 $16,761 $1,412,137 $ (792,733) $1,500,885
======== ======== ======= ========== ========== ==========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.................. $ 20,461 $ 29,003 $ 8,521 $ (3,641)(d) $ 50,691
(3,653)(e)
Accrued commissions............... 79,006 -- -- (37,241)(d) 41,765
Distributions payable............. -- -- -- 76,262(i) 76,262
Other accrued liabilities......... 67,515 29,333 583 (81)(e) 10,600(g) 142,950
35,000(e)
Long-term debt, current portion... -- -- 1,486 (1,486)(e) --
-------- -------- ------- ---------- ---------- ----------
Total current liabilities........... 166,982 58,336 10,590 (46,102) 121,862 311,668
Other accrued liabilities........... 72,687 17,103 -- 4,453(h) 170,326
54,883(f)
21,200(g)
Long-term debt, less current
portion........................... 70,000 -- 1,726 (1,726)(e) 474,890(c) 544,890
Capital stock....................... -- -- 1,402 (1,402)(b) 1,000(a) 1,000
Additional paid-in capital.......... -- -- 10,565 (10,565)(b) 561,581(a) 485,319
(76,262)(i)
Retained earnings (accumulated
deficit).......................... -- -- (7,522) (12,318)(f) 7,522(b) (12,318)
Partners' capital, including
cumulative translation losses..... 321,771 157,841 -- (67,272)(e) --
(90,569)(b)
(321,771)(a)
-------- -------- ------- ---------- ---------- ----------
$631,440 $233,280 $16,761 $ (627,987) $1,247,391 $1,500,885
======== ======== ======= ========== ========== ==========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
26
<PAGE> 28
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
QUARTER ENDED MARCH 31, 1997
UNAUDITED
<TABLE>
<CAPTION>
GALILEO
NEDERLAND PRO FORMA ADJUSTMENTS
GALILEO AND ------------------------ PRO FORMA
PARTNERSHIP ATS TRAVISWISS DEBIT CREDIT COMBINED
----------- --- ---------- ----- ------ ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Services revenues............. $307,646 $101,769 $10,002 $ (88,004)(j) $ 15,462(n) $346,875
Costs and expenses:
Cost of operations.......... 61,265 53,618 6,388 7,813(k) (2,048)(j) 127,036
Commissions, selling and
administrative............ 180,070 19,194 1,598 15,462(n) (85,956)(j) 130,368
-------- -------- ------- --------- -------- -----------
241,335 72,812 7,986 23,275 (88,004) 257,404
-------- -------- ------- --------- -------- -----------
Operating income.............. 66,311 28,957 2,016 (111,279) 103,466 89,471
Other income (expense):
Interest income (expense),
net....................... (1,774) 626 (67) (8,311)(l) (9,526)
Other, net.................. 1,370 105 9 1,484
-------- -------- ------- --------- -------- -----------
Income before income taxes.... 65,907 29,688 1,958 (119,590) 103,466 81,429
Income taxes.................. 415 -- 142 31,852(m) 32,409
-------- -------- ------- --------- -------- -----------
Net income.................... $ 65,492 $ 29,688 $ 1,816 $(151,442) $103,466 $ 49,020
======== ======== ======= ========= ======== ===========
Pro forma weighted average
number of shares
outstanding................. 100,000,000
===========
Pro forma earnings per
share....................... $ .49
===========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
27
<PAGE> 29
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
QUARTER ENDED MARCH 31, 1996
UNAUDITED
<TABLE>
<CAPTION>
GALILEO
NEDERLAND PRO FORMA ADJUSTMENTS
GALILEO AND ----------------------- PRO FORMA
PARTNERSHIP ATS TRAVISWISS DEBIT CREDIT COMBINED
----------- --- ---------- ----- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Services revenues............. $279,177 $98,241 $10,220 $ (86,698)(j) $ 14,235(n) $315,175
Costs and expenses:
Cost of operations.......... 62,877 52,842 8,252 7,813(k) (3,274)(j) 128,510
Commissions, selling and
administrative............ 164,278 17,841 1,271 14,235(n) (83,424)(j) 114,201
-------- ------- ------- --------- -------- -----------
227,155 70,683 9,523 22,048 (86,698) 242,711
-------- ------- ------- --------- -------- -----------
Operating income.............. 52,022 27,558 697 (108,746) 100,933 72,464
Other income (expense):
Interest income (expense),
net....................... (2,335) 2,066 (67) (8,311)(l) (8,647)
Other, net.................. 284 441 8 733
-------- ------- ------- --------- -------- -----------
Income before income taxes.... 49,971 30,065 638 (117,057) 100,933 64,550
Income taxes.................. 481 -- 76 25,779(m) 26,336
-------- ------- ------- --------- -------- -----------
Net income.................... $ 49,490 $30,065 $ 562 $(142,836) $100,933 $ 38,214
======== ======= ======= ========= ======== ===========
Pro forma weighted average
number of shares
outstanding................. 100,000,000
===========
Pro forma earnings per
share....................... $ .38
===========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
28
<PAGE> 30
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
UNAUDITED
<TABLE>
<CAPTION>
GALILEO
NEDERLAND
GALILEO AND PRO FORMA ADJUSTMENTS PRO FORMA
PARTNERSHIP ATS TRAVISWISS DEBIT CREDIT COMBINED
----------- --- ---------- ----- ------ ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Services revenues.............. $1,088,259 $379,977 $38,052 $(331,174)(j) $ 55,688(n) $1,230,802
Costs and expenses:
Cost of operations........... 250,788 213,411 31,014 31,253(k) (12,013)(j) 514,453
Commissions, selling and
administrative............. 662,132 81,595 5,596 55,688(n) (319,161)(j) 485,850
---------- -------- ------- --------- --------- -----------
912,920 295,006 36,610 86,941 (331,174) 1,000,303
---------- -------- ------- --------- --------- -----------
Operating income............... 175,339 84,971 1,442 (418,115) 386,862 230,499
Other income (expense):
Interest income (expense),
net........................ (8,060) 4,712 (333) (33,242)(l) (36,923)
Other, net................... (181) 1,342 137 1,298
---------- -------- ------- --------- --------- -----------
Income before income taxes..... 167,098 91,025 1,246 (451,357) 386,862 194,874
Income taxes................... 1,882 -- 106 77,519(m) 79,507
---------- -------- ------- --------- --------- -----------
Net income..................... $ 165,216 $ 91,025 $ 1,140 $(528,876) $ 386,862 $ 115,367
========== ======== ======= ========= ========= ===========
Pro forma weighted average
number of shares
outstanding.................. 100,000,000
===========
Pro forma earnings per share... $1.15
===========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
29
<PAGE> 31
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED, IN THOUSANDS)
The accompanying pro forma condensed combined balance sheet reflects the
following pro forma adjustments as if the transactions giving rise thereto had
been consummated on March 31, 1997:
(a) To reflect the merger of the Galileo Partnership with and into a
wholly owned limited liability company subsidiary of Galileo International,
Inc. and the initial public offering of 12,000,000 shares of Common Stock
of the Company at an assumed initial public offering price of $21.50 per
share, resulting in estimated net proceeds to the Company of approximately
$240,810.
(b) To record the acquisitions of ATS, Galileo Nederland and
Traviswiss for $700,000, $2,000 and $8,000, respectively, and the transfer
of equity to additional paid-in capital.
(c) To record the estimated net proceeds from borrowings of $474,590
under the Credit Agreement, net of estimated debt issuance costs of $300.
(d) To record the elimination of the intercompany accounts between the
Galileo Partnership and ATS, Galileo Nederland, and Traviswiss upon the
combination of the entities.
(e) To record the elimination of assets not acquired and liabilities
not assumed as part of the NDC Acquisitions and payments due to United
Airlines under the Consolidation Agreement. See "Relationship with Airline
Stockholders and Certain Transactions -- Commercial
Arrangements -- Consolidation Agreement."
(f) To record deferred income taxes resulting from the incorporation
of the combined entities. Not reflected in the pro forma condensed combined
statements of income is the nonrecurring charge to income tax expense to
reflect the establishment of deferred tax assets and liabilities for the
Company at the time of the merger of the Galileo Partnership into a wholly
owned limited liability company subsidiary of Galileo International, Inc.
(g) To record the payments made in connection with the NDC
Acquisitions and the termination of certain revenue sharing obligations, as
follows:
<TABLE>
<S> <C>
Purchase price of the NDC Acquisitions and initial payments
due in connection with the termination of certain revenue
sharing obligations....................................... $715,400
Fair market value of net tangible assets acquired........... (97,985)
Fair market value of intangible assets acquired............. (372,000)
Asset recorded in connection with the termination of certain
revenue sharing obligations............................... (37,200)
Liability incurred in connection with the termination of
certain revenue sharing obligations....................... 31,800
Net pension liability recognized............................ 4,453
--------
Excess of purchase price over fair value of the net assets
of businesses acquired.................................... $244,468
========
</TABLE>
(h) To record the estimated net pension liability of $4,453 to be
assumed as a result of the acquisition of ATS. The pro forma net pension
liability to be assumed is based on an estimate, prepared by ATS's
actuaries, of the amounts of pension obligations and plan assets
attributable to employees of ATS as of December 31, 1996. The actual
obligation assumed will depend upon the amounts of pension obligations and
plan assets, as determined by the Company's actuaries, at the date that the
acquisition occurs.
(i) To record the estimated distributions to the Galileo Partnership's
partners of undistributed earnings of the Galileo Partnership through March
31, 1997.
30
<PAGE> 32
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, IN THOUSANDS)
The accompanying pro forma condensed combined statements of income for the
year ended December 31, 1996 and for the three months ended March 31, 1996 and
1997 reflect the following pro forma adjustments as if the transactions giving
rise thereto had been consummated on January 1, 1996:
(j) To record the elimination of intercompany revenues and expenses
between the Galileo Partnership, ATS, Galileo Nederland and Traviswiss upon
the combination of the entities.
(k) To record the annual amortization of the pro forma excess of the
purchase price over the fair value of the net assets of businesses acquired
of $9,779 and annual amortization of other intangibles acquired of $21,474
in association with the NDC Acquisitions. The excess of the purchase price
over the fair value of the net assets of businesses acquired is amortized
over 25 years based on technological and economic factors. The intangible
assets acquired are amortized over 19 years based on ATS's experience with
managing customer relationships.
(l) To record interest expense and amortization of deferred financing
costs associated with the additional borrowings under the Credit Agreement
at an estimated rate of 7.0% per annum.
(m) To record the estimated income tax expense related to pre-tax pro
forma condensed combined income of the combined entities at the Company's
estimated effective tax rate of approximately 40%.
(n) To conform the accounting policy of ATS related to subscriber
incentive payments to the accounting policy of the Galileo Partnership.
31
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Prior to the consummation of the Offering, the business of the Company was
conducted through the Galileo Partnership. Immediately prior to the consummation
of the Offering, the Galileo Partnership will be merged into a wholly owned
limited liability company subsidiary of Galileo International, Inc. As a result
of this merger, (i) the Company will become subject to U.S. federal and state
income taxes that were previously borne by the partners of the Galileo
Partnership and (ii) the Company will incur a nonrecurring charge to income tax
expense to reflect the establishment of deferred tax assets and liabilities
arising at the time of the merger. Upon the merger, the airline stockholders'
partnership interests will be replaced with Common Stock of the Company in the
same proportion as that of their respective partnership interests in the Galileo
Partnership.
The Company generates most of its revenues from the provision of electronic
global distribution services. Booking fees are the primary source of this
revenue and are charged to travel vendors for reservations made through the
Company. Booking fees depend on several factors, including the type of
reservation booked (primarily air, car rental or hotel), the location of the
booking and the level of travel vendor participation in the Company's systems.
The booking fee structure to airlines varies based upon the location of the
subscriber generating the booking. For bookings made in the United States,
Canada, Mexico and Japan, the Company charges airlines a fee per transaction
and, thereby, earns a separate fee for each booking and for each cancellation.
In the rest of the world, the Company charges airlines a booking fee per "net
segment." In that case, the Company earns a fee for net bookings (gross
bookings, less cancellations). Globally, non-air travel vendors are generally
charged a fee per net booking. The Company also charges premiums for higher
levels of functionality selected by the travel vendors. Since April 1996, all
booking fees and related premiums have been charged and paid in U.S. dollars.
See "Business -- Electronic Global Distribution Services -- Customer Base:
Travel Vendors."
In addition to booking fees and related premiums paid by travel vendors,
subscribers generally pay NDCs fees for hardware, software and certain services.
Such fees are often discounted or waived for travel agency subscribers,
depending upon the level of bookings generated by the travel agency. In highly
competitive markets, the Company often makes incentive payments to travel agency
subscribers that achieve defined productivity or booking volume growth
objectives.
The Company also provides information services to airlines, including
certain of its airline stockholders. The Company currently provides fares
quotation services, internal reservation services, other internal management
services and software development services to such airlines. See "Business --
Information Services."
The Company's earnings can be significantly impacted by events that affect
the travel industry. Such impact is typically caused by economic and other
conditions that decrease the number of bookings made through the Company's
systems as a result of decreased demand for airline seats and other travel
services. Other events, such as increased airline competition from low cost
carriers, excess capacity or deterioration of an airline's financial condition,
can often cause fare promotions within the airline industry. This may result in
an increased number of transactions and bookings for the Company, thereby
stimulating the Company's revenue-earning capability.
32
<PAGE> 34
The following table summarizes revenues by affiliation and geographic
location as a percentage of total revenues for each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------- THREE MONTHS ENDED
1994 1995 1996 MARCH 31, 1997
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
Affiliated customers(1).......................... 38.3% 38.4% 35.8% 35.5%
Non-affiliated customers......................... 61.7 61.6 64.2 64.5
------ ------ ------ --------
Total revenues.............................. 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ========
United States(2)................................. 59.2% 52.4% 49.2% 47.9%
Rest of world(2)................................. 40.8 47.6 50.8 52.1
------ ------ ------ --------
Total revenues.............................. 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ========
</TABLE>
- -------------------------
(1) Customers that are affiliated with one or more of the Company's airline
stockholders.
(2) The location of the travel agent making the booking determines the
geographic region credited with the related revenues.
Revenues from affiliated customers have decreased as a percentage of total
revenues, as a result of the continued growth of booking volumes from
non-affiliated travel vendors. Non-affiliated customer revenue has increased at
a compound annual growth rate of 17.9% for the three-year period ended December
31, 1996 compared to a compound annual growth rate of 15.6% for total revenues
for the same period. Of the revenue generated in 1996, approximately 35.8% was
earned from affiliates, including $355.5 million and $34.4 million related to
electronic global distribution services and information services, respectively.
The Company has a strong international presence and expects revenues
generated by international travel agency bookings to continue to increase as a
percentage of total revenues as a result of expansion in key areas such as the
Asia/Pacific region, including high growth markets such as India and Thailand.
Revenues generated outside of the United States increased from 40.8% of total
revenues in 1994 to 50.8% of total revenues in 1996. Revenues earned outside of
the United States have increased at a compound annual growth rate of 29.1% for
the three-year period ended December 31, 1996, compared to a compound annual
growth rate of 5.4% for revenues from the United States and a compound annual
growth rate of 15.6% for total revenues for the same period.
The Company's expenses consist primarily of commissions paid to NDCs, costs
associated with the operation of the Data Center and wages and benefits payable
to employees of the Company. Substantially all of the Company's expenses are
denominated and paid in U.S. dollars, with the exception of operating expenses
incurred outside of the United States. Costs of operations shown on the
Company's statements of income consist primarily of the costs of operating the
Data Center (including wages and benefits of Data Center and other technical
services personnel, and hardware, software and communications costs) and costs
of operating Company-owned NDCs. Commissions, selling and administrative
expenses shown on the Company's statements of income consist primarily of
commissions payable to NDCs and other costs of the Company's selling and
administrative functions. NDC commissions are generally based on a percentage of
booking revenues and have, therefore, grown at a rate consistent with the growth
in booking fees by country. The Company does not pay commissions to
Company-owned NDCs.
The Company currently owns nine NDCs and, concurrent with the Offering,
subject to receipt of Dutch regulatory approval with respect to the acquisition
of Galileo Nederland, will purchase three additional NDCs. The Company has also
entered into a non-binding letter of intent with Air Canada to purchase its
wholly owned NDC, Galileo Canada Distributions Systems Inc. See "The Company --
The NDC Acquisitions." The Company is evaluating and will continue to evaluate
the acquisition of other NDCs. See "Business -- Strategy -- Expanding Influence
Through Vertical Integration and Strategic Alliances." The NDC Acquisitions will
result in the assumption of the operating costs of the acquired NDCs, offset by
(i) increased revenues related to charges to travel agency subscribers for the
provision of hardware needed to access the Company's systems and, in the case of
ATS, information services provided to United Airlines and (ii) the elimination
of commission payments to these NDCs. Increased interest expense and
amortization of goodwill
33
<PAGE> 35
and intangibles will also occur as a result of the NDC Acquisitions. See "Pro
Forma Condensed Combined Financial Information."
Aggregate wages and benefits grew at a compound annual rate of 2.9% for the
three-year period ended December 31, 1996, compared to a compound annual growth
rate of 15.6% for total revenues for the same period, reflecting the Company's
operating leverage and commitment to controlling costs and improving employee
productivity, while still providing competitive compensation packages to
employees. In addition, communications costs per booking have decreased,
reflecting economies of scale and rate reductions negotiated with service
providers. Approximately 48.1% of operating expenses was paid to affiliates in
1996, primarily representing commissions paid to NDCs owned by the airline
stockholders.
Operating income increased as a percentage of revenue from 8.5% in 1994 to
16.1% in 1996. This improvement in operating margin has been a key Company
objective in recent years, achieved through expense control initiatives such as
headcount rationalization and favorable supplier negotiations which have allowed
the Company to capitalize on its purchasing power. In addition, the use of newer
and lower-cost technology alternatives contributed to increased operating
income.
SEASONALITY
The travel industry is seasonal in nature. Historically, bookings and the
fees earned for such bookings are significantly lower each year in the fourth
quarter, primarily in December. This decrease is due to early bookings by
customers for holiday travel and due to a decrease in business travel during the
holiday season.
The following table summarizes certain quarterly financial and other data
for the Company for 1995 and 1996:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
1995:
Revenues................................................ $242.8 $251.2 $247.9 $224.5
Operating income........................................ $ 40.4 $ 38.3 $ 36.7 $ 24.9
Net income.............................................. $ 35.5 $ 35.2 $ 31.8 $ 18.6
Operating income as a percentage of revenue............. 16.6% 15.2% 14.8% 11.1%
Net CRS bookings(1)..................................... 75.1 74.2 72.5 63.6
1996:
Revenues................................................ $279.2 $278.0 $277.6 $253.5
Operating income........................................ $ 52.0 $ 50.0 $ 43.9 $ 29.5
Net income.............................................. $ 49.5 $ 46.7 $ 41.4 $ 27.6
Operating income as a percentage of revenue............. 18.6% 18.0% 15.8% 11.6%
Net CRS bookings(1)..................................... 83.3 80.6 80.3 71.3
</TABLE>
- -------------------------
(1) Transactions in respect of bookings made in the United States, Canada,
Mexico and Japan have been converted to a net segment basis. Bookings made
in the rest of the world are reported on a net segment basis. See
"Business -- Electronic Global Distribution Services -- Customer Base:
Travel Vendors."
Except for the fourth quarter, the seasonality reflected above is not
necessarily indicative of future quarterly results as the Company cannot predict
the timing of airline fare promotions or their impact on the Company's quarterly
results.
34
<PAGE> 36
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
consolidated statements of income expressed as a percentage of total revenues
for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- -------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses.......................... 91.5 85.5 83.9 81.4 78.5
----- ----- ----- ----- -----
Operating income............................ 8.5 14.5 16.1 18.6 21.5
Other expenses, net......................... 2.0 1.7 0.7 0.7 0.1
----- ----- ----- ----- -----
Income before income taxes.................. 6.5 12.8 15.4 17.9 21.4
Income taxes(1)............................. 0.5 0.3 0.2 0.2 0.1
----- ----- ----- ----- -----
Net income........................ 6.0% 12.5% 15.2% 17.7% 21.3%
===== ===== ===== ===== =====
</TABLE>
- -------------------------
(1) As a general partnership, the Company was not subject to U.S. federal or
state income tax, but certain of its non-U.S. subsidiaries were subject to
income tax. As a corporation, in future periods the Company will be subject
to U.S. federal and state income tax.
First Quarter 1997 Compared to First Quarter 1996
REVENUES. Revenues increased $28.4 million, or 10.2%, to $307.6 million for
the first quarter of 1997 from $279.2 million for the first quarter of 1996.
Electronic global distribution services revenues related to airline bookings
increased 10.5% in the first quarter of 1997 compared to the first quarter of
1996. Electronic global distribution services revenues related to bookings of
car rentals and hotel reservations increased 8.5% and 19.6%, respectively, over
the same period. This revenue growth resulted principally from increased booking
volumes worldwide and, to a lesser extent, from an increase in the price per
airline booking charged to travel vendors. This price increase became effective
on March 1, 1997.
OPERATING EXPENSES. Operating expenses increased $14.1 million, or 6.2%, to
$241.3 million for the first quarter of 1997 from $227.2 million for the first
quarter of 1996. NDC commissions and subscriber incentive payments increased
$10.8 million, or 7.6%, to $152.3 million for the first quarter of 1997 from
$141.5 million for the first quarter of 1996. The remaining operating expenses
increased $3.3 million, or 3.9%, to $89.0 million for the first quarter of 1997
from $85.7 million for the first quarter of 1996, as a result of the Company's
continued focus on expense management.
OTHER EXPENSES, NET. Other expenses, net include interest expense, net of
interest income, and foreign exchange gains or losses. Other expenses, net
decreased $1.6 million, or 80.0%, to $.4 million for the first quarter of 1997
from $2.0 million for the first quarter of 1996. This decrease was primarily the
result of lower interest expense arising from lower debt levels and higher
interest income arising from higher average levels of cash and cash equivalents
during the first quarter of 1997 as compared to the first quarter of 1996.
NET INCOME. Net income increased $16.0 million, or 32.3%, to $65.5 million
for the first quarter of 1997 from $49.5 million for the first quarter of 1996.
Net income as a percentage of revenues increased to 21.3% from 17.7% over the
same periods. The provision for income taxes, related to income taxes payable by
non-U.S. subsidiaries, remained relatively unchanged at $.4 million and $.5
million, respectively, for the first quarters of 1997 and 1996.
1996 Compared to 1995
REVENUES. Revenues increased $121.9 million, or 12.6%, to $1,088.3 million
in 1996 from $966.4 million in 1995. Aggregate electronic global distribution
services revenues increased 14.0% in 1996. Electronic global distribution
services revenues related to airline bookings increased 13.3% in 1996.
Electronic global distribution services revenues related to bookings of car
rentals and hotel reservations increased 15.9% and 33.0%,
35
<PAGE> 37
respectively, over the same period. This revenue growth was principally the
result of increased worldwide booking volumes and participation by travel
vendors in the Company's systems at increased levels of functionality.
Information services revenues decreased $7.5 million from 1995 to 1996 primarily
as a result of the Company's decision to discontinue a line of business during
1995.
OPERATING EXPENSES. Operating expenses increased $86.8 million, or 10.5%,
to $912.9 million in 1996 from $826.1 million in 1995 while revenues increased
12.6%, resulting in an improved operating margin and a decrease in operating
expenses as a percentage of revenues to 83.9% in 1996 from 85.5% in 1995. This
improvement in operating margin reflected the Company's continued focus on
expense management, including lower increases in aggregate wages and benefits
resulting from increased productivity along with the negotiation of favorable
supplier contracts, especially in the categories of equipment maintenance,
communications, travel and facilities.
NDC commissions and subscriber incentive payments increased $67.5 million,
or 14.0%, to $549.0 million in 1996 from $481.5 million in 1995, reflecting the
increase in electronic global distribution services revenues and increased
subscriber incentive payments. Although a relatively small portion of total
operating expenses, subscriber incentive payments represent costs associated
with maintaining and expanding the Company's travel agency base. Wages and
benefits increased only $2.2 million, or 1.6%, to $142.5 million in 1996 from
$140.3 million in 1995, as salary and benefit increases were largely offset by
management's efforts to increase productivity and optimize headcount. Equipment
maintenance and communications costs were relatively unchanged as a result of
negotiated savings with vendors.
OTHER EXPENSES, NET. In 1996, interest expense was $11.3 million, a decline
of $7.6 million, or 40.2%, from $18.9 million in 1995 as a result of the
repayment of $81.4 million of indebtedness early in 1996 and 1995 debt
repayments of $68.6 million.
NET INCOME. Net income increased $44.1 million, or 36.4%, to $165.2 million
in 1996 from $121.1 million in 1995. Net income as a percentage of revenues
increased to 15.2% from 12.5% over the same period.
1995 Compared to 1994
REVENUES. Revenues increased $152.6 million, or 18.8%, to $966.4 million in
1995 from $813.8 million in 1994. Electronic global distribution services
revenues related to airline bookings increased 19.4% in 1995. Electronic global
distribution services revenues related to bookings of car rentals and hotel
reservations increased approximately 11.5% and 25.2%, respectively. The strong
revenue growth was principally attributable to increased booking volumes
throughout the world and, to a lesser extent, exchange rate gains arising from
the fact that pricing in certain regions was ECU based. In April 1996, in an
effort to better match the Company's revenues with its expenses, the Company
converted to dollar-based pricing worldwide, thus eliminating future foreign
exchange risk related to revenues.
OPERATING EXPENSES. Operating expenses increased $81.6 million, or 11.0%,
to $826.1 million in 1995 from $744.5 million in 1994. Operating expenses as a
percentage of revenues decreased to 85.5% in 1995 from 91.5% in 1994. Commission
payments to NDCs and subscriber incentive payments increased $77.3 million, or
19.1%, to $481.5 million in 1995 from $404.2 million in 1994. Other operating
expenses increased $4.3 million, or 1.3%, to $344.6 million in 1995 from $340.3
million in 1994. In 1995, efficiencies from the September 1993 combination of
Covia Partnership and The Galileo Company Ltd. began to have a favorable impact
on operating expenses, especially in the areas of wages and benefits, equipment
leases and related software, and travel.
OTHER EXPENSES, NET. Interest expense decreased $7.0 million, or 27.0%, to
$18.9 million in 1995 from $25.9 million in 1994 primarily as a result of the
repayment of $70.0 million and $68.6 million of indebtedness during 1995 and
1994, respectively, offset by foreign currency fluctuations and other expense
items.
NET INCOME. Net income increased $72.3 million, or 148.2%, to $121.1
million in 1995 from $48.8 million in 1994 primarily as a result of strong
revenue growth compounded by operating efficiencies. Net income as a percentage
of revenues increased to 12.5% from 6.0% over the same periods. Income tax
expense, related to income taxes of foreign subsidiaries, decreased $1.8
million, or 40.9%, to $2.6 million in 1995 from $4.4
36
<PAGE> 38
million in 1994 as a result of the establishment of a one-time tax provision in
1994 related to taxation in the United Kingdom.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $71.2 million and working capital totaled
$111.5 million at March 31, 1997. At December 31, 1996, cash and cash
equivalents totaled $78.2 million and working capital totaled $41.2 million. The
increase in working capital from December 31, 1996 to March 31, 1997 resulted
from strong operating results in the first quarter of 1997. Cash and cash
equivalents increased significantly in 1996 to $78.2 million at December 31,
1996 from $8.4 million at December 31, 1995 despite the repayment of $81.4
million of indebtedness. As a result of the Company's ability to accelerate the
repayment of indebtedness, the Company's $340.0 million of indebtedness at
September 30, 1993 was reduced to $70.0 million at March 31, 1997.
The Company's net cash provided by operating activities has grown at a
compound annual growth rate of 25.6% to $214.1 million in 1996 from $135.8
million in 1994. This strong growth was primarily attributable to increased net
income, which grew at a compound annual growth rate of 84.0% for the same
period. Cash in excess of operating requirements is invested daily in liquid,
income-producing investments, generally having a maturity of three months or
less.
Cash flow used in investing activities principally relates to purchases of
mainframe data processing and network equipment and purchases of computer
equipment provided to the Company's travel agency subscribers by Company-owned
NDCs. The Company believes future capital expenditures will consist of similar
items. The Company expects to purchase equipment that will be provided to
subscribers by Company-owned NDCs to upgrade existing computer equipment and to
accommodate subscriber base growth. Capital expenditures, excluding the
capitalization of internally developed software, were $33.2 million, $64.5
million and $40.0 million for 1994, 1995 and 1996, respectively. The increased
1995 capital spending resulted principally from the procurement of mainframe
data processing hardware and investments in automation of certain Data Center
operations. The Company estimates that annual capital expenditures in the years
immediately following the Offering will range from $110.0 million to $120.0
million. A portion of this increase arises from the purchase of subscriber
equipment previously purchased by the acquired NDCs. The Company estimates that
the total cost of year 2000 compliance will be approximately $19.0 million, of
which $11.0 million is expected to be incurred in 1997. See "Risk Factors --
Year 2000 Compliance."
The Company is a party to a credit agreement with an international group of
banks (the "Credit Agreement") which provides for a $200 million revolving
credit facility that matures in July 2001. No principal payments are required
until the maturity date. Interest on the outstanding balance is based on a
moving one-month, three-month or six-month (depending on the length of
borrowing) London Interbank Offer Rate ("LIBOR") (5.5% at December 31, 1996),
plus a margin that fluctuates quarterly based on the Company's "cash flow
ratio." At December 31, 1996, the margin was an annual rate of .2625%. The
Credit Agreement limits, among other things, the sale of fixed assets, dividends
and issuance of debt, and it requires that the Company maintain minimum levels
of tangible capital, as well as threshold ratios for interest coverage and cash
flow. As of December 31, 1996, the Company was in compliance with the covenants
of the Credit Agreement. As of March 31, 1997, $70.0 million was outstanding
under the Credit Agreement.
The Company expects that, prior to the consummation of the Offering, the
Credit Agreement will be amended and restated so as to increase the revolving
credit facility to $600 million. The net proceeds of the Offering, together with
additional borrowings under the Credit Agreement as so amended, will be used by
the Company to fund the $710.0 million aggregate purchase price for the NDC
Acquisitions and to fund initial payments of $5.4 million in connection with the
termination of certain revenue sharing obligations. See "The Company -- The NDC
Acquisitions" and "Use of Proceeds." The Company expects to repay borrowings
under the Credit Agreement within approximately five years of the consummation
of the Offering using cash generated by operating activities.
The Company has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its outstanding line of credit. At
December 31, 1996, the Company had five interest rate swap
37
<PAGE> 39
agreements, having a total notional value of approximately $120.3 million with
fixed interest rates averaging 5.075%. For the year ended December 31, 1996, the
effective interest rate on outstanding borrowings under the Credit Agreement was
5.7625%. The Company accounts for its interest rate swap agreements as an
adjustment to interest expense. The Company is exposed to credit loss in the
event of nonperformance by the counterparties to the interest rate swap
agreements. However, the Company's exposure to any credit loss due to
nonperformance by the counterparties is mitigated by the fact that such
counterparties are major financial institutions. The interest rate swap
agreements mature in December 1998.
The Company also enters into foreign exchange hedging contracts to manage
exposure to fluctuations in foreign exchange rates related to the funding of its
United Kingdom operations. The arrangements consist of foreign exchange forward
contracts with creditworthy counterparties. At December 31, 1996, the Company
had entered into foreign exchange forward contracts which provide for purchases
of approximately L3.5 million per month through December 31, 1997.
The Company expects that future cash requirements will principally be for
capital expenditures, repayments of indebtedness under the Credit Agreement,
acquisitions of additional NDCs, potential new initiatives in the information
services business and working capital requirements. The Company believes that
cash generated by operating activities will be sufficient to fund its future
cash requirements, except that significant NDC acquisitions may require
additional borrowings under the Credit Agreement. In addition, cash acquired as
a result of the Company's acquisition of ATS will be used to make payments due
under the Consolidation Agreement. See "Relationship with Airline Stockholders
and Certain Transactions -- Commercial Arrangements -- Consolidation Agreement."
In connection with the NDC Acquisitions, the Company will enter into
Services Agreements with the sellers of ATS, Traviswiss and Galileo Nederland
whereby such sellers will provide services to the Company related to growing the
respective business operations of the acquired NDCs. Pursuant to such Services
Agreements, the Company will be required to pay the sellers of ATS, Traviswiss
and Galileo Nederland fees of up to $200.0 million, $6.8 million and $4.7
million (each on a present value basis), respectively, in the sixth year
following such NDC acquisitions, contingent upon improvements in the Company's
airline booking fee revenue in the sellers' respective NDC territories over the
five-year period following such NDC acquisitions, as measured by the weighted
average annual air segment growth rate and the weighted average annual price
increase rate. Beginning in the quarter following the consummation of the
Offering, the Company will review and, to the extent deemed appropriate,
establish accruals for these payments based on an evaluation of the likelihood
that the revenue goals required under the terms of these agreements will be met.
See "Relationship with Airline Stockholders and Certain
Transactions -- Commercial Arrangements -- Services Agreements."
In addition to reinvesting a substantial portion of earnings in its
business, the Company currently intends to pay regular quarterly dividends of
$.05 per share beginning with the dividend payable in the fourth quarter of 1997
with respect to the operations of the Company in the third quarter of 1997.
However, the declaration and payment of dividends, as well as the amount
thereof, are subject to the discretion of the Board of Directors of the Company
and will depend upon the Company's results of operations, financial condition,
cash requirements, future prospects and other factors deemed relevant by the
Board of Directors. There can be no assurance that the Company will declare and
pay any dividends. See "Dividend Policy."
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<PAGE> 40
THE CRS INDUSTRY
The computerized reservation system industry traces its origin to the
internal reservation systems that major United States airlines began to develop
and operate in the 1960s. In the mid 1970s, certain airlines, recognizing the
revenue-generating potential of providing travel agencies with access to these
systems, began to install proprietary CRS terminals within travel agencies.
These early reservation systems were largely biased in favor of displaying the
services of the airline that owned the CRS, to the disadvantage of competitor
airlines.
Over time, as a result of pressure from travel agencies, other airlines,
non-air travel service providers and various governmental regulatory bodies, CRS
owners increasingly made available schedule and fare information of competing
airlines and other travel vendors. In the 1980s, government regulations were
introduced in the United States and Europe that required CRSs to provide
unbiased access to information relating to all airlines that desired to offer
their services through a CRS. This and other factors led several major airlines
to spin off or create independent CRS companies. Since then, many CRSs have
evolved into global operators. Growth opportunities in international travel
markets, the globalization of the subscriber base and the advantages derived
from economies of scale in systems and operations have, in recent years,
resulted in a number of consolidations and strategic alliances among previously
single-market CRSs.
Today, the CRS industry provides subscribers with real-time access to
schedule, fare and other information and travel booking and ticketing capability
for a broad range of travel vendors. CRSs are now the predominant mode of
distributing travel services to end users. Over 75% of airline bookings made in
the United States are made through CRSs. The CRS industry also facilitates
non-air travel-related transactions, including car, hotel, leisure and other
travel bookings.
The CRS industry is organized around two major customer groups: travel
vendors (airlines, as well as car rental companies, hotels, cruise lines, tour
operators and railroads) and subscribers (travel agencies, corporate travel
departments and individuals). Travel vendors make their travel-related services
(such as airline seats, car rentals and hotel rooms) available for booking
through a CRS. Subscribers access a CRS in order to book travel-related services
on behalf of end users.
Travel Vendors
Airlines constitute the largest group of travel vendors that participate in
CRSs for the distribution of their services. Car rental companies, hotels,
cruise lines, tour operators and railroads also distribute their services
through CRSs. Travel vendors store, display, manage and sell their services
through CRSs. In return, CRSs charge travel vendors booking fees, plus premiums
for higher levels of functionality selected by the travel vendors. These levels
of functionality generally depend upon the type of communications and real-time
access allowed with respect to the particular travel vendor's internal systems.
Subscribers
Travel agencies provide the primary channel of distribution for the
services offered by travel vendors to end users, and constitute the largest
component of the CRS subscriber group. Travel agencies access a CRS using
software, and sometimes hardware, provided by the CRS. Although travel agencies
initiate and complete the bookings, the booking fee is paid by the travel
vendor. Subscribers may pay fees for the use of hardware and software provided
by the CRS. Competition among CRS providers to acquire new travel agencies and
maintain existing relationships is extremely intense and often requires the CRS
to provide volume-based compensation and other economic incentives to travel
agencies, especially mid-sized and larger travel agencies. Travel agencies
select CRSs based on the depth and breadth of the information offered, the
reliability and ease of use of the CRS, the incentives paid to travel agencies
and the range of products available. Larger travel agencies frequently use CRSs
from multiple providers.
Direct Access
Although the travel agency channel is the traditional method of
distribution, direct access is an emerging distribution channel which has
developed through the widespread acceptance of the Internet and other on-line
technology. Direct access allows the travel purchaser to access the CRS or, in
certain circumstances, the travel vendor, directly through desk-top software and
computer on-line services or through the Internet.
39
<PAGE> 41
BUSINESS
GENERAL
Galileo International is one of the world's leading providers of electronic
global distribution services for the travel industry. The Company provides
travel agencies at approximately 36,000 locations, as well as other subscribers,
with the ability to access schedule and fare information, book reservations and
issue tickets for 525 airlines. Galileo International also provides subscribers
with information and booking capability covering 48 car rental companies and
more than 200 major hotel chains with approximately 35,000 properties throughout
the world. The Company completed more than 300 million bookings in 1996,
representing an estimated $50 billion in travel services. The Company's travel
agency subscribers operate more than 148,000 computer terminals, all of which
are linked to the Company's Data Center, one of the world's largest commercial
data processing complexes, a system with an uptime performance record of better
than 99.9%. The Company's estimated share of 1996 CRS airline bookings in the
United States was 27%; in Europe its estimated share was 39%.
The Company was founded by 11 major North American and European airlines
and, as of March 31, 1997, distributed its products in 73 countries on six
continents. The Company believes that, based on revenues, it is currently the
most internationally diversified provider of electronic global distribution
services for the travel industry. More than one-half of the Company's 1996
revenues were derived from bookings made by subscribers outside of the United
States. The Company believes that it has attained significant market share in
many of the most important and competitive markets for travel services,
including the United States and markets in Europe, the Middle East, Africa and
the Asia/Pacific region. The Company has entered into and competes in many of
these markets using its network of national distribution companies, a
distribution structure that has enabled the Company to work closely with
associates that possess detailed knowledge of local travel market conditions.
The Company believes that its extensive international business experience, as
well as its experience in operating with an internationally diverse group of
airline stockholders, provides a firm base for expansion into new overseas
markets, many of which offer strong growth potential. In this regard, the
Company intends to focus particular attention on those developing and new CRS
markets that are currently characterized by low travel agency automation, but
which are expected to undergo significant near-term growth in travel volume.
In addition to its core electronic global distribution services business,
the Company offers travel industry-related information services that draw upon
the Company's in-depth knowledge of the industry and its expertise in developing
and operating complex, mission-critical transaction processing systems. The
Company provides the internal reservation system used by United Airlines and
operates GlobalFares, a fares quotation system used by approximately 100
airlines worldwide. The Company intends to explore ways to apply its
technological expertise in new lines of business, including consulting for
airlines and other travel service providers and providing information processing
and network management for travel-related businesses that are increasingly
outsourcing such non-core functions.
STRATEGY
The Company intends to reinforce its position as a leading provider of
electronic global distribution services and to continue to capitalize on its
competitive advantages, the key elements of which are: (i) a leading market
share, (ii) a well-balanced and global presence, (iii) established relationships
with a diverse group of travel vendors and subscribers, (iv) a technologically
advanced information system operated by a highly skilled technical staff, (v) a
comprehensive offering of innovative products and (vi) a strong business
partnership, reinforced through equity ownership, with 11 of the world's leading
airlines. From this base of competitive strengths, the Company plans to pursue a
strategy that includes the initiatives described below.
Expanding Influence Through Vertical Integration and Strategic Alliances
The Company operates globally but believes that in-depth knowledge of the
local travel markets in which it distributes its products is essential to
developing and strengthening its ties to travel vendors and the local travel
agencies which generate high booking volumes. The Company will therefore
continue to attempt to
40
<PAGE> 42
expand its influence in local markets by seeking opportunities to vertically
integrate its operations through the acquisition of NDCs in certain mature CRS
markets and, in other markets, by building alliances with influential associates
that understand the local travel market and are positioned to design and
implement successful sales and marketing programs.
In mature CRS markets where the Company enjoys a leading market share, the
Company's NDCs have developed strong commercial relationships with travel
agencies and have established effective sales, marketing and customer support
infrastructures. As a result, the Company believes that it can operate and
compete in these markets without its NDC being allied with an airline owner.
Vertical integration through the acquisition of these NDCs offers the Company an
attractive opportunity to further enhance customer service by allowing the
Company to improve its understanding of customers' product and service
requirements, as well as to increase its control over product design, service
delivery and costs. In particular, the Company believes that ownership of NDCs
in these markets will allow it to provide better and more consistent service to
multinational travel agencies at locations throughout the world. In addition,
vertical integration will enable the Company to capture profits derived from the
distribution of its products and to realize certain operational and overhead
synergies. See "-- Electronic Global Distribution Services -- Product
Distribution."
Expanding the Core Business Through Enhanced Customer Service
The Company strives to provide superior customer service in order to
strengthen relationships with its established base of travel vendors and
subscribers and to attract new travel vendors and subscribers to its core
electronic global distribution services business. The Company recently
reorganized its marketing, sales and distribution functions so that resources
are aligned with its two core groups of customers, travel vendors and
subscribers, rather than by geographic territory or product line. The Company
plans to support this realignment by reallocating its resources so as to
increase the number of account managers. As a result, account management
professionals will cover fewer travel vendors or subscribers and will have
increased responsibility for identifying and satisfying each customer's needs.
Accelerating Product Introduction
The Company intends to accelerate the development and deployment of its
products in the marketplace. To this end, the Company has established a rapid
application development program that is characterized by a set of protocols
which identify speed-to-market as a primary objective. The Company believes that
early introduction of products is an important factor in generating travel
vendor and subscriber interest. The Company includes travel vendors and
subscribers early in the product design process and has succeeded in working
closely with travel vendors and subscribers in the past to develop such
innovative products as GlobalFares, CarMaster and Travelpoint. Through precise
control over product specifications and market introduction, the Company
monitors the development of its products to ensure continuing market viability
and cost effectiveness.
Strengthening Technological Capabilities
The Company refines its information technology on a regular basis in order
to maintain a cost-effective system that is fully integrated from travel vendor
to subscriber and is tailored to individual customer needs. The Company utilizes
an architecture with standard open interfaces and protocols to ensure the
efficient distribution of information among users. Having accomplished a great
number of system performance advancements in recent years, the Company plans to
re-direct many of its technology resources from infrastructure enhancement to
product development.
Participating in Emerging Distribution Channels
Corporate travel departments and individual consumers are demonstrating an
increased interest in direct access products. In response, the Company is
developing new product offerings for travel agencies and travel vendors which
will enable their customers to access travel information through a variety of
media. The Company is introducing products with "intuitive" and graphical user
interface characteristics and expects that these products will enhance ease of
use, and thereby increase acceptance, of direct access products by
41
<PAGE> 43
corporate travel departments and individuals. Among the Company's initiatives
are Travelpoint, a desk-top software and network package that links corporate
travel departments and individuals to travel agencies, and a variety of direct
access products branded and distributed by airlines that use the Company's
systems. The Company is currently beta testing a comprehensive corporate travel
management system with several large corporations in Europe and North America.
Identifying and Pursuing Travel-Related Business Opportunities
The Company expects to diversify beyond its core business and expand its
offerings of information services by capitalizing on its travel industry
knowledge, existing customer base and technologically advanced resources to
cross-sell new products. Airlines, travel agencies and other travel-related
businesses continue to face mounting pressure to outsource significant non-core
functions such as information technology management. The Company plans to focus
its attention in this regard exclusively on the travel industry. The Company
believes that its experience in providing information services products to its
airline stockholders and other airlines, coupled with its advanced systems and
technological resources, make it well-suited to provide internal reservation
services and other systems outsourcing to travel-related businesses. In
addition, the Company believes its technical staff is well-qualified to provide
focused travel industry information technology consulting, which represents the
largest related business opportunity and offers attractive margins and
relatively low capital risk. The Company believes that these initiatives will
diversify revenue sources, enhance customer relationships and reinforce the
Company's position as a technological leader in the travel industry.
ELECTRONIC GLOBAL DISTRIBUTION SERVICES
Markets
As of March 31, 1997, the Company provided electronic global distribution
services for the travel industry in 73 countries via a network of more than
148,000 on-line terminals operated at approximately 36,000 travel agency
locations worldwide.
The geographic breadth of the Company is demonstrated by the table below.
<TABLE>
<CAPTION>
TRAVEL AGENCY LOCATIONS TERMINALS AT
AT MARCH 31, 1997 MARCH 31, 1997
------------------------ --------------------- ESTIMATED
REGION NUMBER % NUMBER % MARKET SHARE*
------ ------ ------- ------ ----- -------------
<S> <C> <C> <C> <C> <C>
United States and Mexico............. 12,658 35.3 59,501 40.1 27%
Europe............................... 11,850 33.0 49,916 33.7 39%
Asia/Pacific......................... 4,881 13.6 19,199 13.0 34%
Canada............................... 2,959 8.2 10,225 6.9 59%
Middle East/Africa................... 2,195 6.1 6,726 4.5 63%
Latin America........................ 1,368 3.8 2,601 1.8 21%
------ ----- ------- -----
35,911 100.0% 148,168 100.0%
====== ===== ======= =====
</TABLE>
- -------------------------
*Based on airline segments booked during the 12 months ended December 31, 1996.
The Company believes that its well-established global presence and
experience in establishing and maintaining successful NDC relationships with
local travel-related businesses position it well to compete for leading market
shares in developing and new CRS markets. "See -- Product Distribution." For
example, through an alliance with GETS Marketing Company entered into in March
1997, the Company is further strengthening its base in a diverse group of
developing and new CRS markets. GETS members, consisting primarily of national
airlines representing 22 markets in which the Company did not have a presence,
signed agreements to distribute the Company's systems to subscribers in Africa,
the Middle East, Eastern Europe, Asia and Latin America. The Company will
continue to evaluate and pursue growth opportunities in other developing and new
CRS markets.
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<PAGE> 44
Customer Base: Travel Vendors
The Company derives substantially all of its revenues from booking fees
paid by travel vendors. In 1996, approximately 92% of the Company's booking fee
revenues were generated from airlines. While revenues from non-air travel
vendors such as car rental companies and hotels accounted for only 8% of the
Company's booking fee revenues in 1996, the number of bookings for car rental
companies and hotels through the Company's systems grew at a compound annual
rate of 18% from 1992 through 1996, reflecting increased subscriber use of the
car and hotel booking capabilities provided through the Company's systems.
Travel vendors store, display, manage and sell their services through the
Company's systems. Airlines and other travel vendors are offered varying levels
of functionality at which they can participate in the Company's systems. These
levels of functionality generally depend upon the type of communications and
real-time access allowed with respect to the particular travel vendor's internal
systems. The lowest level of schedule and availability functionality offered to
airlines, non-linked access, allows an airline to store its inventory data
within the Company's systems with updates accomplished via teletype. Linked
access allows an airline's internal reservation system to interface with the
Company's systems on a real-time basis, facilitating instantaneous
communications between the Company and the airline's inventory management
systems. Interactive Display and Interactive Sell, two of the Company's linked
access products, allow airlines to display actual inventory to subscribers and
permit the guaranteed booking of the last available seat on a particular flight.
Inside Availability, the Company's linked access product with the highest level
of functionality, allows the seamless display and booking of an airline's
services without the need for additional keyboard entries on the part of the
subscriber. Similar levels of linked access are available for other travel
vendors.
