<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value...... $ $400,000,000 $121,213
==============================================================================================================================
</TABLE>
(1) Includes shares that the U.S. Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
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 May 20, 1997
[GALILEO LOGO]
Shares
Galileo International, Inc.
COMMON STOCK
------------------------
OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY, SHARES ARE
BEING SOLD BY THE COMPANY AND 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 SHARES OF COMMON STOCK BEING OFFERED
HEREBY, SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND
CANADA BY THE U.S. UNDERWRITERS AND 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 $ AND $ . SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE.
------------------------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 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. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $ .
(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
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 & CO.
Incorporated
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.......................... 9
The Company........................... 15
Use of Proceeds....................... 18
Dividend Policy....................... 19
Dilution.............................. 19
Capitalization........................ 20
Selected Historical Consolidated
Financial and Operating Data........ 21
Pro Forma Condensed Combined Financial
Information......................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
The CRS Industry...................... 37
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.............................. 38
Management............................ 49
Relationship with Airline Stockholders
and Certain Transactions............ 55
Principal and Selling Stockholders.... 58
Description of Capital Stock.......... 59
Shares Eligible for Future Sale....... 66
Underwriters.......................... 67
Certain United States Tax
Considerations for Non-United States
Holders............................. 70
Legal Matters......................... 72
Experts............................... 72
Additional Information................ 73
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, 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 220 major hotel
chains with more than 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
estimates that, in 1996, 27% of all United States CRS airline travel bookings
and 39% of all European CRS airline travel bookings were made through the
Company.
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"), Traviswiss AG ("Traviswiss") and Galileo Nederland
BV ("Galileo Nederland"), the NDCs that market the Company's products in the
United States, Mexico, certain islands of the Caribbean, Switzerland and The
Netherlands. 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"). 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
THE OFFERING
The offering hereby of 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 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>
Common Stock offered by the Company:
U.S. Offering................................... shares(1)
International Offering.......................... ---------- shares
Total...................................... ---------- shares(1)
Common Stock offered by the Selling Stockholders:
U.S. Offering................................... ---------- shares
International Offering.......................... ---------- shares
Total...................................... ---------- shares
Total Offering.................................... ---------- shares(1)
----------
Common Stock outstanding after the Offering....... 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 $ 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."
Proposed NYSE symbol..............................
</TABLE>
- -------------------------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised. See
"Underwriters."
(2) Excludes shares of Common Stock reserved for issuance pursuant to
the Company's equity incentive plan.
6
<PAGE> 8
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;
(iii) the incurrence of $ 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 $1,175.1 $279.2 $307.6 $ 331.4
Operating expenses(2)............ 744.5 826.1 912.9 944.6 227.2 241.3 242.0
------ ------ -------- -------- ------ ------ --------
Operating income................. 69.3 140.3 175.4 230.5 52.0 66.3 89.4
Other income (expense), net(3)... (16.1) (16.6) (8.3) (30.3) (2.0) (0.4) (6.7)
------ ------ -------- -------- ------ ------ --------
Income before income taxes....... 53.2 123.7 167.1 200.2 50.0 65.9 82.7
Income taxes(4).................. 4.4 2.6 1.9 81.6 0.5 0.4 32.9
------ ------ -------- -------- ------ ------ --------
Net income....................... $ 48.8 $121.1 $ 165.2 $ 118.6 $ 49.5 $ 65.5 $ 49.8
====== ====== ======== ======== ====== ====== ========
Pro forma net income per share... $ $
======== ========
Pro forma weighted average number
of shares outstanding
(in millions)..................
======== ========
BALANCE SHEET DATA
(AT END OF PERIOD):
Current assets................... $133.8 $187.3 $ 240.8 $249.2 $278.5 $ 356.5
Total assets..................... 555.5 569.0 599.9 618.7 631.4 1,502.4
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 70.0 467.0
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... 588.4
OTHER DATA:
Operating income as a percentage
of revenue..................... 8.5% 14.5% 16.1% 19.6% 18.6% 21.5% 27.0%
Percentage of revenue from non-
affiliated customers........... 61.7% 61.6% 64.2% 63.8% 64.5%
Net CRS bookings (in millions)(5). 255.2 285.9 316.1 83.4 88.7
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.............. 2,054 2,008 1,950 -- --
Revenue per employee............. $ .4 $ .5 $ .6 -- --
</TABLE>
(footnotes appear on following page)
7
<PAGE> 9
(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.
8
<PAGE> 10
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 % of the outstanding Common Stock ( % 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 % and % of the outstanding Common
Stock, respectively ( % and %, 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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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 Swissair
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
Prior to 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 North American sales efforts. 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.
Prior to 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
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of such date, provided that the agreements may not be terminated while the
airline 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. 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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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 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 Airlines,
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 Union will not
challenge the Company's fee structure or require 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."
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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 220
major hotel chains with more than 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 estimates that, in 1996, 27% of all United States CRS airline
travel bookings and 39% of all European CRS airline travel bookings were made
through the Company.
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 Galileo Nederland simultaneously with the
consummation of the Offering. 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 Worldwide
Influence."
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 and
Mexico 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 $222.4 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.
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Traviswiss AG
Prior to the consummation of the Offering, the Company will enter into an
agreement with Swissair and one of its affiliates to acquire Traviswiss at a
purchase price of $8.0 million. Traviswiss, based in Zurich, Switzerland, was
incorporated in 1994 as a wholly owned subsidiary of Swissair. 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 $10.8
million. As of March 31, 1997, Traviswiss had 52 employees.
In connection with its acquisition of Traviswiss, the Company has agreed to
pay Swissair a total of $22.4 million in four annual installments, beginning
upon consummation of the Offering, 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 Swissair 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 Swissair 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, 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. 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 $6.0 million. As of
March 31, 1997, Galileo Nederland had 43 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 consummation of the Offering, 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."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of
million shares of Common Stock in the Offering are estimated to be approximately
$ million (approximately $ million if the U.S. Underwriters'
over-allotment option is exercised in full), assuming an initial public offering
price of $ per share. The net proceeds to the Company from the Offering,
together with an additional $ 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......................... $
Borrowings under the Credit Agreement..................
------
Total sources..................................... $
======
USES OF FUNDS:
ATS acquisition........................................ $
Traviswiss acquisition.................................
Galileo Nederland acquisition..........................
Initial payments related to the termination of revenue
sharing obligations...................................
Estimated fees and expenses related to borrowings under
the Credit Agreement..................................
------
Total uses........................................ $
======
</TABLE>
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.
18
<PAGE> 20
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 $ 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 $ million, or $ 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 $ 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 shares of Common Stock pursuant
to the Offering, the adjusted pro forma deficit in net tangible book value of
the Company at March 31, 1997 would have been approximately $ million or
per share of Common Stock. Such amount represents an immediate dilution of $
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>
Initial public offering price per share of Common Stock.... $
Pro forma net tangible book value (deficit) per share of
Common Stock(1).......................................... $( )
Increase in pro forma net tangible book value per share
attributable to sale of shares of Common Stock in the
Offering................................................. $
---------
Pro forma net tangible book value per share of Common Stock
after the Offering....................................... $
--------
Dilution per share of Common Stock to new investors........ $
========
</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 $ million of indebtedness under the Credit
Agreement; and (iii) the NDC Acquisitions.
The following table summarizes, on a pro forma basis, at March 31, 1997,
the differences between existing stockholders and investors who purchase shares
of Common Stock in the Offering with respect to the number of shares of Common
Stock acquired from the Company, the total consideration paid and the average
price per share paid:
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK ACQUIRED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................ % $ % $
New investors.................................... $
------- ----- ------- -----
Total....................................... 100.0% $ 100.0%
======= ===== ======= =====
</TABLE>
19
<PAGE> 21
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.,
assuming such merger was consummated at March 31, 1997; and (iii) as further
adjusted to give pro forma effect to (a) the Offering; (b) the incurrence of
$ 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
Long-term debt, current portion........................ --
------
$ 7.0
======
Capital lease obligations, less current portion........ $ 32.2 $ $
Long-term debt, less current portion................... 70.0
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; shares issued and
outstanding as adjusted; shares issued
and outstanding as further adjusted............... --
Additional paid-in capital........................... --
Retained earnings.................................... --
------ ------ -------
Total stockholders' equity...................... --
Partners' capital, including cumulative translation
losses............................................... 321.8 -- --
------ ------ -------
Total capitalization................................... $424.0 $ $
====== ====== =======
</TABLE>
20
<PAGE> 22
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 of 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 59.7 255.2 285.9 316.1 83.4 88.7
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
Average number of employees.... -- -- -- 2,054 2,008 1,950 -- --
Revenue per employee........... -- -- -- $ .4 $ .5 $ .6 -- --
</TABLE>
(footnotes appear on following page)
21
<PAGE> 23
(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.
22
<PAGE> 24
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; (iii) the incurrence of $ 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.
23
<PAGE> 25
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 $ 355,210(a) $ (710,000)(b) $ 107,473
396,500(c) (5,400)(g)
(67,272)(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 11,827 765,982 (827,421) 356,481
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) 88,494
37,200(g)
500(c)
-------- -------- ------- ---------- ---------- ----------
$631,440 $233,280 $16,761 $1,448,647 $ (827,733) $1,502,395
======== ======== ======= ========== ========== ==========
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) 107,950
Long-term debt, current portion... -- -- 1,486 (1,486)(e) --
-------- -------- ------- ---------- ---------- ----------
Total current liabilities........... 166,982 58,336 10,590 (46,102) 86,862 276,668
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) 397,000(c) 467,000
Capital stock....................... -- -- 1,402 (1,402)(b) 151(a) 151
Additional paid-in capital.......... -- -- 10,565 (10,565)(b) 676,830(a) 600,568
(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) $1,248,901 $1,502,395
======== ======== ======= ========== ========== ==========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
24
<PAGE> 26
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) $331,413
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 (85,956)(j) 114,906
-------- -------- ------- --------- -------- --------
241,335 72,812 7,986 7,813 (88,004) 241,942
-------- -------- ------- --------- -------- --------
Operating income.............. 66,311 28,957 2,016 (95,817) 88,004 89,471
Other income (expense):
Interest income............. 1,111 626 -- 1,737
Interest expense............ (2,885) -- (67) (6,973)(l) (9,925)
Foreign exchange gain
(loss)................... 1,755 -- -- 1,755
Other....................... (385) 105 9 (271)
-------- -------- ------- --------- -------- --------
Income before income taxes.... 65,907 29,688 1,958 (102,790) 88,004 82,767
Income taxes.................. 415 -- 142 32,374(m) 32,931
-------- -------- ------- --------- -------- --------
Net income.................... $ 65,492 $ 29,688 $ 1,816 $(135,164) $ 88,004 $ 49,836
======== ======== ======= ========= ======== ========
Pro forma weighted average
number of shares
outstanding.................
========
Pro forma earnings per
share....................... $
========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
25
<PAGE> 27
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) $300,940
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 (83,424)(j) 99,966
-------- ------- ------- --------- -------- --------
227,155 70,683 9,523 7,813 (86,698) 228,476
-------- ------- ------- --------- -------- --------
Operating income............. 52,022 27,558 697 (94,511) 86,698 72,464
Other income (expense):
Interest income............ 997 2,066 -- 3,063
Interest expense........... (3,332) -- (67) (6,973)(l) (10,372)
Foreign exchange gain
(loss)..................... (367) -- -- (367)
Other...................... 651 441 8 1,100
-------- ------- ------- --------- -------- --------
Income before income taxes... 49,971 30,065 638 (101,484) 86,698 65,888
Income taxes................. 481 -- 76 26,293(m) -- 26,850
-------- ------- ------- --------- -------- --------
Net income................... $ 49,490 $30,065 $ 562 $(127,777) $ 86,698 $ 39,038
======== ======= ======= ========= ======== ========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
26
<PAGE> 28
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) $1,175,114
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 (319,161)(j) 430,162
---------- -------- ------- --------- --------- ----------
912,920 295,006 36,610 31,253 (331,174) 944,615
---------- -------- ------- --------- --------- ----------
Operating income................. 175,339 84,971 1,442 (362,427) 331,174 230,499
Other income (expense):
Interest income................ 3,247 4,712 -- 7,959
Interest expense............... (11,307) -- (333) (27,890)(l) (39,530)
Foreign exchange gain (loss)... 12 -- -- 12
Other.......................... (193) 1,342 137 1,286
---------- -------- ------- --------- --------- ----------
Income before income taxes....... 167,098 91,025 1,246 (390,317) 331,174 200,226
Income taxes..................... 1,882 -- 106 79,606(m) 81,594
---------- -------- ------- --------- --------- ----------
Net income....................... $ 165,216 $ 91,025 $ 1,140 $(469,923) $ 331,174 $ 118,632
========== ======== ======= ========= ========= ==========
Pro forma weighted average number
of shares outstanding..........
==========
Pro forma earnings per share..... $
==========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
27
<PAGE> 29
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 Common Stock of the Company,
resulting in estimated net proceeds to the Company of approximately
$355,210.
(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 $397,000
under the Credit Agreement, net of estimated debt issuance costs of $500.
(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.
(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.
28
<PAGE> 30
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% 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%.
29
<PAGE> 31
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."
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
systems 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.
30
<PAGE> 32
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% 52.5% 49.2% 47.9%
Rest of world(2)................................. 40.8 47.5 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,
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 and intangibles will also occur as a result of the NDC
Acquisitions. See "Pro Forma Condensed Combined Financial Information."
31
<PAGE> 33
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)..................................... 75.2 74.3 72.6 63.8
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)..................................... 83.4 80.7 80.5 71.5
</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.
32
<PAGE> 34
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>
Services revenues:
Affiliated customers...................... 38.3% 38.4% 35.8% 36.2% 35.5%
Non-affiliated customers.................. 61.7 61.6 64.2 63.8 64.5
----- ----- ----- ----- -----
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 9.9% 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
33
<PAGE> 35
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%, 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 19.0% 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
34
<PAGE> 36
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 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 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 $ 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.
35
<PAGE> 37
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 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 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 the consummation of the Offering, contingent upon improvements in the
Company's airline booking fee revenue in the sellers' respective NDC territories
over the five-year period following the consummation of the Offering, 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 -- Services Agreements."
In addition to reinvesting a substantial portion of earnings in its
business, the Company currently intends to pay regular quarterly dividends of
$ 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."
36
<PAGE> 38
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 hotel, car, 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.
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<PAGE> 39
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 220
major hotel chains with more than 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 estimates that, in 1996, 27% of all United States CRS airline
travel bookings and 39% of all European CRS airline travel bookings were made
through the Company.
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
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<PAGE> 40
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 and 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
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<PAGE> 41
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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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). 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 clients, these clients 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> 43
The Company's subscriber marketing is directed towards travel agencies,
including multinational travel agencies, corporate travel departments and
individual customers.
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 (including global roll-outs) 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-user.
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> 44
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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<PAGE> 45
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 15 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 systems 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
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<PAGE> 46
system, and provides pricing information which meets the challenges and
complexities of real-time fares 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 Systems 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 systems services to United Airlines and to
other airline stockholders. Other internal management systems 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 3,585 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
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<PAGE> 47
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.
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 Axxess 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. Axxess 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
Axxess/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.
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<PAGE> 48
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.
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
260,000 square feet of space, including approximately 120,000 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 March 31, 1997, the Company employed 1,893 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
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<PAGE> 49
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 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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<PAGE> 50
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................................ 37 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 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.
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
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<PAGE> 51
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.
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 the
directors elected by the holders of the Special Voting Preferred Stock will be
elected prior to the consummation of the Offering and 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,
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<PAGE> 52
designate one or more Special Committees with such duties and such powers as are
granted to it by the Board of Directors.
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 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 and committee
service and a fee of $1,000 for each meeting of the Board of Directors or any
committee thereof attended.
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<PAGE> 53
EXECUTIVE COMPENSATION
The following Summary Compensation Table presents information concerning
compensation for the fiscal year ended December 31, 1996 paid by the Company to
the Chief Executive Officer and four other individuals who, as of December 31,
1996, were the most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) 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 203,336 110,957 54,825 37,061
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 $30,450 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 $37,061 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.
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<PAGE> 54
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) his 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 to him 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
sixty 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.
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<PAGE> 55
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.
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<PAGE> 56
RELATIONSHIP WITH AIRLINE STOCKHOLDERS AND CERTAIN TRANSACTIONS
COMMERCIAL ARRANGEMENTS
Computer Services Agreements
Prior to 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,
internal management systems 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 systems 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 systems
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
Prior to the consummation of the Offering and 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 the
territories of certain European airline stockholders. 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
Prior to 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
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long as the non-competition agreement between the Company and United Airlines or
US 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
Prior to the consummation of the Offering and 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.
Prior to the consummation of the Offering and 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.
NON-COMPETITION AGREEMENTS
Prior to 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.
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
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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
Prior to 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
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
Prior to 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 Airlines, Inc.(4).................... 38.0% -- 33.4% 3
British Airways plc(5)...................... 14.7 7.0 1
Swissair Swiss Air Transport Company
Ltd.(6)................................... 13.2 7.0 1
Koninklijke Luchtvaart Maatschappij N.V.
(KLM)(7).................................. 12.1 -- 10.6 1
US Airways, Inc.(8)......................... 11.0 7.0 1
Alitalia-Linee Aeree Italiane S.p.A.(9)..... 8.7 1.6 --
Olympic Airways S.A.(10).................... 1.0 -- * --
Air Canada(11).............................. 1.0 * --
Aer Lingus plc(12).......................... * -- * --
Transportes Aereos Portugueses S.A.(13)..... * -- * --
Austrian Airlines Oesterreichische
Luftverkehrs Aktiengesellschaft(14)....... * -- * --
</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 Airlines, 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
Swissair Swiss Air Transport Company 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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<PAGE> 60
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 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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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
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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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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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." 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
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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.
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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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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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 Company has applied to have the Common Stock approved for listing on
the New York Stock Exchange under the symbol " ."
REGISTRAR AND TRANSFER AGENT
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 shares of
Common Stock issued and outstanding ( if the U.S. Underwriters'
over-allotment option is exercised in full). Of these shares, the 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 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 Selling Stockholders, the Company and certain other
stockholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not
(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 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, during the period ending 180 days after
the date of this Prospectus. The restrictions described in this paragraph do not
apply to (x) the sale of the shares of Common Stock to the Underwriters, (y)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after completion
of the Offering or (z) the issuance or sale of shares of Common Stock pursuant
to the Company's stock option plans existing on the date of consummation of the
Offering. 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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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...............................................
------------
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...............................................
------------
Total................................................
============
</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
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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. 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.
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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 initial 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. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $. a share to other Underwriters or to certain 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.
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 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 of the shares of Common Stock offered
hereby. 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.
Application has been made for the Common Stock to be listed on the New York
Stock Exchange under the symbol " ."
Each of the Selling Stockholders, the Company and certain other
stockholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not
(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 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, during the period ending 180 days after
the date of this Prospectus. The restrictions described in this paragraph do not
apply to (x) the sale of the Shares to the Underwriters, (y) transactions by any
person other than the Company relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
Offering or (z) the issuance or sale of shares of Common Stock pursuant to the
Company's stock option plans existing on the date of consummation of the
Offering.
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 of the Common Stock, 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
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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 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 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.
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.
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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").
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.
71
<PAGE> 73
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 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
72
<PAGE> 74
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
financial statements audited by independent accountants and with quarterly
reports containing interim financial information for each of the first three
quarters of each year.
73
<PAGE> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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 affiliate........................................ $ 5,140 $ 6,013 $ 4,279
Others.................................................. 23,467 20,136 16,182
Accrued commissions:
Due to affiliate........................................ 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> 81
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>
Services revenues:
Non-affiliated travel vendors.......... $501,994 $595,142 $ 698,389 $178,182 $198,398
Affiliated travel vendors.............. 311,841 371,268 389,870 100,995 109,248
-------- -------- ---------- -------- --------
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
to non-affiliates................... 191,728 223,377 237,596 51,979 61,079
Commissions, selling and administrative
to affiliates....................... 343,185 365,422 424,536 112,299 118,991
-------- -------- ---------- -------- --------
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 expense....................... (25,945) (18,882) (11,307) (3,332) (2,885)
Interest income........................ 4,275 4,476 3,247 997 1,111
Foreign exchange gain (loss)........... 343 (380) 12 (367) 1,755
Other.................................. 5,243 (1,797) (193) 651 (385)
-------- -------- ---------- -------- --------
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> 82
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> 83
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> 84
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
Airlines, 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 Airlines, 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> 85
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> 86
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. The revenues and expenses related to affiliated transactions are
separately identified in the Partnership's statements of income.
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 Consolidation 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> 87
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 receives booking fee revenues from affiliates of the
partners. In addition, the Partnership, in the ordinary course of business,
purchases services from affiliates of the partners and provides information
services to affiliates of the partners. Services purchased from such affiliates
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. Included within services purchased from affiliates and
classified within commissions, selling and administrative expense to affiliates
are costs related to a commitment to ATS. In accordance with the agreement
between the Partnership and ATS dated September 16, 1993, payments to ATS
increased by 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.
Revenues from United Airlines, Inc. of approximately $164,857, $176,843 and
$183,098 (including computer reservation services fees and other data processing
fees) were greater than 10% of the Partnership's services revenues for the years
ended December 31, 1994, 1995 and 1996, respectively.
F-13
<PAGE> 88
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)
(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 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.
F-14
<PAGE> 89
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)
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
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.
F-15
<PAGE> 90
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)
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.
(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
F-16
<PAGE> 91
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)
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.................................................. $ (3,529) $ (4,730)
Fully eligible active plan participants................... (2,572) (3,645)
Other active plan participants............................ (9,179) (13,122)
-------- --------
(15,280) (21,497)
-------- --------
Plan assets at fair value................................... -- --
-------- --------
Accumulated postretirement benefit obligation in excess of
plan assets............................................... (15,280) (21,497)
Unrecognized net (gain) loss from past experience different
from that assumed and from changes in assumptions......... 3,583 4,622
-------- --------
Accrued postretirement benefit cost......................... $(11,697) $(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.
(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.
F-17
<PAGE> 92
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)
(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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
[GALILEO LOGO]
<PAGE> 105
PROSPECTUS (Subject to Completion) [ALTERNATE COVER PAGE FOR
Issued May 20, 1997 INTERNATIONAL PROSPECTUS]
[GALILEO LOGO]
Shares
Galileo International, Inc.
COMMON STOCK
------------------------
OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY, SHARES ARE
BEING SOLD BY THE COMPANY AND 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 SHARES OF COMMON STOCK BEING OFFERED
HEREBY, SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS AND 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 $ AND $ . SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE.
------------------------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 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. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at $ .
(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
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 & CO. SBC WARBURG
International 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> 106
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee........................................ $121,213
NASD filing fee............................................. 30,500
NYSE listing fee............................................ *
Blue Sky fees and expenses.................................. *
Attorneys' fees and expenses................................ *
Accountants' fees and expenses.............................. *
Transfer Agent's and Registrar's fees and expenses.......... *
Printing and engraving expenses............................. *
Miscellaneous............................................... *
--------
Total.................................................. $ *
========
</TABLE>
- ---------------
* To be supplied by amendment.
The amounts set forth above are estimates except for the SEC registration
fee, the NASD filing fee and the NYSE listing 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> 107
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 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.*
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 between Registrant and
certain Original Owners.
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 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.
10.2 Form of Stockholders' Agreement among the Registrant,
certain of its stockholders and certain related parties of
such stockholders.
10.3 Form of Amended and Restated Computer Services Agreement
between United Airlines, Inc. and the Registrant.*
10.4 Form of Amended and Restated Computer Services Agreement.*
10.5 Form of Services Agreement among the Registrant, United
Airlines, Inc., US Airways, Inc. and Air Canada.
10.6 Form of Non-Competition Agreement.*
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).*
24.1 Powers of Attorney (included as part of signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment
(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
II-2
<PAGE> 108
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 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-3
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in Rosemont,
Illinois on May 20, 1997.
Galileo International, Inc.
By: /s/ JAMES E. BARLETT
------------------------------------
James E. Barlett
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned Directors and Officers of Galileo International, Inc.
hereby constitute and appoint James E. Barlett and Babetta R. Gray, and each of
them acting singly, as true and lawful attorneys-in-fact for the undersigned,
with full power of substitution and resubstitution, for, and in the name, place,
and stead of the undersigned, to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), any and all
amendments (including post-effective amendments) and exhibits to this
Registration Statement, any related registration statement and its amendments
and exhibits filed pursuant to Rule 462(b) under the Act and any and all
applications and other documents to be filed with the Securities and Exchange
Commission pertaining to the registration of the securities covered hereby or
under any related registration statement or any amendment hereto or thereto,
with full power and authority to do and perform each and every act and thing
requisite and necessary or desirable, hereby ratifying and confirming all that
each of such attorneys-in-fact or its substitute shall lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES E. BARLETT Chairman of the Board of Directors, May 20, 1997
- --------------------------------------- President and Chief Executive Officer
James E. Barlett (principal executive officer)
/s/ PAUL H. BRISTOW Director, Senior Vice President and Chief May 20, 1997
- --------------------------------------- Financial Officer (principal financial and
Paul H. Bristow accounting officer)
/s/ BABETTA R. GRAY Director May 20, 1997
- ---------------------------------------
Babetta R. Gray
</TABLE>
II-4
<PAGE> 110
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement.*............................
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 between Registrant and
certain Original Owners.....................................
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 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...................................
10.2 -- Form of Stockholders' Agreement among the Registrant,
certain of its stockholders and certain related parties of
such stockholders...........................................
10.3 -- Form of Amended and Restated Computer Services Agreement
between United Airlines, Inc. and the Registrant.*..........
10.4 -- Form of Amended and Restated Computer Services
Agreement.*.................................................
10.5 -- Form of Services Agreement among the Registrant, United
Airlines, Inc., US Airways, Inc. and Air Canada.............
10.6 -- Form of Non-Competition Agreement.*.........................
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).*..............................................
24.1 -- Powers of Attorney (included as part of signature page).....
27.1 -- Financial Data Schedule.....................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
GALILEO INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
GALILEO INTERNATIONAL, INC., a Delaware corporation, hereby
certifies as follows:
1. The name of the Corporation is Galileo International, Inc.
(the "Corporation"). The date of filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was
[________], 1997.
2. This Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation of the Corporation
and was duly adopted in accordance with the provisions of Sections 228, 242 and
245 of the General Corporation Law of the State of Delaware (the "DGCL").
3. The text of the Certificate of Incorporation is hereby
amended and restated in its entirety to read as follows:
"ARTICLE I
Name
SECTION 1.1. Name. The name of the Corporation is GALILEO
INTERNATIONAL, INC.
<PAGE> 2
2
ARTICLE II
Registered Office and Registered Agent
SECTION 2.1. Office and Agent. The address of the registered
office of the Corporation in the State of Delaware is Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, County of New Castle. The name of
the registered agent of the Corporation at such address is The Corporation Trust
Company.
ARTICLE III
Corporate Purposes
SECTION 3.1. Purpose. The purpose of the Corporation is to
engage in any lawful act or activity for which corporations may be organized
under the DGCL.
ARTICLE IV
Capitalization
SECTION 4.1. Authorized Capital. Shares. The total number of
shares of all classes of capital stock that the Corporation shall have authority
to issue is 275,000,007 shares, of which (i) 250,000,000 shares shall be common
stock, par value $.01 per share (the "Common Stock"); (ii) 7 shares shall be
special voting preferred stock, par value $.01 per share, of which (A) 1 share
has been designated Series A Special Voting Preferred Stock, par value $.01 per
share (the "Series A Special Voting Preferred Stock"), (B) 1 share has been
designated Series B Special Voting Preferred Stock, par value $.01 per share
(the "Series B Special Voting Preferred Stock"), (C) 1 share has been designated
Series C Special Voting Preferred Stock, par value $.01 per share (the "Series C
Special Voting Preferred Stock"), (D) 1 share has been designated Series D
Special Voting Preferred Stock, par value $.01 per share (the "Series D Special
Voting Preferred Stock"), (E) 1 share has been designated Series E Special
Voting Preferred Stock, par value $.01 per share (the "Series E Special Voting
Preferred Stock"), (F) 1 share has been designated Series F Special Voting
Preferred Stock, par value $.01 per share (the "Series F Special Voting
Preferred Stock"), and (G) 1 share has been designated Series G Special Voting
Preferred Stock, par value $.01 per share (the "Series G Special Voting
Preferred Stock"); and (iii) 25,000,000 shares shall be ordinary preferred
stock, par value $.01 per share (the "Ordinary Preferred Stock"; and,
collectively, with the Special Voting Preferred Stock, the "Preferred Stock").
<PAGE> 3
3
SECTION 4.2. Common Stock. (a) Voting Rights. Each holder of
Common Stock shall have one vote on each matter submitted to a vote at a meeting
of stockholders for each share of Common Stock held of record by such holder as
of the record date for such meeting.
(b) Dividends and Distributions. Subject to any rights of
holders of any class or series of Preferred Stock, when, as and if dividends or
distributions are declared on outstanding shares of Common Stock, whether
payable in cash, in property or in securities of the Corporation, each holder of
outstanding shares of Common Stock shall be entitled to share ratably in such
dividends and distributions in proportion to the number of shares of Common
Stock held by such holder.
(c) Liquidation. Subject to any rights of holders of any class
or series of Preferred Stock, upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, each holder of outstanding
shares of Common Stock shall be entitled to share ratably in the assets of the
Corporation to be distributed among the holders of shares of Common Stock in
proportion to the number of shares of Common Stock held by such holder.
SECTION 4.3. Special Voting Preferred Stock. The designation
and the powers, preferences and rights of each of the series of the Special
Voting Preferred Stock are as follows:
(a) Rank. Each series of the Special Voting Preferred Stock
shall, with respect to rights on any liquidation, winding up or dissolution of
the Corporation, rank senior to the Common Stock and, unless otherwise provided,
on a parity with any other series of Preferred Stock. All equity securities of
the Corporation to which each series of the Special Voting Preferred Stock may
rank prior upon liquidation, dissolution, winding up or otherwise, including the
Common Stock, are collectively referred to herein as the "Junior Securities";
and all equity securities of the Corporation with which each series of the
Special Voting Preferred Stock may rank on a parity as to liquidation,
dissolution or winding up and does not rank senior as to any of the same are
collectively referred to herein as the "Parity Securities".
(b) Dividends. The holders of the shares of Special Voting
Preferred Stock shall not be entitled to receive dividends on such shares.
(c) Liquidation Preference. (1) In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holder of shares of Special Voting Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount in cash equal to $100
for each such share outstanding before any assets shall be
<PAGE> 4
4
distributed to the holders of any of the Junior Securities. Except as provided
in the preceding sentence, the holders of the Special Voting Preferred Stock
shall not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Corporation. If the assets of
the Corporation are not sufficient to pay in full the liquidation payments
payable to the holders of outstanding shares of the Special Voting Preferred
Stock and any Parity Securities, then the holders of all such shares shall share
ratably in such distribution of assets in accordance with the amount which would
be payable on such distribution if the amounts to which the holders of the
outstanding shares of Special Voting Preferred Stock and the holders of
outstanding shares of such Parity Securities are entitled were paid in full.
(2) For the purposes of this subsection 4.3(c), neither the
voluntary sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all the property or
assets of the Corporation nor the consolidation or merger of the Corporation
with one or more other Corporations shall be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation.
(d) Voting Rights. (1) (A) Subject to the provisions of
subsection 4.3(f)(2), the Special Voting Preferred Stock shall have the voting
rights set forth in this subsection 4.3(d).
(B) Subject to subsections 4.3(d)(1)(C) and (D) and
subsections 4.3(d)(2) and (3), each series of Special Voting Preferred
Stock, voting separately as a single series, shall be entitled to elect
one director to the Board of Directors of the Corporation (the "Board
of Directors") so long as the number of shares of Common Stock that are
Shares (as defined in the Stockholders' Agreement (as the same may be
amended from time to time, the "Stockholders' Agreement"), dated as of
[___________], 1997, among the Corporation, certain of its stockholders
and certain related parties of such stockholders) (the "Relevant
Shares") that are held by the holder of the share of such series of
Special Voting Preferred Stock and its Affiliates represents at least
5% of the total number of shares of Common Stock outstanding.
(C) Notwithstanding anything to the contrary in subsection
4.3(d)(1)(B), if the holder of any series of Special Voting Preferred
Stock and its Affiliates hold, in the aggregate, two such series of
Special Voting Preferred Stock, then each of such two series of Special
Voting Preferred Stock shall be entitled, voting separately as a single
class, to elect one director to the Board of Directors so long as the
number of Relevant Shares that are held by such holder and its
Affiliates represents at least 15% of the total number of shares of
Common Stock outstanding. In the event the number of Relevant Shares
that are held by such holder and its Affiliates represents less than
15% but at least 5% of the total number of shares of Common Stock
outstanding, then the series of Special Voting Preferred Stock held by
such holder or one of its
<PAGE> 5
5
Affiliates with the lowest letter in alphabetical order shall be
entitled to elect one director to the Board of Directors and the series
of Special Voting Stock held by such holder or one of its Affiliates
with the highest letter in alphabetical order shall cease immediately
to be entitled to elect a director and the share of such series shall
be redeemed by the Corporation pursuant to subsection 4.3(f).
(D) Notwithstanding anything to the contrary in subsection
4.3(d)(1)(B), if the holder of any series of Special Voting Preferred
Stock and its Affiliates hold, in the aggregate, three or more series
of Special Voting Preferred Stock, then each of three of such series of
Special Voting Preferred Stock shall be entitled, voting separately as
a single class, to elect one director to the Board of Directors so long
as the number of Relevant Shares that are held by such holder and its
Affiliates represents at least 25% of the total number of shares of
Common Stock outstanding. In the event the number of Relevant Shares
that are held by such holder and its Affiliates represents at least 15%
but less than 25% of the total number of shares of Common Stock
outstanding, then each of the two of such series of Special Voting
Preferred Stock held by such holder or one of its Affiliates with the
lowest letters in alphabetical order shall be entitled, voting
separately as a single class, to elect one director to the Board of
Directors and the series of Special Voting Stock held by such holder or
one of its Affiliates with the highest letter in alphabetical order
shall cease immediately to be entitled to elect a director and the
share of such series shall be redeemed by the Corporation pursuant to
subsection 4.3(f), and in the event the number of Relevant Shares that
are held by such holder and its Affiliates represents at least 5% but
less than 15% of the total number of shares of Common Stock
outstanding, then the series of Special Voting Preferred Stock held by
such holder or one of its Affiliates with the lowest letter in
alphabetical order shall be entitled to elect one director to the Board
of Directors and the series of Special Voting Stock held by such holder
or one of its Affiliates with the highest letters in alphabetical order
shall cease immediately to be entitled to elect a director and the
share of such series shall be redeemed by the Corporation pursuant to
subsection 4.3(f).
(2) If (i) a holder of any series of Special Voting Preferred
Stock and its Affiliates, in the aggregate, held, immediately following the
closing of the initial public offering of the Common Stock pursuant to the
Corporation's registration statement on Form S-1 (File No. 333-____) (the "IPO")
(not taking into account any shares of Common Stock purchased by the
underwriters in the IPO pursuant to the exercise of an over-allotment option
("Over-Allotment Shares")), Relevant Shares representing 7% or more of the
outstanding shares of Common Stock and (ii) at any time the Corporation issues
additional shares of Common Stock and, as a result of such issuance, such holder
and its Affiliates, in the aggregate, hold less than 5% of the outstanding
shares of Common Stock, then the series of Special Voting Preferred Stock held
by such holder or one of its Affiliates shall continue to be entitled to elect
one director to the Board of Directors so long as such holder and its
<PAGE> 6
6
Affiliates hold a number of Relevant Shares that represents at least 3% of the
outstanding shares of Common Stock; provided, however, that if, immediately
prior to such issuance, such holder or one its Affiliates held more than one
series of Special Voting Preferred Stock, then, immediately following such
issuance, the series of Special Voting Preferred Stock held by such holder or
one of its Affiliates with the lowest letter in alphabetical order shall be
entitled to elect one director to the Board of Directors and the remaining
series of Special Voting Stock held by such holder or one of its Affiliates
shall cease immediately to be entitled to elect a director and the share of such
series shall be redeemed by the Corporation pursuant to subsection 4.3(f).
(3) If (i) a holder of any series of Special Voting Preferred
Stock and its Affiliates, in the aggregate, held, immediately following the
closing of the IPO (not taking into account any Over-Allotment Shares), Relevant
Shares representing at least 5% but less than 7% of the outstanding shares of
Common Stock and (ii) at any time the Corporation issues additional shares of
Common Stock and, as a result of such issuance, such holder and its Affiliates,
in the aggregate, hold Relevant Shares that represent less than 5% of the
outstanding shares of Common Stock, then the series of Special Voting Preferred
Stock held by such holder or one of its Affiliates shall continue to be entitled
to elect one director to the Board of Directors so long as such holder and its
Affiliates hold a number of Relevant Shares that represents at least 4% of the
outstanding shares of Common Stock; provided, however, that if, immediately
prior to such issuance, such holder or one of its Affiliates held more than one
series of Special Voting Preferred Stock, then, immediately following such
issuance, the series of Special Voting Preferred Stock held by such holder or
one of its Affiliates with the lowest letter in alphabetical order shall be
entitled to elect one director to the Board of Directors and the remaining
series of Special Voting Stock held by such holder or one of its Affiliates
shall cease immediately to be entitled to elect a director and the share of such
series shall be redeemed by the Corporation pursuant to subsection 4.3(f).
(4) If (i) a holder of any series of Special Voting Preferred
Stock and its Affiliates, in the aggregate, held, immediately following the
closing of the IPO (not taking into account any Over-Allotment Shares), Relevant
Shares representing 7% or more of the outstanding shares of Common Stock and
(ii) at any time the Corporation issues additional shares of Common Stock and,
as a result of such issuance, such holder and its Affiliates, in the aggregate,
hold Relevant Shares that represent less than 3% of the outstanding shares of
Common Stock, then, if such holder or its Affiliates shall not have purchased
additional shares of Common Stock in the public market or otherwise in order to
increase its and its Affiliates' holdings of Relevant Shares to at least 3%
within 90 days after such holdings fall below 3%, then the series of Special
Voting Preferred Stock held by such holder and its Affiliates shall cease
immediately to be entitled to elect a director and the share of such series
shall be redeemed by the Corporation pursuant to subsection 4.3(f) upon the
expiration of such 90 day period; provided that such period shall be tolled for
any period in which there is a suspension in the trading of the Common Stock on
the New York Stock Exchange.
<PAGE> 7
7
(5) If (i) a holder of any series of Special Voting Preferred
Stock and its Affiliates, in the aggregate, held, immediately following the
closing of the IPO (not taking into account any Over-Allotment Shares), Relevant
Shares representing at least 5% but less than 7% of the outstanding shares of
Common Stock and (ii) at any time the Corporation issues additional shares of
Common Stock and, as a result of such issuance, such holder and its Affiliates,
in the aggregate, hold Relevant Shares that represent less than 4% of the
outstanding shares of Common Stock, then, if such holder or its Affiliates shall
not have purchased additional shares of Common Stock in the public market or
otherwise in order to increase its and its Affiliates' holdings of Relevant
Shares to at least 4% within 90 days after such holdings fall below 4%, then the
series of Special Voting Preferred Stock held by such holder and its Affiliates
shall cease immediately to be entitled to elect a director and the share of such
series shall be redeemed by the Corporation pursuant to subsection 4.3(f) upon
the expiration of such 90 day period; provided that such period shall be tolled
for any period in which there is a suspension in the trading of the Common Stock
on the New York Stock Exchange.
(6) If at any time the Corporation issues additional shares of
Common Stock and, as a result of such issuance, a holder of any series of
Special Voting Preferred Stock that is a Permitted Preferred Stock Transferee
(as such term is defined in the Stockholders' Agreement) holds Relevant Shares
that represent less than 5% of the outstanding shares of Common Stock, then, if
such holder or its Affiliates shall not have purchased additional shares of
Common Stock in the public market or otherwise in order to increase its and its
Affiliates' holdings of Relevant Shares to at least 5% within 90 days after such
holdings fall below 5%, then the series of Special Voting Preferred Stock held
by such holder and its Affiliates shall cease immediately to be entitled to
elect a director and the share of such series shall be redeemed by the
Corporation pursuant to subsection 4.3(f) upon the expiration of such 90 day
period; provided that such period shall be tolled for any period in which there
is a suspension in the trading of the Common Stock on the New York Stock
Exchange.
(7) If (i) a holder of any series of Special Voting Preferred
Stock and its Affiliates, in the aggregate, holds either (x) Relevant Shares
representing at least 25% of the outstanding shares of Common Stock and three or
more series of Special Voting Preferred Stock, or (y) Relevant Shares
representing at least 15% but less than 25% of the outstanding shares of Common
Stock and two or more series of Special Voting Preferred Stock, and (ii) at any
time the Corporation issues additional shares of Common Stock in connection with
a Significant Transaction (as such term is defined in the Stockholders'
Agreement) which results in an increase in the size of the Board, then the
shares of Common Stock issued by the Corporation in connection with such
Significant Transaction shall not be taken into account for purposes of
determining whether any series of Special Voting Preferred Stock held by such
holder are entitled to elect any directors pursuant to Section 4.3(d)(1)(B), (C)
and (D) hereof.
<PAGE> 8
8
(8) The director elected by any series of Special Voting
Preferred Stock may be removed, at any time, by the holder of the share of such
series in its sole discretion, and such holder may elect another individual to
serve in the stead of such removed director, and in the event of the death,
disability or resignation of any such director, such holder may elect another
individual to serve in the stead of such director.
(9) For purposes of this Restated Certificate of
Incorporation, (i) the term "Affiliate" shall mean, with respect to any
specified Person, any other Person, other than the Corporation or any subsidiary
of the Corporation, that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
such specified Person, (ii) "control" (including the terms "controlled by" and
"under common control with"), with respect to the relationship between or among
two or more Persons, shall mean the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
affairs or management of a Person, whether through the ownership of voting
securities, as trustee or executor, by contract or otherwise, including, without
limitation, the ownership, directly or indirectly, of securities having the
power to elect a majority of the board of directors or similar body governing
the affairs of such Person, and (iii) "Person" shall mean any individual,
partnership, firm, corporation, association, trust, estate, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.
(e) Restrictions on Transfer. (1) The holder of any share of a
series 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 an Original Owner (as
defined below), an Affiliate thereof or a third party that is or becomes a party
to the Stockholders' Agreement and a non-competition agreement in the form
attached as Exhibit A to the Stockholders' Agreement, as such agreement may be
amended from time to time in accordance with Section 5.08 of the Stockholders'
Agreement (as so amended, a "Non-Competition Agreement"), and (iii) such
transferee and its Affiliates, in the aggregate, would, after giving effect to
such transfer (or within 90 days after such transfer, in the circumstances
described in Section 3.07(a)(iii)(A)(y) of the Stockholders' Agreement), hold
Relevant Shares representing at least 5% of the then outstanding shares of
Common Stock.
(2) Subject to the provisions of subsection 4.3(d) relating to
the redemption of series of Special Voting Preferred in certain circumstances,
any share of Special Voting Preferred Stock transferred in accordance with this
subsection 4.3(e) shall continue to have the special voting rights set forth in
subsection 4.3(d).
(3) For purposes of this subsection 4.3(e) and subsection
4.3(f) below, "Original Owner" means United Airlines, British Airways, Swissair,
KLM, US Airways,
<PAGE> 9
9
Alitalia, Olympic Airways, Air Canada, TAP Air Portugal, Austrian Airlines, Aer
Lingus or any Affiliate of the foregoing.
(f) Redemption. (1) If, at any time, a series of Special
Voting Preferred Stock is not entitled to elect a director to the Board of
Directors pursuant to subsection 4.3(d) above, then the Corporation shall redeem
automatically and immediately (to the extent the Corporation shall have funds
legally available for such payment) the share of such series of Special Voting
Preferred Stock at a redemption price of $100 per share.
(2) If the share of a series of Special Voting Preferred Stock
is transferred to a party that is neither an Original Owner nor a third party
that is or becomes a party to the Stockholders' Agreement and a Non-Competition
Agreement, the series of Special Voting Preferred Stock so transferred shall
cease immediately to be entitled to elect a director pursuant to subsection
4.3(d) and the share of such series shall be redeemed automatically and
immediately by the Corporation (to the extent the Corporation shall have funds
legally available for such payment) at a redemption price of $100 per share.
