UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-13153
Galileo International, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-4156005
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(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
9700 West Higgins Road, Suite 400, Rosemont, Illinois 60018
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(Address of Principal Executive Offices, Including Zip Code)
(847) 518-4000
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock, par value $.01 per New York Stock Exchange
share Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) had filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or
<PAGE>
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting and non voting stock held by
non-affiliates of the registrant as of March 17, 1999 was approximately
$2,852,000,000. At March 17,1999, there were 104,792,809 shares of Common Stock,
par value $.01 per share, of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from
the Proxy Statement for the Annual Meeting of Stockholders to be held April 29,
1999.
<PAGE>
GALILEO INTERNATIONAL, INC.
YEAR ENDED DECEMBER 31, 1998
INDEX
PAGE
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PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED 11
STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 13
CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 50
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 50
ITEM 11. EXECUTIVE COMPENSATION 50
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 50
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS 50
ON FORM 8-K
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PART I
ITEM 1. BUSINESS
Galileo International, Inc. (the "Company"), incorporated in the state of
Delaware on May 13, 1997, 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 40,000 locations, as well as corporations and consumers who use
the Company's self-booking products, with the ability to access schedule and
fare information, book reservations and issue tickets for more than 500
airlines. The Company also provides subscribers with information and booking
capability covering approximately 40 car rental companies and more than 200
major hotel chains with approximately 41,000 properties throughout the world.
The Company completed approximately 350 million bookings in 1998, representing
an estimated $60 billion in travel services. The Company's travel agency
subscribers operate more than 160,000 computer terminals, all of which are
linked to the Company's Data Centre, one of the world's largest commercial data
processing complexes, with a system uptime performance record of better than
99.9%.
The Company believes that, based on revenues, it is currently the most
internationally diversified provider of electronic global distribution services
for the travel industry. Over 56% of the Company's 1998 global distribution
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 Canada and markets in Europe, Asia/Pacific, the
Middle East, Africa and Latin America. The Company competes in these markets
through its own local sales and marketing offices and through a 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 markets. The Company believes that its extensive
international business experience provides a firm base for continued expansion
in 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 Air Lines, Inc.
("United Airlines") and operates GlobalFares(TM), a fares quotation system used
by over 100 airlines worldwide.
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 well-balanced and
global presence, (ii) established relationships with a diverse group of travel
vendors and subscribers, (iii) a technologically advanced information system
operated by a highly skilled technical staff, (iv) a comprehensive offering of
innovative products and (v) a strong business partnership, reinforced through
equity ownership with 11 of the world's leading airlines as well as other major
airlines that act as the Company's distributors in various markets.
The Company operates globally and 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 significant booking volumes. The Company will therefore
continue to attempt to expand its influence in local markets by building
alliances with influential associates, such as Air Lanka and Galileo Emirates in
Sri Lanka, that understand the local travel market and are positioned to design
and implement successful sales and marketing programs and, in certain
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markets, by seeking opportunities to vertically integrate its operations through
the acquisition of NDCs. (1) Consistent with this strategy, the Company acquired
two NDCs in 1998 that market the Company's products in Canada, Sweden, Finland
and Norway.
The Company strives to provide valued 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. During 1998, the Company
created a new customer service delivery organization, a team charged with
ensuring that the Company's products are backed by high quality service
offerings valued by the Company's customers. As a part of its work, this team is
setting new customer service standards for the Company, and developing processes
to ensure that service around the world is delivered consistently.
The Company also intends to continue to accelerate the development and
deployment of its products in the marketplace. (1) To this end, as a part of the
realignment of the United Kingdom operations announced in early 1999, the
Company has chosen to consolidate development functions in Denver to enhance
productivity and accelerate bringing new products to market.
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. In 1998, the Company
introduced Viewpoint(TM), a point-and-click graphical user interface booking
system for air, hotel and car rental. Viewpoint provides easy access to travel
information which speeds the booking process and lets travel agents focus on
selling and servicing customers. The Company also introduced FocalpointNet(TM),
a cost effective means of connecting to the Apollo(R) or Galileo(R) system via
the Internet versus the standard dedicated circuit or dial-up telephone line.
Corporate travel departments and individual consumers are demonstrating an
increased interest in directly accessing the information and services provided
by a CRS. In response, the Company increased its emphasis on self-booking
products and services, and reorganized internally to better support its
corporate clients. Among the Company's 1998 initiatives was Galileo
Passport(TM), a new Web-based booking product sponsored by travel vendors and
designed to provide travelers with a fast and easy method to make business and
leisure travel arrangements. Also during 1998, the Company introduced Corporate
Travelpoint(TM), a fully integrated Web-based system designed to meet the most
exacting travel management requirements of the largest organizations. This new
product gives corporate travel managers the ability to rank preferred vendors by
market, administer contracts to ensure travelers are using preferred vendors,
and enforce policy compliance through exception reporting and approval. The
Company forged an alliance with Value Integrated Network ("VIN.net") that allows
the Company to offer corporate subscribers a broader and more complete set of
travel and entertainment expense reporting solutions. The Company also forged an
alliance with Apex Solutions to provide enhanced management reporting tools for
travel agency and corporate clients. In 1999, the Company intends to
aggressively market these products to the world's largest companies. (1)
During 1998, the Company also began investing in companies that offer
innovative technical solutions that support the Company's business needs. In
late 1998, the Company acquired S. D. Shepherd Systems, Inc. ("Shepherd
Systems"), a Florida-based leader in marketing information data transfer
("MIDT") processing, which currently services 15 of the top 25 airlines in the
world. Traditionally, many small and medium sized airlines have purchased raw
MIDT data and hired companies to analyze and interpret the data for them. With
the acquisition of Shepherd Systems, carriers can now receive data directly from
the Company, have it processed by Shepherd Systems, and use the resulting
information
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(1) See Statement Regarding Forward-Looking Statements on page 20.
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to enhance their marketing activities and profitability. The Company expects to
continue this strategy of investing in technology companies which helps to
increase the value delivered to the Company's customers. (1)
Electronic Global Distribution Services - Markets
As of December 31, 1998, the Company provided electronic global
distribution services for the travel industry in 104 countries via a network of
on-line terminals operated at approximately 39,600 travel agency locations
worldwide.
The geographic breadth of the Company is demonstrated by the table below
which shows the approximate number of travel agency locations and terminals by
region.
Travel Agency
Locations Terminals at
at December 31, 1998 December 31, 1998
---------------------------- ---------------------------
Region Number % Number %
- ------ ------ - ------ -
United States 12,500 31.6% 59,200 36.9%
Europe 13,300 33.6% 55,300 34.4%
Asia/Pacific 5,600 14.1% 21,300 13.3%
Canada 3,200 8.1% 11,000 6.9%
Middle East/Africa 3,300 8.3% 9,500 5.9%
Latin America 1,700 4.3% 4,200 2.6%
------------ ------------ ----------- ------------
39,600 100.0% 160,500 100.0%
============ ============ =========== ============
Electronic Global Distribution Services - Customer Base: Travel Vendors and
Subscribers
The Company derives substantially all of its electronic global distribution
services revenues from booking fees paid by travel vendors. 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, Apollo in North America and
Japan and Galileo in the rest of the world. In 1998, approximately 92% of the
Company's booking fee revenues were generated from airlines.
The booking fee structure for airlines varies based upon the location of
the subscriber generating the booking. For bookings made in the United States,
Canada, Mexico and Japan, the Company charges airlines a fee per transaction
and, thereby, earns a separate fee for each booking and for each cancellation.
In the rest of the world, the Company charges airlines a booking fee per "net
segment." In that case, the Company earns a fee for net bookings (gross bookings
less cancellations). Globally, car, hotel and leisure travel vendors are
generally charged a fee per net booking. The Company charges premiums for higher
levels of functionality selected by the travel vendors. Nearly 100% of the
Company's booking fees are billed in U.S. dollars, which limits the Company's
market risk exposure to fluctuations in other currencies against the U.S.
dollar.
The Company also 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
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(1) See Statement Regarding Forward-Looking Statements on page 20.
3
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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. The Company's product and service offerings to
travel agencies also facilitate internal business processes such as quality
control and operations and financial information management. Increasingly, this
includes the integration of products and services from independent parties that
complement the Company's core product and service offering.
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 and the Company's internal sales and marketing organization, the
Company has relationships with travel agencies of all sizes throughout the
world. 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 the Company's five multinational
travel agency customers constituted 19.0% of the bookings made through the
Company's systems in 1998.
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. The Company has therefore developed or
facilitated the use of direct access products for travel vendors and travel
agencies to target individual consumers. Among the Company's travel agency
customers are a number of firms whose businesses specialize in attracting and
servicing customers through the Internet. The Company also provides software
products to travel vendors and travel agencies which enable them to distribute
directly to their customers.
Electronic Global Distribution Services - Product Distribution
The Company distributes its products to subscribers primarily through its
internal sales and marketing organization and its NDCs. In markets not supported
directly by the Company's sales and marketing organization, the Company prefers
to use the national distribution company 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
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 all subscriber fees billed in
that marketplace.
The Company's local sales and marketing groups distribute the Company's
products in the United States, Mexico, Canada, Belgium, France, Germany, Spain,
Portugal, The Netherlands, Switzerland, Sweden, Finland, Norway, Hong Kong,
Singapore, The Philippines, Brazil and Venezuela. Booking made in these
countries collectively accounted for approximately 62% of the Company's 1998
bookings.
Affiliates of certain airline stockholders own the NDCs whose distribution
territories cover Austria, Greece, Ireland, Italy, Japan and the United Kingdom.
Collectively, these NDCs manage subscriber accounts that generated approximately
21% of the Company's 1998 bookings.
Associate NDCs, typically own or operated by the national airline of the
relevant country or a local travel-related business, accounted for approximately
17% of the Company's booking volume in 1998.
The Company and its NDCs distribute direct access products such as
Corporate Travelpoint, Travelpoint(TM) and Travelpoint.com(TM) to travel
agencies for use by their corporate and individual customers. The Company and
its 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.
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The Company has also developed or facilitated the development of branded
direct access products for certain airlines (such as United Connection by United
Airlines and Air Manager by Austrian Airlines). The Company has adopted this
approach in marketing and distributing direct access products that 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.
Information Services
As a result of developing and operating one of the world's largest CRSs,
the Company has acquired significant knowledge of, and experience in, both the
travel business and the information technology business. This knowledge and
experience has created a basis from which the Company has been able to provide a
range of specialized information technology solutions to airlines throughout the
world. The Company currently provides fares quotation services, internal
reservation services, other internal management services and software
development services to such airlines.
The Company currently provides fares quotation services through its
GlobalFares fares quotation system to airlines throughout the world. GlobalFares
is used in conjunction with each airline's internal reservation system and
provides pricing information which meets the challenges and complexities of
real-time fares quotation processing. Currently, over 100 airlines use
GlobalFares and the Company plans to continue to market GlobalFares to other
airlines.
The Company also 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 reservation centers throughout the world. In addition, the Company
provides certain other internal management services to United Airlines and to
other airline stockholders. Other internal management services currently include
network management, departure control, availability displays, inventory
management, database management and systems and software operations.
Technology
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. (1)
The Company's computer systems provide real-time, high-volume transaction
processing and are supported by 21 mainframes with a combined processing
capacity of 5,020 MIPS (millions of instructions per second). Additional
peripheral hardware provides approximately 16.8 terabytes of disk information
storage. The Company's computer systems are operational 24 hours a day, every
day of the year. They process, on average, over 195 million requests for
information per day. At peak times, the Company processes more than 6,100
messages per second.
The Company's global communications network provides a fast, resilient and
reliable method for travel agencies and travel vendors to access the Company's
systems. The Company's sites near Denver and London use a meshed backbone
network to provide direct connections from the Company to certain locations in
North America and Europe. This backbone network provides automatic rerouting in
the event of a circuit failure. In addition to the meshed backbone network, the
Company makes extensive use of independent international network service
providers to increase its reach into the global market.
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(1) See Statement Regarding Forward-Looking Statements on page 20.
5
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The Company's data and transaction processing services are dependent on the
Company's Data Centre. The Company maintains comprehensive security and backup
systems in order to deliver consistent, reliable service to customers. 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. (1)
Competition - Electronic Global Distribution Services
The Company primarily competes against other well-established CRSs to
provide electronic global distribution services to the travel industry. The
Company's principal competitor in the United States is SABRE, its principal
competitor in Europe is Amadeus and its principal competitor in Asia is Abacus.
To a lesser extent, the Company also competes, on a regional basis, against
Axess, Infini and Topas. Many of these competitors offer products which are
similar to the products of the Company.
Competition to attract and retain travel agency subscribers is intense. In
highly competitive markets, the Company and other CRSs offer incentives 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 further increase the amounts of such incentive payments significantly, the
Company's business, financial condition and results of operations could be
materially adversely affected.
Competition - Information Services
Competition within the information services market is segmented by the type
of service offering. Internal reservation services competitors include SABRE,
EDS, IBM and British Airways (through Speedwing). Competitors for data center
and network outsourcing include IBM, EDS, and niche suppliers such as SABRE and
Speedwing.
Relationship With Airline Stockholders
As of December 31, 1998, the airline stockholders owned, in the aggregate,
approximately 64.9% of the Company's outstanding Common Stock. The airline
stockholders controlled by United Airlines and KLM Royal Dutch Airlines ("KLM")
are the Company's two largest stockholders, owning approximately 31.9% and 10.2%
of the outstanding Common Stock, respectively. No other airline stockholder owns
more than 10% of the outstanding Common Stock. In addition, Special Voting
Preferred Stock allows certain of the airline stockholders to elect a total of
seven of the thirteen members of the Company's Board of Directors. The airline
stockholder controlled by United Airlines owns three shares of Special Voting
Preferred Stock and the airline stockholders controlled by KLM, US Airways, Inc.
("US Airways"), British Airways plc and SAirGroup each own one share, each share
entitling its holder thereof (or in certain circumstances, holder's transferee)
to elect one director. As to the remaining six directors, the airline
stockholders have agreed, pursuant to an agreement with the Company (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 the election of three management directors. As a result, as long
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 20.
6
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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.
At the end of 1998, the sales representation agreements with United
Airlines and US Airways, pursuant to which these airlines supplied the sales
force for the Company's Apollo brand reservations products to subscribers in the
United States and Mexico, were terminated. In an effort to increase focus on the
Company's product and service offering, the Company will be assembling its own
dedicated sales force in 1999. In 1997, the Company entered into non-competition
agreements with each of the airline stockholders which prohibit the airline
stockholders and their affiliates from competing with the Company in providing
reservation 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.
United Airlines is the largest single travel vendor utilizing the Company's
systems, generating revenues that accounted for approximately 18.2% of total
revenues in 1998. No other travel vendor accounted for 10% or more of the
Company's revenue in 1998.
Industry Regulation
The Company's business is subject to regulation in the United States, the
European Union and Canada. 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 services to the traveler. While each
jurisdiction has focused on the CRS industry's role in the airline industry, the
U.S. CRS Rules and the EC 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 changes to the EC CRS Rules effective March 15, 1999 allow
CRSs to incorporate rail services into CRS displays and such rail services are
therefore subject to certain sections of the EC CRS Rules.
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 subsequent 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 EC 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 EC 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 EC 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
EC CRS
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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 CRS and those provided to all other airlines. The EC CRS Rules require the
CRS owner airlines to 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 and Canadian rules apply to all subscriber uses of CRSs, whether by
travel agencies, individuals or corporate travel departments.
The U.S. CRS Rules are currently under review. Significant changes to the
EC CRS Rules were effective March 15, 1999. In addition to the changes affecting
rail mentioned above, the most significant changes to the EC CRS Rules are: (i)
more restrictive data privacy rules to further limit permissible access to
passenger data, (ii) a new requirement to automatically credit an airline for
booking fees related to bookings rejected by an airline without any need for
subscriber intervention, (iii) the identification of corporate implants must be
removed from MIDT products and the Company must offer MIDT products for sale to
subscribers both globally and selectively, and to groups of airlines and/or
subscribers for common processing, and (iv) effective August 15, 1999,
productivity benefits to subscribers must in the future be based upon ticketed
segments. The Company does not anticipate that the changes to the EC CRS Rules
will have a material impact on its financial results.
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.
Research & Development
Research and development costs consist of expenditures incurred during the
course of planned research and investigation aimed at discovery of new knowledge
useful in developing new products or processes, or significantly enhancing
existing products or production processes, and the implementation of such
through design, testing of product alternatives or construction of prototypes.
Research and development costs, excluding amortization of computer software, are
expensed as incurred and were approximately $4.8 million, $8.6 million and $8.2
million for the years ended December 31, 1998, 1997 and 1996, respectively. In
addition, the Company invests in companies that offer innovative technical
solutions to meet the Company's business needs.
Employees
The Company believes that its success is due in large part to its
employees. The Company strives to hire and retain highly skilled and motivated
personnel. As of December 31, 1998, the Company employed approximately 3,000
people. Approximately 72% of the Company's employees are located in the United
States and Canada, 24% in Europe and 4% in Latin America and countries
throughout the Asia/Pacific region. The Company's employees in Brazil,
representing less than 1% of the Company's workforce, are unionized in
accordance with local regulations. The Company believes that its relationship
with its employees is good.
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Executive Officers
The executive officers of the Company, their positions with the Company and
their ages, as of the date of this filing, are as set forth below. There are no
family relationships among any directors or officers.
Name Age Position
- ---- --- --------
James E. Barlett 55 Chairman, President, Chief
Executive Officer
Paul H. Bristow 56 Senior Vice President, Chief
Financial Officer and Treasurer
Lyn Bulman 39 Senior Vice President, Human
Resources and Corporate Relations
Michael G. Foliot 44 Senior Vice President, Global
Vendor Marketing
Babetta R. Gray 40 Senior Vice President Customer
Service Delivery, General Counsel
and Secretary
James E. Lubinski 43 Senior Vice President, Information
Services and Operations
David A. Near 40 Senior Vice President, Subscriber
Marketing
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 is also a Director of the Company.
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 Canada; and with Arthur Andersen & Co. in Canada. Mr. Bistrow is
also a Director of the Company.
Ms. Bulman has been Senior Vice President, Human Resources and Corporate
Relations since May 1995. From 1990 to March 1993, she served as Manager of
Compensation and Benefits and from April 1993 to May 1995, she served as
Director of Human Resources - Europe. Prior to joining the Company, Ms. Bulman
held executive positions in the United Kingdom at Dun & Bradstreet Corporation
and Fisons (Pharmaceutical Division) plc.
Mr. Foliot has been Senior Vice President, Global Vendor Marketing since
January 1997. In this position, Mr. Foliot is responsible for all airline, car,
hotel, leisure, corporate and consumer, 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, Customer Service Delivery and
General Counsel since July 1998, and has been Secretary since May 1997. In this
position, Ms. Gray is responsible for ensuring that the Company's products are
backed by high quality service offerings that are valued by its customers.
9
<PAGE>
Prior to that she was Senior Vice President, Legal and General Counsel since
March 1996, 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.
Ms. Gray is also a Director of the Company.
Mr. Lubinski has been Senior Vice President, Information Services and
Operations since July 1995. In this position, Mr. Lubinski is responsible for
ensuring technological leadership in systems development for the Company. Prior
to joining the Company, Mr. Lubinski served since 1994 as Senior Vice President
and Division Head of Systems and Operations for Boatmen's Trust Company. From
1978 to 1994, Mr. Lubinski held several technical positions at NBD Bancorp,
including First Vice President and Development Manager. Mr. Lubinski is a member
of the Board of Trustees of Stichting "the SITA Foundation" and also a member of
the Board of Trustees for the PorterCare Foundation.
Mr. Near has been Senior Vice President, Subscriber Marketing since January
1997. In this position, Mr. Near is responsible for all subscriber marketing,
including the Company's relationships with its various NDCs. 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.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Rosemont,
Illinois, a suburb of Chicago, where the Company leases approximately 120,000
square feet of office space pursuant to a lease that expires in the year 2000.
The Company's Data Centre is located in Englewood, Colorado, a suburb of Denver,
in two adjacent buildings owned by the Company. The Data Centre contains
approximately 236,000 square feet of space, including approximately 130,000
square feet of raised floor computer room space. The Company also leases and
owns office space in various other worldwide locations, including development
and marketing offices located in or near Denver, London and Hong Kong. See note
7 to the Company's consolidated financial statements, located elsewhere herein,
regarding closure of the development and marketing offices located near London.
The Company believes that its offices and Data Centre are adequate for its
immediate needs and that additional or substitute space is available if needed
to accommodate growth and expansion. (1)
ITEM 3. LEGAL PROCEEDINGS
In the Company's annual report on Form 10-K for the fiscal year ended
December 31, 1997, it was reported that on September 8, 1997, The Galileo
Company, the Company's United Kingdom subsidiary, had instituted proceedings
against Weir Systems Ltd ("Weir") in the High Court of Justice, Queen's Bench
Division, London, England, seeking damages and other relief in respect of
certain computer software and services supplied by Weir, and that on January 30,
1998, Weir served on The Galileo Company a Defense and Counterclaim. Weir's
Counterclaim sought damages and other relief totaling approximately $46.5
million, plus interest. The Company vigorously pursued its claim and defended
the Counterclaim made against it. The Galileo Company and Weir have now agreed
terms of settlement and, by a Consent Order dated December 17, 1998, it was
ordered that all further proceedings be stayed.
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 20.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's Common Stock, $.01 par value, began trading on the New York
Stock Exchange under the symbol "GLC" in July 1997. The following table sets
forth, for the quarters indicated, the range of high and low closing sale prices
for the Company's Common Stock on the New York Stock Exchange and the dividends
declared.
Market Price Dividends
Quarter High Low Declared
------- ------------ --- ---------
1998
Fourth $ 43 1/2 $ 28 3/4 $ 0.075
Third 45 7/16 31 3/4 0.075
Second 45 1/16 35 1/2 0.075
First 39 1/2 26 3/16 0.060
-------
Total $ 0.285
=======
1997
Fourth $ 29 1/4 $ 23 3/8 $ 0.060
Third 27 15/16 25 1/16 -
-------
Total $ 0.060
=======
On March 17, 1999, the Company's stock was held by approximately 230 holders of
record.
Dividend Policy
Although the Company expects to reinvest a substantial portion of its
earnings in its business, the Company currently intends to continue to pay
regular quarterly cash dividends. 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 future dividends. (1)
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 20.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Year Ended December 31,
-----------------------
1998 (1) 1997 (2) 1996 1995 1994
-------- -------- -------- ------- -------
(In millions, except share data)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Revenues $ 1,480.8 $ 1,256.1 $ 1,088.3 $ 966.4 $ 813.8
Operating income 331.6 211.5 175.4 140.3 69.3
Income before income taxes 325.5 205.6 167.1 123.7 53.2
Income taxes 129.9 44.0 1.9 2.6 4.4
Net income 195.6 161.6 165.2 121.1 48.8
Pro forma net income (3) - 123.4 100.3 74.2 31.9
Basic earnings per common share 1.87 - - - -
Pro forma basic earnings per common share (3) - 1.30 1.14 0.84 0.36
Diluted earnings per common share 1.86 - - - -
Pro forma diluted earnings per common share (3) - 1.30 1.14 0.84 0.36
Dividends per common share 0.285 0.06 - - -
Balance Sheet Data:
Current assets $ 243.5 $ 224.3 $ 240.8 $ 187.3 $ 133.8
Total assets 1,291.1 1,268.5 599.9 569.0 555.5
Current liabilities 231.8 201.4 199.6 227.6 191.5
Long-term debt 69.5 250.0 70.0 134.2 239.8
Other long-term obligations 147.1 133.4 74.9 77.6 84.7
Partners' capital - - 255.4 129.6 39.5
Stockholders' equity 842.6 683.7 - - -
Other Data:
Operating income as a
percentage of revenue 22.4% 16.8% 16.1% 14.5% 8.5%
Reservations booked using the
Company's CRS systems (4) 345.7 336.1 316.1 285.4 255.0
Net cash provided by operating activities $ 379.1 $ 324.7 $ 214.1 $ 172.6 $ 135.8
Capital expenditures (5) 98.7 65.9 40.0 64.5 33.2
</TABLE>
(1)For the year ended December 31, 1998, operating expenses include $26.4
million ($15.9 million after tax) of special charges related to the
realignment of the Company's operations in the United Kingdom and $13.4
million ($8.1 million after tax) in gains related to settlements of
contractual disputes from prior years.
(2)Effective July 30, 1997, Galileo International Partnership merged into a
wholly owned limited liability company subsidiary of Galileo International,
Inc. (the "Merger"), the Company effected an initial public offering of its
Common Stock (the "Offering"), and the Company incurred debt related to the
purchase of three national distribution companies.
For the year ended December 31, 1997, the results of the acquired NDCs have
been consolidated with those of the Company from the date of each
acquisition. 1997 operating expenses include $20.1 million ($12.1 million
after tax) of special charges related to the integration of the acquired NDCs
and a $15.3 million nonrecurring charge to reflect the establishment of
initial deferred tax assets and liabilities. No provision for U.S. federal
and state income taxes was recorded prior to July 30, 1997 as
12
<PAGE>
such liability was the responsibility of the partners of Galileo
International Partnership, rather than of the Company.
(3)As a result of the Merger and the Offering, pro forma net income and pro
forma basic and diluted earnings per share data are calculated as though: (i)
partners' capital was converted into 88,000,000 shares of Common Stock for
all periods presented and the 16,799,700 shares issued to the public were
outstanding from July 30, 1997, and (ii) the Company had operated in a
corporate form for all periods presented and accordingly was subject to
federal and state income taxes.
(4)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.
(5)Capital expenditures include purchases of property and equipment and
purchases of computer software. In addition, the capitalization of internally
developed computer software was $14.2 million, $21.2 million, $21.6 million,
$24.5 million, and $25.7 million for the years ended December 31, 1998, 1997,
1996, 1995, and 1994, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Effective July 30, 1997, Galileo International Partnership merged into a
wholly owned limited liability company subsidiary of Galileo International, Inc.
(the "Merger") and effected an initial public offering of its Common Stock (the
"Offering"). References to the Company mean, at all times prior to the time of
the Merger, Galileo International Partnership and its consolidated subsidiaries
and, at all times thereafter, Galileo International, Inc. and its consolidated
subsidiaries. As a result of this Merger, (i) the Company became subject to U.S.
federal and state income taxes that were previously borne by the partners of
Galileo International Partnership and (ii) the Company recorded a $15.3 million
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 were exchanged for the
Company's Common Stock in the same proportion as that of their respective
partnership interests in Galileo International 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's systems. 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.
In addition to booking fees and related premiums paid by travel vendors,
subscribers generally pay fees for hardware, software and certain services. Such
fees are often discounted or waived for travel agency subscribers, depending
upon the level of bookings generated by the travel agency. In highly competitive
markets, the Company often makes incentive payments to travel agency subscribers
that achieve defined productivity or booking volume growth objectives.
The Company also provides information services to airlines, including
certain of its airline stockholders. The Company currently provides fares
quotation services, internal reservation services, other internal management
services and software development services to such airlines.
The Company's expenses consist primarily of local sales, marketing and
customer service costs, commissions paid to national distribution companies
("NDCs"), costs associated with the operation of the Company's Data Centre and
wages and benefits payable to employees of the Company. Substantially all
13
<PAGE>
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 Centre (including wages and benefits of Data Centre
and other technical services personnel, and hardware, software and
communications costs). 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.
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.
During 1998, the Company acquired a Florida-based airline information
systems company, S. D. Shepherd Systems, Inc. (the "Shepherd Systems
Acquisition") and two national distribution companies: Galileo Nordiska AB (the
"Nordiska Acquisition") and Galileo Canada Distributions Systems, Inc. ("Galileo
Canada"), (the "Canada Acquisition"). The Company also recorded a nonrecurring
charge to operating expenses of $26.4 million ($15.9 million after tax) related
to a strategic realignment of the Company's operations in the United Kingdom.
This special charge consisted of $15.0 million in severance-related costs and
$11.4 million in costs related to disposition of the current United Kingdom
facilities.
During 1997, the Company acquired three national distribution companies
(the "NDC Acquisitions"): Apollo Travel Services Partnership ("ATS"), Traviswiss
AG ("Traviswiss") and Galileo Nederland BV ("Galileo Nederland"). In connection
with the NDC Acquisitions, the Company recorded a nonrecurring charge to
operating expenses of $20.1 million ($12.1 million after tax) related to the
integration of the Company and its acquired NDCs. This special charge consisted
of $12.3 million in severance-related costs and $7.8 million of other
integration costs, principally related to duplicate facilities.
In connection with the NDC Acquisitions in 1997 and the Canada Acquisition
in 1998, the Company has entered into agreements for the provision of certain
marketing services (the "Services Agreements") with the sellers (or affiliates
of such sellers) of ATS, Traviswiss, Galileo Nederland and Galileo Canada
whereby such sellers (or such affiliates) will provide services to the Company
related to growing the respective business operations of the acquired NDCs.
1998 Compared to 1997
Revenues. The Company generates its revenue from the provision of
electronic global distribution services and information services. During the
year ended December 31, 1998, the Company generated approximately 90.7% of its
revenue from electronic global distribution services and approximately 9.3% of
its revenue from information services. The following table summarizes 1998
revenues and 1997 pro forma revenues (as if the NDC Acquisitions had occurred on
January 1, 1997) for electronic global distribution
14
<PAGE>
services by geographic location as a percentage of total revenues and summarizes
total booking volumes for each of the periods indicated:
1998 1997
---- ----
Percentage of Revenue
- ---------------------
U.S. Market (1) 43.8 % 46.2 %
All Other Markets (1) 56.2 53.8
----- -----
100.0 % 100.0 %
===== =====
Worldwide Bookings
- ------------------
(in millions)
U.S. Market: (1)
Air 131.4 135.8
Car/Hotel/Leisure 22.6 21.4
----- -----
154.0 157.2
All Other Markets: (1)
Air 186.0 173.8
Car/Hotel/Leisure 5.7 5.1
----- -----
191.7 178.9
----- -----
Total Worldwide Bookings 345.7 336.1
===== =====
- ---------
(1)The location of the travel agent making the booking determines the geographic
region credited with the related revenues and bookings.
Revenues increased $224.7 million, or 17.9%, to $1,480.8 million for the
year ended December 31, 1998 from $1,256.1 million for the year ended December
31, 1997. The 1998 revenues include the impact of the acquired NDCs whereas 1997
revenues, prior to the NDC Acquisitions, represent Galileo International
Partnership revenues. Assuming the NDC Acquisitions occurred on January 1, 1997,
revenues for the year ended December 31, 1997, on a pro forma basis, would have
increased $95.4 million ($40.7 million increase in electronic global
distribution services and $54.7 million increase in information services)
representing primarily revenue from subscribers for hardware, software and other
services and revenue from airlines for information services performed. Comparing
1998 to pro forma 1997, revenues increased $129.3 million, or 9.6%, to $1,480.8
million for the year ended December 31, 1998 from $1,351.5 million in pro forma
revenues for the year ended December 31, 1997.
Growth in 1998 versus 1997 pro forma electronic global distribution
services revenues resulted primarily from an increase in airline booking volumes
of 2.5% and an increase in car, hotel and leisure booking volumes of 6.6% during
the year ended December 31, 1998 as compared to the year ended December 31,
1997. Total international booking volumes increased 7.2% for the year, while
U.S. booking volumes declined 2.1% over the same period last year. Reported U.S.
bookings declined due to a new fee structure the Company introduced in North
America in March 1998 that only charges airline vendors for passive bookings
that are ticketed. The Company reports only those bookings for which it receives
a fee. Excluding passive airline bookings, growth in active bookings for the
year was 1.3% in the United States. The increase in international booking
volumes for the year was driven by strong growth in Europe, the
15
<PAGE>
Middle East, Southeast Asia and Africa. An air booking fee price increase that
went into effect March 1, 1998 and other yield improvements also contributed to
the revenue growth during the year.
Cost of Operations. Cost of operations expenses increased $183.0 million,
or 47.5%, to $568.3 million for the year ended December 31, 1998 from $385.3
million for the year ended December 31, 1997. 1998 expenses include the impact
of the 1997 NDC Acquisitions as well as the impact of the 1998 Canada
Acquisition and Nordiska Acquisition from the date of each acquisition. 1997
expenses, prior to the NDC Acquisitions, represent Galileo International
Partnership expenses. Additionally, in conjunction with the NDC Acquisitions,
Nordiska Acquisition, Canada Acquisition and the Shepherd Systems Acquisition,
the Company records the amortization of the excess of the cost of these
acquisitions over the fair value of the net assets acquired and the amortization
of other intangibles acquired. Assuming the 1997 NDC Acquisitions occurred on
January 1, 1997, pro forma cost of operations for the year ended December 31,
1997 would have increased $156.6 million to $541.9 million. This increase is
caused by additional operating expenses that were partially offset by lower
commissions as the Company no longer pays commissions, but instead incurs the
direct costs of distributing its products in these markets. The additional
operating expenses represent principally the wages, maintenance, communication
costs and depreciation of the acquired NDCs.
