UNITED STATES
SECURITIES 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, 1999
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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
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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 information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
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The aggregate market value of the voting and non voting stock held by
non-affiliates of the registrant as of March 6, 2000 was approximately
$1,299,000,000. At March 6, 2000, there were 89,238,536 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 on May 18,
2000.
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GALILEO INTERNATIONAL, INC.
YEAR ENDED DECEMBER 31, 1999
INDEX
PAGE
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PART I
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 11
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 25
RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 54
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 54
ITEM 11. EXECUTIVE COMPENSATION 54
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 54
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS 54
ON FORM 8-K
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PART I
ITEM 1. BUSINESS
Galileo International, Inc. (herein referred to as the "Company", "we",
"us" and "our"), incorporated in the state of Delaware on May 13, 1997, is one
of the world's leading providers of electronic global distribution services
("GDS") for the travel industry utilizing a computerized reservation system
("CRS"). We provide travel agencies at approximately 41,000 locations, as well
as corporations and consumers who use our self-booking products, with the
ability to access schedule and fare information, book reservations and issue
tickets for more than 500 airlines. We also provide subscribers with information
and booking capability covering approximately 40 car rental companies and more
than 200 hotel companies with approximately 45,000 properties throughout the
world. Our CRS powers several Internet travel sites and enables consumers to
make travel reservations using these Internet sites. In late 1999 we announced
our intention to create our own Internet site which will allow consumers to make
travel reservations directly through our own proprietary site. (1) We completed
approximately 350 million bookings in 1999, representing over $60 billion in
travel services. Our travel agency subscribers use approximately 170,000
computer terminals, all of which are linked to our Data Centre, one of the
world's largest commercial data processing complexes, with a system uptime
performance record of better than 99.9%.
With a market presence in 107 countries and over 58% of our distribution
revenues generated in markets outside the United States, we are a globally
diversified provider of electronic global distribution services. We believe that
we have attained significant market share in the most important markets for
travel services, including the United States and Canada and markets in Europe,
Asia/Pacific, the Middle East, Africa and Latin America. We distribute our
products in these markets through a combination of our own local sales and
marketing offices and a network of national distribution companies ("NDCs"). The
NDC network is a distribution structure that enables us to efficiently and
effectively market our products to the subscriber community. It is this network
of distributors that provides us a local presence in markets throughout the
world and enhances our global reach. We believe that our extensive global
business experience provides a firm base for continued expansion in new and
existing markets. We are particularly interested in strengthening our presence
in developing and emerging markets that provide excellent future growth
opportunities, such as Eastern Europe, Africa, the Middle East and Asia.
In addition to our core electronic global distribution services business,
we offer information services that draw upon our in-depth knowledge of the
travel industry and our expertise in developing and operating complex,
mission-critical transaction processing systems. We operate the internal
reservation system used by United Air Lines, Inc. ("United Airlines") and
operate GlobalFares(TM), a fares quotation system used by over 100 airlines
worldwide.
Strategy
We intend to reinforce our position as a leading provider of electronic
global distribution services and to continue to capitalize on our competitive
advantages, the key elements of which are: (i) a diversified 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, (v) Internet-based initiatives with unique appeal to travel consumers,
agencies and suppliers, and (vi) investments in companies that support our
technology initiatives and complement the core computerized reservation systems
product and service offerings.
We operate globally and believe that in-depth knowledge of the local
travel markets in which we distribute our products is essential to developing
and strengthening our ties to travel vendors and the local travel agencies that
generate significant booking volumes. We will therefore continue to attempt to
expand our influence in local markets by building alliances with influential
associates, such as CRS Korea Ltd. in South Korea and Renaissance Aviation
Services Limited in Bangladesh, that understand the local travel
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(1) See Statement Regarding Forward-Looking Statements on page 22.
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market and are positioned to design and implement successful sales and marketing
programs. In addition, we will continue to seek opportunities to vertically
integrate our operations through the acquisition of NDCs in mature markets. (1)
Factors that we consider when pursuing NDC acquisitions include the opportunity
for attractive economic returns and enhanced customer service.
We strive to provide valued customer service in order to strengthen
relationships with our established base of travel vendors and subscribers and to
attract new travel vendors and subscribers to our core electronic global
distribution services business. Our subscriber sales and service organization is
charged with ensuring that our products are backed by quality service offerings
valued by our customers. As a part of its work, this team is setting new
customer service standards and developing processes to ensure that service
around the world is delivered consistently.
We also intend to continue to accelerate the development and deployment of
our products in the marketplace. (1) To this end, we have consolidated our
development functions in Denver as a part of the realignment of our United
Kingdom operations announced in early 1999. This consolidation was completed in
1999 and will enhance productivity and accelerate our ability to bring new
products to market. Also as part of the Swindon realignment, we have relocated
our regional sales and marketing organization to a location nearer to London's
Heathrow Airport which allows for more convenient training of our travel agency
and travel vendor customers as well as easier access to international travel for
our sales staff.
We announced several new products and services in 1999 that enable our
travel agency customers to be more competitive in the marketplace by reducing
their costs, increasing sales, building customer loyalty and improving
efficiency. The new solutions include Decision Support Tools (SM), PrivateFares
II(TM), a low fare shopping tool- available exclusively in Viewpoint(TM), and
our Automated Service Fee solution. The Decision Support Tools allow travel
agencies to offer more comprehensive and timely information to manage their
corporate customers. PrivateFares II significantly reduces the agency effort
associated with maintenance of negotiated fares, while the low fare shopping
tool enables travel agents to request the lowest fare for an itinerary without
requiring a booking to be made first. The Automated Service Fee is an easy to
use fill-in format screen that automatically calculates net commissions to the
agency.
In response to the increasing importance of airline alliances and frequent
flyer groups, we introduced the Galileo Preferred AvailabilitySM solution. This
display option provides travel agencies with detailed information for all member
carriers on a single screen, leading to improved service, greater choice and
simplified travel arrangements for customers wishing to travel with alliance and
frequent flyer groups. Galileo Preferred Availability is currently available for
the Star Alliance, oneworld alliance and the KLM/AZ joint venture.
We refine our 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. We utilize an
architecture with open standard interfaces and protocols to ensure the efficient
distribution of information among users. In 1999, we added several new features
to our Viewpoint product, a point-and-click graphical user interface booking
system for air, hotel and car rental, that was introduced to the market place in
1998. Some of the new features include a low-fare shopping tool, a calendar
shopping tool and access to Internet-published fares through TRIP.com. Viewpoint
is currently used by approximately 16,000 travel agency locations worldwide, and
we are adding about 1,000 new Viewpoint users each month. We also released a new
version of Travelpoint.com(TM) in 1999, which is a product that enables travel
agents to cost-effectively establish a branded Internet presence with all
reservations routed through their agency. Finally, we continued to deploy
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.
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(1) See Statement Regarding Forward-Looking Statements on page 22.
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In order to gain advantage from the increasing involvement of corporate
travel managers and individual consumers in directly accessing the information
and services provided by CRSs, in 1999 we established sales organizations
clearly focused on both of these markets.
In response to the growing needs of the corporate market, we initiated
dedicated sales coverage to over 600 U.S. based corporate accounts. This sales
force works in concert with our subscriber sales organization to cohesively
address the evolving technological needs and relationships between corporate
accounts and travel agencies. Additionally, we expanded sales efforts and
product development to become the leading CRS in providing on-line, real-time
management reporting data through our new Compliance Data ReportingSM product,
which is part of our Decision Support Tools suite. Continued insight to the
needs of this market segment was fostered by the establishment of our corporate
advisory board. Travel managers from top Fortune 500 companies are represented
and actively participating in this effort. During the fourth quarter of 1999, we
began alpha testing and internal deployment of wireless application protocol
devices such as cell phones and two-way pagers. A joint promotional announcement
was made with Motorola to test the reservation change functionality on the
Motorola PageWriter 2000 with a select group of corporate customers beginning in
2000. Further promotional activities are planned in 2000 with other wireless
device manufacturers and service providers to secure an early mover advantage
with additional development of interactive travel applications. (1)
Specific to the consumer Internet market, we moved proactively to capture a
number of e-commerce customers who needed to incorporate interactive travel
reservation functionality into their web sites. Our proprietary Galileo
Passport(TM) product was purchased by several business to business customers,
including Centerseat.com, Viajo.com, SnowNet.com and OutTask.com. A dedicated
sales effort was established with primary emphasis on establishing other
e-commerce business to business opportunities. This new sales initiative
represents incremental deployment of our Galileo Passport product, which is also
currently sold to airline, hotel and car rental vendors.
Throughout 1999, we made investments in several technology companies that
complement our core product offerings, support our technology infrastructure, or
facilitate our applications development. These investments include equity
interests in Uniglobe.com, Inc., a provider of travel reservation and
information systems; Stamps.com, a provider of Internet Postage(TM) and shipping
services; and QuixData Systems, Inc., a developer of data warehouses and data
mining tools for the travel industry. We expect to continue this strategy of
investing in technology companies that help us increase the value delivered to
our customers. (1)
In 1999, we also acquired an equity interest in TRIP.com, a leading on-line
travel service and technology provider. In February 2000, we entered into a
merger agreement to purchase the remaining ownership interest in TRIP.com. (1)
We plan to combine our existing Internet assets into TRIP.com, thereby
consolidating all Internet activities into one powerful, focused entity. (1)
In early 2000, we previewed our innovative Web site, Galileo.com, where
consumers will be able to quickly and easily shop for and book travel. (1)
Galileo.com will also offer distinct inventory from participating airlines,
hotel and car rental companies as well as travel agencies, creating a
comprehensive marketplace for travel goods and services. Currently in market
testing, the Galileo.com site is expected to launch during the second quarter of
2000. (1)
In addition to our proprietary Internet site, we continue to be the booking
engine that powers several on-line travel sites including UAL.com, GetThere.com,
TRIP.com, Uniglobe.com, and Viajo.com.
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(1) See Statement Regarding Forward-Looking Statements on page 22.
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Electronic Global Distribution Services - Markets
As of December 31, 1999, we provided electronic global distribution
services for the travel industry in 107 countries via a network of on-line
terminals operated at approximately 40,800 travel agency locations worldwide.
Our geographic breadth 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, 1999 December 31, 1999
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Region Number % Number %
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United States 11,800 28.9% 56,900 33.5%
Europe 13,400 32.9% 61,900 36.5%
Asia/Pacific 6,600 16.2% 24,400 14.4%
Canada 3,200 7.8% 10,500 6.2%
Middle East/Africa 3,800 9.3% 11,400 6.7%
Latin America 2,000 4.9% 4,600 2.7%
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40,800 100.0% 169,700 100.0%
==================== ====================
Electronic Global Distribution Services - Customer Base: Travel Vendors and
Subscribers
We derive substantially all of our electronic global distribution services
revenues from booking fees paid by travel vendors. Travel vendors store,
display, manage and sell their services through our systems. Airlines and other
travel vendors are offered varying levels of functionality at which they can
participate in our systems, Apollo in North America and Japan and Galileo in the
rest of the world. In 1999, approximately 92% of our 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 North America and
Japan, we charge airlines a fee per transaction and, thereby, earn a separate
fee for each booking and for each cancellation. In the rest of the world, we
charge airlines a booking fee per "net booking". In that case, we earn a fee for
net bookings (gross bookings less cancellations). Globally, car, hotel and
leisure travel vendors are generally charged a fee per net booking. We charge
premiums for higher levels of functionality selected by the travel vendors.
Nearly 100% of our booking fees are billed in U.S. dollars, which limits our
market risk exposure to fluctuations in other currencies against the U.S.
dollar.
We also offer products to travel agencies and other subscribers that
enable them to electronically locate, price, compare and purchase travel
vendors' services through our systems. By accessing the electronic marketplace
created by our systems, the subscriber is able to obtain schedule, availability
and pricing information, and purchase travel services from multiple travel
vendors for complex travel itineraries. Our 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 our core product and service offering.
Travel agencies access our systems using hardware and software typically
provided by us or an NDC, although travel agencies can choose to purchase their
own hardware and certain software. We and the NDCs also provide technical
support and other assistance to the travel agencies. Through the NDCs and our
internal sales and marketing organization, we have developed relationships with
travel agencies of all
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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 our five
largest travel agency customers constituted 20% of the bookings made through our
systems in 1999.
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. We have therefore developed products such as
Galileo Passport and Travelpoint.com that provide travel vendors, agencies and
other third parties with the ability to distribute their products directly to
consumers.
Electronic Global Distribution Services - Product Distribution
We distribute our products to subscribers primarily through our internal
sales and marketing organization and our NDCs. At the end of 1998, we terminated
our sales relationship with United Airlines and US Airways Inc. ("US Airways"),
who supplied the sales force for our Apollo brand reservations products to
subscribers in the United States and Mexico. In an effort to increase focus on
our product and service offerings, we assembled our own dedicated sales force in
1999 and have experienced some loss of market share during the transition
period. We now have a fully staffed and trained sales force which we believe
will be effective in increasing our U.S. booking volumes by the middle of 2000.
(1)
In markets not supported directly by our sales and marketing organization,
we prefer to use the NDC structure, where feasible, in order to take advantage
of the NDC's local market knowledge, as well as our 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.
Our local sales and marketing groups distribute our 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. Bookings made in these countries collectively
accounted for approximately 60% of our 1999 bookings.
NDCs, typically owned or operated by the national airline of the relevant
country or a local travel-related business, accounted for approximately 40% of
our booking volume in 1999.
We and our NDCs distribute direct access products such as Corporate
Travelpoint(TM) and Travelpoint.com to travel agencies for use by their
corporate and individual customers. We and our NDCs also distribute our products
to certain Internet-based travel service providers. The Internet sites of those
travel service providers allow individual consumers direct access to our systems
and provide us with an additional means of generating booking fees.
Information Services
As a result of developing and operating one of the world's largest GDSs, we
have 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 we have been able to provide a range of
specialized information technology solutions to airlines throughout the world.
We currently provide fares quotation services, internal reservation services,
other internal management services and software development services to such
airlines.
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(1) See Statement Regarding Forward-Looking Statements on page 22.
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We currently provide fares quotation services through our 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 we plan
to continue to market GlobalFares to other airlines.
We also provide internal reservation services to United Airlines and in
late 1999 amended our agreement to provide these services to United Airlines for
another five-year term. 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,
we provide certain other internal management services to United Airlines
including network management, departure control, availability displays,
inventory management, database management and software development.
Technology
We have made significant investments in technology and related equipment.
We believe that we will benefit from operating economies of scale, as our
technology is easily expandable and can support incremental volume with minimal
additional investment. (1)
Our computer systems provide real-time, high-volume transaction processing
and are supported by 21 mainframes with a combined processing capacity of 5,774
MIPS (millions of instructions per second). Additional peripheral hardware
provides approximately 22.6 terabytes of disk information storage. Our computer
systems are operational 24 hours a day, every day of the year. They process, on
average, over 255 million requests for information per day. At peak times, we
process more than 7,700 messages per second.
Our global communications network provides a fast, resilient and reliable
method for travel agencies and travel vendors to access our systems. Our sites
in Canada, Switzerland, The Netherlands and the United Kingdom use a meshed
backbone network to provide direct connections to our Data Centre in Denver.
This backbone network provides automatic rerouting in the event of a circuit
failure. In addition to the meshed backbone network, we make extensive use of
independent international network service providers to increase our reach into
the global market.
Our data and transaction processing services are dependent on our Data
Centre. We maintain comprehensive security and backup systems in order to
deliver consistent, reliable service to customers. Although we believe we have
taken sufficient precautions to protect this facility and to achieve network
security, a natural or manmade disaster, third party instrusions or other
calamity that causes significant damage to, or failure of, the facility or our
systems would have a material adverse effect on our business, financial
condition and results of operations.
Competition - Electronic Global Distribution Services
We primarily compete against other well-established CRSs to provide
electronic global distribution services to the travel industry. Our principal
competitors include Sabre, Worldspan and Amadeus. To a lesser extent, we also
compete on a regional basis against Abacus, Axess, Infini and Topas. Many of
these competitors offer products which are similar to our products.
Competition to attract and retain travel agency subscribers is intense. The
failure to renew travel agency contracts or obtain new subscribers could
negatively impact our business. In highly competitive markets, we and other CRSs
offer incentives to travel agency subscribers if certain productivity or booking
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(1) See Statement Regarding Forward-Looking Statements on page 22.
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volume growth targets are achieved. The use of these incentives increased
significantly in 1999. Although continued expansion of the use of such incentive
payments could adversely affect our profitability, our failure to continue to
make such incentive payments could result in the loss of some travel agency
subscribers. If we were to lose a significant portion of our current base of
travel agencies to a competing CRS or if we were forced to further increase the
amounts of such incentive payments significantly, our business, financial
condition and results of operations could be materially adversely affected. (1)
We also distribute travel on the Internet through several on-line sites.
The on-line travel services market is rapidly evolving and intensely
competitive. Competition is based upon service, merchandising, reliability,
amount and accessibility of information and breadth of products and services
offered. Competitors in this market include Expedia.com (majority-owned by
Microsoft) and Travelocity.com (operated by Sabre).
Competition - Information Services
Competition within the information services market is segmented by the type
of service offering. Internal reservation services competitors include Sabre,
EDS and Worldspan. Competitors for data center and network outsourcing include
IBM, EDS, and niche suppliers such as Sabre, Speedwing and Worldspan.
Relationship With Airline Stockholders
As of December 31, 1999, airline stockholders owned, in the aggregate,
approximately 27% of our outstanding Common Stock. The airline stockholder
controlled by United Airlines is our largest stockholder, owning approximately
18% of the outstanding Common Stock. No other airline stockholder owns more than
10% of our outstanding Common Stock. In addition, Special Voting Preferred Stock
allows certain airline stockholders to elect a total of three members of our
Board of Directors. The airline stockholders controlled by United Airlines and
SAirGroup own two shares and one share of Special Voting Preferred Stock,
respectively. Each share entitles its holder (or in certain circumstances, the
holder's transferee) to elect one director. As to the remaining directors, the
airline stockholders have agreed, pursuant to an agreement with us (the
"Stockholders' Agreement"), to vote their shares of Common Stock in favor of the
election of independent directors who will be nominated by the Board of
Directors and the election of three management 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 our Apollo brand reservations products to subscribers in the United
States and Mexico, were terminated. In an effort to increase focus on our
product and service offerings, we assembled our own dedicated sales force in
1999. In 1997, we entered into non-competition agreements with each of the
airline stockholders that prohibit the airline stockholders and their affiliates
from competing with us 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 our systems,
generating revenues that accounted for approximately 13.4% of total revenues in
1999. No other travel vendor accounted for 10% or more of our revenue in 1999.
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(1) See Statement Regarding Forward-Looking Statements on page 22.
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Industry Regulation
Our 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 us because of the volume of business
transacted by us 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 that 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 Rules prescribe a specific formula that 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 the 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. In our historical role as
provider of two distinct systems, Apollo in North America and Japan, and Galileo
in the rest of the world, we have developed familiarity with the requirements
and approval procedures of each regulatory jurisdiction, and are 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
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development costs, excluding amortization of computer software, are expensed as
incurred and were approximately $6.2 million, $4.8 million and $8.6 million for
the years ended December 31, 1999, 1998 and 1997, respectively. In addition, we
invest in companies that offer innovative technical solutions to meet our
business needs.
Employees
We believe that our success is due in large part to our employees. We
strive to hire and retain highly skilled and motivated personnel. As of December
31, 1999, we employed approximately 2,600 people. Approximately 83% of our
employees are located in the United States and Canada, 12% in Europe and 5% in
Latin America and countries throughout the Asia/Pacific region. Our employees in
Brazil, representing about 1% of our workforce, are unionized in accordance with
local regulations. We believe that our relationship with our employees is good.
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 56 Chairman, President,Chief Executive Officer
Paul H. Bristow 57 Executive Vice President, Chief Financial
Officer and Treasurer
Lyn Bulman 40 Senior Vice President, Human Resources and
Corporate Relations
Michael G. Foliot 45 Senior Vice President, Global Vendor Marketing
Babetta R. Gray 41 Executive Vice President, Subscriber Sales and
Service
James E. Lubinski 44 Executive Vice President, Operations
David A. Near 41 Senior Vice President, Internet and E-Commerce
Anthony C. Swanagan 40 Senior Vice President, General Counsel and
Secretary
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 at 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 Executive Vice President and Chief Financial Officer
since August 1999, 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. Bristow resigned as
Executive Officer and Director of the Company effective March 15, 2000.
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,
9
<PAGE>
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 Executive Vice President, Subscriber Sales and Service
since August 1999. In this position, Ms. Gray is responsible for subscriber
sales and service on a global basis. Prior to that Ms. Gray was Senior Vice
President, Customer Service Delivery and General Counsel since July 1998 and
Secretary since May 1997, 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.
Mr. Lubinski has been Executive Vice President, Operations since August
1999 and prior to that he was 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, Internet and E-Commerce since
August 1999. In this position, Mr. Near is responsible for setting e-commerce
strategies and coordinating their implementation across the organization. Prior
to assuming these responsibilities, Mr. Near served as Senior Vice President,
Subscriber Marketing, 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.
Mr. Swanagan has been Senior Vice President, General Counsel and Secretary
since August 1999. Prior to that he was Vice President, Legal since July 1998
and joined the Company as Counsel in 1991. Before joining the Company, Mr.
Swanagan was associated with the Chicago law firm of Jones, Ware & Grenard. Mr.
Swanagan is also a Director of the Company.
ITEM 2. PROPERTIES
Our 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 2010. Our Data Centre is
located in Englewood, Colorado, a suburb of Denver, in two adjacent buildings
owned by the Company. The Data Centre contains approximately 238,000 square feet
of space, including approximately 110,000 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. 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)
- --------
(1) See Statement Regarding Forward-Looking Statements on page 22.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None.
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
Our 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
our Common Stock on the New York Stock Exchange and the dividends declared.
Market Price
------------ Dividends
Quarter High Low Declared
------- ---- --- ---------
1999
Fourth $ 38 15/16 $ 25 3/4 $ 0.090
Third 58 3/8 36 1/2 0.090
Second 59 45 0.090
First 51 9/16 41 5/8 0.075
---------
Total $ 0.345
=========
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
=========
On March 6 , 2000, our Common Stock was held by approximately 270 holders
of record.
Dividend Policy
Although we expect to reinvest a substantial portion of our earnings in our
business, we currently intend to continue to pay regular quarterly cash
dividends. (1) Under our debt agreements, cash dividends, in aggregate, cannot
exceed an amount equal to 50% of our consolidated net income for any given year.
The declaration and payment of dividends, as well as the amount thereof,
are subject to the discretion of the Board of Directors and will depend upon our
results of operations, financial condition, cash requirements, future prospects
and other factors deemed relevant by the Board of Directors. (1) There can be no
assurance that the Company will declare and pay any future dividends.
- --------
(1) See Statement Regarding Forward-Looking Statements on page 22.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Year Ended December 31,
1999 (1) 1998 (2) 1997 (3) 1996 1995
-------- -------- -------- ---- ----
(In millions, except share data)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Revenues $ 1,526.1 $ 1,480.8 $ 1,256.1 $ 1,088.3 $ 966.4
Operating income 312.9 331.6 211.5 175.4 140.3
Income before income taxes 361.3 325.5 205.6 167.1 123.7
Income taxes 143.1 129.9 44.0 1.9 2.6
Net income 218.2 195.6 161.6 165.2 121.1
Pro forma net income (4) - - 123.4 100.3 74.2
Basic earnings per common share 2.22 1.87 - - -
Pro forma basic earnings per common share (4) - - 1.30 1.14 0.84
Diluted earnings per common share 2.21 1.86 - - -
Pro forma diluted earnings per common share (4) - - 1.30 1.14 0.84
Dividends per common share 0.345 0.285 0.06 - -
Balance Sheet Data:
Current assets $ 230.5 $ 243.5 $ 224.3 $ 240.8 $ 187.3
Total assets 1,255.2 1,291.1 1,268.5 599.9 569.0
Current liabilities 319.2 231.8 201.4 199.6 227.6
Long-term debt 434.4 69.5 250.0 70.0 134.2
Other long-term obligations 108.0 147.1 133.4 74.9 77.6
Partners' capital - - - 255.4 129.6
Stockholders' equity 393.6 842.6 683.7 - -
Other Data:
Operating income as a
percentage of revenue 20.5% 22.4% 16.8% 16.1% 14.5%
Reservations booked using the
Company's CRS systems (5) 351.6 345.7 336.1 316.1 285.4
Net cash provided by operating activities $ 281.2 $ 379.1 $ 324.7 $ 214.1 $ 172.6
Capital expenditures (6) 92.5 98.7 65.9 40.0 64.5
</TABLE>
(1)For the year ended December 31, 1999, operating expenses include an $83.2
million ($50.2 million after tax) special charge related to the
extinguishment of a portion of our liability arising from a services
agreement with United Airlines and an $11.3 million ($6.8 million after tax)
recovery of expenses previously reserved for the realignment of our United
Kingdom operations. Net income includes net gains of $64.0 million ($38.6
million after tax) from our investments in technology companies. Net cash
provided by operating activities includes $97.3 million transferred to a
qualified special-purpose entity related to the services agreement special
charge.
(2)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 our 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.
(3)Effective July 30, 1997, Galileo International Partnership merged into a
wholly owned limited liability company subsidiary of Galileo International,
Inc. (the "Merger"), we effected an initial public offering of our Common
Stock (the "Offering"), and we incurred debt related to the purchase of three
NDCs.
12
<PAGE>
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 such liability
was the responsibility of the partners of Galileo International Partnership,
rather than of the Company.
(4)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) we had operated in a corporate form
for all periods presented and accordingly were subject to federal and state
income taxes.
(5)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. The 1999 data
includes a 1.7 million adjustment for the impact of a pricing structure
change that reduced reported passive booking volumes in Japan.
(6)Capital expenditures include purchases of property and equipment and
purchases of computer software. In addition, the capitalization of internally
developed computer software was $12.6 million, $14.2 million, $21.2 million,
$21.6 million, and $24.5 million for the years ended December 31, 1999, 1998,
1997, 1996, and 1995, 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", "we", "us" and "our" 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) we
became subject to U.S. federal and state income taxes that were previously borne
by the partners of Galileo International Partnership and (ii) we 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 our Common Stock in the same proportion as that of their
respective partnership interests in Galileo International Partnership.
We generate most of our 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 our system. 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 our 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, we often make
incentive payments to travel agency subscribers that achieve defined
productivity or booking volume growth objectives.