(3) If, at any time, the share of any series of Special Voting
Preferred Stock is held by a Person that is no longer subject to the terms of a
Non-Competition Agreement, or by a Person that has given the Corporation notice
of its intention to terminate its Non-Competition Agreement, then such series of
Preferred Stock shall cease immediately to be entitled to elect a director and
the Corporation shall redeem automatically and immediately (to the extent the
Corporation shall have funds legally available for such payment) the share of
such series of Special Voting Preferred Stock at a redemption price of $100 per
share.
(4) In the event the Corporation redeems the share of one or
more series of Special Voting Preferred Stock from a holder that, immediately
prior to such redemption, held more than one series of Special Voting Preferred
Stock, the Corporation shall redeem the share of the series of Special Voting
Preferred Stock held by such holder beginning with the series with the highest
letter in alphabetical order and in descending alphabetical order thereafter.
(5) Shares of Special Voting Preferred Stock which have been
issued and reacquired in any manner, including shares purchased, redeemed or
exchanged, shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) be retired and shall not thereafter be reissued as part
of any series of the Preferred Stock.
(g) No Fractional Shares. No fractional shares of any series
of Special Voting Preferred Stock may be issued by the Corporation.
<PAGE> 10
10
SECTION 4.4. Preferred Stock. Shares of Ordinary Preferred
Stock of the Corporation may be issued from time to time in one or more classes
or series, each of which class or series shall have such distinctive designation
or title as shall be fixed by the affirmative vote of a majority of the whole
Board of Directors prior to the issuance of any shares thereof. Each such class
or series of Preferred Stock shall have such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions, including the dividend rate, redemption price and liquidation
preference, and may be convertible into, or exchangeable for, at the option of
either the holder or the Corporation or upon the happening of a specified event,
shares of any other class or classes or any other series of the same or any
other class or classes of capital stock, or any debt securities, of the
Corporation at such price or prices or at such rate or rates of exchange and
with such adjustments as shall be stated and expressed in this Restated
Certificate of Incorporation or in any amendment hereto or in such resolution or
resolutions providing for the issuance of such class or series of Ordinary
Preferred Stock as may be adopted from time to time by the affirmative vote of a
majority of the whole Board of Directors prior to the issuance of any shares
thereof pursuant to the authority hereby expressly vested in it, all in
accordance with the DGCL; provided, however, that so long as any share of
Special Voting Preferred Stock is outstanding, no shares of Ordinary Preferred
Stock issued by the Corporation shall have the right to elect directors to the
Board of Directors, except to the extent provided by Section 303 of the New York
Stock Exchange Rules, pursuant to which holders of Preferred Stock, voting as a
class, have the right to elect at least two directors upon default by the
Corporation in the payment of the equivalent of six quarterly dividends. The
authority of the Board of Directors with respect to each series shall also
include, but not be limited to, the determination of restrictions, if any, on
the issue or reissue of any additional shares of Ordinary Preferred Stock.
ARTICLE V
Compromise or Arrangement
SECTION 5.1. Compromise or Arrangement. Whenever a compromise
or arrangement is proposed between the Corporation and its creditors or any
class of them and/or between the Corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of Delaware may,
on the application in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for the Corporation under the provisions of Section 291 of the DGCL or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of the DGCL, order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders, of the Corporation, as the case may be, to be summoned in
such a manner as
<PAGE> 11
11
the said court directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders, of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization, if sanctioned by the court to which the
said application has been made, shall be binding on all the creditors or the
members of the class of creditors, and/or on all the stockholders or the members
of the class of stockholders, of the Corporation, as the case may be, and also
on the Corporation.
ARTICLE VI
Indemnification
SECTION 6.1. Indemnification. (a) General. The Corporation (i)
shall indemnify any person who was or is a party or is threatened to be made a
party to, or is involved in any manner in, any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he or she is or was a director or an
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or an officer of another corporation, partnership,
joint venture, trust or other enterprise; and (ii) may indemnify, if the Board
of Directors determines such indemnification is appropriate, any person who was
or is a party or is threatened to be made a party to, or is involved in any
manner in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he or she is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, in each
case, to the fullest extent authorized or permitted by law, as now or hereafter
in effect.
(b) Proceedings Initiated by any Person. Notwithstanding
anything to the contrary contained in subsection (a) above, except for
proceedings to enforce rights to indemnification, the Corporation shall not be
obligated to indemnify any person in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof) was
authorized in advance, or unanimously consented to, by the Board of Directors.
(c) Advancement of Expenses. The rights to indemnification
conferred in this Article VI also include, to the fullest extent permitted by
applicable law, the right to be paid the expenses (including attorneys' fees)
incurred in connection with any such civil, criminal, administrative or
investigative action, suit or proceeding in advance of its final disposition.
<PAGE> 12
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(d) Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would have the power
to indemnify him or her against such liability under the provisions of
applicable law.
(e) Repeal or Modification. Any repeal or modification of this
Article VI by the stockholders of the Corporation shall not adversely affect any
rights to indemnification and to advancement of expenses that any person may
have at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
ARTICLE VII
Liability of a Director
SECTION 7.1. Director Liability. (a) A director of the
Corporation shall not be personally liable to the Corporation 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
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived any improper personal benefit.
(b) If the DGCL is amended hereafter to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
authorized by the DGCL, as so amended, without further action by either the
Board of Directors or the stockholders of the Corporation.
(c) Any repeal or modification of this Article VII shall not
adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to or at
the time of such repeal or modification.
<PAGE> 13
13
ARTICLE VIII
Corporate Opportunities
SECTION 8.1. Conduct of Certain Affairs of the Corporation.
(a) In anticipation that the Corporation will cease to be wholly-owned by the
Original Owners, but that the Original Owners will remain, for some period of
time, substantial stockholders of the Corporation, and in anticipation that the
Corporation and the Original Owners may, except as otherwise agreed in writing
by the Original Owners, engage in the same or similar activities or lines of
business and have an interest in the same areas of corporate opportunities, and
in recognition of the benefits to be derived by the Corporation through its
continued contractual, corporate and business relations with the Original Owners
(including possible service of officers and directors of the Original Owners as
officers and directors of the Corporation), the provisions of this Article VIII
are set forth to regulate and define the conduct of certain affairs of the
Corporation as they may involve the Original Owners and their respective
officers and directors, and the powers, rights, duties and liabilities of the
Corporation and its officers, directors and stockholders in connection
therewith.
(b) Except as the Original Owners may otherwise agree in
writing, the Original Owners shall have no duty to refrain from engaging in the
same or similar activities or lines of business as the Corporation, and no
Original Owner nor any officer or director thereof (except as provided in
paragraph (c) below) shall be liable to the Corporation or its stockholders for
breach of any fiduciary duty by reason of any such activities of such Original
Owner. In the event that any Original Owner acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both such
Original Owner and the Corporation, such Original Owner shall have no duty to
communicate or offer such corporate opportunity to the Corporation and shall not
be liable to the Corporation or its stockholders for breach of any fiduciary
duty as a stockholder of the Corporation by reason of the fact that such
Original Owner 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 Corporation.
(c) In the event that a director or officer of the Corporation
who is also a director or officer of an Original Owner acquires knowledge of a
potential transaction or matter which may be a corporate opportunity for both
the Corporation and such Original Owner, such director or officer of the
Corporation shall have fully satisfied and fulfilled the fiduciary duty of such
director or officer to the Corporation and its stockholders with respect to such
corporate opportunity, if such director or officer acts in a manner consistent
with the following policy:
(i) A corporate opportunity offered to any person who is an
officer of the Corporation, and who is also a director but not an
officer of such Original Owner,
<PAGE> 14
14
shall belong to the Corporation; (ii) a corporate opportunity offered
to any person who is a director but not an officer of the Corporation,
and who is also a director, officer or employee of such Original Owner
shall belong to the Corporation if such opportunity is expressly
offered to such person primarily in his or her capacity as a director
of the Corporation, and otherwise shall belong to such Original Owner;
and (iii) a corporate opportunity offered to any person who is an
officer of both the Corporation and such Original Owner shall belong to
the Corporation if such opportunity is expressly offered to such person
primarily in his or her capacity as an officer of the Corporation, and
otherwise shall belong to such Original Owner.
(d) Any person purchasing or otherwise acquiring any interest
in shares of the capital stock of the Corporation shall be deemed to have notice
of and to have consented to the provisions of this Article VIII.
(e) For purposes of this Article VIII only:
(1) A director of the Corporation who is Chairman of the Board
of Directors of the Corporation or of a committee thereof shall not be
deemed to be an officer of the Corporation by reason of holding such
position (without regard to whether such position is deemed an office
of the Corporation under the By-Laws of the Corporation), unless such
person is a full-time employee of the Corporation;
(2) The term "Corporation" shall mean the Corporation and its
Affiliates (other than any Original Owner); and
(3) The term "Original Owners" shall mean the former general
partners of Galileo International Partnership, a Delaware general
partnership, together with their respective Affiliates (other than the
Corporation).
(f) Notwithstanding anything in this Restated Certificate of
Incorporation to the contrary, in addition to any vote of the stockholders
required pursuant to this Restated Certificate of Incorporation, until the time
that the Original Owners 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 Corporation, the affirmative vote of the holders
of more than 80% of the total voting power of all classes of outstanding Common
Stock of the Corporation shall be required to alter, amend or repeal in a manner
adverse to the interests of the Original Owners, or adopt any provisions adverse
to the interests of the Original Owners and inconsistent with, any provision of
this Article VIII. Neither the alteration, amendment or repeal of this Article
VIII nor the adoption of any provision of this Restated Certificate of
Incorporation inconsistent with this Article VIII shall eliminate or reduce the
effect of this Article VIII in respect of any matter occurring, or any cause of
<PAGE> 15
15
action, suit or claim that, but for this Article VIII, would accrue or arise
prior to such alteration, amendment, repeal or adoption.
ARTICLE IX
Management of the Affairs of the Corporation
SECTION 9.1. Management of the Affairs of the Corporation. (a)
The business and affairs of the Corporation shall be managed by the Board of
Directors, which may exercise all the powers of the Corporation and do all such
lawful acts and things that are not conferred upon or reserved to the
stockholders by law, by this Restated Certificate of Incorporation or by the
restated by-laws of the Corporation (the "By-Laws").
(b) Election of directors of the Corporation need not be by
written ballot, unless required by the By-Laws.
(c) The following provisions are inserted for the limitation
and regulation of the powers of the Corporation and of its directors and
stockholders:
(1) The By-Laws, or any of them, may be altered, amended or
repealed, or new by-laws may be made, but only to the extent any such
alteration, amendment, repeal or new by-law is not inconsistent with
any provision of the Restated Certificate of Incorporation, either by a
majority of the whole Board of Directors or by the stockholders of the
Corporation upon the affirmative vote of the holders of at least 662/3%
of the outstanding capital stock entitled to vote thereon, voting
together as a single class.
(2) The Board of Directors of the Corporation shall consist of
such number of directors as shall be fixed in the By-Laws, which number
shall be in accordance with the Stockholders' Agreement. The directors
shall be divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the entire
Board of Directors. The term of the initial Class I directors shall
terminate on the date of the 1998 annual meeting of stockholders; the
term of the initial Class II directors shall terminate on the date of
the 1999 annual meeting of stockholders; and the term of the initial
Class III directors shall terminate on the date of the 2000 annual
meeting of stockholders. At each annual meeting of stockholders,
beginning with the 1998 annual meeting of stockholders, successors to
the class of directors whose term expires at that annual meeting shall
be elected for a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as
nearly equal as possible, but in no case will a decrease in the number
of directors shorten the term of any
<PAGE> 16
16
incumbent director. A director shall hold office until the annual
meeting for the year in which his or her term expires and until his or
her successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from
office. The term of a director elected by stockholders to fill a newly
created directorship or other vacancy shall expire at the same time as
the terms of the other directors of the class for which the new
directorship is created or in which the vacancy occurred. Subject to
the provisions of the Stockholders' Agreement, and except as otherwise
provided in this Restated Certificate of Incorporation, any vacancy on
the Board of Directors that results from an increase in the number of
directors and any other vacancy occurring on the Board of Directors,
howsoever resulting, may be filled only by a majority of the directors
then in office, even if less than a quorum, or by a sole remaining
director. Any director so elected by the Board of Directors to fill a
vacancy shall hold office for a term that shall coincide with the term
of the class to which such director shall have been elected.
(3) Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors of the
Corporation, except as may be otherwise provided in this Restated
Certificate of Incorporation with respect to the right of holders of
Preferred Stock of the Corporation to nominate and elect a specified
number of directors in certain circumstances. Nomination of persons for
election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the
purpose of electing directors, (a) by or at the direction of the Board
of Directors (or any duly authorized committee thereof) or (b) by any
stockholder of the Corporation (i) who is a stockholder of record on
the date of the giving of the notice provided for in this subsection
9.1(c)(3) and on the record date for the determination of stockholders
entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this subsection 9.1(c)(3). In addition to any
other applicable requirements, for a nomination to be made by a
stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices
of the Corporation (a) in the case of an annual meeting, 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 so received
not later than the close of business on the tenth day following the day
on which such notice of the date of the annual meeting is mailed or
such public disclosure of the date of the annual meeting is made,
whichever first occurs, or (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later
than the close of business on the tenth day
<PAGE> 17
17
following the day on which notice of the date of the special meeting is
mailed or public disclosure of the date of the special meeting is made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder
proposes to nominate for election as a director, (i) the name, age,
business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class or
series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving the notice, (i) the
name and record address of such stockholder, (ii) the class or series
and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, together with
evidence reasonably satisfactory to the Secretary of such beneficial
ownership, (iii) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any other person
or persons (including their names) pursuant to which the nomination(s)
are to be made by such stockholder, (iv) a representation that such
stockholder intends to appear in person or by proxy at the meeting to
nominate the persons named in its notice and (v) any other information
relating to such stockholder that would be required to be disclosed in
a proxy statement or other filings required to be made in connection
with solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to being named as a nominee and to
serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the provisions of
Section 4.3 or the procedures set forth in this subsection 9.1(c)(3).
If the chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the chairman of the
meeting shall declare to the meeting that the nomination was defective
and such defective nomination shall be disregarded.
(4) Subject to the rights, if any, of the holders of shares of
Preferred Stock then outstanding, any or all of the directors of the
Corporation may be removed from office at any time by the stockholders
of the Corporation, but only for cause and only by the affirmative vote
of the holders of a majority of the outstanding shares of the
Corporation then entitled to vote generally in the election of
directors, considered for purposes of this paragraph as one class.
<PAGE> 18
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(5) Upon the redemption by the Corporation of the share of any
series of Special Voting Preferred Stock, the director elected by such
series of Special Voting Preferred Stock shall be deemed to have
resigned automatically and immediately upon the occurrence of such
redemption, and the vacancy resulting from such resignation shall be
filled with an "independent director", as such term is used in Rule 303
of the Rules of the New York Stock Exchange as in existence on the date
hereof or as amended from time to time hereafter, chosen by a majority
of the whole Board. Any director so elected by the Board of Directors
to fill a vacancy shall hold office for a term that shall coincide with
the term of the class to which such director shall have been elected.
(6) Any action required or permitted to be taken at any annual
or special meeting of stockholders may be taken only upon the vote of
the stockholders at an annual or special meeting duly announced and
called, as provided in the By-Laws, and may not be taken by a written
consent of the stockholders pursuant to the DGCL.
(7) Special meetings of the stockholders of the Corporation
for any purpose or purposes may be called at any time by a majority of
the members of the Board of Directors, the Chairman of the Board of
Directors or the Chief Executive Officer of the Corporation. Special
meetings of the stockholders of the Corporation may not be called by
any other person or persons.
ARTICLE X
Private Property
SECTION 10.1. Private Property. The private property of the
stockholders of the Corporation shall not be subject to the payment of corporate
debts to any extent whatsoever.
ARTICLE XI
Amendments
SECTION 11.1. Amendments. Notwithstanding anything contained
in this Restated Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 662/3% of the outstanding shares of capital
stock of the Corporation entitled to vote thereon, voting as a single class,
shall be required to amend, repeal, or adopt any provision to (i) reclassify the
Board of Directors, (ii) permit stockholder action by written consent, (iii)
permit the calling of special meetings by stockholders or (iv) approve
amendments to the by-
<PAGE> 19
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laws of the Corporation, in each case, in a manner inconsistent with subsection
9.1(c) or this Article XI of this Restated Certificate of Incorporation."
<PAGE> 20
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IN WITNESS WHEREOF, GALILEO INTERNATIONAL, INC. has caused
this Certificate to be signed by [____________], its [____________], and
attested by [_______], its [_________], this [___] day of [_________], l997.
GALILEO INTERNATIONAL, INC.
By:__________________________
Name:
ATTEST:
_________________________
Name:
<PAGE> 1
EXHIBIT 3.2
RESTATED
BY-LAWS
OF
GALILEO INTERNATIONAL, INC.
ARTICLE I
OFFICES
SECTION 1. Registered Office in Delaware. The address of the registered
office of Galileo International, Inc. (hereinafter called the "Corporation") in
the State of Delaware shall be Corporation Trust Center, 1209 Orange Street, in
the City of Wilmington, County of New Castle, and the registered agent in
charge thereof shall be The Corporation Trust Company.
SECTION 2. Other Offices. The Corporation may have an office or offices
at any other place or places within or without the State of Delaware.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place within or without
the State of Delaware, and at such date and hour, as shall be designated by the
Board of Directors of the Corporation (the "Board") and set forth in the notice
or in a duly executed waiver of notice thereof.
SECTION 2. Special Meetings. A special meeting of the stockholders for
any purpose or purposes may be called at any time by the Chairman of the Board,
by the Chief Executive Officer of the Corporation or by a majority of the
Board. A special meeting of stockholders of the Corporation may not be called
by any other person or persons. Any such meeting shall be held at such place
within or without the State of Delaware, and at such date and hour, as shall be
designated in the notice or in a duly executed waiver of notice of such
meeting.
<PAGE> 2
2
Only such business as is stated in the written notice of a special meeting
may be acted upon thereat.
SECTION 3. Notice of Meetings. Except as otherwise provided by law,
written notice of each annual or special meeting of stockholders stating the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is to be held, shall be given
personally or by first class mail to each stockholder entitled to vote at such
meeting, not less than 10 nor more than 60 calendar days before the date of the
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the stockholder at such
stockholder's address as it appears on the records of the Corporation. If,
prior to the time of mailing, the Secretary shall have received from any
stockholder entitled to vote a written request that notices intended for such
stockholder are to be mailed to an address other than the address that appears
on the records of the Corporation, notices intended for such stockholder shall
be mailed to the address designated in such request.
Notice of a special meeting may be given by the person or persons calling
the meeting, or, upon the written request of such person or persons, by the
Secretary of the Corporation on behalf of such person or persons. If the
person or persons calling a special meeting of stockholders give notice
thereof, such person or persons shall forward a copy thereof to the Secretary.
Every request to the Secretary for the giving of notice of a special meeting of
stockholders shall state the purpose or purposes of such meeting.
SECTION 4. Waiver of Notice. Notice of any annual or special meeting of
stockholders need not be given to any stockholder entitled to vote at such
meeting who files a written waiver of notice with the Secretary, duly executed
by the person entitled to notice, whether before or after the meeting. Neither
the business to be transacted at, nor the purpose of, any meeting of
stockholders need be specified in any written waiver of notice. Attendance of
a stockholder at a meeting, in person or by proxy, shall constitute a waiver of
notice of such meeting, except as provided by law.
SECTION 5. Adjournments. When a meeting is adjourned to another date,
hour or place, notice need not be given of the adjourned meeting if the date,
hour and place thereof are announced at the meeting at which the adjournment is
taken. If the adjournment is for more than 30 calendar days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting. At the adjourned meeting any business may be
transacted which might have been transacted at the original meeting.
When any meeting is convened the presiding officer, if directed by the
Board, may adjourn the meeting if (a) no quorum is present for the transaction
of business, or (b) the Board determines that adjournment is necessary or
appropriate to enable the stockholders
<PAGE> 3
3
(i) to consider fully information which the Board determines has not been made
sufficiently or timely available to stockholders or (ii) otherwise to exercise
effectively their voting rights.
SECTION 6. Quorum. Except as otherwise provided by law or the Restated
Certificate of Incorporation of the Corporation (the "Restated Certificate of
Incorporation"), whenever a class of stock of the Corporation is entitled to
vote as a separate class, or whenever classes of stock of the Corporation are
entitled to vote together as a single class, on any matter brought before any
meeting of the stockholders, whether annual or special, holders of shares
entitled to cast a majority of the votes entitled to be cast by all the holders
of the shares of stock of such class voting as a separate class, or classes
voting together as a single class, as the case may be, outstanding and entitled
to vote thereat, present in person or by proxy, shall constitute a quorum at
any such meeting of the stockholders. If, however, such quorum shall not be
present or represented at any such meeting of the stockholders, the
stockholders entitled to vote thereat may adjourn the meeting from time to time
in accordance with Section 5 of this Article II until a quorum shall be present
or represented.
SECTION 7. Voting. Unless otherwise provided in the Restated Certificate
of Incorporation, each stockholder represented at a meeting of stockholders
shall be entitled to cast one vote for each share of capital stock entitled to
vote thereat held by such stockholder. Except as otherwise provided by law or
the Restated Certificate of Incorporation or these Restated By-Laws, when a
quorum is present with respect to any matter brought before any meeting of the
stockholders, the vote of the holders of shares entitled to cast a majority of
the votes entitled to be cast by all the holders of the shares constituting
such quorum shall decide any such matter. Votes need not be by written ballot,
unless the Board, in its discretion, or the officer of the Corporation
presiding at a meeting of stockholders, in such officer's discretion, requires
any vote or votes cast at such meeting to be cast by written ballot.
SECTION 8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for such
stockholder by proxy. Such proxy shall be filed with the Secretary before such
meeting of stockholders at such time as the Board may require. No proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period.
SECTION 9. Advance Notice of Business to Be Transacted at Annual
Meetings. To be properly brought before the annual meeting of stockholders,
business must be either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board (or any duly
authorized committee thereof), (b) otherwise properly brought before the
meeting by or at the direction of the Board (or any duly authorized committee
thereof) or (c) otherwise properly brought before the meeting by any
stockholder of the Corporation (i) who is a stockholder of record on the date
of the giving of the notice provided for in this Section 9 and on the record
date for the determination of stockholders
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entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this Section 9. In addition to any other applicable
requirements, including but not limited to the requirements of Rule 14a-8
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary
of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation,
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 so received not later than the close of business
on the tenth day following the day on which such notice of the date of the
annual meeting is mailed or such public disclosure of the date of the annual
meeting is made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the
annual meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(b) the name and record address of such stockholder, (c) the class or series
and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, together with evidence
reasonably satisfactory to the Secretary of such beneficial ownership, (d) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (e) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
Notwithstanding anything in these Restated By-Laws to the contrary, no
business shall be conducted at the annual meeting of stockholders except
business brought before such meeting in accordance with the procedures set
forth in this Section 9; provided, however, that, once business has been
properly brought before such meeting in accordance with such procedures,
nothing in this Section 9 shall be deemed to preclude discussion by any
stockholder of any such business. If the chairman of such meeting determines
that business was not properly brought before the meeting in accordance with
the foregoing procedures, the chairman shall declare to the meeting that the
business was not properly brought before the meeting and such business shall
not be transacted.
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ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The property, business and affairs of the
Corporation shall be managed by the Board, which may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by law or
by the Restated Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
SECTION 2. Number and Term of Directors Holding Office. Subject to the
rights, if any, of holders of preferred stock of the Corporation, the Board
shall consist of thirteen (13) members (including such directors as shall be
elected by any series of special voting preferred stock of the Corporation) or
such other number as shall be fixed from time to time by the Board in
accordance with the provision of the Stockholders' Agreement, dated as
of , 1997, among the Corporation and certain of its stockholders (as
the same may be amended from time to time, the "Stockholders' Agreement"). The
directors shall be divided into three classes, designated Class I, Class II and
Class III. The Board shall, by resolution passed by a majority of the Board,
designate the directors to serve as initial Class I, Class II and Class III
directors upon filing of the Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware. Except as provided in Section 5
of this Article III, and except as provided in the Restated Certificate of
Incorporation, directors shall be elected by a plurality of the votes cast at
annual meetings of stockholders, and each director so elected shall hold
office as provided by Article VIII of the Restated Certificate of
Incorporation. None of the directors need be stockholders of the Corporation.
SECTION 3. Nomination of Directors and Advance Notice Thereof. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation, except as may be
otherwise provided in the Restated Certificate of Incorporation with respect to
the right of holders of preferred stock of the Corporation to nominate and
elect a specified number of directors in certain circumstances. Nominations of
persons for election to the Board may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board (or any duly
authorized committee thereof) or (b) by any stockholder of the Corporation (i)
who is a stockholder of record on the date of the giving of the notice provided
for in this Section 3 and on the record date for the determination of
stockholders entitled to vote at such meeting and (ii) who complies with the
notice procedures set forth in this Section 3. In addition to any other
applicable requirements, for a nomination to be made by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation
(a) in the case of an
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annual meeting, 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 so received not later than the
close of business on the tenth day following the day on which such notice of
the date of the annual meeting is mailed or such public disclosure of the date
of the annual meeting is made, whichever first occurs, or (b) in the case of a
special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the tenth day following the day on
which notice of the date of the special meeting is mailed or public disclosure
of the date of the special meeting is made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director, (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving the notice, (i) the name and
record address of such stockholder, (ii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or of
record by such stockholder, together with evidence reasonably satisfactory to
the Secretary of such beneficial ownership, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section l4 of
the Exchange Act and the rules and regulations promulgated thereunder. Such
notice must be accompanied by a written consent of each proposed nominee to
being named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 3,
except as may be otherwise provided in the Restated Certificate of
Incorporation with respect to the right of holders of preferred stock of the
Corporation to nominate and elect a specified number of directors in certain
circumstances. If the chairman of the meeting determines that a nomination was
not made in accordance with the foregoing procedures, the chairman of the
meeting shall declare to the meeting that the nomination was defective and such
defective nomination shall be disregarded.
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SECTION 4. Resignation. Any director may resign at any time by giving
written notice to the Board, the Chief Executive Officer or the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, then it shall take effect when accepted by action of the Board.
Except as aforesaid, acceptance of such resignation shall not be necessary to
make it effective.
SECTION 5. Vacancies. Subject to the rights of the holders of any series
of preferred stock or any other class of capital stock of the Corporation
(other than the Common Stock) then outstanding, any vacancy in the Board,
arising from death, resignation, removal, an increase in the number of
directors or any other cause, may be filled either by a majority vote of the
remaining directors, although less than a quorum, or by the sole remaining
director. Any director elected to fill a vacancy shall hold office for a term
that shall coincide with the term of the class to which such director shall
have been elected.
SECTION 6. Meetings. (a) Annual Meetings. As soon as practicable after
each annual election of directors, the Board shall meet for the purpose of
organization and the transaction of other business, unless it shall have
transacted all such business by written consent pursuant to Section 7 of this
Article III.
(b) Other Meetings. Other meetings of the Board shall be held at such
times as the Board shall from time to time determine or upon call by the
Chairman of the Board, the Chief Executive Officer of the Corporation or any
four directors.
(c) Notice of Meetings. Regular meetings of the Board may be held without
notice. The Secretary of the Corporation shall give notice to each director of
each special meeting, including the time and place of such special meeting.
Notice of each such meeting shall be given to each director by telephone,
telegram, facsimile, telex or cable not later than four Business Days before the
day on which such meeting is to be held or on such shorter notice (but in no
event fewer than two days notice) as the Chairman of the Board may deem
necessary or appropriate in the circumstances. Notice of any meeting shall not
be required to be given to any director who shall attend such meeting. A waiver
of notice by the person entitled thereto, whether before or after the time of
any such meeting, shall be deemed equivalent to adequate notice. For purposes
of this Section 6(c), a "Business Day" means any day except a Saturday, Sunday,
or other day on which commercial banks in New York, New York are authorized by
law to close.
(d) Place of Meetings. The Board may hold its meetings at such place or
places within or without the State of Delaware as the Board may from time to
time by resolution determine or as shall be designated in the respective
notices or waivers of notice thereof.
(e) Quorum and Manner of Acting. Except as otherwise provided by law, the
Restated Certificate of Incorporation or these Restated By-Laws, a majority of
the total
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number of directors then in office shall be necessary at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and the affirmative vote of a majority of those directors present at
any such meeting at which a quorum is present shall be necessary for the
passage of any resolution or act of the Board. In the absence of a quorum for
any such meeting, a majority of the directors present thereat may adjourn such
meeting from time to time until a quorum shall be present thereat. Notice of
any adjourned meeting need not be given.
(f) Organization and Order of Business. The Chairman of the Board shall
act as chairman of each meeting of the Board and preside thereat or, in the
absence of the Chairman of the Board at any meeting of the Board, any other
director chosen by a majority of the directors present thereat shall act as
chairman of the meeting and preside thereat. The Secretary of the Corporation
or, in the case of the Secretary's absence, any person whom the chairman of the
meeting shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 7. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or such committee, as the case may be, and such written consent or
consents are filed with the minutes of the proceedings of the Board or such
committee.
SECTION 8. Meetings by Conference Telephone, etc. At the request of any
one or more members of the Board, or of any committee thereof, any meeting of
the Board or such committee shall provide for the ability of any director to
participate in a meeting of the Board, or of such committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
a meeting by such means shall constitute presence in person at such meeting.
SECTION 9. Compensation. Unless otherwise restricted by the Restated
Certificate of Incorporation or these By-Laws, the Board or the Compensation
Committee may determine the compensation of directors. Each director who is
independent within the meaning of Rule 303 of the Rules of the New York Stock
Exchange, as amended from time to time hereafter, in consideration for his or
her serving as such, shall receive from the Corporation compensation in an
amount and form customary for comparable public companies. Directors who are
managers of the Corporation shall not receive compensation for serving as
directors. Any other director may be compensated as determined by the Board or
the Compensation Committee. The Corporation shall reimburse each director or
member of a committee for any out-of-pocket expenses incurred by him or her on
account of his or her attendance at any meeting of the Board or such committee.
Nothing contained in this
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Section 9 shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES
SECTION 1. Audit Committee. The Board may designate an Audit Committee to
be composed of two or more directors, all of whom shall be independent within
the meaning of Rule 303 of the Rules of the New York Stock Exchange as in
existence on the date hereof, or as amended from time to time hereafter. A
majority of the members of the Audit Committee shall constitute a quorum. The
Audit Committee shall from time to time review and make recommendations to the
Board with respect to the selection of independent auditors, the fees paid to
such auditors, the adequacy of the audit and accounting procedures of the
Corporation and such other matters as may be specifically delegated to the Audit
Committee by the Board. In this connection the Audit Committee shall, at its
request, meet with representatives of the independent auditors and with the
financial officers of the Corporation separately or jointly.
SECTION 2. Compensation Committee. The Board may designate a Compensation
Committee to be composed of two or more directors in accordance with the
provisions of the Stockholders' Agreement. A majority of the members of the
Compensation Committee shall constitute a quorum. The Compensation Committee
shall from time to time review and make recommendations to the Board with
respect to the management remuneration policies of the Corporation, 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.
SECTION 3. Nominating Committee. The Board may designate a Nominating
Committee to be composed of two or more directors in accordance with the
provisions of the Stockholders' Agreement. A majority of the members of the
Nominating Committee shall constitute a quorum. The Nominating Committee shall
from time to time review, report and make recommendations to the Board on the
following matters: (i) nominees for directors who may be elected from time to
time by the holders of the Common Stock of the Corporation, selection criteria
for directors, and removal of Directors if deemed appropriate; (ii) evaluation
and performance of the Board and individual Directors; and (iii) such other
matters as the Board may from time to time prescribe
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SECTION 4. Board Designated Committees. The Board may, by resolution
passed by a majority of the whole Board, designate one or more committees
("Special Committees"), each Special Committee to consist of one or more
directors.
SECTION 5. Committee Procedure, Seal. The Board may designate one or
more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of such committee; provided,
however, that alternate members of the Audit Committee must satisfy the
criteria set forth in Section 1 above and alternate members of the Compensation
Committee must satisfy the criteria set forth in Section 2 above. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
director to act at the meeting in the place of any such absent or disqualified
member; provided, however, that appointees to the Audit Committee must satisfy
the criteria set forth in Section 1 above and appointees to the Compensation
Committee must satisfy the criteria set forth in Section 2 above. Any
committee of the Board, to the extent provided in the resolution of the Board
designating such committee, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; provided, however, that no such committee shall
have such power or authority in reference to the following matters:
(i)Eapproving or adopting or recommending to the stockholders of the
Corporation, any action or matter expressly required by the Delaware General
Corporation Law (the "DGCL") to be submitted to stockholders for approval or
(ii)Eadopting, amending or repealing any by-law of the Corporation
ARTICLE V
OFFICERS
SECTION 1. Executive Officers. The officers of the Corporation shall
include a Chairman of the Board, a President and Chief Executive Officer, a
Chief Financial Officer, a General Counsel, a Treasurer and a Secretary. The
officers of the Corporation may also include a Chief Operating Officer, one or
more Senior Vice Presidents, one or more Executive Vice Presidents, one or more
Vice Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries. Each such officer shall be elected by the Board at its annual
meeting and shall hold office for such term as may be determined by the Board.
Each such officer shall hold office until the next succeeding annual meeting of
the Board and until his or her successor is elected or until his or her earlier
death or resignation or removal in the manner hereinafter provided. Any two or
more offices may be held by the same person.
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The Board may elect, and the Chief Executive Officer may appoint, such
other officers of the Corporation as the Board or the Chief Executive Officer
deems necessary who shall have such authority and shall perform such duties as
the Board or the Chief Executive Officer may prescribe. If additional officers
are elected or appointed, each of them shall hold office until his or her
successor is elected or appointed or until his or her earlier death or
resignation or removal in the manner hereinafter provided.
SECTION 2. Authority and Duties. All officers, as between themselves and
the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these Restated By-Laws or,
to the extent not so provided, by resolution of the Board.
SECTION 3. Resignation and Removal. (a) Any officer may resign at any
time by giving written notice to the Board, the Chief Executive Officer or the
Secretary of the Corporation, and such resignation shall take effect at the
time specified therein or, if the time when it shall become effective shall not
be specified therein, when accepted by action of the Board. Except as
aforesaid, the acceptance of such resignation shall not be necessary to make it
effective.
(b) All officers elected, and all agents appointed, by the Board shall be
subject to removal at any time by the Board and all officers and agents
appointed by the Chief Executive Officer shall be subject to removal at any
time by the Chief Executive Officer or the Board, in each case, with or without
cause.
SECTION 4. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term in the same manner as provided for election and
appointment to such office.
SECTION 5. Chairman of the Board. The initial Chief Executive Officer
shall be the Chairman of the Board of the Corporation. Thereafter, the
Chairman of the Board shall be selected by the Board. The Chairman of the
Board shall preside at all meetings of the Board and at all meetings of the
stockholders and shall have and exercise such further powers and duties as may
from time to time be conferred upon or assigned to him or her by the Board.
SECTION 6. President and Chief Executive Officer. The President and
Chief Executive Officer of the Corporation, subject to the direction of the
Board, shall have general charge of the business and affairs of the
Corporation, shall have the direction of all other officers, agents and
employees of the Corporation and may assign such duties to the other officers
of the Corporation as he or she deems appropriate. In case of the absence or
inability to act of the President and Chief Executive Officer, the Board may
designate such other person as it deems appropriate to assume the duties of the
President and Chief
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Executive Officer and, when so acting, but subject to the foregoing, such
person shall have all of the powers of, and be subject to all the restrictions
upon, the Chief Executive Officer.
SECTION 7. Chief Operating Officer. The Chief Operating Officer of the
Corporation, subject to the direction of the President and Chief Executive
Officer, shall have charge of the day-to-day operations of the Corporation,
shall assist the President and Chief Executive Officer in carrying out the
orders and resolutions of the Board and shall perform such other duties as the
Chief Executive Officer or the Board of Directors shall from time to time
assign. At the request of the President and Chief Executive Officer, the Chief
Operating Officer, until otherwise determined, and subject to any limitations
imposed by the Board, shall assume the duties of the President and Chief
Executive Officer and, when so acting, but subject to the foregoing, shall have
all of the powers of, and be subject to all the restrictions upon, the Chief
Executive Officer.
SECTION 8. Chief Financial Officer. The Chief Financial Officer, subject
to the direction of the President and Chief Executive Officer, shall have
overall charge of all of the financial affairs of the Corporation and shall
perform such other duties as the Chief Executive Officer or the Board of
Directors shall from time to time assign.
SECTION 9. General Counsel. The General Counsel, subject to the
direction of the President and the Chief Executive Officer, shall have overall
charge of all of the legal affairs of the Corporation and shall perform such
other duties as the Chief Executive Officer or the Board of Directors shall
from time to time assign.
SECTION 10. Senior Vice Presidents, Executive Vice Presidents and Vice
Presidents. Each Senior Vice President, Executive Vice President and Vice
President of the Corporation shall have such powers and perform such duties as
the President and Chief Executive Officer or the Board may from time to time
prescribe and shall perform such other duties as may be prescribed by these
Restated By-Laws.
SECTION 11. Treasurer. The Treasurer of the Corporation shall have
charge and custody of and be responsible for all funds and securities of the
Corporation.
SECTION 12. Assistant Treasurers. The Assistant Treasurers of the
Corporation, if any, in order or their seniority or in any other order
determined by the Board, shall generally assist the Treasurer and perform such
other duties as the Board or the Treasurer shall prescribe, and, in the absence
or disability of the Treasurer, shall perform the duties and exercise the
powers of the Treasurer.
SECTION 13. Secretary. The Secretary of the Corporation shall keep the
records of all meetings of the stockholders and the Board. He or she shall
affix the seal of the Corporation to all deeds, contracts, bonds or other
instruments requiring the corporate
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seal when the same shall have been signed on behalf of the Corporation by a
duly authorized officer and shall be the custodian of all contracts, deeds,
documents and all other indicia of title to properties owned by the Corporation
and of its other corporate records.
SECTION 14. Assistant Secretary. The Assistant Secretaries, if any, in
order of their seniority or in any other order determined by the Board, shall
generally assist the Secretary and perform such other duties as the Board or
the Secretary shall prescribe, and, in the absence or disability of the
Secretary, shall perform the duties and exercise the powers of the Secretary.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. Execution of Documents. Any officer, employee or agent of the
Corporation designated by the Board (or any duly authorized committee of the
Board to the extent permitted by law) shall have power to execute and deliver
deeds, contracts, mortgages, bonds, debentures, checks, drafts and other orders
for the payment of money and other documents for and in the name of the
Corporation, and the Board (or such a committee) may authorize any such
officer, employee or agent to delegate such power (including authority to
redelegate) by written instrument to other officers, employees or agents of the
Corporation.
SECTION 2. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation or
otherwise as the Board or the Chief Executive Officer or any other officer of
the Corporation to whom power in that respect shall have been delegated by the
Board shall select.
SECTION 3. Proxies in Respect of Stock or Other Securities of Other
Corporations. The Board or the Chief Executive Officer shall designate the
officers of the Corporation who shall have authority from time to time to
appoint an agent or agents of the Corporation to exercise in the name and on
behalf of the Corporation the powers and rights that the Corporation may have
as the holder of stock or other securities in any other corporation, and to
vote or consent in respect of such stock or securities. Such designated
officers may instruct the person or persons so appointed as to the manner of
exercising such powers and rights, and such designated officers may execute or
cause to be executed in the name and on behalf of the Corporation and under its
corporate seal, or otherwise, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the Corporation
may exercise such powers and rights.
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ARTICLE VII
SHARES AND TRANSFER OF SHARES
SECTION 1. Certificates of Stock. Every owner of shares of stock of the
Corporation shall be entitled to have a certificate evidencing the number of
shares of stock of the Corporation owned by such owner and designating the
class of stock to which such shares belong, which shall otherwise be in such
form as the Board shall prescribe. Each such certificate shall bear the
signature (or a facsimile thereof) of the President and Chief Executive
Officer, the Chief Operating Officer or the Chief Financial Officer and the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation.
SECTION 2. Record. A record shall be kept of the name of the person,
firm or corporation owning the stock represented by each certificate evidencing
stock of the Corporation issued, the number of shares represented by each such
certificate, and the date thereof, and, in the case of cancellation, the date
of cancellation. Except as otherwise expressly required by law, the person in
whose name shares of stock stand on the books of the Corporation shall be
deemed the owner thereof for all purposes as regards the Corporation.
SECTION 3. Transfer of Stock. (a) The transfer of shares of stock and
the certificates evidencing such shares of stock of the Corporation shall be
governed by Article 8 of Subtitle I of Title 6 of the Delaware Code (the
Uniform Commercial Code), as amended from time to time.
(b) Registration of transfers of shares of stock of the Corporation shall
be made only on the books of the Corporation upon request of the registered
holder thereof, or of such holder's attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and
upon the surrender of the certificate or certificates evidencing such shares
properly endorsed or accompanied by a stock power duly executed.
SECTION 4. Addresses of Stockholders. Each stockholder shall designate
to the Secretary of the Corporation an address at which notices of meetings and
all other corporate notices may be served or mailed to such stockholder, and,
if any stockholder shall fail to so designate such an address, corporate
notices may be served upon such stockholder by mail directed to such
stockholder at such stockholder's post office address, if any, as the same
appears on the share record books of the Corporation or at such stockholder's
last known post office address.
SECTION 5. Lost, Destroyed or Mutilated Certificates. A holder of any
shares of stock of the Corporation shall promptly notify the Corporation of any
loss,
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destruction or mutilation of any certificate or certificates evidencing all or
any such shares of stock. The Board may, in its discretion, cause the
Corporation to issue a new certificate in place of any certificate theretofore
issued by it and alleged to have been mutilated, lost, stolen or destroyed,
upon the surrender of the mutilated certificate or, in the case of loss, theft
or destruction of the certificate, upon satisfactory proof of such loss, theft
or destruction, and the Board may, in its discretion, require the owner of the
lost, stolen or destroyed certificate or such owner's legal representative to
give the Corporation a bond sufficient to indemnify the Corporation against any
claim made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
SECTION 6. Facsimile Signatures. Any or all of the signatures on a
certificate evidencing shares of stock of the Corporation may be facsimiles.
SECTION 7. Regulations. The Board may make such rules and regulations as
it may deem expedient, not inconsistent with the Restated Certificate of
Incorporation or these Restated By-Laws, concerning the issue, transfer and
registration of certificates evidencing stock of the Corporation. It may
appoint, or authorize any principal officer or officers to appoint, one or more
transfer agents and one or more registrars, and may require all certificates of
stock to bear the signature or signatures (or a facsimile or facsimiles
thereof) of any of them. The Board may at any time terminate the employment of
any transfer agent or any registrar of transfers. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall cease to be such officer, transfer agent
or registrar, whether because of death, resignation, removal or otherwise,
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed or whose facsimile signature has been placed upon such certificate or
certificates had not ceased to be such officer, transfer agent or registrar.
SECTION 8. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of, or to vote at, any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other such action. A
determination of stockholders entitled to notice of, or to vote at, any meeting
of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
<PAGE> 16
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SECTION 9. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the
owner of shares of stock to receive dividends and to vote as such owner, shall
be entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize
any equitable or other claim to or interest in such share or shares of stock on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
SECTION 10. Stockholder Agreements. Shares of stock of the Corporation
may be subject to one or more agreements abridging, limiting or restricting the
rights of any one or more stockholders to sell, assign, transfer, mortgage,
pledge or hypothecate any or all of the stock of the Corporation held by them,
or providing for preemptive rights, or may be subject to one or more agreements
providing a purchase option with respect to any shares of stock of the
Corporation. If such agreements exist, all certificates evidencing shares of
stock subject to such abridgements, limitations, restrictions or options shall
have reference thereto endorsed on such certificate and such stock shall not
thereafter be transferred on the books of the Corporation except in accordance
with the terms and conditions of such agreement or agreements. Copies of such
agreement or agreements shall be maintained at the offices of the Corporation.
ARTICLE VIII
BOOKS AND RECORDS
The books and records of the Corporation may be kept at such place or
places within or without the State of Delaware as the Board may from time to
time determine.
ARTICLE IX
SEAL
The Board shall provide a corporate seal which shall bear the full name of
the Corporation.
<PAGE> 17
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ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
change from time to time, by the Board.