Comparing 1998 to pro forma 1997, cost of operations expenses increased
$26.4 million, or 4.9%, to $568.3 million for the year ended December 31, 1998
from $541.9 million in pro forma expenses for the year ended December 31, 1997.
As a result of the Canada Acquisition and Nordiska Acquisition, cost of
operations expenses increased $14.3 million as the Company incurred the direct
costs of operating in these markets since the date of each acquisition. The
remaining increase was primarily attributable to higher wages for technical
personnel, increased communication costs due to market expansion and increased
maintenance costs for subscriber equipment at agency locations, partially offset
by a reduction in network services provided to an airline vendor. Subsequent to
the NDC Acquisitions, Nordiska Acquisition and Canada Acquisition, cost of
operations expense growth was lower than revenue growth due to management's
continued focus on operating efficiency and savings realized from the
integration of the acquired NDCs. The Company continues to take advantage of
decreasing technology costs on Data Centre equipment and has negotiated
favorable supplier contracts for subscriber equipment.
Commissions, Selling and Administrative Expenses. Commissions, selling and
administrative expenses decreased $84.7 million, or 13.2%, to $554.5 million for
the year ended December 31, 1998 from $639.2 million for the year ended December
31, 1997. NDC commissions and subscriber incentive payments decreased $128.2
million, or 26.1%, to $363.6 million for the year ended December 31, 1998 from
$491.8 million for the year ended December 31, 1997. The increase in electronic
global distribution services revenues resulted in increased commissions to NDCs
which was more than offset by the elimination of commissions paid to the
acquired NDCs as, subsequent to these acquisitions, the Company no longer pays
commissions but instead incurs the direct cost of operating in these markets.
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. Incentive payments, which are provided to subscribers in order to
maintain and expand the Company's travel agency customer base, increased
significantly in 1998 due to the initiation of new deals with multi-national
accounts as well as the impact of payments to subscribers previously borne by
the acquired NDCs.
Remaining commissions, selling and administrative expenses increased
primarily because 1998 expenses include the impact of the NDC Acquisitions
whereas 1997 expenses, prior to these acquisitions, represent Galileo
International Partnership expenses. In addition, the Canada Acquisition and
Nordiska Acquisition, accruals for estimated payments under the Services
Agreements and a new employee profit sharing program resulted in increased
expenses, which were partially offset by $13.4 million in favorable settlements
of contractual disputes from prior years.
Special Charges. The Company recorded special charges of $26.4 million
during the year ended December 31, 1998 related to a strategic realignment of
the Company's operations in the United Kingdom.
16
<PAGE>
Special charges include severance provisions of $15.0 million and $11.4 million
in costs related to disposition of the current United Kingdom facilities.
The Company recorded special charges of $20.1 million during the year ended
December 31, 1997 related to the integration of the acquired NDCs into the
Company's operations. Special charges were comprised primarily of $12.3 million
in severance costs related to termination of employees and $7.8 million of other
integration costs, principally related to duplicate facilities.
Other Income (Expense), Net. Other income (expense), net includes interest
expense net of interest income, and foreign exchange gains or losses. Other
income (expense), net increased $0.2 million, to $6.1 million expense, net for
the year ended December 31, 1998 from $5.9 million expense, net for the year
ended December 31, 1997. This increase was primarily the result of lower
interest income arising from lower average cash and cash equivalents.
Income Taxes. No provision for U.S. federal and state income taxes was
recorded prior to July 30, 1997 as such liability was the responsibility of the
partners of Galileo International Partnership, rather than of the Company. As a
result of the July 30, 1997 merger of Galileo International Partnership into a
wholly owned limited liability company subsidiary of Galileo International,
Inc., the Company recorded initial deferred income taxes of $15.3 million to
reflect the establishment of deferred tax assets and liabilities in 1997.
Remaining income taxes for 1997 represent U.S. federal and state income taxes
subsequent to July 30, 1997 and income taxes for certain of the Company's
non-U.S. subsidiaries. Subsequent to the Merger, the Company's effective tax
rate is approximately 40%.
Net Income. Net income was $195.6 million for the year ended December 31,
1998. Net income was $161.6 million for the year ended December 31, 1997. Net
income in 1998 reflects the recognition of U.S. federal and state income taxes
for the entire year.
1997 Compared to 1996
Revenues. Revenues increased $167.8 million, or 15.4%, to $1,256.1 million
for the year ended December 31, 1997 from $1,088.3 million for the year ended
December 31, 1996. 1997 revenues include the impact of the NDC Acquisitions
whereas 1996 revenues represent Galileo International Partnership revenues. The
NDC Acquisitions resulted in $72.6 million of additional revenues or 43.3% of
the revenue growth during this period. The remaining revenue growth resulted
principally from increased booking volumes worldwide and, to a lesser extent,
from an increase in the price per booking charged to airline travel vendors.
This price increase became effective on March 1, 1997.
Operating Expenses. Operating expenses increased $131.7 million, or 14.4%,
to $1,044.6 million for the year ended December 31, 1997 from $912.9 million for
the year ended December 31, 1996. Excluding $20.1 million in special charges
related to the integration of the acquired NDCs into the Company's operations,
operating expenses increased $111.6 million, or 12.2%, to $1,024.5 million for
the year ended December 31, 1997 from $912.9 million for the year ended December
31, 1996. The NDC Acquisitions resulted in additional operating expenses which
were partially offset by lower commissions as the Company no longer pays
commissions, but instead incurs the direct costs of distributing its products in
these markets.
Other Expenses, Net. Other expenses, net include interest expense, net of
interest income, and foreign exchange gains or losses. Other expenses, net
decreased $2.4 million, to $5.9 million for the year ended December 31, 1997
from $8.3 million for the year ended December 31, 1996. This decrease was
primarily the result of currency fluctuation gains and higher interest income
arising from higher average levels of cash and cash equivalents over the
periods.
17
<PAGE>
Income Taxes. No provision for U.S. federal and state income taxes was
recorded prior to July 31, 1997, as such liability was the responsibility of the
partners of Galileo International Partnership rather than of the Company.
Certain of the Company's non-U.S. subsidiaries are subject to income taxes. As a
result of the merger of Galileo International Partnership into a wholly owned
limited liability company subsidiary of Galileo International, Inc., the Company
recorded initial deferred income taxes of $15.3 million to reflect the
establishment of deferred tax assets and liabilities. The remaining provisions
for income taxes relate to the period subsequent to July 30, 1997. The Company's
effective tax rate is approximately 40%.
Net Income. Net income was $161.6 million for the year ended December 31,
1997. Net income was $165.2 million for the year ended December 31, 1996. Net
income in 1997 was impacted by the $15.3 million of initial deferred income
taxes, the $12.1 million after tax effect of the special charges recorded as a
result of the integration of the acquired NDCs into the Company's operations, as
well as the on-going recognition of U.S. federal and state income taxes since
July 30, 1997.
Liquidity and Capital Resources
Cash and cash equivalents totaled $9.8 million and working capital totaled
$11.7 million at December 31, 1998. At December 31, 1997, cash and cash
equivalents totaled $19.4 million and working capital totaled $22.9 million.
Cash and cash equivalents decreased by $9.6 million as the Company carefully
monitors cash requirements and utilizes excess cash generated by operations to
pay down outstanding debt, pay dividends to its stockholders and repurchase
shares of its Common Stock.
Cash flow used in investing activities, other than NDC acquisitions,
principally relates to purchases of mainframe data processing and network
equipment and purchases of computer equipment provided to the Company's travel
agency subscribers. Capital expenditures, excluding the capitalization of
internally developed software, were $98.7 million for the year ended December
31, 1998 compared to $65.9 million for the year ended December 31, 1997. In
1998, the Company also invested in three companies that offer innovative
technical solutions that support the Company's business needs. These
investments, totaling $21.8 million, included the Shepherd System Acquisition
and minority interests in two other technology companies.
Cash flow used in financing activities includes net repayments of $180.6
million under credit agreements, $29.9 million in dividends paid to stockholders
and $6.8 million in repurchases of the Company's Common Stock. On June 5, 1998,
the Company incurred additional borrowings of $34.4 million under a five-year
term loan agreement, which were used to fund the acquisition of Galileo Canada.
As of December 31, 1998, $69.5 million of debt was outstanding.
The Company expects that future cash requirements will principally be for
capital expenditures, repayments of indebtedness, acquisitions of additional
NDCs and other potential acquisitions that are aligned with the Company's
strategic direction. The Company believes that cash generated by operating
activities will be sufficient to fund its future cash requirements, except that
significant acquisitions may require additional borrowings or other financing
alternatives. (1)
In connection with the NDC Acquisitions and the Canada Acquisition, the
Company has entered into Services Agreements for the provision of certain
marketing services with the sellers (or affiliates of such sellers) of ATS,
Traviswiss, Galileo Nederland and Galileo Canada whereby such sellers (or such
affiliates) will provide services to the Company related to growing the
respective business operations of the acquired NDCs. Pursuant to the Services
Agreements, the Company will be required to pay the sellers (or such affiliates
of the sellers) of ATS, Traviswiss, Galileo Nederland and Galileo Canada fees of
up to $200.0 million, $6.8 million, $4.7 million and $20.5 million (each on a
present value basis as of the date of the
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 20.
18
<PAGE>
agreements), respectively, in the sixth year (eighth year for a portion of
Galileo Canada) following the acquisitions, contingent upon improvements in the
Company's airline booking fee revenue in the sellers' respective territories
over the five-year period following each acquisition, as measured by the annual
price increase rate and over the five-year period (seven-year period in the case
of Galileo Canada) following each acquisition, as measured by the annual air
segment growth rate. The Company has reviewed and, to the extent deemed
appropriate, established 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. As of December 31, 1998, accruals totaling $9.3 million
have been recorded and are reflected in the accompanying consolidated balance
sheet.
In addition to reinvesting a substantial portion of earnings in its
business, the Company currently intends to pay regular quarterly dividends and
to repurchase additional shares of its Common Stock. The declaration and payment
of future dividends, as well as the amount thereof, and the amount of future
repurchases of its Common Stock 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 future dividends or repurchase shares
of its Common Stock. (1)
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 20.
19
<PAGE>
Statement Regarding Forward-Looking Statements
These statements are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. All
forward-looking statements in this report are based upon information available
to the Company on the date of this report. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. Any forward-looking statements
involve risks and uncertainties that could cause actual events or results to
differ materially from the events or results described in the forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements.
Risks associated with the Company's forward-looking statements include, but
are not limited to: risks related to the loss and inability to replace the
bookings generated by one or more of its five largest travel agency customers;
risks associated with the competition and technological innovation by
competitors, which could require the Company to reduce prices, to change billing
practices, to increase spending or marketing or product development or otherwise
to take actions that might adversely affect its operations or earnings; risks
associated with industry consolidation, including strategic alliances, in the
CRS industry; risks of the Company's sensitivity to general economic conditions
and events that affect airline travel and the airlines that participate in the
Company's Apollo and Galileo systems; risks that may adversely affect the
Company's relationships and agreements with its airline stockholders, including
United Airlines and its affiliates; risks relating to the Company's investment
in technology, including the ability of the Company to timely develop and
achieve market acceptance of new products, or to achieve Year 2000 compliance in
a timely and cost-effective manner; risks associated with the Company's
international operations and expansion into developing and new CRS markets,
governmental approvals, trade and tariff barriers, and political risks; risks of
new or different legal or regulatory requirements governing the CRS industry;
risks associated with the integration of acquired businesses, including the
amount and timing of cost savings and synergies that may be achieved; and risks
of a natural disaster or other calamity that may cause significant damage to the
Company's Data Centre facility.
20
<PAGE>
Quarterly Comparisons
The following tables set forth an unaudited summary of quarterly financial
data (in thousands, except share data). This quarterly information has been
prepared on the same basis as the annual consolidated financial statements and,
in management's opinion, reflects all adjustments necessary for a fair
presentation of the information for the periods presented. The operating results
for any quarter are not necessarily indicative of results for a full fiscal
year.
The Company experiences a seasonal pattern in its operating results, with
the fourth quarter typically having the lowest total revenues and operating
income due to early bookings by customers for holiday travel and due to a
decrease in business travel during the holiday season. In addition, 1998 fourth
quarter operating expenses include special charges of $26.4 million ($15.9
million after tax) related to a strategic realignment of the Company's
operations in the United Kingdom and 1997 third quarter operating expenses
include special charges of $20.1 million ($12.1 million after tax) related to
the integration of the Company and its acquired NDCs.
<TABLE>
1998
----
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues $377,010 $380,637 $377,461 $345,710
Operating expenses 270,731 288,695 291,130 298,684
Operating income 106,279 91,942 86,331 47,026
Net income 62,303 53,951 51,131 28,229
Basic earnings per share 0.59 0.51 0.49 0.27
Diluted earnings per share 0.59 0.51 0.49 0.27
1997 (1)
--------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Total revenues $307,646 $307,200 $327,655 $313,602
Operating expenses 241,335 253,634 276,490 273,114
Operating income 66,311 53,566 51,165 40,488
Pro forma net income (2) 39,397 32,386 29,263 22,322
Pro forma basic earnings per share (2) 0.44 0.36 0.29 0.21
Pro forma diluted earnings per share (2) 0.44 0.36 0.29 0.21
</TABLE>
- ---------
(1)Represents Galileo International Partnership through July 30, 1997 and
Galileo International, Inc. subsequent to July 30, 1997.
(2)Pro forma net income and basic and diluted earnings per share data for 1997
are calculated as though: (i) the partners' capital was converted in the
Merger into 88,000,000 shares of Common Stock as of January 1, 1997 and the
16,799,700 shares issued to the public were outstanding from July 30, 1997,
and (ii) the Company had operated in a corporate form effective January 1,
1997 and accordingly was subject to federal and state income taxes.
21
<PAGE>
Effect of Recently Issued Accounting Pronouncements
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("Statement 133"), which is required to be adopted for financial
statements issued for the fiscal year ending December 31, 2000. Statement 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. Management believes that adoption of
Statement 133 will not have a material impact on the Company's financial
statements.
Year 2000 (1)
The Year 2000 issue is a result of computer programs being written using
two digits rather than four to define the applicable year. Any of the computer
programs or systems of the Company or the Company's vendors and suppliers that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than 2000.
Beginning in September 1995, the Company implemented a program designed to
help ensure that all hardware and software used in connection with the Company's
business, including the Company's software products, will manage and manipulate
data involving the transition of dates from 1999 to 2000 without functional or
data abnormality and without producing inaccurate results related to such dates.
An internal analysis of the Company's hardware and software has led the Company
to conclude that the majority of the Company's systems have been engineered to
be Year 2000 compliant and should provide a seamless transition to the Year
2000. In addition, the Company has consulted outside experts, including
attorneys and independent auditors, regarding its Year 2000 plans.
The Company electronically exchanges information with the computer systems
of the Company's vendors and suppliers, including air, car, hotel and tour
vendors. The Company uses standardized travel industry interchange formats to
electronically exchange information with many of such vendors and suppliers.
Many of these formats did not require modification in order to be Year 2000
compliant. Where required, modifications to these formats have been completed.
The Company's GlobalFares system began successfully processing airline fares
with Year 2000 dates in July 1998. In addition, the investigation and assessment
of the Company's network systems is complete and remediation for such systems is
in progress and on-track for completion during the third quarter of 1999. The
Company has completed remediation planning for the Company's travel agency-based
software and began distribution of Year 2000 upgrades for operating systems and
package installation systems used in connection with the Company's travel
agency-based software during the third quarter of 1998. The Year 2000
remediation of the Company's travel agency-based software addresses aesthetic
modifications only and is not essential for the reservation booking and
ticketing capability of these products. The Company will continue to work with
its NDCs to distribute and install, where necessary, upgrades to PC hardware and
software either on a normal maintenance cycle where it exists, or a separate
implementation plan where it does not exist.
Remediation activities related to the Company's mainframe computer systems,
which include the Company's Apollo and Galileo CRSs, were completed on schedule
in 1998. The Company's Apollo and Galileo systems successfully processed the
first Year 2000 airline reservation bookings on January 3, 1999 and February 4,
1999, respectively, with airlines which support Year 2000 in their systems.
Non-mainframe activities are on track for completion before the third quarter of
1999.
Embedded systems are not an integral component in the Company's primary
business or operations. Nevertheless, the Company has identified and validated
as compliant or, where necessary, is in the process
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 20.
22
<PAGE>
of remediating embedded systems in certain of the Company's facilities and
environmental systems. The Company does not anticipate any material adverse
impact to its business or operations related to Year 2000 performance of
embedded systems.
As an electronic global distribution system, the Company's products are
dependent upon data provided by its air, car, hotel and tour vendor customers
and other suppliers of data. The Company is also dependent on critical service
providers, such as telecommunications firms for worldwide product distribution.
The Company is continuing to assess Year 2000 issues arising from its
relationships with third parties, including its NDCs, to determine the extent to
which the Company's interface systems are vulnerable to failure by such parties
to remediate their own Year 2000-sensitive systems. The Company has requested
Year 2000 compliance status information from all of its vendor customers,
critical other suppliers of data and its NDCs. The Company continues to work
closely with its NDCs to provide assistance to meet their Year 2000 challenges.
While many of these third parties have reported that they are not finding
significant problems in their own systems, there can be no guarantee that the
systems of these third parties will be made Year 2000 compliant in a timely
manner. Vendor customers, service providers and NDCs continue to participate
with the Company in Year 2000 testing.
The Company completed contingency plans for its mainframe systems on
schedule in 1998 and anticipates that the contingency plans for non-mainframe
systems will be complete prior to the third quarter of 1999. The Company will
continue to review and revise contingency plans to address possible Year 2000
failures of its internal systems and business processes or those of vendor
customers, critical service suppliers, other suppliers of data and its NDCs, on
whose systems the Company is dependent. The Company's contingency plans identify
the interruption of local services provided by third parties, such as
telecommunication firms and power supply companies, as the events which would be
most likely to occur. However, should a problem occur, it would generally be
localized and the Company does not anticipate that it would have a material
adverse effect on the Company's business, financial condition or results of
operations. The Company's contingency planning involved risk assessment for all
of the Company's business functions and operating and staff departments,
including the identification of assumptions and dependencies. The contingency
plans for each business function and operating and staff department provide for
proactive preparation for Year 2000 challenges, checklists of activities to
perform for validation of possible failures and reactive planning to address any
actual Year 2000 failures. The contingency plans also address on-site staff
coverage on January 1, 2000 for all operating and staff departments, and include
support personnel from the Company's critical hardware and software suppliers.
The interruption of services provided by critical service providers, such
as telecommunications firms and power supply companies, due to their own Year
2000 difficulties, could have a material adverse effect on the Company's
business and operations. With respect to bookings for travel after January 1,
2000, any failure on the part of the Company, its vendor customers, other
suppliers of data or NDCs to ensure that their systems are Year 2000 compliant,
regardless of when such bookings occur, could have a material adverse effect on
the business, financial condition and results of operations of the Company.
Testing is a critical component in the Company's Year 2000 preparedness
program. The Company's system for Year 2000 hardware and software validation --
called the "Time Machine" -- is essentially a copy of the Company's production
environment which performs date-sensitive tests and supports connectivity to the
systems of its vendor customers, suppliers of data, NDCs and certain other third
parties without interrupting existing systems and without risk of contaminating
"live" production data.
The Company incurred $8.0 million of expenses in 1998 and $4.4 million of
expenses in 1997 related to Year 2000 remediation. The Company expects future
expenditures to total approximately $9.0 million. All of such costs are expected
to be expensed as incurred. Further, the Company expects to incur additional
costs after 1999 to remediate and replace less critical software applications
and embedded systems, however, such expenses are not expected to have a material
adverse effect on the Company's business, financial condition or results of
operations.
23
<PAGE>
The cost of the Company's Year 2000 project and the dates on which the
Company plans to complete its Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, third parties' Year 2000 readiness and other factors.
Based on the Company's current schedule for completion of its Year 2000
project, the Company believes that its planning is adequate to secure Year 2000
readiness of its critical systems. Nevertheless, achieving Year 2000 readiness
is subject to various risks and uncertainties, many of which are described
above. The Company is not able to predict all of the factors that could cause
actual results to differ materially from its current expectations about its Year
2000 readiness. At this time, the Company believes the major risks associated
with Year 2000 processing are a system failure or miscalculation causing an
inability to process bookings or engage in other normal business activities. If
the Company, or third parties with whom the Company has significant business
relationships, fail to achieve Year 2000 readiness with respect to critical
systems, there could be a material adverse effect on the Company's business,
financial condition and results of operations.
New European Currency
In January 1999, certain European countries introduced a new currency unit
called the "euro". The Company planned, developed and successfully implemented a
project to ensure that hardware and software systems operated or licensed in the
Company's business, including systems provided to its travel agency subscribers
and its vendor customers, are designed to properly process reservations in the
euro currency. The Company completed the necessary development and successfully
issued tickets in the new single currency on the first official trading day,
January 4, 1999. The Company estimates that the introduction of the euro,
including the total costs for the euro project, will not have a material effect
on the Company's business, financial condition, and results of operations. (1)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Certain of the Company's expenses are subject to fluctuations in currency
values and interest rates. The Company addresses these risks through a
controlled program of risk management that includes the use of derivative
financial instruments. To some degree, the Company is exposed to credit-related
losses in the event of nonperformance by counterparties to financial
instruments, but management does not expect any counterparties to fail to meet
their obligations given their high credit ratings. (1) The Company does not hold
or issue financial instruments for trading purposes.
As discussed in the notes to consolidated financial statements, the Company
enters into foreign exchange forward contracts to manage exposure to
fluctuations in foreign exchange rates related to the funding of its United
Kingdom and Canadian operations. At December 31, 1998, the Company had entered
into foreign exchange forward contracts which provide for purchases of GBP 11.5
million and CAD 20.0 million at various dates throughout 1999. At December 31,
1998 and 1997, the notional principal amounts of outstanding forward contracts
were $31.3 million and $62.4 million, respectively. The fair value of
outstanding forward contracts at December 31, 1998 and 1997 was $0.8 million and
$1.4 million, respectively.
The Company has also entered into interest rate swap agreements to convert
portions of its variable rate debt to fixed rate. The Company accounts for its
interest rate swap agreements as a hedge of its interest rate exposure. At
December 31, 1998 and 1997, the Company had outstanding interest rate swap
agreements having a total notional value of $34.4 million and $89.0 million,
respectively, with fixed interest rates averaging 5.87% and 5.03%, respectively.
The fair value of outstanding swap agreements at December 31, 1998 and 1997 was
$(1.0) million and $0.5 million, respectively.
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 20.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Financial Statements of Galileo International, Inc.
(Formerly Galileo International Partnership through July 30,
1997)
Independent Auditors' Report 26
Consolidated Balance Sheets as of December 31, 1998 and 1997 27
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996 29
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 30
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996 31
Notes to Consolidated Financial Statements 32
25
<PAGE>
Independent Auditors' Report
The Board of Directors
Galileo International, Inc.:
We have audited the accompanying consolidated balance sheets of Galileo
International, Inc. and subsidiaries (the "Company"), formerly Galileo
International Partnership through July 30, 1997, as of December 31, 1998 and
1997, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the years in the three-year period ending December
31, 1998. These consolidated financial statements are the responsibility of the
Company'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 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, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
February 1, 1999
26
<PAGE>
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
December 31,
--------------------------
1998 1997
---- ----
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,828 $ 19,367
Accounts receivable:
Trade receivables and others 159,225 154,263
Due from affiliates 32,380 33,156
----------- -----------
191,605 187,419
Less allowances 13,747 22,012
----------- -----------
Net accounts receivable 177,858 165,407
Deferred tax asset 31,885 19,167
Prepaid expenses 11,711 9,643
Other current assets 12,245 10,691
----------- -----------
Total current assets 243,527 224,275
Property and equipment, at cost:
Land 6,470 6,470
Buildings and improvements 77,210 74,038
Equipment 392,299 330,112
----------- -----------
475,979 410,620
Less accumulated depreciation 281,010 221,439
----------- -----------
Net property and equipment 194,969 189,181
Computer software, at cost 413,212 420,458
Less accumulated amortization 223,965 195,883
--------- -----------
Net computer software 189,247 224,575
Intangible assets, at cost:
Customer list 405,600 405,600
Goodwill 197,676 158,446
Other 56,535 56,500
---------- -----------
659,811 620,546
Less accumulated amortization 50,005 14,359
----------- -----------
Net intangible assets 609,806 606,187
Other noncurrent assets 53,531 24,279
----------- -----------
$ 1,291,080 $ 1,268,497
=========== ===========
(Continued)
See accompanying notes to consolidated financial statements.
</TABLE>
27
<PAGE>
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share data)
<TABLE>
December 31,
--------------------------
1998 1997
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable:
Trade payables and other $ 30,876 $ 49,649
Due to affiliates 16,025 7,305
----------- -----------
46,901 56,954
Accrued commissions 32,424 31,175
Accrued restructuring costs 29,457 13,786
Accrued compensation and benefits 24,584 15,077
Income taxes payable 11,873 1,721
Other accrued taxes 14,580 12,724
Other accrued liabilities 66,031 62,008
Capital lease obligations, current portion 5,976 7,918
----------- -----------
Total current liabilities 231,826 201,363
Pension and postretirement benefits 55,982 44,399
Deferred tax liability 25,404 19,618
Other noncurrent liabilities 42,969 41,645
Capital lease obligations, less current portion 22,752 27,776
Long-term debt 69,520 250,000
----------- -----------
Total liabilities 448,453 584,801
Stockholders' equity:
Special voting preferred stock: $.01 par value;
7 shares authorized; 7 shares issued and
outstanding --- ---
Preferred stock: $.01 par value; 25,000,000 shares
authorized; no shares issued --- ---
Common stock: $.01 par value; 250,000,000 shares
authorized; 104,930,750 and 104,799,700 shares issued;
104,761,650 and 104,799,700 shares outstanding 1,049 1,048
Additional paid-in capital 668,466 663,688
Retained earnings 184,575 18,832
Unamortized restricted stock grants (3,559) ---
Accumulated other comprehensive income (1,139) 128
Common stock held in treasury, at cost;
169,100 shares in 1998 (6,765) ---
----------- -----------
Total stockholders' equity 842,627 683,696
----------- -----------
$ 1,291,080 $ 1,268,497
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
28
<PAGE>
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<TABLE>
Year ended December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
Revenues:
<S> <C> <C> <C>
Electronic global distribution services $ 1,342,705 $ 1,180,114 $ 1,050,635
Information services 138,113 75,989 37,624
----------- ---------- ----------
1,480,818 1,256,103 1,088,259
Operating expenses:
Cost of operations 568,271 385,298 254,600
Commissions, selling and administrative 554,509 639,164 658,320
Special charges 26,460 20,111 ---
----------- ---------- ----------
1,149,240 1,044,573 912,920
----------- ---------- ----------
Operating income 331,578 211,530 175,339
Other income (expense):
Interest expense, net (9,629) (8,842) (8,060)
Other, net 3,532 2,925 (181)
----------- ---------- ----------
Income before income taxes 325,481 205,613 167,098
Income taxes:
Income taxes 129,867 28,641 1,882
Initial deferred income taxes --- 15,335 ---
----------- ---------- ----------
129,867 43,976 1,882
----------- ---------- ----------
Net income $ 195,614 $ 161,637 $ 165,216
=========== ========== ==========
Income before income taxes as reported $ 205,613 $ 167,098
Pro forma income tax expense 82,245 66,839
---------- ----------
Pro forma net income $ 123,368 $ 100,259
========== ==========
Weighted average number of shares outstanding (1998),
and pro forma weighted average number of shares
outstanding (1997 and 1996) 104,796,282 94,999,875 88,000,000
=========== ========== ==========
Basic earnings per share (1998), and pro forma
basic earnings per share (1997 and 1996) $ 1.87 $ 1.30 $ 1.14
=========== ========== ==========
Diluted weighted average number of shares outstanding
(1998), and pro forma diluted weighted average number
of shares outstanding (1997 and 1996) 105,186,241 95,024,199 88,000,000
=========== ========== ==========
Diluted earnings per share (1998), and pro forma
diluted earnings per share (1997 and 1996) $ 1.86 $ 1.30 $ 1.14
=========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
29
<PAGE>
<TABLE>
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
-----------------------------------
1998 1997 1996
Operating activities:
<S> <C> <C> <C>
Net income $ 195,614 $ 161,637 $ 165,216
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 172,537 134,073 80,369
(Gain) loss on disposal of property and equipment (419) 728 973
Deferred income taxes, net (5,167) 15,284 ---
Changes in operating assets and liabilities, net of
effects from acquisition of businesses:
(Increase) decrease in accounts receivable, net (8,149) 6,998 (27,820)
(Increase) decrease in other current assets (2,826) 1,377 4,763
(Increase) decrease in noncurrent assets (28,428) (10,281) 2,260
Increase in accounts payable and accrued commissions 2,903 6,057 4,812
Increase (decrease) in accrued liabilities 30,258 (8,536) (15,715)
Increase (decrease) in income taxes payable 10,140 (3,973) (360)
Increase (decrease) in noncurrent liabilities 12,615 21,374 (420)
--------- --------- ---------
Net cash provided by operating activities 379,078 324,738 214,078
Investing activities:
Purchase of property and equipment (89,442) (53,696) (32,572)
Purchase and capitalization of computer software (23,496) (33,449) (28,978)
Proceeds on disposal of property and equipment 3,750 322 408
Acquisition of businesses, net of cash acquired
of $3,576 and $26,244, respectively (50,433) (688,451) ---
Refund of lease deposit --- --- 40,461
Other investing activities (5,076) --- ---
--------- --------- ---------
Net cash used in investing activities (164,697) (775,274) (20,681)
Financing activities:
Borrowings under credit agreements 49,392 450,000 158,000
Repayments under credit agreements (230,004) (320,000) (239,375)
Dividends paid to stockholders (29,871) (6,288) ---
Payments of capital lease obligations (7,311) (4,149) (5,559)
Proceeds from sale of stock, net of fees paid --- 384,288 ---
Repurchase of common stock for treasury (6,765) --- ---
Proceeds from exercise of employee stock options, net 787 --- ---
Distributions to partners of Galileo International Partnership --- (112,150) (36,599)
--------- --------- ---------
Net cash (used in) provided by financing activities (223,772) 391,701 (123,533)
Effect of exchange rate changes on cash (148) 6 (35)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (9,539) (58,829) 69,829
Cash and cash equivalents at beginning of year 19,367 78,196 8,367
--------- --------- ---------
Cash and cash equivalents at end of year $ 9,828 $ 19,367 $ 78,196
========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
30
<PAGE>
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
Special
Voting Additional
Partners' Preferred Common Paid - in
Capital Stock Stock Capital
--------- --------- ------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 137,316 $ - $ - $ -
Comprehensive income:
Net income 165,216 - - -
Foreign currency translation adjustments - - - -
Comprehensive income
Distributions to partners (36,599) - - -
--------- --------- ------- ---------
Balance at December 31, 1996 265,933 - - -
Comprehensive income prior to the Merger:
Net income prior to the Merger 136,517 - - -
Foreign currency translation adjustments
prior to the Merger - - - -
Comprehensive income prior to the Merger
Distributions to partners (112,150) - - -
Conversion of partners' net investment into
Common stock and Special voting preferred
stock, 88,000,000 and 7 shares, respectively (290,300) - 880 279,568
Issuance of 16,799,700 shares of Common stock
in initial public offering - - 168 384,120
Comprehensive income subsequent to the Merger:
Net income subsequent to the Merger - - - -
Foreign currency translation adjustments
subsequent to the Merger - - - -
Comprehensive income subsequent to the Merger
Dividends paid ($.06 per share) - - - -
--------- --------- ------- ---------
Balance at December 31, 1997 - - 1,048 663,688
Comprehensive income:
Net income - - - -
Foreign currency translation adjustments - - - -
Comprehensive income
Issuance of 97,900 shares of restricted stock - - 1 3,991
Amortization of restricted stock grants - - - -
Issuance of 33,150 shares of Common stock under
employee stock option plans - - - 787
Repurchase of 169,100 shares of Common stock
for treasury - - - -
Dividends paid ($0.285 per share) - - - -
--------- --------- ------- ---------
Balance at December 31, 1998 $ - $ - $ 1,049 $ 668,466
========= ========= ======= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Accumulated
Unamortized Other
Retained Restricted Comprehensive Treasury
Earnings Stock Grants Income Stock Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ - $ - $ (7,763) $ - $ 129,553
Comprehensive income:
Net income - - - - 165,216
Foreign currency translation adjustments - - (2,795) - (2,795)
---------
Comprehensive income 162,421
Distributions to partners - - - - (36,599)
--------- -------- -------- -------- ---------
Balance at December 31, 1996 - - (10,558) - 255,375
Comprehensive income prior to the Merger:
Net income prior to the Merger - - - - 136,517
Foreign currency translation adjustments
prior to the Merger - - 706 - 706
---------
Comprehensive income prior to the Merger 137,223
Distributions to partners - - - - (112,150)
Conversion of partners' net investment into
Common stock and Special voting preferred
stock, 88,000,000 and 7 shares, respectively - - 9,852 - -
Issuance of 16,799,700 shares of Common stock
in initial public offering - - - - 384,288
Comprehensive income subsequent to the Merger:
Net income subsequent to the Merger 25,120 - - - 25,120
Foreign currency translation adjustments
subsequent to the Merger - - 128 - 128
---------
Comprehensive income subsequent to the Merger 25,248
Dividends paid ($.06 per share) (6,288) - - - (6,288)
--------- -------- -------- -------- ---------
Balance at December 31, 1997 18,832 - 128 - 683,696
Comprehensive income:
Net income 195,614 - - - 195,614
Foreign currency translation adjustments - - (1,267) - (1,267)
---------
Comprehensive income 194,347
Issuance of 97,900 shares of restricted stock - (3,992) - - -
Amortization of restricted stock grants - 433 - - 433
Issuance of 33,150 shares of Common stock under
employee stock option plans - - - - 787
Repurchase of 169,100 shares of Common stock
for treasury - - - (6,765) (6,765)
Dividends paid ($0.285 per share) (29,871) - - - (29,871)
--------- -------- -------- -------- ---------
Balance at December 31, 1998 $ 184,575 $ (3,559) $ (1,139) $ (6,765) $ 842,627
========= ======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
GALILEO INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(in thousands, except share data)
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Galileo International, Inc. (the "Company"), formerly Galileo International
Partnership, 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 and other
subscribers with the ability to access schedule and fare information, book
reservations and issue tickets for airlines. The Company also provides
subscribers with information and booking capability covering car rental
companies and hotel properties throughout the world. The Company distributes its
products in 104 countries on six continents.