The booking fee structure for airlines varies based upon the location of
the subscriber generating the booking. For bookings made in the United States,
Canada, Mexico and Japan, the Company charges airlines a fee per transaction
and, thereby earns a separate fee for each booking and for each cancellation. In
the rest of the world, the Company charges airlines a booking fee per "net
segment." In that case, the Company earns a fee for net bookings (gross
bookings, less cancellations). Globally, non-air travel vendors are generally
charged a fee per net booking. The Company also charges premiums for higher
levels of functionality selected by the travel vendors.
The Company also provides travel vendors marketing data generated from
bookings through the Company's systems for fees that vary based on the type and
amount of information provided. This information assists travel vendors in the
management of their inventory and yields.
Although most of the world's airlines and many non-air travel vendors
participate in the Company's systems, the Company believes that the market for
travel vendor participation has potential for continued growth, both through the
addition of non-air travel vendors and through encouraging travel vendors to
upgrade their level of functionality. In marketing to travel vendors, the
Company emphasizes its global distribution capabilities, the ability of travel
vendors to display information at no charge until a booking is made and its
extensive subscriber network.
Customer Base: Subscribers
The Company offers products to travel agencies and other subscribers that
enable them to electronically locate, price, compare and purchase travel
vendors' services through the Company's systems. By accessing the electronic
marketplace created by the Company's systems, the subscriber is able to obtain
schedule, availability and pricing information, and purchase travel services,
from multiple travel vendors for complex travel itineraries. Focalpoint, the
basic point-of-sale product provided to travel agencies and other subscribers,
is an operating system that allows subscribers to integrate their desktop
applications with the Company's systems. Using other products, such as
CarMaster, RoomMaster and LeisureShopper, subscribers are able to display
information about and make bookings for rental cars, hotel rooms, cruises and
other leisure services through real-time connections to the Company's global
database of travel vendor offerings. Through Travelpoint, a desktop software
package distributed by travel agencies to corporate travel departments and
individual consumers, users may explore travel options and book travel services
through the Company's systems. The client can then provide the travel itinerary
to the travel agency for ticketing.
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<PAGE> 45
The Company's subscriber marketing is directed towards travel agencies,
including multinational travel agencies, corporate travel departments and
individual consumers.
TRAVEL AGENCIES. Travel agencies access the Company's systems using
hardware and software typically provided by the Company or an NDC. The Company
and the NDCs also provide technical support and other assistance to the travel
agencies. Through the NDCs, the Company has relationships with travel agencies
of all sizes throughout the world. In response to competition to establish new
travel agency relationships and maintain existing relationships, the Company
continues to add new products that address the varying business needs of travel
agencies. For example, in May 1997 the Company introduced Client File Plus, an
enhanced software application that allows travel agencies to efficiently manage
travel preferences and profiles of their frequent customers, thereby reducing
the time required to complete bookings for such customers.
MULTINATIONAL TRAVEL AGENCIES. Multinational travel agencies constitute an
important category of subscribers because of the high volume of business that
can be generated through a single relationship. Bookings generated by
multinational travel agencies constituted 19% of the bookings made through the
Company's systems in 1996. The Company has formed distinct customer service
units for its multinational travel agencies at local, regional and global
levels. NDCs manage the relationship at the local level and are responsible for
providing training and managing projects specific to the multinational travel
agency's local office. The Company's regional units support the regional
management structures operated by the multinational travel agencies. The global
relationship with a multinational travel agency's corporate headquarters is
managed by the Company's multinational account management group, which is
primarily responsible for directing global sales, marketing and support
activities and developing the global relationship with multinational travel
agencies.
CORPORATE TRAVEL DEPARTMENTS. Corporate travel departments form a separate
customer group because of their particular travel information and management
system requirements. Corporations typically have established information system
architecture and strategies, specific corporate travel policies and specific
internal accounting requirements with respect to recording travel expenditures.
The Company's products can be tailored to address these differing policies and
accounting system requirements.
INDIVIDUAL CONSUMERS. With the rise in popularity of personal computers,
commercial on-line services and other means of Internet access, individual
consumers increasingly have the ability to purchase services directly from
travel vendors that have electronic distribution capability. Because of the
highly complex nature of the travel industry, with hundreds of competing
providers, constantly changing schedules and often confusing fare structures,
the Company believes the consumer's need for experienced and well-informed
intermediaries will continue despite growing consumer acceptance of and demand
for electronic commerce. The Company has therefore developed or facilitated the
use of direct access products for travel vendors and travel agencies to target
individual consumers. The Company provides software products to travel vendors
and travel agencies which these customers can then distribute to their
end-users.
Product Distribution
The Company distributes its products to subscribers primarily through NDCs.
In a limited number of markets, the Company distributes its products directly to
subscribers without using an NDC. The Company also supports branded direct
access products offered by travel vendors and travel agencies.
NATIONAL DISTRIBUTION COMPANIES. The Company prefers to use the NDC
structure, where feasible, in order to take advantage of the NDC's local market
knowledge, as well as its travel vendor and subscriber relationships. The NDC is
responsible for cultivating the initial relationship with subscribers in its
territory, installing subscribers' computer equipment, maintaining the hardware
and software supplied to the subscribers and providing ongoing customer support.
The NDC earns a share of the booking fees generated from the NDC's territory, as
well as subscriber fees.
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<PAGE> 46
The Company has established NDC relationships in most of the markets in
which its products are distributed. As of March 31, 1997, the Company had
worldwide relationships with 63 NDCs covering 80 countries (including NDCs in
the GETS alliance) broken down into the following three groups.
- COMPANY-OWNED NDCS. Prior to the Offering, the Company owned NDCs in
Belgium, Brazil, France, Germany, Portugal, Spain, Hong Kong, Singapore
and The Philippines. The Company will use the net proceeds of the
Offering to help finance the acquisition of NDCs whose distribution
territories cover the United States, Mexico, certain islands of the
Caribbean, The Netherlands and Switzerland. Collectively, the
Company-owned NDCs (including those to be acquired) manage subscriber
accounts that generated approximately 59% of the Company's 1996 bookings.
- AIRLINE STOCKHOLDER-OWNED NDCS. Affiliates of certain airline
stockholders own the NDCs whose distribution territories cover Austria,
Canada, Greece, Ireland, Italy, Japan and the United Kingdom.
Collectively, these NDCs manage subscriber accounts that generated
approximately 27% of the Company's 1996 bookings.
- ASSOCIATE NDCS. Associates, typically the national airline of the
relevant country or a local travel-related business, own or operate NDCs
that accounted for approximately 14% of the Company's booking volume in
1996.
The table below presents certain information regarding the ten largest NDCs
in terms of travel agency locations supported by such NDCs:
<TABLE>
<CAPTION>
RELATIONSHIP WITH TERRITORY
NDC THE COMPANY SERVED
--- ----------------- ---------
<S> <C> <C>
Apollo Travel Services Company-owned* United States, Mexico, certain
islands of the Caribbean
Sigma Travel Services Airline stockholder-owned Italy
Galileo Canada Airline stockholder-owned Canada
Southern Cross Associate Australia, Cook Islands, Marshall
Islands, New Zealand, Samoa
Galileo United Kingdom Airline stockholder-owned United Kingdom
Traviswiss Company-owned* Switzerland
Galileo Japan Airline stockholder-owned Japan
Galileo Nederland Company-owned* The Netherlands
Galileo Southern Africa Associate South Africa, Lesotho, Namibia
Galileo India Associate India
</TABLE>
- -------------------------
* Following the Offering.
Mature CRS markets, including the United States, Canada and Western
European countries, are characterized by high levels of travel agency
automation. The Company has a leading market share in those mature CRS markets
where its NDC began as an affiliate of a leading airline, such as the United
States, the United Kingdom, Italy, other markets that are home to the Company's
11 airline stockholders, and markets such as South Africa, Australia and New
Zealand. In other mature CRS markets where the leading airline is allied with a
competing CRS, such as France, Spain and Germany, the Company has generally
established a wholly owned NDC.
In mature CRS markets where the Company enjoys a leading market share, the
Company's NDCs have spent years developing strong commercial relationships with
travel agencies and establishing effective sales, marketing and customer support
infrastructures. As a result, the Company believes that it can operate and
compete in these markets without its NDC being allied with an airline owner. At
the same time, the Company believes there are advantages to acquiring ownership
of these NDCs, including (i) allowing the Company to provide better and more
consistent service to multinational travel agencies across local borders,
thereby stimulating the volume of bookings provided by this important group of
subscribers; (ii) improving the
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Company's cost structure by eliminating the profit margin component of the
commissions paid to these NDCs; and (iii) realizing operational and economic
synergies through enhanced buying power and the elimination of duplicative
service functions. Consistent with this strategy, with funds provided in part by
the Offering, the Company is acquiring the three NDCs that market the Company's
products in the United States, Mexico, certain islands of the Caribbean,
Switzerland and The Netherlands. The Company is also actively pursuing plans to
acquire or form joint ventures with NDCs in other mature CRS markets where there
are identifiable economic advantages to doing so and where the terms of such
transactions are attractive to the Company. See "The Company -- The NDC
Acquisitions."
Developing CRS markets, such as India and Thailand, are characterized by
low but rapidly advancing levels of travel agency automation. These markets
include many countries experiencing strong economic growth whose citizens are
increasingly able to afford travel. New CRS markets, including China, Russia and
other countries in which the Company has little or no market share, are
characterized by low levels of travel agency automation and low booking
activity. In both developing and new CRS markets, the Company believes that
there is a significant "early mover" advantage. Because of the importance of
solid ties to the local market in both developing and new CRS markets, the
Company expects to enter into distribution arrangements with NDCs that are
affiliated with a leading local airline or other dominant local travel service
provider. In many developing CRS markets, the Company has solidified
relationships with third-party NDCs with the necessary local market knowledge
and relationships. The Company expects to be able to work with these NDCs in
order to automate their local markets and build significant share as these
markets mature. In several new CRS markets, the Company is currently
distributing its products directly to subscribers, while carefully examining
local market travel-related businesses in order to identify a suitable associate
NDC candidate that will enable the Company to achieve early-mover status and
capture market share as automation and travel increase.
COMPANY DIRECT DISTRIBUTION. The Company distributes its systems directly
in 16 markets where an appropriate third-party NDC does not exist and the
establishment of a Company-owned NDC would not be cost-effective. Typically in
these markets, the Company's only business is supporting the location of a
multinational travel agency.
DIRECT ACCESS. The Company has developed or facilitated the development of
branded direct access products for certain airlines (such as Priority
TravelWorks for US Airways and United Connection for United Airlines). The
Company has adopted this approach in marketing and distributing direct access
products in order to avoid direct competition with its travel agency
subscribers. While these products are branded by the sponsoring airline and
marketed directly by the airline to its corporate and individual customers,
these products provide access to the Company's systems and, therefore, generate
booking fees for the Company.
NDCs distribute direct access products such as Travelpoint to travel
agencies for use by their corporate and individual clients. The NDCs also
distribute the Company's products to certain Internet-based travel service
providers. The World Wide Web sites of those travel service providers allow
individual consumers direct access to the Company's systems and provide the
Company with an additional means of generating booking fees.
INFORMATION SERVICES
As a result of developing and operating one of the world's largest CRSs,
the Company has acquired significant knowledge of, and experience in, both the
travel business and the information technology business. This knowledge and
experience has created a basis from which the Company has been able to provide a
range of specialized information technology solutions to airlines throughout the
world. The Company currently provides fares quotation services, internal
reservation services, other internal management services and software
development services to such airlines.
GlobalFares
The Company currently provides fares quotation services through its
GlobalFares quotation system to airlines throughout the world. GlobalFares is
used in conjunction with each airline's internal reservation system, and
provides pricing information which meets the challenges and complexities of
real-time fares
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quotation processing. GlobalFares is currently utilized by approximately 100
airlines in approximately 120 countries, and the Company plans to market
GlobalFares to other airlines.
Internal Reservation and Other Internal Management Services
The Company provides internal reservation services to United Airlines. Such
services include the display of schedules and availability, the reservation,
sale and ticketing of travel services and the display of other travel-related
information to United Airlines' airport offices, city ticket offices and
reservations centers throughout the world. In addition, the Company provides
certain other internal management services to United Airlines and to other
airline stockholders. Other internal management services include departure
control, availability displays, inventory management, database management and
systems and software operations. The Company also provides certain of the
airline stockholders with software development services. The Company is
exploring opportunities to expand its offering of these services to other
airlines.
New Initiatives
Like their counterparts in other industries, travel vendors, travel
agencies and other providers of travel services have increasingly begun to focus
on core competencies and, therefore, have moved toward outsourcing functions
such as information processing and network management. This trend has created
new areas of opportunity for information services providers. With its travel
industry knowledge and experience, the Company believes it is better suited than
competitors outside of the travel industry to take advantage of these new market
opportunities. The Company has identified a number of areas where it believes
the specialized information technology skills it possesses are in demand and
intends to explore the financial attractiveness of offering technology solutions
to the travel industry in these areas, including advising airlines with respect
to the upgrade of "legacy" systems, the often outdated data processing systems
used by certain airlines.
TECHNOLOGY
Since 1994, the Company has made significant investments in technology and
related equipment. The Company believes that it will benefit from operating
economies of scale as its technology is easily expandable and can support
incremental volume with minimal additional investment.
Computer Operations
The Company's computer systems provide real-time, high-volume transaction
processing and are supported by 15 mainframes, providing 30 processor images
with a combined processing capacity of 3,417 MIPS (millions of instructions per
second). Additional peripheral hardware includes 4,141 disk storage modules,
providing approximately 10 terabytes of disk information storage. The Company's
computer systems are operational 24 hours a day, every day of the year. They
have an uptime record of better than 99.9% and process, on average, over 98
million requests for information per day. At peak times, the Company has
processed over 5,000 messages per second.
The Company has taken measures that it believes are appropriate to protect
its computer equipment, stored information and operating capabilities in the
event its Data Center is damaged by fire, power loss, telecommunications failure
or a similar event. The Company maintains comprehensive security and backup
systems in order to deliver consistent, reliable service to customers. See "Risk
Factors -- Dependence Upon Facilities and Network."
Network Operations
The Company's global communications network provides a fast, resilient and
reliable method for travel agencies and travel vendors to access the Company's
systems. The Company's sites near Denver and London use a meshed backbone
network to provide direct connections from the Company to certain locations in
North America and Europe. This backbone network provides automatic rerouting in
the event of a circuit failure. In addition to the meshed backbone network, the
Company makes extensive use of independent international network service
providers to increase its reach into the global market.
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Systems Consolidation
When Covia Partnership and The Galileo Company Ltd. combined in 1993, each
entity operated its own CRS. Covia Partnership operated the Apollo system in
North America and Japan, and The Galileo Company Ltd. operated the Galileo
system in the rest of the world. Each system has evolved to meet the specific
commercial and regulatory requirements of the markets it serves, and the Company
believes that both the Apollo and Galileo trademarks are well-known in their
respective markets and carry substantial brand equity. Therefore, from an end
user and a marketing standpoint, the Company intends to maintain the distinction
between its Apollo and Galileo systems.
From a technical standpoint, however, over the past few years, the Company
has worked to increase the level of shared resources between the two systems in
order to realize economies of scale. To this end, the Company hosts certain
applications on shared processors, such as its fares quotation system
(GlobalFares), its car rental booking system (CarMaster) and its hotel booking
system (RoomMaster). The Company is currently examining the commercial
feasibility of consolidating the two systems, or migrating one system's users to
the other system, so that the Company would operate a single core system. The
Company expects to accomplish this consolidation in a manner that will not
significantly impact subscribers' use of the Company's systems. While the
Company believes that significant efficiencies have already been achieved
through the deployment of shared processors, the Company believes that a single
core system would provide additional savings through the elimination of
duplicate development efforts currently required for enhancements and
modifications to core system applications.
COMPETITION
Electronic Global Distribution Services
The Company competes in the provision of electronic global distribution
services primarily against other well-established CRSs, principally Abacus,
Amadeus/System One, SABRE and Worldspan. To a lesser extent, the Company also
competes, on a regional basis, against Axess International Network, Infini
Travel Information and Topas. Abacus, headquartered in Singapore, is owned by a
consortium of Asian airlines and Worldspan. Amadeus/System One, headquartered in
Madrid, Spain was formed by the merger of Amadeus and System One in 1996 and is
owned by Air France, Continental Airlines, Electronic Data Systems ("EDS"),
Iberia Airlines and Lufthansa. SABRE, a public company which is 82% owned by AMR
Corp., the parent of American Airlines, is headquartered in Fort Worth, Texas.
Worldspan is owned by Abacus, Delta, Northwest and TWA and is headquartered in
Atlanta, Georgia. Axess and Infini operate regional CRSs in Japan. Topas
operates a regional CRS in Korea. As each of these competitors offers many
products which are similar to the products of the Company, competition for
business is extremely intense.
Factors affecting the competitive success of electronic global distribution
services systems include the depth and breadth of the information offered, the
reliability and ease of use of the CRS, the incentives paid to travel agencies
and the range of products available to travel vendors, travel agencies and other
subscribers. To increase global reach and reduce cost through economies of
scale, CRSs are realizing the importance of globalization. This has resulted in
a number of consolidations and alliances among CRS companies in recent years,
such as the merger of Amadeus and System One and the alliances formed by
Axess/SABRE and Worldspan/Abacus/Infini.
In addition to the traditional competitors described above, the emergence
of direct access has provided the Company with new competition from both
technology firms and from travel vendors themselves. Competition within the
direct access channel currently takes two forms. The first consists of on-line
services that provide a link between the end user and the CRS. These entities
provide competition among CRSs to provide the "engine" for such booking
services. The use of these on-line services, while potentially causing a bypass
of the traditional travel agency channel, does not typically divert bookings
away from CRSs. The Company believes it competes effectively with other CRSs for
business from on-line services providers.
The second form of competition within the direct access channel is from
travel vendors themselves, who may provide consumers with direct access to their
internal reservation systems. The Company believes that
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the features of CRS products which allow subscribers to comparison shop and to
obtain greater functionality and more information for the end user reduce the
potential that the direct access products sponsored by travel vendors will
divert bookings away from CRSs.
Information Services
Competition within the information services market is segmented by the type
of service offering. Internal reservation services competitors include SABRE,
EDS and British Airways (through Speedwing). Competitors for data center and
network outsourcing include IBM, EDS and niche suppliers such as SABRE and
Speedwing. The primary competitors for information technology consulting include
IBM, EDS and Andersen Consulting for full service consulting, as well as SABRE
and Speedwing which provide specialized consulting within the information
technology arena.
FACILITIES
The Company's principal executive offices are located in Rosemont,
Illinois, a suburb of Chicago, where the Company leases 88,600 square feet of
office space pursuant to a lease that expires in the year 2000. The Company's
Data Center is located in Englewood, a suburb of Denver, Colorado, in two
adjacent buildings owned by the Company. The Data Center contains approximately
236,000 square feet of space, including approximately 130,000 square feet of
raised floor computer room space. The Company also leases office space in 14
other locations worldwide, including development and marketing offices located
near Denver and London. The Company believes that its offices and Data Center
are adequate for its immediate needs and that additional or substitute space is
available if needed to accommodate growth and expansion.
EMPLOYEES
The Company believes that its success is due in large part to its
employees. The Company strives to hire and retain highly skilled and motivated
personnel. As of December 31, 1996, the Company employed 1,838 people,
approximately two-thirds of whom provide technological services. The NDC
Acquisitions are expected to add approximately 1,200 employees. Approximately
60% of the Company's employees are located in the United States, 35% in Europe
and 5% in Latin America and countries throughout the Asia/Pacific region.
In some countries outside the United States, terms and conditions for the
Company's employees are determined in part by industry-wide collective
bargaining arrangements. The Company's employees in Brazil, representing
approximately 1% of the Company's workforce, are unionized. The Company believes
that its relationship with its employees is good.
LEGAL AND REGULATORY MATTERS
Legal Proceedings
The Company is involved in various matters of litigation as both plaintiff
and defendant. In the opinion of management, none of these matters, individually
or in the aggregate, if determined adversely to the Company would have a
material adverse effect on the business, financial condition or results of
operations of the Company.
Regulation
The Company's business is subject to regulation in the United States, the
European Union, Canada, Australia and New Zealand. Each jurisdiction's rules are
largely based on the same set of core premises: that a CRS must treat all
participating airlines equally, whether or not they are owners of the system;
that airlines owning CRSs must not discriminate against the CRSs they do not
own; and that CRS relationships with travel agencies should not be an impediment
to competition from other CRSs or to the provision of service to the traveler.
While each jurisdiction has focused on the CRS industry's role in the airline
industry, the U.S. CRS Rules and the EU CRS Rules have the greatest impact on
the Company because of the volume of business transacted by the Company in the
United States and the European Union. Neither jurisdiction currently seeks
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to regulate CRS relationships with non-airline participants such as hotel and
car rental companies, although discussions have taken place in Europe about
whether rail services should be incorporated into CRS displays and it is
expected that future European Union regulations will address this issue. The
U.S. CRS Rules, among other things, prohibit a CRS that is owned by an airline
or an airline affiliate from entering into contracts with travel agencies that
contain exclusivity clauses or that require the agency to maintain a certain
percentage of computer terminals or bookings for a particular CRS.
In several respects, the United States and European Union regulators have
reached similar conclusions regarding the appropriate means of ensuring the
achievement of the desired results. Both jurisdictions recognize that there is a
possibility that subscribers will book flights which appear early on in
availability displays, as they may be reluctant to read through all information
presented in such displays. Accordingly, both jurisdictions require systems to
provide airline displays for travel agencies which are ordered on the basis of
neutral principles and that all airlines must be charged the same fees for the
same level of participation. The EU CRS Rules go further and require that fees
must be reasonably structured and reasonably related to the cost of the service
provided and used. Moreover, under EU CRS Rules, airlines have the ability to
disallow certain types of bookings, unless they have already been accepted.
Both the United States and European Union regulators seek to redress the
potential that a CRS used for internal reservation purposes would offer a travel
agency subscriber superior access to the hosted airline and inferior access to
all other airlines. The EU CRS Rules mandate a separation between the internal
reservations functionality and the functionality used by travel agencies to
provide neutral information, and require annual confirmation of compliance with
this rule, among others, by independent auditors. While the U.S. CRS Rules
contain several principles outlining the requirement of unbiased displays, the
EU CRS Rules prescribe a specific formula which a CRS must use to order its
display of flights. The U.S. CRS Rules also require functional equivalence
between the functionality offered to airlines whose internal reservation systems
are hosted in a CRS and those provided to all other airlines. The EU CRS Rules
require that CRS owner airlines must provide the same data, and accept and
confirm bookings with equal timeliness in all CRSs, when requested to do so. The
U.S. CRS Rules contain no counterpart to the European requirement that
subscribers be offered access to the CRS on a nondiscriminatory basis. Although
the U.S. CRS Rules extend only to use of CRSs by travel agencies (and do not
apply to products distributed directly to corporate travel departments and
individual consumers), European, Canadian and Australian rules apply to all
subscriber uses of CRSs, whether by travel agencies, individuals or corporate
travel departments.
The U.S. CRS Rules and the EU CRS Rules are currently under review by their
respective promulgating authorities. In its historical role as provider of two
distinct systems, Apollo in North America and Japan, and Galileo in the rest of
the world, the Company has developed familiarity with the requirements and
approval procedures of each regulatory jurisdiction, and is experienced in
addressing regulatory issues as they arise.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their positions with
the Company and their ages are as set forth below. There are no family
relationships among any directors or officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James E. Barlett.......................... 53 President and Chief Executive Officer,
Chairman of the Board of Directors
Paul H. Bristow........................... 54 Senior Vice President and Chief Financial
Officer, Director
Lyn Bulman................................ 38 Senior Vice President, Human Resources and
Communications
Michael Foliot............................ 43 Senior Vice President, Vendor Marketing
Babetta R. Gray........................... 38 Senior Vice President, Legal and General
Counsel, Director
James E. Lubinski......................... 41 Senior Vice President, Information
Services
David A. Near............................. 38 Senior Vice President, Subscriber
Marketing
</TABLE>
Mr. Barlett has been President and Chief Executive Officer since November
1994. Prior to joining the Company, he served as Executive Vice President of
Worldwide Operations and Systems of MasterCard International Corporation
("MasterCard") and was a member of the MasterCard International Operations
Committee. Prior to his employment at MasterCard, Mr. Barlett served as
Executive Vice President of Operations for NBD Bancorp where from 1979 to 1992
he managed the redevelopment of core banking systems and directed the
development, implementation and operation of the Cirrus international automated
teller switching system and served as Vice Chairman of Cirrus Inc.
Mr. Bristow has been Senior Vice President and Chief Financial Officer
since February 1993. Prior to joining the Company, Mr. Bristow served as
financial advisor to various companies in the United Kingdom before which he had
spent two years as a member of a buy-in group involved in corporate finance as
intermediaries, and as advisors. From 1980 to 1988 he worked for London
International, a listed international consumer products company in London,
initially as Division Finance Director and then on the Main Board as Group
Finance Director. Prior to 1980, Mr. Bristow worked for ITT in Canada, Norway
and Singapore; with Philip Morris in Switzerland; and with Arthur Andersen & Co.
in the United States and Canada.
Ms. Bulman has been Senior Vice President, Human Resources and
Communications since May 1995. From 1990 to March 1993, she served as Manager of
Compensation and Benefits and from April 1993 to May 1995, she served as
Director of Human Resources -- Europe. Prior to joining the Company, Ms. Bulman
held executive positions in the United Kingdom at Dun & Bradstreet Corporation
and Fisons (Pharmaceutical Division) plc.
Mr. Foliot has been Senior Vice President, Vendor Marketing since January
1997. In this position he is responsible for all airline, car, hotel, leisure
and GlobalFares sales and marketing as well as managing all airline stockholder
relationships. From 1993 to 1996, he served as Senior Vice President
Asia/Pacific and the Americas of the Company. From 1990 to 1993, Mr. Foliot was
Vice President and General Manager for all American Express activities in Canada
related to corporate card, corporate travel and leisure travel business and
prior to that he held various positions with American Express International in
Singapore, Indonesia and Korea.
Ms. Gray has been Senior Vice President, Legal and General Counsel since
March 1996. Prior to that she had been Vice President, Legal and General Counsel
since September 1995 and joined the Company as Senior Counsel in April 1990.
Before joining the Company, Ms. Gray was Counsel for Reebok International Ltd.
from 1989 to 1990 and an associate with the Boston law firm of Foley Hoag &
Eliot from 1984 through 1988.
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Mr. Lubinski has been Senior Vice President, Information Services since
July 1995. In this position, Mr. Lubinski is responsible for ensuring
technological leadership in systems development for the Company. Prior to
joining the Company, Mr. Lubinski served since 1994 as Senior Vice President and
Division Head of Systems and Operations for Boatmen's Trust Company. From 1978
to 1994, Mr. Lubinski held several technical positions at NBD Bancorp, including
First Vice President and Development Manager.
Mr. Near has been Senior Vice President, Subscriber Marketing since January
1997. In this position, Mr. Near is responsible for all subscriber marketing and
direct access products. Prior to assuming these responsibilities, Mr. Near
served as Senior Vice President of Intuitive Products and Interactive Services
and as Director of Car, Hotel, Leisure and Advertising Product Management for
the Company and Covia Partnership. Prior to joining the Company in 1987, Mr.
Near held a number of management positions at United Airlines and B.F. Goodrich.
AIRLINE STOCKHOLDER DIRECTOR NOMINEES
Pursuant to the provisions of the Special Voting Preferred Stock, certain
of the airline stockholders will be entitled to elect a total of seven of the 13
members of the Board of Directors. Accordingly, following the Offering, the
airline stockholder controlled by United Airlines is expected to elect Frederic
F. (Jake) Brace, David A. Coltman and James E. Goodwin as directors. The airline
stockholders controlled by US Airways, KLM, SAirGroup and British Airways are
expected to elect John W. Harper, Frank H. Rovekamp, Georges P. Schorderet and
Derek Stevens, respectively, as directors.
Mr. Brace, age 39, has been Vice President -- Financial Analysis and
Controller of United Air Lines, Inc. since April 1, 1995. Prior to that, he had
served as United Air Lines, Inc.'s Vice President -- Corporate Development and
Controller from January 1994 to April 1, 1995, as its Vice President --
Corporate Development from April 1993 to January 1994 and as its Vice President
and Controller from February 1991 to April 1993. Mr. Brace is also a director of
ATS. Mr. Brace has been a member of the Supervisory Board of the Galileo
Partnership since 1995.
Mr. Coltman, age 54, has been Senior Vice President -- Marketing of United
Air Lines, Inc. since April 1, 1995. Prior to that, he had served as Vice
President -- Atlantic Division of United Air Lines, Inc. in London since January
1989. He is also Chairman of Dunedin Worldwide Investment Trust, an Edinburgh-
based mutual fund. Mr. Coltman has been a member of the Supervisory Board of the
Galileo Partnership since May 1995 and its Chairman since September 1995. Mr.
Coltman is currently Chairman of the Board of ATS.
Mr. Goodwin, age 53, has been Senior Vice President -- North America of
United Air Lines, Inc. since April 1, 1995. Prior to that, he had served as
Senior Vice President -- International of United Air Lines, Inc. since May 1992.
Mr. Goodwin is also a director of ATS.
Mr. Harper, age 56, has been Senior Vice President -- Finance and Chief
Financial Officer of US Airways Group, Inc. and US Airways, Inc. since April
1994. Prior to that, he had served as Senior Vice President -- Information
Systems of US Airways Group, Inc. and US Airways, Inc. since October 1992 and
Vice President and Controller of those companies since joining US Airways in
December 1991.
Mr. Rovekamp, age 42, has been Senior Vice President -- Marketing of KLM
since June 1992. He is also Chairman of the Board of Directors of Galileo
Nederland. Mr. Rovekamp has been a member of the Supervisory Board of the
Galileo Partnership since the combination of Covia Partnership and The Galileo
Company Ltd. in September 1993.
Mr. Schorderet, age 43, has been Executive Vice President and Chief
Financial Officer of SAirGroup (the parent company of Swissair) and its
predecessor since January 1996 and had served as Executive Vice President of the
predecessor to SAirGroup since joining that company in September 1995. Prior to
September 1995, Mr. Schorderet held various positions at Alusuisse-Lonza Holding
AG, most recently as Chief Financial Officer and a Member of the Executive
Committee, positions he had held since 1991. Mr. Schorderet is a member of the
boards of directors of Swiss Bank Corporation, Sabena Societe Anonyme, Crossair
Ltd. Co. for Regional European Air Transport and
Flughafen-Immobilien-Gesellschaft (the Zurich Airport real estate
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company). Mr. Schorderet has been a member of the Supervisory Board of the
Galileo Partnership since February 1996.
Mr. Stevens, age 58, has been a member of the board of directors and Chief
Financial Officer of British Airways plc since 1989. Mr. Stevens is also a
non-executive director of Commercial Union plc and of Legal & General Recovery
Investment Trust Plc. Mr. Stevens has been a member of the Supervisory Board of
the Galileo Partnership since the combination of Covia Partnership and The
Galileo Company Ltd. in September 1993.
BOARD COMPOSITION
The Board of Directors will consist of 13 members, seven of whom will be
elected by the holders of the Special Voting Preferred Stock. Of the remaining
six directors, the airline stockholders have agreed pursuant to the
Stockholders' Agreement to vote their shares of Common Stock in favor of the
election of three management directors (the Chief Executive Officer, the Chief
Financial Officer and the Chief Operating Officer (or the General Counsel until
the Company has appointed a Chief Operating Officer)) and three "independent
directors" (within the meaning of the rules of the New York Stock Exchange)
nominated for election by the Board of Directors. It is expected that three
independent directors will be elected within three months following the closing
of the Offering. As a result of the Special Voting Preferred Stock and these
provisions of the Stockholders' Agreement, as long as the Stockholders'
Agreement remains in effect and the airline stockholders own in the aggregate
more than 50% of the outstanding Common Stock, the airline stockholders will
control the election of the entire Board of Directors. See "Relationship with
Airline Stockholders and Certain Transactions -- Stockholders' Agreement" and
"Description of Capital Stock -- Special Voting Preferred Stock."
Pursuant to the Certificate of Incorporation and By-Laws that will be in
effect upon the consummation of the Offering, the Board of Directors will be
divided into three classes of directors serving staggered three-year terms.
Pursuant to the Stockholders' Agreement, the initial Class I directors will be
Ms. Gray, one independent director, one of the directors to be elected by United
Airlines and one of the directors to be elected by a European airline
stockholder that will own Special Voting Preferred Stock; the initial Class II
directors will be Mr. Bristow, one independent director, one of the directors to
be elected by United Airlines and one of the directors to be elected by a
European airline stockholder that will own Special Voting Preferred Stock; and
the initial Class III directors will be Mr. Barlett, one independent director,
one of the directors to be elected by United Airlines, the director to be
elected by US Airways and one of the directors to be elected by a European
airline stockholder that will own Special Voting Preferred Stock. The term of
the initial Class I directors will expire on the date of the 1998 annual meeting
of stockholders; the term of the initial Class II directors will expire on the
date of the 1999 annual meeting of stockholders; and the term of the initial
Class III directors will expire on the date of the 2000 annual meeting of
stockholders. Beginning in 1998, at each annual meeting of stockholders,
successors to the class of directors whose term expires at that annual meeting
will be elected for a three-year term. Accordingly, approximately one-third of
the Company's Board of Directors will be elected each year and only one
management director and independent director will be elected each year. For
further information on the effect of the classified Board of Directors, see
"Description of Capital Stock -- Certificate of Incorporation and By-Laws --
Classified Board of Directors and Related Provisions."
COMMITTEES OF THE BOARD
The Company's By-Laws will authorize the Board of Directors to designate
three committees: an Audit Committee, a Compensation Committee and a Nominating
Committee. Pursuant to the Stockholders' Agreement, the airline stockholders
have agreed to cause the Board of Directors to designate such Committees upon
consummation of the Offering. In addition, the Board of Directors may, from time
to time, designate one or more Special Committees with such duties and such
powers as are granted to it by the Board of Directors.
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The Audit Committee will be composed of two or more directors who are not
employees or officers of the Company or any of the airline stockholders. The
Audit Committee will review and recommend the selection of independent auditors,
the fees to be paid to such auditors, the adequacy of the audit and accounting
procedures of the Company and such other matters as may be specifically
delegated to it by the Board of Directors. In this connection, the Audit
Committee shall, at its request, meet with representatives of the independent
auditors and with the financial officers of the Company separately or jointly.
Pursuant to the Stockholders' Agreement, the Compensation Committee will be
composed of at least one director elected by an airline stockholder holding
Special Voting Preferred Stock whose parent airline is based in North America
and one director elected by an airline stockholder holding Special Voting
Preferred Stock whose parent airline is based in Europe. In addition the
Compensation Committee will include one independent director and one member of
management, initially the Chief Executive Officer of the Company. The
Stockholders' Agreement provides that the membership of the Compensation
Committee will be adjusted to the extent necessary to comply with Rule 16b-3
under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"),
and applicable United States tax regulations. The Compensation Committee will
review and make recommendations with respect to the management remuneration
policies of the Company, including salary rates and benefits of appointed
officers, other remuneration plans such as incentive compensation, deferred
compensation and stock option plans, directors' compensation and benefits and
such other matters as may be specifically delegated to the Compensation
Committee by the Board of Directors.
Pursuant to the Stockholders' Agreement, the Nominating Committee will be
composed of at least the Chief Executive Officer of the Company, one independent
director, one director elected by an airline stockholder holding Special Voting
Preferred Stock whose parent airline is based in North America and one director
elected by an airline stockholder holding Special Voting Preferred Stock whose
parent airline is based in Europe. The Nominating Committee will review, report
and make recommendations to the Board of Directors on the following matters: (i)
nominees for directors, selection criteria for directors and removal of
directors if deemed appropriate, in each case in a manner consistent with the
terms of the Stockholders' Agreement, but not with respect to directors
appointed pursuant to the Certificate of Incorporation by an airline stockholder
that owns one or more shares of Special Voting Preferred Stock; (ii) evaluation
and performance of the Board of Directors and individual directors; and (iii)
such other matters as the Board of Directors may from time to time prescribe.
COMPENSATION OF DIRECTORS
Directors who are not executive officers or employees of the Company will
receive an annual retainer of $25,000 for Board of Directors service and a fee
of $1,000 for each meeting of the Board of Directors or any committee thereof
attended. Directors who are not executive officers or employees of the Company
also participate in the Company's 1997 Non-Employee Director Stock Plan. It is
currently anticipated that each director elected by an airline stockholder
pursuant to the provisions of the Special Voting Preferred Stock (an "Airline
Director") who is employed by such airline stockholder will be required to
transfer all of his or her director compensation (including any cash payments
made in lieu of options granted under that plan (see "-- Non-Employee Director
Stock Plan")) to his or her respective employer.
54
<PAGE> 56
EXECUTIVE COMPENSATION
The following Summary Compensation Table presents information concerning
compensation for the fiscal year ended December 31, 1996 paid by the Company to
the Chief Executive Officer and four other individuals who, as of December 31,
1996, were the most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($)(2) COMPENSATION($)(3)
------------------ ---- --------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
James E. Barlett.............. 1996 435,750 565,584 -- 8,820
President and Chief
Executive Officer
Paul H. Bristow............... 1996 207,333 216,321 -- 6,992
Senior Vice President
and Chief Financial
Officer
Michael Foliot................ 1996 197,013 204,541 -- 6,591
Senior Vice President,
Vendor Marketing
W. Craig Thomson.............. 1996 203,336 114,491 50,915 39,063
Senior Vice President(4)
K. Norma Wood................. 1996 214,038 187,283 -- 59,931
Senior Vice President,
Marketing and Strategy(4)
</TABLE>
- ---------------
(1) The bonus amounts listed include $138,916, $63,094 and $59,658 which will be
paid to Messrs. Barlett, Bristow, and Foliot respectively in two equal
installments, one in 1998 and one in 1999 subject to their continued
employment with the Company.
(2) Other Annual Compensation includes, among other things, $24,375 in flight
benefits and $26,540 in car costs paid by the Company to Mr. Thomson.
(3) All Other Compensation includes contributions of $4,500 to the Company's
401(k) Savings Plan for Messrs. Barlett, Bristow, and Foliot by the Company;
payment of $4,320, $2,492 and $2,091 to Messrs. Barlett, Bristow and Foliot,
respectively, representing money allocated to, but unused for, benefits
programs; contribution of $39,063 by the Company to Mr. Thomson's United
Kingdom defined contribution pension plan and payment of $59,931 to Ms. Wood
in lieu of contribution to a pension plan.
(4) Amounts have been translated into U.S. dollars at the rate of L1 = $1.7123,
the noon buying rate in New York City for cable transfers as certified for
customs purposes by the Federal Reserve Bank of New York on December 31,
1996. Ms. Wood and Mr. Thomson resigned as executive officers in January
1997.
55
<PAGE> 57
PENSION PLAN
The Company sponsors the Galileo International Pension Plan (the "Pension
Plan"), which is a non-integrated qualified defined benefit pension plan
covering most U.S. full time employees of the Company and certain affiliated
companies. The basic monthly payment under the Pension Plan is a single life
annuity equal to 1.6% of the participant's final average compensation multiplied
by the number of his months of qualified service divided by 12. However, the
basic monthly payment for a participant whose accrued benefit as of January 1,
1994 is based on compensation that exceeded $150,000, will be based on the
greater of (a) the accrued benefit as determined above with respect to the
benefit formula in effect for the plan year beginning on or after January 1,
1994 as applied to the participant's total months of qualified service, or (b)
the sum of the participant's accrued benefit as of January 1, 1994, frozen in
accordance with Section 1.401(a)(4)-13 of the Treasury Regulations, and the
participant's accrued benefit determined under the benefit formula applicable
for the plan year beginning on or after January 1, 1994, as applied to the
participant's months of benefit service credited for plan years beginning on or
after January 1, 1994. Retirement benefits are subject to the annual pension
limitations imposed under Sections 415(d) and 401(a)(17) of the Internal Revenue
Code, as amended (the "Code"), for which limitations vary annually. The Covia
Supplemental Retirement Plan (the "SERP"), a nonqualified plan, provides
benefits over the applicable Code limitations.
For purposes of the Pension Plan, "final average compensation" means the
highest monthly average of a participant's compensation attributable to the 60
consecutive months of service occurring during the last 120 months of service of
employment (unless the participant has fewer than 60 months of service with the
employer). "Compensation" means amounts paid to the participant for base pay,
overtime, double shift, shift differentials, lump sum merit pay, holiday
rotating day off, holiday worked rotating day off, commissions, retroactive pay,
management incentive bonuses and special pay incentives for certain retirees
paid prior to September 1, 1993. The following table shows the estimated annual
pension benefits under the Pension Plan and the SERP in the remuneration and
years of service classifications indicated (without regard to the offsets
described above).
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -- -- -- -- --
<C> <C> <C> <C> <C> <C>
$200,000 $ 48,000 $ 64,000 $ 80,000 $ 96,000 $112,000
$250,000 $ 60,000 $ 80,000 $100,000 $120,000 $140,000
$300,000 $ 72,000 $ 96,000 $120,000 $144,000 $168,000
$350,000 $ 84,000 $112,000 $140,000 $168,000 $196,000
$400,000 $ 96,000 $128,000 $160,000 $192,000 $224,000
$450,000 $108,000 $144,000 $180,000 $216,000 $252,000
$500,000 $120,000 $160,000 $200,000 $240,000 $280,000
$550,000 $132,000 $176,000 $220,000 $264,000 $308,000
$600,000 $144,000 $192,000 $240,000 $288,000 $336,000
$650,000 $156,000 $208,000 $260,000 $312,000 $364,000
$700,000 $168,000 $224,000 $280,000 $336,000 $392,000
$750,000 $180,000 $224,000 $300,000 $360,000 $420,000
$800,000 $192,000 $256,000 $320,000 $384,000 $448,000
$850,000 $204,000 $272,000 $340,000 $408,000 $476,000
or more
</TABLE>
The benefits under the Pension Plan and the SERP shown above are calculated
on a single life annuity basis, and assume retirement at age 65. As of May 19,
1997, Mr. Barlett, Mr. Bristow and Mr. Foliot had 13, 35 and 27 months of
qualified service respectively under the Pension Plan. Mr. Thomson had 60 months
of credited service under the United Kingdom defined contribution plan and Ms.
Wood participated in neither plan.
56
<PAGE> 58
EMPLOYMENT AGREEMENT
James E. Barlett is party to an employment agreement with the Company,
dated October 31, 1994 (the "Agreement"). The term of the Agreement will
continue until 15 days after written notice of termination is given by either
the Company or Mr. Barlett. The Agreement provides for a base salary of $420,000
per annum, reviewed by the Board of Directors of the Company and increased at
their discretion. The Agreement also provides for Mr. Barlett's participation in
the Company's Management Incentive Plan (the "MIP") and Long Term Incentive Plan
as well as an airfare and car allowance. The Agreement may be terminated
immediately by the Company with "Cause" or by Mr. Barlett with "Good Reason" (as
such terms are defined in the Agreement). If the Agreement is terminated by the
Company without Cause or by Mr. Barlett for Good Reason, the Company must pay
Mr. Barlett a lump sum equal to the balance of his base salary at the rate in
effect at the time of termination for a 12 month period, as well as an amount
equal to a reasonable estimate of the amount of annual compensation he would
have received under the MIP for that 12 month period assuming a 100% target
achievement by him. In addition, commencing 12 months after the date of
termination, the Company must pay Mr. Barlett an amount equal to his monthly
salary as well as the amount he would have earned under the MIP for that month,
assuming a 100% target achievement, each month for the ensuing 12 month period.
These monthly payments will be decreased to reflect compensation from any other
employment which Mr. Barlett obtains. The Company will also provide group health
insurance and other welfare and pension benefits to Mr. Barlett for a 12 month
period following a termination without Cause or a resignation for Good Reason.
The Agreement contains a confidentiality provision and a non-competition clause
that remains in effect during the term of the Agreement and for the longer of 12
months after the termination date or until the date Mr. Barlett ceases receiving
compensation from the Company.
1997 STOCK INCENTIVE PLAN
The Company has adopted the Galileo International, Inc. 1997 Stock
Incentive Plan (the "Stock Incentive Plan"). The Stock Incentive Plan will be
administered by the Compensation Committee (the "Committee") of the Board of
Directors (the "Board"); provided, however, that grants to officers subject to
Section 16(b) of the Exchange Act will be approved by the Board. Notwithstanding
the foregoing, under the Stock Incentive Plan, the Board or another committee of
the Board may administer the Plan instead of the Compensation Committee, and all
references to the "Committee" herein shall also refer to the Board or such other
committee, as appropriate. The purposes of the Stock Incentive Plan are to
attract, retain and motivate officers and other key employees and consultants of
the Company, to compensate them for their contributions to the growth and
profits of the Company and to encourage ownership by them of Common Stock. The
Stock Incentive Plan authorizes the issuance of various forms of stock-based
awards (the "Awards") to such individuals.
Shares Available Under the Stock Incentive Plan. An aggregate of 8,140,000
shares of Common Stock have been authorized for issuance under the Stock
Incentive Plan. The number of shares available for issuance under the Stock
Incentive Plan will be proportionately adjusted in the event of certain changes
in the Company's capitalization or a similar transaction. Shares issued pursuant
to the Stock Incentive Plan may be authorized but unissued shares, treasury
shares or any combination thereof.
Additional Limits. In addition to the overall share limit, some special
limits apply. In accordance with the requirements under the regulations
promulgated under Section 162(m) of the Code, no eligible individual may receive
stock options or stock appreciation rights with respect to an aggregate of more
than 750,000 shares of Common Stock in any five year period or stock awards
subject to performance requirements and performance shares with respect to more
than 50,000 shares of Common Stock per performance period. Aggregate stock
Awards made under the Stock Incentive Plan that are not subject to performance
goals may not exceed 814,000 and may only be used for special situations. In
accordance with the requirements under Section 422 of the Code pertaining to
incentive stock options ("ISO's"), the fair market value of the number of shares
of Common Stock that may be issued pursuant to ISO's which are exercisable for
the first time by a participant under any Company plan may not exceed, in the
aggregate, $100,000 during any calendar year.
Administration. The Committee will administer the Stock Incentive Plan,
select participants from among eligible individuals, and determine the number of
shares pursuant to each Award, and the terms and conditions of Awards, including
those related to vesting, forfeiture, payment and exercisability. Subject to
57
<PAGE> 59
certain limitations, the Committee may from time to time delegate some or all of
its authority to one or more officers of the Company. The Committee also has
authority to determine the effect, if any, that a participant's termination of
employment will have on the vesting, exercisability, payment or lapse of
restrictions applicable to an Award.
Awards Generally. The Stock Incentive Plan may authorize the following
Awards based upon the Common Stock: (i) stock options, (ii) stock appreciation
rights, which may be granted in tandem with or independently of stock options,
(iii) stock awards, (iv) performance share awards and (v) other forms of awards
which the Committee determines to be consistent with the purposes of the Stock
Incentive Plan and the interests of the Company.
Stock Options. Stock options awarded under the Stock Incentive Plan may be
either nonqualified stock options ("NSO's") or ISO's within the meaning of
Section 422 of the Code. Under the terms of the Stock Incentive Plan, the per
share exercise price of a stock option shall be no less than 100% of the fair
market value of the Common Stock on the date of grant (subject to limited
exceptions for options assumed in connection with the acquisition of another
entity by the Company and ISO's granted to a participant who owns more than ten
percent of the voting power of the Company's stock). The term of a stock option
will be fixed by the Committee upon grant, and the term of an ISO may not exceed
ten years. The vesting schedules of the stock options will be governed by the
individual stock option agreements; provided, however, that no stock option may
vest prior to a year from the date of grant. The exercise price of a stock
option may be paid in cash or previously owned stock or a combination thereof.
Stock options (or, possibly, in the case of certain foreign employees, other
equity-based Awards) will be granted to substantially all employees of the
Company under the Stock Incentive Plan at the time of consummation of the
Offering.