ARTICLE XI
INDEMNIFICATION
SECTION 1. General. The Corporation (i) shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he or she is or was a director or an
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or an officer of another corporation, partnership,
joint venture, trust or other enterprise, to the full extent authorized or
permitted by law, as now or hereafter in effect, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful, and (ii) may
indemnify, if the Board of Directors determines such indemnification is
appropriate, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he or she is
or was an employee or agent of the Corporation, or is or was serving at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, to the full extent
authorized or permitted by law, as now or hereafter in effect, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement or conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
<PAGE> 18
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SECTION 2. Derivative Actions. The Corporation (i) shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director or an officer of the Corporation, or is or was serving
at the request of the Corporation as a director or an officer of another
corporation, partnership, joint venture, trust or other enterprise, to the full
extent authorized or permitted by law, as now or hereafter in effect, against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and (ii) may
indemnify, if the Board of Directors determines such indemnification is
appropriate, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact
that he or she is or was an employee or an agent of the Corporation, or is or
was serving at the request of the Corporation as an employee or an agent of
another corporation, partnership, joint venture, trust or other enterprise, to
the full extent authorized or permitted by law, as now or hereafter in effect,
against expenses (including attorneys' fees) actually and reasonably incurred
by him or her in connection with the defense or settlement of such action or
suit if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation;
provided, however, that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or 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, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
SECTION 3. Successful Defense. To the extent that (i) a director or an
officer of the Corporation or (ii) any other employee or agent of the
Corporation who the Board of Directors has authorized the Corporation to
indemnify, has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in sections 1 and 2 above, or in defense
of any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith.
SECTION 4. Proceedings Initiated by any Person. Notwithstanding anything
to the contrary contained in sections 1 or 2 above, except for proceedings to
enforce rights to indemnification, the Corporation shall not be obligated to
indemnify any person in connection with a proceeding (or part thereof)
initiated by such person unless such proceeding (or part thereof) was
authorized in advance, or unanimously consented to, by the Board of Directors.
<PAGE> 19
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SECTION 5. Procedure. Any indemnification under sections 1 and 2 above
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because such person
has met the applicable standard of conduct set forth in sections 1 and 2 above.
Such determination shall be made (i)Eby a majority vote of the directors who
are not parties to such action, suit or proceeding even though less than a
quorum, or (ii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (iii) by the
stockholders.
SECTION 6. Advancement of Expenses. Expenses (including attorneys' fees)
incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation pursuant to this
Article XI or as otherwise authorized by law. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the Board of Directors deems appropriate.
SECTION 7. Rights Not Exclusive. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other subsections of this
Article XI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding such office.
SECTION 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against such liability under the
provisions of the DGCL.
SECTION 9. Definition of "Corporation". For purposes of this Article XI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer,
<PAGE> 20
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employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
Article XI with respect to the resulting or surviving corporation as such person
would have with respect to such constituent corporation if its separate
existence had continued.
SECTION 10. Certain Other Definitions. For purposes of this Article XI,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves service by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation",
as referred to in this ArticleEXI.
SECTION 11. Continuation of Rights. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article XI shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 12. Repeal or Modification. Any repeal or modification of this
Article XI by the stockholders of the Corporation shall not adversely affect
any rights to indemnification and to advancement of expenses that any person
may have at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
SECTION 13 Amendments to DGCL. If the DGCL is amended hereafter to
broaden the rights of those seeking indemnification or advancement of expenses,
then such rights shall be extended to such persons to the fullest extent
authorized by the DGCL, as so amended, without further action by either the
Board of Directors or the stockholders of the Corporation.
ARTICLE XII
AMENDMENTS
These Restated By-Laws, or any of them, may be altered, amended or
repealed, or new by-laws may be made, but only to the extent any such
alteration, amendment, repeal or new by-law is not inconsistent with any
provision of the Restated Certificate of Incorporation, either by a majority of
the whole Board or by the stockholders of the Corporation upon the affirmative
vote of the holders of 66 2/3% or more of the outstanding shares of capital
stock of the Corporation entitled to vote thereon, voting as a single class;
<PAGE> 21
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provided, however, that no alteration, amendment or repeal of Section 8 of
Article III of these Restated By-Laws may be made by the Board without the
consent of all of the directors.
<PAGE> 1
EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of the ___
day of _____, 1997, among Galileo International, Inc., a Delaware corporation
(the "Company"), 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.
(the "Original Stockholders").
R E C I T A L S
WHEREAS, on the date hereof, the Original Stockholders are the owners of
the number of shares of the Company's Common Stock, par value $.__ per share
(the "Common Stock") set forth on Schedule A hereto;
WHEREAS, the Original Stockholders have approved various actions in
connection with a proposed initial public offering (the "IPO") of shares of the
Company's Common Stock, including the approval of a Restated Certificate of
Incorporation;
WHEREAS, the parties hereto desire to provide for the registration under
the Securities Act of 1933, as amended (the "Securities Act"), of the shares of
Registrable Stock (as defined herein) held by Holders (as defined herein), on
the terms and conditions set forth herein; and
WHEREAS, the Board of Directors of the Company has authorized the officers
of the Company to execute and deliver this Agreement in the name of and on
behalf of the Company.
NOW, THEREFORE, in consideration of the mutual covenants, promises,
representations, warranties and conditions set forth in this Agreement, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions.
For purposes of this Agreement, in addition to the definitions set forth
above and elsewhere herein, the following terms shall have the following
respective meanings:
"affiliate" shall have the meaning given in Rule 405 under the Securities Act;
"Commission" shall mean the United States Securities and Exchange Commission;
<PAGE> 2
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended;
"Holder" shall mean each Original Stockholder or any transferee or
assignee to whom the rights under this Agreement are transferred or
assigned in accordance with the provisions of Section 9 hereof;
"Registrable Stock" shall mean: (i) the Common Stock beneficially owned
by each Original Stockholder immediately after the IPO; (ii) any Common
Stock acquired in the public market or otherwise by a Holder of
Registrable Stock to increase its holdings in order to maintain such
Holder's right to elect a director of the Company pursuant to the terms
of any series of the Company's Special Voting Preferred Stock, par value
$.01 per share (the "Special Voting Preferred Stock"), then held by such
Holder (but only to the extent required to maintain such right); (iii)
any other Common Stock acquired in the public market or otherwise by a
Holder of Registrable Stock; (iv) any Common Stock issued as (or issuable
upon the conversion or exercise of any warrant, right, 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), (ii) or (iii) above or in clause (v)
below; and (v) any Common Stock issued by way of a stock split of the
Common Stock referred to in clauses (i), (ii), (iii) or (iv) above. For
purposes of this Agreement, any Registrable Stock shall cease to be
Registrable Stock when (x) a registration statement covering such
Registrable Stock has been declared effective and such Registrable Stock
has been disposed of pursuant to such effective registration statement or
(y) such Registrable Stock is sold or distributed pursuant to Rule 144
(or any similar or successor provision (but not Rule 144A)) under the
Securities Act; and
"Rule 144" shall mean Rule 144, as from time to time amended, of the
Commission promulgated under the Securities Act, or any rule of the
Commission promulgated as a successor thereto.
2. Demand Registration.
(a) At any time 180 days after the date of this Agreement and (i)
for the period terminating on the first anniversary of the date of this
Agreement, the Holders holding at least 5% of the then outstanding Common
Stock which is Registrable Stock and (ii) thereafter Holders holding at
least 2% of the outstanding Common Stock which is Registrable Stock (or
Holders holding less than 2% of the outstanding Common Stock which is
Registrable Stock who, using their reasonable efforts, during the six
month period following notice by them to the Company of their desire to
register shares of such Stock held by them, have been unable to increase
such shares to be registered to 2%, in the aggregate) (the "Requesting
Holders") may request, in a written notice to the Company, that the
Company file a registration statement under
<PAGE> 3
3
the Securities Act covering the registration of such percentage of shares
(at least 5%, 2% or less, as the case may be) of the Common Stock which
is Registrable Stock then outstanding in the manner (e.g, underwritten)
specified in such notice (a "Demand Notice"); provided, however, that
shares of Registrable Stock referred to in clause (iii) of the definition
thereof, together with shares issued with respect thereto pursuant to
clauses (iv) and (v) of the definition thereof, shall not be counted for
purposes of determining if a Holder has satisfied the applicable
threshold for making a Demand Notice. A registration effected pursuant
to this Section 2 is referred to herein as a "Demand Registration".
Following receipt of any Demand Notice under this Section 2, the Company
shall (i) give, within 10 business days of receipt of such Demand Notice,
each other Holder written notice that it will be filing a registration
statement and advise such Holders that they may participate in such
registration by promptly so notifying the Company and (ii) file as
promptly as practicable (but in any event within 60 days after receiving
such Demand Notice) a registration statement and use its best efforts to
cause to be declared effective as soon as reasonably practicable (but in
any event within 120 days of receiving such Demand Notice) a registration
statement providing for the offer and sale of the Registrable Stock that
the Requesting Holders and the other Holders have requested be registered
in accordance with the manner of disposition specified in the Demand
Notice of the Requesting Holders; provided, however, that the
participation of a Holder (other than a Requesting Holder) in a Demand
Registration pursuant to clause (i) of this sentence shall not be deemed
to be a Demand Registration of such participating Holder.
(b) If the Requesting Holders intend to have the Registrable Stock
distributed by means of an underwritten offering, the underwriter or
underwriters shall be selected by Requesting Holders holding a majority
of the shares of Registrable Stock to be sold by such Requesting Holders
after consultation with all Requesting Holders, subject to approval by
the Company, which approval shall not be unreasonably withheld.
(c) Notwithstanding any provision of this Agreement to the
contrary,
(i) the Company shall not be required to effect a Demand
Registration if the Demand Notice related thereto is
delivered during the period commencing 45 days prior to the
estimated date of filing by the Company of a registration
statement pertaining to a public offering of equity
securities of the Company (a "Company Registration
Statement") which are the same as or similar to, or
convertible into or exchangeable for, Common Stock of the
Company (other than a registration statement on Form S-8 or
successor form) and ending on the date of the effectiveness
of such Company Registration Statement; provided, however,
that in no event shall the Company be required to
<PAGE> 4
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file a registration statement pertaining to a Demand
Registration at any time prior to 90 days after the date of
the effectiveness of any Company Registration Statement;
(ii) the Company shall not be required to effect more than
one Demand Registration in any six-month period; and
(iii) if the Company shall furnish to the Requesting Holders
a certificate signed by the chief executive officer of the
Company stating that in the good faith opinion of a majority
of the board of directors of the Company such registration
would require the Company to disclose a material financing,
acquisition or other corporate development and that such
disclosure at such time is not in the best interests of the
Company and its stockholders, then the Company may postpone
the filing or effectiveness of a registration statement for
such period (the "Delay Period") as the board of directors
shall approve; provided, however, that (i) no single Delay
Period may exceed 90 consecutive days; (ii) the Delay Periods
in any twelve consecutive months may not exceed, in the
aggregate, 180 days; and (iii) no Delay Period may commence
fewer than 60 days following the end of a prior Delay Period.
(d) Each Original Stockholder will be entitled to two Demand
Registrations with respect to the Registrable Stock held by such Original
Stockholder; upon transfer or assignment of any or all of such
Registrable Stock in accordance with Section 9 hereof, the Original
Stockholder shall notify the Company, in accordance with Section 9, as to
whether or not the Original Stockholder is assigning Demand Registration
rights under this Agreement. As a result, the Company shall not be
obligated to effect more than two Demand Registrations in respect of the
Registrable Stock of each Original Stockholder (including for this
purpose any Demand Registration rights in respect of such Registrable
Stock which have been assigned in accordance with the provisions of
Section 9 hereof); provided, however, that a Demand Registration shall
not be deemed to have been effected for a particular Holder for purposes
of this Section 2(d) unless (i) the Registration Statement filed in
connection with such Demand Registration shall have been declared
effective by the Commission; (ii) such Registration Statement shall have
remained effective for the period set forth in Section 4; and (iii) the
offering of Registrable Stock pursuant to such registration shall not be
subject to any stop order, injunction or other order or requirement of
the Commission that is not lifted or released (other than any such stop
order, injunction or other requirement of the Commission prompted by any
act or omission of a Requesting Holder).
<PAGE> 5
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(e) If the Registrable Stock registered pursuant to a Demand
Registration is to be sold in one or more firm commitment underwritten
offerings, and the sole or managing underwriter, as the case may be, of
such underwritten offering advises the Holders of such securities that,
in its opinion, the total amount of Registrable Stock requested to be
included in such registration will exceed the maximum amount (the
"Maximum Demand Offering Size") of the Company's securities that can be
marketed (1) at a price reasonably related to the then current market
value of such securities or (2) without otherwise materially and
adversely affecting the entire offering, then the Company shall include
in such registration, in the following priority up to the Maximum Demand
Offering Size: (x) first, all of the Registrable Stock requested to be
included in such registration by the Requesting Holders pursuant to this
Section 2, allocated, if necessary, for such offering not to exceed the
Maximum Demand Offering Size, pro rata among the Requesting Holders on
the basis of the relative number of shares of Registrable Stock each such
Requesting Holder has requested to be included in such registration; and
(y) second, all of the Registrable Stock requested to be included in such
registration by Holders other than the Requesting Holders pursuant to
this Section 2, allocated, if necessary, for such offering not to exceed
the Maximum Demand Offering Size, pro rata among such non-Requesting
Holders on the basis of the relative number of shares of Registrable
Stock each such Holder has requested to be included in such registration.
(f) The Company agrees not to effect any public or private sale,
distribution or purchase of any of its equity securities which are the
same as or similar to, or convertible into or exchangeable or exercisable
for, Common Stock of the Company during the 30-day period prior to, and
the 90-day period beginning on, the effective date of any registration
statement filed pursuant to a Demand Registration. The foregoing
sentence shall not apply to: (x) any such equity securities registered
pursuant to a registration statement on Form S-4 (or successor form) in
respect of a business combination, acquisition or similar transaction;
(y) any shares of Common Stock issued by the Company upon the exercise of
an option or the conversion of a security outstanding on the filing date
of any registration statement; and (z) any shares of Common Stock issued
or options to purchase Common Stock granted pursuant to employee benefit
plans of the Company, including, without limitation, the Company's
[Equity Incentive Plan].
3. Incidental Registration.
(a) Subject to Section 7 and the other terms and conditions set
forth in this Section 3, if at any time 180 days after this Agreement the
Company determines that it shall file a registration statement under the
Securities Act (other than a registration statement on Form S-4 or S-8
(or successor forms thereto) or filed in connection with an exchange
offer or an offering of securities solely to the Company's existing
<PAGE> 6
6
stockholders) for the sale of shares of Common Stock for its own account
or for the account of any third party (a "Selling Securityholder"), the
Company shall each such time promptly give each Holder written notice of
such determination setting forth the date on which the Company proposes
to file such registration statement, which date shall be no earlier than
30 days from the date of such notice, and advising such Holders of their
right to have any Registrable Stock beneficially owned by them included
in such registration. Upon the written request of any Holder received by
the Company no later than 15 business days after the date of the
Company's notice, the Company shall use its best efforts to cause to be
registered under the Securities Act all of the Registrable Stock that
each such Holder has so requested to be registered. The Company, in its
sole discretion shall appoint the underwriters, if any, for any
registration covered by this Section 3 in the case of a sale by the
Company of shares of Common Stock for its own account.
(b) The Company's obligation to include Registrable Stock in a
registration statement pursuant to Section 3(a) above is subject to the
following limitations:
(i) If, at any time after giving written notice of its
determination to register shares of Common Stock for its own
account or for the account of a Selling Securityholder and
prior to the effective date of any registration statement
filed in connection with such registration, the Company or
such Selling Securityholder shall determine for any reason
not to register such securities, the Company may, at its
election, give written notice of such determination to the
Holders and thereupon the Company shall be relieved of its
obligation to use any efforts to register any Registrable
Stock in connection with such aborted registration.
(ii) If the Registrable Stock registered in accordance with
this Section 3 is to be sold in one or more firm commitment
underwritten offerings, and the sole or managing underwriter,
as the case may be, of such underwritten offering advises the
Company, the Selling Securityholder and the Holders of
Registrable Stock to be included in such registration that,
in its opinion, the total amount of such securities to be so
registered, including such Registrable Stock, will exceed the
maximum amount (the "Maximum Offering Size") of the Company's
securities that can be marketed (1) at a price reasonably
related to the then current market value of such securities
or (2) without otherwise materially and adversely affecting
the entire offering, then the Company shall include in such
registration, in the following priority up to the Maximum
Offering Size: (x) first, all of the securities proposed to
be registered for offer and sale by the Company or the
Selling Securityholder, as the case may be, and (y) second,
all of the
<PAGE> 7
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Registrable Stock requested to be included in such
registration by the Holders pursuant to this Section 3,
allocated, if necessary, for such offering not to exceed the
Maximum Offering Size, pro rata among the Holders requesting
registration of such Registrable Stock on the basis of the
relative number of shares of Registrable Stock each such
Holder has requested to be included in such registration.
(c) In connection with any registration of the Company's Common
Stock, under Section 2 or 3 hereof, and upon the written request of the
underwriters managing any underwritten offering of the Common Stock, each
Holder agrees not to effect any sale, disposition or distribution of any
Common Stock (other than that included in any such registration or other
than a private sale to another Original Owner or, subject to Section 9 of
this Agreement, a third party in a transaction that involves the transfer
of one or more shares of Special Voting Preferred Stock) or securities
exercisable for or convertible or exchangeable into Common Stock without
the prior written consent of such underwriters during the 30-day period
prior to, and the 90-day period beginning on, the effective date of any
registration statement to which Section 2(a) or 3(a) applies.
4. Registration Procedures. Whenever required under Section 2 or
Section 3 of this Agreement to use its best efforts to effect the registration
of any Registrable Stock, the Company shall, as soon as reasonably practicable:
(a) prepare and file with the Commission a registration statement on
Form S-1 or such other form available for the sale of the Registrable
Stock by the Holders thereof in accordance with the intended method of
distribution thereof and use its best efforts to cause such registration
statement to become and remain effective for the period of distribution
as provided herein; provided, however, that before filing any
registration statement or prospectus or any amendments or supplements
thereto (not including documents that would be incorporated or deemed to
be incorporated therein by reference), the Company shall afford the
Holders of the Registrable Stock covered by such registration statement,
their counsel and the managing or sole underwriter, if any, an
opportunity to review copies of all such documents proposed to be filed;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions of
the Securities Act, the Exchange Act and the rules and regulations
promulgated thereunder applicable to it with respect to the disposition
of all Registrable Stock covered by such registration statement;
<PAGE> 8
8
(c) furnish to each Holder such numbers of copies of the
registration statement and the prospectus included therein (including
each preliminary prospectus and any amendments or supplements thereto) as
such Holder may reasonably request in writing and, in the case of Demand
Registration, furnish each Requesting Holder with copies of any and all
correspondence with the Commission or any other governmental entity
relating to the registration statement and the prospectus included
therein;
(d) use its best efforts to register or qualify the Registrable
Stock covered by such registration statement under the securities or blue
sky laws of such jurisdictions within the United States and its
possessions and territories as shall be reasonably appropriate for the
distribution of the Registrable Stock covered by the registration
statement; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business
in or to file a general consent to service of process in any jurisdiction
wherein it would not but for the requirements of this paragraph (d) be
obligated to do so;
(e) promptly (but in any event within 5 business days) notify each
Holder for whom such Registrable Stock is covered by such registration
statement and confirm such notice in writing, (i) when a registration
statement, prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to a registration statement
or any post-effective amendment, when the same has become effective, (ii)
of the issuance of any order suspending the effectiveness of a
registration statement or of any order preventing or suspending the use
of any prospectus or the initiation of any proceedings for that purpose,
(iii) of the happening of any event that makes any statement made in such
registration statement or related prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or that requires the making of any changes in such registration
statement, prospectus or documents so that, in the case of such
registration statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading,
and at the written request of any such Holder promptly prepare and
furnish to such Holder a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the
circumstances under which they were made;
<PAGE> 9
9
(f) furnish, at the written request of any Holder requesting
registration pursuant to Section 2, if the method of distribution is by
means of an underwriting, on the date that the shares of Registrable
Stock are delivered to the underwriters for sale pursuant to such
registration, or if such Registrable Stock is not being sold through
underwriters, on the date that the registration statement with respect to
such shares of Registrable Stock becomes effective: (i) a signed opinion,
dated such date, of the legal counsel for the Company for the purpose of
such registration, addressed to the underwriters, if any, and if such
Registrable Stock is not being sold through underwriters, then to the
Holders making such request, as to such matters as such underwriters or
the Holders holding a majority of the Registrable Stock included in such
registration, as the case may be, may reasonably request and as would be
customary in such a transaction and (ii) letters dated such date and the
date the offering is priced from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and if
such Registrable Stock is not being sold through underwriters, then to
the Holders making such request (1) stating that they are independent
certified public accountants within the meaning of the Securities Act and
that, in the opinion of such accountants, the financial statements and
other financial data of the Company included in the registration
statement or the prospectus, or any amendment or supplement thereto,
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act and (2) covering such other financial
matters (including information as to the period ending not more than 5
business days prior to the date of such letters) as such underwriters or
the Holders holding a majority of the Registrable Stock included in such
registration, as the case may be, may reasonably request and as would be
customary in such a transaction;
(g) provide reasonable cooperation to the selling Holders of
Registrable Stock and the managing or sole underwriter, if any, to
facilitate the timely preparation and delivery of certificates
representing shares of Registrable Stock to be sold, which certificates
shall not bear any restrictive legends and shall be in a form eligible
for deposit with The Depository Trust Company; and enable such
Registrable Stock to be in such denominations and registered in such
names as the managing or sole underwriter, if any, or Holders may
reasonably request in writing at least two business days prior to any
sale of Registrable Stock in a firm commitment underwritten public
offering, or at least ten business days prior to any other such sale;
(h) enter into customary agreements (including if the method of
distribution is by means of an underwriting, an underwriting agreement in
customary form and containing customary provisions regarding
indemnification of the underwriters by the Holders joining in such
registration), in conformity with Section 6, and take such other actions
as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Stock to be so included in the
registration statement,
<PAGE> 10
10
including, without limitation, in the case of an underwritten Demand
Registration, providing the underwriters and their counsel reasonable
access to the Company's records and officers for purposes of customary
due diligence examinations and participating in good faith in meetings
with potential investors or security analysts (including "road shows");
provided, however, that in no event will the Company be required to
participate in more than one series of meetings or road show in respect
of all shares of Registrable Stock of all Holders in any 12 calendar
months;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission; and
(j) use its best efforts to list the Registrable Stock covered by
such registration statement with any securities exchange on which the
Common Stock of the Company is then listed.
For purposes of this Section 4, the period of distribution of Registrable Stock
covered by any registration statement shall be deemed to extend until the
earlier of (i) the sale of all such Registrable Stock or, in the case of an
underwritten public offering, until each underwriter has completed the
distribution of all Registrable Stock included in such offering; and (ii) three
months after the effective date of such registration statement.
5. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the Holders shall furnish to the Company such information regarding themselves,
the Registrable Stock held by them, and the intended method of disposition of
the Registrable Stock as the Company shall reasonably request and as shall be
required in connection with any action to be taken by the Company; provided,
however, that such information shall only be used in connection with such
registration.
6. Expenses of Registration. All reasonable expenses incurred in
connection with each registration pursuant to Section 2 or 3 of this Agreement,
including without limitation all registration, filing and qualification fees,
word processing, duplicating, printers' and accounting fees (including the
expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance), fees of the National Association
of Securities Dealers, Inc. or listing fees, messenger and delivery expenses,
all fees and expenses of complying with state securities or blue sky laws and
fees and disbursements of counsel for the Company shall be paid by the Company.
Notwithstanding the foregoing, (i) the selling Holders shall bear and pay or
be responsible for the underwriters' discounts and commissions, and fees and
disbursements of counsel for the selling Holders, applicable to securities
offered for their account in connection with any such registrations, filings
and qualifications made pursuant to Section 2 or 3 of this Agreement; and (ii)
in no event shall the Company pay or be responsible for the fees and
disbursements
<PAGE> 11
11
of counsel for the underwriters in connection with any such registrations,
filings and qualifications.
7. Underwriting Requirements. In connection with any underwritten
offering pursuant to Section 3, the Company shall not be required to include
shares of Registrable Stock in such underwritten offering unless the Holders of
such Registrable Stock accept the terms of the underwriting of such offering
that have been reasonably agreed upon between the Company and the Selling
Securityholder, on the one hand, and the underwriters selected by the Company
or the Selling Securityholder, on the other hand.
8. Indemnification. In the event any Registrable Stock is included
in a registration statement under this Agreement:
(a) The Company shall indemnify and hold harmless each Holder and
its directors, officers, agents and employees, each person who
participates in the offering of such Registrable Stock, including
underwriters (as defined in the Securities Act), each person, if any, who
controls such Holder or participating person within the meaning of the
Securities Act and the directors, officers, agents and employees of each
such controlling person (each, an "Indemnified Party"), against any
losses, claims, damages or liabilities, joint or several, to which they
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of any material fact contained in such
registration statement on the effective date thereof (including any
prospectus filed under Rule 424 under the Securities Act or any
amendments or supplements thereto) or arise out of or are based upon any
omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
shall reimburse on a quarterly basis each such Indemnified Party for any
reasonable legal or other reasonable expenses incurred by them (but not
in excess of expenses incurred in respect of one counsel (plus one local
counsel) for all of them unless there is an actual conflict of interest
between any Indemnified Parties, which Indemnified Parties may be
represented by separate counsel) in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 8(a)
shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
written consent of the Company; provided, further, that the Company shall
not be liable to any Indemnified Party in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Indemnified Party. Such indemnity shall remain
in full
<PAGE> 12
12
force and effect regardless of any investigation made by or on behalf of
any such Indemnified Party, and shall survive the transfer of such
securities by the applicable Holder.
(b) Each Holder requesting or joining in a registration severally
and not jointly shall indemnify and hold harmless the Company, each other
Holder joining in such registration, each of the Company's and such other
Holders' respective directors, officers, agents and employees, each
person, if any, who controls the Company and each other Holder within the
meaning of the Securities Act and the directors, officers, agents and
employees of each such controlling person (each, an "Indemnified Party")
against any losses, claims, damages or liabilities, joint or several, to
which the Company or any such Indemnified Party may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement on the effective date thereof (including any
prospectus filed under Rule 424 under the Securities Act or any
amendments or supplements thereto) or arise out of or are based upon any
omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information
furnished by or on behalf of such Holder expressly for use in connection
with such registration; and each such Holder shall reimburse on a
quarterly basis any reasonable legal or other reasonable expenses
incurred by each such Indemnified Party (but not in excess of expenses
incurred in respect of one counsel (plus one local counsel) for all of
them unless there is an actual conflict of interest between any
Indemnified Parties, which Indemnified Parties may be represented by
separate counsel) in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 8(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the written consent of such
Holder, and provided, further, that the liability of any Holder hereunder
shall be limited to the proportion of any such loss, claim, damage,
liability or expense which is equal to the proportion that the net
proceeds from the sale of the Registrable Stock sold by such Holder under
such registration statement bears to the total net proceeds from the sale
of all securities sold thereunder, but not in any event to exceed the net
proceeds received by such Holder from the sale of Registrable Stock
covered by such registration statement.
(c) Promptly after receipt by an Indemnified Party (as defined in
Section 8(a) or 8(b), as the case may be) under this Section 8 of notice
of the commencement
<PAGE> 13
13
of any action, such Indemnified Party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section
8, notify the indemnifying party in writing of the commencement thereof
and the indemnifying party shall have the right to participate in and
assume the defense thereof with counsel selected by the indemnifying
party and reasonably satisfactory to the Indemnified Party; provided,
however, that an Indemnified Party shall have the right to retain its own
counsel, with all fees and expenses thereof to be paid by such
Indemnified Party, and to be apprised of all progress in any proceeding
the defense of which has been assumed by the indemnifying party. The
failure to notify an indemnifying party promptly of the commencement of
any such action shall not relieve such indemnifying party of any
liability to the Indemnified Party under this Section 8, except to the
extent that such indemnifying party was or is actually prejudiced
thereby, and in no event shall such failure relieve the indemnifying
party of any other liability that it may have to any Indemnified Party
otherwise than under this Section 8. If such indemnifying party so
assumes the defense thereof, it may not agree to any settlement of any
such action as the result of which any material remedy or relief, other
than monetary damages for which such indemnifying party shall be
responsible hereunder, shall be applied to or against such Indemnified
Party, without the prior written consent of such Indemnified Party. An
indemnifying party may not assume or jointly assume the defense of an
action if in the reasonable judgment of counsel for the Indemnified Party
a conflict of interest may exist between such indemnifying party and such
Indemnified Party with respect to such action. An indemnifying party who
is precluded from assuming or jointly assuming the defense of an action
pursuant to the immediately preceding sentence, or who elects not to, or
who has not appointed counsel reasonably satisfactory to the Indemnified
Party within a reasonable time to, assume the defense of an action shall
be obligated to pay the fees and expenses of one counsel (plus one local
counsel) for all Indemnified Parties, as selected by a majority in
interest of the Indemnified Parties. If the indemnifying party does not
assume the defense of an action, such indemnifying party shall be bound
by any settlement to which the Indemnified Party agrees and to which such
indemnifying party consents.
(d) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the Indemnifying Party, in lieu of or in
addition to indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such
losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
Indemnified Party in connection with the actions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information
<PAGE> 14
14
supplied by, such indemnifying party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or
payable by a party as a result of the losses, claims, damages or
liabilities referred to above shall be deemed to include any reasonable
legal or other reasonable fees or reasonable expenses incurred by such
party in connection with any investigation or proceeding.
Notwithstanding the provisions of this Section 8(d), no Holder shall be
required to contribute any amount in excess of the amount by which the
net proceeds from the sale of the Registrable Stock sold by such Holder
exceeds the amount of any damages that such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
9. Termination; Transfer of Registration Rights; Successors and Assigns.
The registration rights of (i) any Original Stockholder will terminate at any
time two years (or such shorter "holding period" as may from time to time be
prescribed by Rule 144(k)) or more after the date hereof if at such time such
Original Stockholder is not an affiliate of the Company and has not been an
affiliate of the Company for at least three months, (ii) any such Original
Stockholder who is not an affiliate of the Company and who beneficially owns
less than 1% (or such greater percentage as may from time to time be prescribed
by Rule 144(e)) of the Company's Common Stock will terminate one year (or such
shorter "holding period" as may from time to time be prescribed by Rule
144(d)(1)) after the date hereof and (iii) any transferee of an Original
Stockholder will terminate (x) one year (or such shorter "holding period" as
may from time to time be prescribed by Rule 144(d)(1)) after such transferee
acquires Registrable Stock if such transferee beneficially owns less than 1%
(or such greater percentage as may from time to time be prescribed by Rule
144(e)) of the Company's Common Stock or (y) so long as such transferee
beneficially owns more than 1% (or such greater percentage as may from time to
time be prescribed by Rule 144(d)) of the Company's Common Stock, at any time
as is two years (or such shorter period as may from time to time be prescribed
by Rule 144(k)) or more after such transferee acquires Registrable Stock if at
such time such transferee (or subsequent transferee) is not an affiliate of the
Company and has not been an affiliate of the Company for at least 3 months;
provided, however, that, in the case of any such Original Stockholder who, at
the time it would otherwise lose its registration rights pursuant to this
Section 9, (A) beneficially owns at least 2% of the Company's Common Stock and
(B) would otherwise continue to have the right to
<PAGE> 15
15
cause the Company to effect a Demand Registration pursuant to Section 2, such
Original Stockholder or transferee shall, for a period of eighteen months after
such time, retain the right to cause the Company to effect one Demand
Registration in respect of such Common Stock pursuant to Section 2 and to
participate in a Demand Registration pursuant to clause (ii) of the last
sentence of Section 2(a) or any other registration pursuant to Section 3.
The registration rights of any Holder under this Agreement with respect to
any Registrable Stock (other than the right to cause the Company to effect one
Demand Registration pursuant to the proviso in the immediately preceding
paragraph) may be transferred, subject to Section 2(d) hereof, provided that:
(i) the transferring Holder shall give the Company written notice at or prior
to the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which the rights under this
Agreement are being transferred and (ii) such transferee shall agree in
writing, in form and substance reasonably satisfactory to the Company, to be
bound as a Holder by the provisions of this Agreement. Except as provided in
this Section 9, the registration rights of any Holder under this Agreement may
not be transferred.
Subject to the foregoing, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties hereto. Except as expressly provided in this Agreement,
nothing in this Agreement, express or implied, is intended to confer upon any
person other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement.
10. Rule 144. The Company shall file, in a timely manner, the reports
required to be filed by it under the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder.
11. Arbitration. Subject to the final sentence of this Section 11, any
dispute arising between or among the parties hereto or any of them involving
the subject matters covered by this Agreement shall be submitted to arbitration
under this Section 11. Any party asserting a breach of this Agreement by any
other party or parties shall notify all other parties of such alleged breach (a
"Dispute Notice") and the parties shall attempt to resolve such dispute
amicably and if they shall fail to resolve it within thirty (30) days of the
date of the Dispute Notice, any party may notify any of the other parties that
it wishes to commence an arbitration proceeding under this Section 10 (an
"Arbitration Request"). In any arbitration proceeding the party or parties
commencing the arbitration (alone or together, if more than one, the
"Petitioner") shall include in the Arbitration Request (a) a statement of the
facts constituting the alleged breach or dispute, (b) a written statement of
position ("Statement") regarding the dispute and (c) the name of an elector
designated by it. The Statement shall state the facts and arguments in support
of the position taken by the party submitting such Statement and shall detail
that party's proposed solution and relief sought (if
<PAGE> 16
16
any). Copies of any Arbitration Request shall be furnished at the same
time to the other parties hereto. The party or parties with whom the
Petitioner has its dispute (alone or together, if more than one, the
"Respondent") shall within five (5) business days after the date of the
Arbitration Request designate a second elector by notice to the Petitioner
(copies of which shall be furnished to the other parties), but if it or they
shall fail to do so within such period the Petitioner may designate an elector
on Respondent's behalf. The electors chosen by the Petitioner and the
Respondent shall attempt to agree upon an arbitrator (the "Arbitrator"), but if
they are unable to do so within twenty (20) business days after the designation
of the second elector, then either elector thereafter may apply to the American
Arbitration Association (the "Association") for the selection of the Arbitrator
in accordance with the Commercial Arbitration Rules of such Association. The
Arbitrator so selected shall have full power to decide any dispute referred to
in this Section 11. The arbitration proceedings shall be conducted in the
English language, and the place of arbitration and the making of the Award (as
defined below) shall be the City of New York. The UNCITRAL rules of commercial
arbitration shall apply to any arbitration commenced pursuant to this Section
11, as modified by the following procedure:
(i) Within five (5) business days of the selection of the Arbitrator
(the "Commencement Date"), the Respondent shall deliver its Statement
regarding the dispute to the Arbitrator and to the Petitioner.
(ii) Within fifteen (15) business days from the Commencement Date,
each of the Petitioner and the Respondent shall deliver to the Arbitrator
and to the other party, a response ("Response") to the other party's
Statement setting forth opposing facts and arguments and limited in
length to ten (10) typed, single spaced pages (excluding evidentiary
exhibits included therein).
(iii) Within twenty (20) business days from the Commencement Date,
each of the Petitioner and the Respondent may deliver to the Arbitrator
and to the other party, a reply to the Response limited to setting forth
facts and arguments in rebuttal to the Statement and Response of the
other party and limited in length to five (5) typed, single spaced pages
(excluding evidentiary exhibits included therein).
(iv) Within twenty-five (25) business days from the Commencement
Date, each of the Petitioner and Respondent shall present an oral
summation of its position to the Arbitrator in the presence of the other
party in accordance with such rules of procedure including, without
limitation, length of presentation and right of cross-examination, as the
Arbitrator shall determine in writing and deliver to the parties not less
than three (3) business days prior to such hearing; provided, however,
that such hearing shall not exceed eight (8) hours in total and may not
be adjourned except for extraordinary circumstances beyond the control of
the parties.
<PAGE> 17
17
(v) The Arbitrator shall either issue his decision and award ("Award")
or request a further meeting of the parties within fifteen (15) days of the
hearing.
(vi) Any such further meeting of the parties shall take place within
five (5) business days of the request therefor and shall be conducted as
determined by the Arbitrator. The Arbitrator shall issue his Award no
later than fifteen (15) days after any such further meeting of the parties.
(vii) The Award shall be in writing and shall be limited to a decision
either completely in favor of Petitioner's request for relief or completely
in favor of Respondent's request for relief. The Award shall be final and
binding upon the parties hereto and judgment may be entered thereon in any
court of competent jurisdiction and the costs and expenses of such
arbitration shall be borne by the party losing such arbitration.
This Section 11 shall in no way affect the right of any party to seek
such interim relief, and only such relief, as may be required to maintain the
status quo in aid of the arbitration in any court of competent jurisdiction. In
addition, to the extent there is an existing litigation to which any party
hereto is a party, this Section 11 shall not preclude such party from
participating in such litigation.
12. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
13. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.
14. Titles. The titles of the Sections of this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
15. Notices. Any notice required or permitted under this Agreement
shall be in writing and shall be delivered in person or mailed by certified or
registered mail, return receipt requested, or faxed to (a) the Company at the
address set forth below its signature hereof, (b) to the Original Stockholders
at the address set forth below each of their signatures hereof or (c) to a
Holder at the address therefor as set forth in the Company's records or, in any
such case, at such other address or addresses as shall have been furnished in
writing by such party to the others. The giving of any notice required
hereunder may be waived in writing by the parties hereto. Every notice or other
communication hereunder shall be deemed to have been duly given or served on the
date on which personally delivered, or on the date actually received, if sent by
mail or fax, with receipt acknowledged.
<PAGE> 18
18
16. Amendments and Waivers. This Agreement may be amended or waived only
upon the written consent of the Company and each of the holders of Registrable
Stock; provided, however, that if a holder of Registrable Stock shall have
ceased to have any registration rights hereunder, the consent of such holder
shall not be required.
17. Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provisions shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with
its terms.
18. Entire Agreement. All prior agreements of the parties concerning the
subject matter of this Agreement are expressly superseded by this Agreement.
This Agreement contains the entire Agreement of the parties concerning the
subject matter hereof. Any oral representations or modifications of this
Agreement shall be of no effect.
<PAGE> 19
19
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be executed as of the date first above written above by their respective
officers thereunto duly authorized.
COVIA CORPORATION
By________________________
Name:
Title:
USAM CORPORATION
By________________________
Name:
Title:
RESNET HOLDINGS, INC.
By________________________
Name:
Title:
DISTRIBUTION SYSTEM, INC.
By________________________
Name:
Title:
<PAGE> 20
20
ROSCOR A.G.
By________________________
Name:
Title:
TRAVEL INDUSTRY SYSTEMS B.V.
By________________________
Name:
Title:
RETFORD LIMITED
By________________________
Name:
Title:
RACOM TELEDATA S.p.A.
By________________________
Name:
Title:
TRAVIDATA INC.
By________________________
Name:
Title:
<PAGE> 21
21
OLYNET, INC.
By________________________
Name:
Title:
COPORGA, INC.
By________________________
Name:
Title:
GALILEO INTERNATIONAL, INC.
By________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.1
================================================================================
-----------------------------------------------------
GENERAL PARTNERSHIP INTEREST PURCHASE AGREEMENT
-----------------------------------------------------
Among
UNITED AIR LINES, INC.,
COVIA CORPORATION,
US AIRWAYS, INC.,
USAM CORP.,
AIR CANADA,
RESNET HOLDINGS, INC.,
APOLLO TRAVEL SERVICES PARTNERSHIP
and
GALILEO INTERNATIONAL PARTNERSHIP
Dated as of , 1997
---------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
ARTICLE I
DEFINITIONS
<S> <C>
1.01. Certain Defined Terms .................................................. 2
1.02. Other Defined Terms .................................................... 6
ARTICLE II
PURCHASE AND SALE
2.01. Purchase and Sale of the Partnership Interests ......................... 8
2.02. Purchase Price ......................................................... 8
2.03. Closing ................................................................ 8
2.04. Cash Mechanism ......................................................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARENT
ENTITIES AND SELLERS
3.01. Organization, Authority and Qualification of the Parent Entities and the
Sellers ............................................................. 12
3.02. Organization, Authority and Qualification of the Partnership and the
Subsidiaries ........................................................ 13
3.03. Partnership Interests .................................................. 14
3.04. No Conflict ............................................................ 15
3.05. Governmental Consents and Approvals .................................... 17
3.06. Financial Information and Books and Records ............................ 17
3.07. No Undisclosed Liabilities ............................................. 18
3.08. Conduct in the Ordinary Course; Absence of Certain Changes, Events and
Conditions .......................................................... 18
3.09. Litigation ............................................................. 20
3.10. Compliance with Laws ................................................... 21
3.11. Environmental and Other Permits and Licenses; Related Matters .......... 21
3.12. Material Contracts ..................................................... 22
3.13. Intellectual Property .................................................. 23
3.14. Real Property and Leases ............................................... 24
3.15. Assets ................................................................. 24
</TABLE>
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<PAGE> 3
SECTION PAGE
3.16. Employee Benefit Matters ...................................... 25
3.17. Labor Matters ................................................. 27
3.18. Taxes ......................................................... 28
3.19. Insurance ..................................................... 30
3.20. Brokers ....................................................... 31
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.01. Organization, Authority and Qualification of the Purchaser .... 31
4.02. No Conflict ................................................... 32
4.03. Governmental Consents and Approvals ........................... 32
4.04. Investment Purpose ............................................ 32
4.05. Brokers ....................................................... 32
ARTICLE V
ADDITIONAL AGREEMENTS
5.01. Conduct of Business Prior to the Closing ...................... 33
5.02. Access to Information ......................................... 34
5.03. Confidentiality ............................................... 35
5.04. Regulatory and Other Authorizations; Notices and Consents ..... 36
5.05. Notice of Developments ........................................ 37
5.06. No Solicitation of Employees .................................. 37
5.07. Use of Intellectual Property .................................. 37
5.08. Monthly Financial Statements .................................. 38
5.09. Premier Travel Services, L.L.C ................................ 38
5.10. Pre-Closing Balance Sheet ..................................... 38
5.11. Environmental Audit ........................................... 39
5.12. Employees and Employee Benefits ............................... 39
5.13. Further Action ................................................ 39
ARTICLE VI
TAX MATTERS
6.01. Tax Indemnity ................................................. 40
6.02. Apportionment of Taxes ........................................ 40
6.03. Returns and Payments .......................................... 41
6.04. Contests ...................................................... 43
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
6.05. Survival of Obligations ............................................. 44
6.06. Section 754 Elections ............................................... 44
6.07. Conveyance Taxes .................................................... 44
ARTICLE VII
CONDITIONS TO CLOSING
7.01. Conditions to Obligations of the Parent Entities, the Sellers and the
Partnership ...................................................... 46
7.02. Conditions to Obligations of the Purchaser .......................... 47
ARTICLE VIII
INDEMNIFICATION
8.01. Survival of Representations and Warranties .......................... 49
8.02. Indemnification by the Parent Entities and the Sellers .............. 50
8.03. Tax Matters ......................................................... 52
8.04. Indemnification by the Purchaser .................................... 52
8.05. Indemnification Procedures .......................................... 53
ARTICLE IX
TERMINATION AND WAIVER
9.01. Termination ......................................................... 54
9.02. Effect of Termination ............................................... 55
9.03. Waiver .............................................................. 55
ARTICLE X
GENERAL PROVISIONS
10.01. Expenses ........................................................... 56
10.02. Notices ............................................................ 56
10.03. Public Announcements ............................................... 59
10.04. Headings ........................................................... 59
10.05. Severability ....................................................... 59
10.06. Entire Agreement ................................................... 59
10.07. Assignment ......................................................... 60
10.08. No Third Party Beneficiaries ....................................... 60
</TABLE>
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SECTION PAGE
10.09. Amendment .................................................... 60
10.10. Arbitration .................................................. 60
10.11. Sellers' Disclosure Schedule ................................. 63
10.12. Governing Law ................................................ 63
10.13. Counterparts ................................................. 63
10.14. Specific Performance ......................................... 63
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<PAGE> 6
GENERAL PARTNERSHIP INTEREST PURCHASE AGREEMENT (this
"Agreement"), dated as of ________, 1997, among UNITED AIR LINES, INC., a
Delaware corporation ("United"), COVIA CORPORATION, a Delaware corporation and a
wholly owned subsidiary of United ("Covia"), US AIRWAYS, INC., a Delaware
corporation ("USAW"), USAM CORP., a Delaware corporation and a wholly owned
subsidiary of USAW ("USAM"), AIR CANADA, a corporation organized under the laws
of Alberta ("Air Canada"), RESNET HOLDINGS, INC., a Delaware corporation and a
wholly owned subsidiary of Air Canada ("Resnet"), APOLLO TRAVEL SERVICES
PARTNERSHIP, a Delaware general partnership (the "Partnership"), and GALILEO
INTERNATIONAL PARTNERSHIP, a Delaware general partnership, and any successor in
interest thereto, including, without limitation, the corporation or limited
liability company formed in connection with the IPO (the "Purchaser"). Covia,
USAM and Resnet (or their respective successors, as the case may be) are each
referred to herein as a "Seller" and as a group they are referred to herein as
the "Sellers". United, USAW and Air Canada are each referred to herein as a
"Parent Entity" and as a group they are referred to herein as the "Parent
Entities".