Principles of Consolidation and Business Acquisitions
The consolidated financial statements include the accounts of Galileo
International, Inc. and all majority-owned subsidiaries. All significant
intercompany accounts and transactions are eliminated in consolidation.
Effective July 30, 1997, Galileo International Partnership merged into a
wholly owned limited liability company subsidiary of Galileo International, Inc.
(the "Merger"). References to the Company mean, at all times prior to the time
of the Merger, Galileo International Partnership and its consolidated
subsidiaries and, at all times thereafter, Galileo International, Inc. and its
consolidated subsidiaries. In connection with the Merger, the Company effected
an initial public offering of its Common Stock, par value $.01 per share (the
"Common Stock") at an initial public offering price of $24.50 per share
resulting in net proceeds to the Company, after exercise of the underwriters'
over-allotment option, of $384,288 after deducting underwriting discounts,
commissions and other expenses (the "Offering").
During 1998, the Company acquired a Florida based airline information
systems company, S. D. Shepherd Systems, Inc. ("Shepherd Systems") and two
national distribution companies: Galileo Nordiska AB ("Nordiska") and Galileo
Canada Distributions Systems, Inc. ("Galileo Canada"). Nordiska, Galileo Canada
and Shepherd Systems were acquired on January 1, June 1 and November 19, 1998 at
purchase prices of $2,066, $34,392 and $16,740, respectively. In connection with
the acquisitions, the Company also incurred expenses of $811, which have been
accounted for as part of the purchase prices. The Company accounted for the
acquisitions using the purchase method of accounting. Accordingly, the costs of
the acquisitions were allocated to the assets acquired and liabilities assumed
based on their respective fair values. Goodwill related to the cost of the
acquisitions is being amortized over 10 to 25 years and is included in cost of
operations expenses. The results of operations and cash flows of the acquired
companies have been consolidated with those of the Company from the date of each
acquisition. In connection with the acquisition of Galileo Canada, the Company
incurred $34,392 of debt under a five-year term loan agreement. The aggregate
impact of the acquisitions in 1998 was immaterial.
During 1997, the Company acquired three national distribution companies
(the "NDC Acquisitions"): Apollo Travel Services Partnership ("ATS"), Traviswiss
AG ("Traviswiss") and Galileo Nederland BV ("Galileo Nederland"), (ATS and
Traviswiss were acquired on July 30, 1997 and Galileo Nederland on September 17,
1997) at purchase prices of $700,000, $8,502 and $2,000, respectively. In
connection with the NDC Acquisitions, the Company also incurred expenses of
$4,193, which have been accounted for as part of the purchase prices. The
Company accounted for the NDC Acquisitions using the purchase method of
accounting. Accordingly, the costs of the NDC Acquisitions were allocated to the
assets acquired and liabilities assumed based on their respective fair values.
Goodwill related to the cost of the NDC Acquisitions is being amortized over 25
years and is included in cost of operations expenses. The results of operations
and cash flows of the acquired NDCs have been consolidated with those of the
32
<PAGE>
Company from the date of each acquisition. In connection with the NDC
Acquisitions, the Company incurred $340,000, net, of debt under a five-year
credit agreement.
In connection with the acquisitions of Traviswiss and Galileo Nederland,
the Company terminated certain revenue sharing obligations in exchange for
agreements to pay SAirGroup and KLM Royal Dutch Airlines ("KLM"), in four annual
installments beginning on the acquisition dates, a total of $22,400 and $14,800,
respectively. The remaining liability was $21,200 at December 31, 1998. The
related intangible asset of $37,200 is being amortized over 17 years.
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.
Foreign Currency Translation
The Company uses the U.S. dollar for financial reporting purposes as
substantially all of the Company's billings are in U.S. dollars. The balance
sheets of the Company's foreign subsidiaries are translated into U.S. dollars
using the balance sheet date exchange rate, and revenues and expenses are
translated using the average exchange rate. The resulting translation gains and
losses are recorded as a separate component of stockholders' equity. Foreign
currency transaction gains and losses are reflected in the consolidated
statements of income.
Cash and Cash Equivalents
Cash in excess of operating requirements is invested daily in liquid,
income-producing investments, 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 Company's financial instruments are valued at their carrying amounts,
which, except for derivative financial instruments, are reasonable estimates of
fair value due to the relatively short period to maturity of the instruments, or
variable interest rates, in the case of long-term debt.
Allowance for Doubtful Accounts Receivable
The allowance for doubtful accounts receivable was $13,747, $22,012 and
$14,747 at December 31, 1998, 1997 and 1996, respectively. Provisions for bad
debts were $(3,862), $4,219 and $5,671 for the years ended December 31, 1998,
1997 and 1996, respectively. Write-offs of uncollectible accounts, net of
recoverables and allowance adjustments, were $5,124, $652 and $2,637 for the
years ended December 31, 1998, 1997 and 1996, respectively. The 1998 provision
includes a $7,548 recovery settlement related to a contractual dispute from a
prior year.
Accounting for the Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("Statement 121"), requires that long-lived
33
<PAGE>
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. Statement 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 Company's long-lived assets at December 31,
1998 and 1997 primarily represents the original amounts invested less the
recorded depreciation and amortization. Management believes the carrying amount
of these investments is not impaired.
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, 1998, 1997 and 1996 was
$83,724, $54,591 and $31,533, respectively.
Computer Software
Effective January 1, 1998, the Company adopted the provisions of Statement
of Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." Accordingly, certain costs to develop internal-use
computer software are being capitalized. Prior to 1998, the Company capitalized
certain software development costs in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
Be Sold, Leased or Otherwise Marketed." The ongoing assessment of recoverability
of capitalized software development costs requires considerable judgment by
management with respect to certain external factors, including but not limited
to, estimated economic life and changes in software and hardware technology.
Computer software consists principally of purchased computer software and
capitalized computer software development costs. Amortization is provided on a
straight-line method over estimated useful lives of 3-10 years. Amortization
expense for the years ended December 31, 1998, 1997 and 1996 was $52,688,
$62,820 and $47,611, respectively.
Intangible Assets
Intangible assets are amortized on the straight-line method over the
following useful lives:
Customer list 17 years
Goodwill 10-25 years
Other 8-17 years
The Company assesses the recoverability of these intangible assets by
determining whether the carrying amount of the assets are recoverable over their
remaining lives. Amortization expense for the years ended December 31, 1998 and
1997 was $35,692 and $14,356, respectively.
34
<PAGE>
Revenue Recognition
Fees are charged to airline, car rental, hotel and other travel vendors for
bookings made through the Company'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.
Research and Development
Research and development costs, excluding amortization of computer
software, are expensed as incurred and were $4,786, $8,550 and $8,185 for the
years ended December 31, 1998, 1997 and 1996, respectively.
Derivative Financial Instruments
In the normal course of business, portions of the Company's expenses are
subject to fluctuations in currency values and interest rates. The Company
addresses these risks through a controlled program of risk management that
includes the use of derivative financial instruments. To some degree, the
Company is exposed to credit-related losses in the event of nonperformance by
counterparties to financial instruments, but management does not expect any
counterparties to fail to meet their obligations given their high credit
ratings. The Company does not hold or issue financial instruments for trading
purposes.
The Company enters into foreign exchange forward contracts to manage
exposure to fluctuations in foreign exchange rates related to the funding of its
United Kingdom and Canadian operations. The Company accounts for such contracts
by recording any unrealized gains or losses in income each reporting period. At
December 31, 1998, the Company had entered into foreign exchange forward
contracts which provide for purchases of GBP 11,500 and CAD 20,000 at various
dates throughout 1999. At December 31, 1998 and 1997, the notional principal
amounts of outstanding forward contracts were $31,323 and $62,421, respectively.
The fair value of outstanding forward contracts at December 31, 1998 and 1997
was $821 and $1,417, respectively.
The Company has also entered into interest rate swap agreements to convert
portions of its variable rate debt to fixed rate. The Company accounts for its
interest rate swap agreements as a hedge of its interest rate exposure. See Note
4 for further information regarding the Company's interest rate agreements.
Income Taxes
In 1998 and subsequent to the Merger in 1997, the Company accounts for
income taxes in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement 109").
Under the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the
difference 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.
Prior to the Merger in 1997, the Company operated in the form of a
partnership and accordingly the Company's income tax liabilities were the
responsibility of its partners.
35
<PAGE>
Earnings per Share
Basic earnings per share data for the year ended December 31, 1998 is
calculated based on the weighted average shares outstanding for the period.
Diluted earnings per share is calculated as if the Company had additional Common
Stock outstanding from the beginning of the year or the date of grant for all
dilutive stock options, net of assumed repurchased shares using the treasury
stock method. This resulted in an increase in the weighted average number of
shares outstanding for the year ended December 31, 1998 of 389,959.
Pro forma basic earnings per share data for 1997 and 1996 is calculated as
though (i) the partners' capital was converted in the Merger into 88,000,000
shares of Common Stock as of January 1, 1996 and the 16,799,700 shares issued to
the public were outstanding from July 30, 1997, and (ii) the Company had
operated in a corporate form effective as of January 1, 1996 and accordingly was
subject to federal and state income taxes.
Pro forma diluted earnings per share data for 1997 is calculated as if the
Company's dilutive stock options were outstanding from July 30, 1997, net of
assumed repurchased shares using the treasury stock method, causing a 24,324
increase in the weighted average number of shares outstanding in 1997.
2. TRANSACTIONS WITH AFFILIATES
Prior to the Merger, for financial reporting purposes, affiliates were
considered to be all airline owners of Galileo International Partnership, with
individual ownership percentages ranging from 38.0% to 0.1%. Subsequent to the
Offering, the airline stockholders, in aggregate, own 64.9% of the Company's
outstanding Common Stock, with only United Air Lines, Inc. ("United Airlines")
and KLM deemed to be affiliates due to indirect ownership, individually, greater
than 10% of the Company's outstanding Common Stock.
The Company recognized electronic global distribution services revenues,
primarily in the form of booking fees, from affiliates totaling $170,346 for the
year ended December 31, 1998, $63,820 for the five months ended December 31,
1997, $236,015 for the seven months ended July 30, 1997 and, $355,535 for the
year ended December 31, 1996. The Company also received information services
revenues from affiliates totaling $128,839 for the year ended December 31, 1998,
$50,126 for the five months ended December 31, 1997, $19,805 for the seven
months ended July 30, 1997 and, $34,335 for the year ended December 31, 1996.
Total revenues from United Airlines of approximately $269,942, $209,106 and
$164,179 were greater than 10% of the Company's revenues for the years ended
December 31, 1998, 1997 and 1996, respectively.
The Company, in the ordinary course of business, purchases services from
affiliates. Services purchased from affiliates and classified within cost of
operations in the accompanying consolidated statements of income totaled zero
for the year ended December 31, 1998, zero for the five months ended December
31, 1997, $2,051 for the seven months ended July 30, 1997 and, $14,232 for the
year ended December 31, 1996. Services purchased from affiliates and classified
within commissions, selling and administrative expenses totaled $15,623 for the
year ended December 31, 1998, $5,399 for the five months ended December 31,
1997, $267,935 for the seven months ended July 30, 1997 and $424,536 for the
year ended December 31, 1996.
At the time of the Merger, the Company entered into Computer Services
Agreements with certain airline stockholders pursuant to which the Company
provides certain fares quotation services, internal reservation services, other
internal management services and software development services. The
36
<PAGE>
Company will provide the fares quotation services under existing pricing
arrangements for a period of approximately five years. The Company will provide
the remaining above mentioned services to United Airlines for a minimum period
of four years from the date of the Offering for the internal reservation
services and a minimum of two years from the date of the Offering for the
internal management services, generally at prices in effect immediately prior to
the Offering, which are based upon a fully allocated cost methodology. The
software development services will be provided to United Airlines for a minimum
of six years from the date of the Offering at prices based upon a fully
allocated cost methodology.
3. LEASES AND COMMITMENTS
The Company leases various office facilities and equipment under operating
leases with remaining terms of up to 15 years. Rental expense under operating
leases was $25,756, $24,493 and $23,935 for the years ended December 31, 1998,
1997 and 1996, respectively.
The Company also leases data processing equipment under capital leases.
Equipment, at cost, includes $26,027, $25,969 and $21,930 relating to capital
leases at December 31, 1998, 1997 and 1996, respectively. Accumulated
depreciation includes $21,842, $15,616 and $8,831 relating to capital leases at
December 31, 1998, 1997 and 1996, respectively, with lease amortization included
in depreciation expense.
During 1996, the Company issued a letter of credit in exchange for the
refund of a $40,461 lease deposit held by the lessor of the Company's United
Kingdom facility.
Future minimum lease payments under capital leases and noncancelable
operating leases at December 31, 1998 are as follows:
Capital Operating
-------- ---------
1999 $ 7,478 $ 22,057
2000 6,698 15,898
2001 6,698 11,580
2002 6,698 8,528
2003 6,698 8,238
Thereafter - 33,304
-------- --------
Total minimum lease payments 34,270 99,605
Less sublease income - (17,020)
--------
Net rental payments $ 82,585
========
Less amount representing interest (5,542)
--------
Present value of future minimum
lease paymentnts 28,728
Current portion of present value of
future minimum lease payments 5,976
--------
Long-term portion of present value of
future minimum lease payments $ 22,752
========
37
<PAGE>
4. LONG-TERM DEBT
Outstanding long-term debt consists of the following at December 31, 1998
and 1997:
1998 1997
---- ----
Five-year revolving credit agreement $ 35,000 $ 250,000
Term loan 34,392 -
Other 128 -
-------- ---------
69,520 250,000
-------- ---------
Less current portion of long-term debt - -
-------- ---------
Long-term debt $ 69,520 $ 250,000
======== =========
On June 5, 1998, in connection with the acquisition of Galileo Canada, the
Company incurred $34,392 of debt under a five-year term loan agreement (the
"Term Loan"). In addition, on June 5, 1998, the Company entered into an interest
rate swap agreement for a notional amount of $34,392 to fix the effective
interest rate of the Term Loan until maturity in June 2003. At December 31,
1998, the notional interest rate on the Term Loan was 5.55% and the effective
interest rate was 6.17%. The Term Loan requires quarterly interest payments
throughout the five-year term.
The Company is party to a $200,000 364-day credit agreement and a $400,000
five-year credit agreement (collectively, the "Credit Agreements") with a group
of banks. Facility fees range from 5.5 to 15.0 basis points under the 364-day
credit agreement and from 8.0 to 22.5 basis points under the five-year credit
agreement. Interest on the borrowings may be either Base rate, CD rate or
Euro-dollar rate based and is reset in six month intervals. At December 31,
1998, the nominal interest rate for loans outstanding under the Credit
Agreements was 5.58%.
At December 31, 1998, borrowings totaled $35,000 under the five-year credit
agreement with no required repayments until maturity in July 2002 and the
balance outstanding on the Term Loan was $34,392, with no required repayments
until maturity in June 2003. No amounts were outstanding under the 364-day
credit agreement.
The Company has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its outstanding borrowings. At December
31, 1998 and 1997, the Company had outstanding interest rate swap agreements
having a total notional value of $34,392 and $89,009, respectively, with fixed
interest rates averaging 5.87% and 5.03%, respectively. The fair value of
outstanding swap agreements at December 31, 1998 and 1997 was $(979) and $547,
respectively. For the years ended December 31, 1998, 1997 and 1996, the
effective interest rate on the Company's outstanding debt under the Term Loan
and Credit Agreements was 5.89%, 5.31% and 5.73%, respectively.
Total interest, including interest under capital leases, of $11,876,
$12,266 and $11,307 was incurred for the years ended December 31, 1998, 1997 and
1996, respectively.
38
<PAGE>
5. EMPLOYEE PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has defined benefit pension plans and other postretirement
benefit plans that cover substantially all U.S. employees. Other benefits
include health care benefits provided to retired U.S. employees and retiree
flight benefits provided to certain former United Airlines employees. The
Company has no significant postretirement health care benefit plans outside of
the United States. The majority of its U.S. employees may become eligible for
these benefits if they reach normal retirement age while working for the
Company.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ending December 31,
1998 and 1997, and a statement of the funded status as of December 31, 1998 and
1997:
Pension Benefits Other Benefits
---------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Reconciliation of benefit obligation
Obligation at January 1 $ 90,304 $42,707 $40,120 $21,497
Service cost 6,964 4,541 1,910 1,337
Interest cost 7,178 4,654 2,733 2,062
Plan amendments - - (1,613) -
Actuarial (gain) loss 10,388 1,507 538 (323)
Acquisitions - 38,017 - 15,767
Benefit payments (1,404) (1,122) (272) (220)
--------- ------- -------- --------
Obligation at December 31 $ 113,430 $90,304 $43,416 $40,120
========= ======= ======== ========
Reconciliation of fair value of plan assets
Fair value of plan assets at
January 1 $ 79,781 $34,768 $ - $ -
Actual return on plan assets 21,362 9,381 - -
Acquisitions - 32,531 - -
Employer contributions 18 4,223 272 220
Benefit payments (1,404) (1,122) (272) (220)
--------- ------- -------- --------
Fair value of plan assets at
December 31 $ 99,757 $79,781 $ - $ -
========= ======= ======== ========
Funded status
Funded status at December 31 $ (13,673) $(10,523) $(43,416) $(40,120)
Unrecognized transition obligation 2,239 2,487 - -
Unrecognized prior-service cost 2,961 3,324 (1,455) -
Unrecognized (gain) loss (7,195) (3,705) 4,776 4,138
--------- ------- -------- --------
Net amount recognized $ (15,668) $(8,417) $(40,095) $(35,982)
========= ======= ======== ========
39
<PAGE>
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31, 1998 and 1997:
Pension Benefits Other Benefits
---------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Accrued benefit liability $ (15,668) $(8,417) $(40,095) $(35,982)
Additional minimum liability (129) (219) - -
Intangible asset 129 219 - -
--------- ------- -------- --------
Net amount recognized $ (15,668) $(8,417) $(40,095) $(35,982)
========= ======= ======== ========
The Company's nonqualified pension plan was the only pension plan with an
accumulated benefit obligation in excess of plan assets. The plan's accumulated
benefit obligation was $604 and $403 at December 31, 1998 and 1997,
respectively. There are no plan assets in the nonqualified plan due to the
nature of the plan. The Company's plans for postretirement benefits other than
pensions also have no plan assets. The aggregate benefit obligation for those
plans was $43,416 and $40,120 as of December 31, 1998 and 1997, respectively.
The following table provides the components of net periodic benefit cost
for the plans for years ended December 31, 1998, 1997 and 1996:
<TABLE>
Pension Benefits Other Benefits
---------------- --------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 6,964 $ 4,541 $ 3,725 $ 1,910 $ 1,337 $ 1,169
Interest cost 7,178 4,654 3,093 2,733 2,062 1,542
Expected return on plan assets (7,500) (4,748) (2,526) - - -
Amortization of transition
obligation 249 249 249 - - -
Amortization of prior-service cost 582 581 524 (259) - -
Amortization of net (gain) loss 16 (11) 55 - 51 274
------- ------- ------- ------- ------- -------
Net periodic benefit cost 7,489 5,266 5,120 4,384 3,450 2,985
Settlement gain - (157) - - - -
------- ------- ------- ------- ------- -------
Net periodic benefit cost after
settlements $ 7,489 $ 5,109 $ 5,120 $ 4,384 $ 3,450 $ 2,985
======= ======= ======= ======= ======= =======
</TABLE>
The prior-service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses in
excess of 10% of the greater of the benefit obligation and the market-related
value of assets are amortized over the average remaining service period of
active participants.
40
<PAGE>
The assumptions used in the measurement of the Company's benefit obligation
are shown in the following table:
Pension Benefits Other Benefits
---------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Weighted-average assumptions
as of December 31:
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets 9.50% 9.50% N/A N/A
Rate of compensation increase 4.00% 4.25% N/A N/A
The health care trend rate used to determine the accumulated postretirement
benefit obligation was 11% for 1998, decreasing by 1% each year until reaching
4% for the year 2005 and beyond.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A 1% change in assumed health care
cost trend rates would have the following effects:
1% Increase 1% Decrease
----------- -----------
Effect on total of service and interest cost
components of net periodic postretirement
health care benefit cost $ 44 $ (72)
Effect on the health care component of the
accumulated postretirement benefit
obligation 526 (814)
The Company has a defined contribution pension plan covering a majority of
the United Kingdom employees which requires the Company to annually contribute
10% of eligible employee compensation on behalf of each participant. The
Company's contributions to the plan were $2,319, $2,410 and $2,289 during the
years ended December 31, 1998, 1997 and 1996, respectively.
The Company offers its 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 from
a selection of options offered by the Company. The Company's contributions,
matching participating employees up to a designated level, were $2,705, $1,982
and $1,983 during the years ended December 31, 1998, 1997 and 1996,
respectively.
41
<PAGE>
6. GEOGRAPHIC AND SEGMENT INFORMATION
The Company derives substantially all of its revenues from the global
travel industry. The location of the travel agent making the booking determines
the geographic region credited with the related revenues. Data relating to the
Company's operations by geographic area is set forth below:
United States Other
Market Markets Total
------ ------- -----
1998
- ----
Revenues $ 588,312 $ 754,393 $ 1,342,705
Identifiable assets 162,912 32,057 194,969
1997
- ----
Revenues 536,218 643,896 1,180,114
Identifiable assets 160,719 28,462 189,181
1996
- ----
Revenues 498,522 552,113 1,050,635
Identifiable assets 82,477 23,721 106,198
Revenues consist of electronic global distribution revenues only. No
country outside the United States contributes more than 10% of revenue or had
more than 10% of identifiable assets in any of the years presented. Providing
geographic area data for information services revenues would be impracticable.
7. SPECIAL CHARGES
The Company recorded special charges of $26,460 ($15,902 after tax) during
the year ended December 31, 1998 related to a strategic realignment of the
Company's operations in the United Kingdom and, to a lesser degree, other
realignments within the Company. These special charges were comprised primarily
of $15,025 in severance costs related to termination of 399 employees, primarily
in the development and marketing groups, and $11,435 of other costs, principally
related to the closing of the remaining Swindon, United Kingdom facilities. As
of December 31, 1998, $54 of severance costs have been paid and charged against
the liability and 10 employees have been terminated. The Company expects the
realignment activities to be substantially complete in 1999. Also related to the
closing of Swindon, United Kingdom facilities, in 1993 the Company, formerly
Covia Partnership, combined with The Galileo Company Ltd. and consolidated its
two data center facilities resulting in the closing of the Swindon, United
Kingdom data center. In connection therewith, the estimated cost of the
consolidation was charged to expense. At December 31, 1998 and 1997, the
estimated remaining liabilities for all of the above mentioned restructuring
activities, principally related to Swindon, United Kingdom severance costs and
facility closure costs, were $44,115 and $20,908, respectively, and are included
in the accompanying consolidated balance sheets.
The Company recorded special charges of $20,111 ($12,099 after tax) during
the year ended December 31, 1997 related to the integration of the NDCs acquired
in 1997 into the Company's operations. The special charges were comprised
primarily of $12,315 in severance costs related to termination of 202 employees
and $7,796 of other integration costs, principally related to the closing of
duplicate facilities. As of December 31, 1998, $9,170 of severance costs have
been paid and charged against the liability and
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<PAGE>
108 employees have been terminated. The Company expects the integration
activities to be complete in 1999. At December 31, 1998, the estimated remaining
liability related to the integration was $3,414 and is included in the
accompanying consolidated balance sheet.
8. SUPPLEMENTAL INFORMATION
Supplemental cash flow information and noncash investing and financing
activities are as follows:
1998 1997 1996
---- ---- ----
Supplemental cash flow information
Cash paid during the period for:
Interest $ 11,994 $ 12,786 $ 11,517
Income taxes 123,508 32,001 -
Supplemental noncash investing and
financing activities
Capital lease obligations and accounts
payable from acquisition of equipment $ 901 $ 7,295 $ 3,705
9. INCOME TAXES
For financial reporting purposes, income before income taxes includes the
following components:
1998 1997 1996
---- ---- ----
Domestic operations $ 317,862 $ 198,071 $ 159,365
Foreign operations 7,619 7,542 7,733
--------- --------- ---------
Total net income before income taxes $ 325,481 $ 205,613 $ 167,098
========= ========= =========
The provisions for income taxes consist of the following:
1998 1997
---- ----
Current taxes:
Federal $ 112,799 $ 26,867
State 20,803 5,317
Foreign 1,432 (3,501)
--------- --------
Total 135,034 28,683
Deferred taxes:
Federal (3,834) (36)
State (1,333) (6)
--------- --------
Total (5,167) (42)
--------- --------
Provision for income taxes $ 129,867 $ 28,641
========= ========
43
<PAGE>
No provision for U.S. federal and state income taxes was recorded prior to
July 30, 1997, as such liability was the responsibility of the partners of
Galileo International Partnership, rather than of the Company. Certain of the
Company's non-U.S. subsidiaries are subject to income taxes. As a result of the
Merger, the Company recorded initial deferred income taxes of $15,335 to reflect
the establishment of deferred tax assets and liabilities. The remaining
provisions for income taxes for the year ended December 31, 1997 relate to the
period subsequent to July 30, 1997.
Deferred tax assets related to the Canada Acquisition were $1,765. Deferred
tax assets (liabilities) are comprised of the following at December 31, 1998 and
1997:
1998 1997
---- ----
Current:
Special charges $ 10,319 $ -
Productivity payments 7,701 5,021
Compensation accruals 6,639 6,045
Bad debt reserves 4,352 7,294
Other 2,874 807
--------- ---------
$ 31,885 $ 19,167
========= =========
Noncurrent:
Software amortization $ (69,036) $ (65,430)
Postretirement medical and pension accruals 21,834 17,158
Depreciation 17,169 11,552
Other liabilities (5,968) (1,329)
Facilities reserves 5,736 8,651
Other assets 4,532 9,780
Services agreements 3,610 -
Rights agreements (3,281) -
--------- ---------
$ (25,404) $ (19,618)
========= =========
44
<PAGE>
The effective tax rate on income before taxes differs from the U.S.
statutory rate. The 1997 provision for income taxes is based on income earned
for the period July 31 through December 31, 1997 of $67,627, and includes
foreign tax expense incurred for the period January 1, 1997 through July 30,
1997 of $1,469. The following table reconciles the U.S. statutory rate with the
effective rate for the years ended December 31, 1998 and 1997:
1998 1997
---- ----
Tax at U.S. federal income tax rate $ 113,918 $ 23,669
Increase (decrease) in taxes resulting from:
State income taxes, net of U.S. 13,522 3,457
federal income tax benefit
Amortization of excess of cost over
net assets acquired and related 2,111 880
purchase accounting adjustments
Tax effect of non-deductible expenses 344 175
Foreign and U.S. tax effects attributable 323 110
to foreign operations
Other (351) 350
--------- --------
Taxes on income at effective rate $ 129,867 $ 28,641
========= ========
Undistributed earnings of the Company's corporate foreign subsidiaries
amounted to approximately $3,401 at December 31, 1998. Those earnings are
considered to be indefinitely reinvested, and accordingly, no provision for U.S.
federal and state income taxes and foreign withholding taxes have been made.
Upon distribution of those earnings, the company would be subject to U.S. income
taxes (subject to a reduction for foreign tax credits) and withholding taxes
payable to the various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable; however,
unrecognized foreign tax credit carryovers would be available to reduce some
portion of the U.S. liability. Withholding taxes of approximately $240 would be
payable upon remittance of all previously unremitted earnings at December 31,
1998.
10. STOCKHOLDERS' EQUITY
Special Voting Preferred Stock
The Company's Special Voting Preferred Stock (the "Special Preferred"), of
which seven shares are authorized, issued and outstanding, permits, under
certain circumstances, each holder of a share of Special Preferred to elect one
director to the Company's Board of Directors. The Special Preferred shares do
not provide the holder with any further stockholder voting privileges nor does
the holder receive dividends on such shares. In the event of liquidation,
dissolution or winding-up of the Company, holders of the Special Preferred are
entitled to $100 per share, but holders are not entitled to any further payment.
Substantial restrictions exist as to the transferability of the Special
Preferred shares by the holders.
Preferred Stock
The Board of Directors of the Company is authorized, without further
stockholder action, to divide any or all shares of its authorized Preferred
Stock into one or more series and to fix and determine the rights and
qualifications, limitations or restrictions thereon of each such series,
including voting powers, dividend rights, liquidation preferences, redemption
rights and conversion or exchange privileges.
45
<PAGE>
Common Stock
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. Each share also has an equal and ratable right to receive
dividends paid from the Company's assets, as and if declared by the Board of
Directors.
Common Stock Held in Treasury
The Board of Directors of the Company authorized the use of up to $100,000
to repurchase outstanding shares of Common Stock. The repurchased shares will be
accumulated by the Company and held in treasury for the purpose of providing
available shares for the Company's employee benefit plans, for possible resale
in future public or private offerings, and for other general corporate purposes.
The purchases will be funded through the Company's working capital. The amount,
timing and price of purchases will depend on market conditions and other
factors. The number of shares of Common Stock purchased was 169,100 in 1998.
Stock Incentive Plan
During 1997, the Company adopted the 1997 Stock Incentive Plan (the
"Plan"). The Plan, whose purpose is to attract, retain and motivate officers and
other key employees and consultants of the Company, provides for the award of
Common Stock in the form of stock options, stock appreciation rights, stock
awards or such other forms as determined to be consistent with the purposes of
the Plan. The Company granted employees, employed by the Company on the date of
the closing of the Offering, options to purchase the Company's Common Stock.
Such options vest in equal installments over a three-year period measured from
the date of the Offering. In addition, the Company granted to senior management
options to purchase the Company's Common Stock, which vest in equal installments
over a five-year period. All of the foregoing options have a ten-year term.
During 1998, the Company granted each employee, employed by the Company on
the date of grant, options to purchase shares of the Company's Common Stock. In
addition, the Company granted senior management and other key employees options
to purchase the Company's Common Stock. All of the foregoing options vest in
equal installments over a three-year period measured from the date of grant and
have a ten-year term, except for options granted to the Company's President and
Chief Executive Officer, which vest in equal installments over a five-year
period and have a nine-year term.
An aggregate of 8,140,000 shares of Common Stock are reserved for issuance
under the Plan. The number of shares available for issuance under the Plan will
be proportionately adjusted in the event of certain changes in the Company's
capitalization or a similar transaction. Shares issued pursuant to the Plan may
be authorized but unissued shares, treasury shares or any combination thereof.
