<PAGE>
DRAFT
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
- --------------------------------------------------------------------------------
Galileo International, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
- --------------------------------------------------------------------------------
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
LOGO
GALILEO INTERNATIONAL, INC.
9700 WEST HIGGINS ROAD, SUITE 400
ROSEMONT, ILLINOIS 60018
----------------
NOTICE OF ANNUAL MEETING OF COMMON STOCKHOLDERS
TO BE HELD ON APRIL 23, 1998
----------------
To the Stockholders of Galileo International, Inc.
NOTICE IS HEREBY GIVEN that the annual meeting of the holders of Common
Stock of Galileo International, Inc. (the "Company") will be held on Thursday,
April 23, 1998 at 9:00 A.M. (local time), in the Ballroom of the O'Hare
Marriott Hotel, 8535 West Higgins Road, Chicago, Illinois, for the following
purposes:
1. To elect one person to the Board of Directors.
2. To transact such other business as may properly come before the
meeting.
Common stockholders of record as of the close of business on Tuesday,
February 24, 1998 will be entitled to notice of and to vote at the annual
meeting and any adjournments thereof. A list of stockholders entitled to vote
at the annual meeting will be available for inspection by stockholders for any
purpose germane to the annual meeting at the offices of the Company for the
ten days immediately preceding the annual meeting date.
Whether or not you plan to attend the annual meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed
envelope. Your proxy may be revoked in the manner described in the Proxy
Statement at any time before it has been voted at the annual meeting.
Galileo International, Inc.
LOGO
Babetta R. Gray
Secretary
March 17, 1998
<PAGE>
GALILEO INTERNATIONAL, INC.
9700 WEST HIGGINS ROAD, SUITE 400
ROSEMONT, ILLINOIS 60018
----------------
PROXY STATEMENT
FOR ANNUAL MEETING OF COMMON STOCKHOLDERS
TO BE HELD ON APRIL 23, 1998
----------------
GENERAL INFORMATION
This Proxy Statement is being furnished to the holders of Common Stock of
Galileo International, Inc. (the "Company") in connection with the
solicitation of proxies by the Company's Board of Directors for use at the
annual meeting of common stockholders to be held in the Ballroom of the O'Hare
Marriott Hotel, 8535 West Higgins Road, Chicago, Illinois, at 9:00 A.M. (local
time) on April 23, 1998, and any adjournments thereof (the "Meeting"). Common
stockholders of record as of February 24, 1998 (the "Record Date") are
entitled to notice of and to vote at the Meeting. This Proxy Statement is
being sent to each holder of the issued and outstanding shares of the
Company's Common Stock ("Common Shares") on the Record Date in order to
furnish information relating to the business to be transacted at the Meeting.
The Company's annual report to stockholders for the fiscal year ended December
31, 1997, including financial statements, is being mailed to stockholders,
together with this Proxy Statement, beginning on or about March 17, 1998. No
part of such annual report shall be regarded as proxy-soliciting material or
as a communication by means of which any solicitation is made.
We hope that you will be present at the Meeting. If you plan to attend the
Meeting, please bring proof of your stock ownership, such as your broker
statement. Whether or not you plan to attend the Meeting, please complete,
sign and date the enclosed proxy card and return it promptly in the enclosed
envelope so that your shares will be represented. The envelope is addressed to
the Company and requires no postage. Returning a proxy will not prevent a
stockholder from attending the Meeting. Stockholders have the right to revoke
their proxies at any time prior to the time their shares are actually voted by
revoking the proxy in a writing delivered to the Secretary of the Company, by
submitting another valid proxy bearing a later date which is voted at the
Meeting, or by attending the Meeting and voting in person. Attendance at the
Meeting alone will not revoke your proxy. Stockholders who receive more than
one proxy card, due to the existence of multiple ownership accounts, should
sign and return all proxies received in order that all shares so owned are
properly voted. A stockholder who wishes to designate a person or persons to
act as his or her proxy at the Meeting, other than the proxies designated by
the Board of Directors, may strike out the names appearing on the enclosed
proxy card, insert the name of any other person or persons, sign the proxy
card and transmit it directly to such other designated person or persons for
use at the Meeting.
Each proxy duly executed and received prior to the Meeting with a choice
specified thereon will be voted as indicated on the proxy. If no direction as
to the manner of voting the proxy is made, the proxy will be voted by the
persons named thereon: (i) for the election of the nominee named herein as a
director (or a substitute therefore if the nominee is unable or refuses to
serve); and (ii) in the discretion of such persons, upon such other matters
not presently known or determined that properly come before the Meeting.
At the close of business on the Record Date there were 104,799,700 Common
Shares outstanding, each entitled to one vote for each matter to be considered
at the Meeting. Stockholders do not have the right to cumulate their vote for
the election of directors. A majority of the Common Shares entitled to vote
that are present, in person or by proxy, at the Meeting shall constitute a
quorum. If a quorum is present, the affirmative vote of a plurality of the
Common Shares that are present, in person or by proxy, will be sufficient to
elect a director. Therefore, abstentions and broker non-votes will have no
effect on the outcome of the election of directors. Abstentions and broker
non-votes will, however, be treated as present and in person at the Meeting
for purposes of establishing a quorum.
<PAGE>
The Company will bear the cost of soliciting proxies, including the
reasonable charges and expenses of brokerage firms or other nominees for
forwarding proxy material to beneficial owners of Common Shares. In addition
to solicitation by mail, proxies may be solicited by telephone, telegraph, or
personally, by certain officers and regular employees of the Company and its
subsidiaries without extra compensation.
VOTING RIGHTS AND STOCKHOLDERS' AGREEMENT
VOTING COMMON STOCK AND SPECIAL VOTING PREFERRED STOCK
The Company has issued and outstanding two classes of voting securities:
Common Stock and Special Voting Preferred Stock. Each Common Share is entitled
to one vote in the election of directors and other matters submitted to a vote
of stockholders. The Special Voting Preferred Stock is divided into seven
series, each series consisting of one share and entitling the holder thereof
to elect one director so long as certain share ownership thresholds are
maintained. Pursuant to the provisions of the Special Voting Preferred Stock,
the holders are entitled to elect a total of seven of the 13 members of the
Board of Directors. The respective holders of the Special Voting Preferred
Stock are entitled to elect their director designee, voting as a separate
class.
The Special Voting Preferred Stock is held by five entities controlled by
the following airlines (individually, an "Airline Stockholder" and,
collectively, the "Airline Stockholders"): United Air Lines, Inc. ("United"),
Koninklijke Luchtvaart Maatschappij N.V. ("KLM"), British Airways plc
("British Airways"), SAirGroup and US Airways, Inc. ("US Airways"). Currently,
the Airline Stockholder controlled by United (holding three shares of Special
Voting Preferred Stock and entitled to elect three directors) has elected
Frederic F. Brace, David A. Coltman and James E. Goodwin as directors. The
Airline Stockholders controlled by US Airways, KLM, SAirGroup and British
Airways (each holding one share of Special Voting Preferred Stock and entitled
to elect one director) have elected John W. Harper, Frank H. Rovekamp, Georges
P. Schorderet and Derek M. Stevens, respectively, as directors.
VOTING AGREEMENT
With respect to the six remaining directors, the Airline Stockholders have
agreed, pursuant to the terms of a stockholders' agreement (the "Stockholders'
Agreement"), to vote their Common Shares 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 of the Company until
the Company has appointed a Chief Operating Officer)) and three independent
directors nominated for election by the Board of Directors. See "Certain
Relationships and Related Transactions--Stockholders' Agreement." Currently,
the management directors are James E. Barlett, Paul H. Bristow and Babetta R.