Stock Appreciation Rights. Stock appreciation rights entitle a participant
to receive upon exercise an amount equal to the excess, if any, of the fair
market value on the date of exercise of the number of shares of Common Stock
subject to the stock appreciation right over the applicable exercise price. The
exercise price will be determined by the award agreement but in no case may be
less than 100% of the fair market value of the underlying Common Stock at the
date of grant. The term of the stock appreciation right will be governed by the
Award agreement; provided, however, that no stock appreciation right may vest
prior to one year from the date of grant. At the discretion of the Committee,
payments to a participant upon exercise of a stock appreciation right may be
made in cash, shares of Common Stock or a combination thereof. Stock
appreciation rights may be granted alone or in tandem with other Awards.
Stock Awards. Stock Awards consist of one or more shares of Common Stock
granted or offered for sale to a participant subject to terms and conditions,
including vesting requirements or restrictions on transferability, as determined
by the Committee and specified in the Award agreement.
Performance Share Awards. Performance share Awards entitle a participant
to receive shares of Common Stock upon satisfaction of certain specified
performance criteria and subject to such other terms and conditions as the
Committee deems appropriate. Payment in settlement of a performance share Award
will be made as soon as practicable following the conclusion of the applicable
performance period in shares of Common Stock, in an equivalent amount of cash or
in a combination of Common Stock and cash, as the Committee determines.
Other Awards. The Committee has the authority to specify the terms and
provisions of other forms of equity-based or equity-related Awards not described
above which the Committee determines to be consistent with the purpose of the
Stock Incentive Plan and the interests of the Company, which Awards may provide
for deferral of compensation through equity based units, for cash payments based
in whole or in part on the value or future value of Common Stock, for the
acquisition or future acquisition of Common Stock, or any combination thereof.
Other Awards may also include cash payments based on one or more criteria
determined by the Committee which are unrelated to the value of Common Stock.
Change in Control. In the event of termination of a participant's
employment by the Company without Cause or, in certain cases, by the participant
for Good Reason, as such terms may be defined in the applicable Award
agreements, within two years of a change in control, all such participant's
outstanding stock options and stock appreciation rights will become fully
exercisable, all restrictions and conditions of all stock Awards then held by
such participant will lapse, and all performance share Awards held by such
participant will be
58
<PAGE> 60
deemed to have been fully earned. In the case of a change in control involving a
merger or consolidation involving the Company in which the Company is not the
surviving corporation or becomes a wholly owned subsidiary of another entity,
outstanding and unexercised stock options held by a participant will be
converted into options to acquire common stock of the survivor on substantially
the same terms and conditions as the original option, with appropriate
adjustments as to the number and kind of shares and exercise prices.
For purposes of the Stock Incentive Plan, a change in control shall be
deemed to have occurred when: (a) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
any of the Airline Shareholders (an "Acquiring Person"), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of more than 33 1/3% of the then outstanding voting stock of the
Company (49% of the then outstanding voting stock of the Company if such person
or group includes any of the Airline Shareholders); (b) the stockholders of the
Company and a majority of the non-employee directors of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 66 2/3% of the combined voting power of the voting
securities of the Company, such surviving entity or the parent of such surviving
entity outstanding immediately after such merger or consolidation; (c) the
stockholders of the Company approve a plan of reorganization (other than a
reorganization or liquidation under the United States Bankruptcy Code or
complete liquidation of the Company) or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets; (d) during
any period of two consecutive years (beginning on or after the effective date of
the Stock Incentive Plan), individuals who at the beginning of such period
constitute the Board and any new director (other than a director who is a
representative or nominee of an Acquiring Person) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least a majority of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, no longer constitute a majority of the
Board; provided, however, that a change in control shall not be deemed to have
occurred in the event of (i) a sale or conveyance in which the Company continues
as a holding company of an entity or entities that conduct the business or
businesses formerly conducted by the Company if such sale or conveyance does not
materially affect the beneficial ownership of the Company's capital stock; or
(ii) any transaction undertaken for the purpose of reincorporating the Company
under the laws of another jurisdiction, if such sale or conveyance does not
materially affect the beneficial ownership of the Company's capital stock. For
the purpose of the definition of change in control, Airline Shareholder means
any of United Airlines, US Airways or KLM Royal Dutch Airlines.
Amendment. The Board may amend or terminate the Stock Incentive Plan at
any time, except that stockholder approval is required to increase the maximum
number of shares issuable under the plan or to reduce the exercise price of any
outstanding stock option or stock appreciation right. No amendment or
termination may adversely affect a participant's rights with respect to
previously granted Awards without his or her consent.
Certain Federal Income Tax Consequences of Awards. Certain of the federal
income tax consequences to participants and the Company of Awards granted under
the Stock Incentive Plan should generally be as set forth in the following
summary.
An employee to whom an ISO which qualifies under Section 422 of the Code is
granted will not recognize income at the time of grant or exercise of such
option. No federal income tax deduction will be allowable to the employee's
employer upon the grant or exercise of such ISO. However, upon the exercise of
an ISO, any excess in the fair market price of the Common Stock over the option
price constitutes a tax preference item which may have alternative minimum tax
consequences for the employee. When the employee sells such shares more than one
year after the date of transfer of such shares and more than two years after the
date of grant of such ISO, the employee will normally recognize a long-term
capital gain or loss equal to the difference, if any, between the sale prices of
such shares and the option price. If the employee does not hold such shares for
the required period, when the employee sells such shares, the employee will
recognize ordinary compensation income and possibly capital gain or loss in such
amounts as are prescribed by
59
<PAGE> 61
the Code and the regulations thereunder and the Company will generally be
entitled to a federal income tax deduction in the amount of such ordinary
compensation income.
An employee to whom a NSO is granted will not recognize income at the time
of grant of such option. When such employee exercises such NSO, the employee
will recognize ordinary compensation income equal to the difference, if any,
between the option price paid and the fair market value, as of the date of
option exercise, of the shares the employee receives. The tax basis of such
shares to such employee will be equal to the option price paid plus the amount
includible in the employee's gross income, and the employee's holding period for
such shares will commence on the date on which the employee recognized taxable
income in respect of such shares. Subject to the applicable provisions of the
Code and regulations thereunder, the Company will generally be entitled to a
federal income tax deduction in respect of a NSO in an amount equal to the
ordinary compensation income recognized by the employee.
A participant who receives a grant of stock appreciation rights or
performance share Awards will recognize ordinary compensation income at the time
such Award is settled in cash or stock in an amount equal to the cash or the
fair market value of the stock received. Subject to the applicable provisions of
the Code and regulations thereunder, the Company will generally be entitled to a
federal income tax deduction in respect of a grant of stock appreciation rights
and performance share Awards in an amount equal to the ordinary compensation
income recognized by the participant.
No income will be recognized by a participant who is granted a stock Award
if the Award is subject to a substantial risk of forfeiture or restrictions on
transferability, unless the participant makes a special election with the
Internal Revenue Service pursuant to Section 83(b) of the Code to be taxed at
the time of grant. Upon lapse of the risk of forfeiture or restrictions on
transferability, the participant will be taxed at ordinary income tax rates on
the then fair market value of the Common Stock and a corresponding deduction
will be allowable. The participant's basis in the Common Stock will be equal to
the ordinary income so recognized. Upon subsequent disposition of such Common
Stock, the participant will realize capital gain or loss (long-term or
short-term, depending upon the holding period of the stock sold).
Pursuant to Section 83(b) of the Code, a participant may elect within 30
days of receipt of the stock Award to be taxed at ordinary income tax rates on
the fair market value of the Common Stock comprising the stock Award at the time
of award. If the election is made, the Company will be entitled to a
corresponding deduction. No income will be recognized, and no deduction will be
allowed the Company, upon lapse of the risk of forfeiture or restrictions on
transferability.
The following table sets forth certain information concerning stock options
to be granted upon consummation of the Offering.
NEW PLAN BENEFITS
1997 STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
OPTIONS
--------------------------------
NO. OF
NAME AND POSITION UNITS(1) DOLLAR AMOUNT
----------------- ------------ ----------------
<S> <C> <C>
James E. Barlett............................................ 216,200 n/a
President and Chief Executive Officer
Paul H. Bristow............................................. 62,200 n/a
Senior Vice President and Chief Financial Officer
Michael Foliot.............................................. 58,200 n/a
Senior Vice President, Vendor Marketing
W. Craig Thomson............................................ 0 n/a
Senior Vice President
K. Norma Wood............................................... 0 n/a
Senior Vice President, Marketing and Strategy
Executive Group............................................. 521,400 n/a
Non-Employee Director Group................................. 0 n/a
Non-Executive Officer Employee Group........................ 906,977 n/a
</TABLE>
- ---------------
(1) Assumes an initial public offering price of $21.50 per share of Common
Stock.
60
<PAGE> 62
Except as described in this paragraph, each option to purchase shares of
Common Stock granted upon consummation of the Offering will have an exercise
price equal to the initial public offering price per share of Common Stock and
will vest in equal annual tranches over a five-year period measured from the
date of grant. All such options will have a ten-year term. Among the options
included in the above table are grants of options to purchase 200 shares of
Common Stock per employee to be made to substantially all employees of the
Company (the "Company-Wide Options"). The Company-Wide Options will vest in
equal annual tranches over three years. In the case of the Chief Executive
Officer and each of the Senior Vice Presidents, fifty-percent of the initial
option grant (other than the Company-Wide Options) will have an exercise price
equal to the initial public offering price per share of Common Stock and will
vest over a five-year period in 20% tranches starting on the date of grant, and
the remaining fifty-percent of such option grant will have an exercise price of
115% of the initial public offering price per share of Common Stock and will
vest in equal annual tranches over a five-year period beginning in the year
following the initial date of grant.
DEFERRED COMPENSATION ARRANGEMENTS
The Deferred Compensation Arrangements are designed to convert existing
awards under the Company's Long Term Incentive Plan (the "LTIP") into phantom
shares. Certain executives of the Company have been participants in the LTIP.
The LTIP is intended to reward executives for superior performance in achieving
long-term Company goals and facilitate the recruitment and retention of high
caliber executives. Each participant in the LTIP was granted a target cash award
expressed as a percentage of such participant's base salary at the start of that
performance period. Over the subsequent three year performance cycle, each
participant annually receives one-third of the award, provided that the
participant remains employed with the Company. The Company maintains the right
to amend or terminate the LTIP at any time.
The Company will discontinue granting awards under the LTIP upon completion
of the Offering. The Company intends to convert the outstanding awards pursuant
to remaining award cycles from 1995 and 1996 and half of the target award value
for 1997 into phantom shares, each of which will represent an unsecured
contractual right to receive, upon the payment of such phantom share in
accordance with the terms of the award agreements to be entered into between the
Company and each of the LTIP participants (the "Deferred Compensation
Agreements"), cash in the amount of the fair market value of a share of Common
Stock as of the payment date. By signing a Deferred Compensation Agreement, each
LTIP award holder will waive all of his or her rights and claims with respect to
the LTIP and awards granted thereunder.
The number of phantom shares granted to each participant will be determined
by dividing the dollar amount of such participant's remaining unpaid award under
the LTIP by the initial public offering price of the Common Stock. In the event
that dividends are declared and paid on the Common Stock, each participant will
also be awarded dividend equivalents with respect to his or her phantom shares.
Such dividend equivalents will be placed in an account in each participant's
name and awarded simultaneously with such corresponding phantom shares.
In the event of the termination of a participant's employment for any
reason other than retirement, death or disability, or the Company's elimination
of the participant's position for reasons unrelated to the participant's
performance, all unpaid phantom shares granted to such participant will be
forfeited. In the event of a change in control, each participant will be paid
the "change in control price" as defined in the Deferred Compensation
Agreements. The Board may accelerate the payment of phantom shares granted
pursuant to the Deferred Compensation Agreements at any time.
61
<PAGE> 63
It is currently anticipated that the following awards will be made to
certain executive officers under the Deferred Compensation Arrangements
concurrently with the Offering as set forth in the Deferred Compensation
Arrangement Table below.
NEW PLAN BENEFITS
DEFERRED COMPENSATION ARRANGEMENTS
<TABLE>
<CAPTION>
PHANTOM SHARES(1)
-----------------------------
APPROXIMATE
NO. OF
NAME AND POSITION UNITS(2) DOLLAR AMOUNT
----------------- ------------ -------------
<S> <C> <C>
James E. Barlett............................................ 13,121 $282,096
President and Chief Executive Officer
Paul H. Bristow............................................. 6,125 $131,690
Senior Vice President and Chief Financial Officer
Michael Foliot.............................................. 5,891 $126,653
Senior Vice President, Vendor Marketing
Executive Group............................................. 38,101 $819,170
</TABLE>
- ---------------
(1) Assumes that all participants in the LTIP will execute a Deferred
Compensation Agreement.
(2) Assumes an initial public offering price of $21.50 per share of Common
Stock.
A participant who receives a grant of phantom shares will recognize
ordinary compensation income at the time such award is settled in cash or in
stock in an amount equal to the cash or fair market value of the stock received.
Subject to the applicable provisions of the Code and regulations thereunder, the
Company will be generally entitled to a federal income tax deduction in respect
of a grant of phantom shares in an amount equal to the ordinary compensation
income recognized by the participant.
MANAGEMENT INCENTIVE PLAN
The Company maintains the Galileo International, Inc. Annual Management
Incentive Plan (the "MIP"). Participation in the MIP, which is determined
annually, is based upon individual selection by the Chief Executive Officer,
subject to the approval of the Committee. The Chief Executive Officer selects
participants, subject to Compensation Committee approval, based upon the
employee's level of duties and responsibilities and ability to positively impact
the financial performance of the Company. The Board may remove participants from
the MIP, permanently or for any other duration, at any time, due to the
participant's absence or unsatisfactory individual performance.
Awards, which are determined as soon as practicable after the close of the
fiscal year, are calculated by multiplying the participant's annual base salary
by the participant's "target incentive opportunity" and by the applicable
performance multiplier. The participant's target incentive opportunity is a
stated percentage of the participant's base salary. The target incentive
opportunity is comprised of a corporate objective component and an individual
objective component. The size of the target incentive opportunity is based upon
a number of factors including the participant's level of duties and
responsibilities, the participant's ability to positively impact the financial
results of the Company, prevailing competitive practices, current practices of
the Company, and local incentive pay practices. In determining whether
performance goals have been satisfied, "windfall" revenue, defined as earnings
not resulting from direct management actions, will be discounted from the total
earnings. The Company will not issue bonuses if it does not meet a defined
threshold level of corporate financial performance.
Participants who resign at any time prior to receipt of any award may
forfeit any award which may have accrued under the MIP. The Board may terminate
or amend the MIP, in whole or in part, at any time.
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MANAGEMENT OWNERSHIP GUIDELINES
The Company has adopted the following management ownership guidelines (the
"MOG") for the purpose of better linking executive compensation with the
creation of stockholder value. The MOG encourages the Chief Executive Officer to
have made significant progress towards ownership of Common Stock or phantom
stock with a fair market value of 300% of his salary within three years from the
date of the Offering. The MOG also encourages each of the Senior Vice Presidents
to have made progress towards ownership of Common Stock or phantom stock with a
fair market value of 150% of each of their respective salaries within the same
time period. The Underwriters have reserved for sale, at the initial public
offering price less underwriting discounts and commissions, shares of Common
Stock for officers of the Company at the Senior Vice President level and above.
See "Underwriters."
NON-EMPLOYEE DIRECTOR STOCK PLAN
The Company has adopted the Galileo International, Inc. 1997 Non-Employee
Director Stock Plan (the "Director Plan"). The purposes of the Director Plan are
to retain the services of qualified individuals who are not employees of the
Company to serve as members of the Board and to secure for the Company the
benefits of the incentives inherent in increased Common Stock ownership by such
individuals by granting such individuals options to purchase shares of Common
Stock, or, in the case of the Airline Directors who are employees of an airline
stockholder, the cash equivalent of such options, and to provide such
individuals (other than Airline Directors who are employees of an airline
stockholder) an opportunity to defer payment of a portion of their director's
fees in accordance with the terms and conditions set forth herein, to compensate
them for their contributions to the growth and profits of the Company and to
encourage ownership by them of Common Stock.
Shares Available Under the Director Plan. Subject to the provisions of the
Director Plan, the maximum number of shares of Common Stock which may be issued
under the Director Plan shall not exceed 500,000. Either authorized and unissued
shares of Common Stock or treasury shares may be delivered pursuant to the
Director Plan.
Administration. The Board or an individual appointed by the Board (the
"Administrator") will be responsible for administering the Director Plan. The
Administrator will have authority to adopt such rules as it may deem appropriate
to carry out the purposes of the Director Plan, and will have authority to
interpret and construe the provisions of the Director Plan and any agreements
and notices under the Director Plan and to make determinations pursuant to any
Director Plan provision. Each interpretation, determination or other action made
or taken by the Administrator pursuant to the Director Plan will be final and
binding on all persons.
Stock Options. The Director Plan authorizes awards of options to purchase
shares of Common Stock. Each option will generally vest and become exercisable
six months after the date of grant and will expire ten years from the date of
grant, subject to early vesting, exercisability, and expiration as provided in
the Director Plan. The option will have a per share exercise price equal to the
fair market value of the Common Stock on the date of grant. Upon the effective
date of the Director Plan and upon the date of a non-employee director's
election (other than the election of a substitute Airline Director who is an
employee of an airline stockholder), appointment or reelection, such
non-employee director will be granted an option to purchase (4,000 X Y) - 1,000
X (Y - 1) shares of Common Stock where Y = the number of years in such
director's term. In non-election years an option to purchase 1,000 shares of
Common Stock will be granted to each eligible non-employee director.
Notwithstanding the foregoing, at such time that an option would otherwise
be granted under the Director Plan, an Airline Director who is an employee of an
airline stockholder will receive in lieu of such option, a cash payment equal to
the value of the option calculated on the basis of the Black-Scholes Option
Pricing Model. It is currently anticipated that such cash payment will be
transferred to such Airline Director's employer. In the event that an airline
stockholder's ability to elect an Airline Director terminates within six months
of a cash payment under the Director Plan, such airline stockholder will be
required to repay to the Company the amount of such payment. The Company may
also make equitable adjustments in the payment
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<PAGE> 65
amount under the Director Plan (including requiring the airline stockholder to
repay amounts previously paid) to account for the election of new Airline
Directors by the airline stockholders.
The exercise price of a stock option may be paid in cash or previously
owned stock or a combination thereof.
Deferral of Director's Fees. Non-employee directors (other than Airline
Directors who are employees of an airline stockholder) may elect to defer all or
a specified percentage of their director's fees (in multiples of five percent)
under the Director Plan. Such non-employee director's deferrals will be credited
to a deferred compensation account set up for that non-employee director by the
Company. All amounts in this account are nonforfeitable at all times.
The portion of the director's fees that such non-employee director elects
to defer will be credited in the form of phantom stock units to the deferred
compensation account as of the last business day of the fiscal quarter in which
such portion of the director's fees would otherwise have been payable to the
non-employee director. The number of phantom stock units to be credited to the
deferred compensation account will be determined by dividing the amount of the
director's fees deferred over such quarter by the fair market value of a share
of Common Stock as of the date of crediting. In the event that the Company pays
any cash or other dividend or makes any other distribution in respect of the
Common Stock, each phantom stock unit credited to the deferred compensation
account of such non-employee director will be credited with dividend
equivalents. The crediting of phantom stock units to such non-employee
director's deferred compensation account shall not confer on the non-employee
director any rights as a stockholder of the Company.
Payment of the deferred benefits credited in phantom stock units will be in
shares of Common Stock.
Change in Control. The definition of change of control for the purposes of
the Director Plan is substantially identical to that in the Stock Incentive
Plan. In the event of a change in control of the Company: (a) any options held
by a non-employee director who retires from service or who is removed from the
Board within two years of the date such a change in control occurred that are
not yet exercisable and vested will become fully exercisable and vested and (b)
all deferred benefits credited to the non-employee director's deferred
compensation account as of the date of the change in control will be paid in
cash to the non-employee director or, in the event of death of the non-employee
director prior to payment, to the beneficiary thereof on the date of the change
in control. The cash amount paid for each whole or partial phantom stock unit
will be the change in control price.
Amendment. The Board or the Committee may amend or terminate the Director
Plan at any time, except that stockholder approval is required to increase the
maximum number of shares issuable under the plan and when required by any
applicable law. No amendment or termination of the Director Plan may adversely
affect a participant's rights with respect to previously granted Awards or
result in the distribution of amounts credited to his or her deferred account in
a manner other than provided in the Director Plan or otherwise result in
immediate taxation without his or her consent.
Certain Federal Income Tax Consequences. Although no Federal income tax
liability accrues to a participant in the Director Plan at the time options are
granted pursuant to the Plan, the participant must recognize ordinary
compensation income in the year in which such options are exercised equal to the
amount by which the fair market value of the purchased shares on the date of
exercise exceeds the exercise price. The tax basis of such shares to such
participant will be equal to the exercise price paid plus the amount includible
in the participant's gross income, and the participant's holding period for such
shares will commence on the date on which the participant recognizes taxable
income in respect of such shares. Gain or loss upon a subsequent sale of any
Common Stock received upon the exercise of options granted pursuant to the
Director Plan generally would be taxed as capital gain or loss (long-term or
short-term, depending upon the holding period of the stock sold). Certain
additional rules apply if the exercise price for such options is paid in shares
previously owned by the participant.
Subject to the applicable provisions of the Code and regulations
thereunder, the Company will generally be entitled to an income tax deduction
equal to the amount of ordinary compensation income the participant recognizes
in connection with the exercise of any option granted pursuant to the Director
Plan. The deduction
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<PAGE> 66
will, in general, be allowed for the taxable year of the Company in which the
participant recognizes such ordinary compensation income.
It is currently anticipated that awards will be made to the non-employee
directors upon their election following the Offering, set forth below in the
1997 Non-Employee Director Plan Table.
NEW PLAN BENEFITS
1997 NON-EMPLOYEE DIRECTOR PLAN
<TABLE>
<CAPTION>
DOLLAR
NAME AND POSITION OPTIONS AMOUNT
----------------- ------- --------
<S> <C> <C>
Non-Executive Director Group(1)............................. 73,000 $480,480
</TABLE>
- ---------------
(1) The number of options includes awards to Airline Directors that will be
converted into cash payments. The dollar amount represents the value of the
payments being made to such Airline Directors in connection with the
conversion of their option grants. An initial public offering price per
share of Common Stock of $21.50, a future annual dividend yield of 1.00%, a
ten year option term, a risk free rate of return of 6.43% over the option
term and an estimated future annual stock volatility factor of .2200 were
assumed for the purpose of the calculation of the dollar amount listed
above.
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<PAGE> 67
RELATIONSHIP WITH AIRLINE STOCKHOLDERS AND CERTAIN TRANSACTIONS
COMMERCIAL ARRANGEMENTS
Computer Services Agreements
Simultaneously with the consummation of the Offering, each airline
stockholder may enter into a separate computer services agreement (collectively,
the "Computer Services Agreements") with the Company pursuant to which the
Company will provide certain fares quotation services, internal reservation
services, other internal management services and software development services.
The Computer Services Agreements, other than with respect to fares quotation
services and services to United Airlines, each discussed below, will generally
be cancellable by either party upon six months' prior written notice (except the
Company will not be able to cancel the agreement prior to the third anniversary
of the consummation of the Offering). The Computer Services Agreements generally
require the Company to provide the services thereunder at prices based upon a
fully allocated cost methodology for a period of up to three years, after which
pricing will be determined on an arm's-length basis.
The Company will also provide fares quotation services to many of the
airline stockholders, including United Airlines, through its GlobalFares fares
quotation system. The Company has agreed to provide such fares quotation
services under existing pricing arrangements for a period of approximately five
years, after which pricing will be determined on an arm's-length basis. These
services may be canceled by either party upon six months' prior written notice
(except the Company will not be able to cancel the provision of such services
prior to the end of the existing pricing period).
The Company will also provide internal reservation services, other internal
management services and software development services to United Airlines.
Internal reservation services will be provided for a minimum period of four or
six years following the consummation of the Offering at prices in effect
immediately prior to such consummation. Other internal management services and
software development services will generally be provided to United Airlines for
a minimum period of six years following the consummation of the Offering at
prices in effect immediately prior to such consummation with respect to other
internal management systems services, and at prices based upon a fully allocated
cost methodology for software development services, after which pricing will be
determined on an arm's-length basis.
Distributor Sales and Service Agreements
The Company is party to distributor sales and service agreements with NDC
affiliates of certain airline stockholders. In exchange for its efforts to sell
the Company's products to travel agencies in its territory, the NDC receives a
percentage of the booking fees generated by travel agency use of the Company's
systems within its territory. In the absence of material breach, these
agreements cannot be terminated by either party so long as an affiliate of the
relevant NDC retains an interest in the Company.
Termination of Revenue Sharing Obligations
In conjunction with the acquisitions of Galileo Nederland and Traviswiss,
the Company will terminate its obligations under the Galileo International
Partnership agreement to share with KLM and Swissair a portion of the booking
fee revenue generated in certain European territories. In consideration of the
termination of such revenue sharing obligations the Company will pay KLM and
Swissair, in four annual installments, the aggregate amounts of $14.8 million
and $22.4 million, respectively. See "The Company -- The NDC
Acquisitions -- Traviswiss AG" and "-- Galileo Nederland BV."
Sales Representation Agreements
Simultaneously with the consummation of the Offering, the Company will
enter into sales representation agreements with United Airlines and US Airways,
pursuant to which these airlines will provide the personnel to sell the
Company's Apollo brand reservations products to subscribers in the United States
and Mexico. Employees of the airlines will be responsible for the sales
function, while employees of the Company will be fully responsible for all
aspects of customer service and support. Each sales representation agreement
will remain in effect so long as the non-competition agreement between the
Company and United Airlines or US
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<PAGE> 68
Airways, as the case may be, remains in effect, and will provide base and
incentive compensation, based upon achievement of revenue goals to be
established annually.
Services Agreements
In connection with the Company's acquisition of ATS, the Company will enter
a services agreement (the "ATS Services Agreement") with United Airlines, US
Airways and Air Canada (collectively, the "ATS Services Providers"), pursuant to
which the ATS Services Providers will provide certain marketing and other
services designed to assist the Company in growing the business of ATS.
Specifically, each of the ATS Services Providers will agree to use its expertise
with respect to the airline distribution business, its sales personnel and its
sales offices in the ATS territory, in accordance with applicable law, to
increase the Company's competitiveness in the marketplace and generate
additional bookings and revenue for the Company. Representatives from the
marketing division of each ATS Services Provider will meet regularly with
representatives from the Company's marketing division to discuss, coordinate and
implement future marketing strategies related to, but not limited to, the
direction of distribution in the marketplace and the emergence of alternative
distribution channels and technologies. During the sixth year following the
effective date of the ATS Services Agreement, the Company will pay the ATS
Services Providers a fee of up to $200.0 million (on a present value basis),
based on improvements in the Company's air booking fee revenue over the
five-year period immediately following the acquisition of ATS, as measured by
the weighted average annual air segment growth rate and the weighted average
annual price increase rate over such period. The Company cannot currently
estimate how much, if any, of such maximum fee may be paid at such time.
In connection with the Company's acquisitions of Traviswiss and Galileo
Nederland, the Company will enter into a services agreement with each of
Swissair and KLM (collectively, the "Additional Services Agreements"; and,
together with the ATS Services Agreements, the "Services Agreements"), pursuant
to which Swissair and KLM will provide services designed to assist the Company
in growing the business of Traviswiss and Galileo Nederland, respectively.
During the sixth year following the effective dates of the Additional Services
Agreements, the Company will pay Swissair a fee of up to $6.8 million (on a
present value basis) and will pay KLM a fee of up to $4.7 million (on a present
value basis), in each case based on improvements in the Company's air booking
fee revenue over the five-year period immediately following such acquisitions,
measured in a manner similar to that provided in the ATS Services Agreement. The
Company cannot currently estimate how much, if any, of such maximum fees will be
paid at such time.
Consolidation Agreement
In connection with the Company's acquisition of ATS, the execution by the
Company and United Airlines of a Computer Services Agreement and the agreement
of United Airlines to allow the Company to consolidate the Galileo system and
the Apollo system without the consent of United Airlines pursuant to such
Computer Services Agreement, the Company and United Airlines will enter into a
Consolidation Agreement. Pursuant to the Consolidation Agreement, the Company
will make payments to United Airlines, aggregating $50.0 million, in three
installments, the last of which will be made on January 2, 1998. These payments
will be made from cash acquired as a result of the Company's acquisition of ATS.
See note (e) in "Notes to Pro Forma Condensed Combined Financial Statements."
NON-COMPETITION AGREEMENTS
Simultaneously with the consummation of the Offering, the Company will
enter into a non-competition agreement with each of the airline stockholders.
These agreements will prohibit the airline stockholders and their affiliates
from competing with the Company in providing reservations services to neutral
travel agencies. However, the non-competition agreements include certain
exceptions that permit the airline stockholders and their affiliates to, among
other things, provide and market certain reservation services to certain
customers of the airline stockholders.
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<PAGE> 69
If an airline stockholder believes it will be materially disadvantaged in
relation to one of its airline competitors by not being able to engage in an
activity that is prohibited by the non-competition agreement, such entity may
seek approval to engage in the activity from the Company's Airline Affiliate
Review Board (the "AARB"). The AARB, which will be comprised of a representative
of each of United Airlines, KLM, Swissair, British Airways and US Airways (so
long as the relevant airline stockholder is a beneficial owner of a share of
Special Voting Preferred Stock and is not the airline seeking relief), may
permit the airline stockholder to engage in the prohibited activity if it
determines that the damage to the airline stockholder from continued prohibition
of such activity would be greater than the damage that would be suffered by the
Company if such activity were allowed. The AARB may condition its permission
upon divestiture of the airline stockholder's interest in the Company's capital
stock, termination of its right to distribute the Company's products and
services or the payment of compensation to the Company. The airline stockholder
may not engage in the prohibited activity until the AARB renders a decision
allowing such activity or, if the AARB's decision is appealed to an arbitrator,
until such arbitrator renders an award allowing such activity.
These agreements may be terminated upon 12 months' notice given at any time
after the second anniversary of the consummation of the Offering, or upon six
months' notice after the third anniversary of such date, provided that the
agreements may not be terminated while the stockholder controls one of the
Company's NDCs. Each non-competition agreement also terminates automatically at
such time as the airline stockholder that is a party to such agreement ceases to
own any shares of Common Stock, although the agreement will continue to be
binding on any NDC of the Company in which such airline stockholder owns an
interest.
In the event any airline stockholder that has elected a director to the
Company's Board of Directors in accordance with the provisions of the Special
Voting Preferred Stock gives notice of its intention to terminate its
non-competition agreement, such airline stockholder will no longer be entitled
to have a director on the Company's Board of Directors.
REGISTRATION RIGHTS AGREEMENT
The Company and the airline stockholders are parties to a registration
rights agreement (the "Registration Rights Agreement"), pursuant to which each
airline stockholder may, on two separate occasions, demand registration under
the Securities Act of shares of the Common Stock held by it. The Company may
postpone such a demand under certain circumstances. In addition, if the Company
registers any other shares of Common Stock under the Securities Act, subject to
certain limitations, each airline stockholder may request that the Company
include shares of its Common Stock in such registration.
STOCKHOLDERS' AGREEMENT
Simultaneously with the consummation of the Offering, the Company, certain
of its stockholders and certain parties related to such stockholders will enter
into a stockholders' agreement (the "Stockholders' Agreement") pursuant to which
they will vote their shares and take such other actions as are necessary to
cause the board of directors of the Company to (i) with limited exceptions,
consist of 13 members, (ii) be divided into three classes, (iii) consist of
seven directors elected by the airline stockholders, three management directors
and three independent directors and (iv) designate nominating, audit and
compensation committees. The Stockholders' Agreement contains certain
limitations on the transfer of shares of Special Voting Preferred Stock and
Common Stock, including provisions granting the airline stockholders, their
affiliates and certain transferees (collectively, the "Original Owners") the
right of first refusal in the event that an Original Owner proposes to sell or
transfer its shares of Common Stock to another Original Owner or an affiliate
thereof. In addition, the Stockholders' Agreement prohibits an Original Owner
from transferring its shares of Common Stock to any of its affiliates without
such affiliate executing a counterpart of the Stockholders' Agreement. The
Stockholders' Agreement also restricts the ability of an Original Owner to
acquire more than 50% of the capital stock of the Company entitled to vote in
the election of directors. Each of the Original Owners has agreed in the
Stockholders' Agreement not to sell any of its original shares of Common Stock
or Special Voting Preferred Stock within the first six months after the Offering
unless it provides a written opinion of tax counsel to the effect that such sale
will not cause the formation of the
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<PAGE> 70
Company to fail to qualify as a tax-free transaction under Section 351 of the
Code. The Stockholders' Agreement will terminate on the tenth anniversary of the
consummation of the Offering.
TRANSACTION AGREEMENT
Simultaneously with the consummation of the Offering, the parties to the
original agreements relating to the formation, business, operations and
governance of the Galileo Partnership will enter into a transaction agreement
with the Company (the "Transaction Agreement"). Pursuant to the Transaction
Agreement, the parties will agree to enter into new agreements relating to the
governance of the Company and certain commercial relationships between the
Company and its airline stockholders (and certain of their affiliates) and to
extend, terminate or modify certain of the obligations of the parties under the
original agreements.
The new agreements will include the Computer Services Agreements, the
Non-Competition Agreements, the Sales Representation Agreements, the
Registration Rights Agreement, the Stockholders' Agreement, the agreements
pursuant to which the Company will effect the NDC Acquisitions and the Services
Agreements.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding (i) the
beneficial ownership of the Common Stock by the airline stockholders immediately
prior to the Offering (after giving effect to the merger of the Galileo
Partnership into a wholly owned limited liability company subsidiary of Galileo
International, Inc.); (ii) the number of shares of Common Stock to be sold by
the Selling Stockholders in the Offering; (iii) the beneficial ownership of the
Common Stock by the airline stockholders as adjusted to give effect to the
Offering; and (iv) the beneficial ownership of Special Voting Preferred Stock
after giving effect to the Offering. Immediately prior to the Offering, no
director or executive officer of the Company will be the beneficial owner of any
shares of Common Stock.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY NUMBER OF BENEFICIALLY NUMBER OF SHARES
OWNED PRIOR SHARES OF OWNED AFTER OF SPECIAL VOTING
TO THE OFFERING(2) COMMON THE OFFERING(2) PREFERRED STOCK
-------------------- STOCK BEING -------------------- BENEFICIALLY OWNED
BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT AFTER THE OFFERING(3)
------------------- ------ ------- ----------- ------ ------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
United Air Lines, Inc.(4)............ 33,440,000 38.0% -- 33,440,000 33.4% 3
British Airways plc(5)............... 12,892,000 14.7 5,891,600 7,000,400 7.0 1
SAirGroup (Ltd.)(6).................. 11,633,600 13.2 4,633,200 7,000,400 7.0 1
Koninklijke Luchtvaart Maatschappij
N.V. (KLM)(7)...................... 10,639,200 12.1 -- 10,639,200 10.6 1
US Airways, Inc.(8).................. 9,680,000 11.0 2,679,600 7,000,400 7.0 1
Alitalia-Linee Aeree Italiane
S.p.A.(9).......................... 7,664,800 8.7 6,065,840 1,598,960 1.6 --
Olympic Airways S.A.(10)............. 906,400 1.0 -- 906,400 * --
Air Canada(11)....................... 880,000 1.0 727,760 152,240 * --
Aer Lingus plc(12)................... 88,000 * -- 88,000 * --
Transportes Aereos Portugueses
S.A.(13)........................... 88,000 * -- 88,000 * --
Austrian Airlines Oesterreichische
Luftverkehrs
Aktiengesellschaft(14)............. 88,000 * -- 88,000 * --
</TABLE>
- -------------------------
* Less than 1%.
(1) As used in this table, the terms "beneficial owner" and "beneficially own"
have the meanings given such terms in Rule 13d-3 of the Exchange Act.
(2) Assumes no exercise of the U.S. Underwriters' over-allotment option. See
"Underwriters."
(3) Each share of Special Voting Preferred Stock entitles the holder thereof to
elect one director to the Company's Board of Directors. See "Description of
Capital Stock -- Special Voting Preferred Stock."
(4) Shares are owned directly by Covia Corporation, a wholly owned subsidiary
of United Air Lines, Inc., whose business address is 1200 East Algonquin
Road, Elk Grove Township, Illinois 60007.
(5) Shares are owned directly by Distribution Systems, Inc., a Delaware
corporation and an indirect wholly owned subsidiary of British Airways plc.
The business address of British Airways plc is Speedbird House, Heathrow
Airport, Hounslow, Middlesex, TW6 2JA, England.
(6) Shares are owned directly by Roscor, A.G., a wholly owned subsidiary of
SAirGroup (Ltd.), whose business address is CH-8058, Zurich Airport,
Switzerland.
(7) Shares are owned directly by Travel Industry Systems B.V., a wholly owned
subsidiary of Koninklijke Luchtvaart Maatschappij N.V., whose business
address is Amsterdamseweg 55, 1182 GP Amstelveen, The Netherlands.
(8) Shares are owned directly by USAM Corp., a wholly owned subsidiary of US
Airways, Inc., whose business address is Crystal Park Four, 2345 Crystal
Drive, Arlington, Virginia 22227.
(9) Shares are owned directly by Racom Teledata S.p.A., a subsidiary of
Alitalia-Linee Aeree Italiane S.p.A., whose business address is Viale
Alessandro Marchetti No. 111, 00148 Rome, Italy.
(10) Shares are owned directly by Olynet, Inc., a wholly owned subsidiary of
Olympic Airways S.A., whose business address is 96, Syngrou Ave, Athens,
Greece.
(11) Shares are owned directly by Resnet Holdings, Inc., a wholly owned
subsidiary of Air Canada., whose business address is 130 Bloor Street West,
Toronto, Ontario, M5S 1P5, Canada.
(12) Shares are owned directly by Retford Limited, a wholly owned subsidiary of
Aer Lingus plc, whose business address is Head Office Block, Dublin
Airport, Dublin, Ireland.
(13) Shares are owned directly by Coporga, Inc., a wholly owned subsidiary of
Transportes Aereos Portugueses S.A., whose business address is Edificio 27,
10. andar, Aeroporto de Lisboa, 1700 Lisboa Codex, Portugal.
(14) Shares are owned directly by Travidata, Inc., a wholly owned subsidiary of
Austrian Airlines Oesterreichische Luftverkehrs Aktiengesellschaft, whose
business address is Fontanastrasse I, A-1107 Vienna, Austria.
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DESCRIPTION OF CAPITAL STOCK
The following summary does not purport to be complete and is subject to the
detailed provisions of, and qualified in its entirety by reference to, the
Restated Certificate of Incorporation (the "Certificate of Incorporation"), the
Restated By-Laws (the "By-Laws") of the Company and the Stockholders' Agreement
that will be in effect immediately prior to the consummation of the Offering,
forms of which have been filed as exhibits to the Registration Statement of
which this Prospectus forms a part, and to the applicable provisions of the
General Corporation Law of the State of Delaware (the "DGCL").
The Special Voting Preferred Stock will allow certain airline stockholders
to elect seven of the 13 members of the Company's Board of Directors. Of the
remaining six directors, the airline stockholders have agreed pursuant to the
Stockholders' Agreement to vote their shares of Common Stock in favor of the
election of three independent directors who will be nominated by the Board of
Directors and three management directors. As a result, so long as the
Stockholders' Agreement remains in effect and the airline stockholders own in
the aggregate more than 50% of the outstanding Common Stock, the airline
stockholders will control the election of the entire Board of Directors. See
"Relationship with Airline Stockholders -- Stockholders' Agreement."
GENERAL
Upon the effectiveness of the Certificate of Incorporation, the authorized
capital stock of the Company will consist of 250,000,000 shares of Common Stock,
par value $.01 per share, seven shares of Special Voting Preferred Stock, par
value $.01 per share (the "Special Voting Preferred Stock"), which will be
divided into seven series consisting of one share each, and 25,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock").
COMMON STOCK
Upon completion of the Offering, the Company will have 100,000,000 shares
of Common Stock outstanding (assuming no exercise of the U.S. Underwriters'
over-allotment option).
Voting Rights. Each share of Common Stock entitles the holder thereof to
one vote in elections of directors and all other matters submitted to a vote of
stockholders.
Dividends. Each share of Common Stock has an equal and ratable right,
subject to any preferential rights of any outstanding Preferred Stock, to
receive dividends to be paid from the Company's assets legally available
therefor when, as and if declared by the Board of Directors. The DGCL generally
requires that dividends are payable only out of the Company's surplus or current
net profits. See "Dividend Policy."
Liquidation. Subject to the rights of any holders of Special Voting
Preferred Stock and Preferred Stock outstanding, upon the dissolution,
liquidation or winding up of the Company, the holders of Common Stock are
entitled to share equally and ratably in the assets available for distribution
after payments are made to the Company's creditors.
Other. The holders of shares of Common Stock have no preemptive,
subscription, redemption or conversion rights and are not liable for further
call or assessment. All of the outstanding shares of Common Stock are, and the
Common Stock offered by the Company hereby will be, validly issued, fully paid
and nonassessable.
Prior to the Offering, there has been no public market for the Common
Stock. Although the Company has applied to have the Common Stock approved for
listing on the New York Stock Exchange, there can be no assurance that an active
trading market will develop for the Common Stock. The initial public offering
price for the Common Stock will be determined by negotiations among the Company,
the Selling Stockholders and the Representatives of the Underwriters and may not
be indicative of the market price for the Common Stock after the Offering. See
"Underwriters -- Pricing of Offering."
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<PAGE> 73
SPECIAL VOTING PREFERRED STOCK
Upon completion of the Offering, the Company will have seven series of
Special Voting Preferred Stock outstanding, each series consisting of one share.
Voting Rights. Each series of Special Voting Preferred Stock, voting
separately as a single series, will generally be entitled to elect one director
to the Board of Directors so long as the number of Relevant Shares (as defined
below) that are held by the holder of the share of such series of Special Voting
Preferred Stock and its affiliates represents, with limited exceptions, at least
5% of the total number of shares of Common Stock outstanding; provided, however,
that in the event (i) a holder holds the shares of two or more series of Special
Voting Preferred Stock, such holder will be entitled to elect two directors to
the Board of Directors only if the number of Relevant Shares that are held by
such holder represents at least 15% of the total number of shares of Common
Stock outstanding and (ii) a holder holds the shares of three or more series of
Special Voting Preferred Stock, such holder will be entitled to elect three
directors to the Board of Directors only if the number of Relevant Shares held
by such holder represents at least 25% of the total number of shares of Common
Stock outstanding.
"Relevant Shares" means shares of Common Stock (i) beneficially owned by
subsidiaries of United Airlines, British Airways, Swissair, KLM, US Airways,
Alitalia, Olympic Airways, Air Canada, TAP Air Portugal, Austrian Airlines, Aer
Lingus or any affiliate of the foregoing (collectively, the "Original Owners")
immediately after consummation of the Offering (but excluding any shares of
Common Stock acquired in the Offering), (ii) transferred or acquired in
accordance with the provisions of the Stockholders' Agreement, including the
transfer restrictions provided below, (iii) issued by way of a stock split of
the Common Stock, or (iv) issued as (or issuable upon the conversion or exercise
of any warrant, rights, option or other convertible security which is issued as)
a dividend or other distribution with respect to, or in exchange for, or in
replacement of, the Common Stock referred to in clauses (i) through (iii) above.
Transfer Restrictions. The holder of a share of Special Voting Preferred
Stock may transfer such share only if (i) such transfer is made in connection
with a simultaneous transfer of Relevant Shares to the transferee, (ii) the
transferee is either (A) an Original Owner or (B) a third party that is or
becomes a party to the Stockholders' Agreement and a non-competition agreement,
and (iii) such transferee and its affiliates, in the aggregate, would, after
giving effect to such transfer or, in certain circumstances, within 90 days of
such transfer, hold Relevant Shares representing at least 5% (in the event such
transferee is receiving one share) of the then outstanding shares of Common
Stock. Only shares of Special Voting Preferred Stock transferred in accordance
with these restrictions will continue to have the special voting rights
described above.
Redemption. If at any time the holder of a share of Special Voting
Preferred Stock (i) is not entitled to elect a director to the Board of
Directors, (ii) is no longer subject to the terms of a non-competition
agreement, or (iii) has given the Company notice of its intention to terminate
its non-competition agreement, then the Company will immediately and
automatically redeem the share of such series of Special Voting Preferred Stock
at a redemption price of $100 per share (to the extent the Company has funds
legally available therefor).
Dividends. No share of Special Voting Preferred Stock will entitle the
holder thereof to receive dividends on such share.
Liquidation Rights. In the event of any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, before any payment
or distribution of the assets of the Company or proceeds thereof (whether
capital or surplus) is made to or set apart for the holders of any class or
series of stock of the Company ranking junior to the Special Voting Preferred
Stock upon liquidation, holders of the Special Voting Preferred Stock will be
entitled to receive $100 per share (the "preferential amount"), but such holders
will not be entitled to any further payment. If, upon any liquidation,
dissolution or winding-up of the Company, the assets of the Company, or proceeds
thereof, distributable among the holders of shares of Special Voting Preferred
Stock and any other class or series of stock ranking on a parity with the
Special Voting Preferred Stock as to payments upon liquidation, dissolution or
winding-up are insufficient to pay in full the preferential amount payable on
all such shares of stock, then such assets, or the proceeds thereof, will be
distributed
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<PAGE> 74
among such holders ratably in accordance with the respective amounts that would
be payable on such shares if all amounts payable thereon were paid in full. The
voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all the
property or assets of the Company to, or a consolidation or merger of the
Company with or into, one or more other corporations (whether or not the Company
is the corporation surviving such consolidation or merger) will not be deemed to
be a liquidation, dissolution or winding-up, voluntary or involuntary.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
stockholder action, to divide any or all shares of authorized Preferred Stock
into one or more series and to fix and determine the designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereon, of any series so
established, including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion or exchange privileges. As of the date of this
Prospectus, the Board of Directors of the Company has not authorized any series
of Preferred Stock, and there are no plans, agreements or understandings for the
issuance of any shares of Preferred Stock.
The Company believes that the ability of the Board of Directors to issue
one or more series of Preferred Stock will provide the Company with flexibility
in structuring possible future financings and acquisitions and in meeting other
corporate needs that might arise. The authorized shares of Preferred Stock will
be available for issuance without further action by the Company's stockholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded. The New York Stock Exchange currently requires stockholder
approval as a prerequisite to listing shares in several instances, including
where the present or potential issuance of shares could result in an increase in
the number of shares of Common Stock outstanding, or in the amount of voting
securities outstanding, of at least 20%. The Board of Directors has no intention
at the present time to issue additional shares of Common Stock beyond those
contemplated by this Offering.
Although the Board of Directors has no intention at the present time of
doing so, it could issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Board of Directors will make any determination to
issue such shares based on its judgment as to the best interests of the Company
and its stockholders. The Board of Directors, in so acting, could issue
Preferred Stock having terms that could discourage a potential acquiror from
making, without first negotiating with the Board of Directors, an acquisition
attempt that would enable the potential acquiror to change the composition of
the Board of Directors. This could discourage a tender offer or other
transaction that some, or a majority, of the Company's stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then-current market price of such stock.
CERTIFICATE OF INCORPORATION AND BY-LAWS
Stockholders' rights and related matters are governed by the DGCL, the
Certificate of Incorporation and the By-Laws. Certain provisions of the
Certificate of Incorporation and By-Laws, which are summarized below, may have
the effect, either alone or in combination with each other, of discouraging or
making more difficult a tender offer or takeover attempt that is opposed by the
Company's Board of Directors but that a stockholder might consider to be in its
best interest. Such provisions may also adversely affect prevailing market
prices for the Common Stock. The Company believes that such provisions are
necessary to enable the Company to develop its business in a manner that will
foster its long-term growth without disruption caused by the threat of a
takeover not deemed by the Board of Directors to be in the best interests of the
Company and its stockholders.