13
<PAGE>
We also provide information services to airlines, including certain of our
airline stockholders. We currently provide fares quotation services, internal
reservation services, other internal management services and software
development services to such airlines.
Our expenses consist primarily of local sales, marketing and customer
service costs, commissions paid to national distribution companies ("NDCs"),
costs associated with the operation of our Data Centre and wages and benefits
payable to our employees. Substantially all of our expenses are denominated and
paid in U.S. dollars, with the exception of operating expenses incurred outside
of the United States. Cost of operations shown on our statements of income
consist primarily of the costs of operating our Data Centre (including wages and
benefits of Data Centre and other technical services personnel, and hardware,
software and communications costs) and costs related to agency equipment
(including installation, maintenance and help desk functions). Commissions,
selling and administrative expenses shown on our statements of income consist
primarily of commissions payable to NDCs, incentives paid to subscribers and
other costs of our selling and administrative functions.
Our 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 our 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 us, thereby stimulating our revenue-earning
capability.
We experience a seasonal pattern in our 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. (See Note 14 to the consolidated financial
statements for quarterly financial information.)
During 1997, we 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, we recorded a nonrecurring charge to operating
expenses of $20.1 million ($12.1 million after tax) related to the integration
of the 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.
During 1998, we 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"). We also recorded a nonrecurring charge to operating
expenses of $26.4 million ($15.9 million after tax) related to a strategic
realignment of our 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.
In connection with the NDC Acquisitions in 1997 and the Canada Acquisition
in 1998, we have 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 us related to growing the
respective business operations of the acquired NDCs.
During 1999, we recorded a special charge of $83.2 million ($50.2 million
after tax) related to the extinguishment of a portion of our liability to United
Air Lines, Inc. ("United Airlines") under the provision of the ATS services
agreement, originally entered into in 1997. We transferred $97.3 million in
assets to a qualified special-purpose entity, which has assumed the obligation
to United Airlines for a portion of the ATS services agreement. We also were
successful in assigning our Swindon U.K. facilities lease at market rates,
resulting in recognition of an $11.3 million ($6.8 million after tax) recovery
of previously reserved facilities expenses.
14
<PAGE>
1999 Compared to 1998
REVENUES. We generate our revenue from the provision of electronic global
distribution services and information services. During the year ended December
31, 1999, we generated approximately 95.2% of our revenue from electronic global
distribution services and approximately 4.8% of our revenue from information
services. The following table summarizes 1999 and 1998 revenues for electronic
global distribution services by geographic location as a percentage of total
revenues and summarizes total booking volumes for each of the years indicated:
1999 1998
---- ----
Percentage of Revenue
- ---------------------
U.S. Market (1) 41.6 % 43.8 %
All Other Markets (1) 58.4 56.2
-------- --------
100.0 % 100.0 %
======== ========
Worldwide Bookings
- ------------------
(in millions)
U.S. Market: (1)
Air 126.0 131.4
Car/Hotel/Leisure 23.1 22.6
-------- --------
Total Bookings 149.1 154.0
All Other Markets: (1)
Air 194.7 186.0
Passive Booking Adjustment - Japan (2) 1.7 -
-------- --------
Adjusted Air 196.4 186.0
Car/Hotel/Leisure 6.1 5.7
-------- --------
Total Bookings 202.5 191.7
-------- --------
Total Worldwide Bookings 351.6 345.7
======== ========
- ----------------------
(1) The location of the travel agent making the booking determines the
geographic region credited with the related revenues and bookings.
(2) Adjustment for the impact of a pricing structure change that reduced
reported passive booking volumes in Japan. In markets outside of Japan, the
net impact to reported passive bookings due to the pricing structure change
was slightly positive.
Revenues increased $45.3 million, or 3.1%, to $1,526.1 million for the year
ended December 31, 1999 from $1,480.8 million for the year ended December 31,
1998. Our electronic global distribution services revenues grew $109.4 million,
or 8.1%. Airline booking revenue increased 7.0% over the year ended December 31,
1999 due to a booking fee price increase that went into effect in March 1999,
other yield improvements and a 1.5% increase in worldwide air booking volumes.
15
<PAGE>
International booking volumes increased 4.7% and U.S. booking volumes
decreased 3.2% for the year ended December 31, 1999. Adjusting for the impact of
a July 1999 pricing structure change that reduced reported passive booking
volumes in Japan, total international booking volumes increased 5.6% for the
year. This increase in international booking volumes for the year was driven by
strong growth in developing markets, such as Africa and the Middle East, and
solid performance in Europe and Asia.
The volume decline in U.S. bookings is primarily due to a decrease in our
U.S. market share, which we believe is principally attributable to the effect of
our field sales force transition in 1999. With a new U.S. sales force in place,
we are aggressively executing growth plans for new and renewal business. We
remain confident in the ability of our new sales force to strengthen our
position in the U.S. market by the middle of 2000. (1)
The growth in electronic global distribution services revenues was
partially offset by a decline in information services revenues due principally
to the impact of providing fewer network services to an airline customer. This
revenue loss was largely offset by a reduction in operating expenses directly
related to the provision of these services.
COST OF OPERATIONS. Cost of operations expenses decreased $40.6 million, or
7.1%, to $527.7 million for the year ended December 31, 1999 from $568.3 million
for the year ended December 31, 1998. The decline in cost of operations expenses
was due primarily to a $54.1 million decrease in voice communication charges
related to the decrease in network services provided to an airline customer.
Partially offsetting this decrease was $12.2 million in additional cost of
operations expenses incurred due to the Galileo Canada and Shepherd Systems
acquisitions in 1998. These additional operating expenses, principally wages,
maintenance and installation expenses, communication costs and depreciation
expense, were largely offset by lower commissions as we no longer pay
commissions to Galileo Canada but instead incur the direct costs of distributing
our products in this market. Additionally, we now record the amortization of the
excess of the cost of these acquisitions over the fair value of net assets
acquired and also record the amortization of other intangibles acquired.
Remaining cost of operations expenses increased slightly, primarily due to
increased maintenance costs for subscriber equipment at agency locations and
higher communication costs associated with the ongoing migration to new data
network technology and growth in both new and existing markets. These increases
were substantially offset by net cost savings from the Swindon, U.K. realignment
and lower Data Centre expenses as we continue to take advantage of decreasing
technology costs.
COMMISSIONS, SELLING AND ADMINISTRATIVE EXPENSES. Commissions, selling and
administrative expenses increased $59.1 million, or 10.7%, to $613.6 million for
the year ended December 31, 1999 from $554.5 million for the year ended December
31, 1998. NDC commissions and subscriber incentive payments increased $55.8
million, or 15.4%, to $419.4 million for the year ended December 31, 1999 from
$363.6 million for the year ended December 31, 1998. The increase in electronic
global distribution services revenues resulted in increased commissions to NDCs,
which were partially offset by the elimination of commissions to Galileo Canada
as, subsequent to this acquisition in June 1998, we no longer pay commissions
but instead incur the direct costs of operating in this market. 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 our
travel agency customer base, increased significantly in 1999 principally due to
the initiation of new contracts with multinational and key U.S. regional
accounts in late 1998 and the first quarter of 1999, as well as the impact of
payments to subscribers previously incurred by Galileo Canada prior to June
1998. We expect that growth in subscriber incentives will continue in 2000, but
at a slower rate than we experienced in 1999. (1)
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 22.
16
<PAGE>
The remaining increase in commissions, selling, and adminstrative expenses
was primarily attributable to $13.4 million in favorable settlements during 1998
of contractual disputes from prior years. This was partially offset by decreased
selling expenses in the U.S. as we transitioned to our internal sales force,
decreased travel and effectively managed costs throughout the organization.
SPECIAL CHARGES. We recorded a special charge of $83.2 million related to
the extinguishment of a portion of our liability arising from our services
agreement with United Airlines. This services agreement was entered into at the
time of our acquisition of ATS in July 1997. Under the agreement, United
Airlines agreed to provide us marketing and other support in the U.S. and
Mexico. In exchange for these services, we agreed to compensate United Airlines
if we achieved specific air segment growth and price increases over a five-year
period. Although we were accruing for the estimated liability under the services
agreement in line with lower levels of historical and projected pricing, as a
result of the price increase in the U.S. and Mexico that became effective on
January 1, 2000, we now expect to owe the full price-related obligation.(1) In
December 1999, we created and funded a qualified special-purpose entity to
provide for payment of this price-related obligation to United Airlines in July
2002. We transferred $97.3 million in assets to this special-purpose entity. As
a result, we have no further payment obligation to United Airlines related to
price increases under the services agreement.
During 1998, we recorded special charges of $26.4 million related to a
strategic realignment of our operations in the United Kingdom. These special
charges included severance provisions of $15.0 million and $11.4 million in
costs related to disposition of the current United Kingdom facilities. During
1999, we were successful in assigning the Swindon, U.K. lease at market rates,
resulting in the recovery of $11.3 million of facilities expenses reserved in
1998 and a prior year. (See Note 4 to the consolidated financial statements for
further discussion.)
OTHER INCOME (EXPENSE). Other income (expense) includes interest expense
net of interest income, foreign exchange gains or losses, and other
non-operating items. Other income, net increased $54.5 million to $48.4 million
income for the year ended December 31, 1999 from $6.1 million expense for the
year ended December 31, 1998. This increase was primarily the result of $58.6
million in gains realized from sales in secondary offerings of a portion of our
equity in Equant N.V. ("Equant"), and $5.5 million in net gains on the
unrealized appreciation in our technology investments. These gains were
partially offset by a $6.4 million increase in net interest expense due to
increased debt levels to fund repurchases of our Common Stock. The remaining
decrease is primarily attributable to lower foreign exchange gains.
INCOME TAXES. Income taxes increased $13.2 million, or 10.2%, to $143.1
million for the year ended December 31, 1999 from $129.9 million for the year
ended December 31, 1998. The increase was a result of higher income before
income taxes for the year ended December 31, 1999 compared to the year ended
December 31, 1998. Partially offsetting this increase was the impact of a lower
effective tax rate in 1999. As a result of successful tax planning, we reduced
our 1999 effective tax rate by 30 basis points to 39.6 percent from 39.9 percent
in 1998.
NET INCOME. Net income increased $22.6 million, or 11.6%, to $218.2 million
for the year ended December 31, 1999 from $195.6 million for the year ended
December 31, 1998. Net income as a percentage of revenues increased to 14.3%
from 13.2% over the same period.
1998 Compared to 1997
REVENUES. 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,
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 22.
17
<PAGE>
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 we introduced in North America in
March 1998 that only charges airline vendors for passive bookings that are
ticketed. We report only those bookings for which we receive 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 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 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, we record 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 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 we no longer pay
commissions, but instead incur the direct costs of distributing our 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 we 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. During 1998, we continued to take advantage of
decreasing technology costs on Data Centre equipment and have 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, we no longer
18
<PAGE>
pay commissions but instead incur 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 our travel agency customer base, increased significantly in
1998 due to the initiation of new deals with multinational 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. We recorded special charges of $26.4 million during the
year ended December 31, 1998 related to a strategic realignment of our
operations in the United Kingdom. Special charges include severance provisions
of $15.0 million and $11.4 million in costs related to disposition of the
current United Kingdom facilities.
We recorded special charges of $20.1 million during the year ended December
31, 1997 related to the integration of the acquired NDCs into our 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). Other income (expense) includes interest expense
net of interest income, and foreign exchange gains or losses. Other income
(expense) increased $0.2 million, to $6.1 million expense for the year ended
December 31, 1998 from $5.9 million expense 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., we 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 our non-U.S. subsidiaries. Subsequent
to the Merger, our 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.
Liquidity and Capital Resources
Cash and cash equivalents totaled $1.8 million and working capital totaled
$(88.8) million at December 31, 1999. Excluding $121.0 million in debt
outstanding under our 364-day credit agreement, which was used to fund a portion
of our repurchases of Common Stock for treasury, working capital totaled $32.2
million at December 31, 1999. At December 31, 1998, cash and cash equivalents
totaled $9.8 million and working capital totaled $11.7 million. Cash and cash
equivalents decreased by $8.0 million as we carefully monitor cash requirements
and utilize excess cash to pay down outstanding debt and repurchase shares of
our Common Stock.
Cash flow used in investing activities principally relates to purchases of
mainframe data processing and network equipment and purchases of computer
equipment provided to our travel agency subscribers.
19
<PAGE>
Capital expenditures, excluding the capitalization of internally developed
software, were $92.5 million for the year ended December 31, 1999 compared to
$98.7 million for the year ended December 31, 1998. In addition, we used $29.5
million to acquire minority ownership equity positions in seven
technology-related companies during the year ended December 31, 1999. We
received $58.7 million in proceeds from sales in secondary offerings of a
portion of our equity in Equant during the year ended December 31, 1999.
Cash flow used in financing activities for the year ended December 31,
1999, includes repurchases of Common Stock for treasury totaling $635.5 million
and dividends paid to our stockholders totaling $33.9 million. We also paid
$25.5 million to terminate two equipment leases related to Swindon data center
assets pursuant to advantageous early termination provisions allowed within the
leases. During the year ended December 31, 1999, net borrowings under our credit
facilities totaled $485.9 million and we have $79.0 million available under our
revolving credit facilities at December 31, 1999.
We expect that future cash requirements will principally be for capital
expenditures, repayments of indebtedness, repurchases of our Common Stock for
treasury, acquisitions of additional NDCs and other potential acquisitions that
are aligned with our strategic direction. (1) We believe that cash generated by
operating activities will be sufficient to fund our future cash requirements,
except that significant acquisitions, investments, or share repurchases may
require additional borrowings or other financing alternatives. (1)
In connection with the NDC Acquisitions and the Canada Acquisition, we
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 us related to growing the respective business operations of
the acquired NDCs. Pursuant to the Services Agreements, we 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 $123.0 million (reduced from $200.0
million as a result of the qualified special-purpose entity transaction in
December 1999 - see discussion below), $6.8 million, $4.7 million and $20.5
million (each on a present value basis as of the date of the agreements),
respectively, in the sixth year (eighth year for a portion of Galileo Canada)
following the acquisitions, contingent upon improvements in our 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.
In December 1999, we created and transferred $97.3 million in assets to a
qualified special-purpose entity to provide for payment to United Airlines of
the price-increase portion of our liability under the ATS services agreement.
This payment was funded by our cash flow from operations, sales of a portion of
our equity in Equant, and borrowings under our existing credit facilities. For
the remainder of the ATS services agreement and all other Services Agreements,
we have 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. We do not expect to
incur any liability related to the air segment growth component of the ATS
services agreement. (1) As of December 31, 1999 and 1998, accruals totaling
$13.9 million and $9.3 million, respectively, have been recorded and are
reflected in the accompanying consolidated balance sheets.
In addition to reinvesting a substantial portion of earnings in our
business, we currently intend to pay regular quarterly dividends and to
repurchase additional shares of our Common Stock. (1) The declaration and
payment of future dividends, as well as the amount thereof, and the amount of
future repurchases of our Common Stock beyond the existing $750 million stock
repurchase program are subject to the discretion of our Board of Directors and
will depend upon our 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 we will declare and pay any future
dividends or repurchase additional shares of our Common Stock.
- --------
(1) See Statement Regarding Forward-Looking Statements on page 22.
20
<PAGE>
Recent Developments
On January 27, 2000, we announced our intention to acquire Travel
Automation Services Limited, which includes Galileo UK, our NDC in the United
Kingdom, from British Airways Plc. (1) Galileo UK distributes our system to
travel agents across the United Kingdom and provides travel technology solutions
tailored to the unique requirements of the United Kingdom market.
On February 8, 2000, we announced plans to acquire the remaining ownership
interest in TRIP.com, a leading online travel service and technology provider.
(1) At December 31, 1999, we owned approximately 20% of TRIP.com. Under terms of
the acquisition, which we expect to close during the first quarter of 2000, we
will purchase the remaining ownership interest for $269.0 million in a combined
stock and cash transaction. (1) Upon combining our existing Internet assets into
TRIP.com, we plan to investigate capital structure options, including
potentially selling a portion of TRIP.com in a public offering. (1) We plan to
fund the acquisition of TRIP.com with additional bank financing and are in the
process of completing a new line of credit with our lenders. (1)
- --------
(1) See Statement Regarding Forward-Looking Statements on page 22.
21
<PAGE>
Statement Regarding Forward-Looking Statements
Statements in this report that are not strictly historical, including
statements as to plans, objectives and future performance, are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. We have based these
forward-looking statements on our current expectations and projections about
future events. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. These forward-looking statements are subject to risks and
uncertainties that could cause actual events or results to differ materially
from the events or results expressed or implied by the forward-looking
statements. You are cautioned not to place undue reliance on these
forward-looking statements. Risks and uncertainties associated with our
forward-looking statements include, but are not limited to: the loss and
inability to replace the bookings generated by one or more of our five largest
travel agency customers; our ability to effectively execute our sales
initiatives in key markets; our sensitivity to general economic conditions and
events that affect airline travel and the airlines that participate in our
Apollo and Galileo systems; circumstances relating to our investment in
technology, including our ability to timely develop and achieve market
acceptance of new products; our ability to successfully expand our operations
and service offerings in new markets, including the on-line travel market; our
ability to manage administrative, technical and operational issues presented by
our expansion plans and acquisitions of other businesses; the results of our
international operations and expansion into developing and new computerized
reservation system ("CRS") markets, governmental approvals, trade and tariff
barriers, and political risks; new or different legal or regulatory requirements
governing the CRS industry; and natural disasters or other calamities that may
cause significant damage to our Data Centre facility.
22
<PAGE>
Effect of Recently Issued Accounting Pronouncements
We 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 our financial statements.
Year 2000 (1)
The Year 2000 issue was a result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs or systems or those of our vendors and suppliers that have
date-sensitive software could have recognized a date using "00" as the year 1900
rather than 2000.
Beginning in September 1995, we implemented a program designed to help
ensure that all hardware and software used in connection with our business,
including our software products, would 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 our hardware and software led us to conclude that the majority of our systems
had been engineered to be Year 2000 compliant and, indeed, provided a seamless
transition to the Year 2000. In addition, we consulted outside experts,
including attorneys and independent auditors, regarding our Year 2000 plans.
We electronically exchange information with the computer systems of our
travel vendor customers and suppliers, including air, car, hotel, cruise, rail
and other vendors. We use standardized travel industry interchange formats to
electronically exchange information with many of these vendor customers and
suppliers. Many of these formats did not require modification in order to be
Year 2000 compliant. Where required, modifications to these formats were
completed. Our GlobalFares system began successfully processing airline fares
with Year 2000 dates in July 1998. The investigation and assessment of our
network systems was complete and remediation was finalized in October 1999. In
the third quarter of 1999, we completed remediation of our travel agency-based
software and distributed upgrades for operating systems and package installation
systems. The Year 2000 remediation for most of our travel agency-based software
addressed aesthetic modifications and was not essential for the reservation
booking and ticketing capability of these products.
Remediation planning for country-specific software solutions facilitating
travel agency access to certain third party vendors is complete. Agency premise
software remediation was completed in November 1999. Remediation activities
related to our mainframe computer systems, which include our Galileo and Apollo
CRSs, were completed on schedule in 1998. Our Galileo and Apollo systems
successfully processed the first Year 2000 airline reservation bookings on
January 3, 1999 and February 4, 1999, respectively, with airlines that support
Year 2000 in their systems. All non-mainframe activities were completed in
November 1999.
Embedded systems are not an integral component in our primary business or
operations. Nevertheless, we identified and validated as compliant or, where
necessary, remediated embedded systems in certain of our facilities and
environmental systems. We saw no material adverse impact to our business or
operations related to Year 2000 performance of embedded systems.
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 22.
23
<PAGE>
Testing was a critical component in our Year 2000 preparedness program. Our
system for Year 2000 hardware and software validation -- called the "Time
Machine" -- was essentially a copy of our production environment which performed
date-sensitive tests and supported connectivity to the systems of our vendor
customers, suppliers of data, NDCs and certain other third parties without
interrupting existing systems and without risk of contaminating "live"
production data.
Contingency plans were in place for all mainframe and non-mainframe
activities. Our contingency plans identified the interruption of local services
provided by third parties, such as telecommunication firms and power supply
companies, as the events that would be most likely to occur. Our contingency
planning involved risk assessment for all of our 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 provided 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 addressed on-site staff coverage on January 1, 2000 for all relevant
operating and staff departments, and included support personnel from our
critical hardware and software suppliers.
As an electronic global distribution services company, our products are
dependent upon data provided by our air, car, hotel and tour vendor customers
and other suppliers of data. We are also dependent on critical service
providers, such as telecommunications firms for worldwide product distribution.
We worked closely with third parties, including our NDCs, to determine the
extent to which our interface systems were vulnerable to failure by these
parties to remediate their own Year 2000-sensitive systems.
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 had a material adverse effect on our business and
operations. With respect to bookings for travel after January 1, 2000, any
failure on our part or on the part of our vendor customers, other suppliers of
data or NDCs to ensure that systems are Year 2000 compliant, regardless of when
such bookings occur, could have had a material adverse effect on our business,
financial condition or results of operations.
We incurred $4.9 million of expenses in 1999, $8.0 million of expenses in
1998 and $4.4 million of expenses in 1997 related to Year 2000 remediation. All
of these costs were expensed as incurred. Further, we believe future
expenditures will total approximately $0.4 million in 2000 to remediate and
replace less critical software applications and embedded systems; however, we do
not expect these expenses to have a material adverse effect on our business,
financial condition, or results of operations.
The cost of our Year 2000 project and the dates on which we planned to
complete our Year 2000 modifications were based on management's best estimates,
which were derived utilizing numerous assumptions of future events, third
parties' Year 2000 readiness and other factors.
New European Currency
In January 1999, certain European countries introduced a new currency unit
called the "euro". We planned, developed and successfully implemented a project
to ensure that hardware and software systems operated or licensed in our
business, including systems provided to our travel agency subscribers and our
vendor customers, are designed to properly process reservations in the euro
currency. We completed the necessary development and successfully issued tickets
in the new single currency on the first official trading day, January 4, 1999.
We estimate that the introduction of the euro, including the total costs for the
euro project, will not have a material effect on our business, financial
condition, and results of operations. (1)
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 22.
24
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Certain of our expenses are subject to fluctuations in currency values and
interest rates. We address these risks through a controlled program of risk
management that includes the use of derivative financial instruments. To some
degree, we are 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) We do not hold or issue derivative financial instruments for
trading purposes.
As discussed in the notes to consolidated financial statements, we enter
into foreign exchange forward contracts to manage exposure to fluctuations in
foreign exchange rates related to the funding of our European and Canadian
operations. At December 31, 1999, we have entered into foreign exchange forward
contracts that provide for purchases of GBP 1.3 million, CAD 6.5 million, and
EUR 13.0 million at various dates throughout 2000. At December 31, 1999, 1998
and 1997, the notional principal amounts of outstanding forward contracts were
$19.6 million, $31.1 million and $62.4 million, respectively. The fair value of
outstanding forward contracts at December 31, 1999, 1998 and 1997 was $0.03
million, $0.8 million and $1.4 million, respectively.
We are party to a $200 million 364-day credit agreement and a $400 million
five-year credit agreement (collectively, the "Credit Agreements") with a group
of banks. Interest on the borrowings may be either Base rate, CD rate or
Euro-dollar rate based. For the year ended December 31, 1999, the effective
interest rate for loans outstanding under the Credit Agreements was 6.47%. If
interest rates had averaged 10% higher in 1999, our interest expense would have
hypothetically increased by $1.5 million. This amount was calculated by applying
the hypothetical increase to the applicable interest rates and outstanding
principal throughout the year.
We have also entered into interest rate swap agreements to convert portions
of our variable rate debt to fixed rate. We account for our interest rate swap
agreements as a hedge of our interest rate exposure. At December 31, 1999, 1998
and 1997, we had outstanding interest rate swap agreements with a total notional
value of $34.4 million, $34.4 million, and $89.0 million, respectively, with
fixed interest rates averaging 5.87%, 5.87%, and 5.03%, respectively. The fair
value of outstanding swap agreements at December 31, 1999, 1998 and 1997 was
$1.0 million, $(1.0) million and $0.5 million, respectively.
We are also exposed to equity price risks on the marketable equity
securities we hold for strategic purposes. Assuming a 20% adverse change in the
December 31, 1999 equity prices of our marketable securities, our financial
position would not be materially affected. (1)
- ---------
(1) See Statement Regarding Forward-Looking Statements on page 22.
25
<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 27
Consolidated Balance Sheets as of December 31, 1999 and 1998 28
Consolidated Statements of Income for the years ended 30
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended 31
December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the 32
years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements 33
26
<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") as of December 31, 1999 and
1998, 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,
1999. 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Galileo
International, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
January 31, 2000, except for Note 15 which is as of February 8, 2000
27
<PAGE>
GALILEO INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
December 31,
--------------------------
1999 1998
---- ----
ASSETS
------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,794 $ 9,828
Accounts receivable:
Trade receivables and others 166,885 159,225
Due from affiliates 19,057 32,380
------------ ------------
185,942 191,605
Less allowances 7,819 13,747
------------ ------------
Net accounts receivable 178,123 177,858
Deferred tax assets 15,338 31,885
Prepaid expenses 13,240 11,711
Other current assets 21,955 12,245
------------ ------------
Total current assets 230,450 243,527
Property and equipment, at cost:
Land 6,470 6,470
Buildings and improvements 72,219 77,210
Equipment 354,686 392,299
------------ ------------
433,375 475,979
Less accumulated depreciation 242,498 281,010
------------ ------------
Net property and equipment 190,877 194,969
Computer software, at cost 430,706 413,212
Less accumulated amortization 269,912 223,965
------------ ------------
Net computer software 160,794 189,247
Intangible assets, at cost:
Customer lists 406,614 405,600
Goodwill 189,097 197,676
Other 64,167 56,535
------------ ------------
659,878 659,811
Less accumulated amortization 87,742 50,005
------------ ------------
Net intangible assets 572,136 609,806
Long-term investments 29,033 5,076
Other noncurrent assets 71,903 48,455
------------ ------------
$ 1,255,193 $ 1,291,080
============ ============
(Continued)
See accompanying notes to consolidated financial statements.