Gray, and the independent director is Kenneth Whipple, with two independent
vacancies.
EFFECT OF STOCKHOLDERS' AGREEMENT AT ANNUAL MEETING
As a result of the Special Voting Preferred Stock and the 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 Shares, the Airline Stockholders will control the election
of the entire Board of Directors. The Airline Stockholders currently own
approximately 62% of the Common Shares. See "Principal Holders of Securities."
Accordingly, pursuant to the provisions of the Stockholders' Agreement,
Babetta R. Gray, the sole management director nominated for election at the
Meeting, is virtually assured of election. The Airline Stockholders controlled
by United and SAirGroup have indicated that they will vote their respective
shares of Special Voting Preferred Stock to elect Frederic F. Brace and
Georges P. Schorderet, respectively, at or prior to the Meeting. Holders of
Common Shares are not entitled to vote for the director nominees designated by
these Airline Stockholders.
2
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth, as of February 24, 1998, the number of
Common Shares and shares of Special Voting Preferred Stock beneficially owned
by persons known by the Company to beneficially own more than 5% of any class
of the Company's voting securities. See "Voting Rights and Stockholders'
Agreement."
<TABLE>
<CAPTION>
PERCENT SHARES OF
COMMON OF PREFERRED
BENEFICIAL OWNER (1) SHARES CLASS STOCK
-------------------- ---------- ------- ---------
<S> <C> <C> <C>
United (2)...................................... 33,440,000 31.9% 3
KLM (3)......................................... 10,639,200 10.2% 1
British Airways (4)............................. 7,000,400 6.7% 1
SAirGroup (5)................................... 7,000,400 6.7% 1
US Airways (6).................................. 7,000,400 6.7% 1
</TABLE>
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(1) As used in this table, the term "beneficial owner" has the meaning given
such term in Rule 13d-3 of the Securities Exchange Act of 1934.
(2) Shares are owned directly by Covia LLC, a wholly-owned subsidiary of
United Air Lines, Inc. The business address of Covia LLC is 1200 East
Algonquin Road, Elk Grove Township, Illinois 60007.
(3) Shares are owned directly by Travel Industry Systems B.V., a wholly-owned
subsidiary of Koninklijke Luchtvaart Maatschappij N.V. The business
address of Travel Industry Systems B.V. is Amsterdamseweg 55, 1182 GP
Amstelveen, The Netherlands.
(4) 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 Distribution Systems, Inc. is 1105 North
Market Street, Suite 1300, P.O. Box 8985, Wilmington, Delaware 19899.
(5) Shares are owned directly by Roscor, A.G., a wholly-owned subsidiary of
SAirGroup. The business address of Roscor, A.G. is CH-8058, Zurich
Airport, Switzerland.
(6) Shares are owned directly by USAM Corp., a wholly-owned subsidiary of US
Airways, Inc. The business address of USAM Corp. is Crystal Park Four,
2345 Crystal Drive, Arlington, Virginia 22227.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors consists of 13 members and is divided into three
classes. One class of Directors is elected annually, and each Director in the
class serves a three year term. Of the Board members, seven are elected by
holders of Special Voting Preferred Stock. Of the remaining six Directors, the
Airline Stockholders have agreed to vote their Common Shares in favor of three
management Directors and three independent Directors. See "Voting Rights and
Stockholders' Agreement" and "Certain Relationships and Related Transactions--
Stockholders' Agreement." The positions on the Board to be served by the
respective Airline Stockholder Directors, the management Directors and the
independent Directors have been distributed among the three classes such that
approximately one-third of the Company's Board of Directors will be elected
each year and only one management Director and one independent Director will
be elected each year.
The Board of Directors has nominated Babetta R. Gray, the Company's General
Counsel, for election to the Board of Directors at the Meeting. Ms. Gray has
indicated her willingness to serve in such capacity if elected. As a result of
a Stockholders' Agreement among the Airline Stockholders, Ms. Gray's election
is virtually assured. If Ms. Gray should become unwilling or unable to serve
as a Director, all duly executed proxies shall be voted for the election of
such other person as shall be designated by the Board of Directors. Unless
authority to vote for Ms. Gray is withheld, all votes by a properly executed
proxy will be cast in favor of the nominee. Proxies may not be voted for more
than one person in the election of Directors at the Meeting.
3
<PAGE>
At or prior to the Meeting, the Airline Stockholders controlled by United
and SAirGroup are expected to vote their respective shares of Special Voting
Preferred Stock to elect Frederic F. Brace and Georges P. Schorderet,
respectively, to the Board of Directors. Holders of Common Shares are not
entitled to vote for the Director nominees designated by these Airline
Stockholders.
If the listed nominee is elected at the Meeting and the Airline Stockholders
controlled by United and SAirGroup vote their respective shares of Special
Voting Preferred Stock in favor of Frederic F. Brace and Georges P. Schorderet
(or a substitute nominee), respectively, the Board of Directors will have two
vacancies, represented by independent Directors in each of the Director
classes to be elected in 1998 and 1999. The Board of Directors has undertaken
a search to fill these two independent Director positions, and the vacancies
will be filled by the Board when the evaluation process is completed.
The Board of Directors recommends a vote FOR the nominee as director.
The table below contains a brief description of the business experience and
positions held by the nominee and the other incumbent Directors of the
Company, including the Directors appointed by the Airline Stockholders, the
management Directors and the independent Directors.
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DIRECTOR NOMINEE--1998
- -------------------------------------------------------------------------------
Ms. Babetta R. Gray
Ms. Gray has been Senior Vice President, Legal and General Counsel since
March 1996 and Secretary since May 1997. Prior to that she was 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 was an associate with the
Boston law firm of Foley Hoag & Eliot from 1984 through 1988.
Age: 39
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AIRLINE STOCKHOLDER DIRECTORS--1998 (TO BE ELECTED AT OR PRIOR TO THE MEETING
BY THE APPLICABLE AIRLINE
STOCKHOLDERS. HOLDERS OF COMMON SHARES ARE NOT ENTITLED TO VOTE FOR SUCH
DIRECTORS).
- -------------------------------------------------------------------------------
Mr. Frederic F. Brace
Mr. Brace has been Vice President--Financial Analysis and Controller of
United Air Lines, Inc. since April 1, 1995. Prior to that, he served as United
Air Lines, Inc.'s Vice President--Corporate Development and Controller from
January 1994 to April 1, 1995, as its Vice President--Corporate Development
from April 1993 to January 1994 and as its Vice President and Controller from
February 1991 to April 1993. Mr. Brace was a member of the Supervisory Board
of the Galileo International Partnership from September 1995 to July 30, 1997.