Classified Board of Directors and Related Provisions. The Certificate of
Incorporation provides that the Board of Directors of the Company is to be
divided into three classes of directors serving staggered three-year terms. The
classes of directors will be as nearly equal in number as possible. Accordingly,
approximately one-third of the Company's Board of Directors will be elected each
year. As a result of the Special Voting
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<PAGE> 75
Preferred Stock that will be outstanding upon completion of the Offering, and
the provisions of the Stockholders' Agreement regarding nomination and election
of directors, only one management director and only one independent director
will be elected each year. See "Management -- Board Composition" and
"Relationship with Airline Stockholders and Certain Transactions --
Stockholders' Agreement." Subject to the rights of the holders of shares of
Special Voting Preferred Stock to elect directors, the classified board
provisions will prevent a party who acquires control of a majority of the
outstanding voting stock of the Company from obtaining control of the Board of
Directors until the second annual stockholders meeting following the date such
party obtains the controlling interest. The provisions of the Certificate of
Incorporation relating to the classified nature of the Company's Board of
Directors may not be amended without the affirmative vote of the holders of at
least 66 2/3% of the voting power of the Company's outstanding voting stock.
The By-Laws provide that the number of directors will be 13 or, subject to
the provisions of the Stockholders' Agreement, such other number as shall be
fixed from time to time pursuant to a resolution adopted by the Board of
Directors. The By-Laws provide that subject to the rights of the holders of the
Special Voting Preferred Stock, that any vacancies on the Board of Directors may
only be filled by the remaining directors and not by the stockholders. These
provisions will preclude stockholders from removing incumbent directors without
cause and filling the resulting vacancies with their own nominees.
No Stockholder Action by Written Consent; Special Meeting. The Certificate
of Incorporation prohibits stockholders from taking action by written consent in
lieu of an annual or special meeting and, thus, stockholders may only take
action at an annual or special meeting called in accordance with the By-Laws.
The Certificate of Incorporation and the By-Laws provide that special meetings
of stockholders may only be called by the Chairman of the Board, the Chief
Executive Officer or pursuant to a resolution adopted by a majority of the Board
of Directors. Special meetings may not be called by the stockholders.
These provisions could have the effect of delaying consideration of a
stockholder proposal until the next annual meeting. The provisions would also
prevent the holders of a majority of the voting power of the capital stock of
the Company entitled to vote from unilaterally using the written consent
procedure to take stockholder action. Moreover, a stockholder could not force
stockholder consideration of a proposal over the opposition of the Chairman of
the Board, the Chief Executive Officer or a majority of the Board of Directors
by calling a special meeting of stockholders prior to the time such persons
believe such consideration to be appropriate.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Certificate of Incorporation and the By-Laws establish advance
notice procedures with regard to stockholder proposals and the nomination, other
than by or at the direction of the Board of Directors or a committee thereof, of
candidates for election as directors. These procedures provide that the notice
of stockholder proposals and stockholder nominations for the election of
directors at an annual meeting must be in writing and received by the Secretary
of the Company not less than 60 days nor more than 90 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date, notice by
the stockholder in order to be timely must be received not later than the close
of business on the tenth day following the day on which notice of the date of
such meeting was mailed or public disclosure of the date of the annual meeting
was made, whichever first occurs. The notice of nominations for the election of
directors must set forth certain information with respect to the stockholder
giving the notice and with respect to each nominee.
By requiring advance notice of nominations by stockholders, the foregoing
procedures will afford the Board of Directors an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board of Directors, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, such
procedures will provide the Board of Directors with an opportunity to inform
stockholders, prior to such meetings, of any business proposed to be conducted
at such meetings, together with any recommendations as to the Board of
Directors' position regarding action to be taken with respect to such business,
so that stockholders can better decide whether to attend such a meeting or to
grant a proxy regarding the disposition of any such business.
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<PAGE> 76
Although the Certificate of Incorporation and the By-Laws do not give the
Board of Directors any power to approve or disapprove stockholder nominations
for the election of directors or proposals for action, they may have the effect
of precluding a contest for the election of directors or the consideration of
stockholder proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to the Company and its stockholders.
Indemnification. The Certificate of Incorporation and the By-Laws provide
that the Company shall advance expenses to and indemnify each director and
officer of the Company to the fullest extent permitted by law.
Amendments. Stockholders may adopt, alter, amend or repeal provisions of
the By-Laws only by vote of the holders of 66 2/3% or more of the outstanding
Common Stock. In addition, the affirmative vote of the holders of 66 2/3% or
more of the outstanding Common Stock and any other voting securities is required
to amend certain provisions of the Certificate of Incorporation, including the
provisions referred to above relating to the classification of the Company's
Board of Directors, prohibiting stockholder action by written consent,
prohibiting the calling of special meetings by stockholders and approval of
amendments to the By-Laws. In addition, the By-Laws may be amended by the
affirmative vote of a majority of the whole Board of Directors.
LIMITATIONS ON DIRECTORS' LIABILITY
The Certificate of Incorporation provides that no director of the Company
will be personally liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except for liability:
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) in respect of
certain unlawful dividend payments or stock redemptions or purchases; or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above. These provisions
will not limit the liability of directors under federal securities laws and will
not affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care.
CORPORATE OPPORTUNITIES POLICY
The Certificate of Incorporation provides that, except as the airline
stockholders may otherwise agree in writing, the airline stockholders shall have
no duty to refrain from engaging in the same or similar activities or lines of
business as the Company, and no airline stockholder nor any officer or director
thereof (except as described in the next paragraph) will be liable to the
Company or its stockholders for breach of any fiduciary duty by reason of any
such activities of such airline stockholder. See "Relationship With Airline
Stockholders and Certain Transactions -- Non-Competition Agreements." In the
event that any airline stockholder acquires knowledge of a potential transaction
or matter which may be a corporate opportunity for both such airline stockholder
and the Company, such airline stockholder will have no duty to communicate or
offer such corporate opportunity to the Company and will not be liable to the
Company or its stockholders for breach of any fiduciary duty as a stockholder of
the Company by reason of the fact that such airline stockholder pursues or
acquires such corporate opportunity for itself, directs such corporate
opportunity to another person, or does not communicate information regarding
such corporate opportunity to the Company.
In the event that a director or officer of the Company who is also a
director or officer of an airline stockholder acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both the Company
and such airline stockholder, such director or officer of the Company will have
fully satisfied and fulfilled the fiduciary duty of such director or officer to
the Company and its stockholders with
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<PAGE> 77
respect to such corporate opportunity, if such director or officer acts in a
manner consistent with the following policy:
First, a corporate opportunity offered to any person who is an officer of
the Company, and who is also a director but not an officer of such airline
stockholder, will belong to the Company.
Second, a corporate opportunity offered to any person who is a director but
not an officer of the Company, and who is also a director, officer or employee
of such airline stockholder will belong to the Company if such opportunity is
expressly offered to such person primarily in his or her capacity as a director
of the Company, and otherwise will belong to such airline stockholder.
Third, a corporate opportunity offered to any person who is an officer of
both the Company and such airline stockholder will belong to the Company if such
opportunity is expressly offered to such person primarily in his or her capacity
as an officer of the Company, and otherwise will belong to such airline
stockholder.
For purposes of this corporate opportunities provision, a director of the
Company who is Chairman of the Board of Directors of the Company or of a
committee thereof will not be deemed to be an officer of the Company by reason
of holding such position, unless such person is a full-time employee of the
Company.
The Certificate of Incorporation also provides that, until the time that
the airline stockholders cease to own beneficially, in the aggregate, Common
Stock representing at least 20% of the total voting power of all classes of
outstanding Common Stock of the Company, the affirmative vote of the holders of
more than 80% of the total voting power of all classes of outstanding Common
Stock of the Company will be required to alter, amend or repeal this corporate
opportunities provision in a manner adverse to the interests of the airline
stockholders.
The Certificate of Incorporation provides that any person purchasing or
otherwise acquiring any interest in shares of the capital stock of the Company
shall be deemed to have consented to this corporate opportunities provision.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder," which is defined as a person who,
together with any affiliates and/or associates of such person, beneficially
owns, directly or indirectly, 15% or more of the outstanding voting shares of a
Delaware corporation. This provision prohibits certain business combinations
(defined broadly to include mergers, consolidations, sales or other dispositions
of assets having an aggregate value of 10% or more of the consolidated assets of
the corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder acquired its stock, unless: (i) the business
combination is approved by the corporation's board of directors prior to the
date the interested stockholder acquired shares; (ii) the interested stockholder
acquired at least 85% of the voting stock of the corporation in the transaction
in which it became an interested stockholder; or (iii) the business combination
is approved by a majority of the board of directors and by the affirmative vote
of two-thirds of the outstanding voting stock owned by disinterested
stockholders at an annual or special meeting. A Delaware corporation, pursuant
to a provision in its certificate of incorporation or by-laws, may elect not to
be governed by Section 203 of the DGCL. The Certificate of Incorporation does
not exclude the Company from the restrictions imposed by Section 203 of the DGCL
and, as a result, the Company will be subject to its provisions upon
consummation of the Offering.
Under certain circumstances, Section 203 of the DGCL makes it more
difficult for a person who could be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although the stockholders may elect to exclude a corporation from the
restrictions imposed thereunder. The Certificate of Incorporation of the Company
does not exclude the Company from the restrictions imposed under Section 203 of
the DGCL. It is anticipated that the provisions of Section 203 of the DGCL may
encourage companies interested in acquiring the Company to negotiate in advance
with the Board of Directors, since the stockholder approval requirement would be
avoided if a majority of the directors then in
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<PAGE> 78
office approves, prior to the date on which a stockholder becomes an interested
stockholder, either the business combination or the transaction which results in
the stockholder becoming an interested stockholder.
LISTING
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "GLC."
REGISTRAR AND TRANSFER AGENT
Harris Trust and Savings Bank will act as Registrar and Transfer Agent for
the Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices.
Upon completion of the Offering, the Company will have 100,000,000 shares
of Common Stock issued and outstanding (104,799,700 if the U.S. Underwriters'
over-allotment option is exercised in full). Of these shares, the 31,998,000
shares of Common Stock to be sold in the Offering will be freely tradable
without restrictions or further registration under the Securities Act, except
that shares purchased by an "affiliate" of the Company (as that term is defined
in Rule 144 under the Securities Act ("Rule 144")) will be subject to the resale
limitations of Rule 144. The remaining 68,002,000 shares of Common Stock
outstanding will be "restricted securities" as the term is defined by Rule 144
(the "Restricted Shares").
In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed between the later of the date on which the Restricted
Shares were acquired from the Company and the date on which they were acquired
from an "affiliate" of the Company (an "Affiliate," as that term is defined in
Rule 144), then the holder of such Restricted Shares (including an Affiliate) is
entitled to sell a number of shares within any three-month period that does not
exceed the greater of (i) one percent of the then outstanding shares of the
Common Stock or (ii) the average weekly reported volume of trading of the Common
Stock during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting Restricted
Shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year period. Under Rule 144(k), if a
period of at least two years has elapsed between the later of the date on which
Restricted Shares were acquired from the Company and the date on which they were
acquired from an Affiliate, a holder of such Restricted Shares who is not an
Affiliate at the time of the sale and has not been an Affiliate for at least
three months prior to the sale would be entitled to sell such Restricted Shares
immediately without regard to the volume limitations and other conditions
described above. The foregoing description of Rule 144 is not intended to be a
complete description thereof.
Sales of significant amounts of Common Stock, or the perception that such
sales could occur, could have an adverse impact on the market price of the
Common Stock. Each of the Company and the airline stockholders has agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period ending 180 days after the
date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (other than any such
transaction between an airline stockholder and any affiliate thereof so long as,
on or before the date of such transaction, such affiliate has also agreed to be
bound by the restrictions set forth in this paragraph) or (ii) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The restrictions
described in this paragraph do not apply to the sale of the shares of Common
Stock to the Underwriters. See "Underwriters."
The Company and the airline stockholders are also parties to the
Registration Rights Agreement pursuant to which each airline stockholder may, on
two separate occasions, demand registration under the Securities Act of shares
of the Common Stock held by it, subject to its agreement not to sell any shares
prior to the expiration of 180 days from the date of this Prospectus. The
Company may postpone such a demand under certain circumstances. In addition, if
the Company registers any other shares of Common Stock under the Securities Act,
subject to certain limitations, each airline stockholder may request that the
Company include shares of its Common Stock in such registration.
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<PAGE> 80
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, Lehman Brothers Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc.
and SBC Warburg Inc. are acting as U.S. Representatives, and the International
Underwriters named below for whom Morgan Stanley & Co. International Limited,
Swiss Bank Corporation, acting through its division, SBC Warburg, ABN AMRO
Rothschild, HSBC Investment Bank Limited, Lehman Brothers International
(Europe), Merrill Lynch International and J.P. Morgan Securities Ltd. are acting
as International Representatives, have severally agreed to purchase, and the
Company and the Selling Stockholders have agreed to sell to them, the respective
number of shares of Common Stock set forth opposite the names of such
Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Lehman Brothers Inc. .....................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................
J.P. Morgan Securities Inc. ..............................
SBC Warburg Inc...........................................
----------
Subtotal............................................... 22,398,600
----------
</TABLE>
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<PAGE> 81
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
International Underwriters:
Morgan Stanley & Co. International Limited................
Swiss Bank Corporation,
acting through its division, SBC Warburg...............
ABN AMRO Rothschild.......................................
HSBC Investment Bank Limited..............................
Lehman Brothers International (Europe)....................
Merrill Lynch International...............................
J.P. Morgan Securities Ltd. ..............................
----------
Subtotal............................................... 9,599,400
----------
Total................................................ 31,998,000
==========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' over-allotment option described below) if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement between
U.S. and International Underwriters. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of Common Stock to be purchased by the Underwriters under the
Underwriting Agreement are referred to herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed.
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<PAGE> 82
The per share price of any Shares sold shall be the public offering price set
forth on the cover page hereof, in United States dollars, less an amount not
greater than the per share amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from, or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $. a share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $. a
share to other Underwriters or to certain other dealers. After the initial
offering of the shares of Common Stock, the offering price and other selling
terms may from time to time be varied by the Representatives.
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<PAGE> 83
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 4,799,700 additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The U.S. Underwriters may exercise
such option to purchase solely for the purpose of covering over-allotments, if
any, made in connection with the Offering. To the extent such option is
exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as the number set forth next to such U.S. Underwriter's
name in the preceding table bears to the total number of shares of Common Stock
set forth next to the names of all U.S. Underwriters in the preceding table.
The Common Stock has been approved for listing, subject to official notice
of issuance, on the New York Stock Exchange under the symbol "GLC." In order to
meet the requirements for listing the Common Stock on the New York Stock
Exchange, the Underwriters have undertaken to meet the New York Stock Exchange's
minimum distribution, issuance and aggregate market value requirements.
Each of the Company and the airline stockholders has agreed that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 180 days after the date of
this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (other than any such transaction
between an airline stockholder and any affiliate thereof so long as, on or
before the date of such transaction, such affiliate has also agreed to be bound
by the restrictions set forth in this paragraph) or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The restrictions
described in this paragraph do not apply to the sale of the Shares to the
Underwriters.
At the request of the Company, the Underwriters have reserved shares of
Common Stock offered hereby for sale to senior officers (Senior Vice Presidents
and above) of the Company at the initial public offering price less underwriting
discounts and commissions. The number of shares available in the Offering will
be reduced to the extent any senior officers purchase such reserved shares. Any
reserved shares not so purchased will be offered by the Underwriters on the same
basis as the other shares of Common Stock offered hereby.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot in connection with
the Offering, creating a short position in the Common Stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
Common Stock, the Underwriters may bid for, and purchase, shares of Common Stock
in the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an Underwriter or a dealer for distributing the Common
Stock in the Offering, if the syndicate repurchases previously distributed
Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan
Securities Inc., is arranger for and a lender under the Credit Agreement, for
which it is entitled to customary fees. J.P. Morgan Securities Inc. served as
financial adviser to the Company in connection with the acquisition of ATS, for
which it is entitled to customary fees. Lehman Brothers Inc. served as financial
adviser to ATS in connection with the sale of ATS to the Company, for which it
is entitled to customary fees. From time to time, certain of the
82
<PAGE> 84
Underwriters have provided, and continue to provide, investment banking services
to the Company, the Selling Stockholders and certain of their affiliates.
PRICING OF OFFERING
Prior to the Offering, there has been no public market for the shares of
Common Stock of the Company. Consequently, the initial public offering price
will be determined by negotiation among the Company, the Selling Stockholders
and the Representatives. Among the factors to be considered in determining the
initial public offering price will be the Company's record of operations, the
Company's current financial condition and future prospects, the experience of
its management, the economics of the industry in general, the general condition
of the equity securities markets, and the market prices of similar securities of
companies considered comparable to the Company. There can be no assurance that a
regular trading market for the shares of Common Stock will develop after the
Offering or, if developed, that a public trading market can be sustained. There
can be no assurance that the prices at which the Common Stock will sell in the
public market after the Offering will not be lower than the price at which it is
offered by the Underwriters in the Offering.
83
<PAGE> 85
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a Non-U.S. Holder. For this purpose, a "Non-U.S. Holder" is any person
who is, for United States federal income tax purposes, a foreign corporation, a
non-resident alien individual, a foreign partnership or a foreign estate or
trust. This discussion does not address all aspects of United States federal
income and estate taxes and does not deal with foreign, state and local
consequences that may be relevant to such Non-U.S. Holders in light of their
personal circumstances, nor does it discuss certain tax provisions which may
apply to individuals who relinquish their U.S. citizenship or residence.
Furthermore, this discussion is based on provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), existing and proposed regulations promulgated
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change. EACH PROSPECTIVE PURCHASER OF
COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO CURRENT AND
POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON
STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY U.S.
STATE, MUNICIPALITY OR OTHER TAXING JURISDICTION.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States on at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Common Stock generally will be
subject to withholding of United States federal income tax either at a rate of
30% of the gross amount of the dividends or at such lower rate as may be
specified by an applicable income tax treaty. However, dividends that are
effectively connected with the conduct of a trade or business by the Non-U.S.
Holder within the United States and, where a tax treaty applies, are
attributable to a United States permanent establishment of the Non-U.S. Holder,
are not subject to the withholding tax, but instead are subject to United States
federal income tax on a net income basis at applicable graduated individual or
corporate rates. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Dividends paid to an address outside the United States are presumed to be
paid to a resident of such country (unless the payer has knowledge to the
contrary) for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. However, under proposed
regulations, in the case of dividends paid after December 31, 1997 (December 31,
1999 in the case of dividends paid to accounts in existence on or before the
date that is 60 days after the proposed regulations are published as final
regulations), a Non-U.S. Holder generally would be subject to United States
withholding tax at a 31% rate under the backup withholding rules described
below, rather than at a 30% rate or at a reduced rate under an income tax
treaty, unless certain certification procedures (or, in the case of payments
made outside the United States with respect to an offshore account, certain
documentary evidence procedures) are complied with, directly or through an
intermediary. Currently, certain certification and disclosure requirements must
be complied with in order to be exempt from withholding under the effectively
connected income exemption discussed above.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").
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<PAGE> 86
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States and, where a tax treaty
applies, is attributable to a United States permanent establishment of the
Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual and
holds the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the sale or other disposition
and certain other conditions are met, or (iii) the Company is or has been a
"U.S. real property holding corporation" for United States federal income tax
purposes. The Company believes it is not and does not anticipate becoming a
"U.S. real property holding corporation" for United States federal income tax
purposes.
If an individual Non-U.S. Holder falls under clause (i) above, he will,
unless an applicable treaty provides otherwise, be taxed on his net gain derived
from the sale under regular graduated United States federal income tax rates. If
an individual Non-U.S. Holder falls under clause (ii) above, he will be subject
to a flat 30% tax on the gain derived from the sale, which may be offset by
certain United States capital losses.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it will be taxed on its gain under regular graduated United States
federal income tax rates and may be subject to an additional branch profits tax
equal to 30% of its effectively connected earnings and profits within the
meaning of the Code for the taxable year, as adjusted for certain items, unless
it qualifies for a lower rate under an applicable income tax treaty.
FEDERAL ESTATE TAX
Common Stock held by an individual Non-U.S. Holder at the time of death
will be included in such holder's gross estate for United States federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
A backup withholding tax is imposed at the rate of 31% on certain payments
to persons that fail to furnish certain identifying information to the payer.
Backup withholding generally will not apply to dividends paid to a Non-U.S.
Holder at an address outside the United States (unless the payer has knowledge
that the payee is a U.S. person). However, under proposed regulations, in the
case of dividends paid after December 31, 1997 (December 31, 1999 in the case of
dividends paid to accounts in existence on or before the date that is 60 days
after the proposed regulations are published as final regulations), a Non-U.S.
Holder generally would be subject to withholding tax at a 31% rate, unless
certain certification procedures (or, in the case of payments made outside the
United States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary. Backup
withholding and information reporting generally will also apply to dividends
paid on Common Stock at addresses inside the United States to Non-U.S. Holders
that fail to provide certain identifying information in the manner required.
Payment of the proceeds of a sale of Common Stock by or through a United
States office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner provides the payer with its name and
address and certifies under penalties of perjury that it is a Non-U.S. Holder,
or otherwise establishes an exemption. In general, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
Common Stock by or through a foreign office of a broker. If, however, such
broker is, for United States federal income tax purposes, a U.S. person, a
controlled foreign corporation, or a foreign person that derives 50% or more if
its gross income for certain periods from the conduct of a trade
85
<PAGE> 87
or business in the United States, such payments will be subject to information
reporting, but not backup withholding, unless (i) such broker has documentary
evidence in its records that the beneficial owner is a Non-U.S. Holder and
certain other conditions are met, or (ii) the beneficial owner otherwise
establishes an exemption. Proposed regulations would, if adopted, alter the
foregoing rules in certain respects. Among other things, the proposed
regulations would provide certain presumptions under which a Non-U.S. Holder
would be subject to backup withholding and information reporting unless the
Company receives certification from the holder of a non-U.S. status.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Shearman & Sterling,
New York, New York, and for the Underwriters by Davis Polk & Wardwell, New York,
New York.
EXPERTS
The balance sheet of Galileo International, Inc. as of May 13, 1997 and the
consolidated financial statements of Galileo International Partnership as of
December 31, 1995 and December 31, 1996 and for each of the years in the
three-year period ended December 31, 1996 have been included herein in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Apollo Travel Services Partnership
as of December 31, 1995 and December 31, 1996 and for each of the years in the
three-year period ended December 31, 1996 have been included herein in reliance
upon the report of Arthur Andersen LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
shares of Common Stock offered hereby. For the purposes hereof, the term
"Registration Statement" means the original registration statement and any and
all amendments thereto. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and such Common Stock,
reference is hereby made to such Registration Statement, including exhibits
thereto, which can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Regional Offices of the Commission at Seven World Trade Center, New
York, New York 10048 and 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
Statements contained in the Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
The Company is not currently subject to the informational requirements of
the Exchange Act. As a result of the offering of the Company's Common Stock, the
Company will become subject to the reporting requirements of the Exchange Act.
The Company intends to furnish its stockholders with annual reports containing
consolidated financial statements audited by independent certified public
accountants.
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<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
GALILEO INTERNATIONAL, INC.
Independent Auditors' Report.............................. F-2
Balance Sheet as of May 13, 1997.......................... F-3
Notes to Balance Sheet.................................... F-4
GALILEO INTERNATIONAL PARTNERSHIP
Independent Auditors' Report.............................. F-5
Consolidated Balance Sheets as of December 31, 1995 and
1996 and March 31, 1997................................ F-6
Consolidated Statements of Income for the years ended
December 31, 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997................... F-7
Consolidated Statements of Partners' Capital for the years
ended December 31, 1994, 1995 and 1996 and for the
three months ended March 31, 1997...................... F-8
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997................... F-9
Notes to Consolidated Financial Statements................ F-10
APOLLO TRAVEL SERVICES PARTNERSHIP
Report of Independent Public Accountants.................. F-19
Consolidated Balance Sheets as of December 31, 1995 and
1996 and March 31, 1997................................ F-20
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997................... F-21
Consolidated Statements of Partners' Capital for the years
ended December 31, 1994, 1995 and 1996 and for the
three months ended March 31, 1997...................... F-22
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997................... F-23
Notes to Consolidated Financial Statements................ F-24
</TABLE>
F-1
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Galileo International, Inc.:
We have audited the accompanying balance sheet of Galileo International,
Inc. (the Company) as of May 13, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Galileo International, Inc. as of
May 13, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
May 20, 1997
F-2
<PAGE> 90
GALILEO INTERNATIONAL, INC.
BALANCE SHEET
MAY 13, 1997
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $ 1
===
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; authorized 1,000
shares; 100 shares issued and outstanding................. $ 1
===
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE> 91
GALILEO INTERNATIONAL, INC.
NOTES TO BALANCE SHEET
(1) ORGANIZATION
Galileo International, Inc. (the "Company") is a Delaware corporation and
was incorporated on May 13, 1997. The Company is a wholly owned subsidiary of
Galileo International Partnership, a Delaware general partnership (the "Galileo
Partnership"). The Company was formed to effect an initial public offering of
its common stock (the "Offering"), to make selected acquisitions and to continue
the operations of a proprietary computer reservation system.
(2) CERTAIN TRANSACTIONS (UNAUDITED)
Substantially simultaneously with the consummation of the Offering, the
Company will effect the following transactions:
(i) The Company will amend and restate its Certificate of
Incorporation such that, among other things, its authorized capital stock
will consist of 250,000,000 shares of common stock, par value $.01 per
share; 7 shares of special voting preferred stock, par value $.01 per
share; and 25,000,000 shares of ordinary preferred stock, par value $.01
per share.
(ii) The Galileo Partnership will be merged into a wholly owned
limited liability company subsidiary of the Company. In connection with
this merger, the partners of the Galileo Partnership will receive shares of
common stock of the Company in the same proportion as that of their
respective partnership interests and certain of such partners will receive
shares of special voting preferred stock.
(iii) The Company will use the net proceeds of the Offering plus
borrowings under a credit agreement to acquire certain national
distribution companies from affiliates of certain of the partners of the
Galileo Partnership.
F-4
<PAGE> 92
INDEPENDENT AUDITORS' REPORT
The Supervisory Board
Galileo International Partnership:
We have audited the accompanying consolidated balance sheets of Galileo
International Partnership and subsidiaries (the Partnership) as of December 31,
1995 and 1996, and the related consolidated statements of income, partners'
capital, and cash flows for each of the years in the three-year period ending
December 31, 1996. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Galileo
International Partnership and subsidiaries as of December 31, 1995 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 21, 1997
F-5
<PAGE> 93
GALILEO INTERNATIONAL PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1995 1996 1997
---- ---- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,367 $ 78,196 $ 71,163
Accounts receivable:
Due from affiliates..................................... 39,042 56,434 58,389
Travel vendors and others............................... 91,029 104,592 146,732
-------- -------- --------
130,071 161,026 205,121
Less allowances......................................... 11,713 14,747 15,061
-------- -------- --------
Net accounts receivable..................................... 118,358 146,279 190,060
Lease deposit............................................. 40,461 -- --
Prepaid expenses.......................................... 8,213 5,603 7,083
Other nontrade receivables................................ 10,462 9,243 8,231
Other current assets...................................... 1,450 1,478 1,953
-------- -------- --------
Total current assets........................................ 187,311 240,799 278,490
Property and equipment, at cost:
Land...................................................... 5,070 5,070 5,070
Buildings and improvements................................ 53,777 63,710 64,752
Equipment................................................. 242,314 235,983 240,520
-------- -------- --------
301,161 304,763 310,342
Less accumulated depreciation............................. 197,813 198,565 203,828
-------- -------- --------
Net property and equipment.................................. 103,348 106,198 106,514
Computer software, at cost.................................. 398,004 414,932 420,404
Less accumulated amortization............................. 124,490 166,911 178,605
-------- -------- --------
Net computer software....................................... 273,514 248,021 241,799
Other noncurrent assets..................................... 4,835 4,880 4,637
-------- -------- --------
$569,008 $599,898 $631,440
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable:
Due to affiliates....................................... $ 5,140 $ 6,013 $ 4,279
Others.................................................. 23,467 20,136 16,182
Accrued commissions:
Due to affiliates....................................... 37,194 48,298 60,635
Others.................................................. 10,584 10,288 18,371
Other accrued liabilities................................. 71,139 52,491 54,646
Income taxes payable...................................... 5,514 5,811 5,895
Capital lease obligations, current portion................ 7,372 6,600 6,974
Long-term debt, current portion........................... 67,204 50,000 --
-------- -------- --------
Total current liabilities................................... 227,614 199,637 166,982
Pension and postretirement benefits......................... 17,645 19,012 20,672
Capital lease obligations, less current portion............. 36,263 34,539 32,175
Data center consolidation reserve, less current portion..... 23,762 21,335 19,840
Long-term debt, less current portion........................ 134,171 70,000 70,000
Partners' capital, including cumulative translation losses
of $7,763, $10,558, and $9,654, respectively.............. 129,553 255,375 321,771
-------- -------- --------
$569,008 $599,898 $631,440
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 94
GALILEO INTERNATIONAL PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Electronic global distribution
services............................ $772,389 $921,338 $1,050,635 $269,136 $297,346
Information services................... 41,446 45,072 37,624 10,041 10,300
-------- -------- ---------- -------- --------
813,835 966,410 1,088,259 279,177 307,646
-------- -------- ---------- -------- --------
Costs and expenses:
Cost of operations..................... 209,624 237,313 250,788 62,877 61,265
Commissions, selling and
administrative...................... 534,913 588,799 662,132 164,278 180,070
-------- -------- ---------- -------- --------
744,537 826,112 912,920 227,155 241,335
-------- -------- ---------- -------- --------
Operating income......................... 69,298 140,298 175,339 52,022 66,311
Other income (expense):
Interest income (expense), net......... (21,670) (14,406) (8,060) (2,335) (1,774)
Other, net............................. 5,586 (2,177) (181) 284 1,370
-------- -------- ---------- -------- --------
Income before income taxes............... 53,214 123,715 167,098 49,971 65,907
Income taxes............................. 4,404 2,664 1,882 481 415
-------- -------- ---------- -------- --------
Net income............................... $ 48,810 $121,051 $ 165,216 $ 49,490 $ 65,492
======== ======== ========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 95
GALILEO INTERNATIONAL PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
TOTAL
-----
(IN THOUSANDS)
<S> <C>
Balance at December 31, 1993................................ $ (4,797)
Net income.................................................. 48,810
Distributions............................................... (671)
Allocation of increase in translation adjustment............ (3,860)
--------
Balance at December 31, 1994................................ 39,482
Net income.................................................. 121,051
Distributions............................................... (26,594)
Allocation of increase in translation adjustment............ (4,386)
--------
Balance at December 31, 1995................................ 129,553
Net income.................................................. 165,216
Distributions............................................... (36,599)
Allocation of increase in translation adjustment............ (2,795)
--------
Balance at December 31, 1996................................ 255,375
Net income (unaudited)...................................... 65,492
Distributions (unaudited)................................... --
Allocation of decrease in translation adjustment
(unaudited)............................................... 904
--------
Balance at March 31, 1997 (unaudited)....................... $321,771
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 96
GALILEO INTERNATIONAL PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income.................................. $ 48,810 $ 121,051 $ 165,216 $ 49,490 $ 65,492
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 91,488 80,151 80,369 20,000 19,140
Loss (gain) on disposal of property and
equipment.............................. 472 2,472 973 (94) 10
Provision for losses on accounts
receivable............................. 5,432 1,558 5,671 463 328
Decrease in noncurrent assets............. 9,566 (1,789) 2,260 249 147
Increase (decrease) in noncurrent
liabilities............................ (4,187) (8,887) (420) 4,303 (129)
Changes in operating assets and
liabilities:
Increase in accounts receivable........ (8,007) (30,970) (33,491) (59,607) (44,298)
Decrease (increase) in prepaid
expenses............................. (1,376) (3,433) 2,610 636 (1,480)
Decrease (increase) in other nontrade
receivables.......................... 129 (1,916) 1,219 (344) 1,012
Decrease (increase) in other current
assets............................... 147 (494) 934 489 (1,165)
Increase (decrease) in accounts payable
and commissions...................... (14,609) 18,581 4,812 15,115 17,395
Increase (decrease) in other accrued
liabilities.......................... 3,727 (5,078) (15,715) (13,382) 3,621
Increase (decrease) in income taxes
payable.............................. 4,210 1,304 (360) 285 319
-------- --------- --------- -------- --------
Net cash provided by operating activities..... 135,802 172,550 214,078 17,603 60,392
-------- --------- --------- -------- --------
Investing activities:
Purchase of property and equipment.......... (29,176) (56,726) (32,572) (5,626) (11,055)
Purchase and capitalization of computer
software.................................. (29,709) (32,287) (28,978) (5,457) (5,472)
Proceeds on disposal of property and
equipment................................. 246 2,883 408 108 --
Decrease in lease deposit................... -- -- 40,461 -- --
-------- --------- --------- -------- --------
Net cash used in investing activities......... (58,639) (86,130) (20,681) (10,975) (16,527)
-------- --------- --------- -------- --------
Financing activities:
Distributions to partners................... (5,428) (26,594) (36,599) -- --
Payment of capital lease obligations........ (12,798) (13,318) (5,559) (1,903) (638)
Borrowings under credit agreement........... -- -- 158,000 -- --
Repayments under credit agreement........... (70,000) (68,625) (239,375) (1,900) (50,000)
-------- --------- --------- -------- --------
Net cash used in financing activities......... (88,226) (108,537) (123,533) (3,803) (50,638)
-------- --------- --------- -------- --------
Effect of exchange rate changes on cash....... 70 (168) (35) 12 (260)
-------- --------- --------- -------- --------
Increase (decrease) in cash and cash
equivalents................................. (10,993) (22,285) 69,829 2,837 (7,033)
Cash and cash equivalents at beginning of
period...................................... 41,645 30,652 8,367 8,367 78,196
-------- --------- --------- -------- --------
Cash and cash equivalents at end of period.... $ 30,652 $ 8,367 $ 78,196 $ 11,204 $ 71,163
======== ========= ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 97
GALILEO INTERNATIONAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Galileo International Partnership (Partnership), a Delaware general
partnership, is one of the world's leading providers of electronic global
distribution services for the travel industry. The Company provides travel
agencies and other subscribers with the ability to access schedule and fare
information, book reservations and issue tickets for airlines. The Partnership
also provides subscribers with information and booking capability for car rental
companies and major hotel chains with properties throughout the world. The
Partnership's receivables are primarily due from airlines and other entities
operating in the travel industry.
On September 16, 1993, Covia Partnership (Covia) and The Galileo Company
Ltd. (TGC) combined (the "Combination"), resulting in realignment of the
partners' interests. The partners of Covia and the shareholders of TGC were
substantially the same. The operations of TGC and certain operations of Covia
were combined and the name of Covia was changed to Galileo International
Partnership. In addition, certain sales support and telecommunications
operations were distributed by Covia to Apollo Travel Services (ATS), a newly
formed entity owned by certain former Covia partners, and certain
telecommunications and data processing operations performed by Covia for United
Air Lines, Inc. (United) were distributed to United. On the date of the
combination, TGC sold Covia certain of its intellectual property, and TGC used
the proceeds to retire debt. Subsequent to the retirement of debt, TGC was
converted from a limited to an unlimited liability company and its shareholders
contributed 99% of their ownership interest in TGC to the Galileo International
Partnership.
The Partnership's partners' (Affiliated Travel Vendors) ownership, and net
income or loss, is allocated based on the following:
<TABLE>
<CAPTION>
OWNERSHIP
PARTNER PARTNER'S AFFILIATE PERCENTAGE
------- ------------------- ----------
<S> <C> <C>
Covia Corporation................. United Air Lines, Inc. 38.00%
Distribution Systems, Inc......... British Airways plc 14.65
Roscor A.G........................ Swissair Swiss Air Transport
Company Ltd. 13.22
Travel Industry Systems B.V....... KLM Royal Dutch Airlines 12.09
USAM Corporation.................. USAir Inc. 11.00
Racom Teledata S.p.A.............. Alitalia -- Linee Aeree Italiane
S.p.A. 8.71
Olynet, Inc....................... Olympic Airways S.A. 1.03
Resnet Holdings, Inc.............. Air Canada 1.00
Retford Limited................... Aer Lingus plc 0.10
Coporga, Inc...................... Transportes Aereos Portugueses S.A. 0.10
Travidata, Inc.................... Austrian Airlines Oesterreichische
Luftverkehrs Aktiengesellschaft 0.10
------
100.00%
======
</TABLE>
The consolidated financial statements include the accounts of the
Partnership and all majority-owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
F-10
<PAGE> 98
GALILEO INTERNATIONAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
(2) SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash in excess of operating requirements is invested daily in liquid,
income-producing investments, generally having maturities of three months or
less. The carrying amounts reported on the balance sheet for cash equivalents
include cost and accrued interest, which approximate fair value.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership's financial instruments are valued at their carrying
amounts, which are reasonable estimates of fair value due to the relatively
short period to maturity of the instruments.
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
The allowance for doubtful accounts receivable was $14,946, $11,713 and
$14,747 at December 31, 1994, 1995 and 1996, respectively. Provisions for bad
debts were $5,432, $1,558 and $5,671 for the years ended December 31, 1994, 1995
and 1996, respectively. Write-offs of uncollectible accounts, net of
recoverables and allowance adjustments, were $2,877, $4,791 and $2,636 for the
years ended December 31, 1994, 1995 and 1996, respectively.
PROPERTY AND EQUIPMENT
Depreciation of property and equipment is provided on the straight-line
method over the following estimated useful lives of the assets:
Buildings and improvements..............................5-35 years
Equipment...............................................3-10 years
Depreciation expense for the years ended December 31, 1994, 1995, and 1996
was $34,269, $33,280 and $31,533, respectively. Accounts payable at December 31,
1994, 1995 and 1996 include property and equipment additions of $1,951, $959 and
$1,555, respectively.
USES OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," requires that long-lived assets and certain identifiable intangibles to be
held and used by any entity be reviewed for impairment wherever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. SFAS No. 121 also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The carrying amount of the Partnership's
long-lived assets at December 31, 1995 and 1996 primarily represents the
original amounts invested less the recorded depreciation and amortization.
Management believes the carrying amount of these investments is not impaired.
F-11
<PAGE> 99
GALILEO INTERNATIONAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
AFFILIATE REVENUES AND EXPENSES
The Partnership receives booking fees and information services revenues
from partner affiliated airlines and other affiliated entities. The Partnership
also pays commissions to certain NDCs which are owned by affiliates of the
partners.
REVENUE RECOGNITION
Fees are charged to airline, car rental, hotel and other travel vendors for
bookings made through the Partnership's CRS and are dependent upon the level and
usage of functionality within the CRS at which the vendor participates. Booking
fee revenue is recognized at the time the reservation is made for air bookings,
at the time of pick-up for car bookings, and at the time of check-out for hotel
bookings.
FOREIGN CURRENCY TRANSLATION
The Partnership uses the U.S. dollar for financial reporting purposes and
substantially all of the Partnership's billings are in U.S. dollars. The balance
sheets of the Partnership's foreign subsidiaries are translated into U.S.
dollars using the current exchange rate, and revenues and expenses are
translated using the average exchange rate. The resulting translation gains or
losses are recorded as a separate component of partners' capital. Foreign
currency transaction gains and losses are reflected in the consolidated
statements of income.
COMPUTER SOFTWARE
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed," certain software development costs are capitalized upon the
establishment of technological feasibility. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including but not limited to anticipated future gross
revenues, estimated economic life and changes in software and hardware
technology.
Computer software consists principally of purchased computer software and
capitalized computer software development costs. The computer software purchased
as part of the Combination described in Note 1 was assigned an estimated
economic life of ten years due to the duration of the existing software code and
expected useful life in the Partnership's market. Computer software capitalized
subsequent to the Combination is assigned an estimated economic life of three to
five years, assigned on a product-by-product basis. Amortization expense for the
years ended December 31, 1994, 1995 and 1996 was $48,380, $46,225 and $47,611,
respectively.
MAINTENANCE AND INSTALLATION
Maintenance and installation expense, principally for computer equipment,
for the years ended December 31, 1994, 1995 and 1996 was $12,089, $12,362 and
$13,235, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs, excluding amortization of computer
software, are expensed as incurred and approximated $10,319, $10,094 and $8,185
for the years ended December 31, 1994, 1995 and 1996, respectively.
F-12
<PAGE> 100
GALILEO INTERNATIONAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
INCOME TAXES
No provision for U.S. Federal income taxes is recorded as such liability is
the responsibility of the partners, rather than of the Partnership. Certain of
the Partnership's non-U.S. subsidiaries are subject to income taxes. Deferred
income taxes for the Partnership at December 31, 1995 and 1996 were not
significant.
The Partnership accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109 ("Statement 109"),
"Accounting for Income Taxes". Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
TAXES OTHER THAN INCOME
Taxes, excluding income and payroll taxes, included in commissions, selling
and administrative expense were $6,167, $7,693 and $6,275 for the years ended
December 31, 1994, 1995 and 1996, respectively.
INTEREST RATE SWAP AGREEMENTS
The Partnership accounts for its interest rate swap agreements as an
adjustment to interest expense to reflect the revised interest rate on the
notional debt.
INTERIM FINANCIAL DATA
The consolidated financial statements for the three months ended March 31,
1996 and 1997 have been prepared without audit. In the opinion of management,
all adjustments, which include only normal recurring adjustments necessary to
present fairly the consolidated balance sheet as of March 31, 1997, and the
consolidated statements of income, partners' capital, and cash flows for the
three months ended March 31, 1996 and 1997, have been made. Interim period
results are not necessarily indicative of the results to be achieved for the
full year.
(3) TRANSACTIONS WITH AFFILIATES
The Partnership received electronic global distribution services revenues,
primarily in the form of booking fees, from affiliates of the partners totaling
$282,744, $336,808 and $355,535 for 1994, 1995 and 1996, respectively. The
Partnership also received information services revenues from affiliates of the
partners totaling $29,097, $34,460 and $34,335 for 1994, 1995 and 1996,
respectively. Total revenues from United of approximately $152,395, $161,542 and
$164,179 were greater than 10% of the Partnership's revenues for the years ended
December 31, 1994, 1995 and 1996, respectively.
The Partnership, in the ordinary course of business, purchases services
from affiliates of the partners. Services purchased from affiliates of the
partners and classified within cost of operations in the accompanying
consolidated statements of income totaled $15,755, $14,638 and $14,232 during
1994, 1995 and 1996, respectively. Services purchased from affiliates and
classified within commissions, selling and administrative expense totaled
$343,185, $365,422 and $424,536 during 1994, 1995 and 1996, respectively.
Included within services purchased from affiliates and classified within
commissions, selling and administrative expense are costs related to a
commitment to ATS. In accordance with the agreement between the Partnership and
ATS
F-13
<PAGE> 101
GALILEO INTERNATIONAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
dated September 16, 1993, payments to ATS increased 3% on an annual basis.
During the years ended December 31, 1994, 1995 and 1996, costs related to this
commitment were $45,417, $46,814 and $48,100, respectively.
(4) LEASES AND COMMITMENTS
The Partnership leases various office facilities and equipment under
operating leases with remaining terms of up to 17 years. Rental expense under
operating leases was $20,134, $16,510 and $23,935 for the years ended December
31, 1994, 1995 and 1996, respectively.
The Partnership also leases data processing equipment under capital leases.
Equipment, at cost, includes $33,187, $36,139 and $21,930 relating to capital
leases at December 31, 1994, 1995 and 1996, respectively. Accumulated
depreciation includes $19,349, $18,620 and $8,831 relating to capital leases at
December 31, 1994, 1995 and 1996, respectively, with lease amortization included
in depreciation expense. The Partnership entered into capital leases of $6,033,
$8,070 and $2,150 during the years ended December 31, 1994, 1995 and 1996,
respectively.
During 1996, the Partnership issued a letter of credit at the time its
$40,461 lease deposit held by the lessor of the Partnership's United Kingdom
facility was refunded to the Partnership.
Future minimum lease payments under capital leases and noncancelable
operating leases at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1997........................................................ $ 9,517 $ 22,038
1998........................................................ 8,423 15,961
1999........................................................ 7,306 9,305
2000........................................................ 6,889 5,900
2001........................................................ 6,889 5,565
Thereafter.................................................. 13,774 46,421
-------- --------
Total minimum lease payments................................ 52,798 $105,190
========
Less amount representing interest........................... (11,659)
--------
Present value of future minimum lease payments.............. $ 41,139
========
</TABLE>
(5) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Term loan................................................... $161,375 $ --
Cash collateral term loan................................... 40,000 --
Revolving credit facility................................... -- 120,000
-------- --------
201,375 120,000
Less current maturities of long-term debt................... 67,204 50,000
-------- --------
$134,171 $ 70,000
======== ========
</TABLE>
At December 31, 1995, the Partnership had an unused committed revolving
loan of $80,000, with commitment fees of 0.25% charged quarterly on the unused
credit facilities. Prior to renegotiation of the debt
F-14
<PAGE> 102
GALILEO INTERNATIONAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
during 1995, the Partnership paid an annual fee equal to 0.50% of the aggregate
amount of the outstanding loan and the unused facilities to various partners who
had guaranteed the partnership debt. Interest on outstanding debt is based on a
moving three month London Inter-bank Offer Rate (LIBOR) plus an additional
percentage of 0.625%, at December 31, 1995.
On July 3, 1996, the Partnership secured a $200,000 revolving credit
facility and immediately drew $158,000 against the line of credit to retire an
existing term loan. The revolving credit facility matures in July 2001. No
principal payments are required until the maturity date. As there are no
formulas or other restrictions on the credit availability, the entire $200,000
credit facility is available for use at any time by the Partnership.
The Partnership pays a quarterly commitment fee on the entire $200,000
credit facility (regardless of the outstanding line of credit balance). The
commitment fee rate fluctuates based upon the Partnership's "cash flow ratio."
At December 31, 1996 the commitment fee rate is 0.1375% (annual rate). Interest
on the outstanding balance is based on a moving one-month, three-month, or
six-month (depending on the length of borrowing) London Interbank Offer Rate
(LIBOR) (5.5% at December 31, 1996), plus a margin that fluctuates quarterly
based upon the Partnership's "cash flow ratio." At December 31, 1996, the margin
stood at an annual rate of 0.2625%.
The credit agreement limits, among other things, the sale of fixed assets,
dividends, and issuance of debt, and it requires that the Partnership maintain
minimum levels of tangible partnership capital, as well as maintaining threshold
ratios for interest coverage and cash flow.
The Partnership has entered into interest rate swap agreements to reduce
the impact of changes in interest rates on its outstanding line of credit. At
December 31, 1996, the Partnership had outstanding five interest rate swap
agreements having a total notional value of $120,326 with fixed interest rates
averaging 5.075%. For the years ended December 31, 1994, 1995, and 1996, the
effective interest rate on outstanding debt was 5.77%, 6.55% and 5.73%,
respectively. The Partnership is exposed to credit loss in the event of non-
performance by the counterparties to the interest rate swap agreements. However,
the Partnership does not anticipate nonperformance by the counterparties, which
are major financial institutions. The interest rate swap agreements mature in
December 1998.
The Partnership also enters into foreign exchange hedging contracts to
manage exposure to fluctuations in foreign exchange rates related to the funding
of its United Kingdom operations. The arrangements consist of foreign exchange
forward contracts with creditworthy counterparties. At December 31, 1996, the
Partnership had entered into foreign exchange forward contracts which provide
for purchases of approximately L3,500 per month through December 31, 1997.
Total interest, including interest under capital leases, of $25,945 was
incurred and $24,930 was paid for the year ended December 31, 1994. Total
interest, including interest under capital leases, of $18,882 was incurred and
$19,299 was paid for the year ended December 31, 1995. Total interest, including
interest under capital leases, of $11,307 was incurred and $11,517 was paid for
the year ended December 31, 1996.
The Partnership has classified $40,461 and $50,000 of non-required debt
payments as current debt in the accompanying consolidated balance sheet at
December 31, 1995 and 1996, respectively. This classification reflected the
Partnership's intent to retire such debt.