28
<PAGE>
GALILEO INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share data)
December 31,
---------------------------
1999 1998
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable:
Trade payables and other $ 45,676 $ 30,876
Due to affiliates 2,358 16,025
------------ ------------
48,034 46,901
Accrued commissions 33,722 32,424
Accrued restructuring costs 4,393 29,457
Accrued compensation and benefits 19,939 24,584
Income taxes payable 2,785 11,873
Other accrued taxes 11,803 14,580
Other accrued liabilities 77,467 66,031
Capital lease obligations, current portion 110 5,976
Long-term debt, current portion 121,000 -
------------ ------------
Total current liabilities 319,253 231,826
Pension and postretirement benefits 68,466 55,982
Deferred tax liabilities 14,656 25,404
Other noncurrent liabilities 24,741 42,969
Capital lease obligations, less current portion 92 22,752
Long-term debt, less current portion 434,392 69,520
------------ ------------
Total liabilities 861,600 448,453
Stockholders' equity:
Special voting preferred stock: $.01 par value;
3 and 7 shares authorized; 3 and 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; 105,038,035 and 104,930,750 shares issued;
89,999,435 and 104,761,650 shares outstanding 1,050 1,049
Additional paid-in capital 671,615 668,466
Retained earnings 368,843 184,575
Unamortized restricted stock grants (2,761) (3,559)
Accumulated other comprehensive income (2,866) (1,139)
Common stock held in treasury, at cost: 15,038,600
and 169,100 shares (642,288) (6,765)
------------ ------------
Total stockholders' equity 393,593 842,627
------------ ------------
$ 1,255,193 $ 1,291,080
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
<TABLE>
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
Year ended December 31,
--------------------------------------
1999 1998 1997
---- ---- ----
Revenues:
<S> <C> <C> <C>
Electronic global distribution services $ 1,452,101 $ 1,342,705 $ 1,180,114
Information services 74,001 138,113 75,989
------------ ------------ ------------
1,526,102 1,480,818 1,256,103
Operating expenses:
Cost of operations 527,716 568,271 385,298
Commissions, selling and administrative 613,617 554,509 639,164
(Recovery of) Special charges - restructurings (11,359) 26,460 20,111
Special charge - services agreement 83,226 --- ---
------------ ------------ ------------
1,213,200 1,149,240 1,044,573
------------ ------------ ------------
Operating income 312,902 331,578 211,530
Other income (expense):
Interest expense, net (16,004) (9,629) (8,842)
Other, net 64,374 3,532 2,925
------------ ------------ ------------
Income before income taxes 361,272 325,481 205,613
Income taxes:
Income taxes 143,064 129,867 28,641
Initial deferred income taxes --- --- 15,335
------------ ------------ ------------
143,064 129,867 43,976
------------ ------------ ------------
Net income $ 218,208 $ 195,614 $ 161,637
============ ============ ============
Income before income taxes as reported $ 205,613
Pro forma income tax expense 82,245
------------
Pro forma net income $ 123,368
============
Weighted average shares outstanding (1999 and 1998)
and pro forma weighted average shares outstanding
1997 98,140,621 104,796,282 94,999,875
============ ============ ============
Basic earnings per share (1999 and 1998) and pro forma
basic earnings per share (1997) $ 2.22 $ 1.87 $ 1.30
============ ============ ============
Diluted weighted average shares outstanding (1999 and
1998) and pro forma diluted weighted average shares
outstanding (1997) 98,813,522 105,186,241 95,024,199
============ ============ ============
Diluted earnings per share (1999 and 1998) and pro forma
diluted earnings per share (1997) $ 2.21 $ 1.86 $ 1.30
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
30
<PAGE>
<TABLE>
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
----------------------------------
1999 1998 1997
---- ---- ----
Operating activities:
<S> <C> <C> <C>
Net income $ 218,208 $ 195,614 $ 161,637
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 167,097 172,537 134,073
Loss (gain) on disposal of property and equipment 227 (419) 728
Gain on sale of investments in equity securities (58,574) --- ---
Unrealized gain on trading securities (10,492) --- ---
Deferred income taxes, net 6,516 (5,167) 15,284
Changes in operating assets and liabilities, net of
effects from acquisition of businesses:
Accounts receivable, net (1,209) (8,149) 6,998
Other current assets 3,194 (2,826) 1,377
Noncurrent assets (18,299) (28,428) (10,281)
Accounts payable and accrued commissions 3,111 2,903 6,057
Accrued liabilities (13,848) 30,258 (8,536)
Income taxes payable (8,794) 10,140 (3,973)
Noncurrent liabilities (5,962) 12,615 21,374
--------- ---------- ----------
Net cash provided by operating activities 281,175 379,078 324,738
Investing activities:
Purchase of property and equipment (84,445) (89,442) (53,696)
Purchase and capitalization of computer software (20,657) (23,496) (33,449)
Proceeds on disposal of property and equipment 1,745 3,750 322
Proceeds from sale of investments in equity securities 58,725 --- ---
Acquisition of businesses, net of cash acquired in 1998
and 1997 of $3,576 and $26,244, respectively --- (50,433) (688,451)
Purchase of investments in equity securities (29,533) (5,076) ---
Other investing activities (5,757) --- ---
--------- ---------- ----------
Net cash used in investing activities (79,922) (164,697) (775,274)
Financing activities:
Borrowings under credit agreements 574,000 49,392 450,000
Repayments under credit agreements (88,128) (230,004) (320,000)
Dividends paid to stockholders (33,940) (29,871) (6,288)
Payments of capital lease obligations (27,701) (7,311) (4,149)
Proceeds from sale of stock, net of fees paid --- --- 384,288
Repurchase of common stock for treasury (635,523) (6,765) ---
Proceeds from exercise of employee stock options, net 3,150 787 ---
Distributions to partners of Galileo International Partnership --- --- (112,150)
Other financing activities 213 --- ---
--------- ---------- ----------
Net cash (used in) provided by financing activities (207,929) (223,772) 391,701
Effect of exchange rate changes on cash (1,358) (148) 6
--------- ---------- ----------
Decrease in cash and cash equivalents (8,034) (9,539) (58,829)
Cash and cash equivalents at beginning of year 9,828 19,367 78,196
--------- ---------- ----------
Cash and cash equivalents at end of year $ 1,794 $ 9,828 $ 19,367
========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
<TABLE>
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
Special
Voting Additional
Partners' Preferred Common Paid - in Retained
Capital Stock Stock Capital Earnings
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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 - - - - 25,120
Foreign currency translation adjustments
subsequent to the Merger - - - - -
Comprehensive income subsequent to the Merger
Dividends paid ($0.06 per share) - - - - (6,288)
--------- --------- --------- ---------- ----------
Balance at December 31, 1997 - - 1,048 663,688 18,832
Comprehensive income:
Net income - - - - 195,614
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) - - - - (29,871)
--------- --------- --------- ---------- ----------
Balance at December 31, 1998 - - 1,049 668,466 184,575
Comprehensive income:
Net income - - - - 218,208
Unrealized holding losses on securities - - - - -
Foreign currency translation adjustments - - - - -
Other comprehensive income (loss) - - - - -
Comprehensive income
Amortization of restricted stock grants - - - - -
Issuance of 107,285 shares of Common stock under
employee stock option plans - - 1 3,149 -
Repurchase of 14,869,500 shares of Common stock .
for treasury - - - - -
Retirement of 4 shares of Special voting preferred
stock - - - - -
Dividends paid ($0.345 per share) - - - - (33,940)
--------- --------- --------- ---------- ----------
Balance at December 31, 1999 $ - $ - $ 1,050 $ 671,615 $ 368,843
========= ========= ========= ========== ==========
(continued)
</TABLE>
<PAGE>
<TABLE>
GALILEO INTERNATIONAL, INC.
(FORMERLY GALILEO INTERNATIONAL PARTNERSHIP THROUGH JULY 30, 1997)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued)
(in thousands, except share data)
Accumlated
Unamortized Other
Restricted Comprehensive Treasury
Stock Grants Income Stock Total
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
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
Foreign currency translation adjustments
subsequent to the Merger - 128 - 128
----------
Comprehensive income subsequent to the Merger 25,248
Dividends paid ($0.06 per share) - - - (6,288)
-------- ----------- --------- ----------
Balance at December 31, 1997 - 128 - 683,696
Comprehensive income:
Net income - - - 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)
-------- --------- --------- ----------
Balance at December 31, 1998 (3,559) (1,139) (6,765) 842,627
Comprehensive income:
Net income - - - 218,208
Unrealized holding losses on securities - (1,122) - (1,122)
Foreign currency translation adjustments - (605) - (605)
----------
Other comprehensive income (loss) - - - (1,727)
----------
Comprehensive income 216,481
Amortization of restricted stock grants 798 - - 798
Issuance of 107,285 shares of Common stock under
employee stock option plans - - - 3,150
Repurchase of 14,869,500 shares of Common stock
for treasury - - (635,523) (635,523)
Retirement of 4 shares of Special voting preferred
stock - - - -
Dividends paid ($0.345 per share) - - - (33,940)
-------- --------- --------- ----------
Balance at December 31, 1999 $ (2,761) $ (2,866) $(642,288) $ 393,593
======== ========= ========= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
32
<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 107 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.
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
33
<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 $10,600 at December 31, 1999. 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 carrying values of the Company's financial instruments, excluding
non-marketable equity securities (as discussed in Note 6) and derivative
financial instruments, are reasonable estimates of their fair value.
Allowance for Doubtful Accounts Receivable
The allowance for doubtful accounts receivable was $7,819, $13,747, and
$22,012 at December 31, 1999, 1998, and 1997, respectively. Provisions for bad
debts were $2,569, $(3,862), and $4,219 for the years ended December 31, 1999,
1998, and 1997, respectively. Write-offs of uncollectible accounts were $9,763,
$5,124, and $652 for the years ended December 31, 1999, 1998, and 1997,
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 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
34
<PAGE>
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, 1999 and 1998 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 5-31 years
Equipment 3-10 years
Depreciation expense for the years ended December 31, 1999, 1998, and 1997 was
$79,111, $83,724, and $54,591, 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 to 10 years. Amortization
expense for the years ended December 31, 1999, 1998, and 1997 was $49,384,
$52,688, and $62,820, respectively.
Intangible Assets
Intangible assets are amortized on the straight-line method over the
following useful lives:
Customer lists 6-17 years
Goodwill 10-25 years
Other 7-17 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, 1999,
1998, and 1997 was $37,804, $35,692, and $14,356, respectively.
Investments
The Company strategically invests in certain equity securities of
technology and Internet-related companies in order to strengthen its core
product offerings or to enhance its technological infrastructure. The Company
classifies its marketable equity securities into trading and available-for-sale
categories in accordance with the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("Statement 115"). The Company's trading securities
35
<PAGE>
are reported at fair value with unrealized gains and losses reported in other
income or expense. Available-for-sale securities are reported at fair value,
with unrealized gains and losses, net of tax, recorded in stockholders' equity.
Realized gains or losses, and other than temporary declines in value, if any, on
equity securities are reported in other income or expense as incurred.
Investments in equity securities are accounted for under the cost or equity
method as appropriate under APB Opinion No. 18, "The Equity Method of Accounting
for Investments in Common Stock". For non-quoted investments, the Company's
policy is to regularly review the assumptions underlying the operating
performance and cash flow forecasts in assessing the carrying values. The
Company identifies and records impairment on these investments in privately-held
companies when events and circumstances indicate that such assets might be
impaired.
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 $6,205, $4,786, and $8,550 for the
years ended December 31, 1999, 1998, and 1997, 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 derivative 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
European and Canadian operations. The Company accounts for such contracts by
recording any unrealized gains or losses in income each reporting period. At
December 31, 1999, the Company had entered into foreign exchange forward
contracts which provide for purchases of GBP 1,250, CAD 6,500, and EUR 13,000 at
various dates throughout 2000. At December 31, 1999 and 1998, the notional
principal amounts of outstanding forward contracts were $19,635 and $31,123,
respectively. The fair value of outstanding forward contracts at December 31,
1999 and 1998 was $32 and $821, 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
8 for further information regarding the Company's interest rate agreements.
Income Taxes
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
36
<PAGE>
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.
Earnings per Share
Basic earnings per share data for the years ended December 31, 1999 and
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 increases in the weighted average
number of shares outstanding for the year ended December 31, 1999 and 1998 of
672,901 and 389,959, respectively. At December 31, 1999 and 1998, options
totaling 2,051,981 and 1,837,900, respectively, were excluded from the
calculations as their effect was antidilutive.
Pro forma basic earnings per share data for 1997 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, 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 as of January 1, 1997 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. At
December 31, 1997, options totaling 270,000 were excluded from the calculation
as their effect was antidilutive.
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, owned 64.9% of the Company's
outstanding Common Stock at December 31, 1998, 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. In
June 1999, the Company completed a secondary offering of its Common Stock, and
also repurchased shares from an airline stockholder. As of December 31, 1999,
the percentage of the Company's outstanding Common Stock owned by airline
stockholders was 27.0%, with only United Airlines deemed to be an affiliate. See
Note 10 for further information regarding the secondary offering and repurchase
of shares by the Company.
The Company recognized electronic global distribution services revenues,
primarily in the form of booking fees, from affiliates totaling $138,361 and
$170,346 for the years ended December 31, 1999 and 1998, respectively, $63,820
for the five months ended December 31, 1997, and $236,015 for the seven months
ended July 30, 1997. The Company also received information services revenues
from affiliates totaling $65,392 and $128,839 for the years ended December 31,
1999 and 1998, respectively, $50,126 for the five months ended December 31,
1997, and $19,805 for the seven months ended July 30, 1997. Total revenues from
United Airlines of approximately $203,753, $269,942, and $209,106 were greater
than 10% of the Company's revenues for the years ended December 31, 1999, 1998,
and 1997, respectively.
37
<PAGE>
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 were zero for
the years ended December 31, 1999 and 1998, zero for the five months ended
December 31, 1997, and $2,051 for the seven months ended July 30, 1997. Services
purchased from affiliates and classified within commissions, selling and
administrative expenses totaled $4,715 and $15,623 for the years ended December
31, 1999 and 1998, respectively, $5,399 for the five months ended December 31,
1997, and $267,935 for the seven months ended July 30, 1997.
At the time of the Merger, the Company entered into certain services
agreements with airline stockholders to provide fares quotation services,
internal reservation services, other internal management services and software
development services. The Company will provide the fares quotation services
under existing pricing arrangements for a period of approximately five years. In
December 1999, the Company amended the agreement under which it provides certain
of the above mentioned services to United Airlines. This amendment, which went
into effect on January 1, 2000, extends the length of the agreement for an
additional five years.
3. 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,
1999 and 1998, and a statement of the funded status as of December 31, 1999 and
1998:
38
<PAGE>
<TABLE>
Pension Benefits Other Benefits
---------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
Reconciliation of benefit obligation
- ------------------------------------
<S> <C> <C> <C> <C>
Obligation at January 1 $ 113,430 $ 90,304 $ 43,416 $ 40,120
Service cost 8,101 6,964 2,189 1,910
Interest cost 8,321 7,178 3,067 2,733
Plan amendments - - - (1,613)
Actuarial (gain) loss (13,203) 10,388 (5,594) 538
Benefit payments (1,956) (1,404) (431) (272)
--------- --------- -------- ---------
Obligation at December 31 $ 114,693 $ 113,430 $ 42,647 $ 43,416
========= ========= ======== =========
Reconciliation of fair value of plan assets
- -------------------------------------------
Fair value of plan assets at January 1 $ 99,757 $ 79,781 $ - $ -
Actual return on plan assets 21,078 21,362 - -
Employer contributions 18 18 431 272
Benefit payments (1,956) (1,404) (431) (272)
--------- --------- -------- ---------
Fair value of plan assets at December 31 $ 118,897 $ 99,757 $ - $ -
========= ========= ======== =========
Funded status
- -------------
Funded status at December 31 $ 4,204 $ (13,673) $(42,647) $ (43,416)
Unrecognized transition obligation 1,990 2,239 - -
Unrecognized prior-service cost 2,379 2,961 (1,227) (1,455)
Unrecognized (gain) loss (32,121) (7,195) (937) 4,776
--------- --------- -------- --------
Net amount recognized $ (23,548) $ (15,668) $(44,811) $ (40,095)
========= ========= ======== ========
</TABLE>
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31, 1999 and 1998:
<TABLE>
Pension Benefits Other Benefits
---------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accrued benefit liability $ (23,548) $ (15,668) $(44,811) $(40,095)
Additional minimum liability (107) (129) - -
Intangible asset 107 129 - -
--------- --------- --------- ---------
Net amount recognized $ (23,548) $ (15,668) $(44,811) $(40,095)
========= ========= ========= =========
</TABLE>
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 $900 and $604 at December 31, 1999 and 1998,
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 $42,647 and $43,416 as of December 31, 1999 and 1998, respectively.
39
<PAGE>
The following table provides the components of net periodic benefit cost
for the plans for years ended December 31, 1999, 1998, and 1997:
<TABLE>
Pension Benefits Other Benefits
---------------- --------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 8,101 $ 6,964 $ 4,541 $ 2,189 $ 1,910 $ 1,337
Interest cost 8,321 7,178 4,654 3,067 2,733 2,062
Expected return on plan assets (9,376) (7,500) (4,748) - - -
Amortization of transition
obligation 249 249 249 - - -
Amortization of prior-service cost 582 582 581 (150) (259) -
Amortization of net loss (gain) 21 16 (11) 41 - 51
-------- -------- -------- -------- ------- --------
Net periodic benefit cost 7,898 7,489 5,266 5,147 4,384 3,450
Settlement gain - - (157) - - -
-------- -------- -------- -------- ------- --------
Net periodic benefit cost after
settlements $ 7,898 $ 7,489 $ 5,109 $ 5,147 $ 4,384 $ 3,450
======== ======== ======== ======== ======== ========
</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.
The assumptions used in the measurement of the Company's benefit obligation
are shown in the following table:
<TABLE>
Pension Benefits Other Benefits
---------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
Weighted-average assumptions as of December 31:
<S> <C> <C> <C> <C>
Discount rate 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets 9.50% 9.50% N/A N/A
Rate of compensation increase 4.75% 4.00% N/A N/A
</TABLE>
The health care trend rate used to determine the accumulated postretirement
benefit obligation was 11% for 1999, decreasing by 1% each year until reaching
4% for the year 2006 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:
<TABLE>
1% Increase 1% Decrease
----------- -----------
<S> <C> <C>
Effect on total of service and interest cost components of
net periodic postretirement health care benefit cost $ 44 $ (75)
Effect on the health care component of the accumulated
postretirement benefit obligation 498 (743)
</TABLE>
40
<PAGE>
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 $1,661, $2,319, and $2,410 during the
years ended December 31, 1999, 1998, and 1997, 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 $2,818, $2,705,
and $1,982 during the years ended December 31, 1999, 1998, and 1997,
respectively.
4. SPECIAL CHARGES
See Note 9 - Commitments & Contingencies for further discussion of the
special charge related to the services agreement.
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, U.K. facilities. As of December
31, 1999, $15,082 of severance costs have been paid and charged against the
liability and 345 employees have been terminated. The Company expects the
realignment activities to be substantially complete in early 2000. Also related
to the closing of Swindon, U.K. 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, U.K. data
center. In connection therewith, the estimated cost of the consolidation was
charged to expense. During 1999, the Company was successful in assigning a
Swindon, U.K. facility lease at market rates, resulting in recognition of an
$11,359 one-time recovery of previously reserved facilities expenses. At
December 31, 1999 and 1998, the estimated remaining liabilities for all of the
above mentioned restructuring activities, principally related to Swindon, U.K.
severance costs and facility closure costs, were $10,220 and $44,115,
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, 1999, $11,298 of severance costs have
been paid and charged against the liability and 146 employees have been
terminated. The Company considers the integration to be substantially completed
as of December 31, 1999. At December 31, 1999 and 1998, the estimated remaining
liability related to the integration was zero and $3,414, respectively, and is
included in the accompanying consolidated balance sheets.
41
<PAGE>
5. INCOME TAXES
For financial reporting purposes, income before income taxes includes the
following components:
1999 1998 1997
--------- ---------- ----------
Domestic operations $ 353,208 $ 317,862 $ 198,071
Foreign operations 8,064 7,619 7,542
--------- ---------- ----------
Total net income before income taxes $ 361,272 $ 325,481 $ 205,613
========= ========== ==========
The provisions for income taxes consist of the following:
1999 1998 1997
-------- --------- --------
Current taxes:
Federal $ 117,167 $ 112,799 $ 26,867
State 18,582 20,803 5,317
Foreign 799 1,432 (3,501)
-------- --------- --------
Total 136,548 135,034 28,683
Deferred taxes:
Federal 5,542 (3,834) (36)
State 974 (1,333) (6)
-------- --------- --------
Total 6,516 (5,167) (42)
-------- --------- --------
Provision for income taxes $ 143,064 $ 129,867 $ 28,641
======== ========= ========
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 in 1997 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.
42
<PAGE>
Deferred tax assets (liabilities) are comprised of the following at
December 31, 1999 and 1998:
1999 1998
--------- --------
Current:
Productivity payments $ 7,598 $ 7,701
Bad debt reserves 2,364 4,352
Compensation accruals 458 6,639
Special charges 392 10,319
Other 4,526 2,874
--------- --------
$ 15,338 $ 31,885
========= ========
Noncurrent:
Software amortization $ (57,375) $ (69,036)
Postretirement medical and pension accruals 26,681 21,834
Depreciation 14,348 17,169
Services agreements 10,619 3,610
Other liabilities (8,999) (5,968)
Rights agreements (6,248) (3,281)
Other assets 4,024 4,532
Facilities reserves 2,294 5,736
--------- --------
$ (14,656) $ (25,404)
========= ========
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 $1,469
of foreign tax expense incurred for the period January 1, 1997 through July 30,
1997. The following table reconciles the U.S. statutory rate with the effective
rate for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Tax at U.S. federal income tax rate $ 126,445 $ 113,918 $ 23,669
Increase (decrease) in taxes resulting from:
State income taxes, net of U.S. federal income tax benefit 12,711 13,522 3,457
Amortization of excess of cost over net assets acquired and
related purchase accounting adjustments 2,111 2,111 880
Tax effect of non-deductible expenses 373 344 175
Foreign and U.S. tax effects attributable to foreign operations 1,792 323 110
Other (368) (351) 350
--------- --------- --------
Taxes on income at effective rate $ 143,064 $ 129,867 $ 28,641
========= ========= ========
</TABLE>
Undistributed earnings of the Company's corporate foreign subsidiaries
amounted to approximately $3,237 and $3,401 at December 31, 1999 and 1998,
respectively. 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
43
<PAGE>
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 $314 and $240 would be payable upon remittance of all previously
unremitted earnings at December 31, 1999 and 1998, respectively.
6. INVESTMENTS
Investments in equity securities at December 31, 1999 were as follows:
<TABLE>
Gross Unrealized
Amoritized ---------------- Fair
Cost Gains (Losses) Value
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Marketable equity securities:
Trading securities $ 1,000 $ 10,492 $ - $ 11,492
Available-for-sale securities 3,274 - (1,838) 1,436
--------- -------- -------- -------
Total marketable securities 4,274 $ 10,492 $ (1,838) $ 12,928
======== ======== ========
Other equity securities 27,597
----------
Total $ 31,871
==========
</TABLE>
Investments in equity securities at December 31, 1998 were limited to other
equity securities with amortized cost of $5,076. There were no realized or
unrealized gains or losses on equity investments in 1998.
In December 1999, the Company entered into an agreement to sell its entire
equity investment in Stamps.com for $11,492. This investment is classified as
trading at December 31, 1999 and is included in other current assets. The
remaining marketable equity securities are classified as available-for-sale and
are included in long-term investments.
Unrealized gains of $10,492 on trading securities were included in earnings
in 1999. Unrealized holding losses of $1,122 (net of deferred taxes of $716) on
available-for-sale securities were included in accumulated other comprehensive
income in 1999. There were no sales of marketable equity securities in 1999.
Other equity securities represent non-marketable securities that are
restricted or not publicly traded. These securities are included in long-term
investments. Included in this category are non-marketable depository
certificates representing beneficial ownership of common stock of Equant N.V.
("Equant"), a telecommunications company affiliated with Societe Internationale
de Telecommunications Aeronautiques ("SITA"). In July 1999, SITA notified the
Company of a reallocation of depository certificates among SITA members. Due to
the Company's higher usage of the SITA network over the four years ended
December 31, 1998, the Company received 708,335 additional depository
certificates. In connection with secondary offerings of Equant common stock in
1999, the Company liquidated 696,151 of these certificates. The Company received
proceeds of $58,725 from these transactions, resulting in gains of $58,574. As
of December 31, 1999 and 1998, the Company owned 1,106,564 and 1,094,380 of
these depository certificates, respectively. The Company's carrying value of
these depository certificates was nominal at December 31, 1999 and 1998.
44
<PAGE>
7. LEASES AND COMMITMENTS
The Company leases various office facilities and equipment under operating
leases with remaining terms of up to 24 years. Rental expense under operating
leases was $22,806, $25,756, and $24,493 for the years ended December 31, 1999,
1998, and 1997, respectively.
The Company also leases data processing equipment under capital leases.
Equipment, at cost, includes $4,819, $26,027, and $25,969 relating to capital
leases at December 31, 1999, 1998, and 1997, respectively. Accumulated
depreciation includes $4,613, $21,842, and $15,616 relating to capital leases at
December 31, 1999, 1998, and 1997, respectively, with lease amortization
included in depreciation expense.
Future minimum lease payments under capital leases and noncancelable
operating leases at December 31, 1999 are as follows:
<TABLE>
Capital Operating
------------ -----------
<S> <C> <C>
2000 $ 116 $ 21,243
2001 94 15,953
2002 - 12,216
2003 - 11,335
2004 - 8,120
Thereafter - 45,791
------------ -----------
Total minimum lease payments 210 114,658
Less sublease income - (14,278)
-----------
Net rental payments $ 100,380
===========
Less amount representing interest (8)
------------
Present value of future minimum lease payments 202
Current portion of present value of future minimum lease payments 110
------------
Long-term portion of present value of future minimum lease payments $ 92
============
</TABLE>
8. LONG-TERM DEBT
Outstanding long-term debt consists of the following at December 31, 1999
and 1998:
1999 1998
------------ ------------
Five-year revolving credit agreement $ 400,000 $ 35,000
Term loan 34,392 34,392
364-day credit agreement 121,000 -
Other - 128
------------ ------------
555,392 69,520
Less current portion of long-term debt 121,000 -
------------ ------------
Long-term debt $ 434,392 $ 69,520
============ ============
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
45
<PAGE>
interest rate of the Term Loan until maturity in June 2003, subject to pricing
adjustments based on changes in certain financial ratios of the Company. At
December 31, 1999, the notional interest rate on the Term Loan was 6.47% and the
effective interest rate was 6.22%. 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 10.0 to 22.5 basis points under the 364-day
credit agreement and from 10.0 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. At December 31, 1999, the nominal interest rate for
loans outstanding under the Credit Agreements was 6.47%.