WHEREAS, the Sellers collectively own one hundred percent (100%)
of the interests in the Partnership;
WHEREAS, Covia wishes, and United wishes to cause Covia, to sell
to the Purchaser, and the Purchaser wishes to purchase from Covia, Covia's 77%
general partnership interest in the Partnership (the "Covia Partnership
Interest"), upon the terms and subject to the conditions set forth herein;
WHEREAS, USAM wishes, and USAW wishes to cause USAM, to sell to
the Purchaser, and the Purchaser wishes to purchase from USAM, USAM's 21.08%
general partnership interest in the Partnership (the "USAM Partnership
Interest"), upon the terms and subject to the conditions set forth herein; and
WHEREAS, Resnet wishes, and Air Canada wishes to cause Resnet, to
sell to the Purchaser, and the Purchaser wishes to purchase from Resnet,
Resnet's 1.92% general partnership interest in the Partnership (the "Resnet
Partnership Interest"), upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the Purchaser, the Parent
Entities and the Sellers hereby agree as follows:
<PAGE> 7
2
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement,
the following terms shall have the following meanings:
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"After-Tax Basis" means, (i) with respect to any Loss that is
required to be indemnified pursuant to Article VI or Article VIII on an
After-Tax Basis, that the indemnification payment will be calculated so as to
take into account both the deductibility or creditability by the indemnitee for
Tax purposes of the Loss being indemnified and the taxability to the indemnitee
of the indemnifying payment (including taxability of any payments made to gross
up for the taxability of the indemnifying payment), and (ii) with respect to any
refund or credit that is required to be paid on an After-Tax Basis pursuant to
Section 6.08, that the refund or credit will be calculated so as to take into
account both the deductibility by the Purchaser for Tax purposes of the payment
of such refund or credit to the Sellers and the taxability to the Purchaser of
the receipt of the refund or credit.
"Agreement" or "this Agreement" means this General Partnership
Interest Purchase Agreement, dated as of _____________, 1997, among the parties
listed in the preamble (including the Exhibits hereto and the Sellers'
Disclosure Schedule) and all amendments hereto made in accordance with the
provisions of Section 10.09.
"Business Day" means any day that is not a Saturday, a Sunday or
other day on which banks are required or authorized by law to be closed in The
City of New York.
"Code" means the Internal Revenue Code of 1986, as amended through
the date hereof.
"control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the affairs or management of a
Person, whether through the ownership of voting securities, as trustee or
executor, by contract or otherwise, including, without limitation, the
<PAGE> 8
3
ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
"Encumbrance" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and Tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any kind,
including, without limitation, any restriction on the use, voting, transfer,
receipt of income or other exercise of any attributes of ownership.
"Environment" means surface waters, groundwaters, surface water
sediment, soil, subsurface strata and ambient air.
"Environmental Claims" means any and all actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation, notices of
liability or potential liability, investigations, proceedings, consent orders or
consent agreements relating in any way to any Environmental Law, any
Environmental Permit or any Hazardous Material or arising from any alleged
injury or threat of injury to health, safety or the Environment.
"Environmental Law" means any Law, now or hereafter in effect and
as amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, relating to
pollution or protection of the Environment, health or safety or to the use,
handling, transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
"Environmental Permit" means any permit, approval, identification
number, license or other authorization required to operate the respective
businesses of the Partnership or any Subsidiary or the Real Property under any
applicable Environmental Law.
"Governmental Authority" means any United States federal, state or
local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal, or judicial or arbitral
body.
"Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority, other than any rules and regulations (whether promulgated by order or
otherwise) which apply generally to the computer reservations system industry.
"Hazardous Materials" means (a) petroleum and petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials and polychlorinated biphenyls and (b) any other chemicals, materials
or substances regulated as toxic or hazardous or as a pollutant, contaminant or
waste under any applicable Environmental Law.
<PAGE> 9
4
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"Independent Accounting Firm" means any one of the "big six"
accounting firms other than the Purchaser's Accountants and Arthur Andersen LLP.
"IRS" means the Internal Revenue Service of the United States.
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law.
"Liabilities" means any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable, including, without limitation, those
arising under any Law (including, without limitation, any Environmental Law),
Action or Governmental Order and those arising under any contract, agreement,
arrangement, commitment or undertaking.
"Material Adverse Effect" means any change in or effect on the
business of the Partnership that, when taken individually or together with all
other adverse changes and effects, is or is reasonably likely to be materially
adverse to the business, operations, properties, condition (financial or
otherwise), assets or Liabilities of the Partnership and the Subsidiaries, taken
as a whole, or prevents consummation of the transactions contemplated hereby.
"Net Asset Test Reference Balance Sheet" means the audited
consolidated balance sheet (including the related notes and schedules thereto)
of the Partnership, dated as of March 31, 1997, excluding (i) any indebtedness
for borrowed money of the Partnership and the Subsidiaries, (ii) any Cash other
than cash in the amount of any checks outstanding, and (iii) the assets and
liabilities of Premier, a copy of which is set forth in Section 3.06(a) of the
Sellers' Disclosure Schedule.
"Net Assets" means the excess of total consolidated assets over
total consolidated liabilities of the Partnership and the Subsidiaries shown on
the Pre-Closing Balance Sheet or the Seasonally Adjusted Net Asset Test
Reference Balance Sheet, as applicable.
"Ordinary Course Taxes" means Taxes relating to periods (or
portions thereof) prior to the Closing Date and paid by the Partnership or the
Subsidiaries after the Closing Date in the ordinary course of business and not
as a result of an audit or examination by a government or Tax authority or an
administrative or judicial proceeding or a settlement or compromise thereof in
connection with a Tax previously paid or a Return previously filed.
<PAGE> 10
5
"Other Tax Audit Reserve" means a non-specific reserve for sales
and use tax audit settlements of $400,000.
"Partnership Intellectual Property" means all trademarks,
trademark rights, trade names, trade name rights, patents, patent rights,
industrial models, inventions, copyrights, service marks, trade secrets,
applications for trademarks and for service marks, know-how and other
proprietary rights and information used or held for use in connection with the
business of the Partnership and the Subsidiaries as currently conducted or as
currently contemplated (by existing Partnership management) to be conducted,
together with all applications currently pending for any of the foregoing.
"Permitted Encumbrances" means such of the following as to which
no enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) liens for Taxes, assessments and governmental charges or
levies not yet due and payable; (b) Encumbrances imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's liens and other
similar liens arising in the ordinary course of business securing obligations;
(c) pledges or deposits to secure obligations under workers' compensation laws
or similar legislation or to secure public or statutory obligations; and (d)
minor survey exceptions, reciprocal easement agreements and other customary
encumbrances on title to real property that (i) were not incurred in connection
with any indebtedness for borrowed money of the Partnership, (ii) do not render
title to the property encumbered thereby unmarketable and (iii) do not,
individually or in the aggregate, materially adversely affect the value or use
of such property for its current and anticipated purposes.
"Person" means any individual, partnership, limited liability
company, firm, corporation, association, trust, unincorporated organization or
other entity, as well as any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
"Purchaser's Accountants" means KPMG Peat Marwick LLP, independent
accountants of the Purchaser.
"Real Property" means the real property leased or owned by the
Partnership or any Subsidiary.
"Regulations" means the Treasury Regulations (including Temporary
Regulations) promulgated by the United States Department of Treasury with
respect to the Code or other federal tax statutes.
"Return" means any return, report or form relating to a Tax or
Taxes.
<PAGE> 11
6
"Seasonally Adjusted Net Asset Test Reference Balance Sheet" means
the Net Asset Test Reference Balance Sheet adjusted to multiply current assets
reflected thereon by the appropriate seasonal adjustment factors set forth on
Schedule 1.01(a) hereto and current liabilities by the appropriate seasonal
adjustment factors set forth on Schedule 1.01(b) hereto.
"Subsidiaries" means any and all corporations, partnerships,
limited liability companies, joint ventures, associations and other similar
entities controlled by the Partnership directly or indirectly through one or
more intermediaries.
"Tax" or "Taxes" means any and all taxes, fees, levies, duties,
tariffs, imposts, and other similar charges (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any government or taxing authority (whether federal, state, local,
foreign or otherwise), including, without limitation: taxes or other charges on
or with respect to income, franchises, windfall or other profits, gross
receipts, property, sales, use, capital stock, payroll, employment, social
security, workers' compensation, unemployment compensation, or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value added, or gains taxes; license, registration and documentation
fees; and customs duties, tariffs, and similar charges.
"Tax Benefit" means the value, when actually received, of any
deduction, loss, credit or refund to the Purchaser, any Affiliate of the
Purchaser, or the Seller, as the case may be.
"U.S. GAAP" means United States generally accepted accounting
principles and practices as in effect from time to time and applied consistently
throughout the periods involved.
SECTION 1.02. Other Defined Terms. Each of the following terms is
defined in the Section set forth opposite such term:
<TABLE>
<CAPTION>
Terms Section
----- -------
<S> <C>
Agreement .................................. Preamble
Air Canada ................................. Preamble
Arbitration Request ........................ 10.10
Assets ..................................... 3.15(a)
Association ................................ 10.10
ATS Names .................................. 5.07(a)
Average Cash Amount ........................ 2.04(b)
Award ...................................... 10.10(a)(v)
Cash ....................................... 2.04(b)
</TABLE>
<PAGE> 12
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<TABLE>
<S> <C>
Cash Payment Amount ........................ 2.04(b)
Closing .................................... 2.03
Closing Cash Amount ........................ 2.04(e)
Closing Date ............................... 2.03
Commencement Date .......................... 10.10(a)(i)
Covia ...................................... Preamble
Covia Partnership Interest ................. Recitals
Dispute Notice ............................. 10.10(a)
Environmental Audit ........................ 5.11
ERISA ...................................... 3.16(a)
Escrow Agent ............................... 2.04(f)(i)
Financial Statements ....................... 3.06(a)
Indemnified Party .......................... 6.01
Independent Firm ........................... 6.03(b)
Interim Financial Statements ............... 3.06(a)
IPO ........................................ 2.03
Loss ....................................... 8.02
Material Contracts ......................... 3.12(a)
Measuring Period ........................... 2.04(b)
Non-Disclosure Agreement ................... 5.03(a)
Parent Entity .............................. Preamble
Parent Entities ............................ Preamble
Partnership ................................ Recitals
Partnership Agreement ...................... 3.02(a)
Partnership Interests ...................... 3.03(a)
Partnership Licenses ....................... 3.13
Petitioner ................................. 10.10(a)
Plans ...................................... 3.16(a)
Pre-Closing Balance Sheet .................. 5.10
Premier .................................... 5.09
Purchase Price ............................. 2.02
Purchase Price Allocation Schedule.......... 6.03(c)
Purchaser .................................. Preamble
Purchaser Indemnified Party ................ 8.02(a)
Resnet ..................................... Preamble
Resnet Partnership Interest ................ Recitals
Respondent ................................. 10.10(a)
Response ................................... 10.10(a)(ii)
Returnable Refund or Credit ................ 6.08(a)
Sales Tax Audit Reserve .................... 6.01(a)
SEC ........................................ 5.03(a)
Seller ..................................... Preamble
</TABLE>
<PAGE> 13
8
<TABLE>
<S> <C>
Sellers .................................... Preamble
Sellers' Disclosure Schedule ............... 3.05
Seller Indemnified Party ................... 8.04(a)
Statement .................................. 10.10(a)
Third Party Claim .......................... 8.05
Transaction Agreement ...................... 7.01(g)
United ..................................... Preamble
USAW ....................................... Preamble
USAM ....................................... Preamble
USAM Partnership Interest .................. Recitals
WARN ....................................... 3.16(g)
</TABLE>
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale of the Partnership Interests. Upon
the terms and subject to the conditions of this Agreement, at the Closing, (i)
United shall cause Covia to sell, and Covia shall sell to the Purchaser, and the
Purchaser shall purchase from Covia, the Covia Partnership Interest, (ii) USAW
shall cause USAM to sell, and USAM shall sell to the Purchaser, and the
Purchaser shall purchase from USAM, the USAM Partnership Interest, and (iii) Air
Canada shall cause Resnet to sell, and Resnet shall sell to the Purchaser, and
the Purchaser shall purchase from Resnet, the Resnet Partnership Interest.
SECTION 2.02. Purchase Price. The purchase price for the Covia
Partnership Interest, the USAM Partnership Interest and the Resnet Partnership
Interest shall be $700 million in the aggregate (the "Purchase Price") to be
paid in cash pro rata to Covia, USAM and Resnet in accordance with their
respective Partnership Interests in the Partnership.
SECTION 2.03. Closing. Upon the terms and subject to the
conditions of this Agreement, the sale and purchase of the Partnership Interests
contemplated by this Agreement shall take place at a closing (the "Closing") to
be held at the offices of Shearman & Sterling, 599 Lexington Avenue, New York,
New York at 10:00 A.M. New York time on the day of the consummation of the
proposed initial public offering by the Purchaser (the "IPO"), or at such other
place or at such other time or on such other date as the Sellers and the
Purchaser may mutually agree upon in writing (the day on which the Closing takes
place being the "Closing Date").
SECTION 2.04. Cash Mechanism. (a) Subject to the provisions of
this Section 2.04, at or immediately following the Closing, the Partnership will
pay to each of the
<PAGE> 14
9
Sellers its pro rata share (determined in accordance with its Partnership
Interest) of the Cash Payment Amount.
(b) For purposes of this Section 2.04, (i) the "Average Cash
Amount" means, subject to adjustment as set forth in Section 2.04(c), the amount
of cash that is equal to the simple average daily balance of cash, time
deposits, certificates of deposit, marketable securities and other short term
investments and cash equivalents ("Cash") of the Partnership and the
Subsidiaries at the close of business on each Business Day during the Measuring
Period, (ii) "Measuring Period" means the period commencing at 12:01 a.m. EDT on
the date of the month immediately preceding the month in which the Closing Date
occurs that is the same date of the month as the Closing Date (or if such date
is not a calendar date, the date that corresponds most closely to the date that
is the Closing Date) and ending at 11:59 p.m. EDT on the day immediately
preceding the Closing Date, and (iii) "Cash Payment Amount" means the Average
Cash Amount less the checks issued by the Partnership and the Subsidiaries that
have not cleared on the Closing Date.
(c) The Average Cash Amount will be adjusted in the event the
Partnership makes any Cash distribution (in respect of their respective
Partnership Interests) to any of the Sellers during the Measuring Period by
subtracting the amount of any such distribution from the daily amount of Cash in
each of the days during the Measuring Period immediately preceding the date of
such distribution.
(d) During the Measuring Period, each of the Purchaser and the
Partnership will make all payments that are to be made to each other under
existing contractual arrangements or agreements in the ordinary course of
business consistent with past practice. In addition, during the Measuring
Period, the Partnership will conduct its business in the ordinary course
consistent with past practice, including, without limitation, not shortening or
lengthening the customary payment time for any of its payables or receivables
and continuing its purchasing and capital purchasing practices in accordance
with past practice. To facilitate the foregoing, (i) Covia shall circulate to
the relevant personnel of the Partnership at least thirty days prior to the
expected commencement of the Measuring Period written instructions to such
effect, (ii) the Partnership will provide representatives of the Purchaser with
access, at reasonable times, to all offices, personnel, books and records of the
Partnership and the Subsidiaries that the Purchaser may reasonably request for
purposes of monitoring the compliance by the Partnership with this Section
2.04(d) and the calculation by the Partnership of the Average Cash Amount, the
Cash Payment Amount and the Closing Cash Amount in accordance with this Section
2.04, and (iii) the parties will agree on mutually agreeable procedures for
implementing the cash transfers described in Section 2.04(e). During the period
from 11:59 p.m. EDT on the day immediately preceding the Closing Date through
the Closing, the Partnership will make no payments of cash except pursuant to
normal banking transactions, including check clearing or deposits, that are not
under the control of the Partnership, or pursuant to contractual obligations
with third parties
<PAGE> 15
10
that were previously disclosed to the Purchaser or that were entered into in the
ordinary course of business consistent with past practice.
(e) On the Closing Date, the Partnership will inform each of the
Parent Entities and the Purchaser of the (i) Average Cash Amount, as well as the
calculations resulting therein, (ii) the aggregate amount with respect to which
checks of the Partnership and the Subsidiaries have been issued but not cleared
on the Closing Date, and (iii) the amount of Cash of the Partnership and the
Subsidiaries as of 12:01 a.m. EDT on the Closing Date (the "Closing Cash
Amount"). If the Closing Cash Amount is less than the Cash Payment Amount, then
the Purchaser will make available to the Partnership such difference and,
subject to the provisions of Section 2.04(f), the Cash Payment Amount will be
paid to the Sellers as set forth in Section 2.04(a). If the Closing Cash Amount
is greater than the Cash Payment Amount, then, subject to the provisions of
Section 2.04(f), the Cash Payment Amount will be paid to the Sellers as set
forth in Section 2.04(a), and the difference between the Closing Cash Amount and
the Cash Payment Amount will be retained by the Partnership.
(f) (i) Prior to the Closing, the Purchaser and the Parent
Entities shall enter into an Escrow Agreement, in substantially the form
attached hereto as Exhibit 2.04(f), with a third party selected by the Purchaser
and reasonably acceptable to the Parent Entities (the "Escrow Agent"). In
accordance with the terms of the Escrow Agreement, the Partnership or the
Sellers (pro rata in accordance with their respective Partnership Interests)
will, on the Closing Date, deposit the sum of $3 million with the Escrow Agent,
which will hold such amount in an interest bearing account until the day that is
90 days following the Closing Date, to be managed and paid out in accordance
with the Escrow Agreement and this Section 2.04.
(ii) In the event the Purchaser determines, within 90 days
following the Closing Date, that the agreements of the Partnership contained in
Section 2.04(d) were not complied with and, as a result of such non-compliance,
the Average Cash Amount was either greater or lesser than the average amount of
Cash that the Partnership would have had during the Measuring Period had such
provisions been complied with, the Purchaser will provide written notice to the
Parent Entities to such effect, specifying the amount of the difference and its
reasons for such determination. In the absence of any written notice of dispute
delivered by any of the Parent Entities to the Purchaser and the Escrow Agent
within 10 days after receipt of the Purchaser's written notice as to such
determination and the amount of such difference, (x) in the event the Average
Cash Amount is greater than it would have been, the Purchaser will receive from
the Escrow Agent and the Parent Entities (on a several basis in proportion to
their respective Partnership Interests), if appropriate, a cash payment equal to
the amount of such difference, together with interest thereon, as set forth in
clause (iii) below, and (y) in the event the Average Cash Amount is less than it
would have been, the Sellers will receive (pro rata in proportion to their
respective Partnership Interests) from the Partnership or the Purchaser a cash
payment equal to the amount of such difference,
<PAGE> 16
11
together with interest thereon, as set forth in clause (iii) below. In the event
any of the Parent Entities deliver such a written notice disputing such
determination or the amount of such difference, such dispute will be submitted
for resolution to the Independent Accounting Firm, which will resolve such
dispute within 30 days of the date of such submission and whose decision will be
final and binding on the Parent Entities and the Purchaser. The fees and
expenses of the Independent Accounting Firm will be allocated between the
Purchaser, on the one hand, and the Parent Entities (pro rata in accordance with
their respective Partnership Interests), on the other hand, in the same
proportion that the aggregate amount of the difference so submitted to the
Independent Accounting Firm that is unsuccessfully disputed by the Parent
Entities, on the one hand, or the Purchasers, on the other hand, bears to the
total amount of the difference so submitted.
(iii) In the event any payment is to be made to the Purchaser
pursuant to clause (ii) above, the Escrow Agent will pay such amount to the
Purchaser, together with the appropriate amount of interest thereon, and if such
payment is less than the amount of such difference, the Purchaser will recover
such excess amount from the Parent Entities (on a several basis in proportion to
their respective Partnership Interests), together with interest thereon from the
Closing Date to and including the date of payment by the Parent Entities to the
Purchaser at the Interest Rate (as such term is defined in the Escrow
Agreement), pursuant to the provisions of Section 8.02 (except that the
provisions of Section 8.02(b)(i) and (ii) will not apply). In the event any
payment is to be made to the Sellers pursuant to clause (ii) above, the
Partnership or the Purchaser will pay such amount to the Sellers (pro rata in
accordance with their respective Partnership Interests), together with interest
thereon from the Closing Date to and including the date of payment by the
Partnership or Purchaser to the Sellers at the Interest Rate, pursuant to the
provisions of Section 8.04. In the event any amount remains in the Escrow Fund
(as such term is defined in the Escrow Agreement) on the 90th day following the
Closing Date, all amounts held by the Escrow Agent on such day, after giving
effect to any payments to be made to the Purchaser hereunder, will be paid to
the Sellers pro rata in accordance with their Partnership Interests, including
all interest accrued on the remaining principal amount.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARENT
ENTITIES AND SELLERS
As an inducement to the Purchaser to enter into this Agreement,
the Parent Entities and the Sellers hereby represent and warrant to the
Purchaser as follows: United and Covia jointly and severally represent and
warrant as to the representations and warranties in Sections 3.01(a), 3.03(a),
3.04(a) and 3.05(a); USAW and USAM jointly and severally represent and warrant
as to the representations and warranties in Sections 3.01(b), 3.03(b),
<PAGE> 17
12
3.04(b) and 3.05(b); Air Canada and Resnet jointly and severally represent and
warrant as to the representations and warranties in Sections 3.01(c), 3.03(c),
3.04(c) and 3.05(c); and the Parent Entities and the Sellers severally represent
and warrant as to the representations and warranties in Sections 3.02, 3.03(d),
3.06, 3.07, 3.08, 3.09, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, 3.18,
3.19 and 3.20.
SECTION 3.01. Organization, Authority and Qualification of the
Parent Entities and the Sellers. (a) Each of United and Covia is a corporation
(and, in the case of Covia, on or prior to the Closing will be either a
corporation or a limited liability company) duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all necessary
power and authority to enter into this Agreement, to carry out its respective
obligations hereunder and to consummate the transactions contemplated hereby.
Each of United and Covia is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the properties owned or leased by
each of them or the operation of each of their businesses make such licensing or
qualification necessary, except to the extent that the failure to be so licensed
or qualified would not adversely affect the ability of either United or Covia to
carry out its respective obligations under, and to consummate the transactions
contemplated by, this Agreement. The execution and delivery of this Agreement by
United and Covia, the performance by United and Covia of their respective
obligations hereunder and the consummation by United and Covia of the
transactions contemplated hereby have been duly authorized by all requisite
action on the part of United and Covia. This Agreement has been duly executed
and delivered by United and Covia, and (assuming due authorization, execution
and delivery by the other Sellers and Parent Entities and the Purchaser) this
Agreement constitutes a legal, valid and binding obligation of each of United
and Covia enforceable against each of them in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally or by general principles of
equity.
(b) Each of USAW and USAM is a corporation (and, in the case of
USAM, on or prior to the Closing will be either a corporation or a limited
liability company) duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all necessary power and authority to
enter into this Agreement, to carry out its respective obligations hereunder and
to consummate the transactions contemplated hereby. Each of USAW and USAM is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by each of them or the
operation of each of their businesses make such licensing or qualification
necessary, except to the extent that the failure to be so licensed or qualified
would not adversely affect the ability of either USAW or USAM to carry out its
respective obligations under, and to consummate the transactions contemplated
by, this Agreement. The execution and delivery of this Agreement by USAW and
USAM, the performance by USAW and USAM of their respective obligations hereunder
and the consummation by USAW and USAM of the transactions contemplated hereby
have been duly authorized by all requisite action on the part
<PAGE> 18
13
of USAW and USAM. This Agreement has been duly executed and delivered by USAW
and USAM, and (assuming due authorization, execution and delivery by the other
Sellers and Parent Entities and the Purchaser) this Agreement constitutes a
legal, valid and binding obligation of each of USAW and USAM enforceable against
each of them in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally or by general principles of equity.
(c) Each of Air Canada and Resnet is a corporation duly organized,
validly existing and in good standing under the laws of Alberta and the State of
Delaware, respectively, and has all necessary power and authority to enter into
this Agreement, to carry out its respective obligations hereunder and to
consummate the transactions contemplated hereby. Each of Air Canada and Resnet
is duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by each of them or the
operation of each of their businesses make such licensing or qualification
necessary, except to the extent that the failure to be so licensed or qualified
would not adversely affect the ability of either Air Canada and Resnet to carry
out its respective obligations under, and to consummate the transactions
contemplated by, this Agreement. The execution and delivery of this Agreement by
Air Canada and Resnet, the performance by Air Canada and Resnet of their
respective obligations hereunder and the consummation by Air Canada and Resnet
of the transactions contemplated hereby have been duly authorized by all
requisite action on the part of Air Canada and Resnet. This Agreement has been
duly executed and delivered by Air Canada and Resnet, and (assuming due
authorization, execution and delivery by the other Sellers and Parent Entities
and the Purchaser) this Agreement constitutes a legal, valid and binding
obligation of each of Air Canada and Resnet enforceable against each of them in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency or similar laws affecting creditors' rights generally
or by general principles of equity.
SECTION 3.02. Organization, Authority and Qualification of the
Partnership and the Subsidiaries. (a) The Partnership is a general partnership
duly organized and validly existing under the laws of the State of Delaware and
is duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its business or the respective businesses of the Subsidiaries makes such
licensing or qualification necessary (and all such jurisdictions are set forth
in Section 3.02(a) of the Sellers' Disclosure Schedule). The Partnership has all
the necessary power and authority to own, operate or lease the properties and
assets owned, operated, or leased by the Partnership and to carry on its
business and the respective businesses of the Subsidiaries as they have been and
are currently conducted by the Partnership and the Subsidiaries. All material
actions taken by the Partnership have been duly authorized, and the Partnership
has not taken any material action that in any respect conflicts with or results
in a violation of any provision of its partnership agreement (the "Partnership
Agreement"). A true and correct copy of the Partnership Agreement, as in effect
on the date hereof, has
<PAGE> 19
14
been delivered by the Sellers to the Purchaser. The execution and delivery of
this Agreement by the Partnership, the performance by the Partnership of its
obligations hereunder and the consummation by the Partnership of the
transactions contemplated hereby have been duly authorized by all requisite
action on the part of the Partnership. This Agreement has been duly executed and
delivered by the Partnership, and (assuming due authorization, execution and
delivery by the Sellers, the Parent Entities and the Purchaser) this Agreement
constitutes a legal, valid and binding obligation of the Partnership enforceable
against the Partnership in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally or by general principles of equity.
(b) Section 3.02(b) of the Sellers' Disclosure Schedule sets forth
a true and complete list of all Subsidiaries, listing for each Subsidiary its
name, type of entity, the jurisdiction and date of its incorporation or
organization, its authorized capital stock, partnership capital or equivalent,
and the current ownership of such capital stock, partnership interests or
similar ownership interests.
(c) Other than the Subsidiaries, there are no other corporations,
partnerships or limited liability companies in which the Partnership owns, of
record or beneficially, any direct or other interest or any right (contingent or
otherwise) to acquire the same. The Partnership is not, directly or indirectly,
a participant in any joint venture.
(d) Each Subsidiary: (i) is a corporation or partnership duly
organized and validly existing under the laws of its jurisdiction of
organization, (ii) has all necessary power and authority to own, operate or
lease the properties and assets owned, operated or leased by such Subsidiary and
to carry on its business as it has been and is currently conducted by such
Subsidiary and (iii) is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the properties owned or leased by it or
the operation of its business makes such licensing or qualification necessary
(and all such jurisdictions are set forth in Section 3.02(d) of the Sellers'
Disclosure Schedule). True and complete copies of the charter and bylaws (or
similar organizational documents), in each case as in effect on the date hereof,
of each Subsidiary have been delivered by the Sellers to the Purchaser.
(e) No Subsidiary is a member of (nor is any part of its business
conducted through) any partnership, other than the Partnership.
SECTION 3.03. Partnership Interests. (a) As of the date hereof,
77% of the outstanding interests in the Partnership ("Partnership Interests")
are owned, beneficially and of record, by Covia, free and clear of all
Encumbrances. There are no options, warrants, convertible securities or other
rights, agreements, arrangements or commitments of any character obligating
United, Covia or any Affiliate thereof to issue or sell any Partnership
Interests or any other interest in the Partnership. Neither United, Covia nor
any Affiliate
<PAGE> 20
15
thereof is party to any voting trusts, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any of the
Partnership Interests. Upon consummation of the transactions contemplated by
Article II, the Purchaser will acquire from Covia 77% of the Partnership
Interests free and clear of all Encumbrances (other than Encumbrances created by
the Purchaser).
(b) As of the date hereof, 21.08% of the outstanding Partnership
Interests are owned, beneficially and of record, by USAM, free and clear of all
Encumbrances. There are no options, warrants, convertible securities or other
rights, agreements, arrangements or commitments of any character obligating
USAW, USAM or any Affiliate thereof to issue or sell any Partnership Interests
or any other interest in the Partnership. Neither USAW, USAM nor any Affiliate
thereof is party to any voting trusts, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any of the
Partnership Interests. Upon consummation of the transactions contemplated by
Article II, the Purchaser will acquire from USAM 21.08% of the Partnership
Interests free and clear of all Encumbrances (other than Encumbrances created by
the Purchaser).
(c) As of the date hereof, 1.92% of the outstanding Partnership
Interests in are owned, beneficially and of record, by Resnet, free and clear of
all Encumbrances. There are no options, warrants, convertible securities or
other rights, agreements, arrangements or commitments of any character
obligating Air Canada, Resnet or any Affiliate thereof to issue or sell any
Partnership Interests or any other interest in the Partnership. Neither Air
Canada, Resnet nor any Affiliate thereof is party to any voting trusts, proxies
or other agreements or understandings in effect with respect to the voting or
transfer of any of the Partnership Interests. Upon consummation of the
transactions contemplated by Article II, the Purchaser will acquire from Resnet
1.92% of the Partnership Interests free and clear of all Encumbrances (other
than Encumbrances created by the Purchaser).
(d) None of the outstanding Partnership Interests was issued in
violation of any preemptive rights. There are no options, warrants, convertible
securities or other rights, agreements, arrangements or commitments of any
character relating to the Partnership Interests or obligating the Partnership to
issue or sell any Partnership Interests or any other interest in the
Partnership. There are no outstanding contractual obligations of the Partnership
to repurchase, redeem or otherwise acquire any equity interests of or to provide
funds to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any other Person. The Partnership Interests constitute all the
issued and outstanding equity interests in the Partnership. The Partnership is
not a party to any voting trusts, proxies or other agreements or understandings
in effect with respect to the voting or transfer of any of the Partnership
Interests.
SECTION 3.04. No Conflict. (a) The execution, delivery and
performance of this Agreement by United, Covia and the Partnership do not and
will not (i) violate,
<PAGE> 21
16
conflict with or result in the breach of any provision of the charter, bylaws,
limited liability company agreement or partnership agreement (or similar
organizational documents) of United, Covia, the Partnership or any Subsidiary,
(ii) conflict with or violate (or cause an event which could have a Material
Adverse Effect as a result of) any Law or Governmental Order applicable to
United, Covia, the Partnership or any Subsidiary, or any of their respective
assets, properties or businesses, or (iii) conflict with, result in any breach
of, constitute a default (or event which with the giving of notice or lapse of
time, or both, would become a default) under, require any consent under, or give
to others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the Partnership Interests held by Covia or on any of the assets or
properties of United, Covia, the Partnership or any Subsidiary pursuant to, any
note, bond, mortgage or indenture, or material contract, agreement, lease,
sublease, license, sublicense, permit, franchise or other instrument or
arrangement to which United, Covia, the Partnership or any Subsidiary is a party
or by which any of the Partnership Interests held by Covia or any of such assets
or properties is bound or affected.
(b) The execution, delivery and performance of this Agreement by
USAW, USAM and the Partnership do not and will not (i) violate, conflict with or
result in the breach of any provision of the charter, bylaws, limited liability
company agreement or partnership agreement (or similar organizational documents)
of USAW, USAM, the Partnership or any Subsidiary, (ii) conflict with or violate
(or cause an event which could have a Material Adverse Effect as a result of)
any Law or Governmental Order applicable to USAW, USAM, the Partnership or any
Subsidiary, or any of their respective assets, properties or businesses, or
(iii) conflict with, result in any breach of, constitute a default (or event
which with the giving of notice or lapse of time, or both, would become a
default) under, require any consent under, or give to others any rights of
termination, amendment, acceleration, suspension, revocation or cancellation of,
or result in the creation of any Encumbrance on any of the Partnership Interests
held by USAM or on any of the assets or properties of USAW, USAM, the
Partnership or any Subsidiary pursuant to, any note, bond, mortgage or
indenture, or material contract, agreement, lease, sublease, license,
sublicense, permit, franchise or other instrument or arrangement to which USAW,
USAM, the Partnership or any Subsidiary is a party or by which any of the
Partnership Interests held by USAM or any of such assets or properties is bound
or affected.
(c) The execution, delivery and performance of this Agreement by
Air Canada, Resnet and the Partnership do not and will not (i) violate, conflict
with or result in the breach of any provision of the charter, bylaws, limited
liability company agreement or partnership agreement (or similar organizational
documents) of Air Canada, Resnet, the Partnership or any Subsidiary, (ii)
conflict with or violate (or cause an event which could have a Material Adverse
Effect as a result of) any Law or Governmental Order applicable to Air Canada,
Resnet, the Partnership or any Subsidiary, or any of their respective assets,
properties or businesses, or (iii) conflict with, result in any breach of,
constitute a default (or
<PAGE> 22
17
event which with the giving of notice or lapse of time, or both, would become a
default) under, require any consent under, or give to others any rights of
termination, amendment, acceleration, suspension, revocation or cancellation of,
or result in the creation of any Encumbrance on any of the Partnership Interests
held by Resnet or on any of the assets or properties of Air Canada, Resnet, the
Partnership or any Subsidiary pursuant to, any note, bond, mortgage or
indenture, or material contract, agreement, lease, sublease, license,
sublicense, permit, franchise or other instrument or arrangement to which Air
Canada, Resnet, the Partnership or any Subsidiary is a party or by which any of
the Partnership Interests held by Resnet or any of such assets or properties is
bound or affected.
SECTION 3.05. Governmental Consents and Approvals. (a) The
execution, delivery and performance of this Agreement by United, Covia and the
Partnership do not and will not require any consent, approval, authorization or
other order of, action by, filing with or notification to any Governmental
Authority or any other Person, except for (i) the notification requirements of
the HSR Act and (ii) the consents, approvals and authorizations set forth in
Section 3.05(a) of the disclosure schedule which has been delivered by the
Sellers to the Purchaser prior to the date hereof and which is attached hereto
(the "Sellers' Disclosure Schedule").
(b) The execution, delivery and performance of this Agreement by
USAW, USAM and the Partnership do not and will not require any consent,
approval, authorization or other order of, action by, filing with or
notification to any Governmental Authority or any other Person, except for (i)
the notification requirements of the HSR Act and (ii) the consents, approvals
and authorizations set forth in Section 3.05(b) of the Sellers' Disclosure
Schedule.
(c) The execution, delivery and performance of this Agreement by
Air Canada, Resnet and the Partnership do not and will not require any consent,
approval, authorization or other order of, action by, filing with or
notification to any Governmental Authority or any other Person, except for (i)
the notification requirements of the HSR Act and (ii) the consents, approvals
and authorizations set forth in Section 3.05(c) of the Sellers' Disclosure
Schedule.
SECTION 3.06. Financial Information and Books and Records. (a)
True and complete copies of (i) the audited consolidated balance sheet of the
Partnership and the Subsidiaries for each of the three fiscal years ended as of
December 31, 1994, December 31, 1995 and December 31, 1996, and the related
audited consolidated statements of income, together with all related notes and
schedules thereto, accompanied by the reports thereon of the Sellers'
Accountants (collectively referred to herein as the "Financial Statements") and
(ii) the unaudited consolidated balance sheet of the Partnership and the
Subsidiaries for the quarter ending March 31, 1997, and the related consolidated
statements of income of the Company, together with all related notes and
schedules thereto (collectively referred to
<PAGE> 23
18
herein as the "Interim Financial Statements") have been delivered by the Sellers
to the Purchaser. The Financial Statements, the Interim Financial Statements and
the Net Asset Test Reference Balance Sheet (i) were prepared in accordance with
the books of account and other financial records of the Partnership, (ii)
present fairly the consolidated financial condition and results of operations of
the Partnership and the Subsidiaries as of the dates thereof or for the periods
covered thereby, (iii) have been prepared in accordance with U.S. GAAP and (iv)
include all adjustments (consisting only of normal accruals) that are necessary
for a fair presentation of the consolidated financial condition of the
Partnership and the Subsidiaries and the results of the operations of the
Partnership and the Subsidiaries as of the dates thereof or for the periods
covered thereby, except in the case of the Net Asset Test Reference Balance
Sheet (a copy of which is set forth in Section 3.06(a) of the Sellers'
Disclosure Schedule), which excludes (i) any indebtedness for borrowed money of
the Partnership and the Subsidiaries, (ii) any cash or cash equivalents other
than cash in the amount of any checks outstanding, and (iii) the assets and
liabilities of Premier.
(b) The books of account and other financial records of the
Partnership and the Subsidiaries: (i) reflect all items of income and expense
and all assets and Liabilities required to be reflected therein in accordance
with U.S. GAAP and (ii) are in all material respects complete and correct, and
do not contain or reflect any material inaccuracies or discrepancies.
(c) The minute books of the Partnership and the Subsidiaries
contain accurate records of all meetings and accurately reflect all other
actions taken by the Partners or Stockholders thereof. Complete and accurate
copies of all such minute books have been provided to the Purchaser.
SECTION 3.07. No Undisclosed Liabilities. There are no Liabilities
of the Partnership or any Subsidiary, other than Liabilities (i) reflected or
reserved against on the Net Asset Test Reference Balance Sheet, (ii) incurred
since March 31, 1997 in the ordinary course of the business, consistent with the
past practice, or (iii) disclosed in this Agreement or in the Sellers'
Disclosure Schedule, of the Partnership and the Subsidiaries and which do not
and could not have a Material Adverse Effect.
SECTION 3.08. Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions. Except as disclosed in Section 3.08 of the
Sellers' Disclosure Schedule, since March 31, 1997, the business of the
Partnership and the Subsidiaries has been conducted in the ordinary course and
consistent with past practice. As amplification and not limitation of the
foregoing, since March 31, 1997, except as disclosed in Section 3.08 of the
Sellers' Disclosure Schedule, neither the Partnership nor any Subsidiary has:
<PAGE> 24
19
(i) permitted or allowed any of the assets or properties
(whether tangible or intangible) of the Partnership or any Subsidiary
to be subjected to any Encumbrance, other than Permitted Encumbrances;
(ii) except in the ordinary course of business consistent with
past practice, discharged or otherwise obtained the release of any
Encumbrance or paid or otherwise discharged any Liability, other than
current liabilities reflected on the Net Asset Test Reference Balance
Sheet and current liabilities incurred in the ordinary course of
business consistent with past practice since March 31, 1997;
(iii) made any loan to, guaranteed any indebtedness of or
otherwise incurred any indebtedness on behalf of any Person;
(iv) redeemed any of the Partnership Interests;
(v) except as specifically requested by the Purchaser or as
required to accommodate changes in the Purchaser's business practices,
made any material changes in the customary methods of operations of the
Partnership or any Subsidiary, including, without limitation, practices
and policies relating to marketing, selling and pricing;
(vi) merged with, entered into a consolidation with or acquired
any interest in any Person or acquired a substantial portion of the
assets or business of any Person or any division or line of business
thereof, or otherwise acquired any material assets;
(vii) made any capital expenditure or commitment for any capital
expenditure in excess of the capital expenditures contemplated by the
planned budget, a true and complete copy of which has been provided to
the Purchaser;
(viii) sold, transferred, leased, subleased, licensed or otherwise
disposed of any properties or assets, real, personal or mixed
(including, without limitation, leasehold interests and intangible
assets) with an individual value in excess of $50,000;
(ix) issued or sold any Partnership Interests, or other equity
securities, or any option, warrant or other right to acquire the same,
of, or any other interest in, the Partnership or any Subsidiary, except
as contemplated by this Agreement;
(x) except for agreements, arrangements or transactions with the
Purchaser or having an individual value of less than $5,000, entered
into any agreement, arrangement or transaction with any of its
directors, officers, employees or partners (or with any relative,
beneficiary, spouse or Affiliate of such Person);
<PAGE> 25
20
(xi) (A) granted any increase, or announced any increase, in
the wages, salaries, compensation, bonuses, incentives, pension or
other benefits payable by the Partnership or any Subsidiary to any of
its employees, including, without limitation, any increase or change
pursuant to any Plan, or (B) established or increased or promised to
increase any benefits under any Plan, in either case except for
ordinary increases consistent with the past practices of the
Partnership or such Subsidiary;
(xii) revalued any assets of the Partnership or any Subsidiary
other than in accordance with U.S. GAAP;
(xiii) amended, terminated, cancelled or compromised any material
claims of the Partnership or any Subsidiary or waived any other rights
of material value to the Partnership or any Subsidiary;
(xiv) made any material change in any method of accounting or
accounting practice or policy used by the Partnership or any
Subsidiary;
(xv) amended or restated the Partnership Agreement or the
organizational documents of any Subsidiary;
(xvi) made any express or deemed election or settled or
compromised any liability that is the subject of a dispute with any
government or taxing authority, with respect to (A) Taxes of the
Partnership or any Subsidiary or (B) Taxes, insofar as Partnership
items or any Subsidiary items are involved, of the partners of the
Partnership or of any Subsidiary;
(xvii) suffered any casualty loss or damage with respect to any
of the Assets which individually has a replacement cost of more than
$50,000, which loss or damage shall not have been covered by insurance;
(xviii) suffered any Material Adverse Effect; or
(xix) agreed, whether in writing or otherwise, to take any of
the actions specified in this Section 3.08 or granted any options to
purchase, rights of first refusal, rights of first offer or any other
similar rights or commitments with respect to any of the actions
specified in this Section 3.08.
SECTION 3.09. Litigation. Except as set forth in Section 3.09 of
the Sellers' Disclosure Schedule, there are no Actions by or against the
Partnership or any Subsidiary (or by or against the Sellers or any Affiliate
thereof and relating to the Partnership or any Subsidiary or their respective
businesses), or affecting any of the Assets, pending or threatened before any
Governmental Authority. None of the Partnership, the Subsidiaries or
<PAGE> 26
21
any of the Assets nor the Sellers is subject to any Governmental Order, nor are
there any such Governmental Orders threatened to be imposed by any Governmental
Authority, which has a Material Adverse Effect.
SECTION 3.10. Compliance with Laws. (a) The Partnership and the
Subsidiaries have conducted and continue to conduct their respective businesses
in accordance with all Laws and Governmental Orders applicable to the
Partnership, any Subsidiary or any of the Assets or such businesses, and neither
the Partnership nor any Subsidiary is in violation of any such Law or
Governmental Order.
(b) Section 3.10(b) of the Sellers' Disclosure Schedule sets forth
a brief description of each Governmental Order applicable to the Partnership or
any Subsidiary or any of the Assets or the Partnership's or the Subsidiaries'
respective businesses, and no such Governmental Order has or could reasonably be
expected to have a Material Adverse Effect.