(6) EMPLOYEE BENEFIT PLANS
The Partnership has a defined benefit pension plan that covers
substantially all U.S. employees. Plan benefits are based on the participants'
years of service and average compensation for a specified period before
F-15
<PAGE> 103
GALILEO INTERNATIONAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
retirement. The Partnership's funding policy is to contribute annually an amount
which satisfies ERISA funding standards. The assets of the plan at December 31,
1995 and 1996 are principally comprised of marketable equity securities, U.S.
Government and government agency bonds, and short-term securities.
The following sets forth the plan's obligations, funded status, and pension
costs at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested.................................................... $(23,184) $(25,799)
Nonvested................................................. (5,626) (5,294)
-------- --------
$(28,810) $(31,093)
======== ========
Projected benefit obligation for service rendered to date... $(38,833) $(42,593)
Plan net assets at fair value............................... 25,421 34,768
-------- --------
Plan net assets less than projected benefit obligation...... (13,412) (7,825)
Unrecognized net loss (gain)................................ 4,125 (688)
Unrecognized prior service cost............................. 4,164 3,639
Unrecognized net transition obligation...................... 2,985 2,736
Adjustment to recognize minimum pension liability........... (1,251) --
-------- --------
Net pension liability....................................... $ (3,389) $ (2,138)
======== ========
</TABLE>
Net pension costs for the years ended December 31, 1994, 1995 and 1996
included the following components:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Interest cost on projected benefit obligation............... $2,218 $ 2,744 $ 3,093
Service cost................................................ 2,977 3,038 3,725
Actual investment return on plan assets..................... (200) (4,789) (5,089)
Net amortization and deferral............................... (326) 3,884 3,391
------ ------- -------
$4,669 $ 4,877 $ 5,120
====== ======= =======
</TABLE>
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligation
were 8.5% and 5.5%, respectively, in 1994, 7.25% and 4.25%, respectively, in
1995, and 7.75% and 4.75%, respectively, in 1996. The expected long-term rate of
return on assets as of December 31, 1994, 1995 and 1996 was 9.5%.
The Partnership has a defined contribution pension plan covering a majority
of the United Kingdom employees which requires the Partnership to annually
contribute 10% of eligible employee compensation on behalf of each participant.
The Partnership's contributions to the plan were $1,861, $1,970 and $2,289
during the years ended December 31, 1994, 1995 and 1996, respectively.
The Partnership offers U.S.-based employees a 401(k) savings plan.
Employees can elect to contribute pretax earnings, as limited by the Internal
Revenue Code, to their account and can determine how the money is invested. The
Partnership's contributions to the plan were $1,983 during the year ended
December 31, 1996.
F-16
<PAGE> 104
GALILEO INTERNATIONAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
(7) POSTRETIREMENT HEALTH CARE BENEFITS
The Partnership provides certain health care benefits to its retired
employees. The majority of its domestic employees may become eligible for these
benefits if they reach normal retirement age while working for the Partnership.
In addition, the Partnership provides retiree flight benefits to certain former
United employees. The discount rate used to develop the accumulated
postretirement benefit obligation for the retiree health care plan was 8.5%,
7.25% and 7.75% for 1994, 1995 and 1996, respectively. The Partnership's plan is
unfunded.
The following table sets forth the plan's funded status, reconciled with
amounts recognized in the Partnership's consolidated balance sheet at December
31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $ (4,761) $ (4,730)
Fully eligible active plan participants................... (3,471) (3,645)
Other active plan participants............................ (12,387) (13,122)
-------- --------
(20,619) (21,497)
-------- --------
Plan assets at fair value................................... -- --
-------- --------
Accumulated postretirement benefit obligation in excess of
plan assets............................................... (20,619) (21,497)
Unrecognized net (gain) loss from past experience different
from that assumed and from changes in assumptions......... 6,623 4,622
-------- --------
Accrued postretirement benefit cost......................... $(13,996) $(16,875)
======== ========
</TABLE>
Components of the expense recognized for the years ended December 31, 1994,
1995 and 1996 for the retiree health care plan were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Service costs............................................... $ 894 $ 909 $1,169
Interest cost on projected obligation....................... 1,193 1,362 1,542
Amortization of losses...................................... 272 127 274
------ ------ ------
Net retiree health care expense............................. $2,359 $2,398 $2,985
====== ====== ======
</TABLE>
The health care trend rate used to determine the accumulated postretirement
benefit obligation was 14% for 1996, decreasing by 1% each year until reaching
4% for the year 2006 and beyond. Increasing the health care trend rate by one
percentage point would increase the accumulated postretirement benefit
obligation by $100, $127 and $88 in 1994, 1995 and 1996, respectively, and would
increase the 1994, 1995 and 1996 net retiree health care expense by $9, $10 and
$7, respectively. The Partnership has no significant postretirement health care
benefit plans outside of the United States.
(8) GEOGRAPHIC AND SEGMENT INFORMATION
The Partnership derives substantially all of its revenues from the global
travel industry. Revenues are generated domestically from both U.S. and non-U.S.
travel vendors. Revenues from non-U.S. travel vendors were approximately
$341,600, $474,500 and $561,900 for the years ended December 31, 1994, 1995 and
1996, respectively.
F-17
<PAGE> 105
GALILEO INTERNATIONAL PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
(9) COVIA TECHNOLOGIES
During 1995, the Partnership decided to discontinue the operations of Covia
Technologies. A charge of $12,388 was taken for disposal costs related to this
discontinuance and the write-off of intangible assets as of December 31, 1995.
The remaining reserve balance was $773 at December 31, 1996.
(10) DATA CENTER CONSOLIDATION RESERVE
As a result of the 1993 Combination described in Note 1, the Partnership
consolidated its two data center facilities resulting in the closing of the
Swindon, United Kingdom data center. The cost of the consolidation was estimated
and charged to expense at the time of the Combination. The Partnership has
recorded the estimated lease cost of the unoccupied portion of the Swindon
facility, reduced by estimated sublease income. At December 31, 1995 and 1996
the estimated remaining liabilities related to the consolidation were $29,987
and $25,045, respectively, and are included in the accompanying consolidated
balance sheets.
(11) LITIGATION
The Partnership has been notified by United that, in United's opinion,
certain billings made by the Partnership to United were not in accordance with
contractual agreements. The potential impact to the Partnership (disputed
billings less related commissions) was approximately $2,700 at December 31,
1996. Management disagrees with United's contention and believes that the
ultimate disposition of this contingency is not expected to materially affect
the Partnership's financial position and results of operations.
The Partnership is involved in various other matters of litigation as both
plaintiff and defendant. In the opinion of management, none of these matters,
individually or in the aggregate, if determined adversely to the Partnership
would have a material adverse effect on the business, consolidated financial
condition or results of operations of the Partnership.
F-18
<PAGE> 106
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners and Supervisory Board of
Apollo Travel Services Partnership
We have audited the accompanying consolidated balance sheets of Apollo
Travel Services Partnership (Partnership) as of December 31, 1995 and 1996, and
the related consolidated statements of operations, partners' capital and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Partnership
as of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 7, 1997
F-19
<PAGE> 107
APOLLO TRAVEL SERVICES PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1995 1996 1997
---- ---- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $158,934 $ 53,253 $ 66,602
Accounts receivable:
United Air Lines, Inc................................... 15,553 15,085 16,589
Galileo International Partnership....................... 24,999 25,747 35,018
Galileo Japan Partnership............................... 205 214 99
Subscriber and other.................................... 8,258 10,647 10,774
Non-trade............................................... 3,249 3,210 1,180
-------- -------- --------
52,264 54,903 63,660
Less allowances......................................... 4,096 5,675 5,514
-------- -------- --------
Net accounts receivable................................... 48,168 49,228 58,146
Prepaid expenses.......................................... 1,377 1,760 1,461
Other current assets...................................... 1,327 1,348 1,394
-------- -------- --------
Total current assets........................................ 209,806 105,589 127,603
Property and equipment, at cost:
Land...................................................... 2,430 2,430 2,430
Buildings and improvements................................ 2,044 2,148 2,292
Equipment................................................. 81,423 82,383 80,571
Equipment held for lease.................................. 341,268 335,255 329,953
-------- -------- --------
427,165 422,216 415,246
Less accumulated depreciation............................. 323,135 323,859 327,433
-------- -------- --------
Net property and equipment.................................. 104,030 98,357 87,813
Deferred lease incentives, less accumulated amortization of
$13,099, $15,267 and $14,329.............................. 16,637 12,804 11,451
Other noncurrent assets..................................... 5,646 5,608 6,413
-------- -------- --------
$336,119 $222,358 $233,280
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable:
United Air Lines, Inc................................... $ 5,358 $ 8,054 $ 7,941
Other related parties................................... 2,504 2,565 2,667
Trade payables.......................................... 25,044 30,915 18,395
Accrued financial assistance.............................. 14,268 12,257 16,205
Accrued compensation and benefits......................... 6,203 7,901 5,688
Accrued liabilities -- other.............................. 6,961 8,509 7,157
Capital lease obligations, current portion................ 697 467 283
-------- -------- --------
Total current liabilities................................... 61,035 70,668 58,336
Noncurrent liabilities:
Pension liability......................................... 6,283 1,402 2,409
Obligations under capital leases.......................... 467
Postretirement benefit obligation......................... 12,250 14,191 14,694
-------- -------- --------
Total noncurrent liabilities................................ 19,000 15,593 17,103
Partners' capital:
Partners' capital before cumulative translation
adjustment.............................................. 256,685 136,801 158,546
Cumulative translation adjustment......................... (601) (704) (705)
-------- -------- --------
Total partners' capital..................................... 256,084 136,097 157,841
-------- -------- --------
$336,119 $222,358 $233,280
======== ======== ========
</TABLE>
See accompanying notes.
F-20
<PAGE> 108
APOLLO TRAVEL SERVICES PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues:
Computer reservation system.............. $239,108 $236,096 $236,448 $61,805 $ 63,875
Services to affiliates................... 137,280 142,426 143,529 36,436 37,894
-------- -------- -------- ------- --------
376,388 378,522 379,977 98,241 101,769
-------- -------- -------- ------- --------
Operating expenses:
Cost of operations....................... 209,325 214,834 213,411 52,842 53,618
Selling, general and administrative
expenses.............................. 74,663 74,098 81,595 17,841 19,194
-------- -------- -------- ------- --------
283,988 288,932 295,006 70,683 72,812
-------- -------- -------- ------- --------
Operating income........................... 92,400 89,590 84,971 27,558 28,957
Interest income............................ 2,758 7,756 4,712 2,066 626
Other, net................................. 139 890 1,342 441 105
-------- -------- -------- ------- --------
Net income................................. $ 95,297 $ 98,236 $ 91,025 $30,065 $ 29,688
======== ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-21
<PAGE> 109
APOLLO TRAVEL SERVICES PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
COVIA USAM RESNET
CORPORATION CORPORATION HOLDINGS INC. TOTAL
----------- ----------- ------------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1993.................... $ 117,324 $ 32,119 $ 2,926 $ 152,369
Net income...................................... 73,379 20,088 1,830 95,297
Distributions................................... (27,805) (7,601) (692) (36,098)
Change in cumulative translation adjustment..... (189) (52) (4) (245)
--------- -------- ------- ---------
Balance at December 31, 1994.................... 162,709 44,554 4,060 211,323
Net income...................................... 75,641 20,709 1,886 98,236
Distributions................................... (40,901) (11,198) (1,020) (53,119)
Change in cumulative translation adjustment..... (274) (74) (8) (356)
--------- -------- ------- ---------
Balance at December 31, 1995.................... 197,175 53,991 4,918 256,084
Net income...................................... 70,089 19,188 1,748 91,025
Distributions................................... (162,390) (44,468) (4,051) (210,909)
Change in cumulative translation adjustment..... (79) (22) (2) (103)
--------- -------- ------- ---------
Balance at December 31, 1996.................... 104,795 28,689 2,613 136,097
Net income (unaudited).......................... 22,860 6,258 570 29,688
Distributions (unaudited)....................... (6,116) (1,674) (153) (7,943)
Change in cumulative translation adjustment
(unaudited)................................... (1) (1)
--------- -------- ------- ---------
Balance at March 31, 1997 (unaudited)........... $ 121,538 $ 33,273 $ 3,030 $ 157,841
========= ======== ======= =========
</TABLE>
See accompanying notes.
F-22
<PAGE> 110
APOLLO TRAVEL SERVICES PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income............................... $ 95,297 $ 98,236 $ 91,025 $ 30,065 $ 29,688
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation and amortization......... 44,857 45,518 49,501 11,804 12,142
Amortization of deferred lease
incentives.......................... 12,779 11,075 11,461 3,075 2,610
Gain on disposal of property and
equipment........................... (360) (974) (1,366) (516) (90)
Foreign exchange loss................. 66 3
Increase in deferred lease
incentives.......................... (9,038) (15,207) (7,628) (2,643) (1,257)
Provision for losses on accounts
receivable.......................... 4,910 3,732 4,019 566 703
Increase in noncurrent assets......... (992) (2,954) (2,090)
Increase in postretirement benefit
obligation.......................... 1,752 1,644 1,941 473 503
Changes in operating assets and
liabilities --
Increase in accounts receivable..... (3,830) (12,885) (5,091) (5,505) (9,621)
(Increase) decrease in prepaid
expenses......................... 182 (254) (383) 90 299
(Increase) decrease in other current
assets........................... 1,559 (31) (24) (320) (46)
Increase (decrease) in accounts
payable.......................... (3,278) 4,194 8,629 (5,329) (12,531)
(Decrease) increase in accrued
financial assistance............. 2,349 5,941 (2,011) (723) 3,948
Increase (decrease) in accrued
compensation and benefits........ (620) (974) 1,698 (1,684) (2,213)
(Decrease) increase in accrued
liabilities -- other............. (5,173) 1,340 (313) 467 (345)
-------- -------- --------- -------- --------
Net cash provided by operating
activities............................... 140,460 138,401 149,368 29,823 23,790
Investing activities:
Purchases of property and equipment...... (31,998) (45,006) (45,446) (6,179) (2,426)
Proceeds on disposal of property and
equipment............................. 701 1,335 2,078 730 112
-------- -------- --------- -------- --------
Net cash used in investing activities...... (31,297) (43,671) (43,368) (5,449) (2,314)
Financing activities:
Distributions to partners................ (36,098) (53,119) (210,909) (13,339) (7,943)
Payment of capital lease obligations..... (582) (697) (697) (184) (184)
-------- -------- --------- -------- --------
Net cash used in financing activities...... (36,680) (53,816) (211,606) (13,523) (8,127)
Effect of exchange rate changes on cash and
cash equivalents......................... (48) (18) (75)
-------- -------- --------- -------- --------
Net (decrease) increase in cash and cash
equivalents during period................ 72,435 40,896 (105,681) 10,851 13,349
Cash and cash equivalents at beginning of
period................................... 45,603 118,038 158,934 158,934 53,253
-------- -------- --------- -------- --------
Cash and cash equivalents at end of
period................................... $118,038 $158,934 $ 53,253 $169,785 $ 66,602
======== ======== ========= ======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE> 111
APOLLO TRAVEL SERVICES PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Apollo Travel Services Partnership (Partnership) acts as the national
distributor in the United States and Mexico of the proprietary Apollo computer
reservation system which is owned and operated by Galileo International
Partnership (Galileo International). The Partnership performs certain sales
support and telecommunications operations pursuant to a distribution agreement
with Galileo International.
The Partnership, a Delaware general partnership, is owned by and net income
or loss is allocated based on the following:
<TABLE>
<CAPTION>
OWNERSHIP
PARTNER PARTNER'S AFFILIATE PERCENTAGE
------- ------------------- ----------
<S> <C> <C>
Covia Corporation............................. United Air Lines, Inc. 77.00%
USAM Corporation.............................. USAir Group, Inc. 21.08%
Resnet Holdings Inc........................... Air Canada 1.92%
</TABLE>
The preparation of the Partnership's consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation -- The consolidated financial statements include the
accounts of the Partnership and its substantially owned subsidiaries: Apollo
Travel Services Mexico S.A. de C.V., Apollo Communications Services and Premier
Travel Services.
Cash and cash equivalents -- Cash in excess of operating requirements is
invested in the United Air Lines, Inc. (United) liquidity investment pool which
consists of short-term, highly liquid, income-producing investments. The
proceeds from the sales of available-for-sale securities are included in
interest income for each respective year.
At December 31, 1995 and 1996, $85 million and $34 million, respectively,
of investments in debt securities included in cash and cash equivalents were
classified as available-for-sale and $74 million and $19 million, respectively,
were classified as held-to-maturity. Investments in debt securities classified
as available-for-sale are stated at fair value based on the quoted market prices
for the securities which does not differ significantly from their cost basis.
Investments classified as held-to-maturity are stated at cost which approximates
market value due to their short-term maturities.
Property and equipment -- Depreciation of property and equipment is
provided on the straight-line method over the following estimated useful lives
of the assets:
<TABLE>
<S> <C>
Buildings and improvements.................................. 31 years
Equipment................................................... 3-10 years
Equipment held for lease.................................... 3-7 years
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996,
respectively, was $44,857,000, $45,518,000 and $49,501,000.
Income taxes -- No provision for U.S. federal income taxes is recorded as
such liability is the responsibility of the partners rather than of the
Partnership.
Deferred lease incentives -- Deferred lease incentives include various
considerations provided to travel agencies in the form of cash payments or
special services in connection with long-term contracts to use the Apollo
system. Lease incentives are amortized on the straight-line method over
thirty-six months for contracts
F-24
<PAGE> 112
APOLLO TRAVEL SERVICES PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
executed in 1996 and thirty months for contracts executed prior to 1996. During
1994, 1995 and 1996, respectively, revenues were reduced by $7,248,000,
$6,669,000 and $7,809,000 related to the amortization of cash deferred lease
incentives, and operating expenses included amortization of special services
deferred lease incentives of $5,531,000, $4,406,000 and $3,652,000.
Accrued financial assistance -- The Partnership enters into service
contracts with significant subscribers containing booking fee productivity
clauses and other provisions which allow subscribers to receive various amounts
of cash financial assistance and other services from the Partnership. The
Partnership establishes accrued financial assistance liabilities for these
commitments as the subscribers satisfy the applicable contractual terms.
Partner distributions -- Distributions reported in the accompanying
consolidated statements of partners' capital included annual distributions which
are net of the required fifty-percent contribution to the Partnership by
partners in accordance with the Partnership agreement and a special distribution
of $160,000,000 in June 1996.
Foreign currency translation -- Gains and losses resulting from the
translation of the accounts of Apollo Travel Services Mexico S.A. de C.V. into
United States dollars are recorded as an adjustment to partners' capital in
accordance with the provisions of Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation."
Concentration of credit risk -- The Partnership's customers are primarily
in the United States and Mexico and are concentrated in the travel industry. The
Partnership generally does not require security or collateral from its customers
as a condition of sale. The Partnership maintained an allowance for losses of
$3,036,000 and $4,875,000 at December 31, 1995 and 1996, respectively, based
upon the expected collectability of all accounts receivable.
3. TRANSACTIONS WITH RELATED PARTIES
Pursuant to a distribution and sales agreement between the Partnership and
Galileo International, the Partnership, in the ordinary course of business,
receives a share of revenues related to its subscribers' use of the Apollo
computer reservations system which is passed through Galileo International from
travel vendors including United, USAir and Air Canada, related parties through
joint ownership in the Partnership. For 1994, 1995 and 1996, computer
reservations system revenues reported in the consolidated statements of
operations included the following related to bookings with United, USAir and Air
Canada (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
United............................................. $54,030 $55,080 $52,741
USAir.............................................. 21,205 19,350 19,403
Air Canada......................................... 482 618 762
------- ------- -------
$75,717 $75,048 $72,906
======= ======= =======
</TABLE>
In addition, the Partnership receives revenues directly from United for
data processing and communication-related services it provides to United. Rates
charged for such services are redetermined semi-annually. Included in services
to affiliates revenue in the accompanying consolidated statements of operations
is $78,756,000, $86,190,000 and $88,115,000 for services provided to United in
1994, 1995 and 1996, respectively.
The Partnership, in the ordinary course of business, purchases services and
rents facilities from United. For 1994, 1995 and 1996, respectively, operating
expenses in the accompanying consolidated statements of operations include
$14,290,000, $11,191,000 and $14,508,000 related to these services. In addition,
operating expenses include $3,469,000, $3,272,000 and $4,096,000 related to
marketing services provided the Partnership by USAir during 1994, 1995 and 1996,
respectively.
F-25
<PAGE> 113
APOLLO TRAVEL SERVICES PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the ordinary course of business, the Partnership provides network
communication-related services to Galileo International, a related party through
certain common ownership. During 1994, 1995 and 1996, respectively, the
Partnership recognized revenues of $57,882,000, $55,878,000 and $54,819,000
related to these services.
The Partnership utilizes data processing and facilities-related services
provided by Galileo International. Total operating expenses included $5,618,000,
$5,478,000 and $4,079,000 related to such charges by Galileo International
during 1994, 1995 and 1996, respectively.
The Partnership provides financial, network and management services to
Galileo Japan Partnership, a related party through certain common ownership.
Revenues from such services included in services to affiliates revenue in the
accompanying consolidated statements of operations were $642,000, $358,000 and
$595,000 during 1994, 1995 and 1996, respectively.
4. EQUIPMENT HELD FOR LEASE
The Partnership leases computer equipment related to the Apollo system to
travel agencies under operating leases, generally for terms up to five years.
Such leases are generally noncancelable and contain damage clauses in the event
of unilateral termination of the lease by the lessee. The following represents
the cost and accumulated depreciation related to equipment held for lease at
December 31, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cost..................................................... $341,268 $335,255
Less: accumulated depreciation........................... 258,421 259,018
-------- --------
$ 82,847 $ 76,237
======== ========
</TABLE>
Aggregate future minimum leasing fees expected under these leases are (in
thousands):
<TABLE>
<S> <C>
1997....................................................... $27,037
1998....................................................... 23,935
1999....................................................... 19,905
2000....................................................... 10,076
2001....................................................... 3,401
-------
$84,354
=======
</TABLE>
5. CAPITAL LEASE AND OTHER LEASE COMMITMENTS
The Partnership leases various office facilities and equipment under
operating leases with terms of up to 10 years. Rental expense under operating
leases was $3,789,000, $3,752,000 and $3,818,000 during 1994, 1995 and 1996,
respectively. Included in rental expense was $924,000, $981,000 and $678,000
related to the rental of United facilities during 1994, 1995 and 1996,
respectively.
The Partnership also leases data processing equipment under capital leases.
Equipment, at cost, and the related accumulated depreciation included the
following amounts related to such leased equipment at December 31, 1995 and
1996, with lease amortization included in depreciation expense (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cost........................................................ $3,105 $3,105
Less: accumulated depreciation.............................. 2,070 2,763
------ ------
$1,035 $ 342
====== ======
</TABLE>
F-26
<PAGE> 114
APOLLO TRAVEL SERVICES PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under capital leases and noncancelable
operating leases are (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1997........................................................ $482 $2,146
1998........................................................ 1,538
1999........................................................ 1,265
2000........................................................ 914
2001........................................................ 788
Thereafter.................................................. 1,932
---- ------
Total future minimum lease payments......................... 482 $8,583
======
Less amounts representing interest.......................... 15
----
Present value of future minimum lease payments.............. $467
====
</TABLE>
6. PENSION PLANS
The Partnership sponsors the defined benefit Apollo Travel Service Pension
Plan, covering substantially all employees. The plan benefits are based on
participant's years of service and annual compensation upon termination or
retirement. The plan assets at December 31, 1996 are principally comprised of
marketable equity securities, U.S. government and government agency bonds and
short-term securities. The Partnership's policy is to fund amounts which comply
with funding requirements under the Employee Retirement Income Security Act.
In addition to the above, the Partnership sponsors a nonqualified
supplemental defined benefit pension plan, the Apollo Travel Services
Supplemental Retirement Plan, covering certain highly compensated employees. The
plan benefits are based on years of service and annual compensation upon
termination or retirement. The Partnership's policy is to fund benefits as they
become payable to participants.
The following sets forth the Partnership's obligations, funded status and
pension costs related to the defined benefit plans at December 31, 1995 and
1996, as determined by an independent actuary (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested.................................................... $ 18,693 $ 20,833
Nonvested................................................. 5,566 5,452
-------- --------
$ 24,259 $ 26,285
======== ========
Actuarial present value of projected benefit obligation..... $ 33,476 $ 34,446
Plan assets at fair value................................... (16,524) (24,638)
-------- --------
Projected benefit obligation in excess of plan assets....... 16,952 9,808
Unrecognized net gain (loss)................................ (4,123) 1,403
Unrecognized prior service cost............................. (4,648) (4,088)
Remaining unrecognized net transition obligation............ (2,423) (2,221)
Adjustment required to recognize minimum liability.......... 2,018
-------- --------
Pension liability recognized in balance sheet............... $ 7,776 $ 4,902
======== ========
</TABLE>
F-27
<PAGE> 115
APOLLO TRAVEL SERVICES PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension cost:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Service cost........................................ $2,947 $ 2,424 $ 3,140
Interest cost....................................... 1,828 2,011 2,325
Actual return on plan assets........................ 149 (2,700) (2,962)
Net amortization and deferral....................... 143 2,430 2,111
------ ------- -------
Net periodic pension cost........................... $5,067 $ 4,165 $ 4,614
====== ======= =======
</TABLE>
The following sets forth the discount rate, expected long-term rate of
return on assets and rate of increase in future compensation levels used in
determining the actuarial present value of projected benefit obligation:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate........................................ 8.75% 7.25% 7.75%
Long-term rate of return............................. 9.00% 8.50% 10.00%
Salary scale......................................... 4.50% 4.00% 4.00%
</TABLE>
The effect of the change in the discount rate from 1995 was to decrease the
projected benefit obligation by approximately $2,898,000 at December 31, 1996.
7. POSTRETIREMENT BENEFITS
In addition to the above pension plans, the Partnership sponsors a defined
benefit health care plan providing postretirement health care benefits to
full-time employees who have worked at least ten years and have attained age 55
while in service with the Partnership. The plan is contributory with retiree
contributions adjusted annually and contains other cost-sharing features such as
deductibles and coinsurance. In addition, the plan provides certain former
employees of United retiree flight benefits. The Partnership's policy is to pay
benefits under this plan as incurred. During the years ended December 31, 1994,
1995 and 1996, respectively, benefits of approximately $20,000, $53,000 and
$75,000 were paid to retirees under this plan.
The following table presents the plan's financial status reconciled to
amounts recognized in the Partnership's balance sheet at December 31, 1995 and
1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Vested................................................... $ 4,233 $ 5,384
Nonvested................................................ 10,403 10,414
------- -------
Accumulated postretirement benefit obligation.............. 14,636 15,798
Unrecognized net loss...................................... (3,379) (2,477)
Unrecognized prior service cost............................ 993 870
------- -------
Accrued postretirement benefit obligation.................. $12,250 $14,191
======= =======
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (health care cost trend factor) was 12% and 11% for 1995 and
1996, respectively, and is assumed to decrease gradually to 6% for 2003 and
remain at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1996 by $460,000, and the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year ended December 31, 1996
by $53,000. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% and 7.75% at
F-28
<PAGE> 116
APOLLO TRAVEL SERVICES PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995 and 1996, respectively. The increase in the weighted-average
discount rate from 1995 had the impact of decreasing the accumulated
postretirement benefit obligation at December 31, 1996 by approximately
$1,057,000.
Net periodic postretirement benefit cost:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Service cost.......................................... $ 745 $ 695 $ 847
Interest cost......................................... 898 1,005 1,089
Net amortization and deferral......................... 129 (3) 80
------ ------ ------
Net periodic postretirement benefit cost.............. $1,772 $1,697 $2,016
====== ====== ======
</TABLE>
8. CONTINGENCIES
On February 7, 1996, the Partnership became aware that Galileo
International was notified by United that, in United's opinion, the method used
to determine certain computer reservation system revenues was not in accordance
with contractual agreements. Pursuant to a distribution agreement with Galileo
International, the Partnership shares in the subject revenue and the Partnership
could be obligated to refund any amounts collected in excess of contractual
revenues. At December 31, 1996, the Partnership has provided for $3,481,000 of
this contingency, representing the Partnership's share of the amount of refunds
claimed by United from Galileo International for the period from November 1995
through December 1996. Based upon United's interpretations of the contractual
agreements, the Partnership currently estimates the potential refund exposure to
Galileo International for the subject revenues since the inception of the
Partnership through December 31, 1996, ranges between $9,700,000 and
$11,300,000. As of December 31, 1996, United has not pursued refunds for the
period prior to November 1995 and no reserves have been provided for this
period. The eventual outcome of this matter is uncertain and Galileo
International is contesting United's interpretation of their contractual
agreements.
The Partnership also has certain other contingencies resulting from
litigation and claims incident to the ordinary course of business. Management
believes, after considering a number of factors, including (but not limited to)
the views of legal counsel, the nature of contingencies to which the Partnership
is subject and its prior experience, that the ultimate disposition of these
contingencies is not expected to materially affect the Partnership's financial
position and results of operations.
9. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT
During May 1997, Galileo International and United reached agreement to
resolve the contingency described in Note 8 upon the consummation of certain
transactions to be entered into between Galileo International and United. Upon
consummation of this agreement, the Partnership's reserves of $3,481,000 at
December 31, 1996 would be sufficient to provide for this contingency.
F-29
<PAGE> 117
[GALILEO LOGO]
<PAGE> 118
[ALTERNATE COVER PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS (Subject to Completion)
Issued July 17, 1997
[GALILEO LOGO]
31,998,000 Shares
Galileo International, Inc.
COMMON STOCK
------------------------
OF THE 31,998,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 12,000,000 SHARES
ARE BEING SOLD BY THE COMPANY AND 19,998,000 SHARES ARE BEING SOLD BY THE
SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL
NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES OF COMMON STOCK BY THE
SELLING STOCKHOLDERS. OF THE 31,998,000 SHARES OF COMMON STOCK BEING OFFERED
HEREBY, 9,599,400 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES
AND CANADA BY THE INTERNATIONAL UNDERWRITERS AND 22,398,600 SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE PER SHARE WILL BE BETWEEN $20 AND $23. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE, ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "GLC."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
-------- -------------- ----------- -------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total(3)................ $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. Certain senior officers of the Company
will have the opportunity to purchase Shares of Common Stock in the Offering
at the initial public offering price less underwriting discounts and
commissions. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $3,000,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
4,799,700 additional Shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
See "Underwriters."
------------------------
The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the Shares will be made on or about , 1997
at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against
payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER SBC WARBURG
A Division of Swiss Bank
Corporation
ABN AMRO ROTHSCHILD HSBC INVESTMENT BANKING
LEHMAN BROTHERS MERRILL LYNCH INTERNATIONAL
J.P. MORGAN SECURITIES LTD.
, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 256,469
NASD filing fee............................................. 30,500
NYSE listing fee............................................ 450,000
Blue Sky fees and expenses.................................. 5,000
Attorneys' fees and expenses................................ 950,000
Accountants' fees and expenses.............................. 525,000
Transfer Agent's and Registrar's fees and expenses.......... 10,000
Printing and engraving expenses............................. 400,000
Miscellaneous............................................... 373,031
----------
Total.................................................. $3,000,000
==========
</TABLE>
The amounts set forth above are estimates except for the SEC registration
fee and the NASD filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides, in summary,
that directors and officers of Delaware corporations are entitled, under certain
circumstances, to be indemnified against all expenses and liabilities (including
attorney's fees) incurred by them as a result of suits brought against them in
their capacity as a director or officer, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the Company,
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, they are fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Any such indemnification may be made by the Company only as authorized
in each specific case upon a determination by the shareholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct.
The Company's Restated Certificate of Incorporation provides that no
director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) in
respect of certain unlawful dividend payments or stock redemptions or purchases;
or (iv) for any transaction from which the director derived an improper personal
benefit.
The Company's Restated Certificate of Incorporation and Restated By-Laws
provide for indemnification of its directors and officers to the fullest extent
permitted by Delaware law, as the same may be amended from time to time.
Section 9 of the Underwriting Agreement (Exhibit 1.1 hereto) contains
provisions for certain indemnification rights to the directors and officers of
the Registrant.
In addition, the Company maintains liability insurance for its directors
and officers.
II-1
<PAGE> 120
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the merger of Galileo International Partnership into a
wholly owned limited liability company subsidiary of the Company, an aggregate
of 88,000,000 shares of the Company's Common Stock and seven shares of the
Company's Special Voting Preferred Stock will be issued to the partners of
Galileo International Partnership. Such issuances will be exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
1.1** Form of Underwriting Agreement.
2.1** Form of General Partnership Interest Purchase Agreement
among United Air Lines, Inc., Covia Corporation, U.S.
Airways, Inc., USAM Corp., Air Canada, Resnet Holdings,
Inc., Apollo Travel Services Partnership and Galileo
International Partnership.
2.2** Form of Share Purchase Agreement between SAirGroup and
Galileo International Partnership.
2.3** Form of General Share Purchase Agreement among Koninklijke
Luchtvaart Maatschappij N.V., Galileo Nederland BV and
Galileo International Partnership.
2.4** Form of Agreement and Plan of Merger by and among the
Registrant, Galileo International Partnership and Galileo
International, L.L.C.
3.1** Form of Restated Certificate of Incorporation of Registrant.
3.2** Form of Restated By-Laws of Registrant.
4.1** Form of Registration Rights Agreement among the Registrant
and Covia Corp., USAM Corp., Resnet Holdings, Inc.,
Distribution Systems Inc., Roscor A.G., Travel Industry
Systems B.V., Retford Limited, Racom Teledata S.p.A.,
Travidata Inc., Olynet Inc. and Coporga, Inc.
4.2 Specimen Certificate representing Common Stock.
5.1** Opinion of Shearman & Sterling as to the legality of the
Common Stock.
10.1** Form of Stockholders' Agreement among the Registrant,
certain of its stockholders and certain related parties of
such stockholders.
10.2** Form of Services Agreement among the Registrant, United Air
Lines, Inc., US Airways, Inc. and Air Canada.
10.3** Form of Services Agreement between the Registrant and
SAirGroup.
10.4** Form of Services Agreement between the Registrant and
Koninklijke Luchtvaart Maatschappij N.V.
10.5** Form of Amended and Restated Non-Competition Agreement among
the Registrant, certain of its stockholders and certain
related parties of such stockholders.(c)
10.6** Form of Marketing Cooperation and Sales Representation
Agreement between United Air Lines, Inc. and the
Registrant.(c)
10.7** Form of Marketing Cooperation and Sales Representation
Agreement between US Airways, Inc. and the Registrant.(c)
10.8** Form of Rights Waiver Agreement between SAirGroup and
Galileo International Partnership.
10.9** Form of Rights Waiver Agreement between Koninklijke
Luchtvaart Maatschappij N.V. and Galileo International
Partnership.
10.10 Form of Credit Agreements:
**(a) 364-Day Credit Agreement
(b) Five-Year Credit Agreement
</TABLE>
II-2
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
10.11** Hillmead Underlease.
10.12** Underlease, dated 1996, between The Galileo Company and
Lucent Technologies Network Systems UK Limited.
10.13** Lease, dated March 1, 1994, between St. Martins Property
Investments Limited and The Galileo Company.
10.14** Lease, dated December 2, 1987, between St. Martins Property
Investments Limited and Galileo Distribution Systems
Limited.
10.15** Englewood, Colorado Office Lease, dated April 18, 1988.
10.16 First Amendment to Englewood, Colorado Office Lease, dated
June 23, 1988.
10.17** Rosemont Office Lease, dated March 31, 1995.
10.18** Term Lease Master Agreement, dated May 9, 1988, between IBM
Credit Corporation and Covia Partnership.
10.19** Master Lease Agreement, dated November 11, 1988, between
Comdisco, Inc. and Covia Partnership.
10.20** Software License Agreement, dated August 1, 1994, between
Allen Systems Group, Inc. and Galileo International.
10.21** Program Product License Agreement between Candle Corporation
and Galileo International Partnership.
10.22** Foundation License Addendum to Order Form between Galileo
International and Computer Associates International, Inc.
10.23** Software License Agreement and Addendum, dated August 19,
1994, between Sterling Software (U.S.A.), Inc. and Galileo
International.
10.24** Master Equipment Lease, dated November 19, 1991, between
General Electric Capital Computer Leasing Corporation and
Covia Partnership.
10.25** Master Equipment Lease, dated April 4, 1996, between AT&T
Systems Leasing Corporation and Galileo International
Partnership.
10.26** Dun & Bradstreet Software Services Inc. License Agreement.
10.27** Cover Agreement, dated October 8, 1996, between Sprint
Communications Company L.P. and Galileo International
Partnership.
10.28** Agreement for Telecommunications Services, dated January 1,
1996, between Societe Internationale de Telecommunications
Aeronautiques and Galileo International Partnership.
10.29** Master Agreement for MCI Enhanced Services, dated February
14, 1996, between MCI Telecommunications Corporation and
Galileo International Partnership.
10.30** Communications Services Agreement, dated April 1, 1997,
between Galileo International and AT&T Corp.
10.31** Galileo International Severance Plan.
10.32** Galileo International Savings and Investment Plan.
10.33** Galileo International car policy.
10.34** Galileo Retirement and Death Benefit Scheme.
10.35** Galileo International Employee Pension Plan.
10.36** Galileo International Flextrack Benefits Plan.
</TABLE>
II-3
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.37** Form of Galileo International Distributor Sales and Service Agreement.
10.38** Form of Global Airline Distribution Agreement.
10.39** Agreement for the Provision of Services between The Galileo Company and Galileo International
Partnership.
10.40** Galileo International Retiree Medical Plan.
10.41** Galileo International, Inc. 1997 Stock Incentive Plan.
10.42** Galileo International, Inc. 1997 Non-Employee Director Stock Plan.
10.43** Form of Deferred Compensation Arrangements.
10.44** Galileo UK Health Benefit Policy.
10.45** Employment Agreement of James E. Barlett.
21.1** List of Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Arthur Andersen LLP.
23.3** Consent of Shearman & Sterling (included in its opinion in Exhibit 5.1).
23.4** Consent of Frederic F. Brace.
23.5** Consent of David A. Coltman.
23.6** Consent of James E. Goodwin.
23.7** Consent of Frank H. Rovekamp.
23.8** Consent of Georges P. Schorderet.
23.9** Consent of Derek Stevens.
23.10 Consent of John W. Harper.
24.1** Powers of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- ---------------
(c) Exhibits for which Registrant is seeking confidential treatment for certain
portions
* To be filed by amendment.
** Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES.
The schedules have been omitted because of the absence of circumstances
under which they could be required.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
II-4
<PAGE> 123
whether such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the U.S. Underwriting Agreement and the
International Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
II-5
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has duly caused this Amendment to the Registration Statement
on Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in Englewood, Colorado on July 17, 1997.
Galileo International, Inc.
By: *
------------------------------------
James E. Barlett
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of Directors, July 17, 1997
- --------------------------------------- President and Chief Executive Officer
James E. Barlett (principal executive officer)
* Director, Senior Vice President and Chief July 17, 1997
- --------------------------------------- Financial Officer (principal financial and
Paul H. Bristow accounting officer)
/s/ BABETTA R. GRAY Director July 17, 1997
- ---------------------------------------
Babetta R. Gray
</TABLE>
*By:
/s/ BABETTA R. GRAY
- ----------------------------------------
Babetta R. Gray
Attorney-in-Fact
II-6
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
</TABLE>
1.1** Form of Underwriting Agreement..............................
2.1** Form of General Partnership Interest Purchase Agreement
among United Air Lines, Inc., Covia Corporation, U.S.
Airways, Inc., USAM Corp., Air Canada, Resnet Holdings,
Inc., Apollo Travel Services Partnership and Galileo
International Partnership...................................
2.2** Form of Share Purchase Agreement between SAirGroup and
Galileo International Partnership...........................
2.3** Form of General Share Purchase Agreement among Koninklijke
Luchtvaart Maatschappij N.V., Galileo Nederland BV and
Galileo International Partnership...........................
2.4** Form of Agreement and Plan of Merger by and among the
Registrant, Galileo International Partnership and Galileo
International, L.L.C........................................
3.1** Form of Restated Certificate of Incorporation of
Registrant..................................................
3.2** Form of Restated By-Laws of Registrant......................
4.1** Form of Registration Rights Agreement among the Registrant
and Covia Corp., USAM Corp., Resnet Holdings, Inc.,
Distribution Systems Inc., Roscor A.G., Travel Industry
Systems B.V., Retford Limited, Racom Teledata S.p.A.,
Travidata Inc., Olynet Inc. and Coporga, Inc................
4.2 Specimen Certificate representing Common Stock..............
5.1** Opinion of Shearman & Sterling as to the legality of the
Common Stock................................................
10.1** Form of Stockholders' Agreement among the Registrant,
certain of its stockholders and certain related parties of
such stockholders...........................................
10.2** Form of Services Agreement among the Registrant, United Air
Lines, Inc., US Airways, Inc. and Air Canada................
10.3** Form of Services Agreement between the Registrant and
SAirGroup...................................................
10.4** Form of Services Agreement between the Registrant and
Koninklijke Luchtvaart Maatschappij N.V.....................
10.5** Form of Amended and Restated Non-Competition Agreement among
the Registrant, certain of its stockholders and certain
related parties of such stockholders.(c)....................
10.6** Form of Marketing Cooperation and Sales Representation
Agreement between United Air Lines, Inc. and the
Registrant.(c)..............................................
10.7** Form of Marketing Cooperation and Sales Representation
Agreement between US Airways, Inc. and the Registrant.(c)...
10.8** Form of Rights Waiver Agreement between SAirGroup and
Galileo International Partnership...........................
10.9** Form of Rights Waiver Agreement between Koninklijke
Luchtvaart Maatschappij N.V. and Galileo International
Partnership.................................................
10.10** Form of Credit Agreements:..................................
**(a) 364-Day Credit Agreement..............................
(b) Five-Year Credit Agreement..............................
10.11** Hillmead Underlease.........................................
<PAGE> 126
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.12** Underlease, dated 1996, between The Galileo Company and
Lucent Technologies Network Systems UK Limited..............
10.13** Lease, dated March 1, 1994, between St. Martins Property
Investments Limited and The Galileo Company.................
10.14** Lease, dated December 2, 1987, between St. Martins Property
Investments Limited and Galileo Distribution Systems
Limited.....................................................
10.15** Englewood, Colorado Office Lease, dated April 18, 1988......
10.16 First Amendment to Englewood, Colorado Office Lease, dated
June 23, 1988...............................................
10.17** Rosemont Office Lease, dated March 31, 1995.................
10.18** Term Lease Master Agreement, dated May 9, 1988, between IBM
Credit Corporation and Covia Partnership....................
10.19** Master Lease Agreement, dated November 11, 1988, between
Comdisco, Inc. and Covia Partnership........................
10.20** Software License Agreement, dated August 1, 1994, between
Allen Systems Group, Inc. and Galileo International.........
10.21** Program Product Master License Agreement between Candle
Corporation and Galileo International Partnership...........
10.22** Foundation License Addendum to Order Form between Galileo
International and Computer Associates International, Inc.
10.23** Software License Agreement and Addendum, dated August 19,
1994, between Sterling Software (U.S.A.), Inc. and Galileo
International...............................................
10.24** Master Equipment Lease, dated November 19, 1991, between
General Electric Capital Computer Leasing Corporation and
Covia Partnership...........................................
10.25** Master Equipment Lease, dated April 4, 1996, between AT&T
Systems Leasing Corporation and Galileo International
Partnership.................................................
10.26** Dun & Bradstreet Software Services Inc. License
Agreement...................................................
10.27** Cover Agreement, dated October 8, 1996, between Sprint
Communications Company L.P. and Galileo International
Partnership.................................................
10.28** Agreement for Telecommunications Services, dated January 1,
1996, between Societe Internationale de Telecommunications
Aeronautiques and Galileo International Partnership.........
10.29** Master Agreement for MCI Enhanced Services, dated February
14, 1996, between MCI Telecommunications Corporation and
Galileo International Partnership...........................
10.30** Communications Services Agreement, dated April 1, 1997,
between Galileo International and AT&T Corp.................
10.31** Galileo International Severance Plan........................
10.32** Galileo International Savings and Investment Plan...........
10.33** Galileo International car policy............................
10.34** Galileo Retirement and Death Benefit Scheme.
10.35** Galileo International Employee Pension Plan.................
10.36** Galileo International Flextrack Benefits Plan...............
10.37** Form of Galileo International Distributor Sales and Service
Agreement...................................................
10.38** Form of Global Airline Distribution Agreement...............
</TABLE>
<PAGE> 127
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- --------- ------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
10.39** Agreement for the Provision of Services between The Galileo Company and Galileo
International Partnership..................................................................
10.40** Galileo International Retiree Medical Plan.................................................
10.41** Galileo International, Inc. 1997 Stock Incentive Plan......................................
10.42** Galileo International, Inc. 1997 Non-Employee Director Stock Plan..........................
10.43** Form of Deferred Compensation Arrangements.................................................
10.44** Galileo UK Health Benefit Policy...........................................................
10.45** Employment Agreement of James E. Barlett...................................................
21.1** List of Subsidiaries.......................................................................
23.1 Consent of KPMG Peat Marwick LLP...........................................................
23.2 Consent of Arthur Andersen LLP.............................................................
23.3** Consent of Shearman & Sterling (included in its opinion in Exhibit 5.1)....................
23.4** Consent of Frederic F. Brace...............................................................
23.5** Consent of David A. Coltman................................................................
23.6** Consent of James E. Goodwin................................................................
23.7** Consent of Frank H. Rovekamp...............................................................
23.8** Consent of Georges P. Schorderet...........................................................
23.9** Consent of Derek Stevens...................................................................
23.10 Consent of John W. Harper..................................................................
24.1** Powers of Attorney.........................................................................
27.1** Financial Data Schedule....................................................................
</TABLE>
- ---------------
(c) Exhibits for which Registrant is seeking confidential treatment for certain
portions
* To be filed by amendment
** Previously filed.
<PAGE> 1
Exhibit 4.2
Temporary Certificate-Exchangeable for Definitive Engraved Certificate
When Ready for Delivery
CERTIFICATE OF STOCK
COMMON COMMON
NUMBER SHARES
Incorporated under the laws of See reverse for
the state of Delaware certain definitions
GALILEO INTERNATIONAL, INC.
This Certificate is transferable in Chicago, Illinois, and New York, New York
CUSIP 363547100
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE,
OF GALILEO INTERNATIONAL, INC.
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal and the signatures of its duly authorized officers.
Dated
/s/ Babetta R. Gray /s/ James E. Barlett
Secretary President and Chief Executive Officer
[Corporate SEAL of Galileo International Inc., Delaware]
Countersigned and Registered: HARRIS Trust and Savings BANK
(Chicago)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
GALILEO INTERNATIONAL, INC.
------------------
Galileo International, Inc. (the "Corporation") shall furnish on request
and without charge a full statement of any designations, preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption of the stock of each class
which the Corporation is authorized to issue, and, in the case of preferred
stock or a special class in a series, the differences in the relative rights and
preferences between the shares of each series to the extent that they have been
set and the authority of the Board of Directors to set the relative rights and
preferences of a subsequent series.
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT - as tenants by the entireties ---- -----
JT TEN - as joint tenants with (Cust) (Minor)
right of survivorship and under Uniform Gifts to Minors
not as tenants in common Act
-----------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value received, hereby sell, assign and transfer unto
-------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of Common Stock represented by the within Certificate and do hereby irrevocably
constitute and appoint
----------------------------------------------------------
Attorney to
- ---------------------------------------------------------------------
transfer the said Shares on the books of the within-named Corporation with full
power of substitution in the premises.