At December 31, 1999, borrowings totaled $400,000 under the five-year
credit agreement with no required repayments until maturity in July 2002, and
$121,000 under the 364-day credit agreement with required payment in entirety in
July 2000. The balance outstanding on the Term Loan was $34,392, with no
required repayments until maturity in June 2003. Under the Credit Agreements and
the Term Loan, the Company is required to maintain certain financial ratios and
is restricted from paying dividends and repurchasing its Common Stock above
certain thresholds.
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, 1999 and 1998, the Company had outstanding interest rate swap agreements
having a total notional value of $34,392, with fixed interest rates averaging
5.87 % for both years. The fair value of outstanding swap agreements at December
31, 1999 and 1998 was $999 and $(979), respectively. For the years ended
December 31, 1999, 1998, and 1997, the effective interest rate on the Company's
outstanding debt under the Term Loan and Credit Agreements was 5.89%, 5.89%, and
5.31%, respectively.
Total interest, including interest under capital leases, of $17,528,
$11,876, and $12,266 was incurred for the years ended December 31, 1999, 1998,
and 1997, respectively.
9. 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, 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.
On December 30, 1999, the Company was released by United Airlines from the
price increase obligation under the Services Agreement between the two
companies. In turn, GIO Services, L.L.C. ("GIO Services"), a qualified
special-purpose entity, was created to assume the liability and pay United
Airlines in
46
<PAGE>
July 2002. The activities of GIO Services are strictly limited to these
purposes. The Company contributed $97,325 of assets to GIO Services. These
assets are projected to yield cash proceeds on the payment date at least equal
to the maximum amount owed. The Company recorded a special charge of $83,226
related to this transaction.
For the non-price increase component of the United Airlines Services
Agreement and all of the remaining Services Agreements, the Company continues to
estimate the probable future liabilities and ratably records these liabilities
over the remaining contract periods. At December 31, 1999 and 1998, the
estimated liability related to the Services Agreements was $13,874 and $9,257,
respectively, and is included in other noncurrent liabilities in the
accompanying consolidated balance sheets.
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, 1999 and 1998, the
liability related to these payments was $5,040 for both years and is included in
other noncurrent liabilities in the accompanying consolidated balance sheets.
10. STOCKHOLDERS' EQUITY
Common Stock
Each share of Common Stock entitles the holder thereof to one vote in
elections of independent and management 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, when and if declared
by the Board of Directors.
In early May 1999, the Company filed a registration statement with the
Securities and Exchange Commission for a secondary offering of 36,727,600 shares
of its common stock, including 4,790,500 shares subject to an underwriters'
over-allotment option. This filing was a result of a demand for registration
made by an affiliate of one of our airline stockholders, which was followed by
the registration of additional shares held by affiliates of five other airline
stockholders. On June 3, 1999, the secondary offering of 31,937,100 shares of
the Company's Common Stock was completed at a price of $45 per share. The
Company did not receive any proceeds from the offering. On June 29, 1999, the
Company repurchased 2,790,500 shares of its common stock owned by a group of its
airline stockholders for a total purchase price of $122,195. The 2,790,500
shares repurchased by the Company, in addition to 2,000,000 purchased by the
underwriters on July 1, 1999, were part of the over-allotment option noted
above.
On June 30, 1999, the Company purchased all of the issued and outstanding
shares of a British Airways Plc subsidiary, which indirectly owned 7,000,400
shares of the Company's Common Stock, for an aggregate amount of $307,736.
Special Voting Preferred Stock
The Company's Special Voting Preferred Stock (the "Special Preferred"), of
which seven shares were initially authorized and issued, permits, under certain
circumstances, each holder of a share of Special Preferred to elect one director
to the Company's Board of Directors, provided certain Common Stock ownership
thresholds are met. 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
47
<PAGE>
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.
As a result of the aforementioned secondary offering and share repurchases,
the Company redeemed four shares of its Special Preferred during 1999.
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.
Common Stock Held in Treasury
The Board of Directors of the Company authorized the use of up to $750,000
to repurchase outstanding shares of Common Stock. Repurchased shares are held in
treasury for the purpose of providing available shares for possible resale in
future public or private offerings, and for other general corporate purposes.
The purchases are funded through the Company's available working capital and
borrowing facilities. The amount, timing and price of any repurchases of the
Company's Common Stock depends on market conditions and other factors. Including
the shares repurchased by the Company as part of the secondary offering, the
shares acquired through the purchase of the British Airways Plc subsidiary, and
open market purchases, the Company repurchased a total of 14,869,500 of its
shares at a cost of $635,523 during the year ended December 31, 1999. As of
December 31, 1999 and 1998, the Company held a total of 15,038,600 and 169,100
shares in treasury, respectively.
Stock-Based Compensation
During 1999, the Company adopted the 1999 Equity and Performance Incentive
Plan (the "1999 Plan") to attract and retain officers and other key employees of
the Company and to award such persons with incentives and rewards for superior
performance. The 1999 Plan provides for the grant 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 1999 Plan. The 1999 Plan
supercedes and replaces the 1997 Stock Incentive Plan. Options outstanding under
these two plans have been granted at prices which are either equal to or above
the market value of the stock on the date of the grant, vest over a three- or
five-year period, and expire nine or ten years after the grant date.
An aggregate of 13,000,000 shares of Common Stock are reserved for issuance
under the 1999 Plan. The number of shares available for issuance under the 1999
Plan may be adjusted in the event of changes in the Company's capital structure.
Shares issued pursuant to the 1999 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 (or the airline
stockholder at the option of the 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.
48
<PAGE>
During 1998, the Company's Board of Directors approved the issuance of
97,900 shares of restricted Common Stock to the Companys President and Chief
Executive Officer. Half of these shares 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 1999 and 1998, $798 and $433, respectively, of compensation cost for
restricted shares was recognized in the financial statements.
During 1998 and 1997, 34,550 and 2,200 stock appreciation rights were
granted under the 1997 Plan, respectively. The weighted average fair value on
the grant date for the stock appreciation rights granted in 1998 and 1997 were
$14.54 and $7.05, respectively. No stock appreciation rights were issued in
1999. Compensation cost for stock appreciation rights of $(53), $57, and $2 was
recognized in the financial statements for the years ended December 31, 1999,
1998, and 1997, respectively.
Stock option activity during 1999, 1998, and 1997 is as follows (number of
shares in thousands):
<TABLE>
1999 1998 1997
------------------------- ------------------------- ------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Shares Exercise Price of Shares Exercise Price of Shares Exercise Price
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 2,824 $ 35.51 1,064 $ 25.40 - $ -
Granted 451 48.02 1,889 40.75 1,107 25.37
Exercised (107) 30.34 (33) 24.57 - -
Forfeited (275) 37.52 (96) 30.56 (43) 24.50
Expired - - - - - -
---------- --------- ---------
Outstanding at December 31 2,893 $ 37.45 2,824 $ 35.51 1,064 $ 25.40
========== ========= =========
Options exercisable at December 31 884 34.44 188 24.76 - -
Weighted average fair value of
options granted during the year $ 19.52 $ 14.53 $ 6.73
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999 (number of shares in thousands):
<TABLE>
Options Outstanding Options Exercisable
---------------------------------------------- ---------------------------
Weighted
Range of Average Weighted Weighted
Exercise Number Remaining Average Number Average
Prices of Shares Contractual Life Exercise Price of Shares Exercise Price
- ---------- --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
$24 to $34 851 7.6 $ 25.78 365 $ 25.28
$37 to $41 1,609 8.3 40.76 507 40.70
$46 to $55 433 9.5 48.08 12 48.63
--------- ----------
$24 to $55 2,893 8.3 $ 37.45 884 $ 34.44
========= ==========
49
<PAGE>
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its stock-based
compensation plans 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":
<TABLE>
1999 1998 1997
---------- ----------- -----------
Valuation assumptions:
<S> <C> <C> <C>
Expected option term (years) 5.0 5.0 5.0
Expected volatility 40.0% 35.0% 25.0%
Expected dividend yield 1.0% 1.0% 1.0%
Risk-free interest rate 6.0% 5.0% 5.0%
Pro forma effects (1):
Net income as reported $ 218,208 $ 195,614 $ 161,637
Pro forma effect (7,328) (4,118) (624)
---------- ----------- -----------
Net income as adjusted $ 210,880 $ 191,496 $ 161,013
========== =========== ===========
Basic earnings per share as adjusted (2) $ 2.15 $ 1.83 $ 1.29
========== =========== ===========
Diluted earnings per share as adjusted (2) $ 2.13 $ 1.82 $ 1.29
========== =========== ===========
</TABLE>
(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 Note 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. SUPPLEMENTAL INFORMATION
Supplemental cash flow information and noncash investing and financing
activities are as follows:
<TABLE>
1999 1998 1997
------------ ---------- ---------
Supplemental cash flow information
Cash paid during the period for:
<S> <C> <C> <C>
Interest $ 11,471 $ 11,994 $ 12,786
Income taxes 148,300 123,508 32,001
Supplemental noncash investing and financing
activities
Capital lease obligations and accounts payable from
acquisition of equipment $ 8,394 $ 901 $ 7,295
</TABLE>
50
<PAGE>
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.
13. 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
------------ ----------- ------------
1999
- ----
Revenues $ 603,776 $ 848,326 $ 1,452,102
Identifiable assets 165,990 24,887 190,877
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
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.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables set forth an unaudited summary of quarterly financial
data (in thousands, except share data) for the years ended December 31, 1999 and
1998. 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.
51
<PAGE>
1999
----
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Total revenues $ 403,991 $ 398,822 $ 384,692 $ 338,597
Operating expenses 283,175 294,807 288,120 347,098
Operating income (loss) 120,816 104,015 96,572 (8,501)
Net income 78,006 62,249 54,248 23,705
Basic earnings per share 0.75 0.60 0.58 0.26
Diluted earnings per share 0.74 0.59 0.58 0.26
1998
----
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
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
The Company typically 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 the fourth quarter of 1999, the Company recognized an $83,226 ($50,269
after tax) special charge to extinguish the price-increase component of its
liability arising from its services agreement with United Airlines, and an
$11,359 ($6,861 after tax) recovery of expenses previously reserved for the
realignment of its United Kingdom operations. See Note 9 and Note 4,
respectively, for further discussion.
Operating expenses for the fourth quarter of 1998 include special charges
of $26,460 ($15,902 after tax) related to a strategic realignment of the
Company's operations in the United Kingdom. See Note 4 for further discussion.
Earnings per share amounts for each quarter are required to be computed
independently and, as a result, their sum does not equal the total year earnings
per share amounts for 1999 and 1998.
15. SUBSEQUENT EVENTS
On January 27, 2000, the Company announced its intention to acquire Travel
Automation Services Limited, which includes Galileo UK, the Company's NDC in the
United Kingdom, from British Airways Plc. Galileo UK distributes the Company's
system to travel agents across the United Kingdom and provides travel technology
solutions tailored to the unique requirements of the United Kingdom market.
On February 8, 2000, the Company announced plans to acquire the remaining
ownership interest in TRIP.com, a leading online travel service and technology
provider. At December 31, 1999, the Company owned approximately 20% of TRIP.com.
Under terms of the acquisition, which the Company expects to
52
<PAGE>
close during the first quarter of 2000, the Company will purchase the remaining
ownership interest for $269,000 in a combined stock and cash transaction.
Both of these transactions will be accounted for using the purchase method
of accounting. Accordingly, a portion of the purchase prices will be allocated
to net tangible and intangible assets based on their estimated fair values.
The Company plans to fund the acquisition of TRIP.com with additional bank
financing and is in the process of completing a new line of credit with its
lenders.
53
<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" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in our definitive Proxy Statement for our 2000
Annual Meeting of Stockholders, filed on or before April 13, 2000. 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" in our definitive Proxy Statement for our 2000
Annual Meeting of Stockholders, filed on or before April 13, 2000.
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", "Principal Holders of
Securities" and "Ownership of Common Stock by Directors and Executive Officers"
in our definitive Proxy Statement for our 2000 Annual Meeting of Stockholders,
filed on or before April 13, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the information set forth under the
heading "Certain Relationships and Related Transactions" in our definitive Proxy
Statement for our 2000 Annual Meeting of Stockholders, filed on or before April
13, 2000.
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)
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)
54
<PAGE>
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)
(a) First Amendment to Stockholders' Agreement
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) (13)
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 Merger Agreement By and Among Galileo International, Inc.,
Galileo Acquisition Co.and Trip.com, Inc.
10.9 Credit Agreements:
(a) Second Amended and Restated $200,000,000 364-Day Credit
Agreement (12)
(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 (7)
(v) Amendment No. 4 (11)
(vi) Amendment No. 5 (12)
(c) Galileo Canada ULC $34,391,917 Credit Agreement (6)
(i) Amendment No. 1 (12)
10.10 Galileo International, Inc. Guaranty (6)
(i) Amendment No. 1 (11)
(ii) Amendment No. 2 (11)
(iii) Amendment No. 3 (12)
55
<PAGE>
10.11 Hillmead Underlease (1)
10.12 Underlease, dated 1996, between The Galileo Company and Lucent
Technologies Network Systems UK Limited (1)
10.13 Lease, dated March 1, 1994, between St. Martins Property
Investments Limited and The Galileo Company (1)
10.14 Englewood, Colorado Office Lease, dated April 18, 1988 (1)
(a) First Amendment to Englewood, Colorado Office Lease,
dated June 23, 1988 (1)
10.15 Rosemont Office Lease, dated March 31, 1995 (1)
10.16 Windsor, England Office Agreement for Lease, dated June 2, 1999
(10)
(i) Annex No. 1 (12)
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)
(a) Addendum No. 4 to Program Product Master License Agreement
(9)
(b) Addendum No. 1 to Program Product Master License Agreement
(c) Addendum No. 2 to Program Product Master License Agreement
(d) Addendum No. 3 to Program Product Master License Agreement
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 (7)
(b) Amendment No. 2 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)
(a) Product Schedule to Software License Agreement and
Addendum (9)
(b) Addendum No. 1 to Product Schedule (9)
10.23 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)
10.24 Agreement for the Provision of Telecommunication Services
between Societe Internationale de Telecommunications
Aeronautiques and Galileo International, L.L.C. (13)
10.25 Form of Galileo International Distributor Sales and Service
Agreement (1)
56
<PAGE>
10.26 Form of Global Airline Distribution Agreement (1)
10.27 Agreement for the Provision of Services between The Galileo
Company and Galileo International Partnership (1)
10.28 AT&T OneNet Contract dated December 28, 1998 (7)
(a) Amendment No. 1 dated May 22, 1999
(b) Amendment No. 2 dated July 29, 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. 1999 Equity and Performance
Incentive Plan (10)
*10.41 Galileo International, Inc. 1997 Non-Employee Director Stock
Plan (1)
*10.42 Form of Deferred Compensation Arrangements For Senior Officers
of Galileo International, Inc. (3)
*10.43 Galileo UK Health Benefit Policy (1)
*10.44 Employment Agreement of James E. Barlett (7)
*10.45 Form of Senior [and Executive] Vice President Employment
Agreement (11)
*10.46 Travel Accident Insurance Plan (7)
(a) Plan specific for Asia, the Americas and Pacific (7)
(b) Plan specific for Africa, Europe and the Middle East (7)
*10.47 Galileo International Management Incentive Plan 1998 Plan
Summary (6)
*10.48 Form of Non-Qualified Stock Option Agreement [Standard Form -
Executive Group] (12)
*10.49 Form of Non-Qualified Stock Option Agreement [Standard Form -
Non-Executive Group] (12)
57
<PAGE>
11.1 Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule
<TABLE>
<S> <C>
(1) Incorporated by reference to Exhibits 2.3, 4.2 10.4, 10.9, 10.11 through 10.13, 10.15
through 10.27, 10.29, 10.31 through 10.40, 10.42 and 10.44 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, 2.2, 2.4 through 4.1, 10.1 through 10.3,
10.5, 10.8 and 10.10 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 10.2 and 10.4 through 10.6 to the Company's
Form 10-Q for the quarterly period ended June 30, 1998.
(7) Incorporated by reference to Exhibits 10.8, 10.21, 10.31, 10.43 and 10.44 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 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) Incorporated by reference to Exhibit 10.1 through 10.3 to the Company's Form 10-Q for
the quarterly period ended March 31, 1999.
(10) Incorporated by reference to Exhibit 4.3 to the Company's Form S-8 Registration
Statement filed April 30, 1999 (Registration No. 333-77421).
(11) Incorporated by reference to Exhibits 10.1 through 10.3, 10.5 and 10.6 to the
Company's Form 10-Q for the quarterly period ended June 30, 1999.
(12) Incorporated by reference to Exhibits 10.1 through 10.7 to the Company's Form 10-Q
for the quarterly period ended September 30, 1999.
(13) 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.
</TABLE>
* 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, 1999.
58
<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 10th day of
March, 2000.
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 24, 2000
- -------------------- Chief Executive Officer
James E. Barlett (principal executive
officer)
/s/ Paul H. Bristow Director, Executive Vice February 24, 2000
- ------------------- President, Chief
Paul H. Bristow Financial Officer and
Treasurer (principal
financial and accounting
officer)
/s/ Anthony C. Swanagan Director, Senior Vice February 24, 2000
- ----------------------- President, General
Anthony C. Swanagan Counsel and Secretary
/s/ Graham W. Atkinson Director February 24, 2000
- ----------------------
Graham W. Atkinson
/s/ Wim Dik Director February 24, 2000
- -----------
Wim Dik
/s/ Mina Gouran Director February 24, 2000
- ---------------
Mina Gouran
/s/ Georges P. Schorderet Director February 24, 2000
- -------------------------
Georges P. Schorderet
/s/ Andrew P. Studdert Director March 8, 2000
- ----------------------
Andrew P. Studdert
/s/ Kenneth Whipple Director February 24, 2000
- --------------------
Kenneth Whipple
59
<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)
(a) First Amendment to Stockholders' Agreement
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) (13)
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 Merger Agreement By and Among Galileo International, Inc.,
Galileo Acquisition Co.and Trip.com, Inc.
60
<PAGE>
10.9 Credit Agreements:
(a) Second Amended and Restated $200,000,000 364-Day Credit
Agreement (12)
(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 (7)
(v) Amendment No. 4 (11)
(vi) Amendment No. 5 (12)
(c) Galileo Canada ULC $34,391,917 Credit Agreement (6)
(i) Amendment No. 1 (12)
10.10 Galileo International, Inc. Guaranty (6)
(i) Amendment No. 1 (11)
(ii) Amendment No. 2 (11)
(iii) Amendment No. 3 (12)
10.11 Hillmead Underlease (1)
10.12 Underlease, dated 1996, between The Galileo Company and Lucent
Technologies Network Systems UK Limited (1)
10.13 Lease, dated March 1, 1994, between St. Martins Property
Investments Limited and The Galileo Company (1)
10.14 Englewood, Colorado Office Lease, dated April 18, 1988 (1)
(a) First Amendment to Englewood, Colorado Office Lease,
dated June 23, 1988 (1)
10.15 Rosemont Office Lease, dated March 31, 1995 (1)
10.16 Windsor, England Office Agreement for Lease, dated June 2, 1999
(10)
(i) Annex No. 1 (12)
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)
(a) Addendum No. 4 to Program Product Master License Agreement
(9)
(b) Addendum No. 1 to Program Product Master License Agreement
(c) Addendum No. 2 to Program Product Master License Agreement
(d) Addendum No. 3 to Program Product Master License Agreement
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 (7)
61
<PAGE>
(b) Amendment No. 2 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)
(a) Product Schedule to Software License Agreement and
Addendum (9)
(b) Addendum No. 1 to Product Schedule (9)
10.23 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)
10.24 Agreement for the Provision of Telecommunication Services
between Societe Internationale de Telecommunications
Aeronautiques and Galileo International, L.L.C. (13)
10.25 Form of Galileo International Distributor Sales and Service
Agreement (1)
10.26 Form of Global Airline Distribution Agreement (1)
10.27 Agreement for the Provision of Services between The Galileo
Company and Galileo International Partnership (1)
10.28 AT&T OneNet Contract dated December 28, 1998 (7)
(a) Amendment No. 1 dated May 22, 1999
(b) Amendment No. 2 dated July 29, 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. 1999 Equity and Performance
Incentive Plan (10)
*10.41 Galileo International, Inc. 1997 Non-Employee Director Stock
Plan (1)
62
<PAGE>
*10.42 Form of Deferred Compensation Arrangements For Senior Officers
of Galileo International, Inc. (3)
*10.43 Galileo UK Health Benefit Policy (1)
*10.44 Employment Agreement of James E. Barlett (7)
*10.45 Form of Senior [and Executive] Vice President Employment
Agreement (11)
*10.46 Travel Accident Insurance Plan (7)
(a) Plan specific for Asia, the Americas and Pacific (7)
(b) Plan specific for Africa, Europe and the Middle East (7)
*10.47 Galileo International Management Incentive Plan 1998 Plan
Summary (6)
*10.48 Form of Non-Qualified Stock Option Agreement [Standard Form -
Executive Group] (12)
*10.49 Form of Non-Qualified Stock Option Agreement [Standard Form -
Non-Executive Group] (12)
11.1 Computation of Per Share Earnings
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule
<TABLE>
<S> <C>
(1) Incorporated by reference to Exhibits 2.3, 4.2 10.4, 10.9, 10.11 through 10.13, 10.15
through 10.27, 10.29, 10.31 through 10.40, 10.42 and 10.44 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, 2.2, 2.4 through 4.1, 10.1 through 10.3,
10.5, 10.8 and 10.10 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 10.2 and 10.4 through 10.6 to the Company's
Form 10-Q for the quarterly period ended June 30, 1998.
(7) Incorporated by reference to Exhibits 10.8, 10.21, 10.31, 10.43 and 10.44 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 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) Incorporated by reference to Exhibit 10.1 through 10.3 to the Company's Form 10-Q for
the quarterly period ended March 31, 1999.
(10) Incorporated by reference to Exhibit 4.3 to the Company's Form S-8 Registration
Statement filed April 30, 1999 (Registration No. 333-77421).
(11) Incorporated by reference to Exhibits 10.1 through 10.3, 10.5 and 10.6 to the
Company's Form 10-Q for the quarterly period ended June 30, 1999.
(12) Incorporated by reference to Exhibits 10.1 through 10.7 to the Company's Form 10-Q
for the quarterly period ended September 30, 1999.
63
<PAGE>
(13) 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.
</TABLE>
* Management contract or compensatory plan or arrangement.
64
<PAGE>
Exhibit 10.1
FIRST AMENDMENT
TO
STOCKHOLDERS' AGREEMENT
Among
GALILEO INTERNATIONAL, INC.
Certain of its
STOCKHOLDERS
And certain
RELATED PARTIES OF SUCH STOCKHOLDERS
Dated as of June ___, 1998
This FIRST AMENDMENT TO STOCKHOLDER' AGREEMENT, dated as of June ___, 1998
(the "First Amendment"), amends the Stockholders' Agreement, dated as of July
30, 1997 (as amended, the "Agreement"), among GALILEO INTERNATIONAL, INC., a
Delaware corporation (the "Company"), each of the stockholders listed on
Schedule A to the Agreement and, with respect to Articles IV and V of the
Agreement only, each of the Persons listed on Schedule B to the Agreement.
Capitalized terms used in the First Amendment and not otherwise defined herein
have the meanings ascribed to such terms in the Agreement.
WHEREAS, the Company, the Original Owners and certain other stockholders
have entered into the Agreement which provides their understanding and agreement
for the voting of shares of Common Stock held by the Original Owners on certain
matters, and for certain other courses of conduct; and
WHEREAS, a certain Original Owner desires to amend the Agreement in certain
respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1 Amendment. Section 2.07 of the Agreement is amended by deleting
the existing section in its entirety and substituting the following therefor:
SECTION 2.07. Compensation of Directors. Unless otherwise restricted by the
Restated Certificate of Incorporation or By-Laws of the Company, each
Independent Director, in consideration for his or her serving as such, shall
receive from the Company compensation in an amount and form customary for public
companies comparable to the Company. Management Directors shall not receive
compensation for serving as Directors. Original Owner Directors will receive the
same compensation as received by Independent Directors; provided that all cash
compensation payable to an Original Owner Director who is an employee or officer
of the original Owner (or an Affiliate thereof) electing such Director shall be
paid by the Company either to such Original Owner or such Affiliate unless the
Original Owner or such Affiliate directs the Company in writing to pay the cash
compensation directly to any such Director(s), and, in the case of non-cash
compensation (in the form of stock options or otherwise), such non-cash
compensation will be converted into a cash amount equal to the fair market value
of such non-cash compensation, as calculated by the Company (based, in the case
of stock options, on the Black-Scholes Option Pricing Model), and such amount
will be paid by the Company either to such Original Owner or such Affiliate
unless the Original Owner or such Affiliate directs the Company in writing to
pay the non-cash compensation directly to any such Director(s). The Company
shall reimburse each Director or member of a committee for any out-of-pocket
expenses incurred by him or her on account of his or her attendance at any
meeting of the Board or such committee; provided that all such expenses payable
to an Original Owner Director who is an officer or employee of an Original Owner
(or an Affiliate thereof) will be paid by the Company either to such Original
Owner or such Affiliate unless the Original Owner or an Affiliate thereof
directs the Company in writing to pay such expenses directly to any such
Director(s). Any direction by an Original Owner or an Affiliate thereof under
this Section 2.07 may relate to a specific payment or to payments generally, and
any such direction may be withdrawn or modified in writing by the Original Owner
or Affiliate thereof in its sole discretion at any time prior to the payment by
the Company of the directed amount.
SECTION 2 Effectiveness. The amendment set forth in Section 1 shall become
effective, as of the day and year first above written, on such date (the "First
Amendment Effective Date") when the Company shall have received counterparts of
this First Amendment executed pursuant to Section 5.04(ii) of the Agreement on
behalf of the Company and the Original Owners who are a party to the Agreement
that hold series of Preferred Stock that are entitled to elect one or more
directors to the Board pursuant to the terms of the Preferred Stock.
SECTION 3 Miscellaneous.
SECTION 3.1 Continuing Effectiveness. As herein amended, the Agreement
shall remain in full force and effect and is hereby ratified and confirmed in
all respects. After the First Amendment Effective Date, all references in the
Agreement to "Stockholders' Agreement", "Agreement" or similar terms shall refer
to the Agreement as amended hereby.