The Company also adopted the 1997 Non-Employee Director Stock Plan (the
"Director Plan") to retain the services of qualified individuals who are not
employees of the Company to serve as members of the Board of Directors. The
Director Plan authorizes awards of options, based on the director's term, which
generally vest six months after the date of grant, have an exercise price equal
to the fair market value at the date of grant, and expire ten years from date of
grant. Directors who are employees of an airline stockholder will receive, in
lieu of such options, a cash payment equal to the value of the option calculated
on the basis of the Black-Scholes option valuation model. An aggregate of
500,000 shares of Common Stock are reserved for issuance under the Director
Plan.
During 1998, the Company's Board of Directors approved the issuance of
97,900 shares of restricted Common Stock to the Company's President and Chief
Executive Officer. Half of these shares
46
<PAGE>
vest in equal installments over a five-year period from the date of grant and
the remaining shares vest in equal installments over a four-year period
beginning one year from the date of grant. During 1998, $433 of compensation
cost for restricted shares was recognized in the financial statements.
Stock option activity during 1998 and 1997 is as follows (number of shares
in thousands):
1998 1997
--------------------- ---------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- --------- --------- ---------
Outstanding at January 1 1,064 $ 25.40 - $ -
Granted 1,889 40.75 1,107 25.37
Exercised (33) 24.57 - -
Forfeited (96) 30.56 (43) 24.50
Expired - - - -
----- -----
Outstanding at December 31 2,824 $ 35.51 1,064 $ 25.40
===== =====
Options exercisable at December 31 188 24.76 - -
Weighted average fair value of
options granted during the year $ 14.53 $ 6.73
The following table summarizes information about stock options outstanding
at December 31, 1998 (number of shares in thousands):
Options Outstanding Options Exercisable
----------------------------------------- ----------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices of Shares Contractual Life Price of Shares Price
- ---------- --------- ---------------- -------- --------- --------
$24 to $29 971 8.6 $ 25.52 187 $ 24.69
$34 to $41 1,853 9.3 40.74 1 37.81
----- -----
$24 to $41 2,824 9.1 35.51 188 24.76
===== =====
47
<PAGE>
The company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. The following table presents pro forma information had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation":
1998 1997
---- ----
Valuation assumptions:
Expected option term (years) 5.0 5.0
Expected volatility 35.0% 25.0%
Expected dividend yield 1.0% 1.0%
Risk-free interest rate 5.0% 5.0%
Pro forma effects (1):
Net income as reported $ 195,614 $ 161,637
Pro forma effect (4,118) (624)
--------- ---------
Net income as adjusted $ 191,496 $ 161,013
========= =========
Basic earnings per share as adjusted (2) $ 1.83 $ 1.29
========= =========
Diluted earnings per share as adjusted (2) $ 1.82 $ 1.29
========= =========
(1) Estimated using Black-Scholes option pricing model.
(2) Basic and diluted earnings per share as reported for 1997 are calculated
using pro forma net income and weighted average number of shares
outstanding as discussed in footnote 1.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
11. COMMITMENTS & CONTINGENCIES
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 against the Company would have a material
adverse effect on the business, consolidated financial condition or results of
operations of the Company.
In connection with the NDC Acquisitions and the acquisition of Galileo
Canada, the Company entered into agreements (the "Services Agreements") with
United Airlines, US Airways, Air Canada,
48
<PAGE>
SAirGroup, and KLM (collectively, the "Service Providers") to provide certain
marketing services to the Company. During the sixth year (eighth year for a
portion of Galileo Canada) following the effective date of the Services
Agreements, the Company is contractually required to pay the Service Providers a
fee of up to $232,000 (on a present value basis as of the date of the
agreements), contingent upon improvements in the Company's airline booking fee
revenue in the seller's respective territories over the five-year period
immediately following the acquisitions, as measured by the annual price increase
rate and over the five-year period (seven-year period in the case of Galileo
Canada) immediately following the acquisitions, as measured by the annual air
segment growth rate. The Company has currently estimated the probable future
liabilities under the Service Agreements and is ratably recording these
liabilities over the remaining contract periods. At December 31, 1998, the
estimated liability related to the Services Agreements was $9,257 and is
included in other noncurrent liabilities in the accompanying consolidated
balance sheet.
In connection with the Shepherd Systems Acquisition, the Company is
contractually required to make additional payments up to an aggregate of $5,040,
which have been accounted for as part of the purchase price. Payments are due
ratably over the five calendar years commencing with the calendar year ending on
December 31, 1999 and are based on a calculation of the relevant calendar year's
annual cash flow of Shepherd Systems. At December 31, 1998, the liability
related to these payments was $5,040 and is included in other noncurrent
liabilities in the accompanying consolidated balance sheet.
12. BUSINESS AND CREDIT CONCENTRATIONS
The Company derives substantially all of its revenues from the travel
industry. Accordingly, events affecting the travel industry, particularly
airline travel and participating airlines, can significantly affect the
Company's business, financial condition and results of operations.
Travel agencies are the primary channel of distribution for the services
offered by travel vendors. If the Company were to lose and not replace the
bookings generated by any significant travel agencies, its business, financial
condition and results of operations could be materially adversely affected.
49
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference is the information set forth under the
headings "Proposal 1: Election of Directors" on pages 3-6 and "Section 16(a)
Beneficial Ownership Reporting Compliance" on page 9 in the Company's definitive
Proxy Statement for its 1999 Annual Meeting of Stockholders, filed on or before
March 23, 1999. Information regarding "Executive Officers" is included in Item 1
under the heading "Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information set forth under the
heading "Executive Compensation" on pages 10-15 in the Company's definitive
Proxy Statement for its 1999 Annual Meeting of Stockholders, filed on or before
March 23, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information set forth under the
headings "Voting Rights and Stockholders' Agreement" on page 2, "Principal
Holders of Securities" on page 3 and "Ownership of Common Stock by Directors
and Executive Officers" on page 9 in the Company's definitive Proxy Statement
for its 1999 Annual Meeting of Stockholders, filed on or before March 23, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the information set forth under the
heading "Certain Relationships and Related Transactions" on pages 17-19 in the
Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders, filed on or before March 23, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(3) Exhibits required to be filed by Item 601 of Regulation S-K
Exhibit Number Exhibit Description
2.1 General Partnership Interest Purchase Agreement among United Air Lines,
Inc.,Covia LLC, U.S. Airways, Inc., USAM Corp., Air Canada, Resnet
Holdings, Inc., Apollo Travel Services Partnership and Galileo
International Partnership (2)
2.2 Share Purchase Agreement between SAirGroup (LTD.) and Galileo International
Partnership (2)
2.3 General Share Purchase Agreement among Koninklijke Luchtvaart Maatschappij
N.V., Galileo Nederland B.V. and Galileo International Partnership (1)
50
<PAGE>
2.4 Merger Agreement among Galileo International Partnership, Galileo
International, L.L.C. and Galileo International, Inc. (2)
3.1 Restated Certificate of Incorporation of Galileo International, Inc. (2)
3.2 Restated By-Laws of Galileo International, Inc. (2)
4.1 Registration Rights Agreement among Galileo International, Inc., Covia
LLC., 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. (2)
4.2 Specimen Certificate representing Common Stock (1)
10.1 Stockholders' Agreement among Galileo International, Inc., certain of its
Stockholders and certain related parties of such Stockholders (2)
10.2 Services Agreement among Galileo International, L.L.C., United Air Lines,
Inc., US Airways, Inc. and Air Canada (2)
10.3 Services Agreement between Galileo International, L.L.C. and SwissAir Swiss
Air Transport Ltd. (2)
10.4 Form of Services Agreement between the Registrant and Koninklijke
Luchtvaart Maatschappij N.V. (1)
10.5 Amended and Restated Non-Competition Agreement among Galileo International,
Inc., Galileo International, L.L.C., and United Air Lines, Inc., UAL
Corporation, Covia LLC, Air Wisconsin, Inc. and Air Wis Services, Inc.
together with Schedule 1 indicating other substantially similar agreements
(2) (9)
10.6 Rights Waiver Agreement between SAirGroup and Galileo International
Partnership (2)
10.7 Form of Rights Waiver Agreement between Koninklijke Luchtvaart Maatschappij
N.V. and Galileo International Partnership (1)
10.8 Credit Agreements:
(a) Amended and Restated $200,000,000 364-Day Credit Agreement (7)
(i) Amendment No. 1
(b) $400,000,000 Five-Year Credit Agreement (2)
(i) Assignment and Assumption Agreement (4)
(ii) Amendment No. 1 (4)
(iii) Amendment No. 2 (6)
(iv) Amendment No. 3
(c) Galileo Canada ULC $34,391,917 Credit Agreement (6)
10.9 Galileo International, Inc. Guaranty (6)
10.10 Hillmead Underlease (1)
51
<PAGE>
10.11 Underlease, dated 1996, between The Galileo Company and Lucent
Technologies Network Systems UK Limited (1)
10.12 Lease, dated March 1, 1994, between St. Martins Property Investments
Limited and The Galileo Company (1)
10.13 Lease, dated December 2, 1987, between St. Martins Property Investments
Limited and Galileo Distribution Systems Limited (1)
10.14 Englewood, Colorado Office Lease, dated April 18, 1988 (1)
10.15 First Amendment to Englewood, Colorado Office Lease, dated June 23, 1988
(1)
10.16 Rosemont Office Lease, dated March 31, 1995 (1)
10.17 Term Lease Master Agreement dated May 9, 1988, between IBM Credit
Corporation and Covia Partnership (1)
10.18 Master Lease Agreement, dated November 11, 1988, between Comdisco, Inc.
and Covia Partnership (1)
10.19 Software License Agreement, dated August 1, 1994 between Allen Systems
Group, Inc. and Galileo International (1)
10.20 Program Product Master License Agreement between Candle Corporation and
Galileo International Partnership (1)
10.21 Foundation License Addendum to Order Form between Galileo International
and Computer Associates International, Inc. (1)
(a) Amendment No. 1 to the Addendum to Order Form
10.22 Software License Agreement and Addendum, dated August 19, 1994, between
Sterling Software (U.S.A.), Inc. and Galileo International (1)
10.23 Master Equipment Lease, dated April 4, 1996, between AT&T Systems Leasing
Corporation and Galileo International Partnership (1)
10.24 Dun & Bradstreet Software Services Inc. License Agreement (1)
10.25 Master Agreement for MCI Enhanced Services, dated February 14, 1996,
between MCI Telecommunications Corporation and Galileo International
Partnership (1)
(a)Second Amendment to the Master Agreement for MCI Enhanced Services (4)
(b)Amendment Number Three to Master Agreement for Enhanced Services (4)
10.26 Communications Services Agreement, dated April 1, 1997, between Galileo
International and AT&T Corp. (1)
10.27 Form of Galileo International Distributor Sales and Service Agreement (1)
10.28 Form of Global Airline Distribution Agreement (1)
52
<PAGE>
10.29 Agreement for the Provision of Services between The Galileo Company and
Galileo International Partnership (1)
10.30 AT&T Contract Tariff Order (6)
10.31 AT&T OneNet Contract dated December 28, 1999
*10.32 Galileo International Severance Plan (1)
*10.33 Galileo International Savings and Investment Plan (1)
(a)First Amendment to the Galileo International Savings and Investment
Plan effective January 1, 1995 (8)
(b)Second Amendment to the Galileo International Savings and Investment
Plan effective December 31, 1997 (8)
(c)Third Amendment to the Galileo International Savings and Investment
Plan effective February 1, 1999 (8)
*10.34 Galileo International Car Policy (1)
*10.35 Galileo Retirement and Death Benefit Scheme (1)
*10.36 Galileo International Employee Pension Plan (1)
*10.37 Galileo International Flextrack Benefits Plan (1)
*10.38 Galileo International Retiree Medical Plan (1)
*10.39 Galileo International, Inc. 1997 Stock Incentive Plan, as revised May 1,
1998 (5)
*10.40 Galileo International, Inc. 1997 Non-Employee Director Stock Plan (1)
*10.41 Form of Deferred Compensation Arrangements For Senior Officers of Galileo
International, Inc. (3)
*10.42 Galileo UK Health Benefit Policy (1)
*10.43 Employment Agreement of James E. Barlett
*10.44 Travel Accident Insurance Plan
(a) Plan specific for Asia, the Americas and Pacific
(b) Plan specific for Africa, Europe and the Middle East
*10.45 Galileo International Management Incentive Plan 1998 Plan Summary (6)
*10.46 Non-Qualified Stock Option Agreement (Standard Form - Executive Group)
(6)
*10.47 Non-Qualified Stock Option Agreement (Standard Form - Non-Employee
Directors) (6)
11.1 Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
53
<PAGE>
23.1 Consent of KPMG
27.1 Financial Data Schedule
(1) Incorporated by reference to Exhibits 1.1, 2.2, 4.2 10.4, 10.9, 10.11
through 10.40, 10.42, 10.44, 10.45 and 23.2 to the Company's Registration
Statement on Form S-1, including all amendments (Registration No.
333-27495).
(2) Incorporated by reference to Exhibits 2.1, 2.3, 2.4 through 4.1, 10.1
through 10.3, 10.5 through 10.8, 10.10 and 10.41 to the Company's Form 10-Q
for the quarterly period ended June 30, 1997.
(3) Incorporated by reference to Exhibit 10.43 to the Company's Form 10-Q for
the quarterly period ended September 30, 1997.
(4) Incorporated by reference to Exhibit 10.10 and 10.29 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
(5) Incorporated by reference to Exhibit 4.3 to the Company's Form S-8
Registration Statement filed June 1, 1998 (Registration No. 333-55767).
(6) Incorporated by reference to Exhibits 10.1-10.8 to the Company's Form 10-Q
for the quarterly period ended June 30, 1998.
(7) Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for
the quarterly period ended September 30, 1998.
(8) Incorporated by reference to Exhibit 4.3(b) through 4.3(d) to the Company's
Form S-8 Registration Statement filed February 1, 1999 (Registration No.
333-71507).
(9) Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted material has been filed separately with
the Securities and Exchange Commission.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1998.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 22nd day of
March, 1999.
GALILEO INTERNATIONAL, INC.
By: /s/ James E. Barlett
--------------------------------
James E. Barlett,
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ James E. Barlett Chairman, President and February 18, 1999
- -------------------- Chief Executive Officer
James E. Barlett (principal executive
officer)
/s/ Paul H. Bristow Director, Senior Vice February 18, 1999
- -------------------- President, Chief
Paul H. Bristow Financial Officer and
Treasurer (principal
financial and accounting
officer)
/s/ Babetta R. Gray Director, Senior Vice February 18, 1999
- -------------------- President, Customer
Babetta R. Gray Service Delivery, General
Counsel and Secretary
/s/ Frederic R. Brace Director February 18, 1999
- --------------------
Frederic F. Brace
/s/ David A. Coltman Director February 18, 1999
- --------------------
David A. Coltman
/s/ Wim Dik Director February 18, 1999
- --------------------
Wim Dik
/s/ James E. Goodwin Director February 18, 1999
- --------------------
James E. Goodwin
/s/ Mina Gouran Director February 18, 1999
- --------------------
Mina Gouran
/s/ Thomas A. Mutryn Director February 18, 1999
- --------------------
Thomas A. Mutryn
55
<PAGE>
Signature Title Date
/s/Frank H Rovekamp Director February 18, 1999
- --------------------
Frank H. Rovekamp
/s/Derek M. Stevens Director February 18, 1999
- --------------------
Derek M. Stevens
/s/ Kenneth Whipple Director February 18, 1999
- --------------------
Kenneth Whipple
56
<PAGE>
(c) Exhibit Index
-------------
Exhibit Number Exhibit Description
- -------------- -------------------
2.1 General Partnership Interest Purchase Agreement among United Air Lines,
Inc., Covia LLC, U.S. Airways, Inc., USAM Corp., Air Canada, Resnet
Holdings, Inc., Apollo Travel Services Partnership and Galileo
International Partnership (2)
2.2 Share Purchase Agreement between SAirGroup (LTD.) and Galileo International
Partnership (2)
2.3 General Share Purchase Agreement among Koninklijke Luchtvaart Maatschappij
N.V., Galileo Nederland B.V. and Galileo International Partnership (1)
2.4 Merger Agreement among Galileo International Partnership, Galileo
International, L.L.C. and Galileo International, Inc. (2)
3.1 Restated Certificate of Incorporation of Galileo International, Inc. (2)
3.2 Restated By-Laws of Galileo International, Inc. (2)
4.1 Registration Rights Agreement among Galileo International, Inc., Covia
LLC., 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. (2)
4.2 Specimen Certificate representing Common Stock (1)
10.1 Stockholders' Agreement among Galileo International, Inc., certain of its
Stockholders and certain related parties of such Stockholders (2)
10.2 Services Agreement among Galileo International, L.L.C., United Air Lines,
Inc., US Airways, Inc. and Air Canada (2)
10.3 Services Agreement between Galileo International, L.L.C. and SwissAir
Swiss Air Transport Ltd. (2)
10.4 Form of Services Agreement between the Registrant and Koninklijke
Luchtvaart Maatschappij N.V. (1)
10.5 Amended and Restated Non-Competition Agreement among Galileo
International, Inc., Galileo International, L.L.C., and United Air Lines,
Inc., UAL Corporation, Covia LLC, Air Wisconsin, Inc. and Air Wis Services
Inc. together with Schedule 1 indicating other substantially similar
agreements (2) (9)
10.6 Rights Waiver Agreement between SAirGroup and Galileo International
Partnership (2)
10.7 Form of Rights Waiver Agreement between Koninklijke Luchtvaart
Maatschappij N.V. and Galileo International Partnership (1)
<PAGE>
10.8 Credit Agreements:
(a) Amended and Restated $200,000,000 364-Day Credit Agreement (7)
(i) Amendment No. 1
(b) $400,000,000 Five-Year Credit Agreement (2)
(i) Assignment and Assumption Agreement (4)
(ii) Amendment No. 1 (4)
(iii) Amendment No. 2 (6)
(iv) Amendment No. 3
(c) Galileo Canada ULC $34,391,917 Credit Agreement (6)
10.9 Galileo International, Inc. Guaranty (6)
10.10 Hillmead Underlease (1)
10.11 Underlease, dated 1996, between The Galileo Company and Lucent
Technologies Network Systems UK Limited (1)
10.12 Lease, dated March 1, 1994, between St. Martins Property Investments
Limited and The Galileo Company (1)
10.13 Lease, dated December 2, 1987, between St. Martins Property Investments
Limited and Galileo Distribution Systems Limited (1)
10.14 Englewood, Colorado Office Lease, dated April 18, 1988 (1)
10.15 First Amendment to Englewood, Colorado Office Lease, dated June 23, 1988
(1)
10.16 Rosemont Office Lease, dated March 31, 1995 (1)
10.17 Term Lease Master Agreement dated May 9, 1988, between IBM Credit
Corporation and Covia Partnership (1)
10.18 Master Lease Agreement, dated November 11, 1988, between Comdisco, Inc.
and Covia Partnership (1)
10.19 Software License Agreement, dated August 1, 1994 between Allen Systems
Group, Inc. and Galileo International (1)
10.20 Program Product Master License Agreement between Candle Corporation and
Galileo International Partnership (1)
10.21 Foundation License Addendum to Order Form between Galileo International
and Computer Associates International, Inc. (1)
(a) Amendment No. 1 to the Addendum to Order Form
10.22 Software License Agreement and Addendum, dated August 19, 1994, between
Sterling Software (U.S.A.), Inc. and Galileo International (1)
10.23 Master Equipment Lease, dated April 4, 1996, between AT&T Systems Leasing
Corporation and Galileo International Partnership (1)
<PAGE>
10.24 Dun & Bradstreet Software Services Inc. License Agreement (1)
10.25 Master Agreement for MCI Enhanced Services, dated February 14, 1996,
between MCI Telecommunications Corporation and Galileo International
Partnership (1)
(a) Second Amendment to the Master Agreement for MCI Enhanced Services (4)
(b) Amendment Number Three to Master Agreement for Enhanced Services (4)
10.26 Communications Services Agreement, dated April 1, 1997, between Galileo
International and AT&T Corp. (1)
10.27 Form of Galileo International Distributor Sales and Service Agreement (1)
10.28 Form of Global Airline Distribution Agreement (1)
10.29 Agreement for the Provision of Services between The Galileo Company and
Galileo International Partnership (1)
10.30 AT&T Contract Tariff Order (6)
10.31 AT&T OneNet Contract dated December 28, 1999
*10.32 Galileo International Severance Plan (1)
*10.33 Galileo International Savings and Investment Plan (1)
(a) First Amendment to the Galileo International Savings and Investment
Plan effective January 1, 1995 (8)
(b) Second Amendment to the Galileo International Savings and Investment
Plan effective December 31, 1997 (8)
(c) Third Amendment to the Galileo International Savings and Investment
Plan effective February 1, 1999 (8)
*10.34 Galileo International Car Policy (1)
*10.35 Galileo Retirement and Death Benefit Scheme (1)
*10.36 Galileo International Employee Pension Plan (1)
*10.37 Galileo International Flextrack Benefits Plan (1)
*10.38 Galileo International Retiree Medical Plan (1)
*10.39 Galileo International, Inc. 1997 Stock Incentive Plan, as revised May 1,
1998 (5)
*10.40 Galileo International, Inc. 1997 Non-Employee Director Stock Plan (1)
*10.41 Form of Deferred Compensation Arrangements For Senior Officers of Galileo
International, Inc. (3)
*10.42 Galileo UK Health Benefit Policy (1)
<PAGE>
*10.43 Employment Agreement of James E. Barlett
*10.44 Travel Accident Insurance Plan
(a) Plan specific for Asia, the Americas and Pacific
(b) Plan specific for Africa, Europe and the Middle East
*10.45 Galileo International Management Incentive Plan 1998 Plan Summary (6)
*10.46 Non-Qualified Stock Option Agreement (Standard Form - Executive Group)
(6)
*10.47 Non-Qualified Stock Option Agreement (Standard Form - Non-Employee
Directors) (6)
11.1 Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG
27.1 Financial Data Schedule
(1) Incorporated by reference to Exhibits 1.1, 2.2, 4.2 10.4, 10.9, 10.11
through 10.40, 10.42, 10.44, 10.45 and 23.2 to the Company's Registration
Statement on Form S-1, including all amendments (Registration No.
333-27495).
(2) Incorporated by reference to Exhibits 2.1, 2.3, 2.4 through 4.1, 10.1
through 10.3, 10.5 through 10.8, 10.10 and 10.41 to the Company's Form
10-Q for the quarterly period ended June 30, 1997.
(3) Incorporated by reference to Exhibit 10.43 to the Company's Form 10-Q for
the quarterly period ended September 30, 1997.
(4) Incorporated by reference to Exhibit 10.10 and 10.29 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
(5) Incorporated by reference to Exhibit 4.3 to the Company's Form S-8
Registration Statement filed June 1, 1998 (Registration No. 333-55767).
(6) Incorporated by reference to Exhibits 10.1-10.8 to the Company's Form 10-Q
for the quarterly period ended June 30, 1998.
(7) Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for
the quarterly period ended September 30, 1998.
(8) Incorporated by reference to Exhibit 4.3(b) through 4.3(d) to the
Company's Form S-8 Registration Statement filed February 1, 1999
(Registration No. 333-71507).
(9) Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted material has been filed separately
with the Securities and Exchange Commission.
* Management contract or compensatory plan or arrangement.
<PAGE>
Exhibit 10.8 (a)(i)
CONFORMED COPY
AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT dated as of November 18, 1998 to the Amended and Restated Credit
Agreement dated as of July 22, 1998 (the "Credit Agreement") among GALILEO
INTERNATIONAL, INC. (the "Borrower"), the BANKS party thereto (the "Banks") and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto desire to amend the Credit Agreement in
certain respects as more fully set forth below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Defined Terms; References.
Unless otherwise specifically defined herein, each term used herein which is
defined in the Credit Agreement has the meaning assigned to such term in the
Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby"
and each other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Credit Agreement shall, after this
Amendment becomes effective, refer to the Credit Agreement as amended hereby.
SECTION 2. Amendments to the Credit Agreement.
(a) The definition of Restricted Payment in Section 1.01 is amended by the
addition of the following proviso:
; provided that repurchases by the Borrower of shares of its common stock
subsequent to October 31, 1998 shall not constitute Restricted Payments to
the extent that the aggregate amount expended for such repurchases
subsequent to October 31, 1998 does not exceed $250,000,000.
(b) The definition of Material Debt in Section 1.01 is amended by changing
the parenthetical "(other than the Notes)" to read "(other than (i) the Loans
and (ii) Debt owing to the Borrower or to a wholly-owned Subsidiary of the
Borrower)".
<PAGE>
(c) The definition of Material Financial Obligations in Section 1.01 is
amended by the addition of the following parenthetical phrase immediately
following the words "Derivatives Obligations" in the first sentence:
(other than (i) the Loans and (ii) Debt or other obligations owing to the
Borrower or to a wholly-owned Subsidiary of the Borrower).
(d) The figure "$10,000,000" in Section 2.13(a) is changed to
"$5,000,000".
(e) The figures "90" and "45" appearing in subsections (a) and (b),
respectively, of Section 5.01 are changed to "100" and "50".
SECTION 3. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 4. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
SECTION 5. Effectiveness. This Amendment shall
become effective on the date when the Agent shall have received from each of the
Borrower and the Required Banks a counterpart hereof signed by such party or
facsimile or other written confirmation (in form satisfactory to the Agent) that
such party has signed a counterpart hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
GALILEO INTERNATIONAL, INC.
By: /s/ Paul H. Bristow
---------------------------------
Title: Senior Vice President and
Chief Financial Officer
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: /s/ Diana H. Imhof
---------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Nelson D. Albrecht
---------------------------------
Title: Vice President
BANK OF MONTREAL
By: /s/ Leon H. Sinclair
---------------------------------
Title: Director
MIDLAND BANK PLC
By: /s/ Dean Cooper
---------------------------------
Title: Corporate Banking Manager
THE BANK OF TOKYO-MITSUBISHI,
LTD., CHICAGO BRANCH
By: /s/ Hajime Watanabe
---------------------------------
Title: Deputy General Manager
THE SUMITOMO BANK, LIMITED
CHICAGO BRANCH
By: /s/ John H. Kemper
---------------------------------
Title: Senior Vice President
ABN AMRO BANK N.V.
By: /s/ John L. Church
---------------------------------
Title: Group Vice President
By: /s/ Angela Reitz
---------------------------------
Title: Vice President
<PAGE>
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
(as successor by assignment to Bank
Austria Aktiengesellschaft, New York
Branch)
By: /s/ Martin Rahe
---------------------------------
Title: Senior Vice President
By: /s/ David W. Hanni
---------------------------------
Title: Vice President
CREDIT LYONNAIS
NEW YORK BRANCH
By: /s/ Philippe Soustra
---------------------------------
Title: Senior Vice President
SOCIETE GENERALE
CHICAGO BRANCH
By: /s/ Jose A. Moreno
---------------------------------
Title: Director
<PAGE>
UBS AG, STAMFORD BRANCH
By: /s/ Denise M. Clerkin
---------------------------------
Title: Associate Director
Loan Portfolio Support, US
By: /s/ Richart T. Conway
---------------------------------
Title: Associate Director
Loan PortfolioSupport, US
THE NORTHERN TRUST COMPANY
By: /s/ Mark Taylor
---------------------------------
Title: Second Vice President
THE SANWA BANK, LIMITED,
CHICAGO BRANCH
By: /s/ Gordon P. Holtby
---------------------------------
Title: Vice President and Manager
WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By: /s/ Lisa Walker
---------------------------------
Title: Vice President
By: /s/ Elisabeth R. Wilds
---------------------------------
Title: Associate
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By: /s/ Armund J. Schoen, Jr.
---------------------------------
Title: Senior Vice President
<PAGE>
Exhibit 10.8 (b) (iv)
CONFORMED COPY
AMENDMENT NO. 3 TO FIVE-YEAR CREDIT AGREEMENT
AMENDMENT dated as of November 18, 1998 to the Five-Year Credit Agreement
dated as of July 23, 1997 (as heretofore amended, the "Credit Agreement") among
GALILEO INTERNATIONAL, INC. (the "Borrower"), the BANKS party thereto (the
"Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto desire to amend the Credit Agreement in
certain respects as more fully set forth below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Defined Terms; References.
Unless otherwise specifically defined herein, each term used herein which is
defined in the Credit Agreement has the meaning assigned to such term in the
Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby"
and each other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Credit Agreement shall, after this
Amendment becomes effective, refer to the Credit Agreement as amended hereby.
SECTION 2. Amendments to the Credit Agreement.
(a) The definition of Restricted Payment in Section 1.01 is amended by the
addition of the following proviso:
; provided that repurchases by the Borrower of shares of its common stock
subsequent to October 31, 1998 shall not constitute Restricted Payments to
the extent that the aggregate amount expended for such repurchases
subsequent to October 31, 1998 does not exceed $250,000,000.
(b) The definition of Material Debt in Section 1.01 is amended by changing
the parenthetical "(other than the Notes)" to read "(other than (i) the Loans
and (ii) Debt owing to the Borrower or to a wholly-owned Subsidiary of the
Borrower)".
(c) The definition of Material Financial Obligations in Section 1.01 is
amended by the addition of the following parenthetical phrase immediately
following the words "Derivatives Obligations" in the first sentence:
(other than (i) the Loans and (ii) Debt or other obligations owing to the
Borrower or to a wholly-owned Subsidiary of the Borrower).
(d) The figure "$10,000,000" in Section 2.13(a) is changed to
"$5,000,000".
(e) The figures "90" and "45" appearing in subsections (a) and (b),
respectively, of Section 5.01 are changed to "100" and "50".
SECTION 3. Governing Law.
This Amendment shall be governed by and construed in accordance with the laws of
the State of New York.
SECTION 4. Counterparts.
This Amendment may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument.
SECTION 5. Effectiveness.
This Amendment shall become effective on the date when the Agent shall have
received from each of the Borrower and the Required Banks a counterpart hereof
signed by such party or facsimile or other written confirmation (in form
satisfactory to the Agent) that such party has signed a counterpart hereof.
Amendment to be duly executed as of the date first above written.
<PAGE>
GALILEO INTERNATIONAL, INC.
By: /s/ Paul H. Bristow
Title: Senior Vice President and
Chief Financial Officer
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: /s/ Diana H. Imhof
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Nelson D. Albrecht
Title: Vice President
BANK OF MONTREAL
By: /s/ Leon H. Sinclair
Title: Director
MIDLAND BANK PLC
By: /s/ Dean Cooper
Title: Corporate Banking Manager
THE BANK OF TOKYO-MITSUBISHI,
LTD., CHICAGO BRANCH
By: /s/ Hajime Watanabe
Title: Deputy General Manager
THE SUMITOMO BANK, LIMITED
CHICAGO BRANCH
By: /s/ John H. Kemper
Title: Senior Vice President
ABN AMRO BANK N.V.
By: /s/ John L. Church
Title: Group Vice President
By: /s/ Angela Reitz
Title: Vice President
BANK AUSTRIA
By: /s/ Martin Rahe
Title: Senior Vice President
By: /s/ David W. Hanni
Title: Vice President
CREDIT LYONNAIS
NEW YORK BRANCH
By: /s/ Philippe Soustra
Title: Senior Vice President
ROYAL BANK OF CANADA
By: /s/ Michael J. Madnick
Title: Senior Manager
SOCIETE GENERALE
CHICAGO BRANCH
By: /s/ Jose A. Moreno
Title: Director
UBS AG,
STAMFORD BRANCH
By: /s/ Denise M. Clerkin
Title: Associate Director
Loan Portfolio Support, US
By: /s/ Richard T. Conway
Title: Associate Director
Loan Portfolio Support, US
THE NORTHERN TRUST COMPANY
By: /s/ Mark Taylor
Title: Second Vice President
THE SANWA BANK, LIMITED,
CHICAGO BRANCH
By: /s/ Gordon P. Holtby
Title: Vice President and Manager
WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By: /s/ Lisa Walker
Title: Vice President
By /s/ Elisabeth R Wilds
Title: Associate
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By: /s/ Armund J. Schoen, Jr.
Title: Senior Vice President
<PAGE>
Exhibit 10.21 (a)
ADDENDUM
TO
ORDER FORM
OF
GALILEO INTERNATIONAL LLC ("LICENSEE")
AND
COMPUTER ASSOCIATES INTERNATIONAL, INC. ("CA")
The attached Order Form and the referenced License Agreement are amended to add
the following provisions with respect to Licensee's use of the Licensed Program
listed in Exhibit "A". (The Order Form, License Agreement and this Addendum are
referred to collectively as the "MIPS Based License.") In the event of any
conflict between the terms of this MIPS Based License Addendum and those of
either the Order Form or the referenced License Agreement, the terms of this
Addendum shall prevail. Capitalized terms used herein without definition are
used as defined in the attached Order Form and the referenced License Agreement.