Dated
----------------------------------
X
-----------------------------------------------
X
-----------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION. (BANKS, STOCK-
BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.10(b)
$400,000,000
FIVE-YEAR
CREDIT AGREEMENT
dated as of
July 23, 1997
among
Galileo International, Inc.,
The Banks Parties Hereto,
The Letter of Credit Issuing Banks Named Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
------------------------
J.P. Morgan Securities Inc.,
as Arranger
and
Bank of America National Trust and Savings Association
and
Bank of Montreal
as Co-Arrangers
<PAGE> 2
TABLE OF CONTENTS
----------------------
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions...........................................1
SECTION 1.02. Accounting Terms and Determinations..................17
SECTION 1.03. Types of Borrowings..................................17
ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend..................................18
SECTION 2.02. Increased Commitments; Additional Banks..............18
SECTION 2.03. Notice of Committed Borrowing........................19
SECTION 2.04. Money Market Borrowings..............................20
SECTION 2.05. Notice to Banks; Funding of Loans....................24
SECTION 2.06. Notes................................................25
SECTION 2.07. Maturity of Loans....................................25
SECTION 2.08. Interest Rates.......................................26
SECTION 2.09. Fees.................................................29
SECTION 2.10. Optional Termination or Reduction of Commitments.....30
SECTION 2.11. Method of Electing Interest Rates....................30
SECTION 2.12. Mandatory Termination of Commitments.................32
SECTION 2.13. Optional Prepayments.................................32
SECTION 2.14. General Provisions as to Payments....................32
SECTION 2.15. Funding Losses.......................................33
SECTION 2.16. Computation of Interest and Fees.....................34
SECTION 2.17. Regulation D Compensation............................34
SECTION 2.18. Currency Translations................................34
SECTION 2.19. Judgment Currency....................................34
SECTION 2.20. Letters of Credit....................................35
ARTICLE 3
CONDITIONS
SECTION 3.01. First Borrowing or Issuance..........................39
SECTION 3.02. Each Borrowing and Issuance..........................40
i
<PAGE> 3
PAGE
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Corporate Existence and Power......................41
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention...................................41
SECTION 4.03. Binding Effect.....................................41
SECTION 4.04. Financial Information..............................41
SECTION 4.05. Litigation.........................................42
SECTION 4.06. Compliance with ERISA..............................42
SECTION 4.07. Compliance with Laws...............................43
SECTION 4.08. Environmental Matters..............................43
SECTION 4.09. Taxes..............................................43
SECTION 4.10. Subsidiaries.......................................43
SECTION 4.11. Regulatory Restrictions on Borrowing...............44
SECTION 4.12. Full Disclosure....................................44
ARTICLE 5
COVENANTS
SECTION 5.01. Information........................................44
SECTION 5.02. Payment of Obligations.............................46
SECTION 5.03. Maintenance of Property; Insurance.................47
SECTION 5.04. Conduct of Business and Maintenance of Existence...47
SECTION 5.05. Compliance with Laws...............................47
SECTION 5.06. Inspection of Property, Books and Records..........48
SECTION 5.07. Mergers and Sales of Assets........................48
SECTION 5.08. Use of Proceeds....................................48
SECTION 5.09. Negative Pledge....................................48
SECTION 5.10. Interest Coverage Ratio............................49
SECTION 5.11. Restricted Payments................................49
SECTION 5.12. Transactions with Affiliates.......................50
SECTION 5.13. Debt of Subsidiaries...............................50
SECTION 5.14. Cash Flow Ratio....................................50
ARTICLE 6
DEFAULTS
SECTION 6.01. Events of Default..................................50
SECTION 6.02. Notice of Default..................................52
ii
<PAGE> 4
PAGE
SECTION 6.03. Cash Cover.........................................52
ARTICLE 7
THE AGENT
SECTION 7.01. Appointment and Authorization......................53
SECTION 7.02. Agent and Affiliates...............................53
SECTION 7.03. Action by Agent....................................53
SECTION 7.04. Consultation with Experts..........................53
SECTION 7.05. Liability of Agent.................................54
SECTION 7.06. Indemnification....................................54
SECTION 7.07. Credit Decision....................................54
SECTION 7.08. Successor Agent....................................55
SECTION 7.09. Agent's Fee; Arranger Fee..........................55
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or
Unfair..........................................55
SECTION 8.02. Illegality.........................................56
SECTION 8.03. Increased Cost and Reduced Return..................57
SECTION 8.04. Taxes..............................................58
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed
Rate Loans......................................60
SECTION 8.06. Substitution of Bank...............................61
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices............................................61
SECTION 9.02. No Waivers.........................................61
SECTION 9.03. Expenses; Indemnification..........................62
SECTION 9.04. Sharing of Set-offs................................62
SECTION 9.05. Amendments and Waivers ............................63
SECTION 9.06. Successors and Assigns.............................63
SECTION 9.07. Collateral.........................................65
SECTION 9.08. Governing Law; Submission to Jurisdiction..........65
SECTION 9.09. Counterparts; Integration; Effectiveness...........65
SECTION 9.10. WAIVER OF JURY TRIAL...............................66
iii
<PAGE> 5
PAGE
SECTION 9.11. Confidentiality....................................66
PRICING SCHEDULE A
PRICING SCHEDULE B
SCHEDULE I - Existing Capital Leases
SCHEDULE II- Existing Ownership Group
SCHEDULE III - Transaction Documents
EXHIBIT A - Note
EXHIBIT B - Money Market Quote Request
EXHIBIT C - Invitation for Money Market Quotes
EXHIBIT D - Money Market Quote
EXHIBIT E - Opinion of Counsel for the Borrower
EXHIBIT F - Opinion of Special Counsel for the Agent
EXHIBIT G - Assignment and Assumption Agreement
iv
<PAGE> 6
FIVE-YEAR
CREDIT AGREEMENT
FIVE-YEAR CREDIT AGREEMENT dated as of July 23, 1997 among GALILEO
INTERNATIONAL, INC., the BANKS from time to time parties hereto, the LETTER OF
CREDIT ISSUING BANKS from time to time parties hereto and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
the following meanings:
"ABSOLUTE RATE AUCTION" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.04.
"ADDITIONAL BANK" has the meaning set forth in Section 2.02(b).
"ADJUSTED CD RATE" has the meaning set forth in Section 2.08(b).
"ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrower) duly completed by such Bank.
"AFFILIATE" means, at any time, (i) any Person that at such time
beneficially owns, directly or indirectly, 25% or more of the Ordinary Voting
Stock, (ii) any Person that, at such time, directly, or indirectly through one
or more intermediaries, controls the Borrower or (iii) any Person (other than
the Borrower or a Subsidiary) which is controlled by or is under common control
with a Person described in clause (i) or (ii).
"AGENT" means Morgan Guaranty Trust Company of New York in its capacity
as agent for the Banks hereunder, and its successors in such capacity.
"ALTERNATIVE CURRENCY" means any freely available currency other than
Dollars which is freely transferable and convertible into Dollars.
<PAGE> 7
"APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Money Market Loans, its Money Market Lending Office.
"ASSESSMENT RATE" has the meaning set forth in Section 2.08(b).
"ASSIGNEE" has the meaning set forth in Section 9.06(c).
"BANK" means each bank listed on the signature pages hereof, each
Additional Bank which becomes a Bank pursuant to Section 2.02, each Assignee
which becomes a Bank pursuant to Section 9.06(c), and their respective
successors.
"BASE RATE" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"BASE RATE LOAN" means (i) a Committed Loan which bears interest at the
Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or the provisions of Article 8 or (ii) an overdue amount
which was a Base Rate Loan immediately before it became overdue.
"BENEFIT ARRANGEMENT" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.
"BORROWER" means Galileo International, Inc., a Delaware corporation,
and its successors.
"BORROWING" has the meaning set forth in Section 1.03.
"CASH FLOW RATIO" means at any date the ratio of (i) Consolidated Debt
at such date to (ii) Consolidated EBITDA for the four consecutive fiscal
quarters of the Borrower and its Consolidated Subsidiaries ending on such date.
"CD BASE RATE" has the meaning set forth in Section 2.08(b).
"CD LOAN" means (i) a Committed Loan which bears interest at a CD Rate
pursuant to the applicable Notice of Committed Borrowing or Notice of
2
<PAGE> 8
Interest Rate Election or (ii) an overdue amount which was a CD Loan immediately
before it became overdue.
"CD MARGIN" means a rate per annum determined in accordance with the
Pricing Schedule.
"CD RATE" means a rate of interest determined pursuant to Section
2.08(b) on the basis of an Adjusted CD Rate.
"CD REFERENCE BANKS" means Bank of Montreal, Bank of America
National Trust and Savings Association and Morgan Guaranty Trust Company of
New York.
"CHANGE IN OWNERSHIP OR CONTROL" shall be deemed to have occurred if,
without the prior written consent of the Required Banks, at any time on or after
the Effective Date: (i) any Person or group (within the meaning of Rule 13d-5
under the Securities Exchange Act of 1934, as amended) other than one or more
members of the Existing Ownership Group shall beneficially own, directly or
indirectly, a percentage of the Ordinary Voting Stock that is at such time in
excess of the percentage of the Ordinary Voting Stock beneficially owned,
directly or indirectly, at such time by all members of the Existing Ownership
Group taken as a whole; (ii) any Person or group (within the meaning of Rule
13d-5 under the Securities Exchange Act of 1934, as amended) other than one or
more members of the Existing Ownership Group shall beneficially own, directly or
indirectly, a percentage of the Ordinary Voting Stock that is at such time in
excess of 25% of the Ordinary Voting Stock outstanding at such time; or (iii)
the Continuing Directors shall fail to constitute a majority of the Board of
Directors of the Borrower at such time.
"CLOSING DATE" means the date on or after the Effective Date on which
the initial Borrowing or issuance of a Letter of Credit under this Agreement
occurs.
"COMMITMENT" means (i) with respect to each Bank listed on the
signature pages hereof, the amount set forth opposite its name on the signature
pages hereof and (ii) with respect to each Additional Bank or Assignee which
becomes a Bank pursuant to Section 2.02 or 9.06(c), the amount of the Commitment
thereby assumed by it, in each case as such amount may be reduced from time to
time pursuant to Sections 2.10 and 9.06(c) or increased from time to time
pursuant to Sections 2.02 and 9.06(c).
"COMMITTED LOAN" means a loan made by a Bank pursuant to Section 2.01,
provided that, if any such loan or loans (or portions thereof) are combined or
3
<PAGE> 9
subdivided pursuant to a Notice of Interest Rate Election, the term "COMMITTED
LOAN" shall refer to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
"CONSOLIDATED DEBT" means at any date the Debt of the Borrower and its
Consolidated Subsidiaries, determined on a consolidated basis as of such date.
"CONSOLIDATED EBIT" means, for any fiscal period, Consolidated Net
Income (exclusive of the effect of any extraordinary gain (or loss)) for such
period plus, to the extent deducted in determining Consolidated Net Income for
such period, the aggregate amount of (i) Consolidated Interest Expense and (ii)
income tax expense.
"CONSOLIDATED EBITDA" means, for any fiscal period, Consolidated EBIT
for such period plus, to the extent deducted in determining Consolidated Net
Income for such period, the aggregate amount of depreciation, amortization and
other similar non-cash charges.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the interest
expense of the Borrower and its Consolidated Subsidiaries, determined on a
consolidated basis for such period.
"CONSOLIDATED NET INCOME" means, for any fiscal period, the net income
of the Borrower and its Consolidated Subsidiaries, determined on a consolidated
basis for such period. Notwithstanding the foregoing, for purposes of
calculating Consolidated Net Income for any fiscal period ending on or prior to
June 30, 1998, there shall be added to the amount determined in accordance with
the immediately preceding sentence the amount of net income attributable during
such fiscal period to the assets acquired in the NDC Acquisitions (such amount
of net income to be determined in good faith by the Borrower in a manner
consistent with the preparation of the pro forma financial statements included
in the Registration Statement).
"CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements if such statements were prepared as of
such date.
"CONSOLIDATED TANGIBLE NET WORTH" means at any date the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries less
their consolidated Intangible Assets, all determined as of such date. For
purposes of
4
<PAGE> 10
this definition, the term "INTANGIBLE ASSETS" means the amount (to the extent
reflected in determining such consolidated stockholders' equity) of (i) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within twelve
months after the acquisition of such business) subsequent to December 31, 1996
in the book value of any asset owned by the Borrower or a Consolidated
Subsidiary, (ii) all investments in unconsolidated Subsidiaries and all equity
investments in Persons which are not Subsidiaries and (iii) all unamortized debt
discount and expense, unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, anticipated future benefit of tax loss
carry-forwards, copyrights, organization or developmental expenses and other
intangible assets.
"CONTINUING DIRECTOR" means, at any date, an individual (i) who is a
member of the Board of Directors of the Borrower on the Effective Date, (ii) who
has been nominated to be a member of such Board of Directors, directly or
indirectly, by one or more members of the Existing Ownership Group or (iii) who
has been nominated to be a member of such Board of Directors by a majority of
the other Continuing Directors then in office.
"CONTROL" means possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles, (v) all non-contingent
obligations (and, for purposes of Section 5.09 and the definitions of the terms
"MATERIAL DEBT" and "MATERIAL FINANCIAL OBLIGATIONS", all contingent
obligations) of such Person to reimburse any bank or other Person in respect of
amounts paid under a letter of credit or similar instrument, (vi) all Debt
secured by a Lien on any asset of such Person, whether or not such Debt is
otherwise an obligation of such Person and (vii) all Debt of others Guaranteed
by such Person.
"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
5
<PAGE> 11
"DERIVATIVES OBLIGATIONS" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"DOLLARS" and the symbol "$" mean lawful money of the United States of
America.
"DOLLAR AMOUNT" means (i) with respect to any Loan denominated in
Dollars, the outstanding principal amount thereof and (ii) with respect to any
Loan denominated in an Alternative Currency, the Dollar Equivalent of the
outstanding principal amount thereof most recently determined by the Agent
pursuant to Section 2.18.
"DOLLAR EQUIVALENT" means, with respect to any amount of an Alternative
Currency at any date of determination thereof, the equivalent of such amount in
Dollars, calculated on the basis of the arithmetical mean of the buy and sell
spot rates of exchange of the Agent for such Alternative Currency at 10:30 A.M.
(New York City time) on such date of determination (or at such other time as the
Agent may determine to be appropriate for such Alternative Currency).
"DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent, provided that any Bank may so designate
separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and
its CD Loans, on the other hand, in which case all references herein to the
Domestic Lending Office of such Bank shall be deemed to refer to either or both
of such offices, as the context may require.
"DOMESTIC LOANS" means CD Loans or Base Rate Loans or both.
6
<PAGE> 12
"DOMESTIC RESERVE PERCENTAGE" has the meaning set forth in Section
2.08(b).
"EFFECTIVE DATE" means the date this Agreement becomes effective in
accordance with Section 9.09.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
the environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA GROUP" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 (b) or (c) of the
Internal Revenue Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, are treated as a single employer under Section 414 of
the Code.
"EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
Dollar deposits) in London and, if funds are to be transferred in an Alternative
Currency on such date, in the jurisdiction of the Payment Office.
"EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Agent.
"EURO-DOLLAR LOAN" means (i) a Committed Loan which bears interest at a
Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
7
<PAGE> 13
Notice of Interest Rate Election or (ii) an overdue amount which was a
Euro-Dollar Loan immediately before it became overdue.
"EURO-DOLLAR MARGIN" means a rate per annum determined in accordance
with the Pricing Schedule.
"EURO-DOLLAR RATE" means a rate of interest determined pursuant to
Section 2.08(c) on the basis of a London Interbank Offered Rate.
"EURO-DOLLAR REFERENCE BANKS" means the principal London offices of
Bank of Montreal, Bank of America National Trust and Savings Association and
Morgan Guaranty Trust Company of New York.
"EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
"EVENT OF DEFAULT" has the meaning set forth in Section 6.01.
"EXISTING CAPITAL LEASES" means the capital leases described on
Schedule I hereto.
"EXISTING CREDIT AGREEMENT" means the Credit Agreement dated as of July
3, 1996, among the Predecessor, the lenders named therein and Morgan Guaranty
Trust Company of New York, as agent.
"EXISTING OWNERSHIP GROUP" means (i) the Persons listed on Schedule II
hereto, (ii) any Person that directly, or indirectly through one or more
intermediaries, controls any Person listed on Schedule II hereto and (iii) any
Person (other than the Borrower or a Subsidiary) which is controlled by or is
under common control with a Person listed on Schedule II hereto.
"FACILITY FEE RATE" means a rate per annum determined in accordance
with the Pricing Schedule.
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<PAGE> 14
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Agent.
"FIXED RATE LOANS" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.01) or any combination of the foregoing.
"GROUP OF LOANS" means at any time a group of Loans consisting of (i)
all Committed Loans which are Base Rate Loans at such time, (ii) all Euro-Dollar
Loans having the same Interest Period at such time or (iii) all CD Loans having
the same Interest Period at such time, provided that, if a Committed Loan of any
particular Bank is converted to or made as a Base Rate Loan pursuant to Article
8, such Loan shall be included in the same Group or Groups of Loans from time to
time as it would have been in if it had not been so converted or made.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt (whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the holder of such Debt of the
payment thereof or to protect such holder against loss in respect thereof (in
whole or in part), provided that the term "GUARANTEE" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "GUARANTEE" used as a verb has a corresponding meaning.
"HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
9
<PAGE> 15
and other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics.
"INCREASED COMMITMENTS" has the meaning set forth in Section 2.02(a).
"INDEMNITEE" has the meaning set forth in Section 9.03(b).
"INTEREST COVERAGE RATIO" means at any date the ratio of (i)
Consolidated EBIT for the four consecutive fiscal quarters of the Borrower and
its Consolidated Subsidiaries ending on such date to (ii) Consolidated Interest
Expense for such period.
"INTEREST PERIOD" means: (1) with respect to each Euro-Dollar Loan, the
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in the applicable Notice of Interest Rate
Election and ending one, two, three or six months thereafter, as the Borrower
may elect in the applicable notice, provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall, subject to clause (c)
below, be extended to the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls in another calendar month,
in which case such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(2) with respect to each CD Loan, the period commencing on the date of
borrowing specified in the applicable Notice of Borrowing or on the date
specified in the applicable Notice of Interest Rate Election and ending 30, 60,
90 or 180 days thereafter, as the Borrower may elect in the applicable notice,
provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b) below) which would otherwise end on a
day which
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<PAGE> 16
is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(3) with respect to each Money Market LIBOR Loan, the period commencing
on the date of borrowing specified in the applicable Notice of Borrowing and
ending such whole number of months thereafter as the Borrower may elect in
accordance with Section 2.04, provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall, subject to clause (c)
below, be extended to the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls in another calendar month,
in which case such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(4) with respect to each Money Market Absolute Rate Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending such number of days thereafter (but not less than 30 days)
as the Borrower may elect in accordance with Section 2.04, provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall, subject to clause (b)
below, be extended to the next succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
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<PAGE> 17
"ISSUING BANK" means Morgan Guaranty Trust Company of New York or any
other Bank that may agree to issue letters of credit hereunder, in each case as
issuer of letters of credit hereunder.
"LETTER OF CREDIT" means a standby letter of credit to be issued
hereunder by an Issuing Bank.
"LETTER OF CREDIT FEE RATE" means a rate per annum determined in
accordance with the Pricing Schedule.
"LETTER OF CREDIT LIABILITIES" means, for any Bank and at any time, the
sum of (i) the amounts then owing to such Bank (including in its capacity as an
Issuing Bank) by the Borrower to reimburse it in respect of amounts drawn under
Letters of Credit and (ii) such Bank's ratable participation in the aggregate
amount then available for drawing under all Letters of Credit.
"LIBOR AUCTION" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.04.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"LOAN" means a Domestic Loan, a Euro-Dollar Loan or a Money Market
Loan and "LOANS" means Domestic Loans, Euro-Dollar Loans or Money Market
Loans or any combination of the foregoing.
"LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section
2.08(c).
"MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
business, financial condition or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole, (ii) the ability of the
Borrower to perform its obligations under the terms of this Agreement and the
Notes or (iii) the rights and obligations of the Agent and the Banks under this
Agreement and the Notes.
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<PAGE> 18
"MATERIAL DEBT" means Debt (other than the Notes) of the Borrower
and/or one or more of its Subsidiaries, arising in one or more related or
unrelated transactions, in an aggregate principal or face amount exceeding
$10,000,000.
"MATERIAL FINANCIAL OBLIGATIONS" means a principal or face amount of
Debt and/or payment or collateralization obligations in respect of Derivatives
Obligations of the Borrower and/or one or more of its Subsidiaries, arising in
one or more related or unrelated transactions, exceeding in the aggregate
$25,000,000. For purposes of determining Material Financial Obligations at any
time, the "principal or face amount" of the obligations of the Borrower or any
Subsidiary in respect of any Derivative Obligations at such time shall be the
maximum aggregate amount (giving effect to any netting agreements) that the
Borrower or such Subsidiary would be required to pay if such Derivative
Obligations were terminated at such time.
"MATERIAL PLAN" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $10,000,000.
"MONEY MARKET ABSOLUTE RATE" has the meaning set forth in Section
2.04(d).
"MONEY MARKET ABSOLUTE RATE LOAN" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.
"MONEY MARKET LENDING OFFICE" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Agent, provided that any Bank may from time to time by notice to the
Borrower and the Agent designate separate Money Market Lending Offices for its
Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate
Loans, on the other hand, or for its Money Market Loans in any particular
currency, in which case all references herein to the Money Market Lending Office
of such Bank shall be deemed to refer to any or all of such offices, as the
context may require.
"MONEY MARKET LIBOR LOAN" means a loan to be made by a Bank pursuant to
a LIBOR Auction (including such a loan bearing interest at the Base Rate
pursuant to Section 8.01).
"MONEY MARKET LOAN" means a Money Market LIBOR Loan or a Money
Market Absolute Rate Loan.
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<PAGE> 19
"MONEY MARKET MARGIN" has the meaning set forth in Section
2.04(d)(ii)(C).
"MONEY MARKET QUOTE" means an offer by a Bank to make a Money Market
Loan in accordance with Section 2.04.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"NDC ACQUISITIONS" means the acquisitions by the Borrower and its
Subsidiaries of the assets of the NDCs.
"NDCs" means collectively Apollo Travel Services Partnership,
Traviswiss AG and Galileo Nederland B.V.
"NOTES" means promissory notes of the Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "NOTE" means any one of such promissory notes issued hereunder.
"NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined
in Section 2.03) or a Notice of Money Market Borrowing (as defined in Section
2.04(f)).
"NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section
2.11.
"NOTICE OF ISSUANCE" has the meaning set forth in Section 2.20(b).
"ORDINARY VOTING STOCK" means common stock or other voting securities
of the Borrower (other than the Special Voting Preferred Stock).
"PARENT" means, with respect to any Bank, any Person controlling such
Bank.
"PARTICIPANT" has the meaning set forth in Section 9.06(b).
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<PAGE> 20
"PAYMENT OFFICE" means the office or account of the Agent at or to
which payments hereunder are to be made, which shall be, in the case of payments
in Dollars, the office of the Agent referred to in Section 9.01 and, in the case
of payments in an Alternative Currency, such office or account as the Agent may
specify for such purpose by notice to the Borrower and the Banks.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERSON" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"PLAN" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"PREDECESSOR" means Galileo International Partnership, a Delaware
general partnership.
"PRICING SCHEDULE" means (i) Pricing Schedule A attached hereto, unless
and until the Borrower shall have elected that Pricing Schedule B attached
hereto be the Pricing Schedule, such election to be effected by the giving by
the Borrower of not less than five Domestic Business Days' notice to the Agent
of the effective date of such election, and (ii) on and after the effective date
of such election, Pricing Schedule B attached hereto. Such election, if made,
shall be irrevocable.
"PRIME RATE" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"QUARTERLY DATE" means each March 31, June 30, September 30 and
December 31.
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<PAGE> 21
"REFERENCE BANKS" means the CD Reference Banks or the Euro-Dollar
Reference Banks, as the context may require, and "REFERENCE BANK" means any one
of such Reference Banks.
"REGISTRATION STATEMENT" means the Borrower's Registration Statement on
Form S-1, filed on May 20, 1997, with the Securities and Exchange Commission
under the Securities Act of 1933, as such Registration Statement may be amended
prior to the Effective Date.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REQUIRED BANKS" means at any time Banks having more than 50% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing more than 50% of the aggregate unpaid
principal amount of the Loans.
"RESTRICTED PAYMENT" means (a) any dividend or other distribution on
any shares of the Borrower's capital stock (except dividends payable solely in
shares of its capital stock or rights to receive shares of its capital stock) or
(b) any payment on account of the purchase, redemption, retirement or
acquisition of (i) any shares of the Borrower's capital stock or (ii) any
option, warrant or other right to acquire shares of the Borrower's capital stock
(but not including payments of principal, premium (if any) or interest made
pursuant to the terms of convertible debt securities prior to conversion).
"REVOLVING CREDIT PERIOD" means the period from and including the
Effective Date to but not including the Termination Date.
"S&P" means Standard & Poor's Rating Services.
"SUBSIDIARY" means, as to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, the term "SUBSIDIARY" means a Subsidiary of the Borrower.
"TERMINATION DATE" means July 23, 2002, or, if such day is not a
Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless
such Euro-Dollar Business Day falls in another calendar month in which case the
Termination Date shall be the next preceding Euro-Dollar Business Day.
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"TRANSACTION DOCUMENTS" means the documents listed on Schedule III
hereto.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"UNITED STATES" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks, provided that, if the Borrower notifies the Agent that the
Borrower wishes to amend any covenant in Article 5 to eliminate the effect of
any change in generally accepted accounting principles on the operation of such
covenant (or if the Agent notifies the Borrower that the Required Banks wish to
amend Article 5 for such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of generally accepted accounting
principles in effect immediately before the relevant change in generally
accepted accounting principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Borrower
and the Required Banks. Calculations with respect to periods commencing prior to
the Closing Date shall be made as if the Predecessor were the Borrower.
SECTION 1.03. Types of Borrowings. The term "BORROWING" denotes the
aggregation of Loans of one or more Banks to be made to the Borrower pursuant to
Article 2 on the same date, all of which Loans are of the same type (subject to
Article 8) and, except in the case of Base Rate Loans, have the same initial
Interest Period. Borrowings are classified for purposes of this Agreement either
by reference to the pricing of Loans comprising such Borrowing (e.g., a "FIXED
RATE
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BORROWING" is a Euro-Dollar Borrowing, a CD Borrowing or a Money Market
Borrowing (excluding any such Borrowing consisting of Money Market LIBOR Loans
bearing interest at the Base Rate pursuant to Section 8.01), and a "EURO-DOLLAR
BORROWING" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the
provisions of Article 2 under which participation therein is determined (i.e., a
"COMMITTED BORROWING" is a Borrowing under Section 2.01 in which all Banks
participate in proportion to their Commitments, while a "MONEY MARKET BORROWING"
is a Borrowing under Section 2.04 in which the Bank participants are determined
on the basis of their bids in accordance therewith).
ARTICLE 2
THE CREDITS
SECTION 2.01. Commitments to Lend. During the Revolving Credit Period,
each Bank severally agrees, on the terms and conditions set forth in this
Agreement, to make loans to the Borrower pursuant to this Section from time to
time in amounts such that the aggregate principal amount of Committed Loans by
such Bank and Letter of Credit Liabilities of such Bank at any one time
outstanding shall not exceed the amount of its Commitment. Each Borrowing under
this Section shall be in Dollars and be in an aggregate principal amount of
$10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing
may be in the aggregate amount available in accordance with Section 3.02) and
shall be made from the several Banks ratably in proportion to their respective
Commitments. Within the foregoing limits, the Borrower may borrow under this
Section, prepay Loans to the extent permitted by Section 2.13 and reborrow at
any time during the Revolving Credit Period under this Section.
SECTION 2.02. Increased Commitments; Additional Banks. (a) Subsequent
to the Effective Date, the Borrower may, upon at least 30 days' notice to the
Agent (which shall promptly provide a copy of such notice to the Banks), propose
to increase the aggregate amount of the Commitments to an amount not to exceed
$500,000,000 (the amount of any such increase, the "INCREASED COMMITMENTS").
Each Bank party to this Agreement at such time shall have the right (but no
obligation), for a period of 15 days following receipt of such notice, to elect
by notice to the Borrower and the Agent to increase its Commitment by a
principal amount which bears the same ratio to the Increased Commitments as its
then Commitment bears to the aggregate Commitments then existing, provided that
no increase in the aggregate amount of the Commitments shall be effective unless
Banks having more than 50% of in the aggregate amount of the
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<PAGE> 24
Commitments in effect at the time any such increase is requested shall have
elected so to increase their Commitments.
(b) If any Bank party to this Agreement shall not elect to increase
its Commitment pursuant to subsection (a) of this Section, the Borrower may
designate another bank or other banks (which may be, but need not be, one or
more of the existing Banks) which at the time agree to (i) in the case of any
such bank that is an existing Bank, increase its Commitment and (ii) in the case
of any other such bank (an "ADDITIONAL BANK"), become a party to this Agreement.
The sum of the increases in the Commitments of the existing Banks pursuant to
this subsection (b) plus the Commitments of the Additional Banks shall not in
the aggregate exceed the unsubscribed amount of the Increased Commitments.
(c) An increase in the aggregate amount of the Commitments pursuant to
this Section 2.02 shall become effective upon the receipt by the Agent of an
agreement in form and substance satisfactory to the Agent signed by the
Borrower, by each Additional Bank and by each other Bank whose Commitment is to
be increased, setting forth the new Commitments of such Banks and setting forth
the agreement of each Additional Bank to become a party to this Agreement and to
be bound by all the terms and provisions hereof, together with such evidence of
appropriate corporate authorization on the part of the Borrower with respect to
the Increased Commitments and such opinions of counsel for the Borrower with
respect to the Increased Commitments as the Agent may reasonably request.
SECTION 2.03. Notice of Committed Borrowing. The Borrower shall give
the Agent notice (a "NOTICE OF COMMITTED BORROWING") not later than 10:30 A.M.
(New York City time) on (x) the date of each Base Rate Borrowing, (y) the second
Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar
Business Day before each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business Day
in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of
a Euro-Dollar Borrowing;
(b) the aggregate amount of such Borrowing;
(c) whether the Loans comprising such Borrowing are to bear interest
initially at the Base Rate, a CD Rate or a Euro-Dollar Rate; and
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(d) in the case of a Fixed Rate Borrowing, the duration of the initial
Interest Period applicable thereto, subject to the provisions of the definition
of Interest Period.
SECTION 2.04. Money Market Borrowings. (a) The Money Market Option. In
addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as
set forth in this Section, request the Banks during the Revolving Credit Period
to make offers to make Money Market Loans to the Borrower in Dollars or in an
Alternative Currency. The Banks may, but shall have no obligation to, make such
offers and the Borrower may, but shall have no obligation to, accept any such
offers in the manner set forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes to request
offers to make Money Market Loans under this Section, it shall transmit to the
Agent by telex or facsimile transmission a Money Market Quote Request
substantially in the form of Exhibit B hereto so as to be received not later
than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day
prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction
or (y) the Domestic Business Day next preceding the date of Borrowing proposed
therein, in the case of an Absolute Rate Auction (or, in either case, such other
time or date as the Borrower and the Agent shall have mutually agreed and shall
have notified to the Banks not later than the date of the Money Market Quote
Request for the first LIBOR Auction or Absolute Rate Auction for which such
change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a
Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic
Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $1,000,000 (or, in the case of a
Borrowing to be denominated in an Alternative Currency, a comparable
amount of such Alternative Currency as determined by the Agent),
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of the term "INTEREST
PERIOD",
(iv) whether the Money Market Quotes requested are to set
forth a Money Market Margin or a Money Market Absolute Rate, and
(v) if the related Money Market Loans are to be denominated in
an Alternative Currency, such Alternative Currency. Money Market Loans
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<PAGE> 26
denominated in an Alternative Currency shall be made available in such
currency and repaid, together with interest thereon, in such currency.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Agent may agree) of any other Money
Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a
Money Market Quote Request, the Agent shall send to the Banks by telex or
facsimile transmission an Invitation for Money Market Quotes substantially in
the form of Exhibit C hereto, which shall constitute an invitation by the
Borrower to each Bank to submit Money Market Quotes offering to make the Money
Market Loans to which such Money Market Quote Request relates in accordance with
this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each Bank may
submit a Money Market Quote containing an offer or offers to make Money Market
Loans in response to any Invitation for Money Market Quotes. Each Money Market
Quote must comply with the requirements of this subsection (d) and must be
submitted to the Agent by telex or facsimile transmission at its offices
specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York
City time) on the fourth Euro-Dollar Business Day prior to the proposed date of
Borrowing, in the case of a LIBOR Auction, or (y) 9:30 A.M. (New York City time)
on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or,
in either case, such other time or date as the Borrower and the Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective), provided that Money Market
Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of
a Bank may be submitted, and may only be submitted, if the Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) one hour prior to the deadline for the other Banks,
in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the
other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and
6, any Money Market Quote so made shall be irrevocable except with the written
consent of the Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be in substantially the form of
Exhibit D hereto and shall in any case specify:
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(A) the proposed date of Borrowing;
(B) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount
(w) may be greater than or less than the Commitment of the
quoting Bank, (x) must be $5,000,000 or a larger multiple of
$1,000,000 (or, in the case of a Borrowing to be denominated
in an Alternative Currency, a comparable amount of such
Alternative Currency as determined by the Agent), (y) may not
exceed the principal amount of Money Market Loans for which
offers were requested and (z) may be subject to an aggregate
limitation as to the principal amount of Money Market Loans
for which offers being made by such quoting Bank may be
accepted;
(C) in the case of a LIBOR Auction, the margin above or
below the applicable London Interbank Offered Rate (the "MONEY
MARKET MARGIN") offered for each such Money Market Loan,
expressed as a percentage (specified to the nearest 1/10,000th
of 1%) to be added to or subtracted from such base rate;
(D) in the case of an Absolute Rate Auction, the rate of
interest per annum (specified to the nearest 1/10,000th of 1%)
(the "MONEY MARKET ABSOLUTE RATE") offered for each such Money
Market Loan; and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D
hereto or does not specify all of the information required by
subsection 2.04(d)(ii) above;
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set
forth in the applicable Invitation for Money Market Quotes; or
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(D) arrives after the time set forth in subsection
2.04(d)(i).
(e) Notice to Borrower. The Agent shall promptly notify the Borrower
of the terms (x) of any Money Market Quote submitted by a Bank that is in
accordance with subsection 2.04(d) and (y) of any Money Market Quote that
amends, modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request. Any
such subsequent Money Market Quote shall be disregarded by the Agent unless such
subsequent Money Market Quote is submitted solely to correct a manifest error in
such former Money Market Quote. The Agent's notice to the Borrower shall specify
(A) the aggregate principal amount of Money Market Loans for which offers have
been received for each Interest Period specified in the related Money Market
Quote Request, (B) the respective principal amounts and Money Market Margins or
Money Market Absolute Rates, as the case may be, so offered and (C) if
applicable, limitations on the aggregate principal amount of Money Market Loans
for which offers in any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New
York City time) on (x) the third Euro-Dollar Business Day prior to the proposed
date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of
Borrowing, in the case of an Absolute Rate Auction (or, in either case, such
other time or date as the Borrower and the Agent shall have mutually agreed and
shall have notified to the Banks not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective), the Borrower shall notify the Agent of its
acceptance or non-acceptance of the offers so notified to it pursuant to
subsection 2.04(e). In the case of acceptance, such notice (a "NOTICE OF MONEY
MARKET BORROWING") shall specify the aggregate principal amount of offers for
each Interest Period that are accepted. The Borrower may accept any Money Market
Quote in whole or in part, provided that:
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the related
Money Market Quote Request;
(ii) the principal amount of each Money Market Borrowing must
be $10,000,000 or a larger multiple of $1,000,000 (or in the case of a
Borrowing to be denominated in an Alternative Currency, a comparable
amount of such Alternative Currency as determined by the Agent);
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(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as the
case may be; and
(iv) the Borrower may not accept any offer that is described
in subsection 2.04(d)(iii) or that otherwise fails to comply in any
material respect with the requirements of this Agreement.
(g) Allocation by Agent. If offers are made by two or more Banks with
the same Money Market Margins or Money Market Absolute Rates, as the case may
be, for a greater aggregate principal amount than the amount in respect of which
such offers are accepted for the related Interest Period, the principal amount
of Money Market Loans in respect of which such offers are accepted shall be
allocated by the Agent among such Banks as nearly as possible (in multiples of
$1,000,000 (or, in the case of a Borrowing to be denominated in an Alternative
Currency, a comparable amount of such Alternative Currency as determined by the
Agent), as the Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Determinations by the Agent of the amounts of
Money Market Loans shall be conclusive in the absence of manifest error.
SECTION 2.05. Notice to Banks; Funding of Loans. (a) Upon receipt of a
Notice of Borrowing, the Agent shall promptly notify each Bank of the contents
thereof and of such Bank's share (if any) of such Borrowing and such Notice of
Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing (or, in the case of payments in an Alternative Currency, such other
time as the Agent may determine to be customary for payments in such Alternative
Currency), each Bank participating therein shall make available its share of
such Borrowing, (i) in the case of payments in Dollars, in Federal or other
funds immediately available in New York City, and (ii) in the case of payments
in an Alternative Currency, in such funds as are at the time customary for the
international settlement of payments in such currency, to the Agent at the
Payment Office. Unless the Agent determines that any applicable condition
specified in Article 3 has not been satisfied, the Agent will make the funds so
received from the Banks available to the Borrower at the Payment Office.
(c) Unless the Agent shall have received notice from a Bank prior to
the date of any Borrowing that such Bank will not make available to the Agent
such Bank's share of such Borrowing, the Agent may assume that such Bank has
made such share available to the Agent on the date of such Borrowing in
accordance with subsection 2.05(b) of this Section and the Agent may, in
reliance upon such
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assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Bank shall not have so made such share available
to the Agent, such Bank and the Borrower severally agree to repay to the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Borrower until
the date such amount is repaid to the Agent, at the Federal Funds Rate (or, in
the case of Money Market Loans denominated in an Alternative Currency, a
comparable overnight rate for such Alternative Currency as determined by the
Agent). If such Bank shall repay to the Agent such corresponding amount, such
amount so repaid shall constitute such Bank's Loan included in such Borrowing
for purposes of this Agreement.
SECTION 2.06. Notes. (a) The Loans of each Bank shall be evidenced by a
single Note payable to the order of such Bank for the account of its Applicable
Lending Office in an amount equal to the aggregate unpaid principal amount of
such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the Agent, request
that its Loans of a particular type or in a particular currency be evidenced by
a separate Note in an amount equal to the aggregate unpaid principal amount of
such Loans. Each such Note shall be in substantially the form of Exhibit A
hereto with appropriate modifications to reflect the fact that it evidences
solely Loans of the relevant type or in the relevant currency. Each reference in
this Agreement to the "NOTE" of such Bank shall be deemed to refer to and
include any or all of such Notes, as the context may require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.01(a), the
Agent shall forward such Note to such Bank. Each Bank shall record the date,
amount, currency and type of each Loan made by it and the date and amount of
each payment of principal made by the Borrower with respect thereto, and may, if
such Bank so elects in connection with any transfer or enforcement of its Note,
endorse on the schedule forming a part thereof appropriate notations to evidence
the foregoing information with respect to each such Loan then outstanding,
provided that the failure of any Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to
endorse its Note and to attach to and make a part of its Note a continuation of
any such schedule as and when required.
SECTION 2.07. Maturity of Loans. (a) Each Committed Loan shall mature,
and the principal amount thereof shall be due and payable, together with accrued
interest thereon, on the Termination Date.
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(b) Each Money Market Loan included in any Money Market Borrowing
shall mature, and the principal amount thereof shall be due and payable,
together with accrued interest thereon, on the last day of the Interest Period
applicable to such Borrowing.
SECTION 2.08. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from and
including the date such Loan is made to but excluding the date on which such
Loan becomes due, at a rate per annum equal to the Base Rate for such day. Such
interest shall be payable quarterly in arrears on each Quarterly Date and, with
respect to the principal amount of any Base Rate Loan converted to a CD Loan or
a Euro-Dollar Loan, on each date a Base Rate Loan is so converted. Any overdue
principal of or interest on any Base Rate Loan shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to the sum of 2% plus
the rate otherwise applicable to Base Rate Loans for such day.
(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the CD Margin for such day plus the
Adjusted CD Rate applicable to such Interest Period, provided that if any CD
Loan shall, as a result of clause (2)(b) of the definition of the term "INTEREST
PERIOD", have an Interest Period of less than 30 days, such CD Loan shall bear
interest during such Interest Period at the rate applicable to Base Rate Loans
during such period. Such interest shall be payable for each Interest Period on
the last day thereof and, if such Interest Period is longer than 90 days, at
intervals of 90 days after the first day thereof. Any overdue principal of or
interest on any CD Loan shall bear interest, payable on demand, for each day
until paid at a rate per annum equal to the sum of 2% plus the higher of (i) the
rate applicable to Base Rate Loans for such day and (ii) the sum of the CD
Margin plus the Adjusted CD Rate applicable to such Loan at the date such
payment was due.
The "ADJUSTED CD RATE" applicable to any Interest Period means a rate
per annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
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- ----------
*The amount in brackets being rounded upward, if necessary, to the next
higher 1/100 of 1%
The "CD BASE RATE" applicable to any Interest Period is the rate of
interest determined by the Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid
at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the
first day of such Interest Period by two or more New York certificate of deposit
dealers of recognized standing for the purchase at face value from each CD
Reference Bank of its certificates of deposit in an amount comparable to the
principal amount of the CD Loan of such CD Reference Bank to which such Interest
Period applies and having a maturity comparable to such Interest Period.
"DOMESTIC RESERVE PERCENTAGE" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without limitation, any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
"ASSESSMENT RATE" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.4(a) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the United
States. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
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The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in Dollars are offered to
each of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such
day plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/16 of 1%) of the respective rates per annum at which one day (or,
if such amount due remains unpaid more than three Euro-Dollar Business Days,
then for such other period of time not longer than three months as the Agent may
select) deposits in Dollars in an amount approximately equal to such overdue
payment due to each of the Euro-Dollar Reference Banks are offered to such
Euro-Dollar Reference Bank in the London interbank market for the applicable
period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve
Percentage (or, if the circumstances described in clause 8.01(a) or 8.01(b)
shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable
to Base Rate Loans for such day) and (ii) the sum of 2% plus the Euro-Dollar
Margin for such day plus the London Interbank Offered Rate applicable to such
Loan at the date such payment was due.
(e) Subject to Section 8.01, each Money Market LIBOR Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the London Interbank
Offered Rate for such Interest Period (determined in accordance with Section
2.08(c) as if the related Money Market LIBOR Borrowing were a Committed
Euro-Dollar Borrowing and, in the case of a Borrowing in an Alternative
Currency, based on the comparable quotations for such Alternative Currency
rather than for Dollars) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in accordance with Section 2.04. Each Money Market
Absolute Rate Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the Money Market Absolute Rate quoted by the Bank making such Loan in
accordance with Section 2.04. Such interest shall be payable for each Interest
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Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof. Any overdue
principal of or interest on any Money Market Loan shall bear interest, payable
on demand, for each day until paid (i) in the case of Money Market Loans
denominated in Dollars, at a rate per annum equal to the sum of 2% plus the Base
Rate for such day and (ii) in the case of Money Market Loans denominated in an
Alternative Currency, at a rate per annum determined in accordance with Section
2.08(d) as if such Money Market Loans were Euro-Dollar Loans, but based on
comparable quotations for such Alternative Currency rather than for Dollars.
(f) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrower and the
participating Banks of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Agent as contemplated by this Section. If any Reference Bank
does not furnish a timely quotation, the Agent shall determine the relevant
interest rate on the basis of the quotation or quotations furnished by the
remaining Reference Bank or Banks or, if none of such quotations is available on
a timely basis, the provisions of Section 8.01 shall apply.
SECTION 2.09. Fees. (a) The Borrower shall pay to the Agent for the
account of the Banks ratably a facility fee at the Facility Fee Rate (determined
daily in accordance with the Pricing Schedule). Such facility fee shall accrue
(i) from and including the Effective Date to but excluding the date of
termination of the Commitments in their entirety, on the daily aggregate amount
of the Commitments (whether used or unused) and (ii) from and including such
date of termination to but excluding the date the Loans and Letter of Credit
Liabilities shall be repaid in their entirety, on the daily aggregate
outstanding principal amount of the Loans and Letter of Credit Liabilities.
(b) The Borrower shall pay to the Agent (i) for the account of the
Banks ratably a letter of credit fee accruing daily on the aggregate amount then
available for drawing under all Letters of Credit at the Letter of Credit Fee
Rate (determined daily in accordance with the Pricing Schedule) and (ii) for the
account of each Issuing Bank a letter of credit fronting fee accruing daily on
the aggregate amount then available for drawing under all Letters of Credit
issued by such Issuing Bank at a rate per annum mutually agreed from time to
time by the Borrower and such Issuing Bank.
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(c) Accrued fees under this Section shall be payable quarterly in
arrears on each Quarterly Date and on the date of termination of the Commitments
in their entirety (and, if later, the date the Loans and Letter of Credit
Liabilities shall be repaid in their entirety).
SECTION 2.10. Optional Termination or Reduction of Commitments. During
the Revolving Credit Period, the Borrower may, upon at least three Domestic
Business Days' notice to the Agent, (i) terminate the Commitments at any time,
if no Loans or Letter of Credit Liabilities are outstanding at such time or (ii)
ratably reduce from time to time by an aggregate amount of $10,000,000 or a
larger multiple of $1,000,000, the aggregate amount of the Commitments in excess
of the aggregate outstanding principal amount of the Loans and Letter of Credit
Liabilities.
SECTION 2.11. Method of Electing Interest Rates. (a) The Loans included
in each Committed Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the applicable Notice of Committed Borrowing.
Thereafter, the Borrower may from time to time elect to change or continue the
type of interest rate borne by each Group of Loans (subject in each case to the
provisions of Article 8 and the last sentence of this subsection (a)), as
follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect
to convert such Loans to CD Loans as of any Domestic Business Day or to
Euro-Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are CD Loans, the Borrower may elect to
convert such Loans to Base Rate Loans or Euro-Dollar Loans or elect to
continue such Loans as CD Loans for an additional Interest Period,
subject to Section 2.15 in the case of any such conversion or
continuation effective on any day other than the last day of the then
current Interest Period applicable to such Loans; and
(iii) if such Loans are Euro-Dollar Loans, the Borrower may
elect to convert such Loans to Base Rate Loans or CD Loans or elect to
continue such Loans as Euro-Dollar Loans for an additional Interest
Period, subject to Section 2.15 in the case of any such conversion or
continuation effective on any day other than the last day of the then
current Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST
RATE ELECTION") to the Agent not later than 10:30 A.M. (New York City time) on
the third Euro-Dollar Business Day before the conversion or continuation
selected
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in such notice is to be effective (unless the relevant Loans are to be converted
to Domestic Loans of the other type or are CD Rate Loans to be continued as CD
Rate Loans for an additional Interest Period, in which case such notice shall be
delivered to the Agent not later than 10:30 A.M. (New York City time) on the
second Domestic Business Day before such conversion or continuation is to be
effective). A Notice of Interest Rate Election may, if it so specifies, apply to
only a portion of the aggregate principal amount of the relevant Group of Loans,
provided that (i) such portion is allocated ratably among the Loans comprising
such Group and (ii) the portion to which such Notice applies, and the remaining
portion to which it does not apply, are each $5,000,000 or any larger multiple
of $1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such
notice applies;
(ii) the date on which the conversion or continuation selected
in such notice is to be effective, which shall comply with the
applicable clause of subsection 2.11(a) above;
(iii) if the Loans comprising such Group are to be converted,
the new type of Loans and, if the Loans being converted are to be Fixed
Rate Loans, the duration of the next succeeding Interest Period
applicable thereto; and
(iv) if such Loans are to be continued as CD Loans or
Euro-Dollar Loans for an additional Interest Period, the duration of
such additional Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of the term "INTEREST PERIOD".