SECTION 3.2 Counterparts. This First Amendment may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement.
SECTION 3.3 Successors and Assigns. This First Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
IN WITNESS WHEREOF, the parties have duly caused this First Amendment to be
executed as of the date first above written by their respective officers
thereunto duly authorized.
GALILEO INTERNATIONAL, INC.
By: /s/ James E. Barlett
Name: James E. Barlett
Title: Chairman, President and Chief
Executive Officer
AER LINGUS LIMITED
By: /s/ Victor Garland
Name: Victor Garland
Title:
AIR CANADA
By:
Name:
Title:
ALITALIA-LINEE AEREE
ITALIANE S.p.A.
By: /s/ Pierluigi Alemanni
Name: Pierluigi Alemanni
Title: Director
RACOM TELEDATA S.p.A.
By: /s/ Pierluigi Alemanni
Name: Pierluigi Alemanni
Title: Director
AUSTRIAN AIRLINES OESTERREICHISCHE
LUFTVERKEHRS AKTIENGESELLSCHAFT
By: /s/ Ferdinand Schmidt
Name: Ferdinand Schmidt
Title: Network Management
TRAVIDATA INC.
By: /s/ Dr. Rainer Walther
Name: Dr. Ranier Walther
Title Vice President Passenger System
BRITISH AIRWAYS PLC
By: /s/ Paul Jarvis
Name: Paul Jarvis
Title: Assistant Secretary
DISTRIBUTION SYSTEMS, INC.
By: Paul Jasivlee
Name: Paul Jasivlee
Title:
KONINKLIJKE LUCHTVAART MAATSCHAPPIJ N.V.
KLM ROYAL DUTCH AIRLINES
By: /s/ H.E. Kuiperi
Name: H.E. Kuiperi
Title: Executive Vice President and
General Secretary
By: /s/ J.A. de Die
Name: J.A. de Die
Title: Senior Vice President Finance
TRAVEL INDUSTRY SYSTEMS B.V.
By: /s/ H.E. Kuiperi
Name: H.E. Kuiperi
Title: Executive Vice President and
General Secretary
By: /s/ J.A. de Die
Name: J.A. de Die
Title: Senior Vice President Finance
OLYMPIC AIRWAYS S.A.
By:
Name:
Title:
OLYNET, INC.
By:
Name:
Title:
SAIR GROUP (LTD.)
By: /s/ Georges Schorderet
Name: Georges Schorderet
Title: Executive Vice President &
Chief Financial Officer
By: /s/ Sten Daugaard
Name: Sten Daugaard
Title: Corporate Treasurer
ROSCOR A.G.
By: /s/ Georges Schorderet
Name: Georges Schorderet
Title: Executive Vice President &
Chief Financial Officer
By: /s/ Ignaz Tschirky
Name: Ignaz Tschirky
Title: General Manager
TRANSPORTES AEREOS PORTUGUESES S.A.
By: /s/ Eduardo
Name: Eduardo
Title:
UNITED AIR LINES, INC.
By: /s/ Stuart I. Oran
Name: Stuart I. Oran
Title: Executive Vice President -
Corporate Affairs
COVIA LLC
By: /s/ Stuart I. Oran
Name: Stuart I. Oran
Title: Vice President
US AIRWAYS, INC.
By: /s/ Terry L. Hall
Name: Terry L. Hall
Title: Senior Vice President & Chief
Financial Officer
USAM CORP.
By: /s/ Terry L. Hall
Name: Terry L. Hall
Title: Senior Vice
<PAGE>
Exhibit 10.8
==============================================================================
Merger Agreement
By and Among
Galileo International, Inc.,
Galileo Acquisition Co.
and
Trip.com, Inc.
==============================================================================
-iv-
Table of Contents
Section Heading Page
Article I The Merger.................................................1
Section 1.1. Merger and the Surviving Corporation.......................1
Section 1.2. Conversion of Stock........................................2
Section 1.3. Escrow.....................................................5
Section 1.4. Treatment of Outstanding Company Stock Options.............8
Section 1.5. Surrender of Certificates..................................8
Section 1.6. Withholding Rights.........................................9
Section 1.7. Reliance Upon Exemption...................................10
Section 1.8. Stock Certificate Legend..................................10
Section 1.9. Tax Consequences..........................................10
Article 2 Representations and Warranties of the Company.............10
Section 2.1. Corporate Status of the Company...........................10
Section 2.2. Authority of the Company..................................11
Section 2.3. Capitalization............................................11
Section 2.4. Equity Interests of the Company...........................12
Section 2.5. Annual Financial Statements Previously Delivered..........12
Section 2.6. Interim Financial Statements..............................13
Section 2.7. Operations................................................13
Section 2.8. Liabilities and Obligations of the Company................15
Section 2.9. Title.....................................................15
Section 2.10.Inventories...............................................16
Section 2.11.Information and Access....................................16
Section 2.12.Insurance.................................................16
Section 2.13.Litigation and Claims.....................................17
Section 2.14.Employment Obligations....................................17
Section 2.15.Compliance with ERISA.....................................17
Section 2.16.Environmental Matters.....................................20
Section 2.17.Union Relations...........................................21
Section 2.18.Preservation of Business Relationships....................21
Section 2.19.Taxes.....................................................21
Section 2.20.Material Agreements.......................................22
Section 2.21.No Default under Agreements...............................23
Section 2.22.Compliance with Laws......................................24
Section 2.23.Licenses, Permits and Approvals...........................24
Section 2.24.Accounts Receivable.......................................24
Section 2.25.Patents, Trademarks, Etc..................................24
Section 2.26.Bank Accounts.............................................27
Section 2.27.Real Property Matters.....................................27
Section 2.28.Assets and Properties.....................................28
Section 2.29.Disclosure................................................28
Section 2.30.Updating of Schedules.....................................28
Section 2.31.Location of Assets........................................28
Section 2.32.Proxy Statement...........................................29
Article 3 Representations and Warranties of Galileo and
the Merger Sub............................................29
Section 3.1. Corporate Status of Galileo...............................29
Section 3.2. Authority.................................................29
Section 3.3. Authority of Galileo and Merger Sub.......................29
Section 3.4. Capital Structure.........................................29
Section 3.5. SEC Documents; Galileo Financial Statements...............29
Section 3.6. No Material Adverse Change................................30
Section 3.7. Litigation................................................30
Article 4 Conditions Precedent to Obligations of Galileo
and the Merger Sub........................................30
Section 4.1. Accuracy of Representations, Warranties and
Covenants..............................................30
Section 4.2. HSR Act...................................................31
Section 4.3. Licenses, Permits, Approvals, Etc.........................31
Section 4.4. Employment Agreements.....................................31
Section 4.5. Approval of Legal Matters by Counsel......................31
Section 4.6. No Adverse Proceedings....................................31
Section 4.7. Receipt of Closing Documents..............................31
Section 4.8. Approval of Updated Schedules.............................31
Section 4.9. Third Party Consents......................................31
Section 4.10.Company Stockholder Approval..............................32
Section 4.11.Tax Opinion...............................................32
Section 4.12.Dissenting Company Stock..................................32
Section 3.4. Exemption.................................................32
Article 5 Conditions Precedent to Obligations of the
Company...................................................32
Section 5.1. Accuracy of Representations, Warranties and
Covenants..............................................32
Section 5.2. HSR Act...................................................33
Section 5.3. Receipt of Closing Documents..............................33
Section 5.4. Approval of Legal Matters by Counsel......................33
Section 5.5. Company Stockholder Approval..............................33
Section 5.6. Tax Opinion...............................................33
Article 6 Closing...................................................33
Section 6.1. Date, Time and Place of Closing...........................33
Section 6.2. Documents to be Delivered by the Company to
Galileo................................................33
Section 6.3. Items to Be Delivered by Galileo..........................35
Article 7 Further Agreements........................................35
Section 7.1. Commissions and Expenses of Sale..........................35
Section 7.2. Other Acquisition Proposals...............................36
Section 7.3. Approvals and Consents....................................36
Section 7.4. Company Stockholder Approval..............................36
Section 7.5. FIRPTA....................................................37
Section 7.6. Registration Statements...................................37
Article 8 Amendment And Termination.................................37
Section 8.1. Amendment.................................................37
Section 8.2. Termination...............................................37
Section 8.3. Effect of Termination.....................................38
Section 8.4. Waiver....................................................38
Article 9 Survival of Representations and Indemnification...........38
Section 9.1. Survival of Representations and Warranties................38
Section 9.2. Indemnification by the Company............................38
Article 10 Registration of Galileo Shares............................39
Article 11 Miscellaneous Provisions..................................40
Section 11.1.Notices...................................................40
Section 11.2.Further Assurance.........................................41
Section 11.3.Execution and Counterparts................................41
Section 11.4.Headings..................................................41
Section 11.5.Effectiveness.............................................41
Section 11.6.Miscellaneous.............................................41
Section 11.7.Publicity.................................................41
Schedule 2.3 Capital Arrangements/Commitments
Schedule 2.4 Equity Interests/Investments
Schedule 2.7 Operations
Schedule 2.9 Title
Schedule 2.12 Insurance
Schedule 2.13 Litigation and Claims
Schedule 2.14 Employment Matters
Schedule 2.14A Independent Contractors
Schedule 2.15 Employee Benefit Matters
Schedule 2.16 Environmental Matters
Schedule 2.17 Union Relations
Schedule 2.19 Taxes
Schedule 2.20 Material Agreements
Schedule 2.23 Licenses, Permits and Approvals
Schedule 2.25 Intellectual Property
Schedule 2.26 Bank Accounts
Schedule 2.27 Real Property Matters
Schedule 2.28 Assets and Property
Schedule 2.31. Location of Assets
Schedule 4.4 List of Employees Who are to Sign Employment Agreements
Schedule 4.9 Partial List of Contracts Involving Third Party Consents
Exhibit A Certificate of Merger
Exhibit B Escrow Agreement
Exhibit C Stockholders Representations
Exhibit D Legal Opinion of Company's Counsel
Exhibit E Legal Opinion of Galileo's Counsel
Pursuant to Rule 601 (b)(2), the Company hereby agrees to furnish
supplementally a copy of any omitted schedule ot the Commission upon request.
E-43
Merger Agreement
This Agreement is made and entered into as of the ____ day of February,
2000, by and among Galileo International, Inc., a Delaware corporation
(hereinafter referred to as "Galileo"), Galileo Acquisition Co., a Delaware
corporation (hereinafter referred to as the "Merger Sub"), and Trip.com,
Inc., a Delaware corporation (hereinafter referred to as the "Company");
Witnesseth:
Whereas, the Merger Sub is a wholly-owned subsidiary of Galileo formed
for the purposes of the transaction contemplated hereunder;
Whereas, the respective Boards of Directors of Galileo, the Merger Sub
and the Company have approved the merger of the Company with and into the
Merger Sub described in Article 1 hereof (hereinafter referred to as the
"Merger"), and have determined that the Merger is in the best interests of
Galileo, the Merger Sub and the Company and their respective stockholders;
Whereas, for Federal income tax purpose, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (hereinafter referred to as the
"Code");
Now, Therefore, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, the parties hereto hereby agree as follows:
Article I
The Merger
Section 1.1. Merger and the Surviving Corporation. (a) Subject to the
terms and conditions of this Agreement, the Company shall be merged with and
into the Merger Sub (which shall be the surviving corporation in the Merger)
in accordance with the General Corporation Law of the State of Delaware. The
Merger shall become effective upon the filing with the Secretary of State of
Delaware of a properly executed certificate of merger with respect thereto in
substantially the form which is attached hereto as Exhibit A and hereby made
a part hereof (hereinafter referred to as the "Certificate of Merger") or at
such later time, if any, as may be agreed to by the parties hereto and
specified in the Certificate of Merger. The time when the Merger shall
become effective is hereinafter referred to as the "Effective Time." For
purposes hereof, the term "Constituent Corporations" shall mean the Merger
Sub and the Company and the term "Surviving Corporation" shall mean the
Merger Sub as the corporation surviving in the Merger.
(b) At the Effective Time, by virtue of the Merger, the Company shall
be merged with and into the Merger Sub, with the Merger Sub being the
surviving corporation, and all the rights, privileges, powers and franchises
of each of the Merger Sub and the Company and all property, real, personal
and mixed, and all debts due on whatever account, including things in action,
and all and every other interest of or belonging to or due to each of the
Merger Sub and the Company shall be vested in the Surviving Corporation and
shall be as effectually the property of the Surviving Corporation as they
were of the Merger Sub and the Company without further act or deed, and the
Surviving Corporation shall be responsible and liable for all the debts,
liabilities and duties of each of the Merger Sub and the Company, all with
the full effect provided for in the General Corporation Law of the State of
Delaware. If at any time the Surviving Corporation shall determine or be
advised that any further action is necessary or desirable to vest in the
Surviving Corporation, according to the terms hereof, title to any property
or any rights of the Constituent Corporations or to carry out the purpose of
this Agreement, the last acting officers and directors of the Company to the
extent such persons are available, or the corresponding officers and
directors of the Surviving Corporation, as the case may be, shall be
authorized to take such action.
(c) The certificate of incorporation of the Merger Sub in effect
immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation at and after the Effective Time,
until amended in accordance with the provisions thereof and the General
Corporation Law of the State of Delaware, except that at the Effective Time
such certificate of incorporation shall be amended as set forth in the
Certificate of Merger. The Surviving Corporation shall be governed by the
laws of the State of Delaware.
(d) The bylaws of the Merger Sub in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation at and after
the Effective Time, until altered, amended or repealed as provided therein
and in the certificate of incorporation of the Surviving Corporation.
(e) The directors of the Merger Sub in office immediately prior to the
Effective Time shall be the directors of the Surviving Corporation at and
after the Effective Time, until their successors are elected in accordance
with the bylaws of the Surviving Corporation.
(f) The officers of the Merger Sub in office immediately prior to the
Effective Time shall be the officers of the Surviving Corporation at and
after the Effective Time, holding the offices in the Surviving Corporation
which they held in the Merger Sub immediately prior thereto, until their
successors are elected or appointed in accordance with the bylaws of the
Surviving Corporation.
(g) From and after the Effective Time, the stock transfer books of the
Merger Sub and of the Company shall be closed with respect to any and all
shares of the capital stock of the Merger Sub and the Company, respectively,
which were issued and outstanding immediately prior to the Effective Time and
no transfer of any such shares shall thereafter be made.
Section 1.2. Conversion of Stock. (a) At the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the
Merger Sub, the Company or the holders of any shares of the capital stock of
the Company, each share of the Common Stock, $.001 par value of the Company,
Series A Preferred Stock, $.001 par value, of the Company, Series B Preferred
Stock, $.001 par value, of the Company, Series C Preferred Stock, $.001 par
value, of the Company, and Series D Preferred Stock, $.001 par value, of the
Company issued and outstanding immediately prior to the Effective Time, other
than shares of the capital stock of the Company held by Galileo or any of its
wholly-owned subsidiaries (hereinafter referred to collectively as the
"Company Stock"), shall be cancelled and be extinguished and be converted
into and become a right to receive (hereinafter referred to as the "Merger
Consideration"):
(i) cash in the amount equal to the quotient of $119,000,000 divided
by the sum of (x) the aggregate number of shares of the Company Stock issued
and outstanding immediately prior to the Effective Time (hereinafter referred
to as the "Issued and Outstanding Number"), plus (y) the aggregate number of
shares of the Company Stock which the Company would be required to issue to
the holders of any options, warrants, convertible securities or other
contracts or rights existing immediately prior to the Effective Time (but
excluding from said number any shares of the preferred stock of the Company
which are included in the Issued and Outstanding Number pursuant to the
foregoing clause (x)) entitling the holders thereof or parties thereto to
acquire shares of the Company Stock assuming all of such options, warrants,
convertible securities or other contracts or rights were then fully
exercisable or convertible and were exercised or converted (hereinafter said
sum is referred to as the "Fully-diluted Number"), which quotient shall then
have subtracted therefrom the quotient of $21,629,279 divided by the Issued
and Outstanding Number (the aggregate amount of cash payable pursuant to this
clause (i) is hereinafter referred to as the "Merger Cash");
(ii) the right to receive a proportionate amount of distributions
payable to or for the benefit of the holders of the Company Stock pursuant to
the Escrow Agreement (as such term is hereinafter defined) pursuant to which
Galileo or the Merger Sub will deposit $20,000,000 on the Closing Date for
the benefit of the holders of the Company Stock immediately prior to the
Effective Time, which proportionate amount shall be equal to the quotient of
the amount of any such distribution divided by the Issued and Outstanding
Number; and
(iii) the right to receive that number of shares of the common stock,
$.001 par value, of Galileo (hereinafter referred to as the "Galileo Common
Stock") which is equal to the quotient of (x) the quotient of $150,000,000
divided by the average of the closing prices for the Galileo Common Stock on
the New York Stock Exchange for the ten trading days preceding the date of
this Agreement (said average closing price is hereinafter referred to as the
"Galileo Common Stock Price") divided by (y) the Fully-diluted Number (the
aggregate number of shares of Galileo Common Stock to be issued pursuant to
this clause (iii) (exclusive of any fractional shares and without taking into
consideration the application of the following proviso) is hereinafter
referred to as the "Merger Shares"); provided, however, that if the sum of
(x) the Merger Cash, (y) the $20,000,000 deposited into the Escrow and (z)
any cash payable for fractional shares pursuant to Section 1.2(d) hereof
(hereinafter the sum of (x), (y) and (z) as calculated without applying the
provisions of the second proviso of this clause (iii) is referred to as the
"Adjusted Merger Cash") would exceed the aggregate value of the Merger
Shares, determined by multiplying the average of the high and low sales
prices of a share of Galileo Common Stock on the Closing Date as reported on
the New York Stock Exchange (the "Closing Date Price") by the number of
Merger Shares (hereinafter said aggregate value of the Merger Shares is
referred to as the "Merger Shares Value") then an amount in cash equal to the
sum of one-half of such excess plus $10,000 over the Merger Shares Value (the
"Excess Cash Amount") will not be paid in cash but will be paid instead in
that number of shares of Galileo Common Stock determined by dividing the
Excess Cash Amount by the Closing Date Price (hereinafter referred to as the
"Supplemental Galileo Common Stock"), and such number of shares of
Supplemental Galileo Common Stock divided by the Fully-diluted Number shall
be added to the number of shares of Galileo Common Stock determined in
accordance with the provisions of this clause (iii) preceding this proviso
which are to be paid per share to each holder of the Company Stock; provided,
further, that if the Merger Shares Value would exceed the Adjusted Merger
Cash without applying the provisions of this proviso (hereinafter the amount
of such excess is referred to as the "Excess Merger Shares Value"), Galileo
shall have the option of reducing the number of shares of Galileo Common
Stock to be issued for each share of Company Stock pursuant to this
clause (iii) by that number of shares which is equal to the quotient of that
portion of the Excess Merger Shares Value which the Company elects to pay in
cash instead of shares of Galileo Common Stock pursuant to the provisions of
this proviso divided by the Closing Date Price and then divided by the
Fully-diluted Number by paying an additional amount of cash per share of
Company Stock pursuant to Section 1.2(a)(i) equal to the quotient of that
portion of the Excess Merger Shares Value which Galileo elects to pay in cash
instead of shares of Galileo Common Stock pursuant to the provisions of this
proviso divided by the Fully-diluted Number.
(b) Each of the shares of Company Stock held by Galileo or any of its
wholly-owned subsidiaries or the Company or any of its wholly-owned
subsidiaries immediately prior to the Effective Time shall be cancelled and
retired at the Effective Time and no consideration shall be issued in
exchange thereof.
(c) Each outstanding share of the common and preferred stock of the
Merger Sub issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger, remain issued and outstanding as one share of
the common stock and preferred stock, as the case may be, of the Surviving
Corporation.
(d) Notwithstanding any other provisions of this Agreement, each
holder of shares of Company Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Galileo
Common Stock (after taking into account all certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Galileo Common Stock multiplied
by the Galileo Common Stock Price. No such holder will be entitled to
dividends, voting rights or any other rights as a stockholder in respect of
any fractional share.
(e) Each outstanding share of the Company Stock as to which a written
demand for appraisal is filed in accordance with Section 262 of the General
Corporation Law of the State of Delaware at or prior to the Meeting (as such
term is defined in Section 7.4 hereof) and not withdrawn at or prior to the
Meeting and which is not voted in favor of the Merger shall not be converted
into or represent a right to receive the Merger Consideration unless and
until the holder thereof shall have failed to perfect, or shall have
effectively withdrawn or lost his, her or its right to appraisal of and
payment for his, her or its Company Stock under said Section 262, at which
time his, her or its shares shall be converted into the right to receive the
Merger Consideration. All such shares of Company Stock as to which such a
written demand for appraisal is so filed and not withdrawn at or prior to the
Meeting and which are not voted in favor of the Merger, except any such
shares of Company Stock the holder of which, prior to the Effective Time,
shall have effectively withdrawn or lost his, her or its right of appraisal
and payment for his, her or its shares of Company Stock under said Section
262, are hereinafter referred to as "Dissenting Company Stock." The Company
shall give prompt notice to Galileo upon receipt by the Company of any
written demand for appraisal rights, withdrawal of such demands, and any
other written communications delivered by or to the Company pursuant to said
Section 262, and the Company shall give Galileo the opportunity, to the
extent permitted by law, to direct all negotiation and proceedings with
respect to such demands. The Company shall not voluntarily make any payment
with respect to any demands for appraisal rights and shall not, except with
the prior written consent of Galileo, settle or offer to settle any such
demands. Each holder of Company Stock who becomes entitled, pursuant to
provisions of said Section 262, to payment for his, her or its shares of
Company Stock under the provisions of said Section 262 shall receive payment
therefor from the Surviving Corporation and such shares of Company Stock
shall be cancelled.
Section 1.3. Escrow and Appointment of Stockholder Representative.
(a) On the Closing Date, Galileo or the Merger Sub will deliver in escrow
(the "Escrow") $20,000,000 by wire transfer of immediately available funds to
LaSalle Bank N.A. as escrow agent (hereinafter referred to as the "Escrow
Agent"), pursuant to the terms of an escrow agreement in substantially the
form attached hereto as Exhibit D (the "Escrow Agreement"), said Escrow to be
available for any Losses (as such term is defined in Section 9.2 hereof) for
which Galileo may make a claim pursuant to Section 9.2 hereof.
(b) In the event that the Merger is approved, effective upon such
vote, and without further act of any stockholder of the Company, Hollinger
Digital (hereinafter referred to as the "Stockholders Representative") shall
be appointed as agent and attorney-in-fact by and for each person or entity
(other than holders of Dissenting Company Stock) which owned beneficially or
of record any shares of the Company Stock immediately prior to the Effective
Time (hereinafter referred to as the "Escrow Beneficiaries") to give and
receive notices and communications, to authorize payments from the Escrow in
satisfaction of claims by Galileo, to object to such payments, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to
such claims, and to take all actions necessary or appropriate in the judgment
of the Stockholders Representative for the accomplishment of the foregoing.
Such agency may be changed by the Escrow Beneficiaries from time to time upon
not less than thirty (30) days' prior written notice to Galileo; provided
that the Stockholders Representative may not be removed unless Escrow
Beneficiaries representing at least a two-thirds interest in the Escrow agree
in writing to such removal and to the identity of the substituted
Stockholders Representative . Any vacancy in the position of Stockholders
Representative may be filled by approval in writing of the Escrow
Beneficiaries representing at least a majority in interest of the Escrow. No
bond shall be required of the Stockholders Representative. Notices or
communications to or from the Stockholders Representative shall constitute
notice to or from each of the Escrow Beneficiaries.
(c) The Stockholders Representative shall not be liable for any act
done or omitted under the Escrow Agreement or this Agreement as Stockholders
Representative while acting in good faith and in the exercise of reasonable
judgment. The Escrow Beneficiaries shall jointly and severally indemnify the
Stockholders Representative and hold the Stockholders Representative harmless
against any loss, liability or expense incurred without gross negligence or
bad faith on the part of the Stockholders Representative and arising out of
or in connection with the acceptance or administration of the Stockholders
Representative's duties under the Escrow Agreement or this Agreement,
including the reasonable fees and expenses of any legal counsel retained by
the Stockholders Representative.
(d) A decision, act, consent or instruction of the Stockholders
Representative shall constitute a decision of all the Escrow Beneficiaries
and shall be final, binding and conclusive upon each of the Escrow
Beneficiaries, and the Escrow Agent, Galileo and the Surviving Corporation
may rely upon any such written decision, consent or instruction of the
Stockholders Representative as being the decision, consent or instruction of
each of the Escrow Beneficiaries. The Escrow Agent, Galileo and the
Surviving Corporation are hereby relieved from any liability to any person or
entity for any acts done by them in accordance with such decision, consent or
instruction of the Stockholders Representative.
(e) If any third party shall notify Galileo or its affiliates hereto
with respect to any matter asserted by such third party against the Company
or the Surviving Corporation (hereinafter referred to as a "Third Party
Claim") which may give rise to a claim by Galileo against the Escrow Fund,
then Galileo shall give notice to the Stockholders Representative within 15
days of Galileo becoming aware of any such Third Party Claim or of facts upon
which any such Third Party Claim will be based setting forth such material
information with respect to the Third Party Claim as is reasonably available
to Galileo; provided, however, that no delay or failure on the part of
Galileo in notifying the Stockholders Representative shall relieve the
Stockholders Representative and the Escrow Beneficiaries from any obligation
hereunder unless the Stockholders Representative and the Escrow Beneficiaries
are thereby materially prejudiced (and then solely to the extent of such
prejudice). The Stockholders Representative and the Escrow Beneficiaries
shall not be liable for any attorneys' fees and expenses incurred by Galileo
in connection with any such Third Party Claim prior to Galileo's giving
notice to the Stockholders Representative of a Third Party Claim. The notice
from Galileo to the Stockholders Representative shall set forth such material
information with respect to the Third Party Claim as is then reasonably
available to Galileo.