1. Definitions.
(a)The "Licensee" shall mean, individually and collectively, Licensee and
Licensee's majority-owned subsidiaries. No other third person shall be
or be deemed to be entitled to the use or benefit of the Licensed
Program at any Licensee Site.
(b)The "Licensee Site(s)" shall mean the data center site(s) identified
on Exhibit "B" to this Addendum which Licensee represents are owned,
operated or controlled by Licensee.
(c)"MIPS Capacity" shall mean the aggregate computing power (expressed in
millions of instructions per second and rounded to the next even
multiple of 10) of all computers located at the Licensee Site(s), or
which can remotely access such computers, irrespective of the platform
designation of the hardware or operating systems, provided that such
remote computer is capable of accessing, using, executing or benefiting
from the Licensed Program. Notwithstanding the above, the parties agree
that the MIPS associated exclusively with the parallel sysplex coupling
facility shall not be considered for the purpose of calculating the
MIPS Capacity hereunder.
2. License Fee. The initial License Fee, inclusive of usage and maintenance of
the Licensed Programs for the term expiring on January 29, 2002, is
$XXXXXX payable as follows:
Amount Due
September 30, 1998
September 30, 1999
September 30, 2000
<PAGE>
3. Authorized Use. The Licensed Programs may be used only by and for the
benefit, and to process exclusively the data, of Licensee at the Licensee
Site(s), provided that the MIPS Capacity does not exceed 1060 MIPS (the
"Licensed MIPS Capacity"). Any increase in Licensed MIPS Capacity shall be
subject to paragraph 4 hereof. The Supplemental License Fee shall be due and
payable, without any requirement of notice or demand by CA, within 30 days of
the date on which the MIPS Capacity exceeds the Licensed MIPS Capacity.
4. Supplemental License Fee. Licensee may increase the Licensed MIPS Capacity
upon prior written notice to CA and payment of CA's Supplemental License Fee
calculated using CA's then prevailing fee schedule, as well as an annual UMF
equal to $1,036 per MIPS. In each instance, the Supplemental License Fee and
initial UMF shall be billable upon Licensee giving CA notice of its desire to
increase Licensed MIPS Capacity including by request that CA issue an
authorization key for an additional or replacement CPU. Such fees shall be
paid within thirty (30) days notwithstanding any installment payment schedule
for the initial License Fee. The UMF shall be prorated for the year of the
increase and shall be payable in full thereafter. Notwithstanding the
foregoing, Licensee shall not be obligated to pay a Supplemental License Fee
for any increase in the MIPS Capacity up to 1060 MIPS, but shall only be
obligated to pay the annual UMF respecting such additional MIPS. In the event
that Licensee exceeds the current Licensed MIPS Capacity, Licensee and CA may
negotiate in good faith a new MIPS based license for the Licensed Programs,
provided that Licensee shall still be obligated to pay the License Fees due
under paragraph 2 hereof.
5. MIPS Capacity Calculation. MIPS Capacity shall be calculated by reference to
CA's published schedules of the MIPS capacity of processors. In the event
that any particular processor is not accounted for on CA's schedule, the
manufacturer's published specification of MIPS capacity shall control.. With
respect only to the IBM 9672E Series of processors, the MSU standard
(expressed in millions of service units), shall be multiplied by a factor of
5.4 to yield the corresponding MIPS Capacity. In the event that the MIPS
capacity of a particular CPU is in question, then the average of the MIPS
ratings of Comdisco and The Meta Group will be used.
6. Quarterly Reports; Audit. On or before the 15th day following each calendar
quarter beginning with the first full quarter commencing after the effective
date of this Order Form (the "Effective Date"), Licensee shall report to CA
in writing, as of the end of each such quarter, the MIPS Capacity at each
Licensee Site, listing each CPU located at, or remotely accessing, each
Licensee Site by manufacturer, model, operating system, location and (except
for micro processors) the serial number thereof. CA shall thereupon review
such report and advise Licensee of any applicable Supplemental License Fee
and annual UMF due. The parties agree that in order to verify the accuracy of
Licensee's report, Licensee will, at CA's request upon reasonable notice,
grant CA access to each Licensee Site, and Licensee shall provide any further
information as CA may reasonably require.
7. License Suspension. All licenses and Order Forms respecting use of the
Licensed Programs granted to Licensee by CA or any of its predecessors for
use at any Licensee Site are hereby suspended subject to their reinstatement
upon termination of this license and Licensee's election to revert to prior
license terms under paragraph 9 section II of this Agreement, subject,
however, to the obligations of Licensee (a) to pay all contracted payments
when and as the same shall otherwise have become due and payable but for such
termination, and (b) to maintain the confidentiality of the Licensed Program
and comply with the non-disclosure provisions of such terminated licenses.
Any future use of or access to the Licensed Program by Licensee at any
Licensee Site shall be controlled exclusively by the terms of the referenced
License Agreement and this Order Form, including this and any other Addendum
thereto.
<PAGE>
8. License Transfers. Not withstanding any provision of any license granted by
CA or its predecessors (regardless of when such license was or is granted),
(a) the Licensed Programs may be used during the existence of this license at
a Licensee Site only pursuant to this MIPS Based License and under no
circumstances pursuant to any other license; (b) no other license may be
transferred to a Licensee Site and (c) the Licensed Programs may not be
transferred to a Licensee Site from any other site; even if the Licensed
Programs are to be run on the same CPU as the one on which they are currently
running.
In the event that Licensee certifies in writing to CA that it has a bona fide
disaster recovery plan with respect to the computer software programs used in
its operations, Licensee may make one copy of the Licensed Program for
archival purposes and use such archival copy on a CPU other than the
designated CPU or at an installation site other than that identified on the
Order Form, such other CPU or installation site to be owned or controlled by
Licensee. The use of such archival copy shall be limited (a) for purpose of
conducting limited testing of the disaster recovery plan's procedures and
effectiveness (which testing shall not exceed one week in any three month
period) and (b) during any period subsequent to the occurrence of an actual
disaster during which the Licensee cannot operate the Licensed Program and
the Designated CPU or at the installation site identified on the Order Form.
Licensee agrees to furnish such further documentation with respect to its
disaster recovery plan and procedures as CA may reasonably request from time
to time.
9. Term and Renewal. This MIPS Based License shall have an initial term of 40
months. If the parties do not agree in writing upon renewal payment terms
prior to the expiration of the then current term, (a) the then prevailing
MIPS Capacity (either 1060 MIPS or the then current Licensed MIPS Capacity,
whichever is greater), shall be frozen without Licensee having the right to
exceed the same, (b) Licensee shall pay the annual usage and maintenance fee
for the Licensed Program based upon CA's then prevailing published fee
schedule for software licensed per CPU at each distinct Licensee Site, and
(c) Licensee may not use the Licensed Program thereafter to process data for
any additional entities other than Licensee's majority-owned subsidiaries, or
II. Licensee may revert to the License Agreement(s) for each respective
Licensed Program as applicable immediately preceding the Effective Date of
this Agreement under which the Licensed Programs may be used on CPU(s) with
an aggregate MIPS capacity up to the then prevailing licensed MIPS capacity
(which shall in no event be less than 1060 MIPS).
10.Confidentiality. Licensee hereby acknowledges that the terms of the license
granted hereunder by CA are personal to Licensee and are highly confidential
except as required by law. Licensee hereby agrees that it shall not disclose
any of the terms of this Agreement (including, without limitation, the terms
relating to pricing and authorized use) to any person or entity other than
Licensee's employees, auditors, and attorneys who have a need to know such
information in connection with their performance of services for Licensee
except as required by law.
11.Total Client Care (TCC) Program. Licensee will be, and will remain, enrolled
in CA's TCC Program during the initial term hereof and any renewal period.
12.Eligibility. Licensee represents that neither it nor any subsidiary is
engaged in the business of providing data processing services to third
persons under any facility management, service bureau, outsourcing or similar
arrangement, and Licensee agrees not to use or operate or permit use or
operation of the Licensed Programs under any such arrangement, except as
provided in paragraph 17 of this Agreement.
<PAGE>
13.Future Product Discount. At any time after the first anniversary of the
effective date of this Order Form (the "Effective Date") and prior to
expiration of the initial term of the license granted hereby (the "Term"),
Licensee may give CA written notice of its intention not to renew this
license respecting any Licensed Program as of the expiration of the Term (the
"Notice"). In such event, CA shall grant Licensee a discount equal to the
aggregate of that portion of the installment(s) of the license fee respecting
such Licensed Program due on the next anniversary of the Effective Date
following CA's receipt of the Notice and on each subsequent anniversary
thereof (the "Discount"). Subject to full payment of the license fees due
hereunder, Licensee may apply the Discount toward satisfaction of up to: (a)
fifty percent (50%) of the installments of CA's prevailing license fees for
programs newly licensed during the Term under an A8 or A0 payment option; or
(b) thirty-five percent (35%) of such license fees payable under a G1 payment
option. If at expiration of the Term, Licensee desires to continue usage and
maintenance of such Licensed Program, then Licensee shall pay to CA as a
one-time renewal fee the aggregate of that portion of the Discount
attributable to such Licensed Program actually applied by Licensee as
provided herein, plus CA's then prevailing annual UMF. The Discount may not
be combined with any other discount or credit then available to Licensee; no
portion of the Discount shall be reimbursable in cash; and no portion of the
Discount shall survive expiration of the Term. Nothing herein shall affect
Licensee's obligation to pay the license fees as provided herein.
14.Year 2000 Compliance: With the exception of CA-7 SMART CONSOLE, CA warrants
that, where applicable, the Licensed Programs will be year 2000 compliant.
"Year 2000 Compliant" means that the Licensed Programs will have the
following capabilities:
A. Will manage and manipulate data involving dates, including single century
formulas and multi-century formulas, and will not cause an abnormally
ending scenario within the application or result in incorrect values
generated involving such dates; and
B. Will provide that all date related user interface functionalities and all
date related data interface functionalities will be clearly defined to
include the definition of century, i.e., where 2 digit year is provided
clear definition of the assumptions used for century shall be provided.
For example, years 60 through 99 assume century to be 19, while years 00
through 59 assume century to be 20.
CA warrants that the Licensed Programs shall include, at no cost to Licensee,
design and performance so Licensee shall not experience software abending
and/or invalid and/or incorrect results from software in the operation of the
business of the Licensee. The software design to ensure Year 2000
compatibility shall include, but not limited to, date data century
recognition, calculations which accommodate same century and multi-century
formulas and date values, and the date data interface values that reflect the
century.
15.Amendment. Any amendment of this MIPS Based License must be in writing
signed by the parties.
16.Assignment. Notwithstanding anything contained in the Order Form or the
License Agreement referenced therein to the contrary, Licensee shall have the
right, upon prior written notice to CA, to assign this License to the
purchaser of all or substantially all of the assets of Licensee or Licensee's
successor by merger or otherwise by operation of law without additional
charge, provided that (a) all usage and maintenance fees relating to the
Licensed Program(s) shall have been paid through the date of the proposed
assignment, and (b) the proposed assignee shall have executed and delivered
to CA a License Agreement in the form hereof as well as an Order Form, and
Licensee and the proposed assignee shall both have executed and delivered to
CA the Assignment Addendum generally used by CA which provides, among other
things, that the scope of authorized usage of the Licensed Program shall be
restricted to the original licensee hereunder.
<PAGE>
17.Notwithstanding any contrary provision of this MIPS Based License, Licensee
may use the Licensed Program for discrete application processing. "Discrete
Application Processing" shall occur when Licensee provides third party
entities with access solely to a proprietary Licensee software application of
a public domain software application which requires the Licensed Programs for
systems support and operation, but such entities are not provided any direct
or indirect access to the Licensed Programs and Licensee does not perform
general data processing services for such entities. At no time will Licensee
utilize the Licensed Programs to provide general data processing services,
nor facilities management, outsourcing or service bureau services.
COMPUTER ASSOCIATES LICENSEE: GALILEO INTERNATIONAL,
INTERNATIONAL, INC L.L.C.
By: /s/ B. Cergol By: /s/ Lori M. Tobin
(Authorized Signature) (Authorized Signature)
B. Cergol Lori M. Tobin
(Name) (Name)
Division Manager - Sales Account Senior Manager, Purchasing
(Title) (Title)
October 21, 1998 September 30, 1998
(Date) (Date)
<PAGE>
EXHIBIT A
LICENSED PROGRAMS
CA-ACF2
CA-ACF2 VIEWPOINT
CA-ADS/ONLINE
CA-DELIVER
CA-DELIVER TSO/SPIF/ISPF
CA-EASYTRIEVE PLUS
CA-EASYTRIEVE PLUS DB2 OPTION
CA-EASYTRIEVE PLUS IDMS/R OPTION
CA-ELEVEN
CA-ELEVEN/DISASTER RECOVERY
CA-ELEVEN/NOTEPAD
CA-ELEVEN/REPORTS+
CA-ELEVEN/VIEWPOINT
CA-ENDEVOR/MVS
CA-ENDEVOR/MVS AUTO. CONFIG.
CA-ENDEVOR/MVS EXTENDED PROCESSING
CA-ENDEVOR/MVS EXTERNAL SECURITY
CA-ENDEVOR/MVS FOOTPRINT SYNC.
CA-ENDEVOR/MVS PANVALET INTERFACE
CA-IDMS
CA-IDMS DATA DICTIONARY
CA-IDMS DBA TOOLKIT
CA-IDMS DC
CA-IDMS DEV. TOOLKIT
CA-IDMS DISTRIBUTED DATABASE SYS.
CA-IDMS ONLINE QUERY
CA-IDMS PERFORMANCE MONITOR
CA-IDMS/ADS ALIVE
CA-INTERTEST W/XA-ESA
CA-INTERTEST/BATCH
CA-JCLCHECK
CA-MULTI-IMAGE ALLOCATION
CA-MULTI-IMAGE CONSOLE
CA-MULTI-IMAGE INTEGRITY W/O EDIF
CA-ONE
CA-ONE/COPYCAT CA-ONE/VIEWPOINT CA-OPS/MVS II JES 2 CA-OPTIMZIER II CA-PANVALET
CA-PANVALET CMS OPTION CA-PANVALET ISPF CA-PDSMAN (5) ALL COMPONENT CA-SEVEN
CA-SEVEN/NOTEPAD CA-SEVEN/REPORT BALANCING CA-SEVEN/REPORTS+ CA-SEVEN/SMART
CONSOLE CA-SEVEN/VIEWPOINTCA-VIEW CA-VIEW CA-VIEW ERO OPTION CA-VIEW
TSO/SPF/ISPF INTERFACE CA-VIEW VTAM CA-XCOM FOR MVS CA-View
CA-IDMS DBA TOOLKIT includes:
CA-IDMS/ADS TRACE
CA-IDMS/DB EXTRACTOR
CA-IDMS/DC SORT
CA-IDMS/DICTIONARY MIGRATOR
CA-IDMS/DICTIONARY MODULE EDITOR
CA-IDMS/DICTIONARY QUERY FACILITY
CA-IDMS/ONLINE TEST
CA-IDMS DEV. TOOLKIT includes:
CA-IDMS/DB ANALYZER
CA-IDMS/DB AUDIT
CA-IDMS/DB REORG
CA-IDMS/DML ONLINE
CA-IDMS/JOURNAL ANALYZER CA-IDMS/LOG ANALYZER CA-IDMS/MASTERKEY CA-IDMS/ONLINE
LOG DISPLAY CA-IDMS/SCHEMA MAPPER CA-IDMS/TASK ANALYZER
<PAGE>
EXHIBIT B
LICENSEE SITE
Galileo International LLC
5350 South Valentia Way
Englewood, Colorado 80111
<PAGE>
Exhibit 10.31
GENERAL TERMS AND CONDITIONS
AT&T PROPRIETARY
AT&T PROPRIETARY
020698
MASTER AGREEMENT
CUSTOMER Name AT&T AT&T Contact
Galileo International, L.L.C. R. J. Paliseno
District Manager
Master Agreement Team
Address Address AT&T Telephone No.
5350 S Valentia Way 55 Corporate Drive 908-658-7028
Englewood CO 80111 Room 32B17A AT&T Telefax:
Bridgewater NJ 908-306-3788
08807
City State City
Zip Code State Zip Code
CUSTOMER Billing Address:
Attention: Network Finance
5350 S Valentia Way
Englewood CO 80111
City State Zip
Code
This Agreement consists of this Cover Sheet, the attached General Terms and
Conditions, the Addendum to Master Agreement and all Service Attachments
("Attachments") attached hereto or subsequently signed by the parties
(collectively, this "Agreement"). In the event of conflict between the
General Terms and Conditions and any Attachment, the Attachment shall take
precedence.
This Agreement shall become effective when signed by both parties and shall
continue in effect for as long as any Attachment remains in effect, unless
earlier terminated in accordance with the provisions of the Agreement. The
term of each Attachment is stated in the Attachment.
As of the effective date of this Agreement, the Attachments are as follows:
AT&T Contract Tariff
<PAGE>
CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ AND
UNDERSTANDS EACH OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND AGREES TO
BE BOUND BY THEM.
CUSTOMER: Galileo International, AT&T CORP.
L.L.C.___________
By: /s/ Robert R. Marcucci
By: /s/ James E. Barlett (Authorized Signature)
(Authorized Signature)
James E. Barlett Robert R. Marcucci
(Typed or Printed Name) (Typed or Printed Name)
Chairman, President & CEO Division Manager
(Title) (Title)
December 21, 1998 December 28, 1998
------------------- -------------------
(Date) (Date)
<PAGE>
GENERAL TERMS AND CONDITIONS
AT&T PROPRIETARY
The following terms and conditions shall apply to the provision and use of the
products and services (individually a "Service" and collectively the "Services"
) provided pursuant to the Attachments.
1.0 DEFINITIONS
1.1 "Affiliate" of a party means any entity that controls, is controlled by or
is under common control with such party, and, in the case of AT&T, it also means
any entity which AT&T has authorized to offer any Service or part of any
Service. 1.2 "Content" means information made available, displayed or
transmitted in connection with a Service (including, without limitation,
information made available by means of an HTML "hot link", a third party posting
or similar means) including all trademarks, service marks and domain names
contained therein as well as the contents of any bulletin boards or chat forums,
and, all updates, upgrades, modifications and other versions of any of the
foregoing. 1.3 "User" means anyone whom CUSTOMER allows, by action or omission,
to use or access any Service including, without limitation, CUSTOMER'S
Affiliates.
2.0 CHARGES AND BILLING
2.1 CUSTOMER shall pay AT&T for its and Users' use of the Services at the rates
and charges specified in the Attachments, without deduction, setoff or delay for
any reason, including circumstances arising under any other Attachment. Charges
set forth in the Attachments are exclusive of any applicable taxes. CUSTOMER may
be required to pay a deposit before Services are provided if AT&T determines
that CUSTOMER is not creditworthy or as specified in Section 10.1. 2.2 CUSTOMER
shall pay all shipping charges, taxes (excluding those on AT&T's net income) and
other similar charges (and any related interest and penalties) relating to the
sale, transfer of ownership, installation, license, use or provision of the
Services, except to the extent a valid tax exemption certificate is provided by
CUSTOMER to AT&T prior to the delivery of Services. 2.3 Payment is due within 30
days after the date of invoice and shall refer to the invoice number.
Restrictive endorsements or other statements on checks accepted by AT&T will not
apply. CUSTOMER shall reimburse AT&T for all costs (including reasonable
attorney fees) associated with collecting delinquent or dishonored payments. At
AT&T's option, interest charges may be added to any past due amounts at the
lower of 1.5% per month or the maximum rate allowed by law.
3.0 RESPONSIBILITIES OF THE PARTIES
3.1 AT&T shall provide Services to CUSTOMER in accordance with the terms and
conditions and at the charges specified in this Agreement. 3.2 CUSTOMER warrants
that its and Users' use of the Services and the Content will at all times comply
with all applicable laws, regulations and written and electronic instructions
for use. AT&T reserves the right to terminate affected Attachments, suspend
affected Services and/or remove CUSTOMER or Users' Content from the Services if
AT&T (i) determines, in its sole discretion, that AT&T's public image,
reputation or goodwill will be adversely affected or that such use or Content
does not conform with the requirements set forth in this Agreement, or that AT&T
could be subject to liability; or (ii) receives notice from anyone that
CUSTOMER's or Users' use or Content may violate any laws or regulations. AT&T's
actions or inaction under this Section shall not constitute review or approval
of CUSTOMER's or Users' use or Content. 3.3 AT&T grants to CUSTOMER the right to
permit Users to access and use the Services, provided that CUSTOMER shall remain
solely responsible for such access and use and shall defend, indemnify and hold
harmless AT&T from and against all Damages (including, without limitation,
reasonable attorney fees), whether or not arising out of third-party claims and
regardless of the form of action, whether in contract, tort, strict liability or
otherwise, concerning or relating to: any noncompliance by CUSTOMER or Users
with any provision of this Agreement; negligent acts or omissions by CUSTOMER or
Users; CUSTOMER's or Users' Content or use of the Services; and claims by any
User relating to any Service failure, defect or outage.
4.0 USE OF INFORMATION
4.1 All documentation, technical information, Software, business information,
proposals for new Services or other materials that are disclosed by either party
to the other in the course of performing this Agreement shall be considered
proprietary information ("INFORMATION") of the disclosing party, provided such
information is in written or other tangible form that is clearly marked as
"proprietary" or "confidential", or is disclosed orally and is both identified
as proprietary or confidential at the time of disclosure and summarized in a
writing so marked within 15 business days following the oral disclosure. This
Agreement shall be deemed to be AT&T INFORMATION. 4.2 Each party's INFORMATION
shall, for a period of 3 years following its disclosure (except in the case of
Software, for an indefinite period): (i) be held in confidence; (ii) be used
only for purposes of performing this Agreement and using the Services; and,
(iii) not be disclosed except to the receiving party's employees, agents and
contractors having a need-to-know (provided that such agents and contractors are
not direct AT&T competitors and agree in writing to use and disclosure
restrictions as restrictive as this Article 4) or to the extent required by law.
4.3 The restrictions in Section 4.2 shall not apply to any information that: (i)
is independently developed by the receiving party; or (ii) is lawfully received
by the receiving party free of any obligation to keep it confidential; or (iii)
becomes generally available to the public other than by breach of this
Agreement. 4.4 CUSTOMER authorizes AT&T to: (i) monitor and record calls and
transmissions using the Services and calls or transmissions to AT&T concerning
the Services in order to detect fraud, check quality and operate, maintain and
repair the Services; and (ii) disclose such information to the extent AT&T deems
it is legally required.
5.0 PUBLICITY AND MARKS
5.1 No public statements or announcements relating to this Agreement shall be
issued by either party without the prior written consent of the other party. 5.2
Each party agrees not to display or use, in advertising or otherwise, any of the
other party's trade names, logos, trademarks, service marks or other indicia of
origin (collectively "Marks") without the other party's prior written consent,
provided that such consent may be revoked at any time.
6.0 SOFTWARE
6.1 AT&T grants CUSTOMER a personal, non-transferable and non-exclusive license
(without the right to sublicense) to use, in object code form, all software and
associated written and electronic documentation and data furnished pursuant to
the Attachments (collectively, the "Software"), solely in connection with the
Services and solely in accordance with applicable written and electronic
documentation. CUSTOMER will refrain from taking any steps to reverse assemble,
reverse compile or otherwise derive a source code version of the Software. The
Software shall at all times remain the sole and exclusive property of AT&T or
its suppliers. "Third-Party Software" means Software that bears a copyright
notice of a third party. "AT&T Software" means all Software other than
Third-Party Software. 6.2 CUSTOMER shall not copy or download the Software,
except to the extent expressly provided otherwise in the applicable
documentation for the Service or in a writing signed by AT&T. Any copy must
contain the same copyright notices and proprietary markings as the original
Software. 6.3 CUSTOMER shall ensure that its employees and Users comply with the
terms and conditions of this Article 6. 6.4 The term of the license granted
hereunder shall be coterminous with the Attachment which covers the Software.
6.5 CUSTOMER agrees to comply with any additional restrictions that are provided
with any Third-Party Software. 6.6 AT&T warrants that all AT&T Software will
perform substantially in accordance with its applicable published specifications
during a warranty period of ninety (90) days beginning on the date of delivery
of the AT&T Software to CUSTOMER. If CUSTOMER returns to AT&T, within the 90-day
warranty period, any AT&T Software that does not comply with this warranty, then
AT&T, at its option, will either repair or replace the portion of the AT&T
Software that does not comply or refund the amount paid by CUSTOMER for such
failed or defective AT&T Software. This warranty will apply only if the AT&T
Software is used in accordance with the terms of this Agreement and is not
altered, modified or tampered with by CUSTOMER or Users.
7.0 DISPUTE RESOLUTION
7.1 Except as described in Section 7.3, all disputes, controversies or claims,
whether based in contract, tort, statute, fraud, misrepresentation or any other
legal theory, arising out of or relating to this Agreement and the Services
provided under this Agreement ( collectively, "Disputes"), not resolved amicably
between the parties shall be settled by final and binding arbitration conducted
in New York or other mutually agreed location by one neutral arbitrator, in
accordance with this Agreement and the then current Commercial Arbitration Rules
of the American Arbitration Association ("AAA"). The arbitrability of Disputes
shall also be determined by the arbitrator. Each party shall bear its own
expenses and the parties shall equally share the filing and other administrative
fees of the AAA and the expenses of the arbitrator, except that the arbitrator
shall be entitled to award a different allocation of costs and fees where the
arbitrator determines that a filed claim is frivolous. Any award of the
arbitrator shall be in writing and shall state the reasons for the award.
Judgment upon an award may be entered in any Court having competent
jurisdiction. The arbitrator shall not have the power to award any damages in
excess of the liability limitations set forth in this Agreement, including any
Attachment. The arbitrator shall not have the power to order pre-hearing
discovery of documents or the taking of depositions, but may compel attendance
of witnesses and the production of documents at the hearing. The Federal
Arbitration Act, 9 U.S.C. Sections 1 to 14, shall govern the interpretation and
enforcement of this Section 7.1. 7.2 The parties, their representatives and
participants and the arbitrator shall hold the existence, content and result of
the arbitration in confidence, except to the limited extent necessary to enforce
a final settlement agreement or to obtain or enforce a judgment on an
arbitration decision and award. 7.3 Disputes relating to: (i) the lawfulness of
rates, terms, conditions or practices concerning Services that are subject to
the Communications Act of 1934, as amended, or the rules and regulations of the
FCC, a state public utility commission or other administrative agency; or (ii)
non-compliance with Articles 4, 5 or 6 of this Agreement, a violation of which
would cause irreparable harm for which damages would be inadequate; or (iii)
billing or payment of charges under an Attachment where the amount in
controversy is less than $50,000; or (iv) Software, technology or other
intellectual property; shall be exempt from the binding arbitration requirement
described in Section 7.1. As to Disputes described in this Section 7.3, the
claimant reserves the right to seek relief from an administrative agency or a
court of competent jurisdiction, as appropriate.
8.0 FORCE MAJEURE
Neither AT&T nor CUSTOMER shall be liable for any delay, failure in performance,
loss or damage due to: fire, explosion, power blackout, earthquake, flood, the
elements, strike, embargo, labor disputes, acts of civil or military authority,
war, acts of God, acts or omissions of carriers or suppliers, acts of regulatory
or governmental agencies, or other causes beyond such party's reasonable
control, whether or not similar to the foregoing, except that CUSTOMER's
obligation to pay for charges incurred shall not be excused.
9.0 LIMITATIONS OF LIABILITY
9.1 For purposes of Section 3.3, and Articles 8 and 9 and all other exclusive
remedies and limitations of liability set forth in this Agreement or any
Attachment, "AT&T" shall be defined as AT&T, its Affiliates, and its and their
employees, directors, officers, agents, representatives, subcontractors,
interconnection service providers and suppliers; and "Damages" will refer
collectively to all injury, damage, liability, loss, penalty, interest and
expense incurred. 9.2 AT&T'S ENTIRE LIABILITY, AND CUSTOMER'S EXCLUSIVE REMEDIES
AGAINST AT&T, FOR ANY DAMAGES CAUSED BY ANY SERVICE DEFECT OR FAILURE, OR FOR
OTHER CLAIMS ARISING IN CONNECTION WITH ANY SERVICE OR THIS AGREEMENT SHALL BE:
(i) FOR BODILY INJURY OR DEATH TO ANY PERSON NEGLIGENTLY CAUSED BY AT&T,
CUSTOMER'S RIGHT TO PROVEN DIRECT DAMAGES; (ii) FOR DEFECTS OR FAILURES OF
SOFTWARE, THE REMEDIES SET FORTH IN SECTION 6.6; (iii) FOR DAMAGES OTHER THAN
THOSE SET FORTH ABOVE AND NOT EXCLUDED UNDER THIS AGREEMENT OR ANY ATTACHMENT,
AT&T'S LIABILITY SHALL BE LIMITED TO PROVEN DIRECT DAMAGES NOT TO EXCEED PER
CLAIM (OR IN THE AGGREGATE DURING ANY TWELVE-MONTH PERIOD) THE TOTAL NET
PAYMENTS MADE BY CUSTOMER FOR THE APPLICABLE SERVICE UNDER THE APPLICABLE
ATTACHMENT DURING THE 12 MONTHS PRECEDING THE MONTH IN WHICH THE DAMAGE
OCCURRED. 9.3 IN NO EVENT SHALL AT&T BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE, RELIANCE OR SPECIAL DAMAGES, INCLUDING WITHOUT
LIMITATION, DAMAGES FOR LOST PROFITS, ADVANTAGE, SAVINGS OR REVENUES OF ANY KIND
OR INCREASED COST OF OPERATIONS, WHETHER OR NOT AT&T HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. 9.4 AT&T ALSO SHALL NOT BE LIABLE FOR ANY DAMAGES
ARISING OUT OF OR RELATING TO: INTEROPERABILITY, INTERACTION OR INTERCONNECTION
PROBLEMS WITH APPLICATIONS, EQUIPMENT, SERVICES OR NETWORKS PROVIDED BY CUSTOMER
OR THIRD PARTIES; SERVICE INTERRUPTIONS OR LOST OR ALTERED MESSAGES OR
TRANSMISSIONS, EXCEPT AS OTHERWISE PROVIDED IN AN ATTACHMENT OR TARIFF; OR,
UNAUTHORIZED ACCESS TO OR THEFT, ALTERATION, LOSS OR DESTRUCTION OF CUSTOMER'S,
USERS' OR THIRD PARTIES' APPLICATIONS, CONTENT, DATA, PROGRAMS, INFORMATION,
NETWORK OR SYSTEMS. 9.5 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, AT&T
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY WARRANTY
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT
OR ANY WARRANTY ARISING BY USAGE OF TRADE, COURSE OF DEALING OR COURSE OF
PERFORMANCE. AT&T DOES NOT WARRANT THAT THE SERVICES WILL BE UNINTERRUPTED OR
ERROR-FREE, OR THAT THE SERVICES WILL MEET CUSTOMER'S REQUIREMENTS OR THAT THE
SERVICES WILL PREVENT UNAUTHORIZED ACCESS BY THIRD PARTIES. AT&T DOES NOT
AUTHORIZE ANYONE TO MAKE A WARRANTY OF ANY KIND ON ITS BEHALF AND CUSTOMER
SHOULD NOT RELY ON ANYONE MAKING SUCH STATEMENTS. 9.6 THE LIMITATIONS OF
LIABILITY SET FORTH IN THIS ARTICLE 9 AND IN ANY ATTACHMENT SHALL APPLY: (i)
REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR
OTHERWISE; AND (ii) WHETHER OR NOT DAMAGES WERE FORESEEABLE. THESE LIMITATIONS
OF LIABILITY SHALL SURVIVE FAILURE OF ANY EXCLUSIVE REMEDIES PROVIDED IN THIS
AGREEMENT. 9.7 This Agreement does not expressly or implicitly provide any third
party (including Users) with any remedy, claim, liability, reimbursement, cause
of action or other right or privilege.