It is anticipated that Mr. Brace will be re-elected to the Board of Directors
by the Airline Stockholder controlled by United Air Lines, Inc. He is
currently a member of the Compensation Committee.
Age: 40
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Mr. Georges P. Schorderet
Mr. Schorderet has been Executive Vice President and Chief Financial Officer
of SAirGroup and its predecessor since January 1996 and served as Executive
Vice President of the predecessor to SAirGroup since joining that company in
September 1995. Prior to September 1995, Mr. Schorderet held various positions
at Alusuisse-Lonza Holding AG, most recently as Chief Financial Officer and a
Member of the Executive Committee, positions he had held since 1991. Mr.
Schorderet is a member of the boards of directors of Swiss Bank Corporation,
Sabena Societe Anonyme, Crossair Ltd. Co. for Regional European Air Transport
and Flughafen-Immobilien-Gesellschaft (the Zurich Airport real estate
company). Mr. Schorderet was a member of the Supervisory Board of the Galileo
International Partnership from February 1996 to July 30, 1997. It is
anticipated that Mr. Schorderet will be re-elected to the Board of Directors
by the Airline Stockholder controlled by SAirGroup. He is currently a member
of the Nominating Committee.
Age: 44
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4
<PAGE>
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INCUMBENT DIRECTORS
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Mr. James E. Barlett
Mr. Barlett has been President and Chief Executive Officer since November
1994 and Chairman since May 1997. 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. Barlett's current term expires in 2000. He is currently a
member of the Nominating Committee.
Age: 54
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Mr. Paul H. Bristow
Mr. Bristow has been Senior Vice President and Chief Financial Officer since
February 1993 and Treasurer since May 1997. 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 Group plc, 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. Mr. Bristow's
current term expires in 1999.
Age: 55
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Mr. David A. Coltman
Mr. Coltman has been Senior Vice President--Marketing of United Air Lines,
Inc. since April 1, 1995. Prior to that, he served as Vice President--Atlantic
Division of United Air Lines, Inc. in London since January 1989. He is also
Chairman of Dunedin Worldwide Investment Trust, an Edinburgh-based mutual
fund. Mr. Coltman was a member of the Supervisory Board of the Galileo
International Partnership from May 1995 and its Chairman beginning in
September 1995 to July 30, 1997. Mr. Coltman's current term expires in 1999.
He currently serves as Chairman of the Nominating Committee.
Age: 55
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Mr. James E. Goodwin
Mr. Goodwin has been Senior Vice President--North America of United Air
Lines, Inc. since April 1, 1995. Prior to that, he served as Senior Vice
President--International of United Air Lines, Inc. since May 1992. Mr.
Goodwin's current term expires in 2000.
Age: 53
- -------------------------------------------------------------------------------
Mr. John W. Harper
Mr. Harper has been Senior Vice President--Finance and Chief Financial
Officer of US Airways Group, Inc. and US Airways, Inc. since April 1994. Prior
to that, he served as Senior Vice President--Information Systems of US Airways
Group, Inc. and US Airways, Inc. since October 1992 and Vice President and
Controller of those companies since joining US Airways in December 1991. Mr.
Harper's current term expires in 2000.
Age: 57
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5
<PAGE>
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Mr. Frank H. Rovekamp
Mr. Rovekamp has been Senior Vice President--Marketing of Koninklijke
Luchtvaart Maatschappij N.V. (KLM) since June 1992. Mr. Rovekamp was a member
of the Supervisory Board of the Galileo International Partnership from
September 1993 to July 30, 1997. Mr. Rovekamp's current term expires in 2000.
He currently serves as Chairman of the Compensation Committee.
Age: 42
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Mr. Derek M. Stevens
Mr. Stevens has been a member of the Board of Directors and Chief Financial
Officer of British Airways plc since 1989. Mr. Stevens is also a non-executive
director of Commercial Union plc. Mr. Stevens was a member of the Supervisory
Board of the Galileo International Partnership from September 1993 to July 30,
1997. Mr. Stevens' current term expires in 1999.
Age: 58
- -------------------------------------------------------------------------------
Mr. Kenneth Whipple
Mr. Whipple has been President of Ford Motor Company's Financial Services
Group and Vice President of Ford Motor Company since 1988. He also serves as
Chairman and Chief Executive Officer of Ford Credit. Prior to that he held
various positions within the Ford Motor Company where he has worked for 39
years, including, President of Ford Credit and Chairman and Chief Executive
Officer of Ford of Europe. Mr. Whipple is also on the board of CMS Energy
Corporation and Detroit Investment Fund and serves as a member of the Board of
Governors of the World Economic Forum, Chairman of the Coalition of Service
Industries' Financial Services Group and Chairman of the Board of Trustees of
the public television station in Detroit. Mr. Whipple's current term expires
in 2000. He currently serves as Chairman of the Audit Committee.
Age: 63
- -------------------------------------------------------------------------------
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has three standing committees,
comprised of an Audit Committee, Compensation Committee and Nominating
Committee.
The Audit Committee reviews and makes 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 Company
and such other matters as may be specifically delegated to the Audit Committee
by the Board. The Audit Committee regularly meets with representatives of the
independent auditors and with the financial officers of the Company separately
or jointly. The Audit Committee met once during 1997.
The Compensation Committee annually reviews and makes recommendations to the
Board of Directors regarding the compensation of the Chairman, President and
Chief Executive Officer of the Company. The Compensation Committee also
reviews, advises and consults with the Chairman, President and Chief Executive
Officer on the compensation of the other officers and key employees and as to
the Company's policy on compensation. It also administers the Company's 1997
Stock Incentive Plan (the "Incentive Plan") which authorizes the issuance of
various forms of stock-based awards, including the grant of stock options, and
it is charged with the responsibility of interpreting the Incentive Plan. The
Compensation Committee also has general oversight responsibility with respect
to the Company's other employee benefit programs. In addition, the
Compensation Committee also renders advice and counsel to the Chairman,
President and Chief Executive Officer on the selection of executive officers
of the Company and key executives of the Company's major subsidiaries. The
Compensation Committee met once during 1997.
6
<PAGE>
The Nominating Committee recommends nominees to the Board to fill vacancies
or as additions to the Board of Directors. Although the Nominating Committee
does not specifically solicit suggestions from stockholders as to possible
candidates, the Nominating Committee will consider stockholders'
recommendations. Suggestions, together with a description of the proposed
nominee's qualifications, stockholdings in the Company, other relevant
biographical information, and an indication of the willingness of the proposed
nominee to serve, should be sent to the Secretary of the Company in a manner
consistent with the procedures set forth in the Company's by-laws. The
Nominating Committee met once during 1997.
During 1997, the Board of Directors met five times. All incumbent Directors
attended at least 75% of the meetings of the Board and all committees of the
Board on which the respective Director served with the exception of Mr.
Whipple who attended 60% of such meetings.
COMPENSATION OF DIRECTORS
Retainer and Fees. Each Director who is not a salaried employee of the
Company or any of its subsidiaries receives a $25,000 yearly retainer for
services on the Board of Directors. In addition to the retainer, Directors who
are not salaried employees of the Company or any of its subsidiaries receive
$1,000 for each in-person Board and Committee meeting attended, and $500 for
each telephonic Board meeting in which such Director participates.