(f) In case any Third Party Claim is asserted against the Company or
the Surviving Corporation, and Galileo notifies the Stockholders
Representative thereof pursuant to Section 1.3(e) hereof, the Stockholders
Representative and the Escrow Beneficiaries will be entitled, if the
Stockholders Representative so elects by written notice delivered to Galileo
within 15 days after receiving Galileo's notice, to assume the defense
thereof, at the expense of the Escrow Beneficiaries independent of the Escrow
Fund, with counsel reasonably satisfactory to Galileo so long as:
(i) Galileo has reasonably determined that Losses which may be
incurred as a result of the Third Party Claim do not exceed, either
individually, or when aggregated with all other Third Party Claims,
$20,000,000;
(ii) the Third Party Claim involves only money damages and does
not seek an injunction or other equitable relief;
(iii) settlement of, or an adverse judgment with respect to, the
Third Party Claim is not, in the good faith judgment of Galileo, likely
to establish a precedential custom or practice materially adverse to
the continuing business interests of Galileo or the Surviving
Corporation; and
(iv) counsel selected by the Stockholders Representative is
reasonably acceptable to Galileo.
(g) If the Stockholders Representative and the Escrow Beneficiaries so
assume any such defense, the Stockholder Representatives and the Escrow
Beneficiaries shall conduct the defense of the Third Party Claim actively and
diligently. The Stockholders Representative and the Escrow Beneficiaries
shall not compromise or settle such Third Party Claim or consent to entry of
any judgment in respect thereof without the prior written consent of Galileo,
which consent shall not be unreasonably withheld.
(h) In the event that the Stockholders Representative assumes the
defense of the Third Party Claim in accordance with Section 1.3(f) hereof,
Galileo or its affiliates may retain separate counsel and participate in the
defense of the Third Party Claim, but the fees and expenses of such counsel
shall be at the expense of Galileo unless Galileo or its affiliates shall
reasonably determine that there is a material conflict of interest between or
among Galileo or its affiliates and the Stockholders Representative and the
Escrow Beneficiaries with respect to such Third Party Claim, in which case
the reasonable fees and expenses of such counsel will be borne by the
Stockholder Representatives and the Escrow Beneficiaries out of the Escrow
Fund. Galileo or its affiliates will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
respecting which the Stockholders Representative and the Escrow Beneficiaries
have assumed the defense thereof pursuant to Section 1.3(f) hereof without
the prior written consent of the Stockholders Representative, which consent
shall not be unreasonably withheld. Galileo will cooperate in the defense of
such Third Party Claim and will provide reasonable access to documents,
assets, properties, books and records reasonably requested by Stockholders
Representative and material to the claim and will make reasonably available
all officers, directors and employees reasonably requested by the
Stockholders Representative for investigation, depositions and trial.
(i) In the event that the Stockholders Representative and the Escrow
Beneficiaries fail or elect not to assume the defense of the Company or the
Surviving Corporation against such Third Party Claim, which Stockholders
Representative and the Escrow Beneficiaries had the right to assume under
Section 1.3(f) hereof, Galileo or its affiliates shall have the right to
undertake the defense and Galileo may compromise or settle such Third Party
Claim or consent to entry of any judgment in respect thereof in any manner it
may deem appropriate (and Galileo or its affiliates need not consult with, or
obtain any consent from, the Stockholders Representative or the Escrow
Beneficiaries, in connection therewith); provided, however, that except with
the written consent of the Stockholders Representative, no settlement of any
such claim or consent to the entry of any judgment with respect to such Third
Party Claim shall alone be determinative of the validity of the claim against
the Escrow Fund. In each case, Galileo, the Stockholders Representative and
the Escrow Beneficiaries will reasonably cooperate with Galileo or its
affiliates in the defense of that claim and will provide reasonable access to
documents, assets, properties, books and records reasonably requested by
Galileo and material to the claim and will make reasonably available all
individuals reasonably requested by Galileo for investigation, depositions
and trial.
Section 1.4. Treatment of Outstanding Company Stock Options. At the
Effective Time, each outstanding option (hereinafter referred to individually
as an "Option" and collectively as the "Options") to acquire shares of the
Common Stock of the Company issued under or pursuant to The Trip.com, Inc.
1997 Stock Plan (hereinafter referred to as the "Company Stock Plan") shall,
pursuant to Section 12(c) thereof, be converted and changed, without any
further action on the part of the Merger Sub, the Company, Galileo or the
holders of the Options into the right to acquire that number of shares of
Galileo Common Stock equal to the product of (i) the number of shares of the
Common Stock of the Company into which said Options were exercisable
immediately prior to the Effective Time multiplied by (ii) the Exchange Ratio
(as such term is hereinafter defined); provided that the exercise price of
said Options shall be adjusted to equal the quotient of (i) the original
exercise price of such Option divided by (ii) the Exchange Ratio. As used
herein, the term "Exchange Ratio" shall mean the quotient of $269,000,000
divided by the Fully-diluted Number and further divided by the Galileo Common
Stock Price. Pursuant to said Section 12(c), Galileo agrees to assume the
Company Stock Plan and all of the outstanding Options upon the Effective
Time, and the Merger Sub hereby consents, and the Board of Directors of the
Company, in its capacity as the Administrator of the Plan, by approving this
Agreement shall be deemed to have consented, to such assumption pursuant to
the provisions of said Section 12(c).
Section 1.5. Surrender of Certificates. (a) Prior to the Effective Time,
Galileo shall appoint Harris Trust and Savings Bank or one of its affiliates
to act as paying agent in respect of the Merger (said bank, in its capacity
as such paying agent, is hereinafter referred to as the "Paying Agent").
(b) Promptly following the Effective Time, Galileo shall provide to
the Paying Agent funds necessary to make the cash payments required by
Section 1.2(a)(i), and stock certificates representing the shares of Galileo
Common Stock issuable in connection with the Merger pursuant to Section
1.2(a)(iii) hereof.
(c) As soon as practicable after the Effective Time, the Paying Agent
shall mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Stock (hereinafter referred to individually as a "Certificate" and
collectively as the "Certificates") (i) a letter of transmittal (which
(x) shall specify that delivery shall be effected, and risk of loss of the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent, (y) shall provide for the waiver by the person or persons executing
the same of any right of appraisal under the General Corporation Law of the
State of Delaware and (z) shall be in such form and have such other
provisions as Galileo may reasonably specify); and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for the amount of
cash and number of shares of Galileo Common Stock per share provided for in
Section 1.2(a) hereof. Upon surrender of a Certificate for cancellation to
the Paying Agent or to such other agent or agents as may be appointed by
Galileo, together with such letter of transmittal, duly executed, and such
other documents as may be reasonably required by the Paying Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor the
amount of cash and number of shares of Galileo Common Stock into which the
shares of Company Stock theretofore represented by the Certificate so
surrendered shall have been converted pursuant to the provisions of
Section 1.2(a) hereof, and the Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or will accrue on the cash payable upon
the surrender of any Certificate. In the event of a transfer of ownership of
Company Stock which is not registered in the transfer records of the Company,
a check in payment of the proper amount of cash and a certificate
representing the proper number of shares of Galileo Common Stock may be
issued to a transferee if the Certificate representing such Company Stock is
presented to the Paying Agent, accompanied by all documents required and in
proper form to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this paragraph, each Certificate shall, subject to the
provisions of Section 1.2(d) hereof, be deemed at and at any time after the
Effective Time to represent the right to receive upon such surrender the
Merger Consideration provided for in Section 1.2(a) hereof. Any funds
deposited with the Paying Agent that remain unclaimed by the former
stockholders of the Company for one year after the Effective Time shall be
paid to Galileo upon demand, and any former stockholders of the Company who
have not theretofore complied with the instructions for surrendering their
Certificates shall thereafter look only to Galileo for payment.
Notwithstanding anything to the contrary contained in this Agreement or
otherwise, neither the Paying Agent nor any party hereto shall be liable to a
former holder of Company Stock for any cash or property delivered to a public
official pursuant to applicable escheat or abandoned property laws.
(d) There shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Stock
which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation
for any reason, they shall be surrendered and cancelled as provided in
paragraph (c) of this Section.
Section 1.6. Withholdings Rights. Galileo or the Paying Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Stock
such amounts as Galileo or the Paying Agent is required to deduct and
withhold with respect to the making of such payment under any Federal, state
or local tax laws. To the extent that amounts are so withheld by Galileo or
the Paying Agent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the shares of Company
Stock in respect to which such deduction and withholding was made by Galileo
or the Paying Agent.
Section 1.7. Reliance Upon Exemption. The Galileo Common Stock to be
issued pursuant to this Agreement will be issued without registration under
the Securities Act of 1933, as amended (the "Securities Act"), and in
reliance upon an exemption from the registration requirements of the
Securities Act. Galileo will issue shares of Galileo Common Stock pursuant
to this Agreement in reliance upon the representations from each holder of
Company Stock substantially in the form attached to this Agreement as
Exhibit C. The Company agrees that each holder of Company Stock who by
himself or herself or which by itself would not qualify as an "accredited
investor," as such term is defined under Rule 501(a) of the Securities Act,
without having a "Purchaser Representative," as such term is defined under
Rule 501(h) of the Securities Act, will have a Purchaser Representative as so
defined.
Section 1.8. Stock Certificate Legend. All certificates evidencing
Galileo Common Stock which are to be issued in connection with the Merger
will bear the following legend:
These securities have not been registered under the
Securities Act of 1933, as amended (the "Act"), or
any state securities laws, and may not be offered,
sold, assigned, transferred, pledged or otherwise
disposed of unless registered pursuant to the
provisions of such Act and state securities laws or
an exemption therefrom is available as established by
a written opinion of counsel acceptable to the
Corporation.
Section 1.9. Tax Consequences. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section
368 of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Treasury Regulations Section 1.368-2(g)
and 1.368-3(a).
Article 2
Representations, Warranties and Covenants of the Company
As an inducement to Galileo and the Merger Sub to enter into and
perform their obligations under this Agreement, the Company represents and
warrants to, and covenants and agrees with, Galileo and the Merger Sub as
follows (provided, however, that the individual schedules required by the
following Sections shall be combined into a single disclosure schedule
supplied by the Company to Galileo (the "Disclosure Schedule"), the section
number and subsection and letters of which correspond to the section and
subsection numbers and letters of this Agreement to which they refer,
provided that disclosure made by the Company under any one section of the
Disclosure Schedule shall also be applicable to any other section of the
Disclosure Schedule for which the applicability of such disclosure is
manifest):
Section 2.1. Corporate Status. The Company and Travel Industries Inc., a
Delaware corporation and wholly-owned subsidiary of the Company (hereinafter
referred to as the "Subsidiary"), are each a corporation duly organized,
validly existing and in good standing under the laws of Delaware, with full
legal and corporate power and authority to conduct business as presently
being conducted and as proposed to be conducted by it. The Company and the
Subsidiary are each duly authorized to transact business and in good standing
under the laws of the State of Delaware and each jurisdiction in which the
nature of its business makes such qualification necessary, except where the
failure to so qualify would not have a Material Adverse Effect. As used in
this Agreement, the capitalized term "Material Adverse Effect" means a
material adverse effect on the business, operations, financial condition,
assets or properties of the Company or the Subsidiary which may be reasonably
expected to result or has resulted in a financial detriment to the Company or
the Subsidiary of at least $500,000.
Section 2.2. Authority of the Company. The Board of Directors of the
Company has deemed the Merger to be advisable and in the best interests of
the Company's stockholders and the Company has all requisite corporate power
and authority to enter into this Agreement and, subject to approval of the
Merger by the stockholders of the Company, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of the Company, subject to such approval of the Merger by the
stockholders of the Company. This Agreement has been duly executed and
delivered by the Company and (assuming the valid authorization, execution and
delivery of this Agreement by Galileo and the Merger Sub) constitutes a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms. The execution and delivery of the Agreement do
not, and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or any of the Subsidiary
under, any provision of (i) the certificate of incorporation or by-laws of
the Company, (ii) except as set forth in the Schedules hereto, any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the
Company or the Subsidiary or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any the Subsidiary
or any of their respective properties or assets.
Section 2.3. Capitalization. (a) The Company has the following
authorized and outstanding shares of capital stock: 25,000,000 authorized
shares of Common Stock, $.001 par value, of the Company, 2,338,611 of which
are issued and outstanding; 4,000,000 authorized shares of Series A Preferred
Stock, $.001 par value, of the Company, 4,000,000 of which are issued and
outstanding; 2,352,941 authorized shares of Series B Preferred Stock, $.001
par value, of the Company, 2,352,941 of which are issued and outstanding;
2,592,550 authorized shares of Series C Preferred Stock, $.001 par value, of
the Company, 2,592,550 of which are issued and outstanding; and 2,317,694
authorized shares of Series D Preferred Stock, $.001 par value, of the
Company, 2,317,694 of which are issued and outstanding. The Company has no
other authorized or outstanding shares of capital stock of any class, series,
designation or description.
(b) The Company owns beneficially and of record all of the issued and
outstanding shares of the capital stock of the Subsidiary. The Company
agrees that the Subsidiary will not issue or commit to issue any shares of
its capital stock after the date of this Agreement without the prior written
consent of Galileo.
(c) All of the issued and outstanding shares of the capital stock of
the Company or the Subsidiary are validly issued, fully paid and
nonassessable and were not issued in violation of the preemptive rights of
any person.
(d) Except as disclosed in Schedule 2.3 attached hereto or hereby made
a part hereof, there are no outstanding, and immediately prior to the
Effective Time there will be no outstanding, warrants, options,
subscriptions, contracts, preemptive or other rights or other arrangements or
commitments obligating the Company or the Subsidiary to issue any additional
shares of the capital stock of the Company or the Subsidiary, nor are there
any securities, debts, obligations or rights outstanding which are
convertible into or exchangeable for shares of the capital stock of the
Company or the Subsidiary. The Company has not issued any Options under the
Company Stock Plan.
(e) From and after the date of this Agreement, except for the issuance
of shares of the Common Stock of the Company pursuant to the exercise of
outstanding and vested Options, neither the Company nor the Subsidiary shall
issue or grant any warrants, options, subscriptions, contracts, preemptive or
other rights or other arrangements or commitments obligating the Company or
the Subsidiary to issue any additional shares of the capital stock of the
Company or the Subsidiary, nor any securities, debts, obligations or rights
which are convertible into or exchangeable for shares of the capital stock of
the Company or the Subsidiary.
(f) From and after the date of this Agreement, the Company agrees not
to amend any provisions of the Company Stock Plan or any of the Options
heretofore or granted thereunder.
Section 2.4. Equity Interests of the Company. Schedule 2.4 attached
hereto and hereby made a part hereof contains a description of all equity
interests or investments which the Company or the Subsidiary has, directly or
indirectly, in any corporation, partnership, limited liability company, joint
venture or other entity.
Section 2.5. Annual Financial Statements Previously Delivered. (a) The
Company has furnished to Galileo copies of audited financial statements of
the Company and the Subsidiary for the fiscal years ended 1997 and 1998,
certified by PriceWaterhouse Coopers LLP, certified public accountants
(hereinafter the audited consolidated financial statements of the Company for
the year ended December 31, 1998, are referred to as the "1998 Financial
Statements").
(b) Each of the financial statements referred to in paragraph (a) of
this Section 2.5 has been prepared in accordance with GAAP, is true, correct
and complete in all material respects and fairly presents in all material
respects the financial position of the Company and the Subsidiary, as the
case may be, as of the date thereof or, as the case may be, the results of
operations and cash flows for the periods covered thereby. Each of the
balance sheets contained in said financial statements fully sets forth all
material liabilities of whatever nature of the Company and the Subsidiary, as
the case may be, existing as of the date thereof which, under GAAP, should be
set forth therein. Any slow-moving inventory and non-recoverable
work-in-process included in said balance sheets were written down
appropriately and any redundant or obsolete inventory or materials were
wholly written off and the value attributed to the remaining inventory or
materials, including raw materials, work-in-process and finished goods, does
not exceed the lower of cost or net realizable value as at the respective
dates thereof. Under like accounting principles and practices, the
statements of profit and loss constituting a part of said financial
statements correctly state the consolidated revenues and net earnings or
losses of the Company and the Subsidiary for the respective periods covered
thereby and include adequate provision for all taxes.
Section 2.6. Interim Financial Statements. (a) The Company has furnished
to Galileo copies of the Company's unaudited consolidated balance sheet as of
December 31, 1999 (hereinafter referred to as the "Interim Balance Sheet"),
together with a related statement of profit and loss for the period then
ended (hereinafter such Interim Balance Sheet and consolidated statement of
profit and loss are referred to as the "Interim Financial Statements"). The
Company agrees to continue to provide Galileo with additional monthly
financial statements of the type specified in the preceding sentence as soon
as practicable after they are prepared through the Closing Date (hereinafter
referred to as the "Monthly Financial Statements").
(b) The Interim Financial Statements have been prepared, and the
Monthly Financial Statements will be prepared, in accordance with GAAP
(except for the absence of required footnote disclosures and subject to
normal year-end adjustments), are, and with respect to the Monthly Financial
Statements will be, true, correct and complete in all material respects and
fairly present in all material respects the financial position of the Company
and the Subsidiary as of the dates thereof or, as the case may be, the
results of operations and cash flows for the period covered thereby. The
Interim Balance Sheet fully sets forth, and each balance sheet contained in
the Monthly Financial Statements will fully set forth, all material
liabilities of whatever nature of the Company and the Subsidiary, as the case
may be, existing as of the respective dates thereof which, under GAAP, should
be set forth therein. Under like accounting principles and practices, the
statement of profit and loss constituting a part of said Interim Financial
Statements correctly states, and constituting a part of the Monthly Financial
Statements will correctly state, the consolidated revenues and net earnings
or losses of the Company and Subsidiary for the period covered thereby and
include, and with respect to the Monthly Financial Statements will include,
adequate provision for all taxes.
Section 2.7. Operations. Except as disclosed in Schedule 2.7 attached
hereto and hereby made a part hereof, since December, 1998, there has not
been any Material Adverse Change (as such term is hereinafter defined) and
since such date the Company and the Subsidiary have conducted their
respective business in the usual, regular and ordinary manner and each shall
continue, through and including the Closing Date, to conduct its businesses
in such manner, except for the transaction contemplated hereunder, unless
prior written approval for any variation therefrom shall have first been
obtained from Galileo. For purposes of this Agreement, the capitalized term
"Material Adverse Change" means a Material Adverse Change in the business,
operations, financial position, assets and properties of the Company or the
Subsidiary which may result or has resulted in a financial detriment to the
Company or the Subsidiary of at least $500,000. Except as disclosed in the
1998 Financial Statements, or in Schedule 2.7 attached hereto, for the period
from January 1, 1999, to and including the Closing Date, the following is and
will be true with respect to the Company and the Subsidiary:
(a) All transactions involving the Company and the Subsidiary
have been accurately and fully recorded or otherwise reflected in the
Company's and the Subsidiary's books and records;
(b) No dividend or other distribution of capital, income or
retained earnings has been paid or declared on any shares of capital
stock of the Company, nor has any distribution otherwise been made to
any of the Company's stockholders, in their capacity as stockholders,
directly or indirectly, which involves any assets of the Company;
(c) The Company and the Subsidiary have each followed their
past practices with respect to collection of accounts receivable and
other amounts owing then;
(d) Neither the Company nor the Subsidiary has sold, exchanged,
conveyed or otherwise disposed of, or made subject to lien, pledge,
hypothecation, mortgage or other encumbrance, any of its assets other
than inventory assets sold in the ordinary course of its business, the
disposition of assets which have become worn out, unserviceable or
obsolete and assets sold and replaced with assets of like use and value;
(e) The Company and the Subsidiary each has paid its debts and
liabilities, including taxes, fees, levies and assessments, in the
ordinary course as they have matured and has not prepaid any of such
debts, liabilities or taxes, in whole or in part;
(f) Neither the Company nor the Subsidiary has incurred any
debt, obligation or liability, other than those incurred in the
ordinary course of its business which are not of a material nature or
amount and which do not or will not presently, with the passage of time
or upon default, subject its assets to any lien, claim, charge,
mortgage or other encumbrance, nor has it undertaken to guarantee, in
whole or in part, any of the debts, obligations or liabilities of any
other party;
(g) Neither the Company nor the Subsidiary has altered,
amended, terminated or discharged any written or oral contract, lease,
plan, commitment or agreement to which it is presently a party (except
for non-material amendments in the ordinary course of business), nor
waived any material right with respect thereto, nor permitted or
consented to such alteration, amendment, termination or discharge, nor
has it committed a breach or default in any of the provisions thereof
except breaches and defaults which in the aggregate will not have a
Material Adverse Effect;
(h) Neither the Company nor the Subsidiary has entered into any
written or oral contract except for contracts entered into in the
ordinary course of business at the prices and upon the terms consistent
with existing market conditions and its past practices and such other
contracts that are in the ordinary course of business and do not
involve more than $25,000 or extend for more than ninety (90) days (or
for more than 90 days if such agreement may be terminated by the
Company or the Subsidiary without penalty, payment or material
detriment) and do not violate any representation, warranty or covenant
of this Agreement;
(i) The Company and the Subsidiary have each substantially
complied with all laws applicable to the conduct of its business;
(j) The Company and the Subsidiary have each conducted its
business only in the usual, regular and ordinary course and in
substantially the same manner as theretofore conducted;
(k) The Company and the Subsidiary have each kept and will keep
in full force and effect through the Closing Date (i) all of the fire,
casualty, liability and other insurance now in effect covering its
assets, properties and business, and (ii) all bonds on employees and
other personnel now in effect;
(l) The Company and the Subsidiary shall each use its best
efforts to (i) preserve its present organization intact, (ii) (without
making any commitment on behalf of Galileo or the Merger Sub) keep
available the services of its present officers, employees and agents,
and (iii) preserve its present relationships with its clients,
suppliers, customers and others having business relationships with the
Company and the Subsidiary, except for normal personnel changes in the
ordinary course of business;
(m) There has not occurred any Material Adverse Change; and
(n) The Company has not taken any action in anticipation of the
consummation of the transactions contemplated hereby whose primary
motivation is to reduce the value of the Company or the Subsidiary as
of the Closing Date to the detriment of Galileo and for the benefit,
directly or indirectly, of one or more of the Stockholders of the
Company or Subsidiary.
Section 2.8. Liabilities and Obligations of the Company. Neither the
Company nor the Subsidiary will have on the Closing Date any liabilities,
contracts, commitments or other obligations, direct or indirect, absolute or
contingent, determined or undetermined which are not reflected, described or
disclosed in (i) the Interim Balance Sheet or (ii) this Agreement or any of
the Schedules attached hereto, except for such matters which have been
incurred since December 31, 1999, in the ordinary course of business and
which are not of a material nature or amount.
Section 2.9. Title. Except as set forth in Schedule 2.9 attached hereto
and hereby made a part hereof, the Company and the Subsidiary each is the
owner of good title to all property and assets, tangible and intangible,
which it claims or otherwise purports to own (including, without limitation,
all of its assets reflected in the Interim Balance Sheet), free and clear of
all liabilities, liens, charges, claims, rights, encumbrances and
restrictions on transfers, except for liabilities, liens, charges, claims,
rights, encumbrance and restrictions on transfers as are not material in
amount, or do not materially detract from the use or value of such property
and no financing statement covering all or any portion of said property or
assets and naming the Company or the Subsidiary as debtor has been filed in
any public office, and neither the Company nor the Subsidiary has signed any
financing statement or security agreement as debtor or borrower which
financing statement or security agreement covers all or any portion of said
property or assets.
Section 2.10. Inventories. Except for any obsolete goods and materials of
below standard quality, the items included in the inventory of the Company
and the Subsidiary on the date hereof consist, and on the Closing Date will
consist, solely of items of standard quality which are suitable and
merchantable for filling orders at regular prices in the normal course of
business, except for any obsolete materials or materials of below standard
quality, the value of which has been written down to realizable market value
or for which adequate reserves have been provided on the Interim Balance
Sheet.
Section 2.11. Information and Access. Between the date of this Agreement
and the Closing, the Company shall promptly notify Galileo in writing of any
events, occurrences or other matters which become known to the Company
relating to the Company or the Subsidiary which are reasonably likely to have
a Material Adverse Effect. Prior to Closing, Galileo and its agents,
attorneys, accountants, employees, contractors and other authorized
representatives shall have the right, at any time and from time to time, to
examine the assets, properties, books and records of the Company and the
Subsidiary and to make such tests, surveys, investigations and other
inspections of the property owned, operated, leased or controlled by the
Company or the Subsidiary in such manner as Galileo may reasonably deem
necessary or desirable. No investigation or examination by Galileo or any of
its agents or representatives of such assets, properties, books and records
of the Company or the Subsidiary shall affect the representations and
warranties of the Company contained in this Agreement.
Section 2.12. Insurance. (a) The Company and the Subsidiary have in
effect such insurance coverage as is described in Schedule 2.12 attached
hereto and hereby made a part hereof, which description includes the name of
the insurer, the policy number, the name of the insureds, and a summary of
the type and amount of coverage and risks insured, and the Company has
delivered to Galileo complete and accurate copies of all such insurance
policies. Such insurance coverage, as to amounts and types of coverage and
risks insured, is adequate for the business of the Company and the Subsidiary
as presently conducted. From the date hereof until the Closing the Company
agrees to cause the Company and the Subsidiary to maintain such insurance
coverage respecting the assets of the Company and the Subsidiary as is
necessary to adequately insure said assets against damage or destruction.
(b) Schedule 2.12 attached hereto and hereby made a part hereof
contains a list and description of all claims involving more than $5,000 made
by the Company or the Subsidiary against the insurance policies held by the
Company or the Subsidiary for the previous three (3) years, including,
without limitation, all product liability claims and workers' compensation
claims, but excepting therefrom claims made by employees of the Company or
the Subsidiary against its health insurance plan carrier, and the Company has
delivered to Galileo complete and accurate copies of all insurance policies
held by the Company for the previous three (3) years.
Section 2.13. Litigation and Claims. (a) Except as set forth in
Schedule 2.13 attached hereto and hereby made part hereof, there are no
suits, claims, litigation, arbitration, demands or proceedings pending,
asserted in writing or, to the knowledge of the Company, threatened against
or relating to the Company or the Subsidiary, or its business, properties,
assets or activities nor to the knowledge of the Company is there in
existence any judgment or award against the Company or the Subsidiary related
to or affecting its business, properties, assets or activities. To the
knowledge of the Company, neither the Company nor the Subsidiary is under
investigation for violation of any law or regulation related to or affecting
the business, properties, assets or activities of the Company or the
Subsidiary.
(b) Except as set forth in Schedule 2.13, no claims have been asserted
and not resolved or withdrawn against the Company or the Subsidiary in
respect of defects in quality, delays in delivery, completion of contracts,
deficiencies of design, performance of equipment or otherwise relating to
liability for products or services supplied or to be supplied by the Company
or the Subsidiary and, to the knowledge of the Company, no such claims are
threatened or anticipated.