10.0 TERMINATION
10.1 If a party fails to perform or observe any material term or condition of
this Agreement and the failure continues unremedied for 30 days after receipt of
written notice, the other party may terminate for cause any Attachment affected
by the breach. If CUSTOMER fails to pay any charge when due and such failure
continues unremedied for ten days after written notice by AT&T, AT&T may, at its
option, terminate affected Attachments, suspend Service under affected
Attachments, require a deposit under any or all Attachments as a condition of
continuing to provide Services and/or terminate this entire Agreement. 10.2 An
Attachment may be terminated immediately upon written notice by: (i) either
party if the other party has violated the other's Marks, becomes insolvent or
involved in a liquidation or termination of its business, files a bankruptcy
petition, has an involuntary bankruptcy petition filed against it (if not
dismissed within 30 days of filing), becomes adjudicated bankrupt, or becomes
involved in an assignment for the benefit of its creditors; or (ii) AT&T
pursuant to Section 3.2 or in the event of a material breach of any provision of
Article 6. 10.3 CUSTOMER shall be responsible for payment of all charges under a
terminated Attachment incurred as of the effective date of termination. CUSTOMER
shall also be liable to AT&T for Termination Charges, as specified in a
terminated Attachment, in the event that AT&T terminates under Section 10.1 or
10.2, or CUSTOMER terminates without cause. 10.4 Termination by either party of
an Attachment does not waive any other rights or remedies it may have under this
Agreement. 10.5 Except as provided under Section 10.1, termination or suspension
of an Attachment shall not affect the Services provided or the rights and
obligations of the parties under any other Attachment.
11.0 GENERAL PROVISIONS
11.1 Any supplement, modification or waiver of any provision of this Agreement
or any Attachment must be in writing and signed by authorized representatives of
both parties. 11.2 This Agreement may not be assigned by either party without
the prior written consent of the other, except that AT&T may, without CUSTOMER's
consent, assign this Agreement or any Attachment to a present or future
Affiliate or successor and may assign its right to receive payments. AT&T may
subcontract work to be performed under this Agreement, but shall retain
responsibility for all such work. 11.3 If any portion of this Agreement is found
to be invalid or unenforceable, the remaining provisions shall remain in effect
and the parties shall promptly begin negotiations to replace invalid or
unenforceable portions that are essential parts of this Agreement. 11.4 Any
initial demand for arbitration pursuant to Section 7.1 and any legal action
arising in connection with this Agreement must begin within two years after the
cause of action arises. 11.5 All notices under this Agreement shall be in
writing and either mailed by certified or registered mail, postage prepaid
return receipt requested, sent by express courier or hand delivered and
addressed to each party at the address set forth on the front of this Agreement
or, if the notice relates to a specific Attachment, the address set forth in
such Attachment, or, in any case, such other address a party designates in
writing. 11.6 State law issues concerning construction, interpretation and
performance of this Agreement shall be governed by the substantive law of the
State of New York, excluding its choice of law rules. The United Nations
Convention on Contracts for International Sale of Goods shall not apply. 11.7
The respective obligations of CUSTOMER and AT&T which by their nature would
continue beyond the termination or expiration of this Agreement or any
Attachment shall survive termination or expiration of this Agreement or any
Attachment. 11.8 THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE
PARTIES WITH RESPECT TO THE SERVICES TO BE PROVIDED HEREUNDER. THIS AGREEMENT
SUPERSEDES ALL PRIOR AGREEMENTS, PROPOSALS, REPRESENTATIONS, STATEMENTS OR
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, CONCERNING SUCH SERVICES OR THE RIGHTS
AND OBLIGATIONS RELATING TO THOSE SERVICES. THIS AGREEMENT SHALL NOT BE
CONTRADICTED, EXPLAINED OR SUPPLEMENTED BY ANY WRITTEN OR ORAL STATEMENTS,
PROPOSALS, REPRESENTATIONS, ADVERTISEMENTS, SERVICE DESCRIPTIONS OR CUSTOMER
PURCHASE ORDER FORMS NOT EXPRESSLY SET FORTH IN THIS AGREEMENT OR AN ATTACHMENT.
<PAGE>
Exhibit 10.43
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of June 18th, 1998 between GALILEO
INTERNATIONAL, L.L.C., a limited liability company organized under the laws of
the State of Delaware and doing business at 9700 West Higgins Road, Suite 400,
Rosemont, Illinois (the "Company"), and JAMES E. BARLETT, an individual residing
at 13350 Buckland Hall Road, St. Louis, Missouri ("Executive").
W I T N E S S E T H :
WHEREAS, the Company is a wholly-owned subsidiary of Galileo
International, Inc., a Delaware corporation (the "Parent"), and is engaged in
the travel services and computer reservation systems business in the United
States, the United Kingdom and elsewhere in the world;
WHEREAS, Executive serves as Chairman, President and Chief Executive
Officer of the Company and the Parent pursuant to the terms of an Employment
Agreement dated as of October 31, 1994 between the Company's predecessor,
Galileo International Partnership, and Executive (the "Existing Employment
Agreement"); and
WHEREAS, the Company and Executive wish to terminate the Existing
Employment Agreement, the Company wishes to continue to employ Executive as the
Chairman, President and Chief Executive Officer of the Company and the Parent
pursuant to the terms of this Agreement and Executive wishes to continue in such
employment;
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. Employment; Position and Responsibilities. The Company agrees to
employ Executive, and Executive agrees to serve, as President and Chief
Executive Officer of the Company and the Parent. In such capacity, Executive
shall have authority and responsibility, subject to control and direction by the
Board of Directors of the Parent (the "Board"), to administer and manage the
business of the Company, the Parent and the other subsidiaries of the Parent.
Executive shall also serve as Chairman of the Board, provided that he is elected
to serve in such capacity. Executive will be located at the Rosemont, Illinois
office of the Company or at such other location as the Board may designate as
the principal office of the Company. Executive acknowledges that his employment
hereunder will require substantial travel.
2 . Obligations of Executive. During the Term of this Agreement (as
hereinafter defined) Executive agrees that he will devote substantially all of
his time, attention and energies to the business of the Company, that he will
exercise the highest degree of loyalty and conduct in the performance of his
duties and that he will do nothing that harms, directly or indirectly, the
business or reputation of the Company.
3. Compensation.
(a) Executive's salary during the Term of this Agreement and for the
period from April 1, 1998 until June 18, 1998, the commencement of the Term of
this Agreement, shall be at the rate of $550,000 per annum. The Compensation
Committee of the Board (the "Committee") will review Executive's salary on an
annual basis and increases will be at the discretion of the Committee taking
into account Executive's individual job performance.
(b) Executive will participate, on a basis comparable (except as
otherwise provided in this Agreement) to other executives of the Company, in the
Company's annual management incentive compensation plan (the "MIP") , a copy of
which has been furnished to Executive. The terms of the MIP will apply to
Executive except as otherwise provided by this Agreement. The annual incentive
compensation payment for Executive for each year during the Term of this
Agreement shall be determined by the Committee, provided that the target annual
incentive compensation payment for each such year shall be equal to 80% of
Executive's annual rate of salary for such year and the maximum annual incentive
compensation payment for each such year shall be equal to 150% of Executive's
annual rate of salary for such year. Nothing in this Agreement shall prevent the
Company from changing the MIP or from reducing or terminating annual incentive
compensation payments thereunder altogether, provided that the changes,
reductions or terminations are applicable to executives of the Company
generally.
(c) The Committee shall, in its discretion and to the extent
permitted by the Galileo International, Inc. 1997 Stock Incentive Plan or any
other plan pursuant to which stock options may be granted to Executive in
accordance with this Section 3(c), grant nonqualified stock options to
Executive, as long-term compensation, each year during the Term of this
Agreement, provided that the target grant for each such year shall be options to
purchase the number of shares of common stock, par value $.01 per share, of the
Parent ("Common Stock"), having an aggregate fair market value on the date of
grant equal to 800% of Executive's annual rate of salary for such year. The
actual number of shares of Common Stock subject to each such option shall be
determined by the Committee based upon an annual assessment of Executive's
performance conducted by the Committee or the Board, or both. The terms of the
options to be granted in accordance with this Section 3(c) shall be determined
by the Committee, provided that, with respect to each such option, (i) the
exercise price shall be equal to 100% of the fair market value of a share of
Common Stock on the date of grant, (ii) the term shall be 10 years, (iii)
one-third of the shares subject to such option shall vest on the first
anniversary of the date of grant and an additional one-third of such shares
shall vest on each of the next two anniversaries of the date of grant, (iv)
vesting shall continue following the retirement of Executive with the approval
of the Board or termination of Executive's employment pursuant to Section 4(b)
hereof, provided that, in either event, Executive complies with the provisions
of Section 6 hereof if such retirement or termination of employment occurs prior
to a change in control, as such term is defined in Section 10.2 of the Galileo
International, Inc. 1997 Stock Incentive Plan ("Change in Control"), (v) the
period of exercisability shall continue, in the event of the retirement of
Executive with the approval of the Board or the termination of Executive's
employment pursuant to Section 4(b) or Section 4(c) hereof, for a period of five
years following such retirement or termination of employment or the earlier
expiration of the term of such option, provided that, in any such event,
Executive complies with the provisions of Section 6 hereof if such retirement or
termination of employment occurs prior to a Change in Control, and (vi) the
period of exercisability shall continue, in the event of the termination of
Executive's employment for any reason other than retirement with the approval of
the Board or termination pursuant to Section 4(b) or Section 4(c) hereof, for a
period of six months following such termination of employment or the earlier
expiration of the term of such option.
(d) The Committee shall grant to Executive, as a special incentive
compensation award, nonqualified stock options and shares of restricted Common
Stock having the terms set forth in this Section 3(d).
(i) Promptly following the execution of this Agreement, the
Committee shall grant to Executive nonqualified options to purchase 256,000
shares of Common Stock. The terms of the options to be granted in accordance
with this Section 3(d)(i) shall be determined by the Committee, provided that,
with respect to each such option, (A) the exercise price shall be equal to 100%
of the fair market value of a share of Common Stock on the date of grant, (B)
the term shall be nine years, (C) 20% of the shares subject to such option shall
vest on the first anniversary of the date of grant and an additional 20% of such
shares shall vest on each of the next four anniversaries of the date of grant,
(D) vesting shall continue following the retirement of Executive with the
approval of the Board or termination of Executive's employment pursuant to
Section 4(b) hereof, provided that, in either event, Executive complies with the
provisions of Section 6 hereof if such retirement or termination of employment
occurs prior to a Change in Control, (E) the period of exercisability shall
continue, in the event of the retirement of Executive with the approval of the
Board or the termination of Executive's employment pursuant to Section 4(b) or
Section 4(c) hereof, for a period of five years following such retirement or
termination of employment or the earlier expiration of the term of such option,
provided that, in any such event, Executive complies with the provisions of
Section 6 hereof if such retirement or termination of employment occurs prior to
a Change in Control, and (F) the period of exercisability shall continue, in the
event of the termination of Executive's employment for any reason other than
retirement with the approval of the Board or termination pursuant to Section
4(b) or Section 4(c) hereof, for a period of six months following such
termination of employment or the earlier expiration of the term of such option.
(ii) Promptly following the execution of this Agreement, the
Committee shall grant to Executive 48,950 shares of restricted Common Stock,
with 20% of such shares vesting on the first anniversary of the date of grant
and an additional 20% of such shares vesting on each of the next four
anniversaries of the date of grant. In addition, one year following the date of
such grant the Committee shall grant to Executive an additional 48,950 shares of
restricted Common Stock, with 25% of such shares vesting on the first
anniversary of the date of grant and an additional 25% of such shares vesting on
each of the next three anniversaries of the date of grant. Vesting of shares of
restricted Common Stock granted in accordance with this Section 3(d)(ii) shall
continue following the retirement of Executive with the approval of the Board or
termination of Executive's employment pursuant to Section 4(b) hereof, provided
that, in either event, Executive complies with Section 6 hereof.
(e) Executive shall be entitled to paid annual vacation, personal
leave and holidays during each calendar year during his employment in accordance
with the policies of the Company. Executive will participate in health, welfare
(including disability) and defined benefit and contribution retirement plans,
including but not limited to the pension plan and 401(k) savings plan, that are
maintained by the Company on the same basis as such benefits are generally
available to employees of the Company in the United States, and subject to the
right of the Company to change, reduce or terminate such plans or benefits in
respect of employees generally.
(f) Executive will be reimbursed for reasonable business, travel and
relocation expenses in accordance with the normal policies of the Company
including dues, fees and expenses associated with membership in professional,
business and civic organizations in which Executive's participation is in the
interest of the Company. The Company will also reimburse Executive for one club
membership (i.e., initial fees and dues); will provide Executive with an airfare
allowance of up to $21,000 per year based upon ID50 tickets on airlines of
stockholders of the Parent, and will provide to Executive a cellular telephone
for business use and a monthly car allowance based on a three year lease of a
$45,000 automobile. The benefits and payments described in this Section 3(f)
shall not include an income tax gross-up, and Executive will be responsible for
any tax on their value. Executive's expenses will be accounted for and
reimbursed through the Company's normal expense reporting and approval process
and his expense reports will also be reviewed annually by the Board or a
committee or designee of the Board.
4. Termination. This Agreement shall commence as of June 18, 1998
and shall end on June 17, 2003, provided that this Agreement may be terminated
effective immediately by the Company for Cause or by Executive for Good Reason
as herein provided, in which event the date on which notice of termination is
given shall be the Termination Date. Such term of this Agreement is referred to
herein as the "Term of this Agreement" and, except as provided in the preceding
sentence, the date of termination of Executive's employment hereunder is
referred to herein as the "Termination Date."
(a) If Executive terminates his employment under this Agreement
without Good Reason, or if the Company terminates his employment for Cause, the
Company shall have no financial obligation to Executive other than to pay his
base salary through the Termination Date, and Executive's participation in
employee benefit plans of the Company shall cease as of such Termination Date.
The Company shall give Executive written notice of a termination for Cause.
(i) For purposes of this Agreement, "Cause" shall mean: (A) any act
or omission that constitutes a material breach by Executive of, or material
misrepresentation or omission under, this Agreement; (B) the commission by
Executive of a dishonest, illegal or wrongful act (1) involving fraud,
misrepresentation or moral turpitude, (2) causing damage to the Company or (3)
involving potential damage to the business and reputation of the Company; (C)
Executive's willful and repeated absence from his employment; (D) Executive's
willful failure or refusal to perform specific and reasonable directives of the
Company; or (E) material and prolonged deficiencies in Executive's performance
of his assigned duties and responsibilities. In respect of events described in
clauses (C), (D) and (E) above, the Company shall give Executive notice,
reasonable as to time, place and manner in the circumstances (notwithstanding
that such notice may not comply with Section 9), and an opportunity to cure the
absence, failure, refusal or disregard in question, provided that such absence,
failure, refusal or disregard is reasonably susceptible of cure in the
circumstances.
(ii) For purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following events, provided Executive has not given
Cause for termination or become Disabled: (A) the Company shall have defaulted
in its obligation to pay compensation to Executive when, as and if due within 10
business days of written notice to the Company that such payment was not made
when due, or (B) the Company shall have failed or refused to appoint and
maintain Executive in a job having the responsibilities and authority as set
forth in Section 1 hereof. Executive shall give written notice to the Company of
a termination by him for Good Reason.
(b) If the Company terminates the employment of Executive without
Cause or Executive terminates his employment with Good Reason prior to a Change
in Control, or two years or more following a Change in Control, then, provided
that Executive complies with the provisions of Sections 5 and 6 hereof for the
periods described in Sections 4(b)(i) and 4(b)(ii) hereof if such termination of
employment occurs prior to a Change in Control, the Company shall pay
compensation and provide benefits to Executive as follows:
(i) Promptly after the Termination Date the Company will pay
Executive a lump sum equal to the total of (x) his base salary, at its rate in
effect at the Termination Date, for a period of 12 months or the remaining Term
of this Agreement (assuming early termination had not occurred) following the
Termination Date, whichever is less, plus (y) an amount equal to the annual
incentive compensation he would have received under the MIP attributable to such
period assuming 100% target achievement on his part, and
(ii) If the period described in Section 4(b)(i) hereof is 12 months,
then, commencing 12 months after the Termination Date and for a period of 24
months or the remaining Term of this Agreement (assuming early termination had
not occurred) following the date which is 12 months after the Termination Date,
whichever is less, the Company will pay Executive's salary on a monthly basis
plus a monthly amount equal to the annual incentive compensation Executive would
have received under the MIP attributable to such month assuming 100% target
achievement on his part. Such monthly payments shall be reduced by any income
Executive may generate by engaging during such period in other employment or
business activities (not including investments). Executive shall have a duty to
seek opportunities to generate such other income in mitigation of the Company's
obligation to make monthly payments to him hereunder.
(iii) The Company shall provide group insurance benefits to
Executive pursuant to Section 3(d) hereof for the periods described in Sections
4(b)(i) and 4(b)(ii) hereof after the Termination Date. To the extent the terms
of its plans so permit, the Company will continue for the same periods
Executive's participation in any defined benefit and defined contribution
retirement plans, including any pension and 401(k) savings plans, that are
maintained by the Company.
(c) If the Company terminates the employment of Executive without
Cause or Executive terminates his employment with Good Reason within two years
following a Change in Control, then the Company shall pay compensation and
provide benefits to Executive as follows:
(i) Within 10 days after the Termination Date the Company will pay
Executive a lump sum equal to the product of (A) the sum of (w) his base salary,
at its rate in effect at the Termination Date plus (x) an amount equal to the
annual incentive compensation he would have received under the MIP attributable
to the 12-month period following the Termination Date assuming 100% target
achievement on his part, multiplied by (B) the lesser of (y) the number of years
remaining in the Term of this Agreement (assuming early termination had not
occurred) following the Termination Date, including fractional years (with the
numerator of any such fractional year being the number of days remaining in such
year until the end of the Term of this Agreement (assuming early termination had
not occurred) and the denominator of such fractional year being 360), and (z)
the number three.
(ii) The Company shall provide group insurance benefits to Executive
pursuant to Section 3(d) of this Agreement for the number of years described in
clause (B) of Section 4(c)(i) after the Termination Date. To the extent the
terms of its plans so permit, the Company will continue for the same number of
years Executive's participation in any defined benefit and defined contribution
retirement plans, including any pension and 401(k) savings plans, that are
maintained by the Company.
(iii) All options to purchase Common Stock and all shares of
restricted Common Stock held by Executive on the Termination Date shall become
immediately vested on such date.
(d) If Executive dies or becomes incapable by reason of Disability
of performing his duties under this Agreement, the Company will pay to
Executive, or to a person duly authorized to act on his behalf or to his estate,
the sum of (i) any unpaid salary accrued to the date of death or the Disability
Date and (if death or Disability occurs after June 30 of any year) (ii) an
amount equal to a reasonable estimate of the amount Executive would have
received as annual incentive compensation under the MIP for that year, prorated
on the basis of a ratio of the number of days in such year prior to the date of
death or the Disability Date to 360. Payment of such amount shall satisfy all
obligations of the Company to Executive under this Agreement, but in the case of
Disability Executive's employment hereunder shall continue for the purpose of
continuing his eligibility to receive medical, disability and other benefits
pursuant to Section 3(d) hereof for 12 months after the Disability Date. For
purposes of this Agreement, "Disability" shall mean the inability of Executive,
by reason of physical or mental illness or injury, to perform his duties for
more than a total of 12 consecutive weeks during any 12-month period (such 12
weeks must be consecutive, but shall not include vacations); the last day of
such 12 consecutive week period is referred to herein as the "Disability Date".
The Company shall give Executive or a person duly authorized to act on his
behalf written notice of a termination based on Disability.
(e) In the event it shall be determined by the Company's public
accounting firm that any payment or distribution by the Company or its
affiliated companies to or for the benefit of Executive (whether paid or payable
or distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 4(e)) (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
interest or penalties are incurred by Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then Executive shall be entitled
to receive within 10 days following such determination or such incurrence, as
the case may be, an additional payment (a "Gross-Up Payment") in an amount such
that after payment by Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(f) The payments to Executive pursuant to Section 4 hereof shall be
paid in lieu of any other amount of severance relating to salary or bonus
continuation to be received by Executive upon termination of employment of
Executive under any severance plan, policy or arrangement of the Company.
5. Confidentiality. During and after the Term of this Agreement,
Executive covenants and agrees that, other than as required by law, he will not
disclose to anyone (including representatives of airlines that are stockholders
of the Parent) without the Company's written consent, any confidential
materials, documents, records or other information of any type whatsoever
concerning or relating to the business and affairs of the Company that Executive
may have acquired in the course of his employment hereunder, including but not
limited to: (i) trade secrets of the Company; (ii) lists of customers or clients
of the Company; and (iii) information relating to methods of doing business
(including information concerning operations, technology and systems) in use or
contemplated use by the Company and not generally known among competitors in the
travel services and computer reservation systems business.
6. Non-Competition. (a) Executive acknowledges that the services he
is to render to the Company hereunder are special and unique in character, and
that their loss cannot be adequately compensated at law or by damages. In view
of (i) the unique value to the Company of the services to be provided by
Executive hereunder, (ii) the confidential information that Executive will
acquire in the course of his employment hereunder and (iii) as a material
inducement to the Company to enter into this Agreement and to pay Executive the
compensation and benefits provided for hereunder, Executive covenants and agrees
that during the Term of this Agreement, and, if Executive's employment
terminates prior to a Change in Control, for the periods described in Sections
4(b)(i) and 4(b)(ii) hereof Executive will not
(A) manage, operate, control, participate in alone or in combination
with others, render financial or other assistance to or be connected in any
manner with the ownership, management, representation, operation or control of
or otherwise render service or assistance to any travel services and computer
reservation systems company, airline or multinational customer of the Company or
any affiliate thereof (each a "Travel Company") that is actively engaged in or
interested in developing and/or expanding a range of services comparable to
those provided by the Company as a partner, director, officer, employee, agent,
contractor or in any other capacity, or otherwise directly or indirectly assist
any Travel Company to compete in any manner with any business activity engaged
in or actively being pursued (with or without the assistance or involvement of
Executive) by the Company at the time of termination related to the travel
services and computer reservation systems business; or
(B) combine with a group of two or more other former employees of
the Company to compete with the Company in the travel services and computer
reservation systems business, or solicit employees of the Company to leave the
employ of such entity for the purpose of engaging together in any employment,
competitive with the Company or otherwise.
(b) Executive and the Company recognize that, as a result of the
globalization of markets and technology through advances in telecommunications
systems and the internationalization of the travel services and computer
reservation system business, the market for the aforedescribed business is not
susceptible to geographic definition. Consequently, and given the nature of the
position Executive will hold with the Company, Executive and the Company agree
that the restrictions contained in Section 6 upon the activities of Executive
are geographically unlimited and reasonable as such.
(c) It is the desire and intent of the parties that the provisions
of Section 5, of this Section 6 and of Section 7 below shall be enforced to the
fullest extent permissible under the laws and public policies of the State of
Illinois. If any particular provisions or portions of Section 5 or of this
Section 6 or Section 7 below shall be adjudicated to be invalid or
unenforceable, Section 5, this Section 6 and Section 7 below shall be deemed
amended to delete therefrom such provision or portion adjudicated to be invalid
or unenforceable, such amendment to apply only in the particular jurisdiction in
which such adjudication is made.
7. Systems and Technology Ownership. Executive acknowledges and
agrees that during the Term of this Agreement he will disclose to the Company
all material products, ideas, processes, systems inventions and business plans
developed by him which relate, directly or indirectly, to the travel services
and systems business of the Company (collectively, the "Intellectual Property").
Executive further agrees that any Intellectual Property so developed will be the
sole property of the Company and that Executive will, at the Company's request
and cost, do whatever is necessary to secure the rights thereto by patent,
copyright or otherwise to the Company. In connection with the foregoing,
Executive represents, warrants and covenants that any Intellectual Property or
other copyrightable or patentable subject matter that Executive delivers to the
Company has been or will be created solely by Executive or that at the time of
delivery thereof Executive will have the right to transfer such subject matter
to the Company for use in its travel services and computer reservation systems
business. Further, and not by way of limitation, Executive hereby assigns to the
Company all of his right, title and interest in and to any Intellectual Property
from the moment of creation thereof. This Section 7 shall not apply to any
Intellectual Property or invention for which no equipment, supplies, facility or
trade secret information of the Company was used and which was developed
entirely on Executive's own time, unless (a) the Intellectual Property or
invention relates (i) to the business of the Company, or (ii) to the Company's
actual or demonstrably anticipated research or development, or (b) the
Intellectual Property or invention results from any work performed by Executive
for the Company.
8. Governing Law. This Agreement is governed by and is to be
construed and enforced in accordance with the laws of the State of Illinois, not
including its conflict of laws principles. If, under such law, any portion of
this Agreement is at any time deemed to be in conflict with any applicable
statute, rule, judicial interpretation binding on the parties, regulation or
ordinance, such portion shall be deemed to be modified or altered to conform
thereto or, if that is not possible, to be omitted from this Agreement, and the
invalidity of any such portion shall not affect the force, effect or validity of
the remaining portions hereof.
9. Notices. All notices required to be given under this Agreement
shall be in writing and shall be deemed effective when received and shall be
delivered in person, or by facsimile transmission (with confirmation of
receipt), or by mail, postage prepaid, for delivery as registered or certified
mail addressed, (a) in the case of Executive, to him at his then current
business address with the Company, with a copy to Executive's residential
address as reflected above (or such other residential address as Executive may
notify the Company from time to time) or, (b) in the case of the Company, to the
Company's Senior Vice President - Human Resources or to such other person as the
Company may designate in writing to Executive.
10. Resolution of Disputes.
(a) The parties agree that all disputes arising under or in
connection with this Agreement (except to the extent specified in Section 10(b)
below), and any and all claims by Executive relating to his employment with the
Company including claims of discrimination arising under Title VII of the Civil
Rights Act of 1964, as amended, the Age Discrimination in Employment Act, the
Americans with Disabilities Act and similar federal, state and local legislation
will be submitted to arbitration in Chicago, Illinois before a panel of three
arbitrators chosen under the rules of the American Arbitration Association;
provided, however, that any court with jurisdiction over the parties may have
jurisdiction over any action brought with regard to or any action brought to
enforce any violation or claimed violation of Section 5, 6 or 7. The parties
each hereby specifically submit to the jurisdiction of any federal or state
court located in the State of Illinois and further agree that service of process
may be made within or without the State of Illinois by giving notice in the
manner provided in Section 9. Each party hereby waives any right to a trial by
jury in any dispute between them. In the event the principal offices of the
Company are moved to a state other than Illinois, arbitration of disputes
hereunder shall take place in such state, and the parties shall be deemed to
have consented to personal jurisdiction in such state.
(b) Executive recognizes that irreparable injury would be caused to
the Company, not adequately compensable by money damages, by Executive's
violation of any provision of Section 5, 6 or 7 of this Agreement. Executive
further agrees that in the event of any such violation or threatened violation
the Company or any of its direct or indirect subsidiaries or affiliates, in
addition to such other rights and remedies as may exist in its or their favor,
may apply to a court of law or equity to enforce the specific performance of
such provisions and, without notice to Executive, may apply for an injunction or
temporary restraining order against any act which would violate any such
provisions.
(c) The covenants of Executive contained in Sections 5, 6 and 7 of
this Agreement shall be construed as independent of all other provisions
contained in this Agreement.
11. Miscellaneous. (a) Executive represents and warrants to the
Company that Executive has no contracts or agreements of any nature that
Executive has entered into with any other person, firm or corporation that
contain any restraints on Executive's present or future services. Executive
further represents that he has brought to his employment hereunder, and will use
in connection with such employment, no customer lists or proprietary information
including computer software that was used by him or to which he had access by
reason of his prior employment and that is the property of his former employer.
(b) Executive acknowledges and agrees that this Agreement
constitutes the entire understanding between the Company and Executive relating
to the employment of Executive by the Company, the Parent or any direct or
indirect subsidiary or affiliate of the Company, and supersedes all prior
written and oral agreements and understandings with respect to the subject
matter of this Agreement, including the Existing Employment Agreement. Upon the
execution of this Agreement, the Existing Employment Agreement shall be
terminated and shall be of no further force or effect.
(c) This Agreement may be amended only by a subsequent written
agreement signed by Executive and the Company.
(d) No waiver by either party of or failure to assert any provision
or condition of this Agreement by him or it to be performed or right to be
exercised shall be deemed a waiver of such or similar or dissimilar provisions
and conditions or rights at the same time or any prior or subsequent time.
(e) This Agreement and all rights and obligations of Executive are
personal to Executive and shall not be assignable and any purported assignment
in violation hereof shall not be valid or binding on the Company.
(f) This Agreement may be signed in counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the year and day first above written.
GALILEO INTERNATIONAL, L.L.C.
By /s/ Frank H.. Rovekamp __
Frank H. Rovekamp
Chairman of the Compensation Committee
By /s/ Kenneth Whipple
Kenneth Whipple
Galileo International Board Lead Director
EXECUTIVE:
/s/ James E. Barlett
James E. Barlett
<PAGE>
Exhibit 10.44 (a)
GALILEO INTERNATIONAL, INC.
GROUP POLICY NUMBER 08320000
GROUP POLICY EFECTIVE DATE: JULY 1, 1998
Description of Benefits
This Description of Benefits explains only the general purpose of the insurance
described, but in no way changes or affects the insurance afforded under the
Master Policy. All coverages are subject to the actual provisions, terms,
conditions and limitations of the Master Policy.
Class I & II
Principal Amount
A benefit amount equal to two (2x) the Insured Employee's Annual Base Salary*.
The benefit amount shall be rounded to the next higher multiple of $1,000.00, if
not already a multiple thereof, and shall be subject to a maximum amount of
$300,000.00.
*The Insured Employee's Benefits shall be defined as the Insured Employee's base
salary (or base earnings rate) plus lead differentials, if any, but not shift
differentials, bonuses or overtime. For a commissioned salesperson, the benefit
amount includes base salary plus commissions income paid in the prior calendar
year If employees are on commission status, and are employed for less than 12
months, the base salary and commission earnings are annualized to arrive at a
12-month annual pay rate.
Dear Group Member,
This is your Certificate while you are insured under the Policy and replaces any
other Certificate which may have been given to you under the Policy.
The text on the pages which follow describes your Group Insurance benefits and
includes the limitations and all other Policy provisions which apply to you. The
insured Member is referred to as "you", and the Insurance Company as "we" or
"us".
Any reference to Dependents' Insurance applies to you only if you have
dependents insured.
The complete Policy, of which this Certificate is a part, is on file in the
Policyholder's office.
CC: 0832000 798
TABLE OF CONTENTS
PAGE
Definitions & Insurance Provisions GTO-R 1-4
Plan Summary For You GPS 100 C
Accidental Death & Dismemberment GTO-R 105 CE
Insurance
Hazard 12 GTO-R 128
Personal Sojourn Endorsement GTO-R 114
Monthly Coma Benefit GEN-R 100
Seat Belt Benefit GEN-SB-DP
Beneficiary & Assignment Provisions GTO-R 145
Replacement of Coverage & Additional GTO-R 147
Provisions
Endorsement Number 1 GBE-100
Employee Retirement Income Security Act ERISA 0295
Illinois Life & Health Insurance DIS 16-795
Guaranty Association Act
<PAGE>
DEFINITIONS
FOR ALL BENEFITS:
Policyholder means the Employer named on the front page of this Certificate.
Policy Year means the period from the Policy Effective Date, or from any
Anniversary Date, to the next Anniversary Date.
Member, Insured Person, or You means a person who is insured under the Policy as
n employee of the Policyholder.
Active Work or Actively at Work means being on the job as required of an
employee of the Policyholder.
Month means any of the 12 calendar months of the year.
Time Effective. When any date is referred to the effective time shall be
12:01 A.M. at the address of the Policyholder.
Doctor means a person who is practicing within the scope of his or her license
as (1) a doctor of medicine; (2) a doctor of osteopathy; (3) a dentist; (4) a
podiatrist: (5) a chiropractor; (6) an optometrist; or (7) a psychologist.
Doctor does not include the Member nor the spouse, parent, child, brother of
sister of the Member or of the spouse of the Member.
FAA means the Federal Aviation Administration or its foreign equivalent.
INSURANCE PROVISIONS
WHEN INSURANCE STARTS
Eligible Status. You are eligible for insurance if you are: (1) An active
full-time employee of the Policyholder under age 70; (2) An active full-time
employee of the Policyholder age 70 or older.
Exception: You are not eligible if you are in full time service in any armed
forces for more than 30 days.
Your Effective Date. Subject to the PROVISO, your insurance will start on
the date you become eligible.
If you become entitled to greater or lesser benefits because you change to a
different Class of Members, any change will become effective on the date of such
change in Class.
(Continued on next page)
<PAGE>
INSURANCE PROVISIONS - Continued
PROVISO. If you are not Actively at Work on the date your insurance would
otherwise start, it will not start until the date you return to Active Work.
This also applies when your insurance is being increased or benefits added while
you are insured under the Policy.
Continued Are Not Required. You are not required to pay any part of the
premiums for Members' Insurance.
WHEN INSURANCE STOPS
Your insurance will stop on the earliest of the following dates:
(1) The date the Policy terminates.