SECTION 3.11. Environmental and Other Permits and Licenses;
Related Matters. (a) (i) Neither the Partnership nor any Subsidiary has received
notice of any violation of any Environmental Laws; (ii) the Partnership and the
Subsidiaries have obtained all Environmental Permits and are and have been in
material compliance with their requirements; (iii) except as disclosed in
Section 3.11(a)(iii) of the Sellers' Disclosure Schedule, or as permitted by or
as would not result in any material liability under applicable Environmental
Laws, there are no underground or aboveground storage tanks or any surface
impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials
are being or have been treated, stored or disposed on any of the owned or leased
properties or, with respect to the period of the Partnership's or any
Subsidiary's ownership, tenancy or operation of such property, on any real
property formerly owned, leased or occupied by the Partnership or any
Subsidiary; (iv) there is no asbestos or asbestos-containing material on any of
the owned or leased properties, except as permitted by or as would not result in
any material liability under applicable Environmental Laws; (v) neither the
Partnership nor any Subsidiary has released, discharged or disposed of an amount
of Hazardous Materials on any of the owned or leased properties or on any real
property formerly owned, leased or occupied by the Partnership or any Subsidiary
in a manner or quantity which would have a material effect on the Partnership;
(vi) neither the Partnership nor any Subsidiary is undertaking, has completed,
nor is required to conduct, any investigation or assessment or remedial or
response action relating to any release, discharge or disposal of or
contamination with an amount of Hazardous Materials at any site, location or
operation, either voluntarily or pursuant to the order of any Governmental
Authority or the requirements of any Environmental Law which would have a
material effect on the Partnership; and (vii) there are no past, pending or
threatened in writing Environmental Claims against the Partnership, any
Subsidiary or any of their properties, and there are no facts which can form the
basis of any such Environmental Claim.
<PAGE> 27
22
(b) Except as disclosed in Section 3.11(b) of the Sellers'
Disclosure Schedule, there are no environmental audit reports, studies or
analyses in the possession of the Parent Entities, the Sellers or the
Partnership or under their control relating to the owned or leased properties or
the operations of the Partnership and the Subsidiaries.
SECTION 3.12. Material Contracts. (a) Section 3.12(a) of the
Sellers' Disclosure Schedule lists each of the following contracts and
agreements (including, without limitation, oral contracts and agreements) of the
Partnership and each Subsidiary (such contracts and agreements being "Material
Contracts"):
(i) all broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting and advertising contracts and agreements to which
the Partnership or any Subsidiary is a party under which the
Partnership can be reasonably expected to pay or be paid at least
$50,000 during the course of the twelve months following the date
hereof;
(ii) all management contracts and contracts with independent
contractors or consultants (or similar arrangements) to which the
Partnership or any Subsidiary is a party, which are not cancelable
without penalty or further payment and without more than 30 days'
notice, and under which the Partnership can be reasonably expected to
pay or be paid at least $50,000 during the course of the twelve months
following the date hereof;
(iii) all contracts and agreements relating to Indebtedness of
the Partnership or any Subsidiary;
(iv) any agreements that are material to the business of the
Partnership and that are currently in effect with subscribers that have
generated annual booking fees of $1.0 million or more per annum over
the course of any of the last three fiscal years;
(v) all contracts and agreements with any Governmental
Authority to which the Partnership or any Subsidiary is a party and
under which the Partnership can be reasonably expected to pay or be
paid at least $50,000 during the course of the twelve months following
the date hereof;
(vi) all contracts and agreements that limit or purport to limit
the ability of the Partnership or any Subsidiary to compete in any line
of business or with any Person or in any geographic area or during any
period of time;
(vii) all contracts and agreements between or among the
Partnership or any Subsidiary and the Sellers or any Affiliate of the
Sellers; and
<PAGE> 28
23
(viii) all other contracts and agreements whether or not made in
the ordinary course of business, which are material to the Partnership,
any Subsidiary or the conduct of their respective businesses or the
absence of which would have a Material Adverse Effect.
(b) Each Material Contract: (i) is valid and binding on the
respective parties thereto and is in full force and effect and (ii) upon
consummation of the transactions contemplated by this Agreement, except to the
extent that any consents set forth in Section 3.05 of the Sellers' Disclosure
Schedule are not obtained, shall continue in full force and effect without
penalty or other adverse consequence. Neither the Partnership nor any Subsidiary
is in breach of, or default under, any Material Contract. The Sellers have
furnished the Purchaser with true and complete copies of all Material Contracts.
(c) To the best knowledge of the Parent Entities, the Sellers and
the Partnership, no other party to any Material Contract is in breach thereof or
default thereunder.
(d) There is no contract, agreement or other arrangement granting
any Person any preferential right to purchase, other than in the ordinary course
of business consistent with past practice, any of the properties or assets of
the Partnership or any Subsidiary.
SECTION 3.13. Intellectual Property. The Partnership owns or
possesses adequate licenses or other valid rights to use all of the Partnership
Intellectual Property which is material to the conduct of the business of the
Partnership, and there is no assertion or claim challenging the validity of any
such Partnership Intellectual Property. There are no infringements of any
Partnership Intellectual Property. Notwithstanding anything to the contrary
herein, the representations and warranties contained in the two preceding
sentences shall not be deemed to have been breached with respect to any
Partnership Intellectual Property that has been provided to the Partnership or
any of the Subsidiaries by the Purchaser unless the breach results from any
modification by the Partnership or any of its Subsidiaries to any such
Partnership Intellectual Property. There are no pending or threatened
interferences, reexaminations, oppositions or nullities involving any patents,
patent rights or applications therefor of the Partnership which is material to
the conduct of the business of the Partnership. Section 3.13 of the Sellers'
Disclosure Schedule lists each material license or other agreement pursuant to
which the Partnership has the right to use Partnership Intellectual Property
utilized in connection with any services provided by the Partnership (the
"Partnership Licenses"). There is no breach or violation of any Partnership
License by the Partnership or by any third party or threatened or actual loss of
rights accruing to the Partnership under any Partnership License. Each
Partnership License is a legal, valid and binding agreement of the Partnership
and each Partnership License is a legal, valid and binding agreement of the
other parties thereto. The consummation of the
<PAGE> 29
24
transactions contemplated by this Agreement will not result in the termination
of, or any modification to, any Partnership License, except where the foregoing
would not have a material effect on the conduct of the business of the
Partnership. The Partnership has taken reasonable measures to maintain the
confidentiality of the know-how of the Partnership, the value of which to the
Partnership is dependent upon the maintenance of the confidentiality thereof.
The Partnership has not licensed or otherwise permitted the use by any third
party of any proprietary information on terms or in a manner that is reasonably
likely to have a Material Adverse Effect. The conduct of the business of the
Partnership as currently conducted or as currently contemplated (by existing
Partnership management) to be conducted does not and will not infringe upon or
conflict with, in any way, any license, trademark, trademark right, trade name,
trade name right, patent, patent right, industrial model, invention, service
mark or copyright of any third party that is reasonably likely to be material to
the Partnership's operations.
SECTION 3.14. Real Property and Leases. (a) Set forth on Section
3.14(a) of the Sellers' Disclosure Schedule is a list of all Real Property.
(b) The Partnership and the Subsidiaries have sufficient title or
leasehold interests to all their Real Property to conduct their respective
businesses as currently conducted or as currently contemplated (by existing
Partnership management) to be conducted.
(c) All leases of real property leased for the use or benefit of
the Partnership or any Subsidiary to which the Partnership or any Subsidiary is
a party which are material, individually or in the aggregate, to the business of
the Partnership and the Subsidiaries taken as a whole, and all amendments and
modifications thereto are in full force and effect and have not been modified or
amended, and there exists no default under any such lease by the Partnership or
any Subsidiary, nor any event which with notice or lapse of time or both would
constitute a default thereunder by the Partnership or any Subsidiary, which
would permit any such lease to be terminated by the other party thereto.
SECTION 3.15. Assets. (a) Either the Partnership or a Subsidiary,
as the case may be, owns, leases or has the legal right to use all material
properties and assets, including, without limitation, the Partnership
Intellectual Property, used or intended to be used in the conduct of its
business or otherwise owned, leased or used by the Partnership or any Subsidiary
and, with respect to contract rights, is a party to and enjoys the right to the
benefits of all material contracts, agreements and other arrangements used or
intended to be used by the Partnership or any Subsidiary or in or relating to
the conduct of their respective businesses (all such properties, assets and
contract rights being the "Assets"). Set forth on Section 3.15(a) of the
Sellers' Disclosure Schedule is a list of all of the Assets as of the date
hereof. Either the Partnership or a Subsidiary, as the case may be, has good and
marketable title to, or, in the case of leased or subleased Assets, valid and
subsisting
<PAGE> 30
25
leasehold interests in, all the Assets, free and clear of all Encumbrances,
except for Permitted Encumbrances.
(b) The Assets constitute all the material properties, assets and
rights forming a part of, used, held or intended to be used in, and all such
properties, assets and rights as are necessary in the conduct of, the businesses
(as currently conducted by existing Partnership management) of the Partnership
and the Subsidiaries. At all times since December 31, 1996, the Partnership has
caused the Assets to be maintained in accordance with good business practice,
and the Assets are generally in good operating condition and repair and are
suitable for the purposes for which they are used and intended, except for
ordinary wear commensurate with the age and depreciated value of such Assets.
(c) Following the consummation of the transactions contemplated by
this Agreement, either the Partnership or a Subsidiary, as the case may be, will
continue to own, pursuant to good and marketable title, or lease, under valid
and subsisting leases, or otherwise retain its respective interest in the Assets
without incurring any penalty or other adverse consequence, including, without
limitation, any increase in rentals, royalties, or licenses or other fees
imposed as a result of, or arising from, the consummation of the transactions
contemplated by this Agreement (except, with respect to contractual arrangements
to the extent that any consents set forth in Section 3.05 of the Sellers'
Disclosure Schedule are not obtained). Immediately following the Closing, (i) in
the case of books and records other than Tax-related books and records, either
the Partnership or a Subsidiary, as the case may be, shall own or possess all
documents, books, records, agreements and financial data of any sort used by the
Partnership or such Subsidiary which is material to the conduct of its business,
and (ii) in the case of Tax-related books and records (including all information
(including copies of Returns, original work papers, and source documents (or
copies thereof)) relating to any and all Tax filings of the Partnership or any
Subsidiary), the Partnership shall own or possess all of such books and records
or the Purchaser shall have access to such records pursuant to Section 5.02(c)).
SECTION 3.16. Employee Benefit Matters. (a) Plans and Material
Documents. Section 3.16(a) of the Sellers' Disclosure Schedule lists (i) all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, pension,
retiree medical or life insurance, supplemental retirement, severance or other
benefit plans, programs or arrangements, and all employment, termination,
severance or other contracts or agreements, to which the Partnership or any
Subsidiary is a party, with respect to which the Partnership or any Subsidiary
has any obligation or which are maintained, contributed to or sponsored by the
Partnership or any Subsidiary for the benefit of any current or former employee,
officer or director of the Partnership or any Subsidiary, (ii) each employee
benefit plan for which the Partnership or any Subsidiary could incur liability
under Section 4069 of ERISA in the event such plan has
<PAGE> 31
26
been or were to be terminated, (iii) any plan in respect of which the
Partnership or any Subsidiary could incur liability under Section 4212(c) of
ERISA and (iv) any contracts, arrangements or understandings between the Sellers
or any of its Affiliates and any employee of the Partnership or of any
Subsidiary, including, without limitation, any contracts, arrangements or
understandings relating to the sale of the Partnership (collectively, the
"Plans"). Except as disclosed in the Sellers' Disclosure Schedule, each Plan is
in writing and the Parent Entities and the Sellers have furnished the Purchaser
with a complete and accurate copy of each Plan and a complete and accurate copy
of each material document prepared in connection with each such Plan including,
without limitation, (i) a copy of each trust or other funding arrangement, (ii)
each summary plan description and summary of material modifications, (iii) the
most recently filed IRS Form 5500, (iv) the most recently received IRS
determination letter for each such Plan, and (v) the most recently prepared
actuarial report and financial statement in connection with each such Plan.
(b) Absence of Certain Types of Plans. None of the Plans is a
multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA)
or a single employer pension plan (within the meaning of Section 4001(a)(15) of
ERISA) for which the Partnership or any Subsidiary could incur liability under
Section 4063 or 4064 of ERISA. Except as disclosed in the Sellers' Disclosure
Schedule, none of the Plans provides for the payment of separation, severance,
termination or similar-type benefits to any Person or obligates the Partnership
or any Subsidiary to pay separation, severance, termination or similar-type
benefits solely as a result of any transaction contemplated by this Agreement or
as a result of a "change in control", within the meaning of such term under
Section 280G of the Code. Except as disclosed in the Sellers' Disclosure
Schedule, none of the Plans provides for or promises retiree medical, disability
or life insurance benefits to any current or former employee, officer or
director of the Partnership or any Subsidiary. Each of the Plans is subject only
to the laws of the United States or a political subdivision thereof.
(c) Compliance with Applicable Law. Each Plan is in compliance
with all material requirements of all applicable Law, including, without
limitation, ERISA and the Code, and all persons who participate in the operation
of such Plans and all Plan "fiduciaries" (within the meaning of Section 3(21) of
ERISA) have always acted in accordance with the provisions of all applicable
Law, including, without limitation, ERISA and the Code. The Partnership and each
Subsidiary has performed all obligations required to be performed by it under,
is not in any respect in default under or in violation of, and has no knowledge
of any default or violation by any party to, any Plan. Except as disclosed in
the Sellers' Disclosure Schedule, no legal action, suit or claim is pending or
threatened with respect to any Plan (other than claims for benefits in the
ordinary course) and no fact or event exists that could reasonably be expected
to give rise to any such action, suit or claim.
(d) Qualification of Certain Plans. Each Plan which is intended to
be qualified under Section 401(a) of the Code or Section 401(k) of the Code has
received a
<PAGE> 32
27
favorable determination letter from the IRS that it is so qualified and each
trust established in connection with any Plan which is intended to be exempt
from federal income taxation under Section 501(a) of the Code has received a
determination letter from the IRS that it is so exempt, and no fact or event has
occurred since the date of such determination letter from the IRS to adversely
affect the qualified status of any such Plan or the exempt status of any such
trust.
(e) Absence of Certain Liabilities and Events. There has been no
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan which could reasonably be expected to
give rise to a material liability of the Partnership or any Subsidiary. Neither
the Partnership nor any Subsidiary has incurred any liability for any penalty or
tax arising under Section 4971, 4972, 4980, 4980B or 6652 of the Code or any
liability under Section 502 of ERISA which, in the case of any such penalty, tax
or liability, has not been satisfied in full, and no fact or event exists which
could give rise to any such liability. Neither the Partnership nor any
Subsidiary has incurred any liability under, arising out of or by operation of
Title IV of ERISA (other than liability for premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course) which has not been
satisfied in full. No reportable event (within the meaning of Section 4043 of
ERISA) has occurred or is expected to occur with respect to any Plan subject to
Title IV of ERISA. No Plan had an accumulated funding deficiency (within the
meaning of Section 302 of ERISA or Section 412 of the Code), whether or not
waived, as of the most recently ended plan year of such Plan. None of the assets
of the Partnership or any Subsidiary is the subject of any lien arising under
Section 302(f) of ERISA or Section 412(n) of the Code; neither the Partnership
nor any Subsidiary has been required to post any security under Section 307 of
ERISA or Section 401(a)(29) of the Code; and no fact or event exists which could
give rise to any such lien or requirement to post any such security.
(f) Plan Contributions and Funding. All contributions, premiums or
payments required to be made with respect to any Plan have been made on or
before their due dates. All such contributions are deductible for income tax
purposes. Except as disclosed in the Sellers' Disclosure Schedule, as of the
Closing Date, no Plan which is subject to Title IV of ERISA will have an
"unfunded benefit liability" (within the meaning of Section 4001(a)(18) of
ERISA).
(g) WARN Act. The Partnership and the Subsidiaries are in
compliance with the requirements of the Workers Adjustment and Retraining
Notification Act ("WARN") and have no liabilities pursuant to WARN.
SECTION 3.17. Labor Matters. Except as set forth in Section 3.17
of the Sellers' Disclosure Schedule, (a) neither the Partnership nor any
Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Partnership or any
Subsidiary and currently there are no organizational campaigns,
<PAGE> 33
28
petitions or other unionization activities seeking recognition of a collective
bargaining unit which could affect the Partnership or any Subsidiary; (b) there
are no material controversies, strikes, slowdowns or work stoppages pending or
threatened between the Partnership or any Subsidiary and any of their respective
employees, and neither the Partnership nor any Subsidiary has experienced any
such material controversy, strike, slowdown or work stoppage within the past
three years; (c) there are no unfair labor practice complaints pending against
the Partnership or any Subsidiary before the National Labor Relations Board or
any other Governmental Authority or any current union representation questions
involving employees of the Partnership or any Subsidiary which could have a
Material Adverse Effect; and (d) the Partnership and each Subsidiary is
currently in material compliance with all applicable Laws relating to the
employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of taxes and other sums as required
by the appropriate Governmental Authority and has withheld and paid to the
appropriate Governmental Authority or is holding for payment not yet due to such
Governmental Authority all amounts required to be withheld from employees of the
Partnership or any Subsidiary and is not liable for any material arrears of
wages, taxes, penalties or other sums for failure to comply with any of the
foregoing.
SECTION 3.18. Taxes. Except as set forth in Section 3.18 of the
Sellers' Disclosure Schedule, (a) (i) All returns and reports in respect of
Taxes required to be filed with respect to the Partnership or any Subsidiary
with respect to Taxes of the Partnership or any Subsidiary for all periods
ending on or before the Closing Date (including without limitation Internal
Revenue Service Form 1065 (or successor form) and any comparable state and local
returns) have been timely filed (or will be timely filed by the Partnership);
(ii) all Taxes required to be shown on such returns and reports or otherwise due
have been timely paid; (iii) all returns and reports relating to Taxes on or
with respect to income (including without limitation Internal Revenue Service
Form 1065 (or successor form) and any comparable state and local returns) are
true, correct and complete and all returns and reports of the Partnership or any
Subsidiary relating to Taxes other than Taxes on or with respect to income are
true, correct and complete in all material respects; (iv) no adjustment relating
to such returns has been proposed in writing formally or informally by any Tax
authority and no basis exists for any such adjustment; (v) there are no pending
or, to the best knowledge of the Parent Entities and the Sellers after due
inquiry, threatened actions or proceedings for the assessment or collection of
Taxes against the Partnership or any Subsidiary; (vi) there are no Tax liens on
any assets of the Partnership or any Subsidiary except liens for Taxes not yet
due and payable; (vii) neither the Partnership nor any Subsidiary is a party to
any agreement or arrangement that would result, separately or in the aggregate,
in the payment of any "excess parachute payments" within the meaning of Section
280G of the Code; (viii) other than with respect to any interest in any
Subsidiary, the Partnership has not been at any time a member of any partnership
or joint venture or the holder of a beneficial interest in any trust for any
period for which the statute of limitations for any Tax has not expired; (ix)
the Partnership and each Subsidiary qualify (and have since the date of each
such entity's
<PAGE> 34
29
respective date of formation qualified) to be treated as a partnership for
Federal income tax purposes and for state and local tax purposes in all state
and local jurisdictions in which such treatment is relevant and none of the
Partnership, the Sellers, any Subsidiary, or any Tax authority has taken a
position inconsistent with such treatment; (x) the Partnership has in effect a
valid election pursuant to Section 754 of the Code; (xi) there are no
outstanding waivers or agreements extending the statute of limitations for any
period with respect to any Tax to which the Partnership or any Subsidiary may be
subject; (xii) the Partnership (or its partners) does not have any income
reportable for a period ending after the Closing Date but attributable to the
sale of property or the provision of services (e.g., an installment sale)
occurring in or a change in accounting method made for a period ending on or
prior to the Closing Date which resulted in a deferred reporting of income from
which economically accrued in a period ending on or before the Closing Date from
such transaction or from such change in accounting method; (xiii) there are no
requests by any Tax authority for information currently outstanding with respect
to the Taxes of the Partnership (or any Subsidiary) (or of its partners with
respect to Partnership or Subsidiary items); (xiv) there are no proposed
reassessments of any property owned by the Partnership (or any Subsidiary) or
other taxpayer specific proposals that could increase the amount of any Tax to
which the Partnership (or any Subsidiary) would be subject and (xv) no power of
attorney that is currently in force has been granted with respect to any matter
relating to Taxes of the Partnership or a Subsidiary.
(b) For purposes of the Parent Entities' and the Sellers'
indemnification of the Purchaser pursuant to Section 6.01, the representations
in Section 3.18(a) shall be deemed to have been made with no exception for items
disclosed in Section 3.18 of the Disclosure Schedule or otherwise.
(c) (i) Section 3.18 of the Sellers' Disclosure Schedule lists all
Returns (federal, state, local and foreign) filed by each of the Partnership and
the Subsidiaries for taxable periods ended on or after September 16, 1993,
indicates for which jurisdictions Returns have been filed on the basis of a
unitary group, indicates the most recent Return for each relevant jurisdiction
and type of Tax for which an audit has been completed or the statute of
limitations has lapsed and indicates all Returns that currently are the subject
of audit; (ii) the Sellers and the Parent Entities have made available to the
Purchaser correct and
<PAGE> 35
30
complete copies of all federal, state, local and foreign Returns, examination
reports, and statements of deficiencies assessed against or agreed to by the
Partnership or any Subsidiary since September 16, 1993; and (iii) the Sellers
and the Parent Entities have delivered to the Purchaser a true and complete copy
of any tax-sharing or allocation agreement or arrangement to which the
Partnership or any Subsidiary is a party and a true and complete description of
any such unwritten or informal agreement or arrangement.
SECTION 3.19. Insurance. (a) Section 3.19 of the Sellers'
Disclosure Schedule sets forth a complete list of all material policies of
insurance (including, without limitation, errors and omissions insurance) that
the Partnership or any Subsidiary has in effect.
(b) With respect to each such insurance policy: (i) the policy is
legal, valid, binding and enforceable in accordance with its terms and, except
for policies that have expired under their terms in the ordinary course, is in
full force and effect; (ii) neither the Partnership nor any Subsidiary is in
breach or default (including any breach or default with respect to the payment
of premiums or the giving of notice), and no event has occurred which, with
notice or the lapse of time, would constitute such a breach or default or permit
termination or modification, under the policy; (iii) no party to the policy has
repudiated, or given notice of an intent to repudiate, any provision thereof;
and (iv) to the best knowledge of the Partnership, no insurer on the policy has
been declared insolvent or placed in receivership, conservatorship or
liquidation or currently has a rating of "B+" or below from A.M. Best & Co. or a
claims paying ability rating of "BBB" or below from Standard & Poor's, Inc.
(c) Section 3.19(c) of the Sellers' Disclosure Schedule sets forth
a general description of all risks of a nature generally insured against which
the Partnership or any Subsidiary is self-insured or which are covered under any
risk retention program in which the Partnership or any Subsidiary participates.
(d) All material assets, properties and risks of the Partnership
and each Subsidiary are covered by valid and, except for policies that have
expired under their terms in the ordinary course, currently effective insurance
policies or binders of insurance (including, without limitation, general
liability insurance, property insurance and workers' compensation insurance)
issued in favor of the Partnership or a Subsidiary, as the case may be, in each
case with responsible insurance companies, in such types and amounts and
covering such risks as are consistent with customary practices and standards of
companies engaged in businesses and operations similar to those of the
Partnership or such Subsidiary, as the case may be.
(e) No insurance policy listed in Section 3.19(a) of the Sellers'
Disclosure Schedule will cease to be legal, valid, binding, enforceable in
accordance with its terms and
<PAGE> 36
31
in full force and effect on terms identical to those in effect as of the date
hereof as a result of the consummation of the transactions contemplated by this
Agreement.
SECTION 3.20. Brokers. Except for Lehman Brothers, the fees and
expenses of which will be paid by the Partnership prior to Closing, or by the
Sellers or the Parent Entities pro rata in proportion to their respective
Partnership Interests, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Sellers. Any amounts owing for services provided to the
Partnership by Lehman Brothers or any other Person in connection with the
transactions contemplated by this Agreement or any other transaction involving
the Partnership (including, without limitation, any other sale of the
Partnership or public offering of the Partnership) will be settled by the
Partnership prior to the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As an inducement to the Parent Entities, the Sellers and the
Partnership to enter into this Agreement, the Purchaser hereby represents and
warrants to the Parent Entities, Sellers and the Partnership as follows:
SECTION 4.01. Organization, Authority and Qualification of the
Purchaser. The Purchaser is a general partnership, and on or prior to the
Closing will be a corporation, duly organized and validly existing under the
laws of the State of Delaware and is duly licensed or qualified to do business
and is in good standing in each jurisdiction in which the properties owned or
leased by it or the operation of its business makes such licensing or
qualification necessary, except to the extent that the failure to be so licensed
or qualified would not adversely affect the ability of the Purchaser to carry
out its obligations under, and to consummate the transactions contemplated by,
this Agreement. The Purchaser has all necessary power and authority to enter
into this Agreement, to carry out its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by the Purchaser, the performance by the Purchaser of its obligations
hereunder and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all requisite action on its part. This
Agreement has been duly executed and delivered by the Purchaser and (assuming
due authorization, execution and delivery by the Parent Entities and the
Sellers) this Agreement constitutes a legal, valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally or by general principles of
equity.
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SECTION 4.02. No Conflict. Assuming compliance with the notification
requirements of the HSR Act and the making and obtaining of all filings,
notifications, consents, approvals, authorizations and other actions referred to
in Section 4.03, except as may result from any facts or circumstances relating
solely to the Sellers, the execution, delivery and performance of this Agreement
by the Purchaser do not and will not (a) violate, conflict with or result in the
breach of any provision of, in the case of the Purchaser's Partnership Agreement
(b) conflict with or violate any Law or Governmental Order applicable to the
Purchaser or (c) except for the Credit Agreement, dated as of July 3, 1996,
among the Purchaser, the banks parties thereto, the letter of credit issuing
banks named therein and Morgan Guaranty Trust Company of New York, as agent,
conflict with, or result in any breach of, constitute a default (or event which
with the giving of notice or lapse or time, or both, would become a default)
under, require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation, or cancellation of, or result
in the creation of any Encumbrance on any of the assets or properties of the
Purchaser pursuant to, any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other instrument or
arrangement to which the Purchaser is a party or by which any of such assets or
properties are bound or affected which would have a material adverse effect on
the ability of the Purchaser to consummate the transactions contemplated by this
Agreement.
SECTION 4.03. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by the Purchaser do not and will not
require any consent, approval, authorization or other order of, action by,
filing with, or notification to, any Governmental Authority, except (a) as
described in a writing given to the Sellers by the Purchaser on or prior to the
date of this Agreement and (b) the notification requirements of the HSR Act.
SECTION 4.04. Investment Purpose. The Purchaser is acquiring the
Partnership Interests solely for the purpose of investment and not with a view
to, or for offer or sale in connection with, any distribution thereof.
SECTION 4.05. Brokers. Except for J.P. Morgan, the fees and expenses
of which will be paid for by the Purchaser, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Purchaser.
ARTICLE V
ADDITIONAL AGREEMENTS
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SECTION 5.01. Conduct of Business Prior to the Closing. (a) Except
as described in Section 5.01(a) of the Sellers' Disclosure Schedule, between the
date hereof and the time of the Closing, the Partnership shall, and shall cause
each Subsidiary to, conduct its business in the ordinary course and consistent
with the Partnership's and such Subsidiary's prior practice. Without limiting
the generality of the foregoing, except as described in Section 5.01(a) of the
Sellers' Disclosure Schedule, as requested by the Purchaser, or as required to
accommodate changes in the Purchaser's business practices, the Partnership and
each Subsidiary shall (i) continue their advertising and promotional activities,
and pricing and purchasing policies, including capital purchasing, in accordance
with past practice; (ii) not shorten or lengthen the customary payment cycles
for any of their payables or receivables; (iii) use all reasonable efforts to
(A) preserve intact their business organizations, (B) keep available to the
Purchaser the services of the employees of the Partnership and each Subsidiary,
(C) continue in full force and effect without material modification all existing
policies or binders of insurance currently maintained in respect of the
Partnership, each Subsidiary and their respective businesses and (D) preserve
their current relationships with their customers, suppliers and other persons
with which they have significant business relationships; (iv) exercise, but only
after notice to the Purchaser and receipt of the Purchaser's prior written
approval, any rights of renewal pursuant to the terms of any of the material
leases or subleases which by their terms would otherwise expire; and (v) not
engage in any practice, take any action, fail to take any action or enter into
any transaction which could cause any representation or warranty of the Parent
Entities or the Sellers to be untrue or result in a breach of any covenant made
by the Parent Entities, the Sellers or the Partnership in this Agreement.
(b) Without limiting the generality of the foregoing, the
Partnership covenants and agrees that between the date hereof and the Closing
Date, (i) the Partnership will not, without the prior written consent of the
Purchaser, enter into any contract (other than with regard to the Partnership's
July 1997 trade show) with Premier relating to the provision by Premier to the
Partnership, or by the Partnership to Premier, of any services after the Closing
Date, and (ii) at least five Business Days prior to entering into any contract
pursuant to which the Partnership will be a provider or purchaser of services
relating to the Partnership's help desk or network outsourcing businesses, the
Partnership will provide reasonably detailed information concerning such
proposed contract to the Purchaser and will consult with the Purchaser and
discuss in good faith alternatives to entering into any such contract with the
Purchaser to the extent the Purchaser objects to such proposed contract.
(c) Except as described in Section 5.01(c) of the Sellers'
Disclosure Schedule, the Partnership covenants and agrees that, prior to the
Closing, without the prior written consent of the Purchaser, neither the
Partnership nor any Subsidiary will take any of the actions enumerated in the
second sentence of Section 3.08 (including, without limitation, clauses (i)
through (xix) thereof); provided, however, that if the Partnership or any
Subsidiary desires to take any of the actions enumerated in Section 3.08(v) in
response to
<PAGE> 39
34
general industry conditions, the Partnership shall provide written notice of the
proposed actions to the Purchaser and the Purchaser shall respond to such
written notice not more than two Business Days after the receipt thereof.
SECTION 5.02. Access to Information. (a) From the date hereof until
the Closing, upon reasonable notice, the Partnership shall, and the Partnership
shall cause each of the Subsidiaries and each of the Partnership's and the
Subsidiaries' officers, directors, employees, agents, representatives,
accountants and counsel to: (i) afford the officers, employees and authorized
agents, accountants, counsel, underwriters, financing sources and
representatives of the Purchaser reasonable access, during normal business
hours, to the offices, properties, plants, other facilities, books and records
of the Partnership and each Subsidiary (including access to the Partnership's
1996 financial audit work papers) and to those officers, directors, employees,
agents, accountants and counsel of the Partnership and of each Subsidiary who
have any knowledge relating to the Partnership, any Subsidiary or their
respective businesses and (ii) furnish to the officers, employees and authorized
agents, accountants, counsel, underwriters, financing sources and
representatives of the Purchaser such additional financial and operating data
and other information regarding the assets, properties and goodwill of the
Partnership (excluding any Returns or other Tax information of the Parent
Entities or the Sellers), the Subsidiaries and their respective businesses (or
legible copies thereof) as the Purchaser may from time to time reasonably
request, including, without limitation, any financial information or other
information that will be required in connection with the IPO.
(b) In order to facilitate the resolution of any claims made against
or incurred by the Sellers prior to the Closing, for a period of seven years
after the Closing, the Purchaser shall (i) retain the books and records of the
Partnership and the Subsidiaries relating to periods prior to the Closing in a
manner reasonably consistent with the prior practice of the Partnership and the
Subsidiaries; provided, however, that any Tax-related books and records shall be
maintained for a period of ten years after the Closing Date, and prior to
disposal thereof the Purchaser shall contact the Parent Entities and offer to
provide them with copies of any such books and records subject to reimbursement
of reasonable expenses; and (ii) upon reasonable notice, afford the officers,
employees and authorized agents and representatives of the Sellers reasonable
access (including the right to make, at the Sellers' expense, photocopies),
during normal business hours, to such books and records.
(c) In order to facilitate the resolution of any claims made by or
against or incurred by the Purchaser, the Partnership or any Subsidiary after
the Closing or for any other reasonable purpose, for a period of seven years
following the Closing, the Parent Entities and the Sellers shall (i) retain the
books and records of the Sellers which relate to the Partnership and the
Subsidiaries and their operations for periods prior to the Closing and which
shall not otherwise have been delivered to the Purchaser, the Partnership or any
Subsidiary; provided, however, that any Tax-related books and records shall be
maintained
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35
for a period of ten years after the Closing Date, and prior to disposal thereof
the Parent Entities or the Sellers, as the case may be, shall contact the
Purchaser and offer to provide it with copies of any such books and records
subject to reimbursement of reasonable expenses; and (ii) upon reasonable
notice, afford the officers, employees and authorized agents and representatives
of the Purchaser, the Partnership or any Subsidiary reasonable access (including
the right to make photocopies, at the expense of the Purchaser, the Partnership
or such Subsidiary), during normal business hours, to such books and records.
SECTION 5.03. Confidentiality. (a) Except to the extent of any
disclosure required (after consultation with the Parent Entities and after
seeking appropriate confidential treatment) to be made in the Purchaser's
registration statement on Form S-1 (including in any exhibits thereto) filed
with the Securities and Exchange Commission (the "SEC") in connection with the
IPO or in any future filings made with the SEC or other regulatory authorities,
and except as reasonably required by the underwriters in connection with the
IPO, the parties shall comply with, and shall cause their respective
representatives and agents to comply with all of their respective obligations
under the Non-Disclosure Agreement, dated as of May 1, 1996, between the
Partnership and the Purchaser (the "Non-Disclosure Agreement"), until the
Closing, at which time such Non-Disclosure Agreement and the obligations of the
Purchaser and the Partnership thereunder shall terminate. If this Agreement is,
for any reason, terminated prior to the Closing, the Non-Disclosure Agreement
shall continue in full force and effect.
(b) Each of the Sellers, the Parent Entities and the Partnership
separately agrees for itself to, and shall cause its agents, representatives and
Affiliates to: (i) treat, hold as confidential and (in the case of the Sellers
and the Parent Entities) not exploit for its benefit or the benefit of other
relationships with any of its customers (and not disclose or provide access to
any Person to) all information relating to the Partnership's or the
Subsidiaries' products, customers, assets, plans, business, finances and
technological developments and programs, (ii) in the event that the Sellers, the
Parent Entities or the Partnership or any such agent, representative or
Affiliate becomes legally compelled to disclose any such information, provide
the Purchaser with prompt written notice of such requirement so that the
Purchaser or the Partnership may seek a protective order or other remedy or
waive compliance with this Section 5.03(b), and (iii) in the event that such
protective order or other remedy is not obtained, or the Purchaser waives
compliance with this Section 5.03(b), furnish only that portion of such
confidential information which is legally required to be provided and exercise
their best efforts to obtain assurances that confidential treatment will be
accorded such information; provided, however, that this sentence shall not apply
to any information that, at the time of disclosure, is available publicly and
was not disclosed in breach of this Agreement by the Sellers, the Parent
Entities, the Partnership, their agents, representatives or Affiliates; provided
further that, with respect to Partnership Intellectual Property, specific
information shall not be deemed to
<PAGE> 41
36
be within the foregoing exception merely because it is embraced in general
disclosures in the public domain.
SECTION 5.04. Regulatory and Other Authorizations; Notices and
Consents. (a) Each party shall for itself use all reasonable efforts to obtain
(or, in the case of each of the Parent Entities and the Sellers separately,
cause the Partnership and the Subsidiaries to obtain) all authorizations,
consents, orders and approvals of all Governmental Authorities and officials
that may be or become necessary for their execution and delivery of, and the
performance of their obligations pursuant to, this Agreement and will cooperate
fully promptly seeking to obtain all such authorizations, consents, orders and
approvals. Each party hereto agrees for itself to supply as promptly as
practicable to the appropriate Governmental Authorities any additional
information and documentary material that may be requested pursuant to the HSR
Act.1 Without limiting the generality of the foregoing, each party hereto will
(i) use all reasonable efforts to prevent the entry in a judicial or
administrative proceeding brought under any antitrust law of any preliminary
injunction or other order that would make consummation of the transactions
contemplated hereby unlawful or would prevent or delay such consummation; and
(ii) take promptly, in the event that such an injunction or order has been
issued in such a proceeding, all steps necessary to prosecute an appeal of such
an injunction or order, and diligently prosecute such appeal.
(b) The Parent Entities and the Sellers shall or shall cause the
Partnership and the Subsidiaries to give promptly such notices to third parties
and use all reasonable efforts to obtain such third party consents and estoppel
certificates as the Purchaser may deem necessary or desirable in connection with
the transactions contemplated by this Agreement.
(c) The Purchaser shall cooperate and use all reasonable efforts to
assist the Partnership in giving such notices and obtaining such consents and
estoppel certificates; provided, however, that neither the Purchaser nor the
Parent Entities or Sellers shall have any obligation to give any guarantee or
other consideration of any nature in connection with any such notice, consent or
estoppel certificate or to consent to any change in the terms of any agreement
or arrangement which the Purchaser may deem adverse to the interests of the
Purchaser, the Partnership, any Subsidiary or their respective businesses.
(d) None of the Purchaser, the Parent Entities or the Sellers knows
of any reason why all the consents, approvals and authorizations necessary for
the consummation of the transactions contemplated hereby will not be received.
- --------
1 Assumes that all necessary filings under the HSR Act will have been made
prior to the execution of this Agreement.
<PAGE> 42
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SECTION 5.05. Notice of Developments. (a) Prior to the Closing, the
Partnership and each Parent Entity and Seller shall promptly notify the
Purchaser in writing of all events, circumstances, facts and occurrences arising
subsequent to the date of this Agreement which could result in any breach of a
representation or warranty or covenant of such Parent Entity or Seller in this
Agreement, or could result in any breach of a covenant of the Partnership in
this Agreement, or which could have the effect of making any representation or
warranty of such Parent Entity or Seller in this Agreement untrue or incorrect
in any material respect.
(b) Prior to the Closing, the Purchaser shall promptly notify the
Parent Entities and the Sellers in writing of all events, circumstances, facts
and occurrences arising subsequent to the date of this Agreement which could
result in any breach of a representation or warranty or covenant of the
Purchaser in this Agreement or which could have the effect of making any
representation or warranty of the Purchaser untrue or incorrect in any material
respect.
SECTION 5.06. No Solicitation of Employees. (a) Each Parent Entity
and Seller severally agrees for itself that it shall not, and each shall cause
each of its Affiliates not to, during the period from the date hereof until
Closing and, if the Closing occurs, for a period of two years from the Closing,
without the prior written consent of the Purchaser, directly or indirectly,
solicit on a specific or targeted basis for employment or employ any person who
is an employee of the Partnership or any Subsidiary, provided that this Section
5.06(a) shall not prohibit any form of employment advertising or prevent the
hiring of any individual who contacts the Parent Entity or Seller or any of
their Affiliates.
(b) The Purchaser agrees that it shall not, during the period from
the date hereof until Closing and, if the Closing occurs, for a period of two
years from the Closing, without the prior written consent of United, directly or
indirectly, solicit on a specific or targeted basis for employment or employ any
person who is an employee of United's information systems division, provided
that this Section 5.06(b) shall not prohibit any form of employment advertising
or prevent the hiring of any individual who contacts the Purchaser.
SECTION 5.07. Use of Intellectual Property. (a) The Sellers
acknowledge that from and after the Closing the name "Apollo Travel Services"
and all similar or related names, marks and logos (all of such names, marks and
logos being the "ATS Names") shall be owned by the Partnership or a Subsidiary,
that (except as provided in Section 5.07(b)) neither the Sellers nor any of
their Affiliates shall have any rights in the ATS Names, and that none of the
Sellers nor any of their Affiliates will contest the ownership or validity of
any rights of the Purchaser, the Partnership or any Subsidiary in or to the ATS
Names.
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38
(b) Except as expressly agreed in writing by the Purchaser or
pursuant to any agreements and licenses between the Purchaser and the Sellers,
or the Partnership and the Purchaser or any of its Affiliates, from and after
the Closing, neither the Sellers nor any of their Affiliates shall use any of
the Partnership Intellectual Property.
SECTION 5.08. Monthly Financial Statements. Between the date hereof
and the Closing, promptly following the end of each calendar month, but in no
event later than 15 days following the end of each calendar month, the
Partnership will prepare, or cause to be prepared, and will promptly provide to
the Purchaser, a consolidated balance sheet of the Partnership and the
Subsidiaries as of the end of the preceding calendar month and statements of
consolidated income of the Partnership and the Subsidiaries for the preceding
calendar month. Such monthly financial statements shall be prepared in
accordance with past practice.
SECTION 5.09. Premier Travel Services, L.L.C.. Attached as Exhibit
5.09 hereto is a complete and correct list of the assets and liabilities of
Premier Travel Services, L.L.C. or any business of the Partnership related
thereto ("Premier") and of the employees of the Partnership who will be
transferred with Premier on or prior to the Closing Date. On or prior to the
Closing Date, all of the equity interests in Premier shall be transferred by the
Partnership to a Person other than the Partnership or any Subsidiary thereof.
SECTION 5.10. Pre-Closing Balance Sheet. No fewer than five Business
Days prior to the Closing Date, the Partnership shall prepare an unaudited
consolidated balance sheet of the Partnership and the Subsidiaries in accordance
with this Section 5.10 (the "Pre-Closing Balance Sheet"). In the event that the
Closing is scheduled to occur after the fifteenth day of any particular calendar
month, the Pre-Closing Balance Sheet shall be prepared as of the last day of the
immediately preceding calendar month. If the Closing is scheduled to occur on or
prior to the fifteenth day of any particular calendar month, the Pre-Closing
Balance Sheet shall be prepared as of the last day of the second preceding
calendar month. The Pre-Closing Balance Sheet shall be prepared in accordance
with U.S. GAAP applied on a basis consistent with the preparation of the Net
Asset Test Reference Balance Sheet and shall exclude (i) any indebtedness for
borrowed money of the Partnership and the Subsidiaries, (ii) any cash or cash
equivalents, other than cash in the amount of any checks outstanding, and (iii)
the assets and liabilities of Premier. During the preparation of the Pre-Closing
Balance Sheet and during the period of any review by the Purchaser and its
representatives of the Pre-Closing Balance Sheet, the Partnership shall provide,
and the Parent Entities and the Sellers shall cause the Partnership and the
Subsidiaries and their respective officers, employees and agents to provide,
full access to the books, records, facilities and employees of the Partnership
and the Subsidiaries, in each case to the extent required by the Purchaser and
its representatives in order to monitor the preparation of, and review, the
Pre-Closing Balance Sheet.
<PAGE> 44
39
SECTION 5.11. Environmental Audit. Prior to the Closing Date, the
Purchaser and the Partnership shall conduct, or cause to be conducted, an
investigation of the underground storage tank located on the Partnership's
premises in Atlanta, Georgia (the "Environmental Audit"). The costs and expenses
of the Environmental Audit shall be borne equally by the Purchaser, on the one
hand, and the Sellers (pro rata in proportion to their respective Partnership
Interests), on the other. During the preparation of the Environmental Audit, the
Partnership shall provide, and the Parent Entities and the Sellers shall cause
the Partnership and the Subsidiaries and their respective officers, employees
and agents to provide, full access to the books, records, facilities and
employees of the Partnership and the Subsidiaries, in each case to the extent
required by the Purchaser and the Persons conducting the Environmental Audit in
order to prepare the Environmental Audit.
SECTION 5.12. Employees and Employee Benefits. From and after the
Closing Date, the Purchaser shall grant all employees of the Partnership and the
Subsidiaries credit for all service (to the same extent as service with the
Purchaser or any subsidiary of the Purchaser is taken into account with respect
to similarly situated employees of the Purchaser and the subsidiaries of the
Purchaser) with the Partnership and any Subsidiary and their respective
predecessors (including, without limitation, United and Covia Partnership) prior
to the Closing Date for all purposes as if such service with the Partnership or
any Subsidiary or predecessor was service with the Purchaser or any subsidiary
of the Purchaser (provided, however, that no such past service credit shall be
granted to the extent it would result in duplicative accrual of benefits for the
same period of service), and, with respect to any medical or dental benefit
plan, the Purchaser shall waive any pre-existing condition exclusions and
actively-at-work requirements (provided, however, that no such waiver shall
apply to a pre-existing condition of any employee of the Partnership or any
Subsidiary who was, as of the Closing Date, excluded from participation in a
Plan by virtue of such pre-existing condition) and provide that any covered
expenses incurred on or before the Closing Date by an employee or an employee's
covered dependent shall be taken into account for purposes of satisfying
applicable deductible, coinsurance and maximum out-of-pocket provisions after
the Closing Date to the same extent as such expenses are taken into account for
the benefit of similarly situated employees of the Purchaser and subsidiaries of
the Purchaser. The Purchaser shall provide or shall cause the Partnership and
each Subsidiary to provide benefits to any employee of the Partnership and each
Subsidiary which are not less favorable in the aggregate than the benefits
provided to similarly situated employees of the Purchaser and subsidiaries of
the Purchaser, excluding flight benefits; provided, however, that nothing in
this Section 5.12 shall require the Purchaser to provide benefits to any such
employee that are more favorable than the benefits provided or proposed to be
provided to such employee by the Partnership or any Subsidiary immediately prior
to the Closing Date.