(c) Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to subsection 2.11(a) above, the Agent shall promptly notify
each Bank of the contents thereof and such notice shall not thereafter be
revocable by the Borrower. If no Notice of Interest Rate Election is timely
received prior to the end of an Interest Period for any Group of Loans, the
Borrower shall be deemed to have elected that such Group of Loans be converted
to Base Rate Loans as of the last day of such Interest Period.
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(d) An election by the Borrower to change or continue the rate of
interest applicable to any Group of Loans pursuant to this Section shall not
constitute a "BORROWING" subject to the provisions of Section 3.02.
SECTION 2.12. Mandatory Termination of Commitments. The Commitments
shall terminate on the Termination Date and any Loans then outstanding (together
with accrued interest thereon) shall be due and payable on such date.
SECTION 2.13. Optional Prepayments. (a) Subject in the case of any
Fixed Rate Loan to Section 2.15, the Borrower may, upon at least one Domestic
Business Day's notice to the Agent, prepay any Group of Domestic Loans (or any
Money Market Borrowing bearing interest at the Base Rate pursuant to Section
8.01) or upon at least three Euro-Dollar Business Days' notice to the Agent,
prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or
from time to time in part in amounts aggregating $10,000,000 or any larger
multiple of $1,000,000, by paying the principal amount to be prepaid together
with accrued interest thereon to the date of prepayment. Each such optional
prepayment shall be applied to prepay ratably the Loans of the several Banks
included in such Group (or Borrowing).
(b) Except as provided in subsection 2.13(a) above the Borrower may
not prepay all or any portion of the principal amount of any Money Market Loan
prior to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Agent shall promptly notify each Bank of the contents thereof and of such
Bank's ratable share (if any) of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.14. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) (or, in the case of
payments in an Alternative Currency, such other time as the Agent may determine
to be customary for payments in such Alternative Currency) on the date when due,
(i) in the case of payments in Dollars, in Federal or other funds immediately
available in New York City and (ii) in the case of payments in an Alternative
Currency, in such funds as are at the time customary for the international
settlement of payments in such currency, to the Agent at the Payment Office. The
Agent will promptly distribute to each Bank its ratable share of each such
payment received by the Agent for the account of the Banks. Whenever any payment
of principal of, or interest on, the Domestic Loans or of fees shall be due
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on a day which is not a Domestic Business Day, the date for payment thereof
shall be extended to the next succeeding Domestic Business Day. Whenever any
payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a
day which is not a Euro-Dollar Business Day, the date for payment thereof shall
be extended to the next succeeding Euro-Dollar Business Day unless such
Euro-Dollar Business Day falls in another calendar month, in which case the date
for payment thereof shall be the next preceding Euro-Dollar Business Day.
Whenever any payment of principal of, or interest on, the Money Market Loans
shall be due on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day. If the date for any payment of principal is extended by operation of law or
otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Banks hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent that the Borrower shall not have so made such payment, each Bank shall
repay to the Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate (or, in the case of Money Market Loans
denominated in an Alternative Currency, a comparable overnight rate for such
Alternative Currency as determined by the Agent).
SECTION 2.15. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the
last day of an Interest Period applicable thereto, or the last day of an
applicable period fixed pursuant to Section 2.08(d), or if the Borrower fails to
borrow, prepay, convert or continue any Fixed Rate Loans after notice has been
given to any Bank in accordance with Section 2.05(a), 2.13(c) or 2.11(c), the
Borrower shall reimburse each Bank within 15 Domestic Business Days after demand
for any resulting loss or expense incurred by it (or by an existing or
prospective Participant in the related Loan), including (without limitation) any
loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment or
conversion or failure to borrow, prepay, convert or continue, provided that such
Bank shall have delivered to the Borrower and the Agent a certificate as to the
amount of such loss or expense, which certificate shall set forth the method of
determining such loss or
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expense in reasonable detail and shall be conclusive in the absence of manifest
error.
SECTION 2.16. Computation of Interest and Fees. Interest based on the
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.17. Regulation D Compensation. Each Bank may require the
Borrower to pay, contemporaneously with each payment of interest on the
Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such
Bank at a rate per annum determined by such Bank up to but not exceeding the
excess of (i) (A) the applicable London Interbank Offered Rate divided by (B)
one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London
Interbank Offered Rate. Any Bank wishing to require payment of such additional
interest (x) shall so notify the Borrower and the Agent, in which case such
additional interest on the Euro-Dollar Loans of such Bank shall be payable to
such Bank at the place indicated in such notice with respect to each Interest
Period commencing at least three Euro-Dollar Business Days after the giving of
such notice and (y) shall notify the Borrower at least five Euro-Dollar Business
Days prior to each date on which interest is payable on the Euro-Dollar Loans of
the amount then due it under this Section.
SECTION 2.18. Currency Translations. The Dollar Amount of each Money
Market Loan denominated in an Alternative Currency shall be determined by the
Agent (i) on the date of borrowing, as to each such Loan borrowed on such date,
and (ii) on each Quarterly Date, as to each such Loan outstanding on such date.
If after giving effect to any such determination pursuant to clause (ii), the
sum of the aggregate Dollar Amount of the Loans and the aggregate Letter of
Credit Liabilities exceeds the aggregate amount of the Commitments, the Borrower
shall prepay such principal amount (together with accrued interest thereon) of
the outstanding Committed Loans, if any Committed Loans are then outstanding, as
may be necessary to eliminate such excess. Such prepayment shall be made (x) on
the next succeeding Domestic Business Day, with respect to any Base Rate Loans
then outstanding and (y) at the end of the then current Interest Period
applicable thereto, with respect to any Euro-Dollar Loans or CD Loans then
outstanding.
SECTION 2.19. Judgment Currency. If for the purpose of obtaining
judgment in any court it is necessary to convert a sum due from the Borrower
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hereunder or under any of the Notes in the currency expressed to be payable
herein or under the Notes (the "SPECIFIED CURRENCY") into another currency, the
parties hereto agree, to the fullest extent that they may effectively do so,
that the rate of exchange used shall be that at which in accordance with normal
banking procedures the Agent could purchase the specified currency with such
other currency at the Agent's New York office on the Euro-Dollar Business Day
preceding that on which final judgment is given. The obligations of the Borrower
in respect of any sum due to any Bank or the Agent hereunder or under any Note
shall, notwithstanding any judgment in a currency other than the specified
currency, be discharged only to the extent that on the Euro-Dollar Business Day
following receipt by such Bank or the Agent (as the case may be) of any sum
adjudged to be so due in such other currency such Bank or the Agent (as the case
may be) may in accordance with normal banking procedures purchase the specified
currency with such other currency; if the amount of the specified currency so
purchased is less than the sum originally due to such Bank or the Agent, as the
case may be, in the specified currency, the Borrower agrees, to the fullest
extent that it may effectively do so, as a separate obligation and
notwithstanding any such judgment, to indemnify such Bank or the Agent, as the
case may be, against such loss, and if the amount of the specified currency so
purchased exceeds (a) the sum originally due to any Bank or the Agent, as the
case may be, in the specified currency and (b) any amounts shared with other
Banks as a result of allocations of such excess as a disproportionate payment to
such Bank under Section 9.04, such Bank or the Agent, as the case may be, agrees
to remit such excess to the Borrower.
SECTION 2.20. Letters of Credit. (a) Subject to the terms and
conditions hereof, each Issuing Bank agrees to issue standby letters of credit
hereunder denominated in Dollars from time to time before the fifth Domestic
Business Day prior to the Termination Date upon the request of the Borrower (the
"LETTERS OF CREDIT"), provided that, immediately after each Letter of Credit is
issued, (i) the aggregate amount of the Letter of Credit Liabilities shall not
exceed $100,000,000 and (ii) the aggregate amount of the Letter of Credit
Liabilities plus the aggregate outstanding amount of all Loans shall not exceed
the aggregate amount of the Commitments. Upon the date of issuance by an Issuing
Bank of a Letter of Credit, the Issuing Bank shall be deemed, without further
action by any party hereto, to have sold to each Bank, and each Bank shall be
deemed, without further action by any party hereto, to have purchased from the
Issuing Bank, a participation in such Letter of Credit and the related Letter of
Credit Liabilities in the proportion their respective Commitments bear to the
aggregate Commitments.
(b) The Borrower shall give the Issuing Bank notice at least three
Domestic Business Days prior to the requested issuance of a Letter of Credit (or
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such lesser notice period as shall be acceptable to the Issuing Bank) specifying
the date such Letter of Credit is to be issued, and describing the terms of such
Letter of Credit and the nature of the transactions to be supported thereby
(such notice, including any such notice given in connection with the extension
of a Letter of Credit, a "NOTICE OF ISSUANCE"). Upon receipt of a Notice of
Issuance, the Issuing Bank shall promptly notify the Agent, and the Agent shall
promptly notify each Bank of the contents thereof and of the amount of such
Bank's participation in such Letter of Credit. The issuance by the Issuing Bank
of each Letter of Credit shall, in addition to the conditions precedent set
forth in Article III, be subject to the conditions precedent that such Letter of
Credit shall be in such form and contain such terms as shall be reasonably
satisfactory to the Issuing Bank and that the Borrower shall have executed and
delivered such other instruments and agreements relating to such Letter of
Credit as the Issuing Bank shall have reasonably requested. The Borrower shall
also pay to the Issuing Bank for its own account issuance, drawing, amendment
and extension charges in the amounts and at the times as agreed between the
Borrower and the Issuing Bank. The extension or renewal of any Letter of Credit
shall be deemed to be an issuance of such Letter of Credit, and if any Letter of
Credit contains a provision pursuant to which it is deemed to be extended unless
notice of termination is given by the Issuing Bank, the Issuing Bank shall
timely give such notice of termination unless it has theretofore timely received
a Notice of Issuance and the other conditions to issuance of a Letter of Credit
have also theretofore been met with respect to such extension. No Letter of
Credit shall have a term of more than two years, provided that a Letter of
Credit may contain a provision pursuant to which it is deemed to be extended on
an annual basis unless notice of termination is given by the Issuing Bank, and
provided further that no Letter of Credit shall have a term extending or be so
extendible beyond the date which is five Domestic Business Days prior to the
Termination Date.
(c) Upon receipt from the beneficiary of any Letter of Credit of any
notice of a drawing under such Letter of Credit, the Issuing Bank shall notify
the Agent and the Agent shall promptly notify the Borrower and each other Bank
as to the amount to be paid as a result of such demand or drawing and the
payment date. The Borrower shall be irrevocably and unconditionally obligated
within three Domestic Business Days to reimburse the Issuing Bank for any
amounts paid by the Issuing Bank upon any drawing under any Letter of Credit,
without presentment, demand, protest or other formalities of any kind. All such
amounts paid by the Issuing Bank and remaining unpaid by the Borrower shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the rate applicable to Base Rate Loans for such day plus, for each such day
more than three Domestic Business Days after the related date of drawing, 2% per
annum. In addition, each Bank will pay to the Agent, for the account of the
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Issuing Bank, immediately upon the Issuing Bank's demand at any time during the
period commencing after such drawing until reimbursement therefor in full by the
Borrower, an amount equal to such Bank's ratable share of such drawing (in
proportion to its participation therein), together with interest on such amount
for each day from the date of the Issuing Bank's demand for such payment (or, if
such demand is made after 12:00 Noon (New York City time) on such date, from the
next succeeding Domestic Business Day) to the date of payment by such Bank of
such amount at the Federal Funds Rate. The Issuing Bank will pay to each Bank
ratably all amounts received from the Borrower for application in payment of its
reimbursement obligations in respect of any Letter of Credit, but only to the
extent such Bank has made payment to the Issuing Bank in respect of such Letter
of Credit pursuant hereto.
(d) The obligations of the Borrower and each Bank under subsection
2.20(c) above shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including, without limitation, the following
circumstances:
(i) any lack of validity or enforceability of this Agreement
or any Letter of Credit or any document related hereto or thereto;
(ii) any amendment or waiver of or any consent to departure
from all or any of the provisions of this Agreement or any Letter of
Credit or any document related hereto or thereto;
(iii) the use which may be made of the Letter of Credit by, or
any acts or omission of, a beneficiary of a Letter of Credit (or any
Person for whom the beneficiary may be acting);
(iv) the existence of any claim, set-off, defense or other
rights that the Borrower may have at any time against a beneficiary of
a Letter of Credit (or any Person for whom the beneficiary may be
acting), the Banks (including the Issuing Bank) or any other Person,
whether in connection with this Agreement or any Letter of Credit or
any document related hereto or thereto or any unrelated transaction;
(v) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent or invalid in any
respect or any statement therein being untrue or inaccurate in any
respect whatsoever;
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(vi) payment under a Letter of Credit against presentation to
the Issuing Bank of a draft or certificate that does not comply with
the terms of the Letter of Credit; or
(vii) any other act or omission to act or delay of any kind by
any Bank (including the Issuing Bank), the Agent or any other Person or
any other event or circumstance whatsoever that might, but for the
provisions of this subsection (vii), constitute a legal or equitable
discharge of the Borrower's or the Bank's obligations hereunder.
(e) The Borrower hereby indemnifies and holds harmless each Bank
(including each Issuing Bank) and the Agent from and against any and all claims,
damages, losses, liabilities, costs or expenses which such Bank or the Agent may
incur (including, without limitation, any claims, damages, losses, liabilities,
costs or expenses which the Issuing Bank may incur by reason of or in connection
with the failure of any other Bank to fulfill or comply with its obligations to
such Issuing Bank hereunder (but nothing herein contained shall affect any
rights the Borrower may have against such defaulting Bank)), and none of the
Banks (including an Issuing Bank) nor the Agent nor any of their officers or
directors or employees or agents shall be liable or responsible, by reason of or
in connection with the execution and delivery or transfer of or payment or
failure to pay under any Letter of Credit, including, without limitation, any of
the circumstances enumerated in subsection 2.20(d) above, as well as (i) any
error, omission, interruption or delay in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, (ii) any error in
interpretation of technical terms, (iii) any loss or delay in the transmission
of any document required in order to make a drawing under a Letter of Credit,
(iv) any consequences arising from causes beyond the control of the Issuing
Bank, including, without limitation, any government acts, or any other
circumstances whatsoever in making or failing to make payment under such Letter
of Credit, provided that the Borrower shall not be required to indemnify the
Issuing Bank for any claims, damages, losses, liabilities, costs or expenses,
and the Borrower shall have a claim for direct (but not consequential) damages,
losses, liabilities, costs and expenses suffered by it, to the extent found by a
court of competent jurisdiction to have been caused by (x) the willful
misconduct or gross negligence of the Issuing Bank in determining whether a
request presented under any Letter of Credit complied on its face with the terms
of such Letter of Credit or (y) the Issuing Bank's failure to pay under any
Letter of Credit after the presentation to it of a request strictly complying
with the terms and conditions of the Letter of Credit. Nothing in this
subsection (e) is intended to limit the obligations of the Borrower under any
other provision of this Agreement. To the extent the Borrower does not indemnify
an Issuing Bank as
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required by this subsection, the Banks agree to do so ratably in accordance with
their Commitments.
ARTICLE 3
CONDITIONS
The obligation of any Bank to make a Loan on the occasion of any
Borrowing or of an Issuing Bank to issue a Letter of Credit upon request
therefor is subject to the satisfaction of the following conditions:
SECTION 3.01. First Borrowing or Issuance. In the case of the first
Borrowing or issuance of a Letter of Credit, receipt by the Agent of the
following documents, each dated the Closing Date unless otherwise indicated:
(a) a duly executed Note for the account of each Bank dated on or
before the Closing Date complying with the provisions of Section 2.06;
(b) an opinion of Babetta R. Gray, Senior Vice President and General
Counsel of the Borrower, substantially in the form of Exhibit E hereto and
covering such additional matters relating to the transactions contemplated
hereby as the Required Banks may reasonably request;
(c) an opinion of Davis Polk & Wardwell, special counsel for the
Agent, substantially in the form of Exhibit F hereto and covering such
additional matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request;
(d) evidence satisfactory to the Agent that (i) the Predecessor shall
have merged with and into a wholly-owned Subsidiary of the Borrower and (ii) the
NDC Acquisitions have been consummated (or are being consummated substantially
simultaneously with such Borrowing) as described in the Registration Statement;
(e) evidence satisfactory to the Agent that the Existing Credit
Agreement has been terminated, that any letter of credit issued thereunder shall
have expired undrawn or been canceled and that all principal and interest on any
loans outstanding thereunder and all other amounts payable thereunder have been
paid, or simultaneously with such Borrowing will be paid, in full;
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(f) evidence satisfactory to the Agent that Borrower has consummated
an initial public offering of its common stock for net proceeds of not less than
$200,000,000; and
(g) all documents the Agent may reasonably request relating to the
existence of the Borrower, the authority for and the validity of this Agreement
and the Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Agent.
The Banks (which comprise the "Required Banks" as defined in the Existing Credit
Agreement) hereby agree that the commitments under the Existing Credit Agreement
may be terminated by the Predecessor by notice given on the Closing Date
effective immediately, and that any loans outstanding under the Existing Credit
Agreement may be prepaid without prior notice on the Closing Date (subject to
Section 2.15 of the Existing Credit Agreement).
SECTION 3.02. Each Borrowing and Issuance. In the case of each
Borrowing or issuance of a Letter of Credit (including the first such event):
(a) receipt by the Agent of a Notice of Borrowing as required by
Section 2.03 or 2.04 or of a Notice of Issuance as required by Section 2.20, as
the case may be;
(b) the fact that, immediately after such Borrowing, the sum of the
aggregate Dollar Amount of the Loans and the aggregate Letter of Credit
Liabilities will not exceed the aggregate amount of the Commitments;
(c) the fact that, immediately after such Borrowing, the aggregate
Dollar Amount of Money Market Loans to be denominated in an Alternative Currency
will not exceed $100,000,000;
(d) the fact that, immediately before and after such Borrowing or
issuance, no Default shall have occurred and be continuing; and
(e) the fact that the representations and warranties of the Borrower
contained in this Agreement (except Section 4.04(d)) shall be true and correct
on and as of the date of such Borrowing or issuance.
Each Borrowing and issuance of a Letter of Credit hereunder shall be deemed to
be a representation and warranty by the Borrower on the date thereof as to the
facts specified in clauses 3.02(b), 3.02(c), 3.02(d)and 3.02(e) of this Section.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the certificate of incorporation or by-laws of the Borrower or
of any agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or any of its Subsidiaries or result in the creation
or imposition of any Lien on any asset of the Borrower or any of its
Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding obligation
of the Borrower, in each case enforceable in accordance with its terms except as
the same may be limited by bankruptcy, insolvency, fraudulent transfer or
similar laws affecting creditors' rights generally and by general principles of
equity.
SECTION 4.04. Financial Information. (a) The consolidated balance sheet
of the Predecessor and its Consolidated Subsidiaries as of December 31, 1996 and
the related consolidated statements of income and cash flows for the fiscal year
then ended, reported on by KPMG Peat Marwick LLP, copies of which have been
delivered to each of the Banks, fairly present, in conformity with generally
accepted accounting principles, the consolidated financial position of the
Predecessor and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Predecessor and
its Consolidated Subsidiaries as of March 31, 1997 and the related unaudited
consolidated statements of income and cash flows for the three months then
ended, copies of which have been delivered to each of the Banks, fairly present
in
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all material respects, in conformity with generally accepted accounting
principles applied on a basis consistent with the financial statements referred
to in subsection (a) of this Section, the consolidated financial position of the
Predecessor and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such three month period
(subject to normal year-end adjustments).
(c) The unaudited pro forma consolidated balance sheet of the Borrower
as of March 31, 1997 and the related unaudited consolidated statements of income
for the year ended December 31, 1996 and the three months ended March 31, 1997,
set forth in the Registration Statement, a copy of which has been delivered to
each of the Banks, have been prepared on the basis described therein and
otherwise in conformity with generally accepted accounting principles applied on
a basis consistent with the financial statements referred to in subsection (a)
of this Section and show the consolidated financial position and results of
operations of the Borrower as if the transactions contemplated by Section
3.01(d) had occurred, in the case of the consolidated balance sheet, on March
31, 1997 and in the case of the consolidated statements of income, as of January
1, 1996.
(d) Since March 31, 1997 there has been no material adverse change in
the business, financial position or results of operations of the Predecessor,
the Borrower and their respective Consolidated Subsidiaries, considered as a
whole.
SECTION 4.05. Litigation. There is no action, suit or proceeding
pending against, or to the knowledge of the Borrower threatened against or
affecting, the Borrower or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could reasonably be expected
to result in a Material Adverse Effect or which in any manner draws into
question the validity or enforceability of this Agreement or the Notes.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan, except where such failure to
fulfill its obligations or be in compliance could not reasonably be expected to
result in a Material Adverse Effect. No member of the ERISA Group has (i) sought
a waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code in respect of any Plan, (ii) failed to make any contribution or
payment to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement,
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which has resulted or could reasonably be expected to result in the imposition
of a Lien or the posting of a bond or other security under ERISA or the Internal
Revenue Code or (iii) incurred any liability under Title IV of ERISA other than
a liability to the PBGC for premiums under Section 4007 of ERISA, except where
such failures to make contributions or payments, such impositions of Liens, such
postings of bonds or such incurrence of liability, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 4.07. Compliance with Laws. The Borrower and its Subsidiaries
are in compliance with all applicable statutes, ordinances, rules and
regulations, except where a lack of compliance therewith could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 4.08. Environmental Matters. On the basis of its knowledge of
the Environmental Laws and the applicability of the Environmental Laws to the
business, operations and properties of the Borrower and its Subsidiaries,
including, without limitation, (i) any requirement under the Environmental Laws
that the Borrower and its Subsidiaries obtain operational permits, (ii) the
possibility of liability in connection with the off-site disposal of wastes or
Hazardous Substances and (iii) any liability to third parties, including
employees, arising from the use, generation, treatment, storage or disposal of
Hazardous Substances by the Borrower or its Subsidiaries, the Borrower has
reasonably concluded that any liabilities and costs that the Borrower and its
Subsidiaries are reasonably likely to incur in connection with any applicable
Environmental Laws are unlikely to result in a Material Adverse Effect.
SECTION 4.09. Taxes. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Borrower or any
Subsidiary. The charges, accruals and reserves on the books of the Borrower and
its Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Borrower, adequate.
SECTION 4.10. Subsidiaries. Each of the Borrower's Subsidiaries is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and has all
requisite powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted, except where the
lack of such requisite powers, licenses, authorizations, consents or approvals,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
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SECTION 4.11. Regulatory Restrictions on Borrowing. The Borrower is not
an "investment company" within the meaning of the Investment Company Act of
1940, as amended, a "holding company" within the meaning of the Public Utility
Holding Company Act of 1935, as amended, or otherwise subject to any regulatory
scheme which restricts its ability to incur debt.
SECTION 4.12. Full Disclosure. All information (other than any
estimates and projections) heretofore furnished by the Borrower to the Agent or
any Bank for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all such information hereafter furnished by the
Borrower to the Agent or any Bank will be, when taken as a whole, true and
accurate in all material respects on the date as of which such information is
stated or certified. All estimates and projections heretofore furnished by the
Borrower to the Agent or any Bank for purposes of or in connection with this
Agreement or any transaction contemplated hereby were, and all such estimates
and projections hereafter furnished by the Borrower to the Agent or any Bank
will be, prepared by the Borrower in good faith utilizing the best information
available to the Borrower at the time of preparation thereof. The Borrower has
disclosed to the Banks in writing any and all facts which materially and
adversely affect or may affect (to the extent the Borrower can now reasonably
foresee) the business, operations or financial condition of the Borrower and its
Consolidated Subsidiaries, taken as a whole, or the ability of the Borrower to
perform its obligations under this Agreement.
ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any amount payable under any Note or any Letter of Credit Liability
remains unpaid:
SECTION 5.01. Information. The Borrower will deliver to each of the
Banks:
(a) within 90 days after the end of each fiscal year of the Borrower,
a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries
as of the end of such fiscal year and the related consolidated statements of
income and cash flows for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on
(without a "going concern" or like qualification or exception and without any
qualification or exception as to the
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scope of such audit) by KPMG Peat Marwick LLP or other independent public
accountants of nationally recognized standing;
(b) within 45 days after the end of each of the first three quarters
of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such quarter and the
related consolidated statements of income and cash flows for such quarter and
for the portion of the Borrower's fiscal year ended at the end of such quarter,
setting forth in the case of such statements of income and cash flows, in
comparative form the figures for the corresponding quarter and the corresponding
portion of the Borrower's previous fiscal year, all certified (subject to normal
year-end adjustments) as to fairness of presentation in all material respects,
generally accepted accounting principles and consistency by the chief financial
officer or the chief accounting officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the chief
financial officer or the chief accounting officer of the Borrower (i) setting
forth in reasonable detail the calculations required to establish (x) whether
the Borrower was in compliance with the requirements of Sections 5.10 and 5.14
on the date of such financial statements and (y) for so long as Pricing Schedule
A is the Pricing Schedule, the Applicable Cash Flow Ratio (as such term is
defined in Pricing Schedule A) derived from such financial statements and (ii)
stating whether any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements as to whether
anything has come to their attention to cause them to believe that any Default
existed on the date of such statements (which certificate may be limited to the
extent required by accounting rules or guidelines);
(e) within five Domestic Business Days after any officer of the
Borrower obtains knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto;
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(f) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Borrower shall have filed with the Securities and
Exchange Commission;
(h) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in Section 4043
of ERISA) with respect to any Material Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Material Plan has given or is required to give notice of
any such reportable event, a copy of the notice of such reportable event given
or required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent
to terminate, impose material liability (other than for premiums under Section
4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a
copy of such notice; (iv) applies for a waiver of the minimum funding standard
under Section 412 of the Internal Revenue Code, a copy of such application; (v)
gives notice of intent to terminate any Material Plan under Section 4041(c) of
ERISA, a copy of such notice and other information filed with the PBGC; (vi)
gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a
copy of such notice; or (vii) fails to make any payment or contribution to any
Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security, a
certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth details as to such occurrence and action, if any,
which the Borrower or applicable member of the ERISA Group is required or
proposes to take; and
(i) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Agent, at the request of any Bank, may reasonably request.
SECTION 5.02. Payment of Obligations. The Borrower will pay and
discharge, and will cause each Subsidiary to pay and discharge, at or before
maturity (after giving effect to any applicable grace period), all their
respective material obligations and liabilities (including, without limitation,
tax liabilities
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and claims of materialmen, warehousemen and the like which if unpaid might by
law give rise to a Lien), except where the same may be contested in good faith
by appropriate proceedings, and will maintain, and will cause each Subsidiary to
maintain, in accordance with generally accepted accounting principles,
appropriate reserves for the accrual of any of the same.
SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower will
keep, and will cause each Subsidiary to keep, all property and equipment useful
and necessary in its business in good working order and condition to the extent
required by sound business practices, ordinary wear and tear excepted.
(b) The Borrower will, and will cause each of its Subsidiaries to,
maintain (either in the name of the Borrower or in such Subsidiary's own name)
with financially sound and responsible insurance companies, insurance on all its
respective properties and equipment in at least such amounts, against at least
such risks and with such risk retention as are usually maintained, insured
against or retained, as the case may be, in the same general area by companies
of established repute engaged in the same or a similar business; and will
furnish to the Banks, upon request from the Agent, information presented in
reasonable detail as to the insurance so carried.
SECTION 5.04. Conduct of Business and Maintenance of Existence. The
Borrower will preserve, renew and keep in full force and effect, and will cause
each Subsidiary to preserve, renew and keep in full force and effect its
respective existence and its respective rights, privileges and franchises
material to the normal conduct of business, provided that nothing in this
Section 5.04 shall prohibit (i) the merger of a Subsidiary into the Borrower or
the merger or consolidation of a Subsidiary with or into another Person if the
entity surviving such consolidation or merger is a Subsidiary and if, in each
case, after giving effect thereto, no Default shall have occurred and be
continuing, (ii) any transaction not prohibited by Section 5.07 or (iii) the
termination of the existence of any Subsidiary if the Borrower in good faith
determines that such termination is not materially disadvantageous to the Banks.
SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause
each Subsidiary to comply, in all material respects with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except where either the necessity of compliance
therewith is contested in good faith by appropriate proceedings or any failure
to so comply, individually or in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect.
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SECTION 5.06. Inspection of Property, Books and Records. The Borrower
will keep, and will cause each Subsidiary to keep, proper books of record and
account in which full, true and correct entries shall be made of all dealings
and transactions in relation to its business and activities; and will permit,
and will cause each Subsidiary to permit, representatives of any Bank at such
Bank's expense to visit and inspect any of its respective properties, to examine
and make abstracts from any of its respective books and records and to discuss
its respective affairs, finances and accounts with its respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.
SECTION 5.07. Mergers and Sales of Assets. The Borrower will not (i)
consolidate or merge with or into any other Person, (ii) sell, lease or
otherwise transfer, directly or indirectly (including any such transfer by way
of merger or consolidation), all or substantially all the assets of the Borrower
and its Subsidiaries, taken as a whole, to any other Person or Persons, provided
that the Borrower may merge with another Person if (x) the Borrower is the
corporation surviving such merger and (y) after giving effect to such merger, no
Default shall have occurred and be continuing.
SECTION 5.08. Use of Proceeds. The proceeds of the Loans made under
this Agreement and any Letters of Credit issued under this Agreement will be
used by the Borrower (i) to pay the purchase price for, and fees and expenses
relating to, the NDC Acquisitions; (ii) to refinance certain existing
indebtedness of the Predecessor; and (iii) for general corporate purposes,
including acquisitions. None of such proceeds will be used, directly or
indirectly, for any purpose, whether immediate, incidental or ultimate, that
entails a violation of the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
SECTION 5.09. Negative Pledge. Neither the Borrower nor any Subsidiary
will create, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by it, except:
(a) Liens existing on the Closing Date securing (i) Debt in connection
with the Existing Capital Leases and (ii) other Debt outstanding on the Closing
Date in an aggregate principal or face amount not exceeding $10,000,000;
(b) any Lien existing on any asset of any Person at the time such
Person becomes a Subsidiary and not created in contemplation of such event;
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(c) any Lien on any asset securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such asset,
provided that such Lien attaches to such asset concurrently with or within 90
days after the acquisition thereof;
(d) any Lien on any asset of any Person existing at the time such
Person is merged or consolidated with or into the Borrower or a Subsidiary and
not created in contemplation of such event;
(e) any Lien existing on any asset prior to the acquisition thereof by
the Borrower or a Subsidiary and not created in contemplation of such
acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that such Debt is not increased and is not
secured by any additional assets;
(g) Liens arising in the ordinary course of its business which (i) do
not secure Debt or Derivatives Obligations, (ii) do not secure any obligation in
an amount exceeding $10,000,000 and (iii) do not in the aggregate materially
detract from the value of its assets or materially impair the use thereof in the
operation of its business;
(h) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash equivalents
subject to such Liens may at no time exceed $10,000,000; and
(i) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal or face amount not exceeding, on
the date of incurrence of any portion of such Debt, an aggregate of 10% of
Consolidated Tangible Net Worth at such date.
SECTION 5.10. Interest Coverage Ratio. As of the last day of each
fiscal quarter of the Borrower, the Interest Coverage Ratio at such last day
will not be less than 2.5 to 1.
SECTION 5.11. Restricted Payments. Neither the Borrower nor any
Subsidiary will make any Restricted Payment, provided that the foregoing shall
not prohibit or restrict Restricted Payments from time to time with respect to
any year in an aggregate amount not to exceed an amount equal to 50% of
Consolidated Net Income for such year.
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SECTION 5.12. Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, pay any funds to or
for the account of, make any investment (whether by acquisition of stock or
indebtedness, by loan, advance, transfer of property, guarantee or other
agreement to pay, purchase or service, directly or indirectly, any Debt, or
otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect, any transaction with,
any Affiliate except on an arms-length basis on terms at least as favorable to
the Borrower or such Subsidiary than could have been obtained from a third party
who was not an Affiliate, provided that the foregoing provisions of this Section
shall not prohibit (i) the Borrower and each Subsidiary from performing their
respective obligations under the Transaction Documents or (ii) any such Person
from declaring or paying any lawful dividend or other payment ratably in respect
of all of its capital stock of the relevant class so long as, after giving
effect thereto, no Default shall have occurred and be continuing.
SECTION 5.13. Debt of Subsidiaries. Total Debt of all Subsidiaries
(excluding Debt of a Subsidiary to the Borrower or to a wholly owned Subsidiary)
will not, on the date of incurrence of any portion of such Debt, exceed the
greater of (x) $50,000,000 or (y) 10% of Consolidated Tangible Net Worth at such
date.
SECTION 5.14. Cash Flow Ratio. As of the last day of each fiscal
quarter of the Borrower, the Cash Flow Ratio at such last day will not be
greater than 2.0 to 1.
ARTICLE 6
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following
events ("EVENTS OF DEFAULT") shall have occurred and be continuing:
(a) the Borrower shall (i) fail to pay when due any principal of any
Loan or to reimburse when due any drawing under any Letter of Credit or (ii)
fail to pay any interest on any Loan or any fees or any other amount payable
hereunder within five Domestic Business Days of the date when due;
(b) the Borrower shall fail to observe or perform any covenant
contained in Article 5, other than those contained in Sections 5.01 through
5.06;
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(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause
6.01(a) or 6.01(b) above) for 30 days after notice thereof has been given to the
Borrower by the Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment in
respect of any Material Financial Obligations when due or within any applicable
grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables the holder of such
Debt or any Person acting on such holder's behalf to accelerate the maturity
thereof;
(g) the Borrower or any Subsidiary shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced against
the Borrower or any Subsidiary seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $10,000,000 which it shall have become
liable to pay under Title IV of ERISA; or notice of intent to terminate a
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Material Plan shall be filed under Title IV of ERISA by any member of the ERISA
Group, any plan administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in excess of
$10,000,000 in respect of, or to cause a trustee to be appointed to administer
any Material Plan; or a condition shall exist by reason of which the PBGC would
reasonably be entitled to obtain a decree adjudicating that any Material Plan
must be terminated; or there shall occur a complete or partial withdrawal from,
or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect
to, one or more Multiemployer Plans which could cause one or more members of the
ERISA Group to incur a current payment obligation in excess of $10,000,000;
(j) judgments or orders for the payment of money in excess of
$10,000,000 in the aggregate shall be rendered against the Borrower or any
Subsidiary and such judgments or orders shall continue unsatisfied and unstayed
for a period of 10 days;
(k) the Borrower shall be dissolved or terminated; or
(l) a Change in Ownership or Control shall have occurred;
then, and in every such event, the Agent shall (i) if requested by Banks having
more than 50% in aggregate amount of the Commitments, by notice to the Borrower
terminate the Commitments and they shall thereupon terminate, and (ii) if
requested by Banks holding more than 50% of the aggregate principal amount of
the Loans, by notice to the Borrower declare the Loans (together with accrued
interest thereon) to be, and the Loans shall thereupon become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower, provided that in the case of any
of the Events of Default specified in clause 6.01(g) or 6.01(h) above with
respect to the Borrower, without any notice to the Borrower or any other act by
the Agent or the Banks, the Commitments shall thereupon terminate and the Loans
(together with accrued interest thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower.
SECTION 6.02. Notice of Default. The Agent shall give notice to the
Borrower under Section 6.01(c) promptly upon being requested to do so by any
Bank and shall thereupon notify all the Banks thereof.
SECTION 6.03. Cash Cover. The Borrower agrees, in addition to the
provisions of Section 6.01 hereof, that upon the occurrence and during the
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continuance of any Event of Default, it shall, if requested by the Agent upon
the instruction of the Banks having more than 50% in aggregate amount of the
Commitments (or, if the Commitments shall have been terminated, holding more
than 50% of the Letter of Credit Liabilities), pay to the Agent an amount in
immediately available funds (which funds shall be held as collateral pursuant to
arrangements satisfactory to the Agent) equal to the aggregate amount available
for drawing under all Letters of Credit then outstanding at such time, provided
that, upon the occurrence of any Event of Default specified in Section 6.01(g)
or 6.01(h) with respect to the Borrower, the Borrower shall pay such amount
forthwith without any notice or demand or any other act by the Agent or the
Banks.
ARTICLE 7
THE AGENT
SECTION 7.01. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the Notes as are delegated to
the Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust Company of
New York shall have the same rights and powers under this Agreement as any other
Bank and may exercise or refrain from exercising the same as though it were not
the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or affiliate of the Borrower as if
it were not the Agent.
SECTION 7.03. Action by Agent. The obligations of the Agent hereunder
are only those expressly set forth herein. Without limiting the generality of
the foregoing, the Agent shall not be required to take any action with respect
to any Default, except as expressly provided in Article 6.
SECTION 7.04. Consultation with Experts. The Agent may consult with
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
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SECTION 7.05. Liability of Agent. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Banks or, when expressly
required hereby, all the Banks or (ii) in the absence of its own gross
negligence or willful misconduct. Neither the Agent nor any of its affiliates
nor any of their respective directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with this Agreement or
any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Borrower; (iii) the satisfaction of any condition
specified in Article 3, except receipt of items required to be delivered to the
Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the
Notes or any other instrument or writing furnished in connection herewith. The
Agent shall not incur any liability by acting in reliance upon any notice,
consent, certificate, statement, or other writing (which may be a bank wire,
telex, facsimile transmission or similar writing) believed by it to be genuine
or to be signed by the proper party or parties. Without limiting the generality
of the foregoing, the use of the term "agent" in this Agreement with reference
to the Agent is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Borrower) against any reasonable and customary out-of-pocket costs or expenses
(including counsel fees and disbursements), or any other claim, demand, action,
loss or liability (except such as result from such indemnitees' gross negligence
or willful misconduct) that such indemnitees may suffer or incur in connection
with this Agreement or any action taken or omitted by such indemnitees
hereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
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SECTION 7.08. Successor Agent. The Agent may resign at any time by
giving notice thereof to the Banks and the Borrower. Upon any such resignation,
the Required Banks shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Banks, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $100,000,000. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the rights
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent.
SECTION 7.09. Agent's Fee; Arranger Fee. The Borrower shall pay to the
Agent for its own account and to J.P. Morgan Securities Inc. ("JPMSI"), in its
capacity as arranger, for its own account, fees in the amounts and at the times
previously agreed upon between the Borrower and the Agent and JPMSI,
respectively.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any CD Loan,
Euro-Dollar Loan or Money Market LIBOR Loan:
(a) the Agent is advised by the Reference Banks that deposits in the
relevant currency (in the applicable amounts) are not being offered to the
Reference Banks in the relevant market for such Interest Period, or
(b) in the case of CD Loans or Euro-Dollar Loans, Banks having 50% or
more of the aggregate principal amount of the affected Loans advise the Agent
that the Adjusted CD Rate or the London Interbank Offered Rate, as the case may
be, as determined by the Agent will not adequately and fairly reflect the cost
to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may
be, for such Interest Period,
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the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Banks to
make CD Loans or Euro-Dollar Loans, as the case may be, or to continue or
convert outstanding Loans as or into CD Loans or Euro-Dollar Loans, as the case
may be, shall be suspended and (ii) each outstanding CD Loan or Euro-Dollar
Loan, as the case may be, shall be converted into a Base Rate Loan on the last
day of the then-current Interest Period applicable thereto. At any time when the
circumstances giving rise to the above-described suspension are in effect,
unless the Borrower notifies the Agent at least two Domestic Business Days
before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has
previously been given that it elects not to borrow on such date, (i) if such
Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be
made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money
Market LIBOR Borrowing, then (x) if such Borrowing is to be denominated in
Dollars, the Money Market LIBOR Loans comprising such Borrowing shall bear
interest for each day from and including the first day to but excluding the last
day of the Interest Period applicable thereto at the Base Rate for such day and
(y) if such Borrowing is to be denominated in an Alternative Currency, such
Borrowing shall not be made.
SECTION 8.02. Illegality. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and
such Bank shall so notify the Agent, the Agent shall forthwith give notice
thereof to the other Banks and the Borrower, whereupon until such Bank notifies
the Borrower and the Agent that the circumstances giving rise to such suspension
no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to
convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before
giving any notice to the Agent pursuant to this Section, such Bank shall
designate a different Euro-Dollar Lending Office if such designation will avoid
the need for giving such notice and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. If such notice is given, each
Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate
Loan either (a) on the last day of the then current Interest Period applicable
to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund
such Loan to such day or (b) immediately
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if such Bank shall determine that it may not lawfully continue to maintain and
fund such Loan to such day.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x)
the date hereof, in the case of any Committed Loan or Letter of Credit (or
participation therein) or any obligation to make Committed Loans or to issue or
participate in Letters of Credit or (y) the date of the related Money Market
Quote, in the case of any Money Market Loan, the adoption of any applicable law,
rule or regulation, or any change in any applicable law, rule or regulation, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall impose, modify or
deem applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
(i) with respect to any CD Loan any such requirement included in an applicable
Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any
such requirement with respect to which such Bank is entitled to compensation
during the relevant Interest Period under Section 2.17), special deposit,
insurance assessment (excluding, with respect to any CD Loan, any such
requirement reflected in an applicable Assessment Rate) or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates of
deposit or the London interbank market any other condition affecting its Fixed
Rate Loans, its Note or its participation in any Letter of Credit or its
obligation to make Fixed Rate Loans or to issue or participate in Letters of
Credit and the result of any of the foregoing is to increase the cost to such
Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate
Loan or Letter of Credit (or participation therein), or to reduce the amount of
any sum received or receivable by such Bank (or its Applicable Lending Office)
under this Agreement or under its Note with respect thereto, by an amount deemed
by such Bank to be material, then, within 15 days after demand by such Bank
(with a copy to the Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or
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any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency has or
would have the effect of reducing the rate of return on capital of such Bank (or
its Parent) as a consequence of such Bank's obligations hereunder to a level
below that which such Bank (or its Parent) could have achieved but for such
adoption, change, request or directive (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by such Bank to be
material, then from time to time, within 15 days after demand by such Bank (with
a copy to the Agent), the Borrower shall pay to such Bank such additional amount
or amounts as will compensate such Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section shall set forth the additional amount
or amounts to be paid to it hereunder, shall set forth the method of determining
such additional amount or amounts in reasonable detail and shall be conclusive
in the absence of manifest error. In determining such amount, such Bank may use
any reasonable averaging and attribution methods.
SECTION 8.04. Taxes. (a) For the purposes of this Section 8.04, the
following terms have the following meanings:
"TAXES" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or under any Note, and all liabilities with
respect thereto, excluding (i) in the case of each Bank and the Agent, taxes
imposed on its income, and franchise or similar taxes imposed on it, by a
jurisdiction under the laws of which such Bank or the Agent (as the case may be)
is organized or in which its principal executive office is located or, in the
case of each Bank, in which its Applicable Lending Office is located and (ii) in
the case of each Bank, any United States withholding tax imposed on such
payments but only to the extent that such Bank is subject to United States
withholding tax at the time such Bank first becomes a party to this Agreement.
"OTHER TAXES" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or from
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the execution or delivery of, or otherwise with respect to, this Agreement or
any Note or Letter of Credit.
(b) Any and all payments by the Borrower to or for the account of any
Bank or the Agent hereunder or under any Note shall be made without deduction
for any Taxes or Other Taxes, provided that, if the Borrower shall be required
by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) such Bank or the Agent (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions, (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) the Borrower shall furnish to the Agent,
at its address referred to in Section 9.01, the original or a certified copy of
a receipt evidencing payment thereof.
(c) The Borrower agrees to indemnify each Bank and the Agent for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section) paid by such Bank or the Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be paid within 15 days after such
Bank or the Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrower (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrower and the Agent with Internal Revenue Service form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that such Bank is entitled to benefits under an income tax treaty to
which the United States is a party which exempts the Bank from United States
withholding tax or reduces the rate of withholding tax on payments of interest
for the account of such Bank or certifying that the income receivable pursuant
to this Agreement is effectively connected with the conduct of a trade or
business in the United States.
(e) For any period with respect to which a Bank has failed to provide
the Borrower or the Agent with the appropriate form pursuant to Section 8.04(d)
(unless such failure is due to a change in treaty, law or regulation occurring
59
<PAGE> 65
subsequent to the date on which such form originally was required to be
provided), such Bank shall not be entitled to indemnification under Section
8.04(b) or 8.04(c) with respect to Taxes imposed by the United States, provided
that if a Bank, which is otherwise exempt from or subject to a reduced rate of
withholding tax, becomes subject to Taxes because of its failure to deliver a
form required hereunder, the Borrower shall take such steps as such Bank shall
reasonably request to assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section, then such Bank will change the
jurisdiction of its Applicable Lending Office if, in the judgment of such Bank,
such change (i) will eliminate or reduce any such additional payment which may
thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate
Loans. If (i) the obligation of any Bank to make, or convert outstanding Loans
to, Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any
Bank has demanded compensation under Section 8.03 or 8.04 with respect to its CD
Loans or Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar
Business Days' prior notice to such Bank through the Agent, have elected that
the provisions of this Section shall apply to such Bank, then, unless and until
such Bank notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer exist:
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted into) CD Loans or Euro-Dollar Loans, as the case may
be, shall instead be Base Rate Loans (on which interest and principal shall be
payable contemporaneously with the related Fixed Rate Loans of the other Banks);
and
(b) after each of its CD Loans or Euro-Dollar Loans, as the case may
be, has been repaid (or converted to a Base Rate Loan), all payments of
principal which would otherwise be applied to repay such Fixed Rate Loans shall
be applied to repay its Base Rate Loans instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the
first day of the next succeeding Interest Period applicable to the related CD
Loans or Euro-Dollar Loans of the other Banks.
60
<PAGE> 66
SECTION 8.06. Substitution of Bank. If (i) the obligation of any Bank
to make Euro-Dollar Loans or to convert or continue outstanding Loans into Euro-
Dollar Loans shall be suspended pursuant to Section 8.02 or (ii) any Bank shall
demand compensation pursuant to Section 8.03 or 8.04, the Borrower shall have
the right, with the assistance of the Agent and the Issuing Banks, to seek a
mutually satisfactory bank or banks (which may be one or more of the Banks) to
purchase the outstanding Loans of such Bank and to assume the Commitment and
Letter of Credit Liabilities of such Bank.
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex,
facsimile transmission or similar writing) and shall be given to such party: (a)
in the case of the Borrower or the Agent, at its address, facsimile number or
telex number set forth on the signature pages hereof, (b) in the case of any
Bank (including any Issuing Bank), at its address, facsimile number or telex
number set forth in its Administrative Questionnaire or (c) in the case of any
party, such other address, facsimile number or telex number as such party may
hereafter specify for the purpose by notice to the Agent and the Borrower. Each
such notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answerback is received, (ii) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received, (iii) if given by mail, 72 hours after
such communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iv) if given by any other means, when delivered at
the address specified in this Section, provided that notices to the Agent or any
Issuing Bank under Article 2 or Article 8 and notices to the Borrower under
Section 9.06(c) shall not be effective until received.
SECTION 9.02. No Waivers. No failure or delay by the Agent or any Bank
in exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
61
<PAGE> 67
SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay
(i) all reasonable and customary out-of-pocket expenses of the Agent, including
fees and disbursements of special counsel for the Agent, in connection with the
preparation and administration of this Agreement, any waiver or consent
hereunder or any amendment hereof or any Default or alleged Default hereunder
and (ii) if an Event of Default occurs, all reasonable and customary
out-of-pocket expenses incurred by the Agent and each Bank, including (without
duplication) the fees and disbursements of outside counsel and the allocated
cost of inside counsel, in connection with any collection, bankruptcy,
insolvency and other enforcement proceedings resulting from such Event of
Default.
(b) The Borrower agrees to indemnify the Agent and each Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "INDEMNITEE") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of this Agreement or any actual or proposed use of
proceeds of Loans hereunder, provided that no Indemnitee shall have the right to
be indemnified hereunder for such Indemnitee's own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.