(2) The end of the last Month for which the Policyholder pays us the
premiums for your insurance
<PAGE>
PLAN SUMMARY
FOR YOU
(No Dependent Coverage)
ACCIDENTAL DEATH Principal Amount
ACCIDENTAL DISMEMBERMENT
(1) Loss of both hands of both feet, sight of both eyes, one hand and one
foot, speech and hearing of both ears, or either hand or foot and sight of
one eye, Quadriplegia (total paralysis
of both upper and lower limbs Principal Amount
(2) Paraplegia (total paralysis of Three-Fourths the
both lower limbs) Principal Amount
(3) Hemiplegia (total paralysis of upper and lower limbs on one side of the
body), either hand
or foot, sight of one eye, One-Half the
speech or hearing of both ears Principal Amount
(4) Loss of hearing of one ear,
or thumb and index finger One-Quarter the
of same hand Principal Amount
The Principal Amount of your Accidental Death and Dismemberment
Benefits is stated on the front cover of this Certificate.
<PAGE>
ACCIDENTAL DEATH AND DISMEMBERMENT INSURANCE
If you suffer accidental bodily injury which, independently of all other causes,
results in any of the losses described herein, we will pay the benefits shown in
the Plan Summary provided that:
(1) such loss must occur (a) while insured for the benefit; and 9b)
within 365 days of the accidental that causes the loss; and
(2) such loss must be a result of an accidental that occurs as
described in the numbered Hazards herein.
Payment for Dismemberment will be made to you. Payments for loss of life will be
made under the terms of the Beneficiary and Assignment Provisions. If more than
one loss is sustained as a result of the accident, payment shall be made for
only the one loss for which the largest amount is payable. No loss sustained
prior to such accident shall be included in determining the amount payable
Accidental Death. For loss of life.
Dismemberment. For loss of:
- Both hands or both feet or sight of both eyes.
- One hand and one foot.
- Speech and hearing of both ears.
- - Either hand or foot and sight of one eye.
- - Either hand or foot.
- - Sight of one eye.
- - Speech or hearing of both ears.
- Hearing of one ear.
- Thumb and index finger of same hand.
For Dismemberment benefits, the term "loss" Also means:
- - Quadriplegia.
- Paraplegia.
- Hemiplegia.
Definitions. Loss of sight means total and permanent loss of sight. Loss of
hearing means total and permanent loss of hearing. Loss of speech means total
and permanent loss of speech. Loss of a hand means severance at or above the
wrist. Loss of a foot means severance at or above the ankle. Loss of thumb and
index finger means severance at or above metacarpophalangeal joints.
Quadriplegia means the total and permanent paralysis of both upper and lower
limbs. Paraplegia means the total and permanent paralysis of both lower limbs.
Hemiplegia means the total and permanent paralysis of upper and lower limbs of
one side of the body.
<PAGE>
ACCIDENTAL DEATH AND DISMEMBERMENT INSURANCE - Continued
Limitations. Unless we agree in writing, no benefits will be paid if loss
directly or indirectly results from:
- - Suicide or intentionally self-inflicted injury, while sane or insane. In
Missouri, suicide or intentionally self inflicted injury, while sane.
- - Your commission of or attempt to commit an assault or felony.
- - Bodily or mental infirmity, disease of any kind, or medical or surgical
treatment of any
such infirmity or disease.
- - Except as prescribed by a Doctor, your use of: (1) PCP Also known as "Angel
Dust"); LSD or other hallucinogens; (3) cocaine, heroin or other narcotics;
(4) amphetamines or other stimulants; (5) barbiturates or other sedatives or
tranquilizers; or (6) any combination of two or more of these substances.
- - Any poison or gas voluntarily taken administered, absorbed, or inhaled.
- - Travel or flight in any kind of aircraft, except as provided by the
Hazard Provisions
herein.
- - Travel or flight as a pilot or crew member in any kind of aircraft,
except if provided by a Specified Aircraft Provision.
- - Travel or flight in any kind of aircraft used for: (1) firefighting;
(2) exploration; (3) pipe or powerline work; or (4) aerial photography.
- - Any bacterial infection, except when caused by accidental bodily injury.
- - War, whether or not declared except if provided by a War Risk Provision.
- Taking part in an insurrection.
Common Accident Aggregate Limit. We will not pay benefits in excess of the
Aggregate Limit. The Aggregate Limit means all benefits payable as the
result of a Common Accident.
If, as result of a Common Accident, the total benefits payable exceed the
Aggregate Limit, we will pay each Insured Person or Beneficiary, a share of the
Aggregate Limit. Each share will be an amount that is in the same proportion to
the benefit payable for the covered loss suffered by each Insured Person as the
Aggregate Limit is to the total of all benefits that would have been payable for
all covered losses suffered in the Common Accident.
Aggregate Limit: $1,500.000.00
EXPOSURE AND DISAPPEARANCE PROVISION
Subject to all other Policy provisions:
(1) Loss that results from unavoidable exposure to the elements shall be
considered accidental bodily injury and benefits will be payable under
the Policy; and
(2) Benefits will be payable under the Policy if, after one year, your body
has not been found after the conveyance in which you were traveling:
(a) disappeared; (b) made a forced landing; (c) sank; or (d) was wrecked.
<PAGE>
HAZARD 12
24- HOUR ACCIDENT PROTECTION-BUSINESS ONLY
Excluding Policyholder Owned or Leased Aircraft
(Inside or Outside City Limits)
Benefits will be payable under the Policy provided the accident that causes
the covered loss occurs:
(1) while you are Working for the Policyholder; and
(2) while you are on an Authorized Trip which includes: (a) riding as a
passenger in the aircraft listed below; (b) boarding or alighting from
such aircraft; or @being struck by such aircraft.
Aircraft:
o any Certified civilian aircraft operated by a pilot who holds a
Certificate of Competency;
o any transport aircraft operated by the MAC.
Such Aircraft shall not include aircraft owned or leased by the Policyholder.
Working for the Policyholder means furthering the business of the Policyholder.
Vacation, leaves of absence, and commuting to and from work shall not be
considered Working for the Policyholder.
Authorized Trip means a trip taken anywhere in the world while Working for he
Policyholder. Such an Authorized Trip begins from the time you leave: (1) your
residence; or (2) your place of regular employment, whichever occurs later. The
Authorized Trip ends when you return to: (1) your residence; or (2) your place
of regular employment, whichever occurs first.
Certified means the aircraft has a valid "Standard" Airworthiness Certificate
issued by the Civil Aeronautics Administration or its foreign equivalent.
Certificate of Competency means a valid and current certificate of competency of
a rating applicable to the type of aircraft being operated.
MAC means the Military Airlift Command or its foreign equivalent.
<PAGE>
PERSONAL SOJOURN ENDORSEMENT
The definition of Authorized Trip in Hazard 12 is removed in its entirety and
replaced with the following:
Authorized Trip means a trip taken anywhere in the world while Working for
the Policyholder. Such an Authorized Trip begins from the time you leave:
(1) your residence; or (2) your place of regular employment, whichever
occurs later. The Authorized Trip ends when you return to: (1) your
residence; or (2) your place of regular employment, whichever occurs
first.
Authorized Trip shall also include sojourns taken for personal reasons
during the course of the Authorized Trip.
<PAGE>
MONTHLY COMA BENEFIT
"Coma" and "Comatose" means being in a state of complete mental unresponsiveness
with no evidence of appropriate responses to stimulation.
If, while insured for this benefit, you suffer a covered accident which, within
365 days of such accident and independently of all other causes, results in your
being in a coma continuously for at least 31 consecutive days, a Monthly Coma
Benefit will be paid. The Monthly Coma Benefit will be payable for each month of
continuous coma, but in no event shall more than 100 months of Monthly coma
Benefit be paid. No Monthly Coma Benefit will be payable after the comatose
condition has ceased, whether by death, recovery, or any other change of
condition.
The Monthly Coma Benefits will be 1% of the difference between the benefit that
would be payable for the accidental death and the amount of any benefits paid or
payable under this policy for other losses as result of such accident. Under no
circumstances will the total benefits payable for all losses which are caused by
the same accident, exceed the amount that would be payable for the accidental
death.
Your Monthly Coma Benefit will be paid according to the Beneficiary and
Assignment Provisions Applicable to Benefits for Loss of Life.
If, after qualifying for a Monthly Coma Benefit, you suffer another loss covered
under the terms of this contract, due to the same accident that caused the
comatose condition, the benefit paid for such other loss will be the benefit
stated in the Plan Summary reduced by the total amount of benefits paid,
including Monthly Coma Benefits paid, with respect to you as a result of that
accident. If you are comatose and continue to qualify for a Monthly Coma Benefit
after such other loss, the amount of Monthly Coma Benefit will be redetermined
using the calculation stated above.
The Beneficiary is responsible for providing to Transamerica Occidental Life
Insurance Company proof of the continuing comatose condition. Transamerica
Occidental Life Insurance Company retains the right to investigate to determine
whether coma exists and continues.
Except as provided herein, all other provisions, exclusions, and limitations of
the policy apply to this benefit.
<PAGE>
SEAT BELT BENEFIT
In consideration of the reduced chance of accidental loss of life when seat belt
are used properly, the following is added to the policy:
A seat belt benefit will be payable subject to the exclusions and limitations of
this policy and endorsement, if an insured person dies as the result of a
covered accident when:
(1) the insured person was the operator of or passenger in an automobile,
at the time that accident occurred; and
(2) the insured person was properly using a seat belt at the time that
accident occurred; and
(3) that accident occurs while this endorsement is effective as to the
insured person; and
(4) seat belt usage has been verified in the police accident report. If no
statement regarding seat belt usage was made in the police accident
report, a signed statement by a doctor, paramedic; police officer,
coroner; or other person of competent authority, who was at the scene
of the accident, will be accepted. The statement must verify that seat
belts were being utilized properly, and the verifying party must be
related to the insured person or his beneficiary.
The seat belt benefit will be an amount equal to 10% of the amount payable for
accidental loss life of the insured person; subject to a maximum seat belt
benefit of $10,000.00 per insured person.
"Automobile" means a validly registered or licensed four wheel private passenger
motor vehicle.
"Automobile" does not include: a motorcycle or motor scooter, or any sidecar
thereof; a bus; any motor vehicle intended for off-road use; a semi-tractor
trailer; a tractor or any other farm or ranch vehicle; any motor vehicle being
used without its owner's permission.
"Seat belt" means: (1) any passive restraint device which meets published
federal safety standards, which has been installed by the automobile
manufacturer, and which has not been altered after such installation; or (2) any
child passive restraint device, which meets published federal safety standards
and its approved by the National Transportation Safety Board, and is properly
secured and used only as recommended by its manufacturer.
<PAGE>
SEAT BELT BENEFIT - Continued
EXCLUSIONS
No seat belt benefits are payable if loss results, directly or indirectly from:
(1) except as prescribed by a doctor, the use of any of the following by
the insured person or the operator of the automobile in which the
insured person is a passenger - alcohol; PCP (also known as Angel
Dust), LSD or other hallucinogens; cocaine, heroin, or other narcotics;
amphetamines or other stimulants; barbiturates or other sedatives or
tranquilizers; or any combination of these substances;
(2) any poison or gas voluntarily taken, administered, absorbed, or inhaled
by the insured person or the operator of the automobile in which the
insured person is a passenger;
(3) the use of the automobile, in which the insured person is a passenger
or operator, in a race, speed or endurance test, or for acrobatic or
stunt driving, or for any illegal purposes;
(4) the use of the automobile, in which the insured person is a passenger
or operator, on other than regularly maintained roadways.
In all other respects the provisions and conditions of the policy remain the
same.
<PAGE>
BENEFICIARY AND ASSIGNMENT PROVISIONS
APPLICABLE TO BENEFITS FOR LOSS OF LIFE
Named Beneficiary means the party or parties which you designate to receive the
policy benefits which are payable on account of your death.
Payment Beneficiary. Benefits for loss of life are payable to the Named
Beneficiary if such party survives you. If there is no Named Beneficiary or if
the Named Beneficiary does not survive you, the benefits are payable to the
surviving persons(s) in the first of the following classed of successive
preference beneficiaries: your (1) beneficiary named in writing under any group
life insurance policy issued to the Policyholder; (2) spouse; (3) children,
including legally adopted children; (4) parents; (5) brothers and sisters; (6)
estate. We may rely on an affidavit by a person in any of the classes of
preference beneficiaries as the basis for our payment. Payment made before we
have received written notice at our Home Office of a valid claim by some other
person releases us from further obligation.
Your Named Beneficiary, if any, will be the persons(s) named by you in your most
recent written beneficiary designation placed on file in the records of the
Policyholder. Payment made by us to such Named Beneficiary released us from
further obligation.
If two or more persons become entitled to benefits: (1) as the Named
Beneficiary, and you have not specified their respective interests; or (2) as
preference beneficiaries, they will share equally.
Benefits for loss of life will be paid in accordance with the beneficiary
designation in effect under the Former Plan unless you notify the Policyholder
of a change. Former Plan means the group policy which is replaced by this Policy
immediately after the Former Plan terminated.
Assignment. You may assign all rights and interests in and to those benefits
which are payable on account of your death. The assignment shall not be made
to, nor be for the benefit of, the Policyholder.
After your death, the beneficiary may assign the benefits which are payable to
him or her.
The owner's right and those of any beneficiary will be subject to the assignment
on and after the date it is received by us at our Home Office. We are not
responsible for the adequacy of any assignment.
Benefit for loss of life payable to minor will be paid to the legally appointed
guardian of the minor's estate. If there is no guardian, the benefits may be
paid to the adult or adults whom we determine have assumed the custody and main
support of the minor.
<PAGE>
REPLACEMENT OF COVERAGE
The following provisions shall apply to each person who had valid coverage under
the Former Plan on the date it ceased and is in a class which is eligible on the
Policy Effective Date. If the required premiums are paid, the person shall
become insured on such Effective Date, whether or not the active employment or
effective date requirements have been met. The following provisions shall apply.
o If insurance for your group starts after the Policy Effective Date, the
latter term as applied to you means the date insurance for your group
starts under the Policy.
o No benefit will be paid for loss sustained before the Policy Effective
Date.
o Any waiting period required by the Policy shall be reduced by the
length of time such person was continuously covered for similar
benefits under the Former Plan immediately prior to the Policy
Effective Date.
Former Plan means the group policy which is replaced by this Policy immediately
after the Former Plan terminated.
ADDITIONAL PROVISIONS
Notice of Claim. Written notice of claim must be given within 20 days after a
covered loss occurs of starts, or as soon after that as possible. The notice may
be given either to us at our Home Office or to one of our agents. The terms of
the notice shall identify clearly the Insured Person.
Claim Forms. When we receive a notice of claim, we will finish forms for filing
proofs of loss. If the forms are not furnished within 15 days after we receive
notice, written proof from the claimant as to the nature and extent of the loss
sent to us within the time limit stated in the Proofs of Loss section below will
be deemed proof loss.
Proof of Loss. In case of continuing loss for which we make recurrent payments,
the Insured Person must give us written proof of loss within 90 days after the
end of each period for which an amount is payable. For any other loss, written
proof must be given within 90 days after the date of loss.
Failure to furnish proof within the time required will not void or reduce a
claim if the proof is furnished as soon as it was reasonably possible to do so.
Except in the event of legal incompetence, this extension of the time limit
shall in no event exceed one year.
Time of Payment of Claim. All payments will be made when we receive proof of
loss; however, for any loss for which recurrent payments are provided, benefit
amounts shall be paid as they accrue, but not less often than monthly. Any
unpaid balance at the end of the period for which we are liable will be paid
when we receive proof of loss.
<PAGE>
ADDITIONAL PROVISIONS - Continued
Payment of Claims. Payment for loss will be mad when we receive proof of
such loss. Except as stated below, all benefits will be paid to the Insured
Person.
Loss of life benefits, if any, will be paid in accordance with the provision
which apply to such benefits. Any other benefits accrued but paid at death may
be paid to the deceased person's estate or at our option, to the beneficiary.
At our option, benefits which are payable to a deceased person's estate or to a
person who is a minor or who is not competent to give a valid release may
instead be paid by us to any person who is related by blood or marriage and whom
we deem to be entitled to receive them. Such payment shall not exceed $1,000 and
will fully discharge us to the extent of the payment.
Physical Examination and Autopsy. We reserve the right to have the Insured
Person examined, at our own expense, as often as is reasonably necessary while a
claim is pending. We may also have an autopsy performed unless forbidden by law.
Legal Actions. No attempt to recover on the Policy through legal action may be
made until at least 60 days after written proof of loss has been furnished as
required by the Policy. No such action may be started later than three years
from the time written proof of loss is required to be furnished.
Conformity with Laws. Any provision of the Policy which, on it effective date,
is in conflict with the laws of the Governing Jurisdiction, is hereby amended to
conform to the minimum requirements of such laws.
<PAGE>
ENDORSEMENT NUMBER 1
This Endorsement is to be attached to and form a part of Policy No. 08320000
issued to Galileo International, Inc.
The effective date of this Endorsement is July1, 1998.
In consideration of the payment of premium for this policy, it is hereby
understood and agreed that:
1. The Personal Sojourn Endorsement, Policy Form GTO-R 114 of this Policy is
limited to the first seven (7) consecutive days of such travel.
In all other respects the provisions and the conditions of the policy remain the
same.
The Company has executed this endorsement at Los Angeles, California.
<PAGE>
Information Required by the
Employee Retirement Income
Security Act of 1974, as amended ("ERISA")
Appeal of Claim Denial. If a claim is denied is whole or in part, the claimant
will receive: (1) a written explanation giving detailed reasons for denial; (2)
specific reference to policy provisions on which the denial is based; (3) a
description of any additional material or information necessary for the claimant
to perfect the claim; (4) an explanation of why such material or information is
necessary; (5) an explanation of our claim appeal procedure.
If the claimant is not satisfied, or does not agree with the reasons for the
denial of the claim, the claimant may appeal the decision to us, Transamerica
Life Companies, ERISA Appeals Unit, Suite T-12-06, P.O. box 30852, Los Angeles,
California 90030-0852. We provide the benefits under the Group Master Policy
identified on the front cover of your Certificate.
We are the fiduciary under the plan designated to review any claim appeals with
respect to the policy by the claimant. We are vested with discretionary
authority to determine eligibility for benefits and to construe and interpret
the plan/policy terms and provisions. Our decision with respect to eligibility
and plan/policy terms and provisions is final, conclusive and binding as to all
parties.
The appeal must be writing, and can be made by the claimant or the claimant's
duly authorized representative. It must set out the claimant's reasons for the
appeal and the claimant's dissatisfaction or disagreement. Any evidence or
documentation to support the claimant's position should be submitted with
written appeal. Upon written request, the claimant may review pertinent
documents that pertain to the claim and its denial.
The appeal must be made within 60 days of the date the claimant receives the
letter denying the claim.
We will promptly review the claim and appeal. We will advise the claimant of our
decision in writing, giving specific reasons for the decision with references to
pertinent policy provisions n which the decision is based. The written decision
will be sent to the claimant not later than 60 days after our receipt of the
written appeal, unless special circumstances require an extension of time for
processing the appeal, or obtaining more information, or conducting an
investigation of the facts. In no event will the written decision be sent later
than 120 days after we receive the written appeal.
If the claimant disagrees with our decision on appeal, the claimant may file
suit in federal or state court asking the court to overturn our decision as an
abuse of discretion. If the court rules in the claimant's favor, it may order us
to pay the claimant's court costs an legal fees. If the claimant loses, the
court may order the claimant to pay our court costs and legal fees (for
examples, if the court finds the claimant's suit to be frivolous.
<PAGE>
ILLINOIS LIFE AND HEALTH
INSURANCE GUARANTY ASSOCIATION ACT
Residents of Illinois who purchase health insurance, life insurance, and
annuities should know that the insurance companies licensed in Illinois to write
these types of insurance are members of the Illinois Life and Health Insurance
Guaranty Associate. The purpose of this Guaranty Association is to assure that
policyholders will be protected, within limit, in the unlikely event that a
member insurer becomes financially unable to meet is obligations. If this should
happen, the Guaranty Association will assess its other member insurance
companies for the money to pay the covered claims of policy holders that live in
Illinois (and their payees, beneficiaries, and assignees) and, in some cases to
keep coverage in force. The valuable extra protection provided by these insurers
through the Guaranty Association is not unlimited, however, as noted below.
ILLINOIS LIFE AND
HEALTH INSURANCE GUARANTU ASSOCIATION
DISCLAIMER
The Illinois Life and Health Insurance Guaranty Association provides
coverage on claims under some types of policies if the insurer becomes impaired
or insolvent. COVERAGE MAY NOT BE AVAILABLE FOR YOUR POLICY. Even if coverage is
provided, there are substantial limitations and exclusions. Coverage is
generally conditioned on continued residence in Illinois. Other conditions may
also preclude coverage.
You should not rely on availability of coverage under the Life and Health
Insurance Guaranty Association when selecting an insurer. Your insurer and agent
are prohibited from using this existence of the Association of its coverage to
sell you an insurance policy.
The Illinois Life and Heath Insurance Guaranty Association or the Illinois
Department of Insurance will respond to any questions you may have which are not
answered by this document. Policyholders with additional questions may contact:
Illinois Life and Health Insurance Guaranty Association
8420 West Bryn Mawr Avenue
Chicago, Illinois 60631
(312) 714-8050
Illinois Department of Insurance
320 West Washington Street
4th Floor
Springfield, Illinois 62767
(217) 782-4515
<PAGE>
Summary of General Purpose And
Current Limitations of Coverage
The Illinois law that provides for this safety-net coverage is called the
Illinois Life and Health Insurance Guaranty Association Law ("Law") (215 ILCS
5\531.01, et seq.). The following contains a brief summary of the Law's
coverage, exclusions and limits. The summary does not cover all provisions, nor
does it in any way change anyone's rights or obligations under the Law or the
rights or obligations of the Guaranty Association. If you have obtained this
document from an agent in connections with the purchase of a policy, you should
be aware that its delivery to you does not guarantees that your policy is
covered by the Guaranty Association.
a) Coverage
The Illinois Life and Health Insurance Guaranty Association provides
coverage to policyholders that reside in Illinois for insurance issued by
members of the Guaranty Association, including:
1) life insurance, health insurance, and annuity contracts;
2) life, health or annuity certificates under direct group policies or
contracts:
3) unallocated annuity contracts; and
4) contracts to furnish health care services and subscription certificates
for medical or health car services issued by certain licensed entities.
The beneficiaries, payees, or assignees of such persons are also
protected, even if they live in another state.
b) Exclusions from Coverage:
1) The Guaranty Association does not provide coverage for:
A) any policy or portion or a policy for which the individual has assumed
the risk;
B) any policy of reinsurance (unless an assumption certificate was issued);
C) interest rate guarantees which exceed certain statutory limitations;
D) certain unallocated annuity contracts issued to an employee benefit
plan protected under the Pension Benefit Guaranty Corporation and
any portion of a contract which in not issued to or in connection
with a specific employee, union, or association of natural persons
benefit plan or a government lottery;
E) any portion of a variable life insurance or variable annuity contract
not guaranteed by an insurer; or
F) any stop loss insurance.
2) In addition, persons are not protected by the Guaranty Association if: A) the
Illinois Director of Insurance determines that, in the case of an
insurer which is not domiciled in Illinois, the insurer's home state
provides substantially similar protection to Illinois residents
which will be provided in a timely manner, or
B) their policy was issued by an organization which is not a member
insurer of the Association.
c) Limits on amount of Coverage:
1) The Law also limits the amount the Illinois Life and Health Insurance
Guaranty Association is obligated to pay. The Guaranty Association's
liability is limited to the lesser of either:
A) the contractual obligations for which the insurer is liable or for
which the insurer would have been liable if it were not an
impaired or insolvent insurer, or
B) with respect to any one life, regardless of the number of policies,
contracts, or certificates:
i) in the case of life insurance, $300,000 in death benefits but not more
than $100,000 in net cash surrender or withdrawal values;
ii) in the case of health insurance, $300,000 in health insurance
benefits, including net cash surrender or withdrawal values; and
iii) with respect to annuities, $100,000 in the present value of annuity
benefits, including net cash surrender or withdraw values, and
$100,000 in the present value or annuity benefits for
individual participating in certain government retirement
plans covered by an unallocated annuity contracts other than
those issued to certain governmental retirement plans is
$5,000,000 in benefit per contract holder, regardless of the
number of contracts.
2) However, in no event is the Guaranty Association liable for more than
$300,000 with respect to any one individual.
<PAGE>
Exhibit 10.44 (b)
Group
Sedgwick
Certificate of Insurance
THE INSURED IS REQUESTED TO READ THIS CERTIFICATE AND IF INCORRECT TO RETURN IT
IMMEDIATELY FOR ALTERATION
This Certifies that Sedgwick Limited (hereinafter referred as the Broker) has
effected insurance whereby in consideration of the Insured having paid or agreed
to pay the Premium and any Insurance Premium Tax due certain Insurers as
detailed on Schedule attached hereto agree each for his own part and not one for
another that Insurers will subject to the terms Exceptions and Conditions
contained herein or endorsed hereon pay Compensation to or indemnify the Insured
as hereinafter provided.
In Witness Whereof this Certificate has been signed on behalf of the Broker
------------------------------------------
Authorized Signature
General Conditions
1. This Certificate and the Schedule shall be read together and any word or
expression to which a specific meaning has been attached in either shall bear
such meaning wherever it may appear 2. As soon as practicable after the
happening of any event which may give rise to a claim written notice shall be
given to the Broker 3. All certificates information and evidence required by
Insurers shall be furnished free of expense to and in the form prescribed by
them The Insured Person shall as often as required submit to medical examination
on behalf of and at the expense of Insurers in connection with any claim 4.
Insurers shall not be bound to accept or be affected by any notice of any trust
charge lien assignment or other dealing with or relating to this insurance 5.
Compensation shall be payable only to the Insured or to the Insured's personal
representatives whose receipt shall effectually discharge Insurers Nothing in
this Certificate shall be deemed to give the Insured Person or the Insured
Person's personal representatives the right to claim from or sue Insurers 6. No
sum payable under this insurance shall carry interest 7. The Insured shall give
notice to the Broker within a reasonable time of any material change in the
Business or the Insured Person's Occupation and shall pay any additional premium
required by Insurers in consequence thereof 8. If any part of the Premium is
calculated on estimates furnished by the Insured the Insured shall keep an
accurate record containing all relative particulars and shall allow Insurers to
inspect such record The Insured shall within one month from the expiry of the
Period of Insurance furnish such information as Insurers may require The Premium
shall thereupon be adjusted 9. Insurers may cancel any insurance under this
Certificate in respect to Death Disablement or Medical Expenses consequent upon
war invasion act or foreign enemy hostilities (whether war be declared or not)
civil war rebellion revolution insurrection military or usurped power by sending
7 days' notice to the Insured at the Insured's last known address Insurance in
respect of any journey involving travel outside the Insured Person's country of
residence which shall have been commenced before the expiry of such notice shall
not be affected hereby 10. Insurers may cancel this insurance by sending 3
months' notice to the Insured at the Insured's last known address The Insured
shall thereupon become entitled to the return of a proportionate part of the
Premium Insurance in respect of any journey which shall have been commenced
before the expiry of such notice shall not be affected thereby 11. The due
observance and fulfilment of the terms Conditions and Endorsements so far as
they relate to anything to be done or complied with by the Insured or the
Insured Person and the truth of any information supplied by the Insured in
connection with this Insurance shall be conditions precedent to any liability of
Insurers to make any payment hereunder 12. If at the time any claim to indemnity
arises under this Certificate there be any other insurance in force in the
Insured's name covering the same loss Insurers shall not pay more than their
rateable proportion of such claim
<PAGE>
CERTIFICATE OF INSURANCE - GROUP
GENERAL SCHEDULE
Certificate No.: G8R5669
Insured: The Galileo Company and/or subsidiary companies
Address: Galileo Centre Europe, Windmill Hill, Swindon, Wilts SN5 6PH
Business: Production of computerised reservation and information systems
for travel agents, the provision of marketing, legal, financial
and software development services to Galileo International
L.L.C.
Period of Insurance:
a) From 1 July 1998 to 30 June 199 both days inclusive
b) Any subsequent period for which the Insured shall agree to pay and
Insurers shall agree to accept a renewal premium
Premium:
First (pound)27,504.80
Insurance Premium Tax @ 4% on 100% (pound) 1,100.19
Total (pound)28,604.99
INSURERS
Royal & Sun Alliance Insurance plc 100.00%
Date: 19th February 1999
0304.1
<PAGE>
CERTIFICATE OF INSURANCE - GROUP
SCHEDULE (PERSONAL ACCIDENT)
Insured Person: A. Any Director or Employee of the Insured resident in Great
Britain, Northern Ireland, The Isle of Man or the Channel
Islands
B. Visitors
Operative Time: A. 24 Hours
B. Whilst lawfully on the Insured's Swindon premises or
any of the Insured's NDC premises
Benefits Compensation
A.
1. 3 x annual salary as defined
2. 3 x annual salary as defined
3.(a) 3 x annual salary as defined
(b) 3 x annual salary as defined
(c) (i) 3 x annual salary as defined
(ii) 25% of the Compensation shown in (c) (i) above
1. 3 x annual salary as defined
5.(a) (pound)Nil ) per week for a maximum of
(b) (pound)Nil ) Nil weeks in all
6. Reimbursement up to 15% of the Compensation paid for any of Benefits 1-4
or 30% of the total weekly Compensation paid whichever is the greater in
respect of any one Insurance Person subject to a maximum of (pound)10,000
B.