SECTION 5.13. Further Action. Each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate action, do
or cause to be done all things necessary, proper or advisable under applicable
Law, and execute and deliver such
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documents and other papers, as may be required to carry out the provisions of
this Agreement and consummate and make effective the transactions contemplated
by this Agreement.
ARTICLE VI
TAX MATTERS
SECTION 6.01. Tax Indemnity. (a) Except to the extent of Ordinary
Course Taxes with respect to sales and use tax audit settlements, the Other Tax
Audit Reserve and, with respect to the open sales tax audits as of April 30,
1997 for which specific reserves of $1.8 million have been established (the
"Sales Tax Audit Reserve"), the Sales Tax Audit Reserve, the Partnership and the
Purchaser and its Affiliates, officers, directors, employees, agents, successors
and assigns (each an "Indemnified Party") shall be indemnified and held harmless
by the Parent Entities and Sellers, on a several basis, for any and all Losses
arising out of or resulting from:
(i) the breach of any representation or warranty made in Section
3.18; or
(ii) Liabilities of the Partnership or any Subsidiary for Taxes with
respect to the period before the Closing Date; provided, however, that
such indemnity shall be reduced by any Tax Benefit to the Purchaser or any
Affiliate of the Purchaser with respect to such Losses or Liabilities or
the items or adjustments resulting in such Losses or Liabilities;
provided, further, that amounts under clause (i) and clause (ii) shall be
without duplication of the amount provided for under the other clause.
To the extent that any of the Parent Entities and the Sellers' undertakings set
forth in this Section 6.01 may be unenforceable, each of the Parent Entities and
the Sellers shall contribute the maximum amount that it is permitted to
contribute under applicable law to the payment and satisfaction of all Losses
incurred by the Indemnified Parties.
(b) The Sellers and the Purchaser agree to treat all payments made
under this Article VI and all indemnification payments made under Article VIII
of this Agreement as adjustments to the Purchase Price for Tax purposes except
to the extent that the laws of a particular jurisdiction provide otherwise.
(c) The obligation of each Parent Entity and its Affiliate Seller
with respect to any indemnification payment under this Section 6.01 shall be
limited to such Affiliate Seller's pro rata share (in accordance with its
Partnership Interest in the Partnership) of the amount of such indemnification
payment under this Section 6.01.
<PAGE> 46
41
SECTION 6.02. Apportionment of Taxes. (a) For purposes of Section
6.01, Taxes with respect to the period before the Closing Date shall mean: (i)
Taxes imposed on the Partnership or any Subsidiary with respect to taxable
periods of such person ending on or before the Closing Date; and (ii) with
respect to taxable periods beginning before the Closing Date and ending after
the Closing Date, Taxes imposed on the Partnership or any Subsidiary which are
allocable, pursuant to Section 6.02(b), to the portion of such period ending on
the Closing Date.
(b) In the case of Taxes that are payable with respect to a taxable
period that begins before the Closing Date and ends after the Closing Date, the
portion of any such Tax that is allocable to the portion of the period ending on
the Closing Date shall be:
(i) in the case of Taxes that are either (x) based upon or related
to income or receipts, or (y) imposed in connection with any sale or other
transfer or assignment of property (real or personal, tangible or
intangible) (other than conveyances pursuant to this Agreement, which are
governed by Section 6.07), deemed equal to the amount which would be
payable if the taxable year ended with the Closing Date; and
(ii) in the case of Taxes imposed on a periodic basis with respect
to the assets of the Partnership, or otherwise measured by the level of
any item, deemed to be the amount of such Taxes for the entire period (or,
in the case of such Taxes determined on an arrears basis, the amount of
such Taxes for the immediately preceding period) multiplied by a fraction
the numerator of which is the number of calendar days in the period ending
on the Closing Date and the denominator of which is the number of calendar
days in the entire period.
SECTION 6.03. Returns and Payments. (a) From the date of this
Agreement through and after the Closing Date, the Sellers shall prepare and file
or otherwise furnish in proper form to the appropriate Tax Authority (or cause
to be prepared and filed or so furnished) in a timely manner all Returns
relating to the Partnership and the Subsidiaries that are due on or before the
Closing Date. The Sellers shall pay or cause the Partnership to pay Taxes prior
to the Closing Date in such amounts and at such times as are consistent with
past practices employed with respect to the Partnership and the Subsidiaries. In
the event that the Closing Date does not occur prior to the due date (including
any extension thereof) for the filing of the Federal, state or local Partnership
income tax returns for the Partnership's 1996 taxable year, the Sellers will
provide the Purchaser and its authorized representative a copy of such completed
returns at least 10 Business Days prior to the earlier of the due date
(including any extension thereof) for the filing of such returns or the date of
filing. The Purchaser shall prepare and file or otherwise furnish in proper form
to the appropriate Tax authority (or cause to be prepared and filed or so
furnished) in a timely manner all Returns relating to the Partnership and the
Subsidiaries that are due after the Closing Date. With respect to Returns filed
by the Purchaser for any period ending on or before the Closing
<PAGE> 47
42
Date, the Purchaser shall pay the Taxes shown as due and owing on such Returns.
Returns of the Partnership and the Subsidiaries prepared by the Sellers and not
yet filed for any taxable period that ends on or before the Closing Date shall
be prepared in a manner consistent with past practices employed with respect to
the Partnership and the Subsidiaries (except to the extent counsel for the
Sellers renders a legal opinion that there is no reasonable basis in law
therefore or determines that a Return cannot be so prepared and filed without
being subject to penalties).
(b) With respect to Returns filed by the Purchaser for any period
beginning before and ending after the Closing Date, the Purchaser shall pay the
Taxes shown as due and owing on such Returns. The Purchaser will notify the
Sellers of any position it will take on a Return which would be inconsistent
with that taken by the Sellers on prior Returns. If the Purchaser and the
Sellers disagree on the position taken and the position would in any way alter
the balance of Taxes owing or Tax refunds or credits obtainable with respect to
(i) any Tax period of the Partnership or the Subsidiaries ending on or prior to
the Closing Date or (ii) in the case of Tax refunds or credits, any period up to
and including the Closing Date which is part of a Tax period of the Partnership
or the Subsidiaries beginning prior to and ending after the Closing Date, then
the parties shall submit the matter to a mutually selected independent
nationally recognized accounting firm, other than KPMG Peat Marwick and its
affiliates and Arthur Andersen and its affiliates (the "Independent Firm"), and
the Independent Firm shall resolve the issue based on a standard of maximal
fairness to both the Purchaser and the Sellers.
(c) With respect to any Return required to be filed by the Purchaser
with respect to the Partnership and the Subsidiaries and as to which an amount
of Tax is allocable to the Sellers under Section 6.02(b), the Purchaser shall
provide the Sellers and their authorized representatives with a copy of such
completed Return and a statement certifying the amount of Tax shown on such
Return that is allocable to the Sellers pursuant to Section 6.02(b), together
with appropriate supporting information and schedules at least 10 Business Days
prior to the due date (including any extension thereof) for the filing of such
Return, in the case of Taxes other than payroll and sales and use Taxes, or five
(5) days prior to the date on which such Return is required to be filed (taking
into account any extensions) in the case of payroll and sales and use Taxes, and
the Sellers and their authorized representatives shall have the right to review
and comment on such Return and statement prior to the filing of such Return.
(d) The sum of the Purchase Price and any Partnership Liabilities
that are part of the Purchaser's Federal income tax basis for its partnership
interest shall be allocated among the assets as of the Closing Date in
accordance with a schedule to be mutually agreed upon by the Purchaser and the
Sellers within 90 days following the Closing Date (the "Purchase Price
Allocation Schedule"). If the Purchaser and the Sellers cannot agree on the
Purchase Price Allocation Schedule, then the parties shall submit the matter to
the
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Independent Firm, and the Independent Firm shall resolve the issue based on a
standard of maximal fairness to both the Purchaser and the Sellers. Any
subsequent adjustments to the sum of the Purchase Price and such Partnership
Liabilities shall be reflected in the allocation in a manner consistent with
Treas. Reg. 1.1060-1T(f). For all Tax purposes (including, without limitation,
the Purchaser's statement filed pursuant to Treas. Reg. 1.743-1(b)(3)), the
Purchaser and the Seller agree to report the transactions contemplated in this
Agreement in a manner consistent with the Purchase Price Allocation Schedule and
agree that none of them will take any position inconsistent therewith in any Tax
return, in any refund claim, in any litigation, or otherwise.
SECTION 6.04. Contests. (a) After the Closing, the Purchaser shall
promptly notify the Sellers in writing of any written notice of a proposed
assessment or claim in an audit or administrative or judicial proceeding of the
Purchaser or of any of the Partnership and the Subsidiaries which, if determined
adversely to the taxpayer, would be grounds for indemnification under this
Article VI or could otherwise result in any Tax cost to any of the Sellers;
provided, however, that a failure to give such notice will not affect the
Purchaser's right to indemnification under this Article VI except to the extent
such failure on the part of the Purchaser or any Affiliate of the Purchaser
prejudices the Sellers by preventing the avoidance of all or a portion of the
Tax liability in question.
(b) In the case of an audit or administrative or judicial proceeding
that relates to periods ending on or before the Closing Date, provided that the
Sellers acknowledge in writing their indemnification obligation liability under
Article VI of this Agreement with respect to the potential liability of the
Purchaser, the Partnership or any Subsidiary as a result of such audit or
administrative or judicial proceeding, the Sellers (or the Parent Entities, as
the case may be) shall have the right, at their expense, to participate in and
control the conduct of such audit or proceeding; the Purchaser may also
participate in any such audit or proceeding but only if such audit or proceeding
relates to non-income Taxes and, if the Sellers do not assume the defense of any
such audit or proceeding, the Purchaser, at its expense, may defend the same in
such manner as it may deem appropriate, including, but not limited to, settling
such audit or proceeding after giving five days' prior written notice to the
Sellers setting forth the terms and conditions of settlement. In the event that
issues relating to a potential adjustment for which the Sellers have
acknowledged their indemnification obligation are required to be dealt with in
the same proceeding as separate issues relating to a potential adjustment for
which the Purchaser would be liable, the Purchaser shall have the right, at its
expense, to control the audit or proceeding with respect to the latter issues,
provided that the Purchaser provides the Sellers with a written acknowledgement
of the Purchaser's liability.
(c) Notwithstanding Section 6.04(b), neither the Purchaser nor the
Sellers shall enter into any compromise or agree to settle any claim pursuant to
any Tax audit or proceeding, including without limitation a Federal, state or
local income Tax audit or
<PAGE> 49
44
proceeding to the extent it involves Partnership items, which would adversely
affect the other party for such year or any prior or subsequent year without the
written consent of the other party which consent may not be unreasonably
withheld. If the Purchaser or the Sellers refuse to provide the respective other
party with written consent to settle any such claim, then the parties shall
submit the matter to an Independent Firm and the Independent Firm shall resolve
the issue based on a standard of maximal fairness to both the Purchaser and the
Sellers.
(d) The Purchaser and the Sellers (or the Parent Entities, as the
case may be) shall cooperate fully, as and to the extent reasonably requested by
the other party, in connection with (i) the filing of Returns pursuant to
Section 6.03 (including such amended Returns for periods (or portions thereof)
ending on or prior to the Closing Date that the Sellers or the Parent Entities
may reasonably request the Purchaser to file; provided, however, that if in the
Purchaser's reasonable judgment the filing of the amended return would be
disadvantageous to the Purchaser, the Purchaser may deny the Sellers' or the
Parent Entities' request and the parties shall submit the matter to an
Independent Firm and the Independent Firm shall resolve the issue based on a
standard of maximal fairness to both the Purchaser and the Sellers or the Parent
Entities, as the case may be]) and (ii) any audit, litigation or other
proceeding with respect to Taxes.
SECTION 6.05. Survival of Obligations. Notwithstanding any provision
in this Agreement to the contrary, obligations of the Parent Entities and the
Sellers to indemnify and hold harmless the Indemnified Parties pursuant to this
Article VI, and the representations and warranties contained in Section 3.18,
shall terminate at the close of business on the 180th day following the
expiration of the applicable statute of limitations with respect to the Tax
liabilities in question (giving effect to any waiver, mitigation or extension
thereof).
SECTION 6.06. Section 754 Elections. If and only if requested by
Purchaser, the Sellers and the Parent Entities shall cause any Subsidiary (other
than Premier) which is the subject of such request to make the election
described in Section 754 of the Code for such Subsidiary's taxable year which
ends on or includes the Closing Date.
SECTION 6.07. Conveyance Taxes. The Sellers and the Parent Entities
on the one hand and the Purchaser on the other hand shall share equally any
liability for any real property transfer or gains, sales, use, transfer, value
added, stock transfer, and stamp taxes, any transfer, recording, registration,
and other fees, and any similar Taxes (but specifically not including Taxes on
or with respect to income) that become payable in connection with the
transactions contemplated by this Agreement. The Partnership shall prepare in a
timely manner for the review and approval of the parties and file such
applications and documents as shall permit any such Tax to be assessed and paid
on or prior to the Closing Date in accordance with any available presale filing
procedure. The parties
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45
shall execute and deliver all instruments and certificates necessary to enable
the Partnership to comply with the foregoing.
SECTION 6.08. Tax Refunds, Credits and Other Payments. (a) The
Purchaser shall, within 10 days of receipt of any Tax refund or credit actually
received by or on behalf of the Purchaser or any Affiliate or successor thereto
(other than a refund or credit with respect to Taxes paid by the Purchaser or
any Affiliate or successor thereto on or after the Closing Date and not
previously indemnified by the Parent Entities or the Sellers pursuant to Section
6.01(a)) (A) for or attributable to any Tax period of the Partnership or any
Subsidiary ending at or prior to the Closing Date or (B) for or attributable to
any period up to and including the Closing Date which is part of a Tax period of
the Partnership or any Subsidiaries beginning prior to and ending after the
Closing Date, pay such Tax refund or credit (a "Returnable Refund or Credit") on
an After-Tax Basis and net of amounts payable under Section 6.08(c) hereof to
the Sellers (including any interest or addition actually received thereon). If
the amount of any Returnable Refund or Credit is applied against any other
liability of any of the Purchaser or any Affiliate or successor thereto for
Taxes for any Tax period after the Closing Date, the Purchaser shall, within 10
days of the date of such application, pay to the Sellers an amount equal to the
Returnable Refund or Credit on an After-Tax Basis and net of amounts payable
under Section 6.08(c) hereof (including any interest or addition actually
received thereon). The Purchaser shall deliver with payment to the Sellers a
copy of any written explanation of the facts surrounding the Returnable Refund
or Credit and a copy of any related notice or statement received from any Tax
authority.
(b) To the extent that the Purchaser or any Affiliate or successor
thereto receives a Tax Benefit that is attributable to an adjustment of any
income, gain, loss, deduction, credit, refund or other Tax item made with
respect to any Tax period of the Partnership or any Subsidiary ending on or
prior to the Closing Date or any period beginning before and ending on the
Closing Date which is part of a Tax period of the Partnership or any Subsidiary
beginning before and ending after the Closing Date and in connection therewith
the Sellers or the Parent Entities or any Affiliate or successor thereto suffer
a Loss, the Purchaser will, within 10 days of the receipt of such Tax Benefit by
the Purchaser, or any Affiliate or successor thereto, pay to the Sellers their
respective share, in proportion to their respective Partnership interests, of an
amount equal to the lesser of the amount of the Tax Benefit or the Loss.
(c) Without duplication of any amounts paid to the Purchaser
pursuant to Section 6.01, to the extent that the Seller receives a Tax Benefit
that is attributable to an adjustment of any income, gain, loss, deduction,
credit, refund or other Tax item made with respect to any Tax period of the
Partnership or any Subsidiary ending on or before the Closing Date or any period
ending on or before the Closing Date which is part of a Tax period of the
Partnership or any Subsidiary beginning before and ending after the Closing Date
and in connection therewith the Purchaser or any Affiliate or successor thereto
suffers a
<PAGE> 51
46
Loss, the Seller will, within 10 days of the receipt of such Tax Benefit by the
Seller, pay to the Purchaser an amount equal to the lesser of the amount of the
Tax Benefit or the Loss.
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.01. Conditions to Obligations of the Parent Entities, the
Sellers and the Partnership. The obligations of the Parent Entities, the Sellers
and the Partnership to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Purchaser contained in this Agreement shall have been true
and correct in all material respects when made and shall be true and correct in
all material respects as of the Closing, with the same force and effect as if
made as of the Closing Date, other than such representations and warranties as
are made as of another date, which shall be true and correct in all material
respects as of such date (provided, however, if any portion of any
representation or warranty is already qualified by materiality, for purposes of
determining whether this Section 7.01(a) has been satisfied with respect to such
portion of such representation or warranty, such portion of such representation
or warranty as so qualified must be true and correct in all respects), and the
covenants and agreements contained in this Agreement to be complied with by the
Purchaser on or before the Closing shall have been complied with in all material
respects, and the Sellers shall have received a certificate from the Purchaser
to such effect signed by a duly authorized officer thereof;
(b) HSR Act. Any waiting period (and any extension thereof) under
the HSR Act applicable to the purchase of the Partnership Interests contemplated
hereby shall have expired or shall have been terminated;
(c) No Proceeding or Litigation. No Action shall have been commenced
by or before any Governmental Authority against any of the Parent Entities, the
Sellers, the Partnership or the Purchaser, seeking to restrain or prevent the
consummation of the transactions contemplated by this Agreement; provided,
however, that the provisions of this Section 7.01(c) shall not apply if the
Parent Entities, the Sellers, the Partnership or any Affiliate thereof have
directly or indirectly solicited or encouraged any such Action;
(d) Resolutions. The Sellers shall have received a true and complete
copy, certified by the Secretary of the Purchaser, of the resolutions of the
Purchaser's Supervisory Board evidencing its authorization of the consummation
of the transactions contemplated hereby;
<PAGE> 52
47
(e) Incumbency Certificate. The Sellers shall have received a
certificate of the Secretary of the Purchaser certifying the names and
signatures of the officers of the Purchaser authorized to sign this Agreement
and the other documents to be delivered hereunder;
(f) Escrow Agreement. The Purchaser shall have duly executed and
delivered the Escrow Agreement in substantially the form of Exhibit 2.04(f)
hereto;
(g) Consummation of Transactions Contemplated by Transaction
Agreement. The transactions contemplated by the Transaction Agreement, a form of
which is attached as Exhibit 7.01(g) hereto (the "Transaction Agreement"), shall
have been consummated; and
(h) Completion of the IPO. The IPO shall have been consummated.
SECTION 7.02. Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Parent Entities and the Sellers contained in this
Agreement shall have been true and correct in all material respects when made
and shall be true and correct in all material respects as of the Closing with
the same force and effect as if made as of the Closing, other than such
representations and warranties as are made as of another date, which shall be
true and correct in all material respects as of such date (provided, however,
that the representations and warranties contained in Section 3.03 will be true
and correct in all respects and that if any portion of any representation or
warranty is already qualified by materiality, for purposes of determining
whether this Section 7.02(a) has been satisfied with respect to such portion of
such representation or warranty, such portion of such representation or warranty
as so qualified must be true and correct in all respects), and the covenants and
agreements contained in this Agreement to be complied with by the Parent
Entities, the Sellers and the Partnership on or before the Closing shall have
been complied with in all material respects, and the Purchaser shall have
received certificates from each of the Parent Entities and Sellers and from the
Partnership to such effect (relating solely to such Persons) signed by a duly
authorized officer thereof;
(b) HSR Act. Any waiting period (and any extension thereof) under
the HSR Act applicable to the purchase of the Partnership Interests contemplated
hereby shall have expired or shall have been terminated;
(c) No Proceeding or Litigation. No Action shall have been commenced
or threatened by or before any Governmental Authority against any of the Parent
Entities, the
<PAGE> 53
48
Sellers, the Partnership or the Purchaser, seeking to restrain or prevent the
consummation of the transactions contemplated hereby; provided, however, that
the provisions of this Section 7.02(c) shall not apply if the Purchaser has
solicited or encouraged any such Action;
(d) Resolutions of the Sellers, the Parent Entities and the
Partnership. The Purchaser shall have received a true and complete copy,
certified by the Secretary or an Assistant Secretary of each of the Sellers, the
Parent Entities and the Partnership, of the resolutions duly and validly adopted
by the Board of Directors of each of the Sellers and the Parent Entities and the
Supervisory Board of the Partnership evidencing their authorization of the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby;
(e) Incumbency Certificate of the Sellers, the Partnership and the
Parent Entities. The Purchaser shall have received certificates of the Secretary
or an Assistant Secretary of each of the Parent Entities, the Sellers and the
Partnership certifying the names and signatures of the officers of each of the
Parent Entities, the Sellers and the Partnership authorized to sign this
Agreement and the other documents to be delivered hereunder;
(f) Consents and Approvals. The Purchaser and the Sellers shall have
received, each in form and substance satisfactory to the Purchaser, all
authorizations, consents, orders and approvals of all Governmental Authorities
and officials and all third party consents and estoppel certificates set forth
on Schedule 7.02(f);
(g) Good Standing; Qualification to Do Business. The Purchaser shall
have received good standing certificates for the Partnership and for each
Subsidiary from the secretary of state of the jurisdiction in which each such
entity is organized dated as of a date not earlier than five Business Days prior
to the Closing Date and accompanied by bring-down telegrams dated the Closing
Date;
(h) Financing. The Purchaser shall have obtained financing on terms
acceptable to it sufficient to enable it to consummate the transactions
contemplated by this Agreement;
(i) Completion of the IPO. The IPO shall have been consummated;
(j) No Material Adverse Effect. No event or events shall have
occurred, or be reasonably likely to occur, which have, or are reasonably likely
to have, a Material Adverse Effect;
(k) No Debt. The Partnership shall have no indebtedness for borrowed
money as of the Closing Date;
<PAGE> 54
49
(l) United Network Services Agreement. All necessary actions shall
have been taken by the Partnership to ensure that the Network Services
Agreement, dated as of September 16, 1993, between the Partnership and United
will remain in full force and effect after the Closing;
(m) Net Asset Test. The Net Assets reflected on the Seasonally
Adjusted Net Asset Test Reference Balance Sheet shall not exceed the Net Assets
reflected on the Pre-Closing Balance Sheet by $5 million or more;
(n) Environmental Audit. The results of the Environmental Audit
shall be satisfactory to the Purchaser;
(o) Non-Neutral Travel Provider Issuer. The Purchaser and United
shall have entered into an agreement with respect to the settlement of the
Non-Neutral Travel Provider Issuer as set forth in paragraph (c) of the letter
dated February 21, 1997 from the Purchaser to the Partnership's Supervisory
Board;
(p) Transfer of Premier. Premier shall have been transferred as set
forth in Section 5.09;
(q) Transfer of Interest in Apollo Communications Services L.L.C..
The Sellers shall have transferred their respective equity interests in Apollo
Communications Services L.L.C. to the Partnership or one of the wholly-owned
Subsidiaries; and
(r) Consummation of Transactions Contemplated by the Transaction
Agreement. The transactions contemplated by the Transaction Agreement shall have
been consummated.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Survival of Representations and Warranties. The
representations and warranties of the parties contained in Sections 3.06, 3.11,
3.14, 3.15, 3.16, 3.17 and 3.19, and Article IV (other than Section 4.05), and
the covenants of the parties set forth in Article V (other than Sections 5.02(b)
and (c), 5.03, 5.06, 5.07, 5.12 and 5.13) shall terminate at Closing. The
representations and warranties of the parties contained in Sections 3.01, 3.02,
3.03, 3.04, 3.05, 3.07, 3.09, 3.10, 3.12, 3.13 and 3.20 and Section 4.05 shall
survive the Closing until the second anniversary of the Closing Date. The
representations and warranties dealing with Tax matters shall survive as
provided in Article VI, and the representations and warranties set forth in
Section 3.08 shall survive the Closing until the first anniversary of the
Closing Date. The covenants of the parties set forth in
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Sections 5.02(b) and (c), 5.03, 5.06, 5.07 and 5.12 shall survive the Closing,
and the other covenants set forth in this Agreement that expressly survive the
Closing shall survive the Closing in accordance with their respective terms.
Notwithstanding the foregoing or anything to the contrary in this Article VIII,
in the event that the Purchaser has actual knowledge prior to the Closing Date
that any of the representations and warranties of the Sellers or the Parent
Entities to survive the Closing in accordance with this Section 8.01 were not
true and correct as of the date hereof or are not true and correct as of the
Closing Date or that the agreements of the Parent Entities and the Sellers
contained in Section 5.03(b) have not been complied with, the sole and exclusive
remedy of the Purchaser with respect to such breaches will be to not consummate
the transactions contemplated by this Agreement if any such breach results in
the nonsatisfaction of the condition contained in Section 7.02(a). For purposes
of the foregoing sentence, the term "actual knowledge" means the actual
knowledge of an officer of the Purchaser, including as a result of the delivery
to the Purchaser by the Parent Entities, the Sellers or the Partnership not
fewer than three Business Days prior to the Closing (other than in a case in
which an event occurs within such three Business Day period which could not have
been anticipated, in which case written notice of such event must be provided to
the Purchaser promptly after the Parent Entities, the Sellers or the Partnership
become aware of it) of a written notice specifically identifying in detail the
nature of the breach and the provisions of this Agreement that have been
breached, without duty of due or specific inquiry other than a written survey of
(i) employees of the Purchaser who are reasonably likely, because of their
substantive and significant contacts with the Partnership, to have knowledge as
to the truth and correctness of the representations and warranties of the Parent
Entities and the Sellers to survive the Closing or whether the Parent Entities
and the Sellers have complied with Section 5.03(b), (ii) the accountants at KPMG
Peat Marwick LLP, (iii) the investment bankers at JP Morgan and (iv) the
attorneys at Shearman & Sterling and Davis Polk & Wardwell, who, in the case of
(ii), (iii) and (iv), actually participated in the Purchaser's due diligence
investigation of the Partnership. Subject to the foregoing, neither the period
of survival nor the liability of the parties hereto with respect to their
representations and warranties and covenants shall be reduced by any
investigation made at any time by or on behalf of any such party. If written
notice of a claim has been given prior to the expiration of the applicable
representations and warranties and covenants by the parties hereto, then the
relevant representations and warranties and covenants shall survive as to such
claim until such claim has been finally resolved.
SECTION 8.02. Indemnification by the Parent Entities and the
Sellers. (a) The Purchaser, its Affiliates, including the Partnership and the
Subsidiaries, and their successors and assigns, and the officers, directors,
employees and agents of the Purchaser, its Affiliates and their successors and
assigns (each a "Purchaser Indemnified Party") shall be indemnified and held
harmless, as and to the extent set forth in this Section 8.02, by the Parent
Entities and the Sellers, severally and not jointly, for any and all
Liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, attorneys' and
consultants' fees and expenses) actually suffered or
<PAGE> 56
51
incurred by them (including, without limitation, any Action brought or otherwise
initiated by any of them) on an After-Tax Basis (hereinafter a "Loss"), arising
out of or resulting from:
(i) the breach of any representation or warranty made by the Parent
Entities or the Sellers contained in any of Sections 3.01, 3.02, 3.03,
3.04, 3.05, 3.07, 3.09, 3.10, 3.12, 3.13, 3.18 or 3.20 of this Agreement;
or
(ii) the breach of any covenant or agreement by the Parent Entities
or the Sellers contained in Section 5.03(b) of this Agreement; or
(iii) Liabilities of the Partnership or any Subsidiary, whether
arising before or after the Closing Date, arising from or relating to any
of [specified items listed in the Sellers' Disclosure Schedule]; or
(iv) any shortfall in the Cash of the Partnership that is not
covered by the amount held by the Escrow Agent, together with interest
thereon, as determined by the parties in accordance with Section
2.04(f)(iii); or
(v) Liabilities arising from or related to Premier.
(b) The obligation of a Parent Entity and its Affiliate Seller, as
between themselves, to indemnify a Purchaser Indemnified Party shall be joint
and several and subject to the limitation set forth in the fifth sentence of
Section 8.01 and to the following limitations: (i) no indemnification by any
Parent Entity and Seller (other than an indemnification pursuant to Section
8.02(a)(iv)) shall be made unless the aggregate amount of Losses relating to
breaches or otherwise subject to indemnification hereunder exceeds $5 million,
and then indemnification shall be made solely in the amount of such excess; (ii)
in no event shall the aggregate obligation of all Parent Entities and Sellers to
indemnify the Purchaser Indemnified Parties (other than an indemnification
pursuant to Section 8.02(a)(iv)) exceed $175 million, except for a breach of the
representations and warranties contained in Section 3.03 in which case the
obligation to indemnify the Purchaser Indemnified Parties shall not exceed $700
million; (iii) the aggregate obligation of each Parent Entity and its Affiliate
Seller and the obligation of each Parent Entity and its Affiliate Seller with
respect to any individual indemnifiable Loss, respectively, shall be limited to
such Affiliate Seller's pro rata share (in accordance with its Partnership
Interests in the Partnership) of the aggregate amount set forth in clause (ii)
or such individual indemnifiable Loss, respectively, except to the extent such
Parent Entity or Affiliate Seller is in breach of its representations and
warranties under any of Section 3.01, 3.03, 3.04 or 3.05, or is in breach of the
covenants contained in 5.03, in which event the aggregate obligations of such
Parent Entity or Affiliate Seller and the obligation of such Parent Entity or
Affiliate Seller with respect to any individual indemnifiable Loss,
respectively, shall not be subject to the limitation set forth in this clause
(iii); (iv) any recovery of a Loss due to breach of one representation will
preclude
<PAGE> 57
52
recovery of such Loss due to breach of any other representation, and all
indemnification shall be without duplication of any other recovery; (v) a
Purchaser Indemnified Party shall not be entitled to be indemnified for breach
of the representations and warranties set forth in Section 3.08 or Section 3.12
unless it establishes that (A) a reasonably prudent business person would have
concluded, based on the information available to such person at the time of
taking the action that caused such breach or, in the case of Section 3.12, at
the time of entering into the contract that caused such breach, that the Losses
associated with such action or such contract, as the case may be, would exceed
the benefits associated therewith, and (B) in the case of Sections 3.12(a)(vi)
and (a)(viii) only, that such breach has had a materially negative effect on the
Partnership or the Subsidiaries; (vi) a Purchaser Indemnified Party shall not be
entitled to be indemnified for any breach of the representations and warranties
set forth in Section 3.10 if and to the extent such breach also constitutes a
breach of any of the representations and warranties set forth in Sections 3.11,
3.16 or 3.17; and (vii) for purposes of determining whether a Purchaser
Indemnified Party is entitled to be indemnified for any breach of the
representations and warranties contained in Section 3.12, the term "Material
Contracts" shall be deemed to refer solely to (A) any contracts or agreements
under which the Partnership can be reasonably expected to pay or be paid at
least $1,000,000 over any five year period during the life of the contract
following the Closing Date, (B) any contracts or agreements that limit or
purport to limit the ability of the Partnership or any Subsidiary to compete in
any line of business or with any Person or in any geographic area or during any
period of time, or (C) any contracts the presence or absence of which would have
a Material Adverse Effect.
(c) Each Purchaser Indemnified Party shall use its reasonable
efforts to mitigate any Losses for which it seeks indemnification hereunder.
(d) To the extent that the Parent Entities' and the Sellers'
undertakings set forth in this Section 8.02 may be unenforceable, the Parent
Entities and the Sellers shall contribute (in the same proportion as they would
otherwise have indemnified the Purchaser Indemnified Party in accordance with
Section 8.02(b)(iii)) the maximum amount that they are permitted to contribute
under applicable law to the payment and satisfaction of all Losses incurred by
the Purchaser, the Partnership and the Subsidiaries.
SECTION 8.03. Tax Matters. Anything in this Article VIII to the
contrary notwithstanding, the rights and obligations of the parties with respect
to indemnification for any and all Tax matters shall be governed solely by
Article VI.
SECTION 8.04. Indemnification by the Purchaser. (a) The Parent
Entities, its Affiliates and their successors and assigns, and the officers,
directors, employees and agents of the Parent Entities, their Affiliates and
their successors and assigns (each a "Seller Indemnified Party") shall be
indemnified and held harmless, as and to the extent set forth in
<PAGE> 58
53
this Section 8.04, by the Purchaser for any and all Losses on an After-Tax Basis
arising out of or resulting from:
(i) the breach of any representation or warranty made by the
Purchaser contained in Section 4.05 of this Agreement;
(ii) Liabilities of the Partnership or any Subsidiary, other than
any Liabilities for which the Purchaser is entitled to be indemnified
pursuant to Section 8.02;
(iii) any Cash that the Purchaser is required to pay to the Parent
Entities, together with interest thereon, as determined by the parties in
accordance with Section 2.04(f)(iii).
(b) Each Seller Indemnified Party shall use its reasonable efforts
to mitigate any Losses for which it seeks indemnification hereunder.
(c) To the extent that the Purchaser's undertakings set forth in
this Section 8.04 may be unenforceable, the Purchaser shall contribute the
maximum amount that it is permitted to contribute under applicable law to the
payment and satisfaction of all Losses incurred by the Parent Entities.
SECTION 8.05. Indemnification Procedures. A Purchaser Indemnified
Party or a Seller Indemnified Party, as the case may be (in each case, the
"Indemnified Party"), shall give the Parent Entities and the Sellers, or the
Purchaser, as the case may be (in each case, the "Indemnifying Party"), notice
of any matter which an Indemnified Party has determined has given or could give
rise to a right of indemnification under this Agreement, within 60 days of such
determination, stating the amount of the Loss, if known, and method of
computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises. The obligations and Liabilities of an Indemnifying Party under this
Article VIII with respect to Losses arising from claims of any third party which
are subject to the indemnification provided for in this Article VIII (a "Third
Party Claim") shall be governed by and contingent upon the following additional
terms and conditions: if an Indemnified Party shall receive notice of any Third
Party Claim, the Indemnified Party shall give the Indemnifying Party notice of
such Third Party Claim within 30 days of the receipt by the Indemnified Party of
such notice; provided, however, that the failure to provide such notice shall
not release the Indemnifying Party from any of its obligations under this
Article VIII except to the extent the Indemnifying Party is materially
prejudiced by such failure and shall not relieve the Indemnifying Party from any
other obligation or Liability that it may have to any Indemnified Party
otherwise than under this Article VIII. If the Indemnifying Party acknowledges
in writing its obligations to indemnify the Indemnified Party hereunder against
any Losses (subject to the limitations set
<PAGE> 59
54
forth in Section 8.02(b)) that may result from such Third Party Claim, then such
Indemnifying Party shall be entitled to assume and control the defense of such
Third Party Claim at its expense and through counsel of its choice if it gives
notice of its intention to do so to the Indemnified Party within five Business
Days of the receipt of such notice from the Indemnified Party; provided,
however, that if there exists or is reasonably likely to exist a conflict of
interest that would make it inappropriate in the reasonable judgment of the
Indemnified Party for the same counsel to represent both the Indemnified Party
and the Indemnifying Party, then the Indemnified Party shall be entitled to
retain its own counsel, in each jurisdiction for which the Indemnified Party
determines counsel is required to participate in such defense, at the expense of
the Indemnifying Party. In the event the Indemnifying Party exercises the right
to undertake any such defense against any such Third Party Claim as provided
above, the Indemnified Party shall cooperate with the Indemnifying Party in such
defense and make available to the Indemnifying Party, at the Indemnifying
Party's expense, all witnesses, pertinent records, materials and information in
the Indemnified Party's possession or under the Indemnified Party's control
relating thereto as is reasonably required by the Indemnifying Party, subject to
reimbursement of reasonable out-of-pocket expenses. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Indemnifying Party shall cooperate with the
Indemnified Party in such defense and make available to the Indemnified Party
all such witnesses, records, materials and information in the Indemnifying
Party's possession or under the Indemnifying Party's control relating thereto as
is reasonably required by the Indemnified Party, subject to reimbursement of
reasonable out-of-pocket expenses. No such Third Party Claim may be settled by
the Indemnifying Party without the prior written consent of the Indemnified
Party.
ARTICLE IX
TERMINATION AND WAIVER
SECTION 9.01. Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by the mutual written consent of the Sellers and the Purchaser;
(b) by either the Sellers or the Purchaser if the Closing shall not
have occurred by December 31, 1997;
(c) by either the Purchaser or the Sellers in the event that any
Governmental Authority shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this
<PAGE> 60
55
Agreement and such order, decree, ruling or other action shall have become final
and nonappealable; or
(d) by the Purchaser if, between the date hereof and the time
scheduled for the Closing: (i) there shall have been a breach of any material
representation or warranty of the Parent Entities and the Sellers contained in
this Agreement; (ii) a Seller, a Parent Entity or the Partnership shall not have
complied with any material covenant or agreement to be complied with by them and
contained in this Agreement; or (iii) the Parent Entities, the Sellers, the
Partnership or any Subsidiary makes a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against the Parent
Entities, the Sellers, the Partnership or any Subsidiary seeking to adjudicate
any of them a bankrupt or insolvent, or seeking liquidation, winding up or
reorganization, arrangement, adjustment, protection, relief or composition of
its debts under any Law relating to bankruptcy, insolvency or reorganization.
(e) by the Sellers and the Parent Entities if, between the date
hereof and the time scheduled for the Closing: (i) there shall have been a
breach of any material representation or warranty of the Purchaser contained in
this Agreement; (ii) the Purchaser shall not have complied with any material
covenant or agreement to be complied with by them and contained in this
Agreement; or (iii) the Purchaser makes a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against the Purchaser
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up or reorganization, arrangement, adjustment, protection, relief or
composition of its debts under any Law relating to bankruptcy, insolvency or
reorganization.
SECTION 9.02. Effect of Termination. (a) In the event of termination
of this Agreement as provided in Section 9.01, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto
except that the provisions of Sections 5.03(a), 9.02(b), 10.01, 10.02, 10.03,
10.06, 10.08, 10.10, 10.11 and 10.13 shall survive any such termination.
(b) Notwithstanding the foregoing, if the Closing does not occur
because of a breach by a party, such party will reimburse the other parties (as
their sole and exclusive remedy hereunder) for their out-of-pocket costs and
expenses, including, without limitation, fees and disbursements of counsel,
financing sources (other than bank commitment fees paid by the Purchaser prior
to June 15, 1997 or paid by the Purchaser after June 15, 1997 without consulting
the Parent Entities) and accountants, and disbursements (but not fees) of
financial advisors, incurred in connection with the preparation, negotiation and
performance of this Agreement and the transactions contemplated hereby.
SECTION 9.03. Waiver. A party to this Agreement may (a) extend the
time for the performance of any of the obligations or other acts of the other
parties, (b) waive any
<PAGE> 61
56
inaccuracies in the representations and warranties of the other parties
contained herein or in any document delivered by the other parties pursuant
hereto or (c) waive compliance with any of the agreements or conditions of the
other parties contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Closing
shall have occurred.
SECTION 10.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by telecopy, by telegram, by telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 10.02):
(a) if to United or Covia:
United Air Lines, Inc.
1200 E. Algonquin Road
Elk Grove Township, Illinois 60007
Telecopy: (847) 700-4412
Attention: Frederic F. "Jake" Brace, III
<PAGE> 62
57
with a copy to:
United Air Lines, Inc.
1200 E. Algonquin Road
Elk Grove Township, Illinois 60007
Telecopy: (847) 700-4683
Attention: Steve Rasher, Esq,
and a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-3637
Attention: Thomas H. Kennedy, Esq.
(b) if to USAW or USAM:
US Airways, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Telecopy: (703) _______
Attention: Alan Abner
with a copy to:
US Airways, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Telecopy: (703) _______
Attention: Monica Roye, Esq.
and a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-3637
Attention: Thomas H. Kennedy, Esq.
<PAGE> 63
58
(c) if to Air Canada or Resnet:
Air Canada
C.P. 14,000/P.O. Box 14,000
Station Airport
Dorval, Quebec
Canada H4Y 1H4
Telecopy: (514) 422-5729
Attention: Pat Iaconi, Esq.
with a copy to:
Osler, Hoskin, & Harcourt
1 First Canadian Place
West 61st Floor
Toronto, Ontario
Canada M5X 3B8
Telecopy: (416) 862-6666
Attention: Terrence Burgoyne, Esq.
(d) if to the Sellers: copies to Covia, USAM and Resnet as set
forth above
(e) if to the Parent Entities: copies to United, USAW and Air
Canada as set forth above
(f) if to the Partnership:
Apollo Travel Services Partnership
2550 W. Golf Road, Suite 900
Rolling Meadows, Illinois 60008
Telecopy: (847) 427-7152
Attention: Audrey Rubin, Esq.
with copies to:
United, Covia, USAW, USAM, Air Canada and Resnet, as set forth
above
<PAGE> 64
59
(g) if to the Purchaser:
Galileo International Partnership
5350 S. Valentia Way
Englewood, Colorado 80111
Telecopy: (303) 397-5020
Attention: Babetta R. Gray, Esq.
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy: (212) 848-7179
Attention: Clare O'Brien, Esq.
SECTION 10.03. Public Announcements. Except as may be required by
Law, no party to this Agreement shall make, or cause to be made, any press
release or public announcement in respect of this Agreement or the transactions
contemplated hereby or the existence of discussion or negotiations between the
parties or otherwise communicate with any news media without the prior consent
of the other parties, and the parties shall cooperate as to the form, timing and
contents of any such press release or public announcement.
SECTION 10.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 10.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 10.06. Entire Agreement. This Agreement (including the
Exhibits and the Sellers' Disclosure Schedule which are hereby incorporated
herein and made a part hereof for all purposes as if fully set forth herein) and
the Non-Disclosure Agreement
<PAGE> 65
60
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior agreements and
undertakings, both written and oral, between the Parent Entities, the Sellers,
the Partnership and the Purchaser with respect to the subject matter hereof and
thereof.
SECTION 10.07. Assignment. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of the Sellers
and the Purchaser (which consent may be granted or withheld by the Sellers or
the Purchaser); provided, however, that the Purchaser may assign all or any
portion of its rights and obligations under this Agreement to one or more
Affiliates of the Purchaser without the consent of the Sellers; provided further
that in the event of such assignment, Purchaser will remain liable for any
obligations hereunder not performed by such assignee or assignees.
SECTION 10.08. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and its
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 10.09. Amendment. This Agreement may not be amended or
modified except (a) by an instrument in writing signed by, or on behalf of, the
Parent Entities, the Sellers, the Partnership and the Purchaser or (b) by a
waiver in accordance with Section 9.03.
SECTION 10.10. Arbitration. (a) Subject to the final sentence of
this Section 10.10, any dispute arising between or among the parties hereto or
any of them involving the subject matters covered by this Agreement shall be
submitted to arbitration under this Section 10.10. Any party asserting a breach
of this Agreement by any other party or parties shall notify all other parties
of such alleged breach (a "Dispute Notice") and the parties shall attempt to
resolve such dispute amicably and if they shall fail to resolve it within thirty
(30) days of the date of the Dispute Notice, any party may notify any of the
other parties that it wishes to commence an arbitration proceeding under this
Section 10.10 (an "Arbitration Request"). In any arbitration proceeding the
party or parties commencing the arbitration (alone or together, if more than
one, the "Petitioner") shall include in the Arbitration Request (a) a statement
of the facts constituting the alleged breach or dispute, (b) a written statement
of position ("Statement") regarding the dispute and (c) the name of an elector
designated by it. The Statement shall state the facts and arguments in support
of the position taken by the party submitting such Statement and shall detail
that party's proposed solution and relief sought (if any). Copies of any
Arbitration Request shall be furnished at the same time to the other parties
hereto. The party or parties with whom the Petitioner has its dispute (alone or
together, if more than one, the "Respondent") shall within five (5) Business
Days after the date of the Arbitration Request designate a second elector by
notice
<PAGE> 66
61
to the Petitioner (copies of which shall be furnished to the other parties), but
if it or they shall fail to do so within such period the Petitioner may
designate an elector on Respondent's behalf. The electors chosen by the
Petitioner and the Respondent shall attempt to agree upon an arbitrator (the
"Arbitrator"), but if they are unable to do so within twenty (20) Business Days
after the designation of the second elector, then either elector thereafter may
apply to the American Arbitration Association (the "Association") for the
selection of the Arbitrator in accordance with the Commercial Arbitration Rules
of such Association. The Arbitrator so selected shall have full power to decide
any dispute referred to in this Section 10.10. The arbitration proceedings shall
be conducted in the English language, and the place of arbitration and the
making of the Award (as defined below) shall be the City of New York. The
UNCITRAL rules of commercial arbitration shall apply to any arbitration
commenced pursuant to this Section 10.10, as modified by the following
procedure:
(i) Within five (5) Business Days of the selection of the Arbitrator
(the "Commencement Date"), the Respondent shall deliver its Statement
regarding the dispute to the Arbitrator and to the Petitioner.