SECTION 9.04. Sharing of Set-offs. Each Bank agrees that if it shall,
by exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount then due and payable with respect to the
Loans and Letter of Credit Liabilities held by it which is greater than the
proportion received by any other Bank in respect of the aggregate amount then
due and payable with respect to the Loans and Letter of Credit Liabilities held
by such other Bank, the Bank receiving such proportionately greater payment
shall purchase such participations in the Loans and Letter of Credit Liabilities
held by the other Banks, and such other adjustments shall be made, as may be
required so that all such payments with respect to the Loans and Letter of
Credit Liabilities held by the Banks shall be shared by the Banks pro rata,
provided that nothing in this Section shall impair the right of any Bank to
exercise any right of set-off or counterclaim it may have and to apply the
amount subject to such exercise to the payment of indebtedness of the Borrower
other than its indebtedness hereunder. The Borrower agrees, to the fullest
extent it may effectively do so under applicable law, that any holder of a
participation in a Loan or Letter of Credit Liability, whether or not acquired
pursuant to the foregoing arrangements, may exercise rights of set-off or
counterclaim and other rights with respect to such
62
<PAGE> 68
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 9.05. Amendments and Waivers . Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Agent or an Issuing Bank are affected thereby, by it),
provided that no such amendment or waiver shall (i) increase or decrease the
Commitment of any Bank (except (x) as contemplated by Section 2.02 or (y) for a
ratable decrease in the Commitments of all Banks) or subject any Bank to any
additional obligation without the written consent of each Bank, (ii) reduce the
principal of or rate of interest on any Loan or the amount to be reimbursed in
respect of any Letter of Credit or any interest thereon or any fees hereunder
without the written consent of each Bank affected thereby, (iii) postpone the
date fixed for any payment of principal of or interest on any Loan or the amount
to be reimbursed in respect of any Letter of Credit or interest thereon or any
fees hereunder or for any scheduled reduction or termination of any Commitment
without the written consent of each Bank or (iv) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes, or the
number of Banks, which shall be required for the Banks or any of them to take
any action under this Section or any other provision of this Agreement without
the written consent of each Bank.
SECTION 9.06. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of the Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "PARTICIPANT") participating interests in its Commitment or
any or all of its Loans and Letter of Credit participations. In the event of any
such grant by a Bank of a participating interest to a Participant, whether or
not upon notice to the Borrower and the Agent, such Bank shall remain
responsible for the performance of its obligations hereunder, and the Borrower,
the Issuing Banks and the Agent shall continue to deal solely and directly with
such Bank in connection with such Bank's rights and obligations under this
Agreement. Any agreement pursuant to which any Bank may grant such a
participating interest shall provide that such Bank shall retain the sole right
and responsibility to enforce the obligations of the Borrower hereunder
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement, provided that such participation
agreement may provide that such
63
<PAGE> 69
Bank will not agree to any modification, amendment or waiver of this Agreement
described in clause (i), (ii), or (iii) of Section 9.05 that affects the
Participant. The Borrower agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Section
2.17 and Article 8 with respect to its participating interest. An assignment or
other transfer which is not permitted by subsection (c) or (d) below shall be
given effect for purposes of this Agreement only to the extent of a
participating interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "ASSIGNEE") all, or a proportionate part (equivalent to an
initial Commitment of not less than $10,000,000) of all, of its rights and
obligations under this Agreement, the Notes and Letters of Credit, and such
Assignee shall assume such rights and obligations, pursuant to an Assignment and
Assumption Agreement in substantially the form of Exhibit G hereto executed by
such Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Borrower (which shall not be unreasonably withheld so long as (i)
the Assignee is a commercial bank and (ii) the transferor Bank has given the
Agent and the Borrower not less than three Domestic Business Days' prior written
notice of such proposed assignment and the identity of the proposed Assignee),
the Agent and the Issuing Banks, provided that if an Assignee is an affiliate of
such transferor Bank or was a Bank immediately prior to such assignment, no such
consent of the Borrower, the Agent or any Issuing Bank shall be required,
provided further that in the event of an assignment by a Bank of a proportionate
part of its rights and obligations under this Agreement, the Notes and the
Letters of Credit, the part retained by such transferor Bank shall be equivalent
to an initial Commitment of not less than $10,000,000, and provided further that
such assignment may, but need not, include rights of the transferor Bank in
respect of outstanding Money Market Loans. Upon execution and delivery of such
instrument and payment by such Assignee to such transferor Bank of an amount
equal to the purchase price agreed between such transferor Bank and such
Assignee, such Assignee shall be a Bank party to this Agreement and shall have
all the rights and obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and the transferor Bank shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower
shall make appropriate arrangements so that, if required, a new Note is issued
to the Assignee. In connection with any such assignment, the transferor Bank
shall pay to the Agent an administrative fee for processing such assignment in
the amount of $2,500. If the Assignee is not incorporated under the laws of the
United States of America or a state thereof, it shall deliver to the Borrower
and the Agent
64
<PAGE> 70
certification as to exemption from deduction or withholding of any United States
federal income taxes in accordance with Section 8.04.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.03 or 8.04 than
such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's prior written
consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring
such Bank to designate a different Applicable Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist.
SECTION 9.07. Collateral. Each of the Banks represents to the Agent
and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 9.08. Governing Law; Submission to Jurisdiction. This
Agreement and each Note shall be governed by and construed in accordance with
the laws of the State of New York. The Borrower and each of the Banks hereby
submit to the nonexclusive jurisdiction of the United States District Court for
the Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement or the transactions contemplated hereby. The Borrower and each of
the Banks irrevocably waive, to the fullest extent permitted by law, any
objection which they may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
SECTION 9.09. Counterparts; Integration; Effectiveness. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof. This
Agreement shall become effective upon receipt by the Agent of counterparts
hereof signed by each of the parties hereto (or, in the case of any party as to
which an executed counterpart shall not have been received, receipt by the Agent
in form
65
<PAGE> 71
satisfactory to it of telegraphic, telex, facsimile or other written
confirmation from such party of execution of a counterpart hereof by such
party).
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT
AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. Confidentiality. The Agent and each Bank agree to keep
any information delivered or made available by the Borrower pursuant to this
Agreement confidential from anyone other than persons employed or retained by
such Bank and its affiliates, provided that nothing herein shall prevent the
Agent or any Bank from disclosing such information (i) to any other Bank or to
the Agent, (ii) to such Bank's or Agent's legal counsel and independent
auditors, (iii) upon the order of any court or administrative agency, (iv) upon
the request or demand of any regulatory agency or authority, (v) which had been
publicly disclosed other than as a result of a disclosure by the Agent or any
Bank prohibited by this Agreement, (vi) in connection with any litigation to
which the Agent, any Bank or its subsidiaries or Parent may be a party, (vii) to
the extent necessary in connection with the exercise of any remedy hereunder,
(viii) subject to provisions substantially similar to those contained in this
Section, to any other Person if reasonably incidental to the administration of
the credit facility contemplated hereby and (ix) subject to provisions
substantially similar to those contained in this Section, to any actual or
proposed Participant or Assignee.
66
<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
GALILEO INTERNATIONAL, INC.
By:
-------------------------------
Name:
Title:
Address: 9700 West Higgins Road,
Suite 400
Rosemont, IL 60018
Attn: Chief Financial Officer
Facsimile: (847) 518-4201
COMMITMENT
Agent
$40,000,000 MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By:
-------------------------------
Name:
Title:
Co-Arrangers
BANK OF AMERICA NATIONAL
$40,000,000 TRUST AND SAVINGS ASSOCIATION
By:
-------------------------------
Name:
Title:
67
<PAGE> 73
$40,000,000 BANK OF MONTREAL, CHICAGO
BRANCH
By:
-------------------------------
Name:
Title:
Co-Agents
ABN AMRO BANK N.V.,
CHICAGO BRANCH
$33,333,333 By: ABN AMRO BANK NORTH
AMERICA, INC.
By:
-------------------------------
Name:
Title:
$33,333,333 BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, CHICAGO BRANCH
By:
-------------------------------
Name:
Title:
$33,333,333 MIDLAND BANK PLC
By:
-------------------------------
Name:
Title:
$33,333,333 THE SUMITOMO BANK, LIMITED
By:
-------------------------------
Name:
Title:
68
<PAGE> 74
Participants
$20,000,000 CREDIT LYONNAIS
By:
-------------------------------
Name:
Title:
$20,000,000 ROYAL BANK OF CANADA
By:
-------------------------------
Name:
Title:
$20,000,000 SOCIETE GENERALE
By:
-------------------------------
Name:
Title:
$20,000,000 SWISS BANK CORPORATION,
NEW YORK BRANCH
By:
-------------------------------
Name:
Title:
$20,000,000 THE NORTHERN TRUST COMPANY
By:
-------------------------------
Name:
Title:
$20,000,000 THE SANWA BANK, LIMITED,
CHICAGO BRANCH
By:
-------------------------------
Name:
Title:
69
<PAGE> 75
$13,666,667 WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By:
-------------------------------
Name:
Title:
$10,000,000 THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., CHICAGO BRANCH
By:
-------------------------------
Name:
Title:
====================
TOTAL COMMITMENTS
====================
$400,000,000
70
<PAGE> 76
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK,
as Agent
By:
-------------------------------
Name:
Title:
Address: 60 Wall Street
NY, NY 10260
Telex:
Facsimile:
71
<PAGE> 77
PRICING SCHEDULE A
Each of the terms "EURO-DOLLAR MARGIN", "CD MARGIN", "FACILITY FEE RATE" and
"LETTER OF CREDIT FEE RATE" means, for any date, the per annum rates set forth
below in the row opposite such term and in the column corresponding to the
"PRICING LEVEL" that applies at such date:
<TABLE>
<CAPTION>
Level I Level II Level III Level IV Level V
------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
CD Margin 0.295% 0.325% 0.350% 0.400% 0.650%
Euro-Dollar 0.170% 0.200% 0.225% 0.275% 0.525%
Margin
Facility Fee 0.080% 0.100% 0.125% 0.150% 0.225%
Rate
Letter of 0.170% 0.200% 0.225% 0.275% 0.525%
Credit Fee
Rate
</TABLE>
For purposes of this Schedule, the following terms have the following meanings:
"APPLICABLE CASH FLOW RATIO" means, on any day, the Cash Flow Ratio on
the last day of the most recently ended fiscal quarter of the Borrower for which
the Borrower has delivered financial statements pursuant to Section 5.01(a) or
5.01(b), as the case may be, provided that at any time a Default exists under
Section 5.01(a), 5.01(b) or 5.01(c), the Applicable Cash Flow Ratio shall be
deemed to be greater than or equal to 2.0 to 1.
"LEVEL I PRICING" applies at any date if, at such date, the Applicable
Cash Flow Ratio is less than .25 to 1.
"LEVEL II PRICING" applies at any date if, at such date, the Applicable
Cash Flow Ratio is greater than or equal to .25 to 1 but less than .50 to 1.
"LEVEL III PRICING" applies at any date if, at such date, the
Applicable Cash Flow Ratio is greater than or equal to .50 to 1 but less than
1.0 to 1.
"LEVEL IV PRICING" applies at any date if, at such date, the Applicable
Cash Flow Ratio is greater than or equal to 1.0 to 1 but less than 2.0 to 1.
<PAGE> 78
"LEVEL V PRICING" applies at any date if, at such date, no other
Pricing Level applies.
"PRICING LEVEL" refers to the determination of which of Level I
Pricing, Level II Pricing, Level III Pricing, Level IV Pricing or Level V
Pricing applies at any date.
2
<PAGE> 79
PRICING SCHEDULE B
Each of the terms "EURO-DOLLAR MARGIN", "CD MARGIN", "FACILITY FEE
RATE" and "LETTER OF CREDIT FEE RATE" means, for any date, the per annum rates
set forth below in the row opposite such term and in the column corresponding to
the "PRICING LEVEL" that applies at such date:
<TABLE>
<CAPTION>
Level I Level II Level III Level IV Level V
------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
CD Margin 0.295% 0.325% 0.350% 0.400% 0.650%
Euro-Dollar 0.170% 0.200% 0.225% 0.275% 0.525%
Margin
Facility Fee 0.080% 0.100% 0.125% 0.150% 0.225%
Rate
Letter of 0.170% 0.200% 0.225% 0.275% 0.525%
Credit Fee
Rate
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings, subject to the concluding paragraph of this Schedule:
"LEVEL I PRICING" applies at any date if, at such date, the Borrower's
long-term debt is rated A- or higher by S&P or A3 or higher by Moody's.
"LEVEL II PRICING" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB+ or higher by S&P or Baa1 or higher by
Moody's and (ii) Level I Pricing does not apply.
"LEVEL III PRICING" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB or higher by S&P and Baa2 or higher by
Moody's and (ii) neither Level I Pricing nor Level II Pricing applies.
"LEVEL IV PRICING" applies at any date if, at such date, the Borrower's
long-term debt is rated BBB- or higher by S&P and Baa3 or higher by Moody's and
none of Level I Pricing, Level II Pricing and Level III Pricing applies.
"LEVEL V PRICING" applies at any date if, at such date, no other
Pricing Level applies.
<PAGE> 80
"PRICING LEVEL" refers to the determination of which of Level I
Pricing, Level II Pricing, Level III Pricing, Level IV Pricing or Level V
Pricing applies at any date.
The credit ratings to be utilized for purposes of this Schedule are
those assigned to the senior unsecured long-term debt securities of the Borrower
without third-party credit enhancement, and any rating assigned to any other
debt security of the Borrower shall be disregarded. The ratings in effect for
any day are those in effect at the close of business on such day. In the case of
split ratings from S&P and Moody's, so long as the Borrower's long-term debt is
rated at least BBB by S&P and at least Baa2 by Moody's, the rating to be used to
determine the applicable Pricing Level is the higher of the two (e.g., BBB+/A3
results in Level I Pricing).
2
<PAGE> 81
SCHEDULE I
EXISTING CAPITAL LEASES
The Galileo Company Ltd. Letter of Credit
Collateralized Capital Leases
<TABLE>
<CAPTION>
Balance Sheet
Obligation/Amount
Available Maximum Outstanding
Description Currency Available at June 30, 1997
----------- -------- --------- ----------------
<S> <C> <C> <C>
MCC (No.15) Ltd GBP 26,000,000.00 18,744,196.00
Lease Schd Nos.
52/5050/ 4933-3 25,518,137.80
52/5050/ 4437-4 Drawn
</TABLE>
<PAGE> 82
SCHEDULE II
EXISTING OWNERSHIP GROUP
Covia Corporation
Distribution Systems, Inc.
Roscor, A.G.
Travel Industry Systems B.V.
USAM Corp.
<PAGE> 83
SCHEDULE III
TRANSACTION DOCUMENTS
Transaction Agreement
NDC Acquisition Agreements
Sales Representation Agreements
Registration Rights Agreement
Stockholders' Agreement
Services Agreements
Computer Services Agreements
Combination Agreement
ATS Partnership Agreement
Data Access Agreement
Trademark License Agreements
Programmer Support Agreements
Software License Agreements
Functionality Access Agreement
Omnibus Network Agreement
Distributor Sales and Services Agreement
Non-Competition Agreements
All other agreements or instruments entered into or to be entered into
pursuant to any of the foregoing at or prior to the time of the initial
public offering of the Borrower's common stock
2
<PAGE> 84
EXHIBIT A - NOTE
NOTE
New York, New York
___________ __, 199_
For value received, Galileo International, Inc., a Delaware corporation
(the "BORROWER"), promises to pay to the order of ______________________ (the
"BANK"), for the account of its Applicable Lending Office, the unpaid principal
amount of each Loan made by the Bank to the Borrower pursuant to the Credit
Agreement referred to below on the maturity date provided for in the Credit
Agreement. The Borrower promises to pay interest on the unpaid principal amount
of each such Loan on the dates and at the rate or rates provided for in the
Credit Agreement. All such payments of principal and interest shall be made in
the manner and at the place provided for in the Credit Agreement.
All Loans made by the Bank, the respective types and currencies thereof
and all repayments of the principal thereof shall be recorded by the Bank and,
if the Bank so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding may be endorsed by the Bank on the schedule attached
hereto, or on a continuation of such schedule attached to and made a part
hereof, provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This note is one of the Notes referred to in the Five-Year Credit
Agreement dated as of July 23, 1997 among Galileo International, Inc., the Banks
parties thereto, the Letter of Credit Issuing Banks parties thereto and Morgan
Guaranty Trust Company of New York, as Agent (as the same may be amended from
time to time, the "CREDIT AGREEMENT"). Terms defined in the Credit
<PAGE> 85
Agreement are used herein with the same meanings. Reference is made to the
Credit Agreement for provisions for the prepayment hereof and the acceleration
of the maturity hereof.
GALILEO INTERNATIONAL, INC.
By:
-------------------------------
Name:
Title:
2
<PAGE> 86
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount Currency Type Amount of
of of of Principal Notation
Date Loan Loan Loan Repaid Made By
<S> <C> <C> <C> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
<PAGE> 87
EXHIBIT B - MONEY MARKET QUOTE REQUEST
FORM OF MONEY MARKET QUOTE REQUEST
[Date]
To: Morgan Guaranty Trust Company of New York (the "AGENT")
From: Galileo International, Inc.
Re: Five-Year Credit Agreement (as the same may be amended from
time to time, the "CREDIT AGREEMENT") dated as of July 23,
1997 among Galileo International, Inc., the Banks parties
thereto, the Letter of Credit Issuing Banks parties thereto
and the Agent
We hereby give notice pursuant to Section 2.04 of the Credit Agreement
that we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing:
------------------
<TABLE>
<CAPTION>
Principal Amount* [Alternative Currency] Interest Period**
- ----------------- ---------------------- -----------------
<S> <C> <C>
$
</TABLE>
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
- ------------------------
* Amount must be $5,000,000 or a larger multiple of $1,000,000 (or, in
the case of a Borrowing to be denominated in an Alternative Currency, a
comparable amount of such Alternative Currency as determined by the Agent).
** Not less than one month (LIBOR Auction) or not less than 30 days
(Absolute Rate Auction), subject to the provisions of the definition of Interest
Period.
<PAGE> 88
Terms used herein have the meanings assigned to them in the Credit
Agreement.
Galileo International, Inc.
By:
----------------------------------
Name:
Title:
2
<PAGE> 89
EXHIBIT C - INVITATION FOR MONEY MARKET QUOTES
FORM OF INVITATION FOR MONEY MARKET QUOTES
To: [Name of Bank]
Re: Invitation for Money Market Quotes to Galileo International, Inc.
(the "BORROWER")
Pursuant to Section 2.04 of the Five-Year Credit Agreement dated as of
July 23, 1997 among Galileo International, Inc., the Banks parties thereto, the
Letter of Credit Issuing Banks parties thereto and the undersigned, as Agent, we
are pleased on behalf of the Borrower to invite you to submit Money Market
Quotes to the Borrower for the following proposed Money Market Borrowing(s):
Date of Borrowing:
------------------
<TABLE>
<CAPTION>
Principal Amount [Alternative Currency] Interest Period
- ---------------- ---------------------- ---------------
<S> <C> <C>
$
</TABLE>
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30
A.M.] (New York City time) on [date].
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK,
as Agent
By:
------------------------------------
Authorized Officer
<PAGE> 90
EXHIBIT D - MONEY MARKET QUOTE
FORM OF MONEY MARKET QUOTE
To: Morgan Guaranty Trust Company of New York, as Agent
Re: Money Market Quote to Galileo International, Inc. (the "BORROWER")
In response to your invitation on behalf of the Borrower dated
_____________, ____, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
_____________________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Money Market Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
<TABLE>
<CAPTION>
Principal Interest Money Market [Absolute
Amount** Period*** [Margin****] Rate*****]
<S> <C> <C> <C>
$
$
</TABLE>
[Provided, that the aggregate principal amount of Money Market Loans
for which the above offers may be accepted shall not exceed
$____________.]**
- ----------
* As specified in the related Invitation.
** Principal amount bid for each Interest Period may not exceed principal
amount requested. Specify currency if an Alternative Currency. Specify
aggregate limitation if the sum of the individual offers exceeds the
amount the Bank is willing to lend. Bids must be made for $5,000,000 or
a larger multiple of $1,000,000 (or, in the case of a Borrowing to be
denominated in an Alternative Currency, a comparable amount of such
Alternative Currency as determined by the Agent).
*** Not less than one month or not less than 30 days, as specified in the
related Invitation. No more than five bids are permitted for each
Interest Period.
<PAGE> 91
**** Margin over or under the London Interbank Offered Rate determined for
the applicable Interest Period. Specify percentage (to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%).
2
<PAGE> 92
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Five-Year Credit
Agreement dated as of July 23, 1997 among Galileo International, Inc., the Banks
parties thereto, the Letter of Credit Issuing Banks parties thereto and
yourselves, as Agent, irrevocably obligates us to make the Money Market Loan(s)
for which any offer(s) are accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: By:
------------------------------ -------------------------------------
Authorized Officer:
<PAGE> 93
EXHIBIT E - OPINION OF COUNSEL FOR THE BORROWER
OPINION OF
COUNSEL FOR THE BORROWER
July , 1997
To the Banks, the Issuing Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
I am the Senior Vice President and General Counsel of Galileo
International, Inc. (the "BORROWER") and have acted as counsel for the Borrower
in connection with the Five-Year Credit Agreement (the "CREDIT AGREEMENT") dated
as of July 23, 1997 among the Borrower, the Banks parties thereto, the Letter of
Credit Issuing Banks parties thereto and Morgan Guaranty Trust Company of New
York, as Agent. Terms defined in the Credit Agreement are used herein as therein
defined. This opinion is being rendered to you at the request of the Borrower
pursuant to Section 3.01(b) of the Credit Agreement.
In connection with this opinion, I have investigated such questions of
law, received such information from officers and representatives of the Borrower
and its Subsidiaries and examined such certificates of public officials, and
corporate documents and records of the Borrower and its Subsidiaries and other
documents as I have deemed necessary or appropriate for purposes of this
opinion.
In rendering my opinion I have assumed (a) the due authorization,
execution and delivery of the Credit Agreement by each of the parties thereto
(other than the Borrower), (b) the authenticity of all documents submitted to me
as originals and (c) the conformity to original documents of all documents
submitted to me as copies.
Upon the basis of the foregoing, I am of the opinion that:
<PAGE> 94
1. The Borrower is a corporation duly organized and validly existing
under the laws of the State of Delaware and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are (a) within the corporate powers of the
Borrower, (b) have been duly authorized by all necessary corporate action, (c)
require no action by or in respect of, or filing with, any governmental body,
agency or official and (d) do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the certificate of incorporation
or by-laws of the Borrower or of any indenture or other agreement or instrument
evidencing Debt of the Borrower or of any other material agreement, judgment,
injunction, order, decree or other instrument known to me and binding upon the
Borrower or any of its Subsidiaries or result in the creation or imposition of
any Lien on any asset of the Borrower or any of its Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and each Note constitutes a valid and binding obligation of the
Borrower, in each case enforceable in accordance with its terms except, (i) as
the same may be limited by bankruptcy, insolvency, fraudulent transfer or
similar laws affecting creditors' rights generally and by general principles of
equity, (ii) insofar as provisions contained in the Credit Agreement provide for
indemnification, the enforcement thereof may be limited by public policy
considerations, (iii) I express no opinion as to Section 9.04 of the Credit
Agreement insofar as it provides that any Bank purchasing a participation from
another Bank pursuant thereto may exercise set-off or similar rights with
respect to such participation and (iv) I express no opinion as to the effect of
the law of any jurisdiction (other than the States of New York and Colorado)
wherein any Bank may be located or wherein enforcement of the Credit Agreement
or the Notes issued thereunder may be sought which limits the rates of interest
legally chargeable or collectible. For purposes of my opinion in this paragraph
3, I have assumed that the laws of the State of New York are similar to the laws
of the State of Colorado.
4. There is no action, suit or proceeding pending against, or to the
best of my knowledge threatened against or affecting, the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency or
official, in which there is a reasonable possibility of an adverse decision
which could reasonably be expected to materially adversely affect the business,
consolidated financial position or consolidated results of operations of the
Borrower and its Consolidated Subsidiaries, considered as a whole, or which in
2
<PAGE> 95
any manner draws into question the validity or enforceability of the Credit
Agreement or the Notes.
I am admitted to practice in the State of Colorado and express no
opinion as to matters governed by the laws of any jurisdiction other than the
laws of the State of Colorado, the General Corporation Law of the State of
Delaware, and the Federal laws of the United States of America.
This opinion may be relied upon by each of you and any permitted
successor or assignee of each of you and any representative of each of you and
may not be relied upon by or disclosed to any other person (except to the extent
information is permitted to be disclosed pursuant to Section 9.11 of the Credit
Agreement) without my prior written consent.
Very truly yours,
Babetta R. Gray
3
<PAGE> 96
EXHIBIT F - OPINION OF SPECIAL COUNSEL FOR THE AGENT
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENT
________________, 1997
To the Banks, the Issuing Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Five-Year Credit
Agreement (the "CREDIT AGREEMENT") dated as of July 23, 1997 among Galileo
International, Inc., a Delaware corporation (the "BORROWER"), the Banks parties
thereto, the Letter of Credit Issuing Banks parties thereto and Morgan Guaranty
Trust Company of New York, as Agent, and have acted as special counsel for the
Agent for the purpose of rendering this opinion pursuant to Section 3.01(c) of
the Credit Agreement. Terms defined in the Credit Agreement are used herein as
therein defined.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as we have deemed necessary or advisable for purposes of this
opinion.
Upon the basis of the foregoing, we are of the opinion that the Credit
Agreement constitutes a valid and binding agreement of the Borrower and each
Note constitutes a valid and binding obligation of the Borrower, in each case
enforceable in accordance with its terms except as the same may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
by general principles of equity.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York and the federal laws of
the
<PAGE> 97
United States of America. In giving the foregoing opinion, (i) we express no
opinion as to the effect (if any) of any law of any jurisdiction (except the
State of New York) in which any Bank is located which limits the rate of
interest that such Bank may charge or collect and (ii) we have assumed that
under the applicable law of the State of Delaware, the execution, delivery and
performance by the Borrower of the Credit Agreement and the Notes are within the
Borrower's corporate powers and have been duly authorized by all necessary
corporate action.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
2
<PAGE> 98
EXHIBIT G - ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, ____ among [NAME OF ASSIGNOR] (the
"ASSIGNOR"), [NAME OF ASSIGNEE] (the "ASSIGNEE"), GALILEO INTERNATIONAL, INC.
(the "BORROWER") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the
"AGENT").
WHEREAS, this Assignment and Assumption Agreement (the "AGREEMENT")
relates to the Five-Year Credit Agreement dated as of July 23, 1997 among the
Borrower, the Assignor and the other Banks parties thereto, as Banks, the Letter
of Credit Issuing Banks parties thereto and the Agent (as amended from time to
time, the "CREDIT AGREEMENT");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans to the Borrower and participate in Letters of Credit in
an aggregate principal amount at any time outstanding not to exceed $__________;
[WHEREAS, Committed Loans made to the Borrower by the Assignor under
the Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof;]
[WHEREAS, Letters of Credit with a total amount available for drawing
thereunder of $__________ are outstanding at the date hereof;] and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "ASSIGNED AMOUNT"),
together with a corresponding portion of its outstanding Committed Loans and
Letter of Credit Liabilities, and the Assignee proposes to accept assignment of
such rights and assume the corresponding obligations from the Assignor on such
terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
<PAGE> 99
SECTION 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
Committed Loans and Letter of Credit Liabilities made by the Assignor
outstanding at the date hereof. Upon the execution and delivery hereof by the
Assignor, the Assignee, [the Borrower, the Agent] and the Issuing Banks and the
payment of the amounts specified in Section 3 required to be paid on the date
hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and
be obligated to perform the obligations of a Bank under the Credit Agreement
with a Commitment in an amount equal to the Assigned Amount, and (ii) the
Commitment of the Assignor shall, as of the date hereof, be reduced by a like
amount and the Assignor released from its obligations under the Credit Agreement
to the extent such obligations have been assumed by the Assignee. The assignment
provided for herein shall be without recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them.*** It is
understood that facility fees and/or letter of credit fees accrued to the date
hereof are for the account of the Assignor and such fees accruing from and
including the date hereof are for the account of the Assignee. Each of the
Assignor and the Assignee hereby agrees that if it receives any amount under the
Credit Agreement which is for the account of the other party hereto, it shall
receive the same for the account of such other party to the extent of such other
party's interest therein and shall promptly pay the same to such other party.
SECTION 4. Consent of the Borrower, the Agent and the Issuing Banks.
This Agreement is conditioned upon the consent of the Borrower, the Agent and
the Issuing Banks pursuant to Section 9.06(c) of the Credit Agreement. The
execution of this Agreement by the Borrower, the Agent and the Issuing Banks is
evidence of this consent. Pursuant to Section 9.06(c), the Borrower agrees to
- ------------------------
*** Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion of
any upfront fee to be paid by the Assignor to the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.
2
<PAGE> 100
execute and deliver a Note payable to the order of the Assignee to evidence the
assignment and assumption provided for herein.
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the obligations of the Borrower
in respect of the Credit Agreement or any Note or Letter of Credit. The Assignee
acknowledges that it has, independently and without reliance on the Assignor,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement and will
continue to be responsible for making its own independent appraisal of the
business, affairs and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[NAME OF ASSIGNOR]
By:
-----------------------------------
Name:
Title:
[NAME OF ASSIGNEE]
By:
-----------------------------------
Name:
Title:
3
<PAGE> 101
[CONSENTED TO:
GALILEO INTERNATIONAL, INC.
By:
-----------------------------------
Name:
Title:
CONSENTED TO:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK,
as Agent
By:
-----------------------------------
Name:
Title:
CONSENTED TO:
[NAME OF ISSUING BANK],
as Issuing Bank
By:
-----------------------------------
Name:
Title: ]
4
<PAGE> 1
Exhibit 10.16
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made and entered into this 23rd day of
June, 1988, by and between Linclay, a Missouri general partnership (herein
called "Landlord") and Covia Partnership, a Delaware general partnership
(herein called "Tenant"). This First Amendment To Lease amends that certain
Lease dated April 18, 1988, (hereinafter called the "Lease").
WHEREAS, both Landlord and Tenant reaffirm such Lease to be in
full force and effect; and
WHEREAS, both Landlord and Tenant now wish to modify and amend
the above referenced Lease.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, both
Landlord and Tenant, for themselves, their heirs,
successors and assigns, intending to be legally bound
thereby, hereby agree to this First Amendment To Lease.
If any provision of the Lease is inconsistent with any
provision herein, this First Amendment To Lease shall
govern and control. All other terms, conditions and
covenants of the Lease are hereby ratified and
confirmed.
AMENDMENTS TO LEASE
Landlord and tenant hereby mutually agree that the Lease
is amended by addition of or substitution of the
following terms, conditions and agreements for those
similarly numbered provisions of the lease.
ITEM NUMBER ONE: Section 1. Property, of the Lease is hereby deleted and
in its place the following is substituted:
1. PROPERTY. Landlord hereby leases to Tenant and Tenant hereby takes
and hires from Landlord the land consisting of
approximately 18.88 acres as legally described on
Exhibit "A" attached to the Lease and incorporated by
reference herein (the "Land"), together with the (a)
building (the "Building") containing approximately
137,900 gross square feet of building area (including
basement level, first floor, second floor and mechanical
penthouses) per BOMA standards for single tenant users
(the "Office Space"), and (b) not less than 700 paved
parking spaces on the Land (the "Parking Spaces"),
together with access aisles, driveways, sidewalks and
landscaping (collectively called the "Appurtenances"),
to be constructed by Landlord thereon pursuant to
Paragraph II.A. of Appendix A to the Lease as modified
by this First Amendment To Lease. Landlord shall
construct the Building and the Appurtenances in
accordance with the procedures set forth in Appendix "A"
to the Lease and in accordance with the Design Criteria
described in this First Amendment To Lease. The Land,
the Building and the Appurtenances are sometimes
hereinafter collectively called the "Property".
<PAGE> 2
Page 2
ITEM NUMBER TWO; Section 3. Rents, Paragraph (a)(ii) line six and line nine
shall have the value of $18,297,380.00 hereby deleted and the
value $17,728,568.00 substituted in its place in both line six
and line nine. The balance of this Section 3 shall remain
unmodified and in full force and effect.
B. AMENDMENTS TO EXHIBIT B TO THE LEASE
Landlord and Tenant hereby mutually agree that Exhibit B to the
Lease is hereby deleted and in its place the following is
substituted:
EXHIBIT B
(A) At the time of execution of this First Amendment To Lease, the Total
Assembly Costs have been estimated to be $17,728,568.00 (the "Estimated Total
Assembly Costs") based on the following list of component costs:
<TABLE>
<S> <C> <C>
1. Land Purchase Price $ 2,455,100.00
2. Guaranteed Maximum Price
(subject to adjustment as
provided in the Lease and this
First Amendment To Lease) 11,450,000.00
3. Development Costs 390,000.00
4. Architectural and Engineering Costs 664,706.00
5. Development Overhead and Fees 800,000.00
6. Broker Commission 600,000.00
7. Legal, Points/Fees 275,000.00
8. Project Contingency 200,000.00
9. Construction Loan Interest 893,762.00
--------------
Estimated Total Assembly Costs $17,728,568.00
==============
</TABLE>
(B) Landlord and Tenant acknowledge and mutually agree that the Estimated Total
Assembly Costs is subject to the following:
(a) The component costs described in Section 1 above (Land Purchase Price),
Section 5 above (Development Overhead and Fees), and Section 6 above (Broker
Commissions) are fixed component costs (which have been negotiated as such)
which shall not be subject to credit offset of one component cost against
another.
<PAGE> 3
page 3
(b) The component cost described in Section 2 above (Guaranteed Maximum
Service) is a fixed component cost which is subject to adjustment pursuant to
the provisions of Appendix A to the Lease, and subject to Tenant audit, but is
not subject to credit offset of one component cost against another, except for
Section 8 above (Project Contingency).
(c) The component costs described in Section 3 above (Development Costs),
Section 4 above (Architectural and Engineering Costs), Section 7 above (Legal,
Points and Fees), Section 8 above (Project Contingency) and Section 9 above
(Construction Loan Interest) are variable component costs and subject to Tenant
audit. Any credits in any one of said component costs may be used to offset any
averages in the component cost categories described above in Sections 3, 4, 7,
8 and 9.
C. AMENDMENTS TO APPENDIX A TO THAT CERTAIN LEASE AGREEMENT DATED APRIL 18, 1988
BETWEEN LINCLAY AS LANDLORD AND COVIA PARTNERSHIP AS TENANT
Landlord and Tenant hereby mutually agree that Appendix A to the Lease is
amended by addition of or substitution of the following items, conditions
and agreements for those similarly numbered provisions of Appendix A to the
Lease.
ITEM NUMBER ONE; Paragraph II.A. of the Appendix A to the Lease is hereby
deleted and in its place the following is substituted:
II. CONSTRUCTION
A. Landlord shall construct the Building and Appurtenances
upon the Land in accordance with:
(i) Design Criteria, dated as revised January 14, 1988, and
with pages 15 and 24, revised January 19, 1988, and
pages 16, 23 and 24, revised January 27, 1988, prepared
by Swanson Rink Consulting Engineers.
(ii) Schematic Design, dated January 26, 1988, and with page
24, revised May 12, 1988 (pages 34 and 35 deleted),
prepared by Swanson Rink Consulting Engineers.
(iii) Design Development Mechanical Narrative, dated May 27,
1988, prepared by Swanson Rink Consulting Engineers and
DMJM. The following revisions to the Table of Contents
are hereby incorporated; HVAC Equipment Schedule pages
34 and 35 have been deleted; HVAC Outline Specification
(pages 36-39) is the same as included in the January 26,
1988 Schematic Design referenced in Number (ii) above;
Point Schedule pages 10 and 11 from the January 26, 1988
Schematic Design referenced in Number (ii) above have
been deleted. In addition, add and include the following
changes to the Design Development Mechanical Narrative:
<PAGE> 4
Page 4
(a) Equipment Schedule:
Item M-1: AHU-8 -- Maintenance and parts air handling unit:
Single zone package air handling unit with outside air
economizer, horizontal draw-thru, 700 CFM; 1 hp. fan motor,
cooling coil, chilled water -- 19 MBH heating coil -- HTL water
-- 13 MBH
Filter Section: 2.2 SF x 2" thick
Air Blender: 700 CFM at .12" air pressure drop
Item M-2:
Air Blenders shall be provided with air handling units AHU-5,
AHU-6 and AHU-7.
Item M-3:
On page 22-I, cooling tower shall be two cell not 3 cell.
Item M-4: Delete K. kitchen make-up air unit.
(b) Control Item:
The automation control contractor is to supply provisions for
transmission interface of all system control and monitoring
points to 5350 S. Valentia Way by Covia-furnished transmission
system.
(iv) Outline Specifications, dated May 27, 1988, prepared by Linclay.
(v) Scheme A, West patio design, 1/16 inch scale, undated, prepared
by THK Associates, Inc.
(vi) Preliminary Landscape Plan, dated May 27, 1988, prepared by THK
Associates, Inc.
(vii) Entry Plaza Concept Study, dated May 27, 1988, prepared by THK
Associates, Inc.
(viii) The following Design Development Drawings, dated May 27, 1988,
prepared by Swanson Rink Consulting Engineers and DMJM;
--------------------------------------------------------------
Sheet No. Title
--------------------------------------------------------------
C-1 Grading Plan
A-1 First Floor Plan
A-2 Second Floor Plan
A-3 Penthouse Level Plan
A-4 Building Sections
A-5 Building Elevations
A-6 Building Elevations
A-7 Wall Sections and Details
A-8 Typical Sections and Wall Elevations
A-9 First Floor, Reflected Ceiling Plan
<PAGE> 5
Page 5
- --------------------------------------------------------------------------------
Sheet No. Title
- --------------------------------------------------------------------------------
A-10 Second Floor, Reflected Ceiling Plan
A-11 First Floor, Access Flooring Location Plan
A-12 Second Floor, Access Flooring Location Plan
S-1 First Floor Plan
S-2 Second Floor Framing Plan
S-3 Roof Framing Plan
S-4 Partial Roof Plans
FP-1 First Floor Sprinkler Plan
FP-2 Second Floor Sprinkler Plan
M-1 First Floor Plan -- HVAC
M-2 Second Floor Plan -- HVAC
M-3 Penthouse Plan and Section
M-4 HVAC Piping Flow Diagram
E-1 Fixture Schedule and Legend
E-2 Electrical Site Plan
E-3 Basement and First Floor Lighting Plan
E-4 Second Floor Lighting Plan
E-5 First Floor Power Plan
E-6 Second Floor Power Plan
E-7 First Floor Special Systems Plan
E-8 Second Floor Special Systems Plan
E-9 Penthouse Level Power and Systems Plan
E-10 Electrical One Line
(ix) The following clarifications are provided for the Design Development
Drawings specified in Number (viii) above:
Sheet No. C-1:
(a) Drive width from South Fulton Street shall be 32 feet in lieu of 25
feet as shown. Taper 32 foot width to 25 foot at curb return to north
parking lot.
(b) North and south retaining walls at loading dock shall have top of
wall elevation = 5752. South retaining wall shall have a length of 30
feet.
(c) Retaining wall at entry plaza shall have top of wall elevations =
5750 and length of 90 feet.
(d) Retaining wall at northeast corner of building shall have top of wall
elevation = 5750 and length of 30 feet. Retaining wall shall also be
extended in a northeasterly direction (parallel to building) 40 feet
with a top of wall elevation = 5750.
<PAGE> 6
Page 6
(e) Entrance from South Havana Street shall have Arapahoe County standard
right-in/right-out island with minimum island width of 8 feet.
(f) Building foundation drain shall be discharged through 4 inch drain to
proposed 27 inch RCP at north side of property.
(g) Basement F.F. Elevation is revised to 5740.5 and 5737.5.
(h) Provide painted metal handrail at all exterior stairs as required,
typical.
(i) Fire protection service main to building shall connect to existing 16 inch
ductile iron water main located 40 feet south of north right-of-way of East
Easter Avenue. New water main installed under existing pavement shall be
bored and pothole, open cutting is not permitted. For basis of pricing
assume 100 l.f. of 12 inch ductile iron water main plus 400 l.f. of 8 inch
ductile iron water main for fire protection service to building. Include
one fire hydrant assembly, complete, at entrance drive from East Easter
Avenue, fire hydrant connection from new 12 inch.
(j) Building domestic water service shall be priced as 4 inch with 600 l.f. of
4 inch service line. Include meter pit and connection per Castlewood Water
District requirements. Do Not include service fees as required for service
(by Owner). The building domestic service meter and service tap shall be
three (3) inch size.
(k) Lawn irrigation service shall be priced as 2 inch. Lawn irrigation service
meter shall be two (2) inch size.
(l) Building sanitary sewer service shall be priced as 6 inch with 400 l.f. of
service line. Service shall tap into existing 10 inch sanitary sewer
service located along north property line. (Existing M.H. 3D, rim
elevation = 5741.5 +/-, invert elevation = 5729.9 +/-).
<PAGE> 7
Page 7
Sheet No. A-1: Business office provide one hour fire shutter, Cookson or equal.
Sheet No. A-2: Building shall have glazed curtain wall at exterior wall between
column line 5 and 6 and column line 10 and 11 as shown on
building elevations (Sheet No. A-5 and No. A-6).
Sheet No. A-3: Provide overflow roof drain at each roof drain shown as required
per code.
Sheet No. A-7: Section 2/7 Typical Wall Section, Revise three foot compacted
fill to four feet compacted fill.
Sheet No. A-8: Section 5/8 Section at Penthouse, 4 inch concrete on metal deck
at second floor revise to 5-1/4 inch lightweight concrete with
6x6 W 1.4 x W 1.4 WWF on 2", 18-gauge metal deck.
Sheet No. A-9:
(a) Slot diffusers are required along south side of building at
column line F in the individual offices. (Add 8 l.f. of slot
diffusers for eight separate offices total of additional 64
l.f.).
(b) Reception/Secretary Area Ceiling shall have beams and structural
elements wrapped with drywall for one hour rating above
suspended ceiling.
Sheet No. A-10: Add 8 l.f. of slot diffusers for one office.
Sheet No. A-11:
(a) Raised concrete slab at kitchen shall have appropriate bond
break to allow removal from concrete slab on grade in future.
(b) Notwithstanding the Design Criteria referenced above as Number
(i) as it relates to the Access Flooring System (Section 3.02),
the access floor included in the scope of the work is 40%
Concore and 60% Woodcore, not 100% Concore.
Sheet No. A-12: Notwithstanding the Design Criteria referenced above as Number
(i) as it relates to the Access Flooring System (Section 3.02),
the access floor included in the scope of the work is 40%
Concore and 60% Woodcore, not 100% Concore.
Sheet No. S-1: NOTE: An additional 12 inch caisson is required at south end of
loading dock.
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Page 8
Sheet No. S-2: Cross bracing (x-Bracing) is required along Grid A between
Columns 4 and 5 and along Grid D between Columns 3 and 4. (Both
first and second floors).
Sheets No. S-1:
S-2:
S-3:
S-4: All Steel is A 572-50 specification for all beams and columns
unless noted otherwise.
Sheet No. FP-1 and FP-2: New sprinkler heads for unfinished ceiling areas are
shown as open circles. Sprinkler pendants shall be positioned
as required by code in the open ceiling areas.
Sheet No. E-1:
(a) Fixture type L to be an adjustable type low voltage downlight
as manufactured by Prescolite. Catalog No. LVH4-LV2C-120-LV17.
(b) Fixture types AA and BB shall have lamp specification changed
from 400 W Metal Halide to 400 W High Pressure Sodium. Fixtures
shall be changed to Gardco #EH19-2-Q-277-400HPS-BLA-TRS-28-PP
and #EH19-1-Q-277-400HPS-BLA-TRS-28-PP respectively.
(c) Electrical contractors pricing fixture schedule shall price
fixtures as they appear on the fixture schedule. As this Design
Development set of documents is intended to establish quality
and price, no fixture "packaging" or substitutions will be
allowed.
Sheet No. E-2:
(a) Provide one, 20 AMP, 120 V sign circuit (wire and conduit) to
north side of entrance drive from South Havana Street.
(b) Provide one, 20 AMP, 120 V sign circuit (wire and conduit) to
east side of entrance drive from East Easter Avenue.
(c) Provide one, 20 AMP, 120 V sign circuit (wire and conduit) to
south side of entrance drive from South Fulton Street.
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Page 9
Sheets No. E-3 and E-4:
(a) Alternates 1, 2, and 3 apply only to open workstation areas,
test rooms, and training rooms. Light fixture spacing in
open workstation areas on these sheets pertains to
alternates 1, 2, and 3. For base package, contractor shall
adjust lighting layout to 8' x 10' spacing (one fixture
every 80 square feet) in open workstation areas only.
(b) Under alternate 3, the standard lamps referred to shall be
G.D. F40SP35. Also, under alternate 3, provide (2)
additional separately enclosed dimmers in each PDP-9 dimmer
panel for emergency lighting.
Sheets No. E-5 and E-6:
Receptacles with a subscript "D" indicate that receptacle is
to be on a dedicated circuit.
Sheet No. E-9: Exterior light fixtures shown on lighting plans shall
be Stanco #P63701 W/100 W A-19 incandescent lamp. (Total
of 3)
Sheet No. E-10: The (3) 800 AMP circuit breakers in the Emergency
Distribution Switchboard that serve the U.P.S. system
shall be changed to 1000 A-3P circuit breakers.
The items referenced in Items (i), (ii), (iii), (iv), (v), (vi), (vii),
(viii), and (ix) of this Paragraph II.A. are made a part hereto by this
reference and are collectively defined as the Design Criteria (the "Design
Criteria").
The balance of this Paragraph II.A., commencing on Page 7 and beginning
with the paragraph, The Building and Appurtenances. . . ., shall remain
unmodified and in full force and effect.
ITEM NUMBER TWO; Paragraph II.E. line four and five shall have the value
Twelve Million Forty-One Thousand Eight Hundred Dollars
($12,041,800.00) hereby deleted and the value Eleven Million
Four Hundred Fifty Thousand Dollars ($11,450,000.00)
substituted in both lines four and five. The balance of this
Paragraph II.E.1. shall remain unmodified and in full force
and effect.
ITEM NUMBER THREE; Paragraph II.G. line five shall have the value Eighteen
Million Five Hundred Thousand Dollars ($18,500,000.00)
deleted at both locations and the value Seventeen Million
Nine Hundred Fifty Thousand Dollars ($17,950,000.00)
substituted in its place at both locations in line five. The
balance of this Paragraph II.E.1 shall remain unmodified and
in full force and effect.
<PAGE> 10
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IN WITNESS WHEREOF, Landlord and Tenant have executed this First
Amendment To Lease as of the date and year above first written.
Witness COVIA PARTNERSHIP,
Tenant
/s/ D. Georgelow By: /s/ Barry Kotar
- ------------------------- --------------------------------
Barry Kotar,
President
Witness:
Landlord
LINCLAY, By: JMP INVESTMENT CORPORATION,
general partner
/s/ Donald S. McKearney By: /s/ Herbert E. Prince
- -------------------------- --------------------------------
Herbert E. Prince,
Vice President
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Supervisory Board
Galileo International Partnership
and The Board of Directors
Galileo International, Inc.:
We consent to the use of our reports included herein and to the references to
our firm under the headings "Summary Historical and Pro Forma Consolidated
Financial and Operating Data", "Selected Historical Consolidated Financial and
Operating Data", and "Experts" in the prospectus.
KPMG Peat Marwick LLP
Chicago, Illinois
July 17, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion
in this Registration Statement of our report dated February 7, 1997, included in
the Apollo Travel Services Partnership audited consolidated financial
statements for the year ended December 31, 1996, and to all references to our
Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 17, 1997
<PAGE> 1
EXHIBIT 23.10
July 8, 1997
Galileo International, Inc.
9700 West Higgins Road, Suite 400
Rosemont, Illinois 60018
Ladies and Gentlemen:
The undersigned hereby consents to being designated as a person about
to become a director of Galileo International, Inc., a Delaware corporation
(the "Company"), in the Company's Registration Statement on Form S-1 (File No.
333-27495).
Very truly yours,
/s/ John W. Harper
-----------------------------------------
John W. Harper