The Director Plan and Fee Deferral. The Company has adopted the Galileo
International, Inc. 1997 Non-Employee Director Stock Plan (the "Director
Plan"). The principal purpose of the Director Plan is to attract and retain
the services of qualified individuals who are not employees of the Company to
serve as members of the Board and to better align their interests with the
interests of the Company's stockholders. Directors who are also employees of
the Company are not entitled to participate in the Director Plan. As described
below, participants in the Director Plan may be entitled to receive options to
purchase Common Shares, phantom stock units, or cash. In the case of Directors
who are employees of the airlines who designate and elect such Directors (each
an "Airline Director"), such individuals receive the cash equivalent of such
options. The Director Plan permits independent Directors to defer payment of a
portion of their Director's fees in accordance with the terms and conditions
set forth in the Directors Plan. Subject to the provisions of the Director
Plan, the maximum number of Common Shares which may be issued under the
Director Plan shall not exceed 500,000.
The Director Plan authorizes awards of options to purchase Common Shares to
independent Directors. Each option generally vests and becomes exercisable six
months after the date of grant and expires ten years from the date of grant,
subject to early vesting, exercisability, and expiration as provided in the
Director Plan. The option has a per share exercise price equal to the fair
market value of the Common Shares on the date of grant. Upon the date of a
non-employee Director's election (other than the election of a substitute
Airline Director), appointment or reelection, such Director will be granted an
option to purchase (4,000 x Y)-(1,000 x (Y-1)) Common Shares where Y = the
number of years in such Director's term. In non-election years an option to
purchase 1,000 shares of Common Shares is granted to each eligible Director.
The exercise price of a stock option may be paid in cash or previously owned
stock or a combination thereof.
Notwithstanding the foregoing, at such time that an option would otherwise
be granted under the Director Plan, an Airline Director will receive in lieu
of such option a cash payment equal to the value of the option calculated on
the basis of the Black-Scholes Option Pricing Model. Such cash payment is
transferred to such Airline Director's employer.
Independent Directors may also elect to defer all or a specified percentage
of their Director's fees (in multiples of five percent) under the Director
Plan. Such deferrals will be credited to a deferred compensation account set
up for that Director. All amounts in this account are nonforfeitable at all
times. The portion of the fees that the Director elects to defer are credited
in the form of phantom stock units to the deferred compensation account as of
the last business day of the fiscal quarter in which such portion of the
Director's fees would otherwise have been payable to the Director. The number
of phantom stock units to be credited to the deferred
7
<PAGE>
compensation account are determined by dividing the amount of the Director's
fees deferred over such quarter by the fair market value of Common Shares as
of the date of crediting. In the event that the Company pays any cash or other
dividend or makes any other distribution in respect of the Common Shares, each
phantom stock unit credited to the deferred compensation account of such
Director is credited with dividend equivalents. The crediting of phantom stock
units to such Director's deferred compensation account does not confer on the
Director any rights as a stockholder of the Company. Payment of the deferred
benefits credited in phantom stock units is in Common Shares. As of February
24, 1998, there were no phantom shares credited to Directors pursuant to the
deferred compensation arrangement under the Director Plan; Mr. Whipple had
10,000 Common Shares credited to his account under the stock option
arrangement of the Director Plan; and the Airline Directors' employers were
entitled to receive the following cash payments in lieu of stock options as
provided under the Director Plan: $105,300 to each of Messrs. Goodwin, Harper
and Rovekamp; $73,710 to each of Messrs. Coltman and Stevens; and $42,120 to
each of Messrs. Brace and Schorderet.
OWNERSHIP OF COMMON STOCK BY
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of February 24, 1998, the number of
Common Shares beneficially owned by each (i) Director (including those owned
by James E. Bartlett, Paul H. Bristow and Babetta R. Gray who also serve as
Executive Officers of the Company), (ii) the persons named in the Summary
Compensation Table below, and (iii) all Directors and Executive Officers as a
group. In addition to Messrs. Barlett and Bristow and Ms. Gray, the following
also serve as executive officers of the Company (collectively, the "Executive
Officers"): Lyn Bulman, Michael G. Foliot, James E. Lubinski and David A.
Near.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AND NO. OF SHARES
NO. OF PERSONS IN GROUP BENEFICIALLY OWNED(1)(2)
----------------------- ------------------------
<S> <C>
DIRECTORS
James E. Barlett.............................. 8,000
Frederic F. Brace............................. 1,000
Paul H. Bristow............................... 4,500
David A. Coltman.............................. 2,000
James E. Goodwin.............................. 0
Babetta R. Gray............................... 200
John W. Harper................................ 0
Frank H. Rovekamp............................. 15,000
Georges P. Schorderet......................... 1,500
Derek M. Stevens.............................. 2,000
Kenneth Whipple............................... 11,000(3)
EXECUTIVE OFFICERS
Michael G. Foliot............................. 1,400
James E. Lubinski............................. 200
All Directors and Executive Officers as a
group (15 persons)........................... 39,300
</TABLE>
- --------
(1) All of the shares beneficially owned by Directors and nominees, by
Executive Officers and by Directors and Executive Officers as a group do
not exceed one percent of the Common Shares.
(2) The Directors and Executive Officers, and all Directors and Executive
Officers as a group, have sole voting and sole investment power over the
Common Shares listed except for Mr. Foliot, Ms. Gray, Mr. Rovekamp and Ms.
Bulman, Senior Vice President, Human Resources and Corporate Relations,
who each share voting and investment power with a third party.
(3) Includes 10,000 shares which Mr. Whipple has the right to acquire pursuant
to stock options which will become exercisable within 60 days following
February 24, 1998.
8
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 ("Section 16") requires
that reports of beneficial ownership of common stock and changes in such
ownership be filed with the Securities and Exchange Commission by the
Company's Directors and Executive Officers. The Company is required to conduct
a review and to identify in its proxy statement each Director or Executive
Officer who failed to file a required report under Section 16 on a timely
basis. Based upon that review, the Company has determined that all required
reports were filed on a timely basis for the fiscal year ended December 31,
1997.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation paid for services rendered
to the Company during the Company's last two fiscal years in all capacities
and received by (i) the Company's Chairman, President and Chief Executive
Officer during 1997 and (ii) the Company's four most highly paid Executive
Officers during 1997 other than the Chairman, President and Chief Executive
Officer (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------- ------------
OTHER
ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPEN- UNDERLYING COMPEN-
POSITION YEAR SALARY BONUS(1) SATION OPTIONS SATION(3)
------------------ ---- -------- -------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
James E. Barlett........ 1997 $459,000 $360,480 -- 216,200 $9,018
Chairman, President, 1996 435,750 426,668 -- -- 8,820
Chief Executive
Officer and Director
Paul H. Bristow......... 1997 217,360 132,484 $42,962(2) 62,200 7,057
Senior Vice President, 1996 207,333 153,227 -- -- 6,992
Chief Financial
Officer,
Treasurer and Director
Michael G. Foliot....... 1997 206,546 104,564 -- 58,200 6,945
Senior Vice President 1996 197,013 144,883 -- -- 6,591
Global Vendor Marketing
Babetta R. Gray......... 1997 152,570 100,671 -- 44,200 8,056
Senior Vice President
Legal, 1996 143,250 103,980 -- -- 7,642
General Counsel,
Secretary
and Director
James E. Lubinski....... 1997 206,458 109,165 -- 60,200 5,254
Senior Vice President, 1996 182,790 141,969 -- -- 5,288
Information Services
and Operations
</TABLE>
- --------
(1) Bonus amounts for 1996 have been revised to reflect the conversion of cash
awards for 1996 performance which were to be paid in equal installments in
1998 and 1999 to a phantom share plan, but include the 1997 payouts of
$69,458, $31,547, $29,829, $29,229 and $16,927 made to Messrs. Barlett,
Bristow, Foliot and Lubinski, and to Ms. Gray, respectively, for such 1996
performance. See "Long-Term Incentive Plan Awards In Last Fiscal Year."