(ii) Within fifteen (15) Business Days from the Commencement Date,
each of the Petitioner and Respondent shall deliver to the Arbitrator and
to the other party, a response ("Response") to the other party's Statement
setting forth opposing facts and arguments and limited in length to ten
(10) typed, single spaced pages (excluding any evidentiary exhibits
included therein).
(iii) Within twenty (20) Business Days from the Commencement Date,
each of the Petitioner and the Respondent may deliver to the Arbitrator
and to the other party, a reply to the Response limited to setting forth
facts and arguments in rebuttal to the Statement and Response of the other
party and limited in length to five (5) typed, single spaced pages
(excluding any evidentiary exhibits included therein).
(iv) Within twenty-five (25) Business Days from the Commencement
Date, each of the Petitioner and Respondent shall present an oral
summation of its position to the Arbitrator in the presence of the other
party in accordance with such rules of procedure including, without
limitation, length of presentation and right of cross-examination, as the
Arbitrator shall determine in writing and deliver to the parties not less
than three (3) Business Days prior to such hearing; provided, however,
that such hearing shall not exceed eight (8) hours in total and may not be
adjourned except for extraordinary circumstances beyond the control of the
parties.
(v) The Arbitrator shall either issue his decision and award
("Award") or request a further meeting of the parties within fifteen (15)
days of the hearing.
<PAGE> 67
62
(vi) Any such further meeting of the parties shall take place within
five (5) Business Days of the request therefor and shall be conducted as
determined by the Arbitrator. The Arbitrator shall issue his Award no
later than fifteen (15) days after any such further meeting of the
parties.
(vii) The Award shall be in writing and shall be limited to a
decision either completely in favor of Petitioner's request for relief or
completely in favor of Respondent's request for relief. The Award shall be
final and binding upon the parties hereto and judgment may be entered
thereon in any court of competent jurisdiction and the costs and expenses
of such arbitration (and of enforcing any Award) shall be borne by the
party losing such arbitration.
(b) This Section 10.10 shall in no way affect the right of any party
to seek such interim relief, and only such relief, as may be required to
maintain the status quo in aid of the arbitration in any court of competent
jurisdiction.
(c) In order to facilitate the resolution of any claim for
indemnification brought by a Purchaser Indemnified Party pursuant to Section
8.02 and the enforcement of any Award resulting therefrom, the Parent Entities
and the Sellers agree to be joined as parties to any arbitration relating to a
Purchaser Indemnified Party's claim for indemnification pursuant to Section
8.02. In addition, in order to facilitate the enforcement of any Award resulting
from a claim for indemnification brought by a Purchaser Indemnified Party
pursuant to Section 8.02 or a Seller Indemnified Party pursuant to Section 8.04,
the Parent Entities, the Sellers and the Purchaser (i) submit to the
jurisdiction of any New York State or Federal court sitting in the Borough of
Manhattan, The City of New York with respect to any actions relating to the
enforcement of any Award providing for indemnification of a Purchaser
Indemnified Party pursuant to Section 8.02 or a Seller Indemnified Party's claim
for indemnification pursuant to Section 8.02, as the case may be; (ii) agree
that all claims with respect to such actions shall be heard and determined in
the United States District Court for the Southern District of New York, or if
that court does not have subject matter jurisdiction, in any state court located
in the Borough of Manhattan, The City of New York, and the Parent Entities, the
Sellers and the Purchaser agree to submit to the jurisdiction of and venue in,
such courts; (iii) irrevocably waive, to the fullest extent permitted by law,
any objection that they may have to the laying of venue of any such suit, action
or proceeding brought in such a court and any claim that any such suit, action
or proceeding brought in such a court has been brought in an inconvenient forum;
(iv) consent to the service of process upon them by mailing or delivering such
service to their agent for service of process and represent and warrant that
United has irrevocably appointed Prentice Hall, New York, New York, and each of
the other Parent Entities, each Seller and the Purchaser has irrevocably
appointed CT Corporation, New York, New York, as its agent to accept and
acknowledge on its behalf service of any and all process that may be served in
any such suit, action or proceeding in any court sitting in New York City; and
(v) agree that
<PAGE> 68
63
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
SECTION 10.11. Sellers' Disclosure Schedule. From time to time after
the date hereof and not later than three Business Days (other than in a case in
which an event occurs within such three Business Day period which could not have
been anticipated, in which case written notice of such event must be provided to
the Purchaser promptly after the Parent Entities, the Sellers or the Partnership
become aware of it) prior to the Closing Date, each of the Parent Entities and
the Sellers may amend or supplement the Sellers' Disclosure Schedule in writing
in accordance with Section 10.02 with respect to any matter coming to its
attention or arising which, if known by it or existing prior to the date of this
Agreement would have been required to be set forth or described in the Sellers'
Disclosure Schedule or which is necessary or desirable to complete or correct
any information in the Sellers' Disclosure Schedule or in any representation or
warranty of such Parent Entity or Seller which has been rendered inaccurate
thereby. For purposes of determining the satisfaction of the Purchaser's
condition to close as set forth in Section 7.02(a), the Sellers' Disclosure
Schedule shall be deemed not to have been amended or supplemented from that
attached hereto on the date hereof.
SECTION 10.12. Governing Law. This Agreement shall be governed by
the laws of the State of New York, excluding (to the greatest extent permissible
by law) any rule of law that would cause the application of the laws of any
jurisdiction other than the State of New York.
SECTION 10.13. Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 10.14. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
<PAGE> 69
64
IN WITNESS WHEREOF, the Parent Entities, the Sellers, the
Partnership and the Purchaser have caused this Agreement to be executed as of
the date first written above by their respective officers thereunto duly
authorized.
UNITED AIR LINES, INC.
By: _____________________________
Name:
Title:
COVIA CORPORATION
By: _____________________________
Name:
Title:
US AIRWAYS, INC.
By: _____________________________
Name:
Title:
USAM CORP.
By: _____________________________
Name:
Title:
AIR CANADA
By: _____________________________
Name:
Title:
<PAGE> 70
65
RESNET HOLDINGS, INC.
By: _____________________________
Name:
Title:
APOLLO TRAVEL SERVICES PARTNERSHIP
By: _____________________________
Name:
Title:
GALILEO INTERNATIONAL PARTNERSHIP
By: _____________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.2
================================================================================
- --------------------------------------------------------------------------------
STOCKHOLDERS' AGREEMENT
- --------------------------------------------------------------------------------
Among
GALILEO INTERNATIONAL, INC.
certain of its
STOCKHOLDERS
and certain
RELATED PARTIES OF SUCH STOCKHOLDERS
Dated as of _______________, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.01. Certain Defined Terms........................................................................... 1
1.02. Other Defined Terms............................................................................. 4
ARTICLE II
BOARD REPRESENTATION; COMMITTEES
2.01. Size of the Board............................................................................... 6
2.02. Nomination of Directors......................................................................... 6
2.03. Vacancies....................................................................................... 7
2.04. Removal......................................................................................... 9
2.05. Classification of Directors..................................................................... 9
2.06. Committee....................................................................................... 10
ARTICLE III
RESTRICTIONS ON TRANSFER
3.01. General Restriction............................................................................. 12
3.02. Legends......................................................................................... 12
3.03. Restrictions on Certain Transfers of Shares..................................................... 13
3.04. Right of First Refusal.......................................................................... 13
3.05. Affiliate Transferees to Execute Agreement...................................................... 15
3.06. Sale to a Third Party........................................................................... 15
3.07. Restrictions on Certain Transfers of Shares of Preferred Stock.................................. 15
3.08. Improper Sale................................................................................... 16
3.09. Limitation on Dispositions...................................................................... 16
ARTICLE IV
CERTAIN AGREEMENTS
4.01. Certain Agreements.............................................................................. 17
4.02. No Solicitation................................................................................. 18
4.03. Issuances of Shares of Capital Stock............................................................ 19
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
ARTICLE V
MISCELLANEOUS
<S> <C> <C>
5.01. Further Action.................................................................................. 19
5.02. Representations................................................................................. 19
5.03. Specific Performance............................................................................ 19
5.04. Amendments and Waivers.......................................................................... 19
5.05. Notices......................................................................................... 20
5.06. Benefit; Successors and Assigns................................................................. 25
5.07. Arbitration..................................................................................... 25
5.08. Changes to Non-Competition Agreement............................................................ 27
5.09. Termination..................................................................................... 27
5.10. Miscellaneous................................................................................... 27
5.11. Tax Treatment................................................................................... 27
5.12. Tax Opinion..................................................................................... 28
</TABLE>
ii
<PAGE> 4
STOCKHOLDERS' AGREEMENT, dated as of ___________, 1997, among GALILEO
INTERNATIONAL, INC., a Delaware corporation (the "Company"), each of the
stockholders of the Company listed on Schedule A hereto and, with respect to
Articles IV and V only, each of the Persons listed on Schedule B hereto.
WHEREAS, the Original Owners (as defined below) immediately prior to
the consummation of the IPO (as defined below) collectively own 100% of the
shares of common stock, par value $0.01 per share, of the Company (the "Common
Stock");
WHEREAS, upon the consummation of the IPO, the Original Owners will
collectively own shares of Common Stock representing at least [__]% of the
outstanding shares of Common Stock;
WHEREAS, certain Original Owners own shares of Special Voting Preferred
Stock, par value $0.01 per share, of the Company, in Series A through G (the
"Preferred Stock"), which series of Preferred Stock are entitled to elect a
certain number of Original Owner Directors on the terms and conditions set forth
in the Restated Certificate of Incorporation (as such terms are defined below);
WHEREAS, the parties hereto desire to set forth in writing their
understanding and agreement for the voting of shares of Common Stock held by the
Original Owners on certain matters, and for certain other courses of conduct;
and
WHEREAS, it is a condition precedent to the consummation of the IPO
that the parties enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the parties hereto hereby agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Affiliate" means, with respect to any specified Person, any other
Person, other than the Company or any subsidiary of the Company, that directly,
or indirectly through one or more intermediaries, controls or is controlled by,
or is under common control with, such specified Person. Without limiting the
foregoing, the parties acknowledge that the respective Persons listed on
Schedule B hereto are Affiliates of the respective Persons they are identified
as having a controlling interest in on Schedule A hereto.
"Affiliated Person" means, with respect to any specified Person, such
Person, such Person's Affiliates, such Person's officers, directors and
employees and the officers, directors and employees of such Affiliates.
<PAGE> 5
2
"Agreement" or "this Agreement" means this Stockholders' Agreement,
dated as of _____, 1997, among the Company and each of the other parties
signatory hereto, and all amendments hereto made in accordance with the
provisions of Section 5.04.
"beneficial owner" or "beneficially own" has the meaning given such
term in Rule 13d-3 under the Exchange Act.
"Board" means the Board of Directors of the Company.
"Commission" means the Securities and Exchange Commission, and any
successor commission or agency having similar powers.
"control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the affairs or management of a
Person, whether through the ownership of voting securities, as trustee or
executor, by contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
"Director" means a director of the Company
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"IPO" means the underwritten initial public offering of shares of
Common Stock of the Company pursuant to an effective Registration Statement on
Form S-1 (File No. 333-___) under the Securities Act.
"Merger" means the transaction or transactions whereby Galileo
International Partnership, a Delaware partnership, has merged with and into a
wholly-owned subsidiary of the Company.
"Nonaffiliated Person" means, with respect to any specified Person, any
Person other than an Affiliated Person.
"Non-Competition Agreement" means a non-competition agreement with the
Company in the form attached hereto as Exhibit A, as such agreement may be
amended from time to time in accordance with its terms and pursuant to Section
5.08 of this Agreement.
"Original Owners" means (i) the stockholders listed on Schedule A
hereto, (ii) any Affiliate of an Original Owner that is deemed to be an Original
Owner pursuant to
<PAGE> 6
3
Section 3.05 and (iii) any Permitted Preferred Stock Transferee that is deemed
to be an Original Owner pursuant to Section 3.06.
"Original Owner Director" means any Director elected pursuant to the
Restated Certificate of Incorporation by an Original Owner that owns one or more
shares of Preferred Stock.
"Parent Entities" means the Persons listed on Schedule B hereto.
"Person" means any individual, partnership, firm, corporation,
association, trust, estate, unincorporated organization or other entity, as well
as any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Exchange Act.
"Pro Rata Number" means, with respect to a First Refusal Original Owner
or Prospective Buyer, as the case may be, a number of Shares equal to the
product of (a) the number of the Offered Shares and (b) a fraction the numerator
of which shall be the total number of the Shares owned (immediately prior to the
Sale of the Offered Shares) by such First Refusal Original Owner or Prospective
Buyer, as the case may be, and the denominator of which shall be the total
number of the Shares owned (immediately prior to the Sale of the Offered Shares)
by the First Refusal Original Owners and Prospective Buyer.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of ________ __, 1997 (as the same may be amended from time
to time), among the Company and each of the stockholders of the Company listed
on Schedule A hereto.
"Restated Certificate of Incorporation" means the Restated Certificate
of Incorporation of the Company, as amended from time to time.
"Restricted Shares" means all Shares other than (a) Shares that have
been registered under a registration statement pursuant to the Securities Act,
(b) Shares with respect to which a Sale has been made in reliance on and in
accordance with Rule 144 or (c) Shares with respect to which the holder thereof
shall have delivered to the Company either (i) an opinion, in form and substance
satisfactory to the Company, of counsel, who shall be satisfactory to the
Company, or (ii) a "no action" letter from the staff of the Commission, to the
effect that subsequent transfers of such Shares may be effected without
registration under the Securities Act.
"Sale" means any sale, assignment, transfer, distribution or other
disposition of Shares or of shares of Preferred Stock, as applicable, or of a
participation therein, whether voluntarily or by operation of law.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
<PAGE> 7
4
"Share" means any share of Common Stock (i) beneficially owned by an
Original Owner immediately after the consummation of the IPO (excluding any
shares of Common Stock acquired in the IPO), (ii) acquired by an Original Owner
from any other Original Owner in accordance with Section 3.04, (iii) acquired by
a Prospective Affiliate Transferee in accordance with Section 3.05; (iv)
acquired by a Permitted Preferred Stock Transferee in accordance with the first
sentence of Section 3.06, or as contemplated by clause (y) of Section 3.07, or
held by a Permitted Preferred Stock Transferee at the time of the transfer to
such Person of Shares in accordance with clause (x) of Section 3.07, provided
that, to the extent the shares of Common Stock held by such Permitted Preferred
Stock Transferee at the time of such transfer, when added to the Shares
transferred to such Person in accordance with clause (x) of Section 3.07,
represent more than 5% of the then outstanding shares of Common Stock, then only
such number of shares of Common Stock held by such Person at the time of such
transfer which, when added to the Shares transferred to such Person in
accordance with clause (x) of Section 3.07, represent 5% of the then outstanding
shares of Common Stock shall constitute "Shares"; (v) acquired by an Original
Owner that owns one or more shares of Preferred Stock for the purpose of
preserving its ability to elect one or more Original Owner Directors pursuant to
the terms of Section 4.3(d) of the Restated Certificate of Incorporation; (vi)
issued by way of a stock split of the Common Stock; or (vii) 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 (vi) above.
"Third Party" means, with respect to any Original Owner, any
non-Affiliated Person (other than the Company or another Original Owner or any
Affiliate thereof), and "Third Parties" shall have a correlative meaning.
"Voting Securities" means, at any time, shares of any class of capital
stock of the Company that are then entitled to vote generally in the election of
Directors (other than shares of Preferred Stock); provided that for purposes of
this definition any securities which at such time are convertible or
exchangeable into or exercisable for shares of Common Stock shall be deemed to
have been so converted, exchanged or exercised.
SECTION 1.02. Other Defined Terms. The following terms shall have the
meanings defined for such terms in the sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Acquiring Owner 4.01(b)
Aer Lingus Schedule B
Air Canada Schedule B
Alitalia Schedule B
Arbitration Request 5.07
</TABLE>
<PAGE> 8
5
<TABLE>
<S> <C>
Arbitrator 5.07
Association 5.07
Austrian Airlines Schedule B
Award 5.07(v)
British Airways Schedule B
Code 2.06(c)
Commencement Date 5.07(i)
Common Stock Recitals
Company Preamble
Coporga Schedule A
Covia Schedule A
Dispute Notice 5.07
DSI Schedule A
elector 5.07
First Refusal Original Owners 3.04
First Refusal Price 3.04
Independent Director 2.02(iii)
Investment Bank 4.01(b)
KLM Schedule B
Management Directors 2.02(ii)
Notice of Exercise 3.04(b)
Notice of Intention 3.04(a)
Offer 4.01(b)
Offered Shares 3.04(a)
Olympic Schedule B
Olynet Schedule A
Option Period 3.04(b)
Partnership 5.11
Permitted Preferred Stock Transferee 3.07
Petitioner 5.07
Proposal 4.01(b)
Prospective Affiliate Transferee 3.05
Prospective Buyer 3.04(a)
Racom Schedule A
Replacement Original Owner Director 2.03(a)
Resnet Schedule A
Respondent 5.07
Response 5.07(ii)
Retford Schedule A
Roscor Schedule A
Selling Original Owner 3.04
Significant Transaction 2.01
Statement 5.07
SwissAir Schedule B
</TABLE>
<PAGE> 9
6
<TABLE>
<S> <C>
TAP Schedule B
Third Party Transferee 3.06
TIS Schedule A
Travidata Schedule A
United Schedule B
USAM Schedule A
USAW Schedule B
</TABLE>
ARTICLE II
BOARD REPRESENTATION; COMMITTEES
SECTION 2.01. Size of the Board. The Company shall take such actions as
are necessary, and each of the Original Owners shall vote its Shares and shall
take such other actions as are necessary, to cause the Board at all times from
and after the consummation of the IPO until the tenth anniversary of the date
hereof to consist of 13 members unless the Company and the Original Owners then
party to this Agreement who hold shares of one or more series of Preferred Stock
entitled to elect directors to the Board pursuant to the terms of the Restated
Certificate of Incorporation unanimously agree otherwise; provided, however,
that in connection with a Significant Transaction, the size of the Board may be
increased by majority vote of the whole Board to the extent such increase in the
size of the Board is proportional (rounded to the nearest whole number) to the
increase in the number of shares of Common Stock outstanding as a result of the
issuance of shares of Common Stock in connection with such Significant
Transaction. For purposes of this Agreement, a "Significant Transaction" means
an acquisition, merger, or issuance of securities to a single Person or group of
Persons (other than an underwriter or group of underwriters) in which shares of
Common Stock constituting at least a percentage of the then outstanding shares
of Common Stock (on a fully diluted basis) equal to the number expressed as a
percentage obtained by dividing one by the then number of Board seats are
issued; provided that, in no event will any transaction involving the issuance
of shares constituting less than 5% of the then outstanding shares of Common
Stock (on a fully diluted basis) constitute a Significant Transaction.
SECTION 2.02. Nomination of Directors. The Company shall take such
actions as are necessary, and each of the Original Owners shall vote its Shares
and shall take, and shall cause any Director elected by it pursuant to the terms
of any series of Preferred Stock held by it to take, such other actions as are
necessary, to cause the Board, at all times from and after the consummation of
the IPO until the tenth anniversary of the date hereof, to include the following
Directors elected or nominated as follows:
<PAGE> 10
7
(i) Original Owner Directors. Each Original Owner owning
Shares and shares of one or more series of Preferred Stock shall be
entitled to elect such number of individuals to serve as Original Owner
Directors as such series of Preferred Stock shall be entitled to elect
pursuant to the Restated Certificate of Incorporation.
(ii) Management Directors. The Chief Executive Officer, the
Chief Operating Officer and the Chief Financial Officer of the Company
shall be nominated by the Board to be elected as Directors (the
"Management Directors"); provided, however, that until the Company
shall have a Chief Operating Officer, the General Counsel of the
Company shall be nominated to be elected as a Management Director. The
initial Chief Executive Officer shall serve as the Chairman of the
Board. Thereafter, the Board will determine which Director will be the
Chairman of the Board.
(iii) Independent Directors. Three individuals shall be
nominated by the Board to be elected as Directors, each of whom shall
be an "independent director", as such term is used in Rule 303 of the
Rules of the New York Stock Exchange as in existence on the date hereof
or as amended from time to time thereafter (an "Independent Director").
(iv) Replacement Original Owner Directors. In the event that
the share of any series of Preferred Stock is redeemed by the Company,
the vacancy resulting from such event shall be filled by the Board with
an Independent Director, as more fully set forth in Section 2.03.
SECTION 2.03. Vacancies. (a) In the event an Original Owner that owns
shares of one or more series of Preferred Stock ceases to own Shares
constituting the applicable percentage of the outstanding Common Stock entitling
the series of Preferred Stock held by such Original Owner to elect any one or
more Original Owner Directors, or the share of such series of Preferred Stock is
redeemed for any other reason pursuant to Section 4.3(f) of the Restated
Certificate of Incorporation, then the Original Owner Director who was
previously elected by the holder of such series of Preferred Stock shall be
deemed to have resigned effective immediately upon the occurrence of such event,
and such Original Owner and the Company shall take all actions necessary to give
effect to such resignation; provided, however, that if an Original Owner's share
of Preferred Stock has been redeemed pursuant to Section 4.3(f)(3) of the
Restated Certificate of Incorporation due to the fact that such Original Owner
has given the Company notice of its intention to terminate its Non-Competition
Agreement, then the Company shall provide to such Original Owner during the
period between the date on which such share of Preferred Stock is redeemed and
the date on which such Original Owner's Non-Competition Agreement terminates the
same financial information as the Company provides to the Board, except to the
extent the Independent Directors determine that it would be inappropriate for
such Original Owner to receive any particular portion of such financial
information in light of the fact that such Original Owner has
<PAGE> 11
8
delivered to the Company a notice of its intention to terminate its
Non-Competition Agreement. Any vacancy resulting from any such resignation shall
be filled with an Independent Director chosen by a majority of the whole Board
(such individual, a "Replacement Original Owner Director"); provided that if any
such vacancy results from the transfer by such Original Owner of Shares and the
share of any series of Preferred Stock to (i) a Permitted Preferred Stock
Transferee and the holder of such series of Preferred Stock continues to be
entitled to elect an individual to the Board pursuant to the Restated
Certificate of Incorporation, or (ii) another Original Owner as a result of
which the holder of the share of such series of Preferred Stock continues to be
entitled to elect an individual to the Board pursuant to the Restated
Certificate of Incorporation, any such vacancy shall be filled in accordance
with the relevant provisions of the Restated Certificate of Incorporation; and
provided further that no Original Owner may transfer the share of a series of
Preferred Stock other than in accordance with this Agreement and the Restated
Certificate of Incorporation.
(b) In the event a vacancy on the Board occurs as a result of the
death, disability, resignation, removal or otherwise of a Director (other than
the resignation of an Original Owner Director as set forth in Section 2.03(a)),
such vacancy shall be filled as follows:
(i) In the event such vacancy results from the death, disability,
resignation, removal or otherwise of an Independent Director,
such vacancy shall be filled with another Independent Director
chosen by a majority of the whole Board.
(ii) In the event such vacancy results from the death, disability,
resignation, removal or otherwise of a Management Director,
such vacancy shall be filled by the Board with the successor
Chief Executive Officer, Chief Financial Officer or Chief
Operating Officer (or General Counsel in the absence of such
Chief Operating Officer), as the case may be, or any other
officer acting in such capacity at the direction of the Board
or the Chief Executive Officer.
(iii) In the event such vacancy results from the death, disability,
resignation, removal or otherwise of an Original Owner
Director, such vacancy shall be filled by the Original Owner
that holds the share of the series of Preferred Stock that was
entitled to elect the Original Owner Director so ceasing to be
a Director in accordance with the provisions of the Restated
Certificate of Incorporation.
(iv) In the event such vacancy results from the death, disability,
resignation, removal or otherwise of a Replacement Original
Owner Director, such vacancy shall be filled with an
Independent Director chosen by a majority of the whole Board.
<PAGE> 12
9
(c) The Directors chosen under subsections (a) and (b) of this Section
2.03 shall hold office until the next election of the class for which such
Directors were chosen and until their successors shall have been elected and
qualified.
SECTION 2.04. Removal. As provided in the Restated Certificate of
Incorporation, any Original Owner that holds the share of a series of Preferred
Stock may, at any time in its sole discretion, remove the Original Owner
Director elected by such series of Preferred Stock, and elect another individual
to serve in the stead of such removed Original Owner Director; provided that
such removal and election be pursuant to a written notice to the Company
complying with Section 5.05 and identifying the individual to serve in the stead
of such removed Director. The Company shall promptly inform the other Original
Owners of such removal and election. The vacancy resulting from such removal
shall be filled in accordance with Section 2.03(b)(iii).
SECTION 2.05. Classification of Directors. The Company shall take such
actions as are necessary, and each of the Original Owners shall vote its Shares,
elect its Original Owner Directors and take such other actions as are necessary,
to cause the classes of Directors to consist of the following Management
Directors, Original Owner Directors and Independent Directors:
(a) The Directors whose terms will expire at the first annual meeting
of the stockholders of the Company following the consummation of the IPO
shall consist of the General Counsel of the Company, one Original Owner
Director elected by Covia, one Original Owner Director elected in accordance
with Section 2.05(d) by an Original Owner whose Parent Entity is based in
Europe, and one Independent Director;
(b) The Directors whose terms will expire at the second annual meeting
of the stockholders of the Company following the consummation of the IPO
shall consist of the Chief Financial Officer of the Company, one Original
Owner Director elected by Covia, one Original Owner Director elected in
accordance with Section 2.05(d) by an Original Owner whose Parent Entity is
based in Europe, and one Independent Director;
(c) The Directors whose terms will expire at the third annual meeting
of the stockholders of the Company following the consummation of the IPO
shall consist of the Chief Executive Officer of the Company, one Original
Owner Director elected by Covia, one Original Owner Director elected by
USAM, one Original Owner Director elected in accordance with Section 2.05(d)
by an Original Owner whose Parent Entity is based in Europe, and one
Independent Director;
(d) The Original Owners that hold the shares of any series of Preferred
Stock and whose Parent Entities are based in Europe shall determine among
<PAGE> 13
10
themselves which of them shall be entitled to elect an Original Owner
Director to each of the classes described in Sections 2.05(a), (b) and (c).
SECTION 2.06. Committees. (a) The Company and each of the Original
Owners shall take such actions as are necessary to cause the Board at all times
to designate annually the following committees of the Board:
(i) A Nominating Committee, which shall review, report and make
recommendations to the Board on the following matters: other than with
respect to Original Owner Directors, and consistent with the terms of this
Agreement, nominees for Directors, selection criteria for Directors, and
removal of Directors if deemed appropriate; evaluation and performance of
the Board and individual Directors; and such other matters as the Board may
from time to time prescribe.
(ii) An Audit Committee, which shall review, report and make
recommendations to the Board on the following matters: 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 the Board may from time to time prescribe.
(iii) A Compensation Committee, which shall review, report and make
recommendations to the Board on the following matters: the management
remuneration policies of the Company, including salary rates and fringe
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 the Board may from time
to time prescribe.
(b) The Nominating Committee shall include (i) at least one Original
Owner Director elected by an Original Owner whose Parent Entity is based in
Europe and (ii) at least one Original Owner Director elected by an Original
Owner whose Parent Entity is based in North America. In addition, the Nominating
Committee shall include at least one Management Director and one Independent
Director. The initial Chief Executive Officer of the Company shall be the
initial Management Director on the Nominating Committee.
(c) The Compensation Committee shall include (i) at least one
Original Owner Director elected by an Original Owner whose Parent Entity is
based in Europe and (ii) at least one Original Owner Director elected by an
Original Owner whose Parent Entity is based in North America. In addition, the
Compensation Committee shall include at least one Independent Director and one
Management Director (and the initial Chief Executive Officer shall be the
initial Management Director on the Compensation Committee). Notwithstanding the
foregoing, the membership of the Compensation Committee shall be adjusted to the
extent necessary so that (i) it is comprised of two or more "non-employee
directors" within the meaning of Rule 16b-3(b)(3)(i) promulgated under the
Exchange Act
<PAGE> 14
11
and (ii) it is comprised of two or more "outside directors" within the meaning
of Treas. Reg. Section 1.162-27(e)(3) promulgated under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), except to the extent
that the Company may continue to rely on the transition relief provided pursuant
to the Treas. Reg. Section 1.162-27(f) promulgated under Section 162(m) of the
Code.
<PAGE> 15
12
ARTICLE III
RESTRICTIONS ON TRANSFER
SECTION 3.01. General Restriction. No Original Owner shall, directly or
indirectly, make or solicit any Sale with respect to any Share, or any share of
Preferred Stock, except in compliance with the Securities Act and this
Agreement.
SECTION 3.02. Legends. (a) The Company shall affix to each certificate
evidencing Shares or shares of Preferred Stock a legend in substantially the
following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OF
TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER
UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY."
(b) In the event that any Shares shall cease to be Restricted Shares,
the Company shall, upon the written request of the holder thereof, issue to such
holder a new certificate evidencing such Shares without the legend required by
Section 3.02(a) endorsed thereon; provided; however, that such holder shall
furnish the Company or its transfer agent such certificates, legal opinions or
other information as the Company or its transfer agent may reasonably require to
confirm that the legend is not required on such certificate.
(c) The Company shall affix to each certificate evidencing Shares or
shares of Preferred Stock a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS' AGREEMENT,
DATED AS OF ____________, 1997, AS IT MAY BE AMENDED FROM TIME TO TIME,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON
THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE
BEEN COMPLIED WITH."
(d) In the event that any Shares or any shares of Preferred Stock shall
cease to be subject to the restrictions on transfer set forth in this Agreement
and in the Restated Certificate of Incorporation, the Company shall, upon the
written request of the
<PAGE> 16
13
holder thereof, issue to such holder a new certificate evidencing such Shares or
such shares of Preferred Stock, as the case may be, without the legend required
by Section 3.02(c).
SECTION 3.03. Restrictions on Certain Transfers of Shares. No Original
Owner shall, directly or indirectly, make or solicit any Sale of any Share
beneficially owned by it other than (a) any Sale to a Third Party or Third
Parties (including in connection with a Sale effected through an offering made
pursuant to the Registration Rights Agreement), (b) any Sale to one of its
Affiliates that is made in compliance with the procedures, and subject to the
limitations, set forth in Section 3.05 and (c) any Sale to another Original
Owner or any of its Affiliates that is made in compliance with the procedures,
and subject to the limitations, set forth in Section 3.04. Notwithstanding the
foregoing, except as otherwise expressly provided in this Agreement, all Sales
permitted by the foregoing clauses (a) through (c) shall be subject to, and
shall not be made other than in compliance with, the provisions of Sections 3.01
and 3.09.
SECTION 3.04. Right of First Refusal. (a) If, at any time, any Original
Owner (the "Selling Original Owner") shall have agreed with another Original
Owner or an Affiliate thereof (a "Prospective Buyer") to sell or otherwise
transfer, whether directly or indirectly, in a bona fide transaction, any or all
of the Shares (the "Offered Shares") held by such Selling Original Owner (other
than pursuant to an Offer (as defined in Section 4.01(b)) or a public offering
effected in accordance with the Registration Rights Agreement or otherwise) to
the Prospective Buyer, such Selling Original Owner shall deliver a written
notice of its intention to sell the Offered Shares (a "Notice of Intention"), to
each of the other Original Owners (other than the Prospective Buyer) (the "First
Refusal Original Owners"), as well as to the Company and the Prospective Buyer,
setting forth such Selling Original Owner's intention to make such Sale (which
shall be for cash only), the number of Offered Shares, the cash price at which
such Selling Original Owner proposes to sell the Offered Shares to the
Prospective Buyer (the "First Refusal Price"), and the other material terms of
the Prospective Buyer's offer. A Notice of Intention, once given, shall be
irrevocable. The Notice of Intention shall be dated the date it is delivered by
the Selling Original Owner to the First Refusal Original Owners and the Company.
(b) Upon receipt of the Notice of Intention, each First Refusal
Original Owner and the Prospective Buyer shall have the right to purchase at the
First Refusal Price, and otherwise on the same terms set forth in the Notice of
Intention, such number of Offered Shares up to the Pro Rata Number for such
Original Owner or Prospective Buyer; provided, however, that any of such Persons
may indicate in its Notice of Exercise (as defined below) that it wishes to
purchase more than its Pro Rata Number. The right of the First Refusal Original
Owners and the Prospective Buyer to purchase Offered Shares pursuant to this
Section 3.04(b) shall be exercisable by written notice to the Selling Original
Owner (the "Notice of Exercise"), which notice shall state the maximum number of
Offered Shares such Person is willing to buy, with copies to each of the other
First Refusal Original Owners, the Prospective Buyer and the Company, within 30
days from the date of the Notice of Intention
<PAGE> 17
14
(the "Option Period"). The right of any First Refusal Original Owner pursuant to
this Section 3.04(b) shall terminate if it is not exercised within 30 days of
the date of the Notice of Intention. A Notice of Exercise, once given, shall be
irrevocable.
(c) Upon receipt of the Notices of Exercise, the Selling Original Owner
shall promptly calculate the number of Offered Shares which the Prospective
Buyer and each First Refusal Original Owner is entitled to purchase hereunder.
If the Notices of Exercise indicate that the Prospective Buyer and each First
Refusal Original Owner wishes to purchase at least its Pro Rata Number of
Offered Shares, the First Refusal Original Owners and the Prospective Buyer
shall each be allocated a number of Offered Shares equal to its respective Pro
Rata Number. If the Notices of Exercise indicate that the Prospective Buyer or
one or more First Refusal Original Owners do not wish to purchase their Pro Rata
Number of Offered Shares, the Prospective Buyer and the First Refusal Original
Owners who have indicated in their respective Notices of Exercise that they wish
to purchase more than their Pro Rata Number of Offered Shares shall each be
given an opportunity to acquire a number of the Offered Shares that are not so
taken up equal to the Pro Rata Number (which shall be calculated, for purposes
of the foregoing allocation only, by taking into account only the Shares of the
Prospective Buyer and the First Refusal Original Owners who shall have indicated
that they wish to purchase more than their Pro Rata Number of Offered Shares),
and the foregoing procedure shall be repeated until all of the Offered Shares
have been taken up; provided, however, that (i) no such First Refusal Original
Owner shall be obligated to purchase more Offered Shares than such First Refusal
Original Owner shall have indicated it is willing to purchase in its Notice of
Exercise, and (ii) in the event that fewer than all of the Offered Shares have
been taken up within 20 days from the date of delivery of the last Notice of
Exercise received by the Selling Original Owner, the Selling Original Owner
shall not be obligated to sell any of the Offered Shares pursuant to this
Section 3.04.
(d) Subject to clause (ii) of the proviso to Section 3.04(c), the
Selling Original Owner shall sell the Offered Shares to such First Refusal
Original Owners and the Prospective Buyer within 45 days from the date of
delivery of the last Notice of Exercise received by the Selling Original Owner.
(e) Notwithstanding the provisions of Sections 3.04(b) and (c), the
Prospective Buyer shall have the right, upon written notice to the Selling
Original Owner (with copies to each of the First Refusal Original Owners and the
Company) within 10 days from the date of the Notice of Intention, to elect not
to purchase any of the Offered Shares pursuant to the procedures set forth in
Sections 3.04(b) and (c). If the Selling Original Owner does not sell any of the
Offered Shares to the First Refusal Original Owners pursuant to this Section
3.04, then the Selling Original Owner may sell the Offered Shares to the
Prospective Buyer within 45 days from the date of delivery of the last Notice of
Exercise at a price no lower than the First Refusal Price and on terms no more
favorable to the Prospective Buyer than those set forth in the Notice of
Intention.
<PAGE> 18
15
(f) Upon the consummation of any purchase and Sale pursuant to this
Section 3.04, the Selling Original Owner shall deliver certificates evidencing
the Offered Shares sold duly endorsed, or accompanied by written instruments of
transfer, in form and substance satisfactory to the purchaser thereof, duly
executed by the Selling Original Owner, free and clear of any encumbrance,
against delivery of the purchase price for such shares payable in immediately
available funds by wire transfer. The Selling Original Owner shall be
responsible for and pay any stamp taxes or other similar conveyance fees
incurred as a result of the Sale of the Offered Shares.
SECTION 3.05. Affiliate Transferees to Execute Agreement. Each Original
Owner agrees that it will not, directly or indirectly, make any Sale of any
Shares held by such Original Owner to any of its Affiliates, unless, prior to
the consummation of any such Sale, the Affiliate to whom such Sale is proposed
to be made (a "Prospective Affiliate Transferee") (i) executes and delivers to
the Company a counterpart of this Agreement as it may have been amended as of
such time and (ii) represents and warrants in writing to the Company that such
Agreement has been duly authorized, executed and delivered by such Prospective
Affiliate Transferee and is a legal, valid and binding obligation of such
Prospective Affiliate Transferee enforceable against it in accordance with its
terms. Upon the execution and delivery by such Prospective Affiliate Transferee
of the documents referred to in the preceding sentence, such Prospective
Affiliate Transferee shall be deemed an "Original Owner" for the purposes of
this Agreement, and shall have the rights and be subject to the obligations of
an Original Owner hereunder with respect to the Shares held by such Prospective
Affiliate Transferee. Notwithstanding anything to the contrary set forth herein,
if any Shares are transferred from an Original Owner to one of its Affiliates as
a result of a merger between an Original Owner and an Affiliate of such Original
Owner, and pursuant to such merger such Affiliate assumes such Original Owner's
obligations under this Agreement (whether by operation of law or otherwise),
such Affiliate shall not be required to comply with the provisions of clauses
(i) and (ii) of this Section 3.05.
SECTION 3.06. Sale to a Third Party. If a Sale of Shares is made in
connection with a simultaneous Sale of shares of Preferred Stock to a Permitted
Preferred Stock Transferee that complies with all of the requirements set forth
in Section 3.07, such Shares shall be deemed "Shares" and such Permitted
Preferred Stock Transferee shall be deemed an "Original Owner" for all purposes
of this Agreement. If a Sale of Shares is made to a Third Party (a "Third Party
Transferee") that is not a Permitted Preferred Stock Transferee that complies
with all of the requirements set forth in Section 3.07, such Shares shall
immediately cease to be the subject of this Agreement and such Third Party
Transferee will not become an Original Owner for purposes of this Agreement. If
a Sale of Shares results in the selling Original Owner ceasing to own any
Shares, such selling Original Owner shall cease to be an Original Owner for
purposes of this Agreement.
SECTION 3.07. Restrictions on Certain Transfers of Shares of Preferred
Stock. (a) No Original Owner shall, directly or indirectly, make or solicit any
sale of any
<PAGE> 19
16
share of Preferred Stock beneficially owned by it unless such Sale is in
connection with a simultaneous Sale of Shares to (i) another Original Owner,
(ii) one of such Original Owner's Affiliates, or (iii) a Third Party (each of
(i), (ii) and (iii), a "Permitted Preferred Stock Transferee"), and in each such
case, (A) such Permitted Preferred Stock Transferee would, after giving effect
to such transfer, hold Shares representing at least 5% of the then outstanding
shares of Common Stock, provided, that if the Original Owner transferring such
shares of Preferred Stock holds Shares representing less than 5% of the then
outstanding shares of Common Stock but the series of Preferred Stock held by
such Original Owner continues to be entitled to elect a Director due to the
operation of Sections 4.3(d)(2), (3), (4) or (5) of the Restated Certificate of
Incorporation, then the foregoing clause (A) shall be deemed to be satisfied if
(x) such Permitted Preferred Stock Transferee would, after giving effect to such
transfer, hold shares of Common Stock representing at least 5% of the then
outstanding shares of Common Stock, or (y) such Permitted Preferred Stock
Transferee shall have purchased additional shares of Common Stock in the public
market or otherwise in order to increase its holdings of shares of Common Stock
to at least 5% within 90 days after such transfer (and unless and until such
Permitted Preferred Stock Transferee shall have increased its holdings of shares
of Common Stock to at least 5% within such 90 day period, it shall not be
entitled to elect any Directors to the Board pursuant to the terms of the
Preferred Stock that is or are proposed to be transferred to it), and (B) if the
Permitted Preferred Stock Transferee is not already a party to this Agreement
and a Non-Competition Agreement, such Permitted Preferred Stock Transferee
executes and delivers to the Company (x) a counterpart of this Agreement,
together with (y) a Non-Competition Agreement, and represents and warrants in
writing to the Company that such agreements have been duly authorized, executed
and delivered by such Permitted Preferred Stock Transferee and are legal, valid
and binding obligations of such Permitted Preferred Stock Transferee enforceable
against it in accordance with their respective terms.
(b) In no event shall any fraction of a share of Preferred Stock, or
any partial interest therein, be transferred to any other Person.
SECTION 3.08. Improper Sale. Any attempt not in compliance with this
Agreement to make any Sale of any Shares or any shares of Preferred Stock shall
be null and void and the Company shall not give any effect in the Company's
stock records to such attempted Sale.
SECTION 3.09. Limitation on Dispositions. As of the date hereof and
again as of the date of the IPO, and except (i) with respect to Shares listed
opposite the name of such Parent Entity or the Parent Entity with respect to
such stockholder in the column "Number of Shares of Common Stock Being Offered"
in the section entitled "Principal and Selling Stockholders" in the Form S-1
filed in connection with the IPO or (ii) for transfers permitted by Section
351(c) of the Code, each of the stockholders listed in Schedule A represents
that it, and each of the Parent Entities represents that its respective
Affiliate listed in Schedule A, (x) has not entered into any binding
commitment, obligation or contract to sell, transfer or dispose of Shares or
shares of Preferred Stock
<PAGE> 20
17
received by such stockholder in connection with the formation of the Company,
(y) has no plan, arrangement or understanding with any Nonaffiliated Person
(including, but not limited to, investment banks or brokers), and is not under
any economic compulsion, to sell, transfer or dispose of Shares or shares of
Preferred Stock received by such stockholder in connection with the formation of
the Company to any Person and (z) has no plan, arrangement or understanding with
any Person (including, but not limited to, investment banks or brokers), and is
not under any economic compulsion, to sell, transfer or dispose of Shares or
shares of Preferred Stock received by such stockholder in connection with the
formation of the Company to any Affiliated Person. Notwithstanding any other
provision of this Agreement except with respect to Shares listed opposite the
name of such Parent Entity or the Parent Entity with respect to such stockholder
in the column "Number of Shares of Common Stock Being Offered" in the section
entitled "Principal and Selling Stockholders" in the Form S-1 filed in
connection with the IPO, each of the stockholders listed in Schedule A, and each
of the Parent Entities agrees that its respective Affiliate listed in Schedule
A, will not sell, transfer or dispose of any of the Shares or shares of
Preferred Stock received by such stockholder in connection with the formation of
the Company prior to the expiration of six months following the IPO unless such
stockholder and its respective Parent Entity has delivered a written opinion of
a nationally recognized U.S. tax counsel to each of the other Parent Entities,
which opinion provides that such sale, transfer or disposition will not cause
the formation of the Company to fail to qualify under Section 351 of the Code.
In connection with the rendering by such counsel of such opinion, the Company
will provide to such counsel such information in the Company's possession, and
will make reasonable efforts to obtain such relevant information, as counsel may
reasonably request.