Section 2.14. Employment Obligations. (a) Schedule 2.14 attached hereto
and hereby made a part hereof lists the names, commencement dates of
employment and the current salary and other compensation rates of all present
employees of the Company and the Subsidiary, together with a listing of all
other employment benefits therefor, including, without limitation, personal
leave time, accrued vacation, employee loans and the amount of all profit
sharing and pension benefits, which have accrued for such persons as of the
date hereof, an accurate summary of any pension, profit sharing, bonus,
medical benefits, insurance or similar arrangements for the employees of the
Company and the Subsidiary, salaried or nonsalaried, including any formal or
informal plans, the funding arrangements with regard thereto and all
severance pay which would be due each employee if his or her employment were
to be terminated as of the Closing Date. Except as and to the extent set
forth in Schedulea 2.14 and 2.15 attached hereto or otherwise disclosed
herein, there are no agreements, contracts or understandings between the
Company and its employees and the Subsidiary and its employees with respect
to employment, wages, expenses, allowances, vacations, unpaid leave, hours,
working conditions, bonuses, salaries, pensions, profit sharing, medical
benefits, insurance benefits, severance pay or otherwise.
(b) Schedule 2.14A attached hereto and hereby made a part hereof
contains a list of the names of all independent contractors who regularly
perform services on behalf of the Company or the Subsidiary and to whom the
Company or the Subsidiary paid more than $20,000 during the previous twelve
(12) months. The parties listed therein are not, and are not deemed to be,
employees of the Company or the Subsidiary for any purpose.
Section 2.15. Compliance with ERISA. (a) Except as set forth in
Schedule 2.15 attached hereto, neither the Company nor the Subsidiary is a
party to and does not participate in, sponsor, contribute to or have any
obligation to contribute to, or have any liability or contingent liability
with respect to:
(i) Any "employee welfare benefit plan" or "employee pension
benefit plan" (as those terms are respectively defined in Sections 3(1)
and 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), including any "multi-employer plan" (as defined in
Section 3(37) of ERISA);
(ii) Any retirement or deferred compensation plan, incentive
compensation plan, stock option plan, stock plan, unemployment
compensation plan, vacation pay, severance pay, bonus or benefit
arrangement, insurance or hospitalization program or any other fringe
benefit arrangements (hereinafter referred to collectively as "fringe
benefit arrangements") for any employee, director, consultant or agent,
whether pursuant to contract, arrangement, custom or informal
understanding, which does not constitute an "employee benefit plan" (as
defined in Section 3(3) of ERISA); or
(iii) Any employment agreement not terminable on thirty (30) days
or less written notice, without further liability (the items referred
to in, Sections 2.15(a)(i), (ii) and (iii) are sometimes individually
referred to as an "Employee Plan" and collectively as "Employee
Plans").
(b) A true and correct copy of each Employee Plan and all contracts
relating thereto, or to the funding thereof, including, without limitation,
all trust agreements, insurance contracts, investment management agreements,
subscription and participation agreements and record keeping agreements, each
as in effect on the date hereof, have been delivered or will be delivered to
Galileo by the Company. In the case of any Employee Plan which is not in
written form, Galileo has been provided with an accurate description of such
Employee Plan as in effect on the date hereof. A true and correct copy of
the most recent annual report, actuarial report, summary plan description
(including any summary of material modifications issued since such summary
plan description) and Internal Revenue Service determination letter with
respect to such Employee Plan, to the extent applicable, and a current
schedule of assets (and the fair market value thereof assuming liquidation of
any asset which is not readily tradable) held with respect to any such
Employee Plan has been or will be supplied to Galileo by the Company, and
there have been no material changes, other than in the ordinary course, in
the financial condition in the respective plans from that stated in the
annual reports and actuarial reports supplied.
(c) Except as disclosed on Schedule 2.15, as to each Employee Plan:
(i) Each Employee Plan materially complies and has been
administered in substantial compliance with its terms and all
requirements of law and regulation applicable thereto, and neither the
Company nor the Subsidiary has received any notice from any
governmental agency questioning or challenging such compliance;
(ii) Each Employee Plan intended to qualify under
Sections 401(a) of the Code is so qualified and substantially complies
in form and in operation with all applicable requirements of
Sections 401(a) and 501(a) of the Code; and no event has occurred which
will or could give reasonably be anticipated to rise to
disqualification of any such plan under such Sections or to a tax under
Section 511 of the Code;
(iii) None of the assets of any Employee Plan are invested in
employer securities or employer real property;
(iv) There have been no "prohibited transactions" (as described
in Section 406 of ERISA or Section 4975 of the Code) with respect to
any Employee Plan for which no exemption is applicable and neither the
Company nor the Subsidiary has otherwise engaged in any prohibited
transaction;
(v) No Employee Plan is, and neither the Company nor the
Subsidiary has ever maintained or contributed to (i) a "defined benefit
plan" (as defined in Section 3(35) of ERISA), (ii) a "multiemployer
plan" within the meaning of Section 3(37) of ERISA, (iii) a "multiple
employer plan" within the meaning of Code Section 413 or a "multiple
employer welfare arrangement" within the meaning of Section 3(40) of
ERISA, or (iv) a "welfare benefit fund" as defined in Section 419(e) of
the Code, and neither the Company nor the Subsidiary has any liability
under Title IV of ERISA. No Employee Plan provides medical (whether or
not insured), with respect to any current or former employee of the
Company or the Subsidiary after retirement or other termination of
service (other than coverage mandated by applicable law);
(vi) There have been no acts or omissions by the Company or the
Subsidiary which have given rise to or could reasonably be expected to
give rise to fines, penalties, taxes or related charges under
Sections 502(c), 502(i) or 4071 of ERISA or Chapter 43 of the Code, for
which the Company may be liable;
(vii) No current or former employee of the Company or the
Subsidiary will be entitled to any payment, additional benefits or any
acceleration of the time of payment or vesting of any benefits under
any Employee Plan as a result of the transactions contemplated by this
Agreement (either alone or in conjunction with any other event such as
a termination of employment) (other than as a result of any Employee
Plan terminated by the Company or by the request of Galileo) and no
trustee under any "rabbi trust" or similar arrangement in connection
with any Employee Plan will be entitled to any payment as a result of
the transactions contemplated by this Agreement;
(viii) There are no actions, suits or claims (other than routine
claims for benefits) pending or, to the knowledge of the Company,
threatened involving an Employee Plan or the assets of such Employee
Plan, and, to the knowledge of the Company, no facts exist which could
reasonably be expected to give rise to any such actions, suits or
claims (other than routine claims for benefits);
(ix) Each Employee Plan that is a group health plan (including
any plans of current and former affiliates of the Company or the
Subsidiary which must be taken into account under Section 4980B of the
Code or Section 601 of ERISA) have been operated in material compliance
with the group health plan continuation coverage requirements of
Section 4980B of the Code and Section 601 of ERISA to the extent such
requirements are applicable; and
(x) Actuarially adequate accruals for all obligations, if any,
under each Employee Plan are reflected in the consolidated balance
sheet of the Company as of December 31, 1998, contained in the 1998
Financial Statements.
Section 2.16. Environmental Matters. (a) Except as set forth in
Schedule 2.16 attached hereto, and except as would not result either
individually or in the aggregate in a Material Adverse Effect, no Hazardous
Materials (as such term is hereinafter defined) have been located in or on
any of the real property owned or used by the Company or the Subsidiary
(hereinafter referred to as the "Real Property") in violation of any
applicable Environmental Laws (as such term is hereinafter defined) or have
been released into the environment, or discharged, emitted, placed or
disposed of at, on, or under or by the Real Property, and the Company's
operations and the Subsidiary's operations thereon have complied with all
applicable Environmental Laws. To the knowledge of the Company, none of the
Real Property is a facility at which there has been a release of Hazardous
Materials that exceeds or violates any applicable or relevant and appropriate
Environmental Laws. To the knowledge of the Company, none of the Real
Property is discharging oil or poses a substantial threat of a discharge of
oil, within the meaning of the Oil Pollution Act of 1990. The Company has
delivered to Galileo or its agents all assessments, studies, sampling
results, evaluations and other reports concerning any Hazardous Material,
Hazardous Material Activity (as such term is hereinafter defined) or
violation of any Environmental Law pertaining to the Company, the Subsidiary
or the Real Property, which were commissioned by the Company. To the
knowledge of the Company, no underground storage tanks are present at the
Real Property. The Company and the Subsidiary have obtained and possess all
permits, licenses, registrations, approvals and other authorizations required
for the operations or facilities of the Company or respecting the Real
Property by any applicable Environmental Law. Except as set forth in
Schedule 2.16, the Company, the Subsidiary and their operations and, to the
knowledge of the Company, the Real Property are not now, and have not been in
the past, a party to or, to the knowledge of the Company, threatened by any
judicial, administrative or regulatory litigation, claim, proceeding or
investigation arising from any Hazardous Material Activity or the operation
or violation of any applicable Environmental Law. There are no grounds,
facts, circumstances or other matters which might provide a basis for any
liability or claim against the Company, the Subsidiary or the Real Property
arising from any Hazardous Material Activity or the violation of any
applicable Environmental Law, except for any liabilities and claims which in
the aggregate will not have a Material Adverse Effect.
(b) The term "Environmental Laws" shall mean any Federal, state,
regional, county, local, governmental, public or private statute, law,
regulation, ordinance, order, consent decree, judgment, permit, license,
code, covenant, deed restriction, common law, or other requirement,
pertaining to protection of the environment, health or safety of persons,
natural resources, conservation, wildlife, waste management, any Hazardous
Material Activity, or pollution (including, without limitation, regulation of
releases and disposals to air, land, water and groundwater), and includes,
without limitation, the Comprehensive Environmental Response, Compensation
and Liability Act, as amended by the Superfund Amendments and Reauthorization
Act, Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act and Solid and Hazardous Waste Amendments, Federal Water
Pollution Control Act, as amended by the Clean Water Act, Clean Air Act, as
amended, Toxic Substances Control Act, Occupational Safety and Health Act,
Emergency Planning and Community Right-to-Know Act, National Environmental
Policy Act, Safe Drinking Water Act, and any similar or implementing state
law, and all amendments, rules, regulations, promulgated thereunder. The
term "Hazardous Materials" shall mean any hazardous or toxic chemical, waste,
byproduct, pollutant, contaminant, compound, product or substance, including,
without limitation, asbestos, polychlorinated biphenyls, petroleum (including
crude oil or any fraction thereof), and any material the exposure to, or
manufacture, possession, presence, use, generation, storage, transportation,
treatment, release, disposal, abatement, cleanup, removal, remediation or
handling of which, is prohibited, controlled or regulated by any
Environmental Law. The term "Hazardous Material Activity" shall mean any
activity, event or occurrence involving a Hazardous Material, including,
without limitation, the manufacture, possession, presence, use, generation,
storage, transportation, treatment, release, disposal, abatement, cleanup,
removal, remediation or handling of any Hazardous Material.
Section 2.17. Union Relations. Except as disclosed in Schedule 2.17
attached hereto and hereby made a part hereof, no employees of the Company or
the Subsidiary are members of a collective bargaining unit of the Company or
the Subsidiary and there have not been any, and, to the knowledge of the
Company, there are no threatened or, to the knowledge of the Company,
contemplated, attempts to organize for collective bargaining purposes any of
the employees of the Company or the Subsidiary.
Section 2.18. Preservation of Business Relationships. The Company will
use its best efforts (without making any commitment on behalf of Galileo or
the Merger Sub) until the Closing to cause the Company and the Subsidiary to
preserve for Galileo and the Surviving Corporation through and after the
Closing Date the relationships of the Company and the Subsidiary with its
employees, suppliers and customers and others having business relationships
with the Company and the Subsidiary.
Section 2.19. Tax Matters.
(a) For the purposes of this Section, "Tax" or "Taxes" refers to any
and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities relating to taxes,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes,
together with all interest, penalties and additions imposed with respect to
such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits. (i) the Company and the Subsidiary have
timely filed all federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to Taxes required to
be filed by the Company and the Subsidiary and have paid all Taxes shown to
be due on such Returns.
(ii) The Company and the Subsidiary as of the Effective Time
will have withheld with respect to its employees all federal and state
income taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) Neither Company nor Subsidiary has been delinquent in the
payment of any Tax nor is there any Tax deficiency outstanding,
proposed or assessed against the Company or the Subsidiary, nor has the
Company or the Subsidiary executed any waiver of any statute of
limitations on or extending the period for the assessment or collection
of any Tax.
(iv) Except as provided on Schedules 2.19 attached hereto, no
audit or other examination of any Return of the Company or the
Subsidiary is presently in progress, nor has the Company or the
Subsidiary been notified of any request for such an audit or other
examination.
(v) No adjustment relating to any Returns filed by the Company
or the Subsidiary has been proposed formally or informally by any Tax
authority to the Company or the Subsidiary or any representative
thereof and, to the knowledge of Company, no basis exists for any such
adjustment which would be material to the Company.
(vi) Neither the Company nor the Subsidiary has any liability
for unpaid Taxes which has not been accrued for or reserved on the
Interim Balance Sheet, whether asserted or unasserted, contingent or
otherwise, which is material to the Company.
(vii) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(viii) There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering
any employee or former employee of the Company or the Subsidiary that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 404 or
162 of the Code.
(ix) Neither the Company nor the Subsidiary has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code) owned by
Company.
(x) the Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xi) No power of attorney that is currently in force has been
granted with respect to any matter relating to Taxes payable by the
Company or the Subsidiary.
(xii) As of the Closing Date, neither the Company nor the
Subsidiary will be affected by or have any obligations under any
tax-sharing or allocation agreement or arrangement.
Section 2.20. Material Agreements. (a) Schedule 2.20 attached hereto and
hereby made a part hereof accurately describes all leases and licenses with
respect to any property, real or personal (whether as landlord, tenant,
licensor or licensee), contracts, guarantees, mortgages, indentures,
agreements, understandings or other commitments, whether oral or written, of
the Company or the Subsidiary or to which the Company or the Subsidiary is a
party or by which the Company or the Subsidiary is bound, other than
(x) purchase orders, invoices and/or statements in the ordinary course of
business and involving less than $100,000 and (y) those leases, contracts,
guarantees, mortgages, indentures, agreements, understandings and commitments
individually involving less than $50,000. The Company has delivered to
Galileo complete and accurate copies of all documents referred to in
Schedule 2.20 attached hereto, each of which is in effect and valid and
enforceable in accordance with its terms (hereinafter referred to
collectively as the "Material Agreements"). Neither the Company nor the
Subsidiary has given a power of attorney to any person or entity for any
purpose.
(b) Between the date hereof and the Closing Date, the Company will
not, without the prior written consent of Galileo, which shall not be
unreasonably withheld, enter into, amend or terminate any contract,
guarantee, mortgage, indenture, agreement or other instrument of any of the
types referred to in paragraph (a) of this Section 2.20, other than purchase
and sale agreements respecting the Company's or the Subsidiary's products
entered into in the ordinary course of business.
(c) Except as disclosed in Schedule 2.20, neither the execution of
this Agreement by the Company nor the consummation of the purchase of Company
Stock by Galileo from the Company will modify, amend or terminate any of the
rights or obligations of any of the parties under any of the Material
Agreements or require the consent of any party thereto to remain enforceable
by the Company or the Subsidiary.
(d) Except as disclosed in Schedule 2.20, to the knowledge of the
Company after due inquiry, none of the Material Agreements has or will have a
Material Adverse Effect on the profitability of the Company or the
Subsidiary, or on the use and operation of the assets of the Company or the
Subsidiary, and all Material Agreements have been entered into upon terms in
accordance with customary trade practices of the Company or the Subsidiary.
Section 2.21. No Default under Agreements. Each of the Material
Agreements is, and on the Closing Date will be, in full force and effect and
is, and on the Closing Date will be, enforceable in all material respects
against the Company, the Subsidiary and the other parties thereto, in
accordance with its terms, except as limited by liquidation, bankruptcy,
insolvency, reorganization or similar laws or except to the extent that any
of the Material Agreements shall have expired or terminated pursuant to their
terms other than as a result of a default or breach thereunder by the Company
or the Subsidiary. No default exists under the terms of, and no event has
occurred which, with the lapse of time, the giving of notice or both, would
constitute an event of default under, any of the Material Agreements, except
for such minor defaults which either alone or in the aggregate would not
cause the loss of any material benefit thereunder. Except as described in
any of the Schedules attached hereto, neither the Company nor the Subsidiary
is a party to or bound by any purchase commitments, agreements or
understandings of any kind, whether oral or written, relating to the business
of the Company, the Subsidiary or the Company Stock, except for agreements
not required to be listed in Schedule 2.20 hereof, and executory sales and
purchase commitments and contracts relating to the sale of products or
services of the Company or the Subsidiary and the purchase of material and
supplies used by the Company or the Subsidiary entered into in the ordinary
course of business and not in violation of any representation, covenant or
warranty of the Company herein contained.
Section 2.22. Compliance with Laws. The Company and the Subsidiary and
their respective services, practices, billings, employee benefits,
properties, equipment, machinery, buildings used and operations are in
compliance in all materials respects with all applicable Federal, state and
local laws, statutes, ordinances, codes, regulations, rules, orders,
restrictions and requirements, governmental, administrative, judicial and
otherwise, including, without limitation, Environmental Laws and those
relating to wages, prices, equal opportunity, disabilities, environmental
protection, safety, health, medical care, building and zoning, and to the
knowledge and belief of the Company, no changes in any such laws, statutes,
ordinances, codes, regulations, rules, orders, restrictions or requirements
have been proposed or are in process with which Galileo, the Company or the
Subsidiary could not comply without any Material Adverse Effect. All offers
and issuances of securities by the Company, including the granting of stock
options, have been made in compliance with all applicable Federal and state
securities laws.
Section 2.23. Licenses, Permits and Approvals. Attached hereto as
Schedule 2.23 and hereby made a part hereof is a list and description of all
licenses, permits, authorizations and approvals required by any Federal,
state or local government's administrative or judicial authorities in
connection with the operation of the business of the Company or the
Subsidiary as presently being conducted, all of which are in full force and
effect. The Company and the Subsidiary shall use its best efforts to assist
Galileo in obtaining the licenses, permits, authorization and approvals
necessary or appropriate for the operation of the business of the Company and
the Subsidiary on and after the Closing Date by Galileo.
Section 2.24. Accounts Receivable. Not less than ninety-seven percent
(97%) of the gross amounts of the accounts receivable of the Company and the
Subsidiary which will exist on the Closing Date will represent valid
obligations to the Company or the Subsidiary fully collectible within 120
days after the Closing Date and shall not be subject to any setoff or
counterclaim.
Section 2.25. Intellectual Property. (a) Except as set forth on
Schedule 2.25 attached hereto and hereby made a part hereof, the Company or
the Subsidiary, as the case may be, owns, or is licensed, or otherwise
possesses legally enforceable rights, or can obtain such rights without
paying more than $5,000, to use, sell or license, as applicable, all of the
following items which are used in the conduct of the business of the Company
and the Subsidiary (hereinafter referred to as the "Intellectual Property"),
excluding in each case Commercial Software (as defined below): (i) patents,
designs, utility models and applications therefor, patent disclosures and
inventions, (ii) trademarks, service marks, logos, trade dress, trade names,
Internet domain names and the Company's corporate name and registrations and
applications for registration thereof, including the common law rights and
goodwill associated therewith, (iii) rights associated with works of
authorship including copyrights and registrations and applications for
registration thereof, (iv) mask works and registrations and applications for
registration thereof, (v) computer software, data and documentation (in both
source code and object code form), (vi) trade secrets and other confidential
and proprietary information including, but not limited to, inventions
(whether patentable or unpatentable), know-how and copyrightable works,
(vii) other confidential and proprietary intellectual property rights,
(viii) copies and tangible embodiments of all of the foregoing (in whatever
form or medium), (ix) all renewals, extensions, revivals and resuscitations
thereof and any other patents claiming priority from any of the foregoing and
(x) any rights analogous to those set forth in this Section 2.25 and any
other proprietary rights relating to intangible property. Except as
disclosed on Schedule 2.25, the Company or the Subsidiary has licenses for
all Commercial Software used in its business and the Company or the
Subsidiary and neither the Company nor the Subsidiary has any obligation to
pay fees, royalties and other amounts at any time pursuant to any such
license. "Commercial Software" means packaged commercially available
software programs generally available to the trade which have been licensed
to the Company or the Subsidiary pursuant to end-user licenses and which are
used in the business of the Company or the Subsidiary.
(b) Schedule 2.25 sets forth a complete list of all (i) material
licenses, sublicenses and other agreements as to which the Company or the
Subsidiary is a party (as licensor, licensee or otherwise) pursuant to which
the Company, the Subsidiary or any third party is authorized to use, sell,
distribute or license any Intellectual Property, except for the sale or
license of products or services to customers of the Company or the Subsidiary
in the ordinary course of business or with respect to Commercial Software and
(ii) licenses, sublicenses or other agreements with resellers and
distributors that grant non-exclusive rights to use or modify and resell or
sublicense object code. Neither the Company nor the Subsidiary is in
material violation of any such license, sublicense or agreement.
Schedule 2.25 lists all written licenses, sublicenses and other agreements as
to which the Company or the Subsidiary is a party and pursuant to which the
Company or the Subsidiary is authorized to use any patents, patent rights,
trademarks, service marks, logos, trade secrets, copyrights or software of
third parties which are incorporated in any existing product or service of
the Company or the Subsidiary.
(c) Except as disclosed on Schedule 2.25, no claims with respect to
the Intellectual Property are pending or, to the knowledge of the Company or
the Subsidiary, threatened by any third party (i) alleging that the
manufacture, sale, licensing or use of any Intellectual Property as now
manufactured, sold, licensed or used by the Company, the Subsidiary or any
third party infringes on any intellectual property rights of any third party,
(ii) against the use by the Company or the Subsidiary of any technology,
know-how or computer software used in the business of the Company or the
Subsidiary as currently conducted or (iii) challenging the validity,
enforceability or effectiveness of any such Intellectual Property or the
ownership thereof by the Company or the Subsidiary.
(d) Except as disclosed on Schedule 2.25, the Company has not entered
into any agreement under which the Company or the Subsidiary is restricted
(i) from selling, licensing or otherwise distributing any products or
services to any class or type of customers or through any type of channel in
any geographic area or during any period of time, or (ii) from combining,
incorporating, embedding or bundling or allowing others to combine,
incorporate, embed or bundle any of its products or services with those of a
third party.
(e) The Company and the Subsidiary have taken reasonable security
measures to safeguard and maintain trade secrets owned by the Company and the
Subsidiary, as the case may be. There is no claim pending or, to the
knowledge of the Company or the Subsidiary, threatened against the Company or
the Subsidiary with respect to any alleged infringement of any intellectual
property rights owned or alleged to be owned by a third party and no person
or entity is infringing on the Intellectual Property. All officers and
employees of the Company and the Subsidiary who have access to proprietary
information have executed and delivered to the Company or the Subsidiary, as
the case may be, an agreement regarding the protection of proprietary
information, and the assignment to or ownership by the Company or the
Subsidiary, as the case may be, of all Intellectual Property arising from the
services performed for the Company or the Subsidiary, as the case may be, by
such persons. No current or prior officers or employees of the Company or
the Subsidiary claim any ownership interest in any Intellectual Property, the
Company or the Subsidiary, as the case may be. Neither the Company nor the
Subsidiary has received notice in the past three years that any consultant to
the Company or the Subsidiary has claimed an interest in any Intellectual
Property as a result of having been involved in the development of such
Intellectual Property while consulting to the Company or the Subsidiary.
(f) Except as disclosed on Schedule 2.25, (i) the occurrence in or use
by any computer software included in the Intellectual Property, of dates on
or after January 1, 2000 (the "Millennial Dates"), will not materially and
adversely affect the performance of such software with respect to date
dependent data, computations, output or other functions (including, without
limitation, calculating, computing and sequencing) (collectively, the "Date
Dependent Functions") and such software is reasonably expected to create,
sort and generate output data related to or including Millennial Dates
without any material errors or omissions and there is no claim pending or, to
the knowledge of the Company, threatened against the Company or the
Subsidiary with respect to any alleged adverse effect of the Millennial Dates
on the performance of any computer software included in the Intellectual
Property with respect to the Date Dependent Functions or the inability of any
computer software included in the Intellectual Property to create, sort and
generate output data related to or including Millennial Dates without any
material errors or omissions and (ii) computer software included in the
Intellectual Property does not contain any "back door," "time bomb," "Trojan
horse," "worm," "drop dead device," "virus" (as these terms are commonly used
in the computer software industry), or other software features designed to
permit unauthorized access, to disable or erase software or data, or to
perform any other similar type of detrimental functions.
(g) No government funding or university or college facilities were
used in the development of the Intellectual Property.
(h) The Company or the Subsidiary, as the case may be, has the
exclusive right to file, procure and maintain all applications and
registrations with respect to the Intellectual Property owned thereby.
(i) All patents and registered trademarks, trade names and copyrights
held by the Company or the Subsidiary are valid and subsisting and the
Company or the Subsidiary has properly marked, or caused to be marked, all
products and services sold or otherwise distributed or rendered with all
required or appropriate notices.
(j) The Company or the Subsidiary, as the case may be, has taken all
commercially reasonable action to maintain and protect each item of
Intellectual Property owned or used by the Company or the Subsidiary.
(k) No patent, statute, rule, regulation, code or standard is pending
or, to the knowledge of the Company or the Subsidiary, proposed, that could
have or has had a Material Adverse Effect on the validity, enforceability,
ownership of or right to use, sell, license or dispose of any Intellectual
Property.
(l) None of the material trade secrets of the Company or the
Subsidiary has been disclosed to any person unless such disclosure was
necessary and was made pursuant to a confidentiality agreement.
Section 2.26. Bank Accounts. Schedule 2.26 attached hereto and hereby
made a part hereof sets forth a complete list of the names and addresses of
each bank, savings and loan association, securities firm or other financial
institution in which the Company or the Subsidiary has any savings, checking,
securities, investment or other accounts or maintains a safety deposit box,
the names or other identification of each such account, the account balances
as of the date hereof, and the names or other identification of each person
who has authority to draw on such account or who has access to such safety
deposit boxes.