(2) Represents non-cash benefits which must be disclosed because they are in
excess of the lesser of either $50,000 or 10 percent of the total of
annual salary and bonus related to personal travel and spousal travel on
business trips.
(3) All Other Compensation in 1997 includes contributions of $4,750 to the
Company's 401(k) Savings Plan for each of the Named Executive Officers and
payments of $4,268, $2,307, $2,195, $504 and $3,306 to Messrs. Barlett,
Bristow, Foliot and Lubinski, and to Ms. Gray, respectively, representing
money allocated to, but unused for, benefits programs. All Other
Compensation in 1996 includes contributions of $4,500 to the Company's
401(k) Savings Plan for each of the Named Executive Officers and payments
of $4,320, $2,492, $2,091, $788 and $3,142 to Messrs. Barlett, Bristow,
Foliot and Lubinski, and to Ms. Gray, respectively, representing money
allocated to, but unused for, benefits programs in 1996.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
stock options to the Named Executive Officers during 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE GRANT DATE
OPTIONS IN FISCAL OR BASE EXPIRATION PRESENT
NAME GRANTED(1) YEAR PRICE DATE VALUE (2)
---- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
James E. Barlett........... 108,200 9.78 $24.500 07/24/07 $1,139,346
108,000 9.76 28.175 07/24/07 1,015,200
Paul H. Bristow............ 31,200 2.82 24.500 07/24/07 328,536
31,000 2.80 28.175 07/24/07 291,400
Michael G. Foliot.......... 29,200 2.64 24.500 07/24/07 307,476
29,000 2.62 28.175 07/24/07 272,600
Babetta R. Gray............ 22,200 2.01 24.500 07/24/07 233,766
22,000 1.99 28.175 07/24/07 206,800
James E. Lubinski.......... 30,200 2.73 24.500 07/24/07 318,006
30,000 2.71 28.175 07/24/07 282,000
</TABLE>
- --------
(1) Options granted at $24.50 vest in equal annual installments over a five-
year period (except with respect to options to purchase 200 shares, which
vest over a three-year period) beginning on the date of grant. Options
granted at $28.175 vest in equal annual installments over a five-year
period beginning on the first anniversary of the date of grant.
(2) Present value calculated assuming the stock options are valued using the
Black-Scholes model. Assumptions used in the model are: estimated future
yield of 1.00%; expected option term of 10 years; risk-free rate for
option term of 6.43%; and estimated future volatility of 0.2200. The
option values shown are based on the model and actual value, if any, will
depend on stock price change.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James E. Barlett........ 0 0 0 216,200 0 $338,125
Paul H. Bristow......... 0 0 0 62,200 0 97,500
Michael G. Foliot....... 0 0 0 58,200 0 91,250
Babetta R. Gray......... 0 0 0 44,200 0 69,375
James E. Lubinski....... 0 0 0 60,200 0 94,375
</TABLE>
- --------
(1) The value of "in-the-money" options represents the difference between the
exercise price of such options and $27.625, the closing price of the
Common Shares on the New York Stock Exchange on December 31, 1997.
10
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
other long term incentive awards to the Named Executive Officers during 1997.
<TABLE>
<CAPTION>
PERFORMANCE OR
NUMBER OF OTHER PERIOD
SHARES, UNITS OR UNTIL MATURATION
NAME OTHER RIGHTS(1) OR PAYOUT (2)
---- ---------------- -----------------
<S> <C> <C>
James E. Barlett...................... 11,514 1998 through 2000
Paul H. Bristow....................... 5,375 1998 through 2000
Michael G. Foliot..................... 5,170 1998 through 2000
Babetta R. Gray....................... 2,645 1998 through 2000
James E. Lubinski..................... 4,588 1998 through 2000
</TABLE>
- --------
(1) Represent phantom shares that entitle the holder to cash in the amount of
the fair market value of the Common Shares on the payment date, plus
dividend equivalents. Phantom shares were granted to the Named Executive
Officers in 1997 in exchange for awards previously granted in 1995 through
1997 under the Company's Long Term Incentive Plan, which has been
discontinued.
(2) Phantom shares will vest and be paid in 1998, 1999 and 2000 as follows:
Mr. Barlett 6,145; 4,104; and 1,265; Mr. Bristow 2,888; 1,888; and 599;
Mr. Foliot 2,817; 1,785; and 568; Ms. Gray 1,112; 1,112; and 421; and Mr.
Lubinski 2,233; 1,774; and 581, respectively.
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. 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/her
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 (i) the
accrued benefit as determined above with respect to the benefit formula in
effect for the plan year beginning on or after January 1, 1994 as applied to
the participant's total amount of qualified service, or (ii) 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 United States Treasury Regulations, and the
participant's accrued benefit determined under the benefit formula applicable
for the plan year beginning on or after January 1, 1994, as applied to the
participant's months of benefit service credited for plan years beginning on
or after January 1, 1994. Retirement benefits are subject to the annual
pension limitations imposed under Section 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.
11
<PAGE>
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
------------ -------- -------- -------- -------- --------
<S> <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..................... 180,000 240,000 300,000 360,000 420,000
$800,000..................... 192,000 256,000 320,000 384,000 448,000
$850,000 or more............. 204,000 272,000 340,000 408,000 476,000
</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 March 1,
1998, Messrs. Barlett, Bristow, Foliot and Lubinski and Ms. Gray had 27, 49,
43, 19 and 62 months of qualified service, respectively, under the Pension
Plan.
For purposes of the Pension Plan, "final average compensation" means the
highest monthly average of a participant's compensation attributable to the 60
consecutive months of service occurring during the last 120 months of service
of employment (unless the participant has fewer than 60 months of service with
the employer). "Compensation" means amounts paid to the participant for base
pay, overtime, double shift, shift differentials, lump sum merit pay, holiday
rotating day off, holiday worked rotating day off, commissions, retroactive
pay, management incentive bonuses and special incentives for certain retirees
paid prior to September 1, 1993. Generally, only those items reflected as
either salary or bonus in the Summary Compensation Table are considered in
determining benefits under the Pension Plan and the SERP. Benefits under the
Pension Plan and the SERP are not subject to reduction for social security
benefits.