1. (pound)10,000
2. (pound)10,000
3.(a) (pound)10,000
(b) (pound)10,000
0304.2(a) Standard Benefits
<PAGE>
Group
Personal Accident
If during the Operative Time in any Period of Insurance an Insured Person
sustains accidental bodily injury which independently of any other cause results
within twenty-four months in Death Disablement or the incurring of Medical
Expenses Insurers will pay Compensation to the Insured or the Insured's personal
representatives
Disappearance
In the event of the disappearance of an Insured Person if after a suitable
period of time it is reasonable to believe that such Insured Person has died as
a result of accidental bodily injury the Death Benefit shall become payable
subject to a signed undertaking that if the belief is subsequently found to be
wrong such Death Benefit shall be refunded to Insurers
Exposure
Death Disablement or Medical Expenses as the direct result of exposure of an
Insurance Person shall be deemed to have been caused by accidental bodily injury
Benefits Compensation
1. Death 1.
2. Loss of two or more Limbs or both Eyes or one of each 2.
3.(a) Loss of one Limb or Eye 3.(a)
(b) Permanent total loss of speech (b)
(c) Permanent total loss of hearing (c)
(i) in both ears (i)
(ii) in one ear (ii)
4. Permanent Total Disablement from the Insured Person's usual 4.
occupation in the Business
5.(a) Temporary Total Disablement from usual occupation 5.(a)
(b) Temporary Partial Disablement (b)
6. Medical Expenses being the cost of medical surgical or other 6. remedial
attention treatment or appliances given or prescribed by a qualified
member of the medical profession and all hospital nursing home and
ambulance charges
Special Conditions
(a) Compensation shall not be payable in respect of any one Insured Person
under more than one of Benefits 1 to 4 in connection with the same
accidental bodily injury
(b) On the happening of any accidental bodily injury giving rise to a claim
under any of Benefits 2, 3(a), 3(b), 3(c)(i) or 4 this insurance shall
cease to apply to that Insured Person
(c) If no Death Benefit is included in respect of the Insured Person
Compensation shall not be payable under Benefits 2 to 4 until at least 13
weeks after the date of the accidental bodily injury and such Compensation
shall then only be payable if the Death Benefit would not if included have
been payable in the meantime as a result of the accidental bodily injury If
the Death Benefit is included but is less than the appropriate Compensation
under Benefits 2 to 4 the Compensation payable under Benefits 2 to 4 shall
not exceed the Death Benefit until 13 weeks have elapsed from the date of
the accidental bodily injury and the balance shall then only be payable if
the Death Benefit has not in the meantime become payable as a result of the
accidental bodily injury
(d) Compensation shall not exceed (pound)2,000,000 in respect of any one
Insured Person but in respect of Benefit 3 shall not exceed (pound)500,000
any one Insured Person
(e) Insurers total liability in respect of all Insured Persons travelling in
the same aircraft (other than light aircraft or helicopters) shall not
exceed (pound)5,000,000 In respect of all Insured Persons travelling in
any one light aircraft or helicopter Insurers total liability shall not
exceed (pound)2,000,000 If the total of claims for all Insured Persons
travelling in any one aircraft or helicopter exceeds the respective limit
the amount insured for each person shall be proportionately reduced until
the total of all claims does not exceed the appropriate limit
(f) If the Insured Person is not normally gainfully employed
(i) Compensation under Benefits 5(a) and 5(b) shall be limited within
the rate specified to medical and other expenses necessitated by
such Disablement and not otherwise recoverable under this insurance
(ii) Benefit 4 shall read "Permanent total Disablement from gainful
employment of any and every kind"
(a) If the Insured Person is under school age or is a minor still undergoing
full time education the maximum amount payable under Benefit 1 shall be
(pound)5,000 and under Benefits 2 to 4 (pound)50,000
(b) If the Insured comprises more than one party having an interest in the
Insured Person the Compensation shall represent the total Compensation in
respect of that Insured Person for all interests covered by the insurance
Definitions
1. Temporary Partial Disablement shall mean disablement from a substantial
part of the Insured Person's usual occupation
2. Loss of Limb shall mean
(i) in the case of a lower limb loss by permanent physical severance at
or above the ankle or permanent total loss of use of an entire leg
or foot
(ii) in the case of an upper limb loss by permanent physical severance of
the entire four fingers through or above the meta carpo phalangeal
joints or permanent total loss of use of an entire arm or hand
1. Loss of Eye shall include total and irrecoverable loss of sight which
shall be deemed to have occurred (i) in both eyes when the condition is
shown to the satisfaction of the Insurers
to be permanent and without expectation of recovery and the Insured
Person's name has been added to the Register of Blind Persons on the
authority of a fully qualified ophthalmic specialist
(ii) in one eye when the degree of sight remaining after correction is
3/60 or less on the Snellen scale and the Insurers are satisfied
that the condition is permanent and without expectation of recovery
Exceptions
Insurers shall not be liable in respect of Death Disablement or Medical Expenses
consequent upon
1. the Insured Person
(a) engaging in aviation otherwise than as a passenger
(b) committing or attempting to commit suicide
(c) suffering from sickness or disease not resulting from bodily injury
or suffering from bodily injury due to a gradually operating cause
or naturally occurring condition or degenerative process
2. bodily injury of any person aged 75 years or more at inception of the
Period of Insurance
3. (a) war whether declared or not between any of the following
countries namely France the United Kingdom the former constituent
parts of the Union of Soviet Socialist Republics and the United
States of America or the Peoples Republic of China
(b) war in Europe whether declared or not (other than civil war but
including any enforcement action by or on behalf of the United
Nations) in which any of those countries or any Armed Forces thereof
are engaged
unless the accidental bodily injury occurs in the course of a journey
involving travel outside the Insured Person's country of residence
Hijack or Kidnap
In the event of an Insured Person being the subject of a hijack or kidnap 1.
this insurance shall remain in force beyond the renewal date in respect of the
Insured Person who is at that time the subject of a hijack or kidnap
provided that the renewal premium under this Certificate is paid (Renewal
Premium shall mean the Premium which Insurers would have charged to extend
the Certificate for twelve months had the Insured Person not been hijacked
or kidnapped)
2. The Insurers will pay (pound)200 for each period of 24 hours or part
thereof that the Insured Person is so restrained subject to a maximum of
(pound)10,000
Hijack shall mean the unlawful seizure or wrongful exercise of control of an
aircraft or other conveyance in which an Insured Person is travelling
Kidnap shall mean the illegal taking and holding captive of an Insured Person
Hospitalisation Benefit
If as the result of accidental bodily injury occurring during the Operative Time
the Insured Person is admitted to a Hospital as a registered in-patient on the
recommendation of a Medical Practitioner Insurers will pay (pound)15 per full 24
hours for up to 52 weeks Benefit shall not be payable for the first 48 hours of
each admission unless any admission subsequent to the initial admission can be
directly attributed to the same accidental bodily injury
Hospital shall mean any institution anywhere in the world which meets fully each
of the following criteria 1. maintains permanent and full-time facilities for
the care of overnight resident
patients
2. has diagnostic and therapeutic facilities for the surgical and medical
diagnosis treatment and care of injured and sick persons by and under the
supervision of a staff of Medical Practitioners
3. continuously provides 24 hours a day nursing service supervised by State
Registered Nurses or nurses with equivalent qualifications
4. is not other than incidentally
(a) a mental institution or
(b) a nursing or convalescent home or a place for the aged or
(c) a place for drug addicts or alcoholics
Medical Practitioner shall mean any legally qualified medical practitioner other
than 1
1. an Insured Person
2. a member of the immediate family of an Insured Person
3. an employee of the Insured
<PAGE>
CERTIFICATE OF INSURANCE - GROUP
SCHEDULE (TRAVEL)
Insured Person: Any Director or Employee of the Insured
Operative Time: Whilst on a Journey as defined
Journey: (a) This insurance is restricted to but shall apply
automatically
in respect of any journey undertaken on the
business of the Insured which commences during the
period of insurance involving travel outside Great
Britain, Northern Ireland,
the
Isle of Man or the Channel Islands
(b) within or between Great Britain, Northern Ireland,
the Isle of Man or the Channel Islands
Excluding to and form work
Cover applies from the time of leaving the Insured
Persons residence or place of business whichever is left
last at the commencement of the journey until arrival
back at the Insured Persons residence or place of
business whichever is reached first at the end of the
journey including while staying temporarily at any place
on route or in the destination area in the course of the
journey
Except by specific agreement with Insurers prior to commencement of the Journey
this insurance will not apply in respect of any Journey of more than 18 months'
duration except that if the Journey is not completed within 18 months' due to
delay or interruption of Public Transport Services or the hijacking of the
Insured Person's aircraft or other conveyance or the kidnapping of an insured
Person the period shall be extended automatically without additional premium for
such further period as may be reasonably necessary for completion of the
journey.
It is noted that the renewal premium of (pound)27,504.80 includes the
territories of Netherlands, Switzerland and Nordiska
It is also noted and agreed that the policy includes the additional territories
of France, Belgium, Germany, Portugal, Spain and Dubai
Compensation/Sums Insured/Indemnity Limit: (Applicable separately for each
Insured Person in respect of each Journey undertaken)
PERSONAL ACCIDENT
Benefits Compensation
1. (pound)25,000
2. (pound)25,000
3.(a) (pound)25,000
(b) (pound)25,000
(c) i. (pound)25,000
ii. (pound) 25% of the Compensation shown in (c) (i) above
4. (pound)25,000
5. (a) (pound)Nil ) per week for a maximum of
(b) (pound)Nil ) Nil weeks in all
1. Reimbursement up to 15% of the Compensation paid for any of Benefits 1-4
or 30% of the total weekly Compensation paid whichever is the greater in
respect of any one Insured Person subject to a maximum of (pound)10,000.
MEDICAL AND EMERGENCY TRAVEL EXPENSES Sum Insured (pound)Unlimited
(pound) Nil UK
PERSONAL BAGGAGE Sum Insured (pound)3,000
LOSS OF MONEY Sum Insured (pound)1,000
CANCELLATION CURTAILMENT AND CHANGE OF ITINERARY
(only included if Medical and Emergency
Travel Expenses Covered) Sum Insured (pound)2,000
TRAVEL DELAY
(only included if Medical and Emergency
Travel Expenses Covered) Sum Insured 1 Unit
PASSPORT INDEMNITY
(only included if Medical and Emergency
Travel Expenses Covered) Indemnity Limit (pound)500
PERSONAL LIABILITY
(only included if Personal Accident and/or
Medical and Emergency Travel Expenses
Covered) Indemnity Limit (pound)2,000,000
any one event
<PAGE>
LEGAL EXPENSES
(only included if Medical and Emergency
Travel Expenses Covered) Indemnity Limit(pound)25,000
0304.3(a) Standard P.A. Benefits
<PAGE>
Medical and Emergency Travel Expenses
Insurers will indemnify the Insured on behalf of the Insured Person concerned
(in original currency if so required and currency regulations permit)in respect
of all Medical Expenses and Emergency Travel Expenses necessarily incurred as
the direct result of an Insured Person falling ill or sustaining bodily injury
or dying during a Journey
The liability of Insurers in respect of illness or bodily injury or each Insured
Person shall be limited to the Sum Insured specified in the Schedule (Travel)
for Medical and Emergency Travel Expenses
Medical Expenses shall mean the cost of medical surgical or other remedial
attention treatment or appliances given or prescribed by a qualified member of
the medical profession and all hospital nursing home and ambulance charges
Dental and optical expenses are not payable unless incurred in an emergency
Emergency Travel Expenses shall mean the additional cost (less any saving by or
recovery available to the person concerned) of transport accommodation and
rescue incurred in respect of the Insured Person and
(a) of any relatives or friends who have necessarily to travel to or remain
with or escort the Insured Person and in the case of death the necessary
cost of funeral expenses and of transporting the body or ashes and the
deceased's personal property to the Insured Person's country of residence
and
(b) any one or more Insured Persons who decide to return to their country of
residence as a result of the
(i) death
(ii) illness or bodily injury necessitating return to the country of
residence
of any other Insured Person who is a member of the party with whom the
Insured Person is travelling
Exceptions
Insureds shall not be liable
1. in respect of Expenses consequent upon
(a) the Insured Person
(i) engaging in aviation otherwise than as a passenger (ii)
committing or attempting to commit suicide
(b) pregnancy of the Insured Person and rising within two months of the
estimated date of birth
(c) bodily injury or illness of any person aged 75 years or more at
inception of the Period of Insurance
2. in respect of Expenses
(a) for any Insured Person travelling against medical advice or for the
purpose of obtaining treatment
(b) incurred more than two years after the need for treatment arises
3. in respect of Expenses incurred in the United Kingdom or the country where
the Insured Person is normally resident other than those arising in
connection with a Journey involving travel from the United Kingdom or the
country where the Insured Person is normally resident and then only
(a) for an amount not exceed (pound)10,000 per Insured Person and
(b) incurred within 3 months of the Insured Persons return to the United
Kingdom or the country where the Insured Person is normally resident
4. for the first(pound)50 of each claim in respect of any Insured Person
under 12 months of age
5. in respect of Expenses consequent upon
(a) war whether declared or not between any of the following countries
namely France the United Kingdom the former constituent parts of the
Union of Soviet Socialist Republics and the United States of America
or the Peoples Republic of China
(b) war in Europe whether declared or not (other than civil war but
including any enforcement action by or on behalf of the United
Nations) in which any of those countries or any Armed Forces thereof
are engaged
unless the Expenses occur in the course of a Journey involving travel
outside the Insured Person's country of residence
Emergency Assistance
A 24 hour emergency aid service operated by International Assistance
Services Limited (IAS) is available so that an Insured Person may request
help in the event of an emergency overseas relating to medical problems
for which the cost is covered by the Medical and Emergency Travel Expenses
Section of this Certificate
International Assistance Services Limited telephone numbers etc., are
Telephone: 0181-763 3155
Telex: 8951673 IAS-G
Facsimile: 0181-763 3035
Their address is: 32, High Street
Purley
Surrey CR8 2PP
<PAGE>
Group
Personal Baggage
Insurers will indemnify the Insured on behalf of the Insured Person concerned in
respect of loss of or damage to any personal property taken on a Journey or
acquired while away by the Insured Person or when sent as Luggage in Advance up
to but not exceeding the sum Insured specified in the Schedule (Travel) for
Personal Baggage
The Sum Insured shall be maintained at its full amount and following any loss or
damage shall be automatically reinstated without charge to the Insured
In addition in the event of theft or transport or mis-direction due to any cause
outside the control of the Insured Person occurring during a Journey or whilst
sent as Luggage in Advance whereby the Insured Person is temporarily deprived of
the use of any article of clothing toilet requisite suitcase or other essential
container and it becomes necessary to replace such property by a similar article
for use during the Journey Insurers will reimburse any reasonable expense so
incurred not exceeding (pound)500 in respect of such Insured Person Any amount
so paid shall be deducted from any subsequent claim for such articles should
they be recovered damages or be permanently lost
In the event of the total loss of destruction of any article the basis of
settlement shall be the cost of replacing the article as new PROVIDED THAT the
article is substantially the same as but not better than the original article
when new
Exceptions
Insurers shall not be liable for
1. loss of or damage to coins bank and currency notes cheques postal
and money orders travellers' cheques travel tickets passports green
cards and petrol and other coupons which have monetary value bonds
negotiable instruments or securities of any kind
2. more than 25% of the Sum Insured for Personal Baggage or
(pound)1,250 whichever is the less for any one article pair or set
unless such article pair or set is notified to and a higher limit is
accepted by Insurers A pair or set of articles shall be deemed to be
a single article and in the event of a partial loss Insurers shall
not be liable for more than a reasonable proportion of the total
value of the pair or set
3. chipping or breakage of china or glass or other articles of a
fragile nature unless caused by fire or by an accident to the
vehicle vessel or aircraft in or on which such article was being
conveyed
4. damage to sports equipment while in use
5. loss or damage caused by
(a) wear and tear depreciation moth vermin atmospheric or climatic
conditions or any other gradually operating cause
(b) any process of cleaning dyeing repairing or restoring
(c) delay confiscation or detention by order of any Government
or Public Authority
6. mechanical or electrical breakdown
7. loss or damage directly occasioned by pressure waves caused by
aircraft and other aerial devices travelling at sonic and supersonic
speeds
8. loss destruction or damage occasioned by or happening through or in
consequence of war invasion act of foreign enemy hostilities
(whether war be declared or not) civil war rebellion revolution
insurrection or military or usurped power
9. loss destruction or damage to any property whatsoever or any loss or
expense whatsoever resulting or arising therefrom or any
consequential loss directly or indirectly caused by or contributed
to by or arising from
(a) ionising radiations or contamination by radioactivity from any
nuclear waste from the combustion of nuclear fuel
(a) the radioactive toxic explosive or other hazardous properties
of any explosive nuclear assembly or nuclear component thereof
<PAGE>
Group
Cancellation Curtailment and Change of Itinerary
Insurers will indemnify the Insured on behalf of the Insured Person concerned up
to the Sum Insured specified in the Schedule (Travel) for Cancellation
Curtailment and Change of Itinerary expenses arising after the inception date of
this insurance as follows
1. Cancellation
If before departure the Insured Journey is cancelled as a direct and
necessary result of any cause outside the control of the Insured or the
Insured Person Insurers will reimburse all deposits advance payments and
other charges for transport and accommodation
(a) which have been paid or will be payable and (b) which become forfeit
under contract and (c) which cannot be recovered elsewhere
2. Curtailment (including Replacement)
If after departure the Insured Journey is curtailed as a direct and
necessary result of any cause outside the control of the Insured or the
Insured Person Insurers will reimburse
(a) for all deposits advance payments and other charges for transport
and accommodation (i) which have been paid or will be payable and
will not be used and
(ii) which become forfeit under contract and (iii) which cannot be
recovered elsewhere
(b) the additional cost of travel and accommodation necessarily incurred
to return the Insured Person to their country of residence less any
saving available
(c) the additional cost of travel and accommodation necessarily incurred
as a direct result of a replacement for an Insured Person being sent
abroad to assume the duties of the Insured Person less any amount
recoverable elsewhere
3. Change of Itinerary
If after departure pre-booked arrangements in connection with the Insured
Journey are altered as a direct and necessary result of any cause outside
the control of the Insured or the Insured person Insurers will reimburse
the additional cost of travel and accommodation necessarily incurred to
enable the Insured Person to continue the Insured Journey less than saving
available
Exceptions
Insurers shall not be liable
1. if the Journey is cancelled curtailed or the itinerary is changed as a
result of
(a) disinclination to travel
(b) pregnancy if cancellation curtailment or change of itinerary occurs
within two months of the expected date of birth
(c) the financial circumstances of the Insured or unemployment or change
of employment of the Insured Person
(d) the default of any
(i) provider of transport or accommodation (ii) agent of such
provider (iii) agent acting for the Insured or the Insured Person
(e) regulations made by any Government or Public Authority
(f) strike labour dispute mechanical breakdown or failure of the means
of transport (other than disruption of road and rail services by
avalanche snow or flood) other than where the departure of an
aircraft or ship on which the Insured Person is booked to travel is
delayed by at least 24 hours unless the delay is due to a strike or
industrial action which existed or of which advance warning had been
given prior to the date on which the Journey was booked
2. for any claim
(a) involving a person who is travelling or intending to t ravel against
the advice of a Medical Practitioner or for the purpose of obtaining
treatment
(b) for an Insured Person aged less than one year at commencement of the
Journey
(c) for an Insured Person aged 75 years or more at inception of the
Period of Insurance
3. for loss destruction or damage to any property whatsoever or any loss or
expense whatsoever resulting or arising therefrom or any consequential
loss directly or indirectly caused by or contributed to by or arising from
(a) ionising radiations or contamination by radioactivity from any
nuclear fuel or from any nuclear waste from the combustion of
nuclear fuel
(b) the radioactive toxic explosive or other hazardous properties of any
explosive nuclear assembly or nuclear component thereof
Passport Indemnity
Insurers will indemnify the Insured on behalf of the Insured Person concerned up
to the Sum Insured specified in the Schedule (Travel) for Passport Indemnity in
respect of the necessary additional cost of travel and accommodation incurred to
enable the Insured Person to obtain a replacement passport if after departure
the Insured person's passport is lost stolen or destroyed
Exception
Insurers shall not be liable if the loss or destruction of the passport has not
been reported to the consular representative of the relevant issuing country
within 24 hours of discovery
Travel Delay
If the departure of the ship or aircraft or other conveyance on which the
Insured Person is booked to travel on an Insured Journey which includes travel
outside of the United Kingdom is delayed because of a strike industrial action
adverse weather or mechanical breakdown Insurers will compensate the Insured on
behalf of the Insured Person for the inconvenience caused Insurers liability
will not exceed the number of United of Benefit shown in the Schedule
One Unit of Benefit is
(a) (pound)20 if the Insured Person's departure is delayed for at least 12
hours
(b) a further(pound)10 for each additional full 12 hours
up to a maximum of (pound)60 in respect of any one Insured Person
The maximum number of Units is 5
Exceptions
Insurers shall not be liable if
1. the Insured Person fails to check in according to the itinerary supplied
unless such failure was itself due to strike or industrial action
2. the delay is due to a strike or industrial action which existed or of
which advance notice had been given on or before the date on which the
Journey was booked
3. the delay is due to the withdrawal from service temporarily or permanently
of any ship or aircraft on the orders or recommendation of any Port
Authority or the Civil Aviation Authority or any similar body in any
country
4. the Insured or the Insured Person decides to cancel the Journey and a
claim is paid under the Cancellation Curtailment and Change of Itinerary
Insurance Section of this Certificate
<PAGE>
Group
Personal Liability
Insurers will indemnify the Insured person up the Indemnity Limit specified in
the Schedule (Travel) in respect of legal liability for damages arising from
accidental
(a) Injury to any person
(b) loss or damage to material property
happening during a Journey
Insurers will also pay claimants costs and expenses for which the Insured Person
or the Insured Person's personal representatives are legally liable in
connection with the Event giving rise to the claim and all other costs and
expenses incurred with their written consent
Definitions
1. Event shall mean one occurrence or all occurrences of a series
consequent on or attributable to one source or original cause
2. Injury shall mean bodily injury death disease or illness
3. Insured person shall mean the Insured Person or the Insured Person's
personal representatives
Special Conditions
(a) Insurers must be given immediate written notice with full particulars of
any occurrence which may give rise to a claim Every letter writ summons
and process must be forwarded to Insurers as soon as possible Insurers
must be told immediately the Insured or the Insured Person are aware of
any prosecution inquest or inquiry in connection with any occurrence which
may give rise to a claim
(b) No admission offer promise payment or indemnity may be made by the Insured
or the Insured Person or on their behalf without Insurers written
agreement
(c) Insurers are entitled to take over the defence and settlement of any claim
or to prosecute any claim in the name of the Insured Person for their own
benefit Insurers have full discretion in the conduct of any proceedings
and the settlement of any claim
(d) Insurers may at any time pay the Insured Person the amount for which a
claim can be settled up to a limit of (pound)2,000,000 (less any damages
already paid) Insurers will then be under no further liability other than
for costs and expenses incurred prior to their making such a payment
Exceptions
Insurers shall not be liable
1. where legal liability arises out of
(a) the Insured Person's profession trade or business
(b) the ownership possession or use by or on behalf of the Insured
Person of any caravan mechanically propelled vehicle aircraft or
other aerial device hovercraft or water-borne craft (other than
hand-propelled or sailing craft in territorial waters)
2. for loss of or damage to any property which at the time of the Event
giving rise to such legal liability is owned by or held in trust by or in
the custody or control of the Insured Person This Exception does not apply
to loss or damage to premises and their fixtures and fittings leased or
rented to the Insured Person where such legal liability has not been
accepted by agreement
3. for liability occasioned by or happening through or in consequence of war
invasion act of foreign enemy hostilities (whether war be declared or not)
civil war rebellion revolution insurrection or military or usurped power
4. for liability of whatsoever nature directly or indirectly caused by or
contributed to by or arising from
(a) ionising radiations or contamination by radioactivity from any
nuclear fuel or from any nuclear waste from the combustion of
nuclear fuel
(b) the radioactive toxic explosive or other hazardous properties of any
explosive nuclear assembly or nuclear component thereof
<PAGE>
Group
Legal Expenses
Insurers will indemnify the Insured on behalf of the Insured Person concerned in
respect of Legal Expenses incurred by or on behalf of an Insured Person in
pursuit of a claim for damages and/or compensation against a third party who has
caused bodily injury to or death or illness of that Insured Person by an
incident occurring during an Insured Journey which involves travel outside Great
Britain, Northern Ireland the Isle of Man or the Channel Islands
The liability of Insurers in respect of Legal Expenses incurred in connection
with any one Insured Person Any One Claim shall be limited to the Indemnity
Limit specified in the Schedule
Definitions
1. Appointed Representative
A solicitor firm of solicitors or any appropriately qualified person firm
or company appointed to act for the Insured Person in accordance with the
terms of this Insurance
2. Any One Claim
All claims or legal proceedings including any appeal against judgement
consequent upon the same original cause event or circumstances shall be
regarded as one claim
3. Legal Expenses
(a) Any fees expenses and other disbursements reasonably incurred by the
Appointed Representative in connection with any claim or legal
proceedings including costs and expenses of expert witnesses as well
as those incurred by Insurers in connection with any such claim or
legal proceedings
(b) Any costs payable by the Insured Person following an award of costs
by any court or tribunal and any costs payable following an out of
court settlement made in connection with any claim or legal
proceedings
(c) Any fees expenses and other disbursements reasonably incurred by the
Appointed Representative in appealing or resisting an appeal against
the judgement of a court tribunal or arbitrator
Special Claims Settlement Conditions
1. Insurers consent to pay Legal Expenses must firstly be obtained in
writing. This consent will be given if the Insured Person can satisfy
Insurers that
(a) there are reasonable grounds for pursuing or defending the legal
proceedings and
(b) it is reasonable for Legal Expenses to be provided in a particular
case
The decision to grant consent will take into account the opinion of the
Insured Person's Appointed Representative as well as that of Insurers own
advisers Insurers may require at the Insured Person's expense an opinion
of counsel on the merits of the claim or legal proceedings If the claim is
subsequently admitted the Insured Person's costs in obtaining such an
opinion will be covered by this insurance
2. In the event of any dispute, other than in respect of the admissibility of
a claim upon which Insurers decision is final such dispute shall be
referred to single arbitrator who shall be either a solicitor or barrister
agreed upon by the parties or failing agreement one who is nominated by
the President for the time being of the appropriate Law Society
Exceptions
Insurers shall not be liable for
1. any Legal Expenses incurred in the defence against any civil claim or
legal proceedings made or brought against the Insured Person
2. any fines or other penalties imposed by a court of criminal jurisdiction
3. any Legal Expenses incurred in connection with any criminal act
deliberately or intentionally committed by the Insured Person
4. any Legal Expenses incurred in the pursuance of any claim against a Travel
Agent Tour Operator Insurer or their agents which are eligible for
consideration under an Arbitration Scheme or Complaints Procedure
5. any claim or circumstance notified more than two years after the incident
from which the cause of action arose
<PAGE>
COMPUTATION OF EARNINGS PER SHARE Exhibit 11.1
(in thousands, except per share data)
1998 1997 1996
---- ---- ----
Average shares issued
(proforma for 1997 and 1996) 104,807 95,000 88,000
Effect of dilutive options and restricted
stock 390 24 -
Treasury stock (11) - -
------- ------- -------
Total 105,186 95,024 88,000
======= ======= =======
Income before income taxes as reported $ 325,481 $ 205,613 $ 167,098
Income taxes (proforma for 1997 and 1996) 129,867 82,245 66,839
------- ------- -------
Net income to common stockholders 195,614 123,368 100,259
======= ======= =======
Earnings per common share:
Basic earnings per share
(proforma for 1997 and 1996) 1.87 1.30 1.14
======= ======= =======
Diluted earnings per share
(proforma for 1997 and 1996) 1.86 1.30 1.14
======= ======= =======
<PAGE>
<TABLE>
Exhibit 21.1
GALILEO INTERNATIONAL, INC.
Schedule of Subsidiaries
<S> <C> <C>
Place of Organization/
Name and Business Address of Subsidiary Ownership Incorporation
- --------------------------------------- --------- -------------
Apollo Galileo Mexico S.A. de C.V. 99% Apollo Galileo USA Partnership Mexico
Sudermann #321 1% Habinus Trading Corporation
Colonia Chapultepec Morales
11570 Mexico D.F. MEXICO
Apollo Galileo USA Partnership 99% Apollo Galileo USA Sub I, Inc. Delaware,
9700 W. Higgins Road, Ste. 400 1% Apollo Galileo USA Sub II, Inc. United States
Rosemont, Illinois 60018 USA
Apollo Galileo USA Sub I, Inc. 100% Galileo International, L.L.C. Delaware,
9700 W. Higgins Road, Ste. 400 United States
Rosemont, Illinois 60018 USA
Apollo Galileo USA Sub II, Inc. 100% Galileo International, L.L.C. Delaware,
9700 W. Higgins Road, Ste. 400 United States
Rosemont, Illinois 60018 USA
Covia Canada Partnership Corp. 100% Galileo International, L.L.C. Canada
C/o Fasken Campbell Godfrey
Toronto Dominion Bank Tower,
Box 20, Ste. 4200
Toronto-Dominion Center
Toronto, Ontario M5K 1N6 CANADA
Galileo Asia Limited 100% Galileo International, L.L.C. Delaware,
9700 W. Higgins Road, Ste. 400 United States
Rosemont, Illinois 60018 USA
Galileo Belgium S.A. 99% The Galileo Company Belgium
Boulevard du Regent Iaan 54, Fifth Floor 1% Galileo France SARL
1000 Brussels, BELGIUM
Galileo Brasil Limited 100% Galileo International, L.L.C. Delaware,
9700 W. Higgins Road, Ste. 400 United States
Rosemont, Illinois 60018 USA
<PAGE>
Galileo Canada Holding Inc. 100% Galileo International, Inc. Canada
C/o Fasken Campbell Godfrey
Toronto Dominion Bank Tower,
Box 20, Ste. 4200
Toronto-Dominion Center
Toronto, Ontario M5K 1N6 CANADA
Galileo Canada Two Inc. 100% Galileo Canada Holding Inc. Canada
C/o Fasken Campbell Godfrey
Toronto Dominion Bank Tower,
Box 20, Ste. 4200
Toronto-Dominion Center
Toronto, Ontario M5K 1N6 CANADA
Galileo Canada Distribution Systems Inc. 100% Galileo Canada Holding Inc. Canada
3330 Front Street W. 7th
Toronto, Ontario M5V 3B7 CANADA
Galileo Canada ULC 100% Galileo International, Inc. Nova Scotia,
1959 Upper Water Street Canada
P.O. Box 997
Halifax, Nova Scotia B3J 2X2 CANADA
Galileo Deutschland GmbH 100% The Galileo Company Germany
Dusseldorfer Strasse 4-8
60329 Frankfurt
GERMANY
Galileo do Brasil & Cia 99% Galileo Latin America, L.L.C. Brazil
Avenida Paulista, 475-8(degree) 1% Galileo Brasil Limited
Andar
Edificia Kyoei, CEP 01311-908
Sao Paulo - SP
BRAZIL
Galileo Espana, S.A. 100% The Galileo Company Spain
Edificio La Piovera Azul
Calle Peonias 2
28042 Madrid
SPAIN
Galileo France SARL 100% The Galileo Company France
7-13 Boulevard de Courbevoie
92521 Neuilly-sur-Seine CEDEX
FRANCE
<PAGE>
Galileo International B.V. 100% Galileo International, Inc. The Netherlands
World Trade Centre, Amsterdam Airport
Schiphol Boulevard 249, 1118 BH Luchthaven
Schiphol, THE NETHERLANDS
Galileo International, L.L.C. 100% Galileo International, Inc. Delaware,
9700 W. Higgins Road, Ste. 400 United States
Rosemont, Illinois 60018 USA
Galileo International Limited 100% The Galileo Company United Kingdom
Galileo Centre Europe
Windmill Hill
Swindon
Wiltshire SN5 6PH
UNITED KINGDOM
Galileo International Services, Inc. 100% Apollo Galileo USA Partnership Delaware,
9700 W. Higgins Road, Ste. 400
United States
Rosemont, Illinois 60018 USA
Galileo Latin America, L.L.C. 99% Galileo International, L.L.C. Delaware,
9700 W. Higgins Road, Ste. 400 1% Galileo Brasil Limited United States
Rosemont, Illinois 60018 USA
Galileo Nederland B.V. 100% Galileo International, Inc. The Netherlands
Netpunusstraat 35
2132 JA Hoofddorp / Beukenhorst
THE NETHERLANDS
Galileo Nordiska AB 100% Galileo International, Inc. Sweden
S-117 85 Stockholm
SWEDEN
Galileo Portugal Limited 100% The Galileo Company United Kingdom
Edif. Amadeu Souza Cardosa
Alameda Antonio Sergio 22 - 3(degree) A
2795 LINDA-A-VELHA
PORTUGAL
Galileo Switzerland AG 100% Galileo International, Inc. Switzerland
Schaffhauserstr. 144
Panalpina Building
CH-8058 Kloten
SWITZERLAND
<PAGE>
Galileo Technologies, Inc. 100% Galileo International, L.L.C. Delaware,
9700 W. Higgins Road, Ste. 400 United States
Rosemont, Illinois 60018 USA
Galileo Venezuela, C.A. 99% Galileo International, Inc. Venezuela
Av. Francisco de Miranda 1% Galileo International, L.L.C.
Torre Provincial, Torre A
Piso 7, Oficinia 71, Chacao
Caraca 1060
VENEZUELA
Magellen Technologies, Inc. 100% Galileo International, Inc. Delaware,
9700 W. Higgins Road, Ste. 400 United States
Rosemont, Illinois 60018 USA
The Galileo Company 99% Galileo International, L.L.C. United Kingdom
Galileo Centre Europe 1% Non-GI Entities
Windmill Hill
Swindon
Wiltshire SN5 6PH
UNITED KINGDOM
S.D. Shepherd Systems, Inc. 100% Galileo International, Inc. Delaware,
1401 Manatee Ave., W., Ste. 1000 United States
Bradenton, FL 34205
</TABLE>
<PAGE>
Exhibit 23.1
Consent of KPMG LLP
The Board of Directors
Galileo International, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-71507 and No. 333-55767) on Form S-8 of Galileo International Inc. of our
report dated February 1, 1999, relating to the consolidated balance sheets of
Galileo International, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1998, which report appears in the December 31, 1998 annual report on Form 10-K
of Galileo International, Inc.
KPMG LLP
Chicago, Illinois
March 18, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted form the
Annual report on Form 10-K for the year ended December 31, 1998 and is
qualified in its entirety by reference to such financial staements.
</LEGEND>
<CIK> 0001039300
<NAME> Galileo International, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 9,828
<SECURITIES> 0
<RECEIVABLES> 191,605
<ALLOWANCES> 13,747
<INVENTORY> 0
<CURRENT-ASSETS> 243,527
<PP&E> 475,979
<DEPRECIATION> 281,010
<TOTAL-ASSETS> 1,291,080
<CURRENT-LIABILITIES> 231,826
<BONDS> 92,272
0
0
<COMMON> 1,049
<OTHER-SE> 841,578
<TOTAL-LIABILITY-AND-EQUITY> 1,291,080
<SALES> 0
<TOTAL-REVENUES> 1,480,818
<CGS> 0
<TOTAL-COSTS> 1,149,240
<OTHER-EXPENSES> 6,097
<LOSS-PROVISION> (3,862)
<INTEREST-EXPENSE> 11,876
<INCOME-PRETAX> 325,481
<INCOME-TAX> 129,867
<INCOME-CONTINUING> 195,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195,614
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.86
</TABLE>