ARTICLE IV
CERTAIN AGREEMENTS
SECTION 4.01. Certain Agreements. (a) Except as expressly
contemplated by this Agreement, each of the Parent Entities and the Original
Owners and their respective Affiliates shall not:
(i) acquire, offer to acquire, or agree to acquire, directly
or indirectly, by purchase or otherwise, (x) any Voting Securities that
would increase or would have the effect of increasing such Parent
Entity's or Original Owner's (A) level of beneficial ownership in the
Company to more than 50% of the then outstanding Voting Securities or
(B) voting power to more than 50% of the voting power of the then
outstanding Voting Securities, or (y) any direct or indirect rights to
acquire any Voting Securities that would increase or would have the
effect of increasing such Parent Entity's or Original Owner's (A) level
of beneficial ownership in the Company to more than 50% of the then
outstanding Voting Securities or (B) voting power to more than 50% of
the voting power of the then outstanding Voting Securities if such
rights were exercised.
<PAGE> 21
18
(ii) make any public announcement with respect to, or submit
a proposal for, any transaction involving a Parent Entity, Original
Owner or of any Affiliate thereof that would increase or would have the
effect of increasing such Parent Entity's or Original Owner's (A) level
of beneficial ownership in the Company to more than 50% of the then
outstanding Voting Securities or (B) voting power to more than 50% of
the voting power of the then outstanding Voting Securities;
(iii) form, join or in any way participate in a "group" as
such term is defined for purposes of Section 13(d)(3) of the Securities
Exchange Act, in connection with any of the foregoing; or
(iv) request the Company, directly or indirectly, to amend or
waive any provision of this Section 4.01(a).
(b) Notwithstanding the provisions of Section 4.01(a), a
Parent Entity, Original Owner or any Affiliate thereof, acting individually or
acting in concert as a "group" as such term is defined for purposes of Section
13(d)(3) of the Securities Exchange Act (an "Acquiring Owner"), may offer to
acquire all of the outstanding Voting Securities (the "Offer"); provided,
however, that (i) (A) the Acquiring Owner submits a written proposal (the
"Proposal") to the Independent Directors setting forth a brief description of
the Offer, the price and other material terms of such Offer and any other
information that the Independent Directors may request and (B) the price and
other material terms of the Offer are approved by the Independent Directors or
(ii) in the event that the Independent Directors cannot reach agreement with the
Acquiring Owner with respect to the price of the Offer within 45 days following
the receipt of the Proposal, a nationally recognized investment banking firm
selected by the Independent Directors, after consultation with the Acquiring
Owner, independent of the Company and the Acquiring Owner and knowledgeable with
respect to the business of the Company (the "Investment Bank") will determine a
price that is fair from a financial point of view to the stockholders of the
Company (other than the Acquiring Owner). The fees, costs and expenses of the
Investment Bank shall be borne by the Acquiring Owner. The Independent Directors
shall notify the Acquiring Owner within 2 business days of the delivery of such
determination by the Investment Bank. Notwithstanding anything to the contrary
in this Section 4.01, the Independent Directors shall not be obligated to
consider any Offer made by an Acquiring Owner unless such Offer is a bona fide
offer for all of the Voting Securities of the Company.
SECTION 4.02. No Solicitation. Except as expressly
contemplated by this Agreement, none of the Parent Entities, Original Owners or
any of their respective Affiliates shall make, or in any way participate,
directly or indirectly in, nor shall they form, join or in any way participate
in a "group", as such term is defined for purposes of Section 13(d)(3) of the
Securities Exchange Act, in connection with, any "solicitation" of "proxies" to
vote (as such terms are used in the rules of the Commission) in opposition to
any proxy solicitation
<PAGE> 22
19
being conducted by the Company; provided, however, that the foregoing shall not
prohibit any communication not amounting to a solicitation of proxies.
SECTION 4.03. Issuances of Shares of Capital Stock. The
Company shall not, at any time during the term of this Agreement, issue any
shares of capital stock unless such issuance is approved by a majority of the
whole Board.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Further Action. Each of the parties hereto shall
use all reasonable efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and consummate and
make effective the transactions contemplated by this Agreement.
SECTION 5.02. Representations. Each of the parties hereto
represents that this Agreement has been duly authorized, executed and delivered
by such party and constitutes a legal, valid and binding obligation of such
party, enforceable against it in accordance with the terms of this Agreement.
SECTION 5.03. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or in equity.
SECTION 5.04. Amendments and Waivers. Any term in this
Agreement may be amended or waived upon the written consent of the holders of
more than 662/3% of the Shares then held by the Original Owners; provided,
however, that (i) any amendment or waiver that adversely affects any Parent
Entity or Original Owner shall require the consent in writing of such Parent
Entity or Original Owner (whether or not such amendment or waiver affects any
one or more of the other Original Owners), (ii) any amendment to the provisions
of Article II shall require the consent in writing of the Company and the
Original Owners then party to this Agreement that hold series of Preferred Stock
that are entitled to elect one or more directors to the Board pursuant to the
terms of the Preferred Stock, and (iii) any amendment to any of the provisions
of Section 4.01 or 4.02 shall require the consent in writing of each of the
parties hereto, including the Company. Except where consent is required pursuant
to this Section 5.04, each of the Parent Entities and the Original Owners
<PAGE> 23
20
shall be bound by any amendment or waiver authorized by this Section 5.04. Each
party hereto, including the Company, agrees that it shall not take or cause to
be taken any action to adopt, amend or repeal any provision of the Restated
Certificate of Incorporation or the Restated By-laws of the Company so as to
make them inconsistent in any manner with this Agreement or the Registration
Rights Agreement.
SECTION 5.05. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given or
made (and shall be deemed to have been duly given or made upon receipt) by
delivery in person, by courier service, by cable, by telecopy, by telegram, by
telex or by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified in a notice given in accordance with this
Section 5.05):
(a) if to United or Covia:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
with a copy to:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
(b) if to USAW or USAM:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
<PAGE> 24
21
with a copy to:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
(c) if to Air Canada or Resnet:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
with a copy to:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
(d) if to British Airways or DSI:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
with a copy to:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
<PAGE> 25
22
(e) if to SwissAir or Roscor:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
with a copy to:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
(f) if to KLM or TIS:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
with a copy to:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
(g) if to Aer Lingus or Retford:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
<PAGE> 26
23
with a copy to:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
(h) if to Alitalia or Racom:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
with a copy to:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
(i) if to Austrian Airlines or Travidata:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
with a copy to:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
<PAGE> 27
24
(j) if to Olympic or Olynet:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
with a copy to:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
(k) if to TAP or Coporga:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
with a copy to:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
(l) if to the Company:
___________________________________
___________________________________
___________________________________
Telecopy:__________________________
Attention:_________________________
<PAGE> 28
25
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy: 212-848-7179
Attention: Clare O'Brien, Esq.
SECTION 5.06. Benefit; Successors and Assigns. Except as
otherwise provided herein, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
permitted assigns; provided however that this Agreement shall not inure to the
benefit of any Prospective Affiliate Transferee unless such Prospective
Affiliate Transferee shall have complied with the terms of Section 3.05 in all
respects; provided, further, that this Agreement shall not inure to the benefit
of any Permitted Preferred Stock Transferee unless such Permitted Preferred
Stock Transferee shall have complied with the terms of Section 3.07 in all
respects; and provided further that this Agreement shall not inure with respect
to additional Shares acquired by a Prospective Buyer unless such Prospective
Buyer and Selling Original Owner shall have complied with Section 3.04 in all
respects. Nothing in this Agreement either express or implied is intended to
confer on any person, other than the parties hereto and their respective
successors and permitted assigns, any rights, remedies or obligations under or
by reason of this Agreement.
SECTION 5.07. Arbitration. Subject to the final sentence of
this Section 5.07, any dispute arising between or among the parties hereto or
any of them involving the subject matters covered by this Agreement shall be
submitted to arbitration under this Section 5.07. Any party asserting a breach
of this Agreement by any other party or parties shall notify all other parties
of such alleged breach (a "Dispute Notice") and the parties shall attempt to
resolve such dispute amicably and if they shall fail to resolve it within thirty
(30) days of the date of the Dispute Notice, any party may notify the other
parties that it wishes to commence an arbitration proceeding under this Section
5.07 (an "Arbitration Request"). In any arbitration proceeding the party or
parties commencing the arbitration (alone or together, if more than one, the
"Petitioner") shall include in the Arbitration Request (a) a statement of the
facts constituting the alleged breach or dispute, (b) a written statement of
position ("Statement") regarding the dispute and (c) the name of an individual
designated by it to appoint an Arbitrator (an "elector"). The Statement shall
state the facts and arguments in support of the position taken by the party
submitting such Statement and shall detail that party's proposed solution and
relief sought (if any). Copies of any Arbitration Request shall be furnished at
the same time to the other parties hereto. The party or parties with whom the
Petitioner has its dispute (alone or together, if more than one, the
"Respondent") shall within fifteen (15) business days after the date of the
Arbitration Request designate a second elector by notice to the Petitioner
(copies of which shall be furnished to the other parties), but if it or they
shall fail to do so within such period the Petitioner may designate an elector
on Respondent's behalf. The electors chosen by the Petitioner and the Respondent
shall
<PAGE> 29
26
attempt to agree upon an arbitrator (the "Arbitrator"), but if they are unable
to do so within twenty (20) business days after the designation of the second
elector, then either elector thereafter may apply to the American Arbitration
Association (the "Association") for the selection of the Arbitrator in
accordance with the Commercial Arbitration Rules of such Association. The
Arbitrator so selected shall have full power to decide any dispute referred to
in this Section 5.07. The arbitration proceedings shall be conducted in the
English language, and the place of arbitration and the making of the Award (as
defined below) shall be the City of New York. The UNCITRAL rules of commercial
arbitration shall apply to any arbitration commenced pursuant to this Section
5.07, as modified by the following procedure:
(i) Within ten (10) business days of the selection of the
Arbitrator (the "Commencement Date"), the Respondent shall deliver its
Statement regarding the dispute to the Arbitrator and to the
Petitioner.
(ii) Within twenty (20) business days from the Commencement
Date, each of the Petitioner and Respondent shall deliver to the
Arbitrator and to the other party, a response ("Response") to the other
party's Statement setting forth opposing facts and arguments and
limited in length to ten (10) typed, single spaced pages (excluding any
evidentiary exhibits included therein).
(iii) Within thirty (30) business days from the Commencement
Date, each of the Petitioner and the Respondent may deliver to the
Arbitrator and to the other party, a reply to the Response limited to
setting forth facts and arguments in rebuttal to the Statement and
Response of the other party and limited in length to five (5) typed,
single spaced pages (excluding any evidentiary exhibits included
therein).
(iv) Within forty (40) business days from the Commencement
Date, each of the Petitioner and Respondent shall present an oral
summation of its position to the Arbitrator in the presence of the
other party in accordance with such rules of procedure including,
without limitation, length of presentation and right of
crossexamination, as the Arbitrator shall determine in writing and
deliver to the parties not less than five (5) business days prior to
such hearing; provided, however, that such hearing shall not exceed
eight (8) hours in total and may not be adjourned except for
extraordinary circumstances beyond the control of the parties.
(v) The Arbitrator shall either issue his decision and award
("Award") or request a further meeting of the parties within fifteen
(15) days of the hearing.
(vi) Any such further meeting of the parties shall take place
within fifteen (15) business days of the request therefor and shall be
conducted as determined by the Arbitrator. The Arbitrator shall issue
his Award no later than fifteen (15) days after any such further
meeting of the parties.
<PAGE> 30
27
(vii) The Award shall be in writing and shall be limited to a
decision either completely in favor of Petitioner's request for relief
or completely in favor of Respondent's request for relief. The Award
shall be final and binding upon the parties hereto and judgment may be
entered thereon in any court of competent jurisdiction and the costs
and expenses of such arbitration shall be borne by the party losing
such arbitration.
This Section 5.07 shall in no way affect the right of any
party to seek such interim relief, and only such relief, as may be required to
maintain the status quo in aid of the arbitration in any court of competent
jurisdiction.
SECTION 5.08. Changes to Non-Competition Agreement. The
Company shall not amend the provisions of any Non-Competition Agreement unless
such amendment is offered to each of the other Persons that are then parties to
a Non-Competition Agreement with the Company. The Company shall not enter into a
Non-Competition Agreement after the date hereof that differs in any material
respect from the terms of the form attached hereto as Exhibit A (as such form
may be amended in accordance with this Section 5.08) unless (i) the terms of
such proposed Non-Competition Agreement are offered to each of the other Persons
that are then parties to a Non-Competition Agreement with the Company, or (ii)
such action is approved by a majority of the whole Board, which majority
includes the affirmative vote of at least four Original Owner Directors (or, if
there are fewer than four Original Owner Directors at the time such vote is
taken, at least such number of Original Owner Directors as equals one less than
all such Original Owner Directors).
SECTION 5.09. Termination. Except for this Article V, this
Agreement shall terminate and be of no further force and effect, automatically
and without any required actions of the parties hereto, on the tenth anniversary
of the date hereof.
SECTION 5.10. Miscellaneous. This Agreement, the Registration
Rights Agreement and the Restated Certificate of Incorporation of the Company
set forth the entire agreement and understanding among the parties hereto, and
supersede all prior agreements and understandings, relating to the subject
matter hereof. All representations and warranties contained herein shall survive
the execution and delivery of this Agreement, regardless of any investigation
made by any party hereto or on such party's behalf. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York. The headings in this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one instrument.
SECTION 5.11. Tax Treatment. For U.S. federal, state and local
income tax purposes, the parties agree to treat the formation of the Company as
a nonrecognition transfer by the partners of the Galileo International
Partnership (the "Partnership") of their
<PAGE> 31
28
respective partnership interests in the Partnership in exchange for shares of
Common Stock and Preferred Stock under Section 351 of the Code. For U.S.
federal, state and local income tax purposes, the parties agree to report the
formation of the Company in a manner that is consistent with such treatment
described in the previous sentence and shall not take any position or action
contrary thereto unless required to do so by applicable tax laws pursuant to a
final determination under Section 1313(a) of the Code (or a similar provision of
state or local laws, as the case may be).
SECTION 5.12. Tax Opinion. Prior to the consummation of the
IPO, the Company shall have received a written opinion of a nationally
recognized U.S. tax counsel substantially to the effect that, based on
appropriate representations and assumptions, the Merger and consummation of the
IPO will constitute a transfer described in Section 351(a) of the Code, and as
such will not result in the recognition of gain or loss by the partners or the
Company.
IN WITNESS WHEREOF, the parties hereto have duly caused this
Agreement to be executed as of the date first above written above by their
respective officers thereunto duly authorized.
GALILEO INTERNATIONAL, INC.
By _________________________________
Name:
Title:
UNITED AIR LINES, INC.
By _________________________________
Name:
Title:
COVIA CORPORATION
By _________________________________
Name:
Title:
<PAGE> 32
29
US AIRWAYS, INC.
By _________________________________
Name:
Title:
USAM CORPORATION
By _________________________________
Name:
Title:
AIR CANADA
By _________________________________
Name:
Title:
RESNET HOLDINGS, INC.
By _________________________________
Name:
Title:
BRITISH AIRWAYS PLC
By _________________________________
Name:
Title:
<PAGE> 33
30
DISTRIBUTION SYSTEM, INC.
By _________________________________
Name:
Title:
SWISSAIR TRANSPORT
COMPANY LTD.
By _________________________________
Name:
Title:
ROSCOR A.G.
By _________________________________
Name:
Title:
KONINKLIJKE LUCHTVAART
MAATSCHAPPIJ N.V.
KLM ROYAL DUTCH AIRLINES
By _________________________________
Name:
Title:
TRAVEL INDUSTRY SYSTEMS B.V.
By _________________________________
Name:
Title:
<PAGE> 34
31
AER LINGUS PLC
By _________________________________
Name:
Title:
RETFORD LIMITED
By _________________________________
Name:
Title:
ALITALIA-LINEE AEREE
ITALIANE S.P.A.
By _________________________________
Name:
Title:
RACOM TELEDATA S&A
By _________________________________
Name:
Title:
<PAGE> 35
32
AUSTRIAN AIRLINES
OESTERREICHISCHE
LUFTVERKEHRS
AKTIENGESELLSCHAFT
By _________________________________
Name:
Title:
TRAVIDATA INC.
By _________________________________
Name:
Title:
OLYMPIC AIRWAYS S.A.
By _________________________________
Name:
Title:
OLYNET, INC
By _________________________________
Name:
Title:
<PAGE> 36
33
TRANSPORTES AEREOS
PORTUGUESES S.A.
By _________________________________
Name:
Title:
COPORGA, INC
By _________________________________
Name:
Title:
<PAGE> 37
34
SCHEDULE A
Covia Corp., a Delaware corporation and a wholly owned subsidiary of United
("Covia").
USAM Corp., a Delaware corporation and a wholly owned subsidiary of USAir
("USAM").
Resnet Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of
Air Canada ("Resnet").
Distribution Systems Inc., a Delaware corporation and an indirect wholly owned
subsidiary of British Airways ("DSI").
Roscor A.G., a corporation organized under the laws of Switzerland and a wholly
owned subsidiary of SwissAir ("Roscor").
Travel Industry Systems B.V., a corporation organized under the laws of the
Netherlands and a wholly owned subsidiary of KLM ("TIS").
Retford Limited, a corporation organized under the laws of Ireland and a wholly
owned subsidiary of Aer Lingus ("Retford").
Racom Teledata S&A, a corporation organized under the laws of Italy and a
majority owned subsidiary of Alitalia ("Racom").
Travidata Inc., a New York corporation and a wholly owned subsidiary of Austrian
Airlines ("Travidata").
Olynet Inc., a Delaware corporation and wholly owned subsidiary of Olympic
("Olynet").
Coporga, Inc., a Delaware corporation and wholly owned subsidiary of TAP
("Coporga").
<PAGE> 38
SCHEDULE B
United Air Lines, Inc., a Delaware corporation ("United").
US Airways, Inc., a Delaware corporation ("USAW").
Air Canada, a corporation organized under the laws of Alberta ("Air Canada").
British Airways PLC, a corporation organized under the laws of England and Wales
("British Airways").
Swissair Swiss Air Transport Company Ltd., a corporation organized under the
laws of Switzerland ("SwissAir").
KLM Royal Dutch Airlines, a corporation organized under the laws of the
Netherlands ("KLM").
Aer Lingus PLC, a corporation organized under the laws of Ireland ("Aer
Lingus").
Alitalia-Linee Aeree Italiane S.p.A., a corporation organized under the laws of
Italy ("Alitalia").
Austrian Airlines Oesterreichische Luftverkehrs Aktiengesellschaft, a
corporation organized under the laws of Austria ("Austrian Airlines").
Olympic Airways S.A., a corporation organized under the laws of Greece
("Olympic").
Transportes Aereos Portugueses S.A., a corporation organized under the laws of
Portugal ("TAP").
<PAGE> 1
EXHIBIT 10.5
SERVICES AGREEMENT
SERVICES AGREEMENT (this "Agreement"), dated as of _________
__, 1997, among Galileo International, Inc., a Delaware corporation ("Galileo"),
United Airlines, Inc., a Delaware corporation ("United"), US Airways, Inc., a
Delaware corporation ("USAW"), and Air Canada, a corporation incorporated under
the laws of Alberta ("Air Canada" and, together with United and USAW, the
"Service Providers").
WHEREAS, the Service Providers have a significant number of
sales personnel and sales offices in the ATS Territory (as hereafter defined),
and are very knowledgeable about the airline distribution business;
WHEREAS, as a result of the Service Providers' significant
number of sales personnel and sales offices in the ATS Territory and their
knowledge concerning the airline distribution business, Galileo desires to
enlist the Service Providers' assistance with certain marketing and other
services designed to assist Galileo in growing the business operations of Apollo
Travel Services ("ATS");
WHEREAS, the Service Providers desire to provide such
marketing and other services designed to assist Galileo in growing the business
operations of ATS;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained and intending to be legally
bound hereby, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
"ATS Territory" means (i) the United States of America,
including its overseas territories, commonwealths, trust territories and
protectorates, (ii) Anguilla, Antigua and Barbuda, Bahamas, Barbados, Cayman
Islands, Cuba, Dominica, Dominican Republic, Grenada, Guadeloupe, Haiti,
Jamaica, Martinique, Montserrat, St. Kitts-Nevis, Saint Lucia, St. Vincent and
the Grenadines, Trinidad and Tobago and Turks and Caicos Islands, and (iii) the
Republic of Mexico.
<PAGE> 2
2
"Cost of Carry Factor" means the number resulting from the
following formula: (1 + Cost of Carry Rate)n, where n is the number of years
between the date hereof and the date of any applicable payment made hereunder
(adjusted pro rata for any fraction of a year).
"Cost of Carry Rate" means 8.625%.
"Segments" means net air segments, as determined by Galileo's
billing system in accordance with current practices, in respect of transactions
made in the Galileo System within the ATS Territory by (i) Neutral Travel
Providers and Other Customers that have entered into subscriber agreements with
ATS for Reservations Services (or, following the date hereof, by Neutral Travel
Providers and Other Customers within the ATS Territory that have entered into
subscriber agreements with Galileo for Reservations Services) from which Booking
Fee Revenue is generated which is split between Galileo and ATS, with respect to
NTP Revenue, in accordance with the DSSA between Galileo and ATS, or which is
split between Galileo and ATS, with respect to Other Customer Revenue, in
accordance with the first clause of Section 8.8(a) of the Galileo International
Partnership Agreement (or, following the date hereof, would have been split
between Galileo and ATS, with respect to NTP Revenue, in accordance with the
DSSA between Galileo and ATS or which would have been split between Galileo and
ATS, with respect to Other Customer Revenue, in accordance with the first Clause
of Section 8.8(a) of the Galileo International Partnership Agreement, had that
agreement and that provision, respectively, continued to have been in effect)
and (ii) Other Customers (corporate only) of United, USAW, or Air Canada
utilizing a Customized Product from which Booking Fee Revenue is generated which
is split in accordance with the first clause of Section 8.8(c) of the Galileo
International Partnership Agreement (or, following the date hereof, which would
have been split in accordance with the first Section 8.8(c) of the Galileo
International Partnership Agreement, had that provision continued to have been
in effect). The calculation of net air segments to be credited to ATS hereunder
excludes net air segments in respect of transactions made in the Galileo System
by Other Customers of United, USAW, or Air Canada utilizing Partner Developed
Products. All capitalized terms used in this definition of the term "Segments"
shall be as defined in the Galileo International Partnership Agreement or the
Distributor Sales and Service Agreement between Galileo and ATS as in effect
immediately prior to the date hereof.
"Transaction Category" means any transaction category, as
determined in accordance with Galileo's customary practices, including, without
limitation, the following transaction categories (together with any transaction
categories that replace the following transaction categories or are
substantially similar thereto): an active confirmed segment input, a passive
segment input, an other segment input, an active confirmed segment cancel, a
passive segment cancel, an other segment cancel, an interactive display
transaction, an interactive sell transaction, an inside availability
transaction, a positive acknowledgement transaction, and a marriage logic
transaction.
<PAGE> 3
3
"Transaction Category Weighted Average Price" means, with
respect to any applicable Transaction Category during the course of any
applicable year, the weighted average of the published prices for such
Transaction Category during the course of such year, as determined by (i)
multiplying each published list price recorded for such Transaction Category
during the course of such year by a fraction, the numerator of which is the
number of days for which such published price was in effect for such Transaction
Category during the course of such year, and the denominator of which is 365,
and (ii) taking the sum of the resulting numbers.
ARTICLE II
PROVISION OF SERVICES
SECTION 2.01. Provision of Services. Subject to the
requirements of applicable law, each of the Service Providers hereby agrees to
use its expertise with respect to the airline distribution business and its
significant number of sales personnel and sales offices in the ATS Territory to
increase Galileo's competitiveness in the marketplace and generate additional
segments and revenue for Galileo through, but not limited to, the provision of
the following services to Galileo:
(a) Representatives from the marketing divisions of each of
Galileo and such Service Provider shall meet regularly 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 (i.e., the internet and other direct
access products).
(b) Representatives of such Service Provider shall assist
Galileo by conducting or participating in meetings and discussions with vendors,
including car, hotel, leisure or marketing or code share air carriers, that
participate or may participate in the Galileo system to strengthen and bolster
such relationships.
(c) Such Service Provider's sales staff shall conduct sales
calls (including joint sales calls with the appropriate Galileo account
executive) to users of the Galileo system throughout the ATS Territory, as
mutually agreed between the parties.
(d) Upon reasonable notice, such Service Provider's marketing
personnel shall participate in Galileo's vendor workshops to be held at various
times throughout the year.
(e) Certain of such Service Provider's key staff, including
sales staff, shall within the first six (6) months hereof, and annually
thereafter, attend a local one-day overview session regarding the Galileo
system.
<PAGE> 4
4
(f) Such Service Provider and Galileo shall cooperate in
exchanging noteworthy information for inclusion in newsletters produced for and
distributed to travel agencies.
(g) Representatives of such Service Provider shall participate
in Galileo's future global automation conferences to enhance Galileo's global
market presence.
(h) Representative of such Service Provider shall meet from
time to time with Galileo on a schedule to which they mutually agree to (i)
review the progress of such Service Provider's performance under this Agreement,
(ii) adopt a schedule of meetings and (iii) consult regarding the appropriate
staffing of Service Provider personnel to perform the Service Provider's
obligations under this Agreement.
SECTION 2.02. Designation of United Representative. United
hereby designates Judy Bishop as its initial representative for purposes of
performing its obligations under Section 2.01.
ARTICLE III
CONTINGENT PAYMENT FOR SERVICES
SECTION 3.01. Contingent Payment for Services. (a) The
payment, if any, that Galileo shall make to the Service Providers in
consideration for the services described in Section 2.01 shall be based upon an
improvement in Galileo's air booking fee revenue, as measured over a five year
period commencing as of the date hereof, and as calculated below. The revenue
improvement shall be measured utilizing two factors, weighted average annual air
segment growth rate ("Weighted Air Segment Growth Rate") and weighted average
annual price increase rate ("Weighted Air Price Increase Rate").
(b) The Service Providers and Galileo will share in the
economic benefit to Galileo of revenue increases which are (i) above the minimum
weighted average annual air segment growth rate ("Minimum Weighted Air Segment
Growth Rate") and at or below the targeted weighted average annual air segment
growth rate ("Targeted Weighted Air Segment Growth Rate") and revenue increases
which are (ii) above the minimum weighted average annual price increase rate
("Minimum Weighted Air Price Increase Rate") and at or below the targeted
weighted average annual price increase rate ("Targeted Weighted Air Price
Increase Rate"). The Minimum Weighted Air Segment Growth Rate and the Targeted
Weighted Air Segment Growth Rate are 3.4% and 5.4%, respectively. The Minimum
Weighted Air Price Increase Rate and the Targeted Weighted Air Price Increase
Rate are 2.0% and 4.0%, respectively.
<PAGE> 5
5
(c) The Service Providers shall receive payments, calculated
and paid in accordance with Sections 3.02 through 3.06 below, which reflect the
approximate economic value of the achievement of the first fifty percent of the
range between (i) the Minimum Weighted Air Segment Growth Rate and the Targeted
Weighted Air Segment Growth Rate and (ii) the Minimum Weighted Air Price
Increase Rate and the Targeted Weighted Air Price Increase Rate, respectively.
Galileo shall retain the approximate economic value of the achievement of the
second fifty percent of such ranges as well as any economic value from the
achievement of a Weighted Air Segment Growth Rate or a Weighted Air Price
Increase Rate which is in excess of such ranges.
SECTION 3.02. Calculation of Segment Growth Payment. (a) The
"Segment Growth Payment" shall be calculated in accordance with the provisions
of this Section 3.02:
(i) Within 60 days of the fifth anniversary hereof (or,
in the event Section 3.04(c) is applicable, within 60
days of the date that is six months after the fifth
anniversary hereof), Galileo shall calculate in
accordance with its customary practices (A) the total
number of Segments recorded in the ATS Territory for
the period of twelve months ending on the date hereof
(the "Pre-Closing Year") and for the period of twelve
months ending on each of the first, second, third,
fourth and fifth anniversaries of the date hereof
(the "Post-Closing Years"), and (B) the percentage
increase or decrease in the total number of such
Segments for each of the Post-Closing Years in
comparison to the immediately preceding Pre-Closing
Year or Post-Closing Year, as applicable.
(ii) Following the calculations described in clause (i)
above, Galileo shall then weight such percentage
increases or decreases by multiplying such percentage
increases or decreases by the corresponding Weighting
Factors set forth on Exhibit 1 hereto. The sum of the
resulting percentages shall constitute the Weighted
Air Segment Growth Rate.
(b) If the Weighted Air Segment Growth Rate is less than or
equal to 3.4%, no Segment Growth Payment shall be made.
(c) If the Weighted Air Segment Growth Rate is greater than or
equal to 4.4%, the Segment Growth Payment shall be $100,000,000.
(d) If the Weighted Air Segment Growth Rate is greater than
3.4% but less than 4.4%, the Segment Growth Payment shall be an amount equal to
(i) $100,000,000 multiplied by (ii) a fraction, the numerator of which shall be
(A) the Weighted Air Segment Growth Rate minus (B) 3.4%, and the denominator of
which shall be 0.01.
<PAGE> 6
6
SECTION 3.03. Calculation of Air Booking Price Increases. (a)
Within 60 days of the fifth anniversary hereof (or, in the event Section 3.04(c)
is applicable, within 60 days of the date that is six months after the fifth
anniversary hereof), Galileo shall calculate the "Price Increase Payment" in
accordance with the provisions of this Section 3.03:
(i) Galileo shall calculate the total number of
transactions, by Transaction Category, associated
with the total number of Segments recorded in the ATS
Territory for the Pre-Closing Year.
(ii) Galileo shall then calculate the aggregate revenue in
the ATS Territory for the Pre-Closing Year by
multiplying the Transaction Category Weighted Average
Price for each Transaction Category for the Pre-
Closing Year by the total number of transactions, by
Transaction Category, recorded in the ATS Territory
in the Pre-Closing Year.
(iii) Galileo shall then determine what the total revenue
in the ATS Territory would have been in each of the
Post-Closing Years on a comparative basis to the
Pre-Closing Year by multiplying the Transaction
Category Weighted Average Price for each Transaction
Category for such Post-Closing Year by the total
number of transactions, by Transaction Category,
recorded in the ATS Territory in the Pre-Closing
Year.
(iv) Galileo shall then calculate the percentage increase
or decrease in the aggregate revenue in the ATS
Territory in each of the Post-Closing Years by taking
the results of the calculations described in clause
(iii) above for each of the Post-Closing Years and
dividing them by the results of the calculations
described in clauses (ii) and (iii) above, as
applicable, with respect to the immediately preceding
years, and then subtracting one from the resulting
numbers to derive a percentage increase or decrease.
(v) Galileo shall weight the percentage price increases
or decreases calculated in accordance with clause
(iv) by multiplying such percentage increases or
decreases by the corresponding Weighting Factors set
forth on Exhibit 1 hereto. The sum of the resulting
percentages shall constitute the Weighted Air Price
Increase Rate.
(b) If the Weighted Air Price Increase Rate is less than or
equal to 2.0%, there shall be no Price Increase Payment.
<PAGE> 7
7
(c) If the Weighted Air Price Increase Rate is greater than or
equal to 3.0%, the Price Increase Payment shall be $100,000,000;
(d) If the Weighted Air Price Increase Rate is greater than
2.0% but less than 3.0%, the Price Increase Payment shall be an amount equal to
(i) $100,000,000 multiplied by (ii) a fraction, the numerator of which shall be
(A) the Weighted Air Price Increase Rate minus (B) 2.0%, and the denominator of
which shall be 0.01.
SECTION 3.04. Grace Period for Certain Price Increases. (a)
The provisions of this Section 3.04 shall apply if the published price for any
Transaction Category in the ATS Territory does not increase during the course of
the first six months of the fifth Post-Closing Year.
(b) With regard to any Transaction Category whose published
price in the ATS Territory does not increase during the course of the first six
months of the fifth Post-Closing Year, but whose published price does increase
on or after the first day of the seventh month of the fifth Post-Closing Year
but prior to the first day of the first month of the sixth Post-Closing Year,
then for purposes of Section 3.03(a)(iii) and the definition of the term
Transaction Category Weighted Average Price, such price increase shall be deemed
to have occurred with regard to such Transaction Category on the first day of
the seventh month of the fifth Post-Closing Year.
(c) If the published price for any Transaction Category does
not increase in the ATS Territory during the course of the fifth Post-Closing
Year, then the calculations set forth in Sections 3.02, 3.03, 3.05 and 3.06
shall not be completed until 60 days (or, in the case of Section 3.06, 65 days)
after the date that is six months after the fifth anniversary hereof. If there
is such a price increase as to such Transaction Category in the ATS Territory
during the six month period following the fifth anniversary hereof, then for
purposes of Section 3.03(a)(iii) and the definition of the term Transaction
Category Weighted Average Price, such price increase shall be deemed to have
occurred with regard to such Transaction Category on the date that is six months
prior to the date on which such price increase actually occurred.
(d) All other calculations set forth in this Agreement with
regard to Transaction Categories whose published prices in the ATS Territory do
increase during the first six months of the fifth Post-Closing Year shall be
unaffected by the provisions of this Section 3.04.
SECTION 3.05. Calculation of Adjusted Services Payment. The
sum of (i) the Segment Growth Payment calculated in accordance with Section 3.02
and (ii) the Price Increase Payment calculated in accordance with Sections 3.03
and 3.04 shall constitute the "Total Services Payment". The Total Services
Payment shall be multiplied by the Cost of
<PAGE> 8
8
Carry Factor, and the product of such calculation shall constitute the "Adjusted
Services Payment".
SECTION 3.06. Interim Statements; Adjusted Services Payment
Statement; Disputes; Payment of Adjusted Services Payment. (a) Within 60 days of
each of the first four anniversaries hereof, Galileo shall calculate, and shall
deliver to the Service Providers (for informational purposes only), a written
statement (each such statement, an "Interim Statement") setting forth Galileo's
preliminary calculation of the Weighted Air Segment Growth Rate for the
preceding year and the Weighted Air Price Increase Rate as of the end of the
preceding year. In no event shall any Service Provider be entitled to dispute
any of the calculations set forth on an Interim Statement.
(b) Within 65 days of the fifth anniversary hereof (or, in the
event Section 3.04(c) is applicable, within 65 days of the date that is six
months after the fifth anniversary hereof), Galileo shall deliver to the Service
Providers a written statement (the "Adjusted Services Payment Statement")
setting forth Galileo's calculation of the Adjusted Services Payment.
(c) Disputes. (i) Subject to clause (ii) of this Section
3.06(c), the Adjusted Services Payment Statement delivered by Galileo to the
Service Providers shall be deemed to be and shall be final, binding and
conclusive on the parties hereto.
(ii) The Service Providers may dispute any amounts reflected
on the Adjusted Services Payment Statement to the extent such disputed
amounts affect the calculation of the Adjusted Services Payment;
provided, however, that the Service Providers shall have notified
Galileo in writing of each disputed item, specifying the amount thereof
in dispute and setting forth, in reasonable detail, the basis for such
dispute, within 15 business days of Galileo's delivery of the Adjusted
Services Payment Statement to the Service Providers. Galileo and the
Service Providers shall attempt in good faith to resolve the matter in
dispute. If Galileo and the Service Providers, notwithstanding such
good faith effort, shall have failed to resolve the matter or matters
in dispute within 15 business days after receipt by Galileo of the
Service Providers' written notice of dispute, Galileo and the Service
Providers shall submit the items remaining in dispute for resolution to
[Name of Accounting Firm] (or, if such firm shall decline to act or is
not, at the time of such submission, independent of Galileo and the
Service Providers, to another independent accounting firm of
international reputation mutually acceptable to Galileo and the Service
Providers) (either [Name of Accounting Firm] or such other accounting
firm being referred to herein as the "Independent Accounting Firm"),
which shall, within 45 business days after such submission, determine
and report to Galileo and the Service Providers upon such remaining
disputed items, and such report shall be final, binding and conclusive
on the parties hereto. The fees and disbursements of the Independent
<PAGE> 9
9
Accounting Firm shall be allocated among Galileo and the Service
Providers in the same proportion that the aggregate amount of such
disputed items so submitted to the Independent Accounting Firm that is
unsuccessfully disputed by Galileo, on the one hand, or the Service
Providers, on the other hand (as finally determined by the Independent
Accounting Firm), bears to the total amount of disputed items so
submitted.
(iii) In acting under this Agreement, the Independent
Accounting Firm shall be entitled to the privileges and immunities of
an arbitrator.
(d) Cooperation. For purposes of complying with the terms set
forth herein, each party shall (i) cooperate with and promptly make available to
the other parties and their respective auditors and representatives, all
information, records, data, auditors' working papers, and access to its
personnel, (ii) permit access to its facilities and (iii) permit the other party
and its auditors and representatives to make copies of all information, records,
data and auditor's working papers, in each case as may be reasonably required in
connection with the analysis of the Adjusted Services Payment Statement, the
calculation of the Adjusted Services Payment and the resolution of any
dispute(s) thereunder.
(e) Adjusted Services Payment. Within 5 business days of the
earliest of (i) the date that is 15 business days after the delivery of the
Adjusted Services Payment Statement pursuant to the provisions set forth in
Section 3.06(b) hereof if such Adjusted Services Payment Statement is not
disputed by the Service Providers, (ii) the resolution of all disagreements with
respect to the Adjusted Services Payment Statement directly by Galileo and the
Service Providers and (iii) the issuance of the report of the Independent
Accounting Firm, Galileo shall pay to each of the Service Providers in
immediately available funds to accounts designated in writing by the Service
Providers not later than two business days prior to the date of such payment a
pro rata portion of the Adjusted Services Payment, if any, in proportion to
their respective former percentage interests in ATS immediately prior to the
date hereof. For purposes of any such payment, the Adjusted Services Payment
shall be recalculated to give effect to the Cost of Carry Factor for the period
between the delivery of the Adjusted Services Payment Statement and the actual
date of payment.
SECTION 3.07. Change in Galileo Pricing Methodology. In the
event that, between the date hereof and the fifth anniversary hereof, there is a
fundamental change in Galileo's pricing methodology such that the provisions of
this Article III cannot be implemented in the manner currently intended by the
parties hereto, they shall negotiate in good faith with a view to amending the
provisions of this Article III in order to reflect such fundamental change. In
the absence of any agreement among the parties with regard to any such
amendments, the provisions of this Article III shall be applied in a manner
designed to effectuate, to the greatest possible extent, the parties' original
intentions.
<PAGE> 10
10
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Representations and Warranties. Each of the
parties hereto represents and warrants that this Agreement has been duly
authorized, executed and delivered by such party and constitutes a legal, valid
and binding obligation of such party, enforceable against it in accordance with
the terms of this Agreement.
SECTION 4.02. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, facsimile, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) or by a nationally recognized overnight
courier service to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 4.02):
(i) if to Galileo:
Galileo International Partnership
5350 S. Valentia Way
Englewood, Colorado 80111
Telecopy: (303) 397-5020
Attention: Babetta R. Gray, Esq.
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Facsimile: (212) 848-7179
Attention: Clare O'Brien, Esq.
(ii) if to United:
United Air Lines, Inc.
1200 E. Algonquin Road
Elk Grove Township, Illinois 60007
Telecopy: (847) 700-4412
Attention: Frederick F. "Jake" Brace, III
<PAGE> 11
11
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-3637
Attention: Thomas H. Kennedy, Esq.
(iii) if to USAW:
US Airways, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Telecopy: (703) ___________
Attention: Alan Abner
with a copy to:
US Airways, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Telecopy: (703) ___________
Attention: Monica Roye, Esq.
(iv) if to Air Canada:
Air Canada
C.P. 14,000/P.O. Box 14,000
Station Airport
Dorval, Quebec
Canada H4Y 1H4
Facsimile: (514) 422-5729
Attention: Pat Iaconi, Esq.
<PAGE> 12
12
with a copy to:
Osler, Hoskin & Harcourt
1 First Canadian Place
100 King Street West 61st Floor
Toronto, Ontario
Canada M5X 3B8
Facsimile: (416) 862-6666
Attention: Terrence Burgoyne
SECTION 4.03. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated by this Agreement are not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the transactions
contemplated by this Agreement be consummated as originally contemplated to the
fullest extent possible.
SECTION 4.04. Term of Agreement. The provisions of this
Agreement (other than Articles I and IV) shall terminate and be of no further
force and effect, automatically and without any required actions of the parties
hereto, on the fifth anniversary of the date hereof; provided, however, that
(i) the provisions of Article II hereof shall terminate on the date on which
Galileo ceases to be a party to a marketing cooperation and sales
representation agreement with each of United and ASAW, but in no event earlier
than the third anniversary hereof, (ii) the provisions of Article III shall
terminate on the date that all payments to be made thereunder are made (or the
date on which the parties agree that no such payment is required to be made),
and (iii) the parties may extend the provisions of any other provision of this
Agreement beyond the fifth anniversary hereof pursuant to an instrument
in writing signed by all of the parties hereto.
SECTION 4.05. Default; Cure Period; Remedies. (a) Upon a
breach of any of the covenants set forth in this Agreement by any of the Service
Providers, such Service Provider shall use its reasonable efforts to cure such
breach within 30 days of receipt of written notice of such breach from Galileo.
(b) Upon a breach of any of the covenants set forth in this
Agreement by Galileo, Galileo shall use its reasonable efforts to cure such
breach within 30 days of receipt of written notice of such breach from any of
the Service Providers.
(c) Galileo acknowledges that its sole and exclusive remedy
for the breach by any Service Provider of its obligations pursuant to Article II
(other than a breach resulting
<PAGE> 13
13
from the wilful misconduct or gross negligence of any Service Provider) shall be
specific performance.
(d) Notwithstanding anything to the contrary in this Section
4.05, no Service Provider will be deemed to be in breach of its obligations
under this Agreement so long as any Service Provider is performing its
obligations hereunder.
SECTION 4.06. Confidentiality. Each of the parties hereto
shall keep confidential any information with respect to any of the parties
hereto provided in connection with this Agreement that is not otherwise
generally available to the public, except as may be required by applicable law.
SECTION 4.07. Entire Agreement; Assignment. This Agreement
(including the Exhibits, which are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein) constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof;
provided, however, that to the extent there is a conflict between any provision
of this Agreement as it relates to United and the terms of the Marketing
Cooperation and Sales Representation Agreement, dated as of _______ __, 1997,
between Galileo and United (the "United Sales Representation Agreement"), the
terms of the United Sales Representation Agreement shall govern. This Agreement
shall not be assigned by operation of law or otherwise.
SECTION 4.08. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 4.09. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York
applicable to contracts executed in and to be performed in that state.
SECTION 4.10. Headings. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 4.11. Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
<PAGE> 14
14
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
GALILEO INTERNATIONAL, INC.
By: _______________________
Name:
Title:
UNITED AIRLINES, INC.
By: _______________________
Name:
Title:
US AIRWAYS, INC.
By: _______________________
Name:
Title:
AIR CANADA
By: _______________________
Name:
Title:
<PAGE> 15
EXHIBIT 1
Weighting Factors
Post-Closing Year Weighting
----------------- ---------
1 24%
2 22%
3 20%
4 18%
5 16%
<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
May 20, 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
May 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GALILEO INTERNATIONAL PARTNERSHIP AS OF
DECEMBER 31, 1996 AND FOR THE YEAR THEN ENDED AND AS OF MARCH 31, 1997 AND FOR
THE QUARTER THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 78,196 71,163
<SECURITIES> 0 0
<RECEIVABLES> 161,026 205,121
<ALLOWANCES> 14,747 15,061
<INVENTORY> 0 0
<CURRENT-ASSETS> 240,799 278,490
<PP&E> 304,763 310,342
<DEPRECIATION> 198,565 203,828
<TOTAL-ASSETS> 599,898 631,440
<CURRENT-LIABILITIES> 199,637 166,982
<BONDS> 104,539 102,175
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 255,375 321,771
<TOTAL-LIABILITY-AND-EQUITY> 599,898 631,440
<SALES> 0 0
<TOTAL-REVENUES> 1,088,259 307,646
<CGS> 0 0
<TOTAL-COSTS> 912,920 241,335
<OTHER-EXPENSES> 8,241 404
<LOSS-PROVISION> 5,671 314
<INTEREST-EXPENSE> 11,307 2,885
<INCOME-PRETAX> 167,098 65,907
<INCOME-TAX> 1,882 415
<INCOME-CONTINUING> 165,216 65,492
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 165,216 65,492
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
Galileo International Partnership is the operating Company of Galileo
International, Inc., its wholly owned subsidiary. Galileo International, Inc.
is the registrant.
</FN>
</TABLE>