EMPLOYMENT AGREEMENT
James E. Barlett is a 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 incentive and benefit plans 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 Management Incentive Plan (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,
12
<PAGE>
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 this Agreement
and for the longer of 12 months after the termination date or until the date
Mr. Barlett ceases receiving compensation from the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Executive Compensation Philosophy
The guiding philosophy of the executive compensation program is to ensure
that:
. Executive Officer compensation is competitive with industry-specific
practice and is leveraged through the use of annual and long term
incentive programs to ensure that pay exceeds competitive levels when the
Company's performance exceeds that of its peers.
. The program and resulting total compensation received by Executive
Officers closely reflects stockholder return.
The compensation of the Executive Officers is reviewed annually by the
Compensation Committee (the "Committee").
The Committee provides direction to the Directors of the Company in
maintaining a compensation program that is consistent with the Company's
overall compensation philosophy. The Committee advises, recommends and
approves compensation strategies, policies and pay levels necessary to support
organization objectives. The Committee determines the remuneration of the
Chairman, President and Chief Executive Officer and reviews and oversees the
administration of compensation for the Company's Executive Officers. Only
Directors who are not employees of the Company, are independent of management,
and are free of any relationship that would interfere with their ability to
exercise independent judgment may serve as a Committee member. As of December
31, 1997, there were two Airline Stockholder representatives on the Committee.
One of the functions of the Committee is to review and assess the
appropriateness of the compensation philosophy for the Executive Officers
going forward.
Executive Compensation
The Committee retained an independent compensation consultant to assist in
determining appropriate compensation levels at the time of the Company's
conversion from private to public ownership through an initial public offering
in July 1997 (the "IPO"). With the assistance of the consultant, the Committee
determined that the closest comparative company was The Sabre Group Holdings,
Inc., and all compensation levels were primarily determined with reference to
this company, adjusting for differences in size.
The Company's Executive Officers participate in a compensation program that
consists of salary, annual bonus, long term compensation and benefits. Subject
to the approval of the Board, all elements of the Chairman, President and
Chief Executive Officer's compensation are determined by the Committee based
on their assessment of his performance. For the Executive Officers, the
Committee makes determinations based on recommendations made by the Chairman,
President and Chief Executive Officer and supported by relevant data. Each
element of compensation is reviewed in more detail below.
Base Salaries
Base salaries are reviewed annually by the Committee, and changes are
determined based on a subjective assessment of a range of factors, including
the individual's performance, the responsibilities of the position,
competitive practice and the experience of the executive filling the position.
The 1997 base salaries for the Executive Officers fall slightly below
competitive rates based on data supplied by the independent compensation
consultant.
13
<PAGE>
Annual Bonus
The Management Incentive Plan (MIP) provides an annual cash bonus
opportunity to the Executive Officers as well as to other managers within the
Company. The target bonus is determined as a percent of annual base income
which ranges from 45% to 60% for the Executive Officers, including the
Chairman, President and Chief Executive Officer. The Committee works with the
Chairman, President and Chief Executive Officer to define the annual
objectives against which individual performance is measured. The Board
approves corporate financial objectives for the Company, and the Committee
approves the incorporation of relevant measures based on these objectives into
the MIP. Payments are determined by the Committee based on a combination of
individual and corporate performance equally weighted. Corporate performance
is determined through a formula based on results against the agreed
financial/operating plan for the fiscal year.
Long Term Incentive Compensation
Prior to the IPO, the Company had a Long Term Incentive Plan (the "LTIP")
which was intended to reward Executive Officers for superior performance in
achieving long term goals. Each participant in the program was awarded a
target cash award expressed as a percent of base salary at the start of each
performance cycle. Payments were made in three annual installments, with
unpaid amounts forfeited in the event of termination.
The LTIP was discontinued at the IPO, and all outstanding obligations under
this program were converted into phantom shares. Each Executive Officer was
credited with a number of phantom shares equal to the value of the accrued but
unpaid amounts attributable to the 1995 and 1996 cycle, plus the target award
associated with 1997, divided by the IPO price of $24.50 per Common Share. The
phantom share account of each Executive Officer is credited with the dividend
equivalents paid on the Company's Common Shares. Each individual account vests
in accordance with the restrictions originally placed on the LTIP awards.
In July 1997, the Company adopted the Galileo International, Inc. 1997 Stock
Incentive Plan (the "Plan") to, among other things, replace the LTIP as a
means to reward performance against long-term objectives and to encourage
retention. This Plan is administered by the Committee, and all grants made to
Executive Officers subject to Section 16(b) of the Exchange Act are approved
by the Board. The Plan allows a broad range of awards including stock options,
stock appreciation rights, stock awards, performance share awards and other
equity-based or equity-related awards.
To improve the linkage between executive compensation and the creation of
stockholder value, a special stock option award was made to each Executive
Officer at the time of the IPO. The award consisted of the normal 1997 award,
plus an acceleration of the award that would otherwise be made in 1998. One
half of the award is exercisable at the IPO price (the fair market value of
Common Shares at the date of the grant), with the remaining portion
exercisable at 115% of the IPO offering price. The options exercisable at the
IPO price vest in equal installments over a five-year period starting on the
date of grant, while the premium priced options vest in five equal
installments starting one year after the grant date. All options expire ten
years from the date of grant.
In conjunction with the LTIP, the Company implemented Management Ownership
Guidelines at the time of the IPO. Under this program, Executive Officers are
encouraged to accumulate Common Shares equal to a specified percent of their
salary, with the Chairman, President and Chief Executive Officer targeted at
300% and the Executive Officers targeted at 150%. In determining the amount of
direct ownership under this program, the Company considers shares directly
owned plus phantom shares. Stock options under the Plan, whether vested or
not, are not considered.
Chairman, President and Chief Executive Officer Compensation
The base salary of the Chairman, President and Chief Executive Officer is
reviewed by the Committee annually and any adjustment made based on a
subjective assessment of his contribution as well as the overall performance
of the Company. In April 1997, the Chairman, President and Chief Executive
Officer's salary was
14
<PAGE>
increased by 5.4% to $465,000. His annual bonus is determined in the same
manner as for other Executive Officers and is based on an equally weighted
combination of achievement against personal objectives as agreed with the
Committee at the start of the year and a formula relating to the Company's
financial performance as measured by the Company's operating profit. In 1997,
the Chairman, President and Chief Executive Officer was awarded the maximum
bonus available in respect of his achievement against personal objectives and
Company performance. This was based on his strong contribution in terms of
strategic changes to the Company and to the development of the IPO initiative.
In addition, the Chairman, President and Chief Executive Officer was granted a
one-time cash bonus for his leadership during the pre-IPO process and his
preparation for the IPO and acquisition of the national distribution companies
associated with that transaction. Payments under the LTIP for 1997, as well as
the stock options granted under the Plan, were determined by the Committee
taking into account advice and information from an independent compensation
consultant to the Committee on market practice.
$1 Million Compensation Limit on Deductibility
Section 162(m) of the Internal Revenue Code restricts corporate tax
deductions on amounts paid in excess of $1 million to the Chairman, President
and Chief Executive Officer and the other four Executive Officers listed in
the Summary Compensation Table. The Committee has determined that it will make
every reasonable effort, consistent with sound executive compensation policy
and the needs of the Company, to ensure the continued tax deductibility of all
amounts paid to such Named Executive Officers.
Compensation Committee
Frank H. Rovekamp (Chairman)
Frederic F. Brace
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee include Frank H. Rovekamp and
Frederic F. Brace. No member of the Compensation Committee is a current or
former employee or officer of the Company or any of its subsidiaries. Mr.
Rovekamp has been Senior Vice President--Marketing of KLM since June 1992. Mr.
Brace has been Vice President--Financial Analysis and Controller of United
since April 1, 1995. The Company has entered into commercial agreements and
other arrangements with each of KLM and United which contemplate certain
services and payments between the companies. See "Certain Relationships and
Related Transactions."
15
<PAGE>
PERFORMANCE GRAPH
GALILEO INTERNATIONAL, INC. AND PEER GROUP INDICES
FISCAL YEAR ENDED DECEMBER 31, 1997
The graph below compares the percentage changes in the Company's cumulative
total stockholder return from July 25, 1997 (the first trading date of the
Company's Common Shares) through December 31, 1997 with the cumulative total
return of the S&P 500 Index and the Peer Group for the same period. The graph
assumes the investment of $100 and the reinvestment of all dividends. The
Company paid a $.06 per share dividend on November 20, 1997. The stock
performance shown on the graph below is not necessarily indicative of future
stock price performance.
LOGO
<TABLE>
<CAPTION>
GALILEO INTERNATIONAL S&P 500 PEER GROUP
--------------------- ------- ----------
<S> <C> <C> <C>
July 25, 1997.......................... 100.00 100.00 100.00
December 31, 1997...................... 113.01 103.98 95.52
</TABLE>
- --------
(1) The peer group consists of: Automatic Data Processing, Inc., BA Merchant
Services, Inc., Ceridian Corporation, DST Systems, Inc., First Data
Corporation, National Data Corporation, National Processing, Inc.,
Paychex, Inc., Paymentech, Inc., and The Sabre Group Holdings, Inc.
16
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into various commercial and other agreements with
the airline affiliates of the Airline Stockholders. Amounts included in this
section represent transactions with the Company's predecessor, Galileo
International Partnership, prior to the consummation of the Company's IPO on
July 30, 1997, and with the Company, or its subsidiaries or divisions, after
July 30, 1997. In some cases, therefore, the amounts are not representative of
a full-year's payments. Seven of the Company's Directors are affiliated with
the Airline Stockholders. See "Proposal 1: Election of Directors."
COMMERCIAL AGREEMENTS
Computer Services Agreements
The Company has entered into Computer Services Agreements with the airline
affiliates of the Airline Stockholders. Under the Computer Services
Agreements, the Company provides certain fares quotation services, internal
reservation services, other internal management services and software
development services. The Computer Services Agreements, other than with
respect to fares quotation services and services to United, each discussed
below, are generally cancelable by either party upon six months' prior written
notice, except the Company will not be able to cancel any such agreement prior
to the third anniversary of the consummation of the Company's IPO. 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 following the IPO, after which pricing will
be determined on an arm's-length basis.
The Company also provides fares quotation services to United, British
Airways, SAirGroup, KLM and US Airways through its GlobalFaresTM fares
quotation system. The Company provides such fares quotation services under
existing pricing arrangements with those Airline Stockholder affiliates for a
period of approximately five years following the Company's IPO, 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 may not cancel the provision of such services prior to the end of the
existing pricing period).
The Company also provides internal reservation services, other internal
management services and software development services to United. Internal
reservation services are provided for a minimum period of four or six years
following the consummation of the IPO at fixed prices based upon a fully
allocated cost methodology. Other internal management services are generally
provided to United for a minimum of six years following the consummation of
the IPO at fixed prices based upon a fully allocated cost methodology.
Software development services are generally provided to United for a minimum
of six years following the consummation of the IPO at prices based upon a
fully allocated cost methodology.
Prior to the consummation of the IPO, the Company was a party to computer
services agreements with the airline affiliates of the Airline Stockholders
under which the Company provided certain fares quotation services, internal
reservation services, other internal management services and software
development services at prices based upon a fully allocated cost methodology.
These agreements were replaced by the Computer Services Agreement at
consummation of the IPO.
For the year ended December 31, 1997, the Company recorded revenue of
approximately $23.2 million; $1.7 million; $1.1 million; $.4 million; and $.6
million from United, British Airways, US Airways, KLM and SAirGroup,
respectively, for services rendered under the Computer Services Agreements and
their predecessor agreements.
Network Services Agreement
The Company is a party to a Network Services Agreement with United pursuant
to which the Company provides United the use of the Company's network for
communication services and manages such communication services. The Network
Services Agreement continues in effect until terminated by either party upon
two years prior written notice. For the year ended December 31, 1997, the
Company recorded revenue of $42.6 million from United for such services.
17
<PAGE>
Global Airline Distribution Agreements
The Company has entered into Global Airline Distribution Agreements with the
airline affiliates of the Airline Stockholders as well as with each of its
airline travel vendor customers. Under the Global Airline Distribution
Agreements, travel vendors store, display, manage and sell their services
through the Company's Apollo and Galileo systems. Airlines are offered varying
levels of functionality at which they can participate in the Company's
systems. 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.
For the year ended December 31, 1997, the Company recorded revenue of
approximately $143.2 million; $54.5 million; $44.0 million; $26.5 million and
$18.2 million from United, British Airways, US Airways, KLM and SAirGroup,
respectively, for services rendered under the Global Airline Distribution
Agreements.
Distributor Sales and Service Agreements
During 1997, the Company was a party to Distributor Sales and Service
Agreements with the national distribution company affiliates (the "NDC") 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
computer reservation systems within its territory. In the absence of material
breach, these arrangements cannot be terminated by either party so long as an
affiliate of the relevant NDC retains an interest in the Company.
Upon consummation of the IPO, the Company acquired Apollo Travel Services
Partnership ("ATS"), an affiliate NDC of United, US Airways and Resnet
Holdings, Inc., a wholly-owned subsidiary of Air Canada, and Traviswiss A.G.
("Traviswiss"), an affiliate NDC of SAirGroup. On September 17, 1997, the
Company acquired Galileo Nederland B.V. ("Galileo Nederland"), an affiliate
NDC of KLM. Through such acquisition dates, the Company paid approximately
$150.3 million; $40.6 million; $7.4 million; and $6.2 million to United, US
Airways, SAirGroup, and KLM, respectively, for NDC services. With respect to
Galileo United Kingdom, an NDC which is wholly-owned by British Airways, the
Company paid approximately $34.6 million for such services through December
31, 1997.
Other Distribution Support
During 1997, the Company had an arrangement with United pursuant to which
United provided support for the Company's distribution efforts in certain
countries in Latin America. For the year ended December 31, 1997, the Company
paid United approximately $3.4 million for these support services.
Termination of Revenue Sharing Obligations
During 1997, in conjunction with the acquisitions of Galileo Nederland and
Traviswiss, the Company terminated its obligations under the Galileo
International Partnership agreement to share with KLM and SAirGroup a portion
of the booking fee revenue generated in certain European territories. In
consideration of the termination of such revenue sharing obligations, the
Company agreed to pay KLM and SAirGroup, in four annual installments, the
aggregate amounts of $14.8 million and $22.4 million, respectively. The
amounts paid through December 31, 1997 were $2.8 million to KLM and $2.6
million to SAirGroup.
Sales Representation Agreements
During 1997, the Company had sales representation agreements with United and
US Airways pursuant to which these airlines provide the personnel to sell the
Company's Apollo brand reservations products to subscribers in the United
States and Mexico. Employees of the airlines are responsible for the sales
function, while employees of the Company are fully responsible for all aspects
of customer service and support. Each sales representation agreement provides
base and incentive compensation, based upon achievement of revenue goals to be
established annually. Through December 31, 1997, the Company recorded expenses
of approximately $4.6 million to United and approximately $1.2 million to US
Airways for such services.
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Services Agreements
In connection with the Company's acquisition of ATS, the Company entered
into a services agreement (the "ATS Services Agreement") with United, 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. During
the sixth year following the consummation of the IPO, the Company will pay the
ATS Services Providers a fee of up to $200.0 million (on a present value
basis), based on improvements in the Company's air booking fee revenue over
the five-year period immediately following the acquisition of ATS, as measured
by the weighted average annual air segment growth rate and the weighted
average annual price increase rate over such period. The Company cannot
currently estimate how much, if any, of such maximum fee may be paid at such
time.
In connection with the Company's acquisitions of Traviswiss and Galileo
Nederland, the Company entered into a services agreement with each of
SAirGroup and KLM (collectively, the "Additional Services Agreements")
pursuant to which SAirGroup and KLM 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 SAirGroup a fee of up to
$6.8 million (on a present value basis) and will pay KLM a fee of up to $4.7
million (on a present value basis), in each case based on improvements in the
Company's air booking fee revenue over the five year period immediately
following such acquisitions, measured in a manner similar to that provided in
the ATS Services Agreement. The Company cannot currently estimate how much, if
any, of such maximum fees will be paid at such time.
Consolidation Agreement
In connection with the Company's acquisition of ATS, the execution by the
Company and United of the Computer Services Agreement and the agreement of
United to allow the Company to consolidate the Galileo system and the Apollo
system without the consent of United pursuant to such Computer Services
Agreement, the Company and United entered into a Consolidation Agreement.
Pursuant to the Consolidation Agreement, the Company paid United $40.0 million
through December 31, 1997.
Stockholders' Agreement
Simultaneously with the consummation of the IPO, the Company and the Airline
Stockholders and certain affiliates entered into the Stockholders' Agreement
pursuant to which the Airline Stockholders agreed to 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 the Special Voting Preferred Stock and the Common Shares, 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. The Stockholders' Agreement will terminate on the tenth anniversary
of the consummation of the IPO.
19
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1999 PROPOSALS OF STOCKHOLDERS
In order to be considered for inclusion in the Proxy Statement for the
regular annual meeting of the stockholders of the Company in the year 1999,
stockholder proposals must have been received by the Company not later than
January 15, 1999. Such proposals should be sent to the Secretary of the
Company at 9700 West Higgins Road, Suite 400, Rosemont, Illinois 60018.
AVAILABILITY OF 10-K REPORT
The Company will file its Annual Report on Form 10-K for the year ended
December 31, 1997 with the Securities and Exchange Commission on or before
March 31, 1998. A copy of the report, including any financial statements and
schedules, and a list describing any exhibits not contained therein, may be
obtained without charge by any stockholder. The exhibits are available upon
payment of charges which approximate the Company's cost of reproduction of the
exhibits. Request for copies of the report should be sent to the Secretary of
the Company at 9700 West Higgins Road, Suite 400, Rosemont, Illinois 60018.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP ("KPMG") served as the Company's independent public
accountants for the year ended December 31, 1997. The Company also engaged
KPMG to prepare certain tax filings for the Company and its subsidiaries for
1997 and to conduct financial due diligence on behalf of the Company in
connection with the Company's acquisitions of ATS, Galileo Nederland and
Traviswiss. No further relationship existed between the Company and KPMG other
than the usual relationship between independent public accountants and client.
The Audit Committee is expected to make a recommendation to the Board of
Directors on the selection of the independent accountants for the year ended
December 31, 1998.
The Company anticipates that a representative of KPMG will be present at the
Meeting. Such representative will be given the opportunity to make a statement
if he or she desires to do so, and is expected to be available to respond to
any questions which may be submitted at the Meeting.
OTHER MATTERS
The Board of Directors is not aware of any business to be acted upon at the
Meeting other than that which is described in this Proxy Statement. However,
if any other business should properly come before the Meeting calling for a
vote of the stockholders, the proxy holders (as indicated on the accompanying
proxy card or cards) will vote the proxies according to their best judgment.
Please exercise your right to vote by completing and signing the enclosed
proxy card and returning it promptly in the envelope enclosed for your
convenience. In the event that you attend the Meeting, you may revoke your
proxy and vote your Common Shares in person.
Galileo International, Inc.
LOGO
Babetta R. Gray
Secretary
Dated: March 17, 1998
Apollo, Galileo and the Globe Device are
registered trademarks of Galileo International.
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LOGO
GALILEO INTERNATIONAL, INC.
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
O'HARE MARRIOTT HOTEL
8535 WEST HIGGINS ROAD
CHICAGO, ILLINOIS
APRIL 23, 1998 AT 9:00 A.M.
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PRINTED IN U.S.A.
<PAGE>
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7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7
7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7
PROXY PROXY
GALILEO INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS--APRIL 23, 1998
The stockholder identified on the reverse of this form appoints James E.
Barlett, Paul H. Bristow and Babetta R. Gray and each of them, as proxies,
with full power of substitution and revocation, to vote, as designated
therein, all the Common Stock of Galileo International, Inc. which such
stockholder has power to vote, with all powers which such stockholder would
possess if personally present, at the annual meeting of stockholders thereof
to be held on April 23, 1998, or at any adjournment thereof.
Unless otherwise marked, this proxy will be voted FOR the election of the
nominee named.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
GALILEO INTERNATIONAL,
INC.
PLEASE MARK VOTE IN OVAL
IN THE FOLLOWING MANNER
USING DARK INK ONLY.
0
I
0
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7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7
For
All
0
Withheld
All
0
For All
Except
0
1.Election of Director:
Nominees: Babetta R. Gray
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Nominee Exception
The proxies are authorized to vote in their discretion upon such other matters
as may properly come before the meeting.
Dated: _____________________________________________________________ , 1998
Signature(s)___________________________________________________________________
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The signature to this proxy should conform exactly to the name as shown. When
shares are held in joint tenancy, all such tenants must sign. Corporate owners
should sign full corporate name by an authorized person. Executors, adminis-
trators, trustees or guardians should indicate their status when signing.