Section 2.27. Real Property Matters. Except as disclosed in Schedule 2.27
attached hereto and hereby made a part hereof, (i) there are no material
defects in any of the buildings or any fixtures or other improvements located
upon any of the real property owned, leased or used by the Company or by the
Subsidiary (herein referred to as the "Real Property"), whether above, at or
below grade, including, without limitation, any material leakage or seepage
in or from roofs, walls or foundations; (ii) all buildings and improvements
located on the Real Property are free of termite or other material insect
infestation; (iii) all gas, electric, water and other utility lines, sewers,
and curbs which are required in connection with the use of the Real Property
have been installed; (iv) none of the Real Property is located in a flood
plain and none of the improvements located on the Real Property has been
flooded in whole or in substantial part within the past three (3) years;
(v) all water, sewer, plumbing, heating, cooling, air conditioning,
sprinkling, gas, cooking, refrigerating, waste treatment or disposal,
communications and electrical systems and other facilities of whatever nature
located on the Real Property are in normal working order and condition,
ordinary wear and tear excepted, and of a capacity adequate for the Surviving
Corporation's continued use thereof after the Effective Time; and (vi) all
buildings and improvements located upon the Real Property, including, without
limitation, any septic tank, field or drain tiles servicing any building
located on the Real Property, and all lagoons, water retention and detention
areas, spray fields and landfills, are in compliance in all material respects
with all Federal, state and local building, zoning, health, safety and other
laws, codes, regulations, ordinances and restrictions applicable thereto, and
there are no written allegations, notices, suits or judgments relating to
violations by the Real Property or any other buildings or improvements
located thereon of any Federal, state and local building, zoning, health or
safety violations which have not been corrected. No insurer within the past
three (3) years has refused to insure any of the Real Property or conditioned
the insuring thereof on the completion of any work which has not yet been
completed. Easements exist sufficient to connect all gas, electric, water
and other utility lines, sewers, communications and electrical systems and
all other facilities located on the fee portion of the Real Property to
existing lines on a public way over any land other than the Real Property on
which such lines are located. There are no pending, or threatened in the
form of written notice to the Company or the Subsidiary, condemnation actions
affecting any of the Real Property.
Section 2.28. Assets and Properties. Schedule 2.28 attached hereto and
hereby made a part hereof lists all of the material machinery, equipment,
vehicles, furniture and other tangible personal property owned, leased or
used by the Company and the Subsidiary in connection with its business.
Except as specifically disclosed in said Schedule 2.28, all of such listed
machinery, equipment, vehicles, furniture and other tangible personal
property owned, leased or used by the Company and the Subsidiary are in
normal working order and condition, ordinary wear and tear excepted. From
the date hereof until the Closing Date, the Company and the Subsidiary agree
that such assets shall only be used in the ordinary course of business and
shall be subject only to ordinary wear and tear.
Section 2.29. Disclosure. Neither any representation or warranty made
herein by the Company nor any written statement, certificate or schedule
given or to be given to Galileo pursuant to this Agreement, contains or will
contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein under the circumstances under which they were made not misleading.
The Company has made, and will make in good faith prior to the Closing Date,
full disclosure in writing of all material facts known to the Company with
respect to the Company and the Subsidiary and their assets, liabilities and
business which a prudent purchaser of the Company Stock would deem relevant.
Section 2.30. Updating of Schedules. There has been no Material Adverse
Change in any of the matters reflected in any Schedule delivered pursuant to
this Agreement from the respective date thereof to and including the date of
this Agreement. The Schedules which have been delivered by the Company to
Galileo prior to the execution of this Agreement have been prepared by the
Company and will be updated by the Company, as the case may be, to include
such information as of such date, with any and all changes specifically
marked, so that all such Schedules are true, accurate and complete in all
material respects, both as of the date hereof and as of the Closing Date.
Section 2.31. Location of Assets. Except as disclosed in Schedule 2.31,
all of the material, tangible assets and property of the Company are located
at the Company's facility in Englewood, Colorado, and all of the material,
tangible assets and property of the Subsidiary are located at the
Subsidiary's facility in Louisville, Colorado, and, except as disclosed in
Schedule 2.31, all of the assets and property located at the Company's
facility in Englewood, Colorado, and the Subsidiary's facility in Louisville,
Colorado, as of the date hereof (exclusive of the personal property and
effects of the employees of the Company and the Subsidiary and which are not
used or useful in the business of the Company or Subsidiary) and as of the
Closing Date are and will be owned by the Company and neither the
Stockholders of the Company or Subsidiary nor any third party has any
interest whatsoever therein or thereto.
Section 2.32. Proxy Statement. The Proxy Statement (as defined in Section
7.4 hereof) will, at the time it is mailed to the stockholders of the Company
and at the time of the Meeting (as defined in Section 7.4) to be held in
connection with this Agreement will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading (except that no representation or warranty is made with
respect to the information contained therein with respect to Galileo).
Article 3
Representations and Warranties of Galileo and the Merger Sub
As an inducement to the Company to enter into and perform this
Agreement, Galileo and the Merger Sub covenants, represents and warrants to,
and agrees with, the Company as follows:
Section 3.1. Corporate Status of Galileo. Galileo and the Merger Sub are
corporations duly organized, validly existing and in good standing under the
laws of Delaware, with full corporate power and authority to own, lease and
operate their respective properties and to carry on the business as now being
conducted.
Section 3.2. Authority. Galileo and the Merger Sub have full legal
capacity, power and authority to enter into and perform this Agreement.
Section 3.3. Authority of Galileo and Merger Sub. The execution and
delivery of this Agreement by Galileo and the Merger Sub and the consummation
of the transactions contemplated hereby have been or will be duly authorized
by all necessary corporate action on the part of Galileo and the Merger Sub.
This Agreement has been duly executed and delivered by Galileo and the Merger
Sub and (assuming the valid authorization, execution and delivery of this
Agreement by the Company) constitutes a valid and binding obligation of
Galileo and the Merger Sub enforceable against each of them in accordance
with its terms.
Section 3.4. Capital Structure. (a) The authorized stock of Galileo
consists of 250,000,000 shares of Common Stock, of which 89,999,435 shares
were issued and outstanding as of December 31, 1999, 25,000,000 shares of
Preferred Stock, none of which is issued or outstanding, and 3 shares of
special voting preferred stock, of which 3 shares are issued and
outstanding. All such shares have been duly authorized, and all such issued
and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens
or encumbrances created by or imposed upon the holders thereof.
(b) The shares of Galileo Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, non-assessable.
Section 3.5. SEC Documents; Galileo Financial Statements. Galileo has
furnished or made available to the Company true and complete copies of all
reports or registration statements filed by it with the U.S. Securities and
Exchange Commission (the "SEC") under the Securities Exchange Act of 1934
(the "Exchange Act") for all periods subsequent to January 1, 1999, all in
the form so filed (all of the foregoing being collectively referred to as the
"SEC Documents"). As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act,
and none of the SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading, except to the extent corrected by a
subsequently filed document with the SEC. The financial statements of
Galileo, including the notes thereto, included in the SEC Documents (the
"Galileo Financial Statements") comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles consistently applied (except as
may be indicated in the notes thereto) and present fairly the consolidated
financial position of Galileo at the dates thereof and of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal audit adjustments). There has been no change in
Galileo accounting policies except as described in the notes to the Galileo
Financial Statements.
Section 3.6. No Material Adverse Change. Since the date of the balance
sheet included in the Galileo's most recently filed report on Form 10-Q or
Form 10-K, Galileo has conducted its business in the ordinary course and
there has not occurred: (a) any material adverse change in the financial
condition, liabilities, assets or business of Galileo; (b) any amendment or
change in the Certificate of Incorporation or Bylaws of Galileo; or (c) any
damage to, destruction or loss of any assets of Galileo, (whether or not
covered by insurance) that materially and adversely affects the financial
condition or business of Galileo.
Section 3.7. Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which Galileo has received any
notice of assertion against Galileo which in any manner challenges or seeks
to prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement.
Article 4
Conditions Precedent to Obligations of Galileo and the Merger Sub
The obligations of Galileo and the Merger Sub under this Agreement are,
at Galileo's option, subject to the fulfillment at or prior to the Closing of
each of the following conditions, upon the nonfulfillment of any of which, at
Galileo's option, this Agreement may be terminated with the effect set forth
in Section 8.2 hereof:
Section 4.1. Accuracy of Representations, Warranties and Covenants. The
representations and warranties of the Company set forth in Article 2 hereof
shall be true and accurate in all material respects as of the date when made
and as of the Closing Date, except to the extent necessary to reflect the
consummation of the transactions provided for herein. The Company shall have
duly performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed or
complied with by it prior to or on the Closing Date. The Company shall have
delivered to Galileo a certificate executed by an executive officer dated the
day of the Closing Date and signed by the Company to the effect set forth in
this Section 4.1.
Section 4.2. HSR Act. Any applicable waiting period under the HSR Act,
including any extensions thereof, shall have elapsed or have been terminated
and neither the Federal Trade Commission nor the U.S. Department of Justice
shall have taken any action to prevent or delay, or threatened to take any
action which may reasonably be expected to prevent or delay consummation of
the transactions contemplated under this Agreement; and no governmental
inquiry shall have been received that, in the reasonable opinion of Galileo,
might be expected to lead to an action or proceeding to restrain or otherwise
challenge the transactions contemplated herein and therein.
Section 4.3. Licenses, Permits, Approvals, Etc. Galileo shall have
obtained, without significant burden or expense and in form and substance
reasonably satisfactory to Galileo and its legal counsel, all material
governmental, administrative and other licenses, permits, approvals, consents
and authorizations, which, in the reasonable opinion of Galileo, are required
or desirable in connection with the operation of the Surviving Corporation
and the Subsidiary after the Effective Time.
Section 4.4. Employment Agreements. The individuals listed in
Schedule 4.4 attached hereto and hereby made a part hereof shall have
executed with and delivered employment agreements to the Surviving
Corporation in form and substance satisfactory to Galileo (hereinafter
referred to individually as an "Employment Agreement" and collectively as the
"Employment Agreements").
Section 4.5. Approval of Legal Matters by Counsel. There shall have been
furnished to counsel for Galileo certified copies of such corporate records
of the Company and the Subsidiary and copies of such other documents as such
counsel may reasonably have requested.
Section 4.6. No Adverse Proceedings. There shall be no action, suit,
proceeding or claim instituted or threatened by a third party relating to the
transactions contemplated hereby.
Section 4.7. Receipt of Closing Documents. Galileo shall have received
all of the closing documents referred to in Article 6 hereof.
Section 4.8. Approval of Updated Schedules. All Schedules required to be
provided to Galileo pursuant to Article 2 hereof shall have been updated to
the Closing Date by the Company and delivered to Galileo and any new material
information contained in said updated Schedules shall be satisfactory to
Galileo in its sole discretion and in all respects.
Section 4.9. Third Party Consents. All consents of third parties
reasonably determined by Galileo to be necessary or desirable, including
without limitation with respect to those contracts listed in Schedule 4.9
attached hereto, shall have been obtained in form and substance reasonably
acceptable to Galileo, including, without limitation, any lessor consents or
any consents of third parties to Material Contracts which have "change of
control" or "non-assignment" provisions.
Section 4.10. Company Stockholder Approval. This Agreement and the Merger
shall have been duly approved and adopted by the requisite vote of the
stockholders of the Company under applicable law.
Section 4.11. Tax Opinion. Galileo shall have received the opinion of
Chapman and Cutler based upon receipt of customary representations, and
substantially to the effect that the Merger will constitute a reorganization
under Section 368 of the Code. Galileo and the Merger Sub agree to make such
reasonable representations as requested by tax counsel in connection with
such opinion and the opinion referred to in Section 5.6 hereof. Such opinion
shall have been delivered and shall not have been withdrawn or modified in
any material respects.
Section 4.12. Dissenting Company Stock. The aggregate number of shares of
Dissenting Company Stock shall not exceed 10% of the Company Stock
outstanding immediately prior to the Effective Time. The Company shall have
delivered to Galileo a certificate dated the Closing Date and signed by an
authorized officer of the Company to the effect set forth in the first
sentence of this Section.
Section 4.13. Exemption. Galileo shall determine, in its sole discretion,
that the issuance of Galileo Common Stock to all of the holders of the
Company Stock pursuant to this Agreement and the Merger shall be exempt from
the registration provisions of the Securities Act and applicable state
securities law; provided, however, that Galileo will reasonably cooperate
with the Company to seek to find a private placement exemption under the
Securities Act and applicable state securities law in connection with its
issuance of the Galileo Common Stock.
Article 5
Conditions Precedent to Obligations of the Company
The obligations of the Company under this Agreement are subject to the
fulfillment at or prior to the Closing of each of the following conditions,
upon the nonfulfillment of any of which, at its option, this Agreement may be
terminated with the effect set forth in Section 8.2 hereof:
Section 5.1. Accuracy of Representations, Warranties and Covenants. The
representations and warranties of Galileo set forth in Article 3 hereof shall
be true and correct in all material respects as of the date when made and as
of the Closing Date, except to the extent necessary to reflect the
consummation of the transactions provided for herein and except as otherwise
specifically permitted hereby. Galileo shall have duly performed and
complied in all material respects with all agreements, covenants and
conditions required by this Agreement to be performed or complied with by it
prior to or on the Closing Date. Galileo shall have delivered to the Company
a certificate executed by an executive officer dated the day of the Closing
Date and signed by Galileo to the effect set forth in this Section 5.1.
Section 5.2. HSR Act. Any applicable waiting period under the HSR Act,
including any extensions thereof, shall have elapsed or have been terminated
and neither the Federal Trade Commission nor the U.S. Department of Justice
shall have taken any action to prevent or delay, or threatened to take any
action which may reasonably be expected to prevent or delay consummation of
the transactions contemplated under this Agreement; and no governmental
inquiry shall have been received that, in the reasonable opinion of the
Company, might be expected to lead to an action or proceeding to restrain or
otherwise challenge the transactions contemplated herein and therein.
Section 5.3. Receipt of Closing Documents. The Company shall have
received all of the closing documents referred to in Article 6 hereof.
Section 5.4. Approval of Legal Matters by Counsel. There shall have been
furnished to counsel for the Company certified copies of such corporate
records of Galileo and the Merger Sub and copies of such other documents as
such counsel may reasonably have requested.
Section 5.5. Company Stockholder Approval. This Agreement and the Merger
shall have been duly approved and adopted by the requisite vote of the
stockholders of the Company under applicable law.
Section 5.6. Tax Opinion. The Company shall have received the opinion of
Wilson Sonsini Goodrich & Rosati, based upon receipt of customary
representations, and substantially to the effect that the Merger will
constitute a reorganization under Section 368(a) of the Code. The Company
agrees to make such reasonable representations as requested by tax counsel in
connection with such opinion and the opinion referred to in Section 4.11
hereof. Such opinion shall have been delivered and shall not have been
withdrawn or modified in any material respect.
Article 6
Closing
Section 6.1. Date, Time and Place of Closing. The closing in respect of
the Merger (herein referred to as the "Closing") shall be held at the offices
of Chapman and Cutler, 111 West Monroe, Chicago, Illinois at 9:00 A.M.,
Chicago time, on the second business day following the satisfaction of the
conditions set forth in Articles 4 and 5 hereof (other than those conditions
specified in Sections 4.7, 4.8 or 5.3 thereof which by their nature are to
first be satisfied on the Closing Date), but such date shall not be less than
20 days from the date of this Agreement, or such other date mutually agreed
to by the parties (herein referred to as the "Closing Date"), which date
(unless otherwise mutually agreed by the parties) shall be the day of the
Effective Time.
Section 6.2. Documents to Be Delivered by the Company to Galileo. The
Company agrees to deliver to Galileo on the Closing Date the following:
(a) Certificates. The Certificates required to be delivered
pursuant to Sections 4.1 and 4.12 hereof.
(b) Certificate of Merger. The Certificate of Merger duly
executed by an authorized officer of the Company.
(c) Charter Documents. The Certificate of Incorporation and
all amendments thereto of the Company and the Subsidiary certified by
the Secretary of the State of Delaware as of a date not more than ten
(10) days prior to the Closing Date.
(d) Good Standing Certificates. Certificates of good standing
for the Company and the Subsidiary issued by the Secretary of the State
of Delaware as of a date not more than ten (10) days prior to the
Closing Date.
(e) Certificates of Secretarial Officer. Certificates of the
Secretary or an Assistant Secretary of the Company and the Subsidiary
dated the Closing Date with respect to (i) the bylaws of the Company,
(ii) the bylaws of the Subsidiary, (iii) the incumbency of the officers
of the Company and the Subsidiary and (iv) resolutions of the Board of
Directors of the Company authorizing and approving the Merger and this
Agreement and the execution, delivery and performance of any documents
referred to in this Agreement to which the Company is to be a party.
(f) Resignations. Written resignations of those officers and
directors of the Company and the Subsidiary specified by Galileo with
an acknowledgment that such persons do not have any claims for further
compensation from the Company or the Subsidiary.
(g) Legal Opinion. Galileo shall have received a legal opinion
from counsel to the Company in form and substance reasonably
satisfactory to Galileo and its counsel covering the matter set forth
in Exhibit D hereto.
(h) Employment Agreements. The Employment Agreements executed
by the persons listed on Schedule 4.4 in form and substance reasonably
satisfactory to Galileo and its counsel.
(i) Escrow Agreement. The Escrow Agreement executed by the
Company and the Escrow Agent attached hereto.
(j) Disclaimer of Interest Letter. A written agreement from
those officers, directors and employees of the Company specified by
Galileo that they have no interest or claim whatsoever in or to any
programs, software, formulas, patents, copyrights, inventions or other
tangible or intangible property owned or used by the Company or the
Subsidiary in connection with their respective businesses, assigning
any ownership interests therein to the Company and the Surviving
Company, and agreeing not to appropriate or use any such property,
directly or indirectly, for their own benefit.
(k) Representation letters of each holder of Company Stock
substantially in the form attached hereto as Exhibit C.
(l) Such other documents as may reasonably be requested by
Galileo or its counsel to evidence compliance with any federal or state
tax withholding or securities laws.
Section 6.3. Items to Be Delivered by Galileo. Galileo agrees to deliver
on the Closing Date the following:
(a) Cash Portion of Purchase Price. Wire transfer to the
Paying Agent of the cash portion of the Merger Consideration pursuant
to Section 1.2(a)(i) hereof.
(b) Galileo Common Stock. Delivery to the Paying Agent of
stock certificates for the Galileo Common Stock.
(c) Escrow Agreement. The Escrow Agreement executed by Galileo.
(d) Escrow Deposit. Wire transfer to the Escrow Agent of the
$20,000,000 escrow deposit pursuant to Section 1.3 hereof.
(e) Certificate of Merger. The Certificate of Merger duly
executed by an authorized officer of the Merger Sub.
(f) Legal Opinion. A legal opinion from counsel to Galileo in
form and substance reasonably satisfactory to the Company and its
counsel covering the matters set forth in Exhibit E hereto.
(g) Certificate. Certificate of Galileo, dated the Closing
Date, certifying that the conditions precedent set forth in Section 5.1
hereof have been fulfilled.
Article 7
Further Agreements
Section 7.1. Commissions and Expenses of Sale. In the event that the
Merger is not consummated, each party to this Agreement shall bear its own
legal, accounting and other related expenses in connection with the
transactions provided for herein. The Company represents and warrants to
Galileo that, except for J.P. Morgan & Company, Inc., no broker, finder,
agent or similar intermediary (a "Broker") has acted on behalf of any of the
Company or its stockholders in connection with this Agreement or the
transactions contemplated thereby, and that, except for a fee payable to
J.P.Morgan & Company, Inc. (the "Company's Fee"), there are no brokerage
commissions, finder's fees or similar fees or commissions payable in
connection therewith based on any agreement, arrangement or understanding
with the Company or its stockholders, or any action taken by the Company or
its stockholders. The Company agrees to pay the Company's Fee and to
indemnify and hold harmless Galileo and the Merger Sub from any claim or
demand for commission or other compensation by any Broker claiming to have
been employed by or on behalf of the Company or its stockholders, and to bear
the cost of legal expenses incurred in defending against any such claim.
Galileo represents and warrants to the Company that, except for Lehman
Brothers Inc., no Broker has acted on behalf of Galileo in connection with
this Agreement or the transactions contemplated thereby and that, except for
a fee payable to Lehman Brothers Inc., there are no brokerage commissions,
finders' fees or similar fees or commissions payable in connection therewith
based on any agreement, arrangement or understanding with Galileo, or any
action taken by Galileo. Galileo agrees to indemnify and hold harmless the
Company from any claim or demand for commission or other compensation by any
broker claiming to have been employed by or on behalf of Galileo, and to bear
the cost of legal expenses incurred in defending against any such claim.
Section 7.2. Other Acquisition Proposals. From and after the date hereof
and until the Closing or the date this Agreement is terminated, the Company
shall not, directly or indirectly, solicit or encourage inquiries or
proposals with respect to, or participate in any negotiations or discussions
concerning: (i) any acquisition or purchase of shares of the Company Stock;
(ii) all or a substantial portion of the assets of, or a substantial equity
interest in, the Company or the Subsidiary; or (iii) any merger,
consolidation or other business combination with or involving the Company or
the Subsidiary, other than as contemplated by this Agreement.
Section 7.3. Approvals and Consents. The Company, Galileo and the Merger
Sub shall take all steps reasonably necessary in connection with the
preparation and submission of any premerger notification required under the
HSR Act in connection with the transactions contemplated by this Agreement,
such submission to be filed (with request for early termination) no later
than February 7, 2000, and to obtain the written consent or approval of each
and every governmental agency or third party whose consent or approval shall
be required in order to permit the consummation of the transactions
contemplated by this Agreement.
Section 7.4. Company Stockholder Approval. The Company shall take all
steps necessary to duly call, give notice of, convene and hold a meeting
(hereinafter referred to as the "Meeting") of its stockholders to be held as
promptly as practicable for the purpose of presenting this Agreement for the
approval of, and adoption by, its stockholders. The Company and Galileo
will, as expeditiously as possible, work together to prepare a proxy
statement (the "Proxy Statement") to be delivered to the stockholders of the
Company in connection with the Merger. The Company shall promptly notify
Galileo in the event that any information contained in the Proxy Statement
with respect to the Company becomes untrue or inaccurate in any material
respect prior to the Merger. The Company shall, through its Board of
Directors, except to the extent legally prohibited from doing so in
connection with the discharge of the fiduciary duties of its Board of
Directors as advised by its outside counsel, recommend to its stockholders
approval of this Agreement and of the transactions contemplated hereby. If
this Agreement shall be approved and adopted by the requisite vote of the
Company's stockholders, the Company shall immediately thereafter cause its
Secretary to certify the fact of such approval and adoption on this
Agreement, pursuant to the requirement of Section 251(c) of the General
Corporation Law of the State of Delaware.
Section 7.5. FIRPTA. At or prior to the Closing, the Company shall, if
requested by Galileo, deliver to Galileo a notice that the Company Stock is
not a "U.S. Real Property Interest" as defined in accordance with the
requirements of Treasury Regulation Section 1.1445-2(c)(3).
Section 7.6. Registration Statement. Galileo agrees to file a
registration statement on Form S-8 for the shares of Galileo Common Stock
issuable pursuant to the assumed Company Stock Plan no later than two (2)
business days after the Closing Date.
Article 8
Amendment And Termination
Section 8.1. Amendment. This Agreement may be amended by the parties
hereto at any time prior to the Effective Time, whether before or after
approval hereof by the stockholders of the Company, but, after such approval
by the stockholders of the Company, no amendment shall be made without the
further approval of such stockholders which (i) alters or changes the amount
or kind of consideration to be received by such stockholders in exchange for
or on conversion of all or any of the shares of Company Stock as a result of
the Merger; (ii) alters or changes any term of the certificate of
incorporation of the Surviving Corporation provided for by this Agreement; or
(iii) adversely affects such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 8.2. Termination. (a) This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval of this
Agreement by the stockholders of the Company:
(i) by mutual consent in writing of Galileo and the Company; or
(ii) by Galileo or by the Company, by giving written notice of
such termination to the other party or parties if, upon the taking of
the vote of the stockholders of the Company contemplated by Section 7.4
hereof, the required approval of such stockholders shall not be
obtained; or
(iii) by Galileo, by giving written notice of such termination to
the Company, (A) if there has been a material breach of any
representation, warranty, or agreement herein on the part of the
Company which has not been cured or adequate assurance of cure given,
in either case within five business days following receipt of notice of
such breach from Galileo, (B) if Galileo determines at any time that
any regulatory approval or consent required by law to be received in
connection with the Merger is unlikely to be received or is unlikely to
be received in time to permit the lawful consummation of the Merger by
April 30, 2000, or contains any conditions or requirements which are
not acceptable to Galileo, or (C) if there shall have occurred or been
proposed, after the date of this Agreement, any change in any law, rule
or regulation, or after the date of this Agreement there shall have
been any decision or action by any court, government or governmental
agency that could reasonably be expected to prevent or materially delay
consummation of the Merger; or
(iv) by the Company, by giving written notice of such
termination to Galileo, if there has been a material breach of any
representation, warranty, or agreement herein on the part of Galileo or
the Merger Sub which has not been cured or adequate assurance of cure
given, in either case within five business days following receipt of
notice from the Company of such breach; or
(v) by Galileo or by the Company, by giving written notice of
such termination to the other party or parties, if the Merger shall not
have been consummated on or before April 30, 2000.
Section 8.3. Effect of Termination. In the event of termination of this
Agreement by any party hereto, there shall be no liability on the part of any
other party hereto; provided, however, that such termination shall not
preclude liability attaching to a party who has caused the termination hereof
by an intentional breach of any of its representations, warranties or
covenants contained in this Agreement or the willful act or willful failure
to act in violation of the terms and provisions of this Agreement.
Section 8.4. Waiver. Any terms or provisions of this Agreement may be
waived in writing at any time by the party which is entitled to the benefits
thereof, or their respective counsel. The failure of either party at any
time or times to require performance of any provision hereof shall in no
manner affect such party's right at a later time to enforce the same. No
waiver by any party of a condition or of the breach of any term, covenant,
representation or warranty of this agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be or construed as
a further or continuing waiver of any such condition or breach or a waiver of
any other condition or of the breach of any other term, covenant,
representation or warranty of this Agreement.
Article 9
Survival of Representations and Indemnification
Section 9.1. Survival of Representations and Warranties. Any
investigation or examination by Galileo of the business, records, properties
or affairs of the Company or the Subsidiary shall not in any way affect the
representations and warranties of the Company contained in this Agreement,
except in the case of any representations and warranties that Galileo knows
to be untrue as a result of any investigation or examination, and such
representations and warranties herein made by the Company shall be deemed to
be remade at and survive the Closing Date for six months.
Section 9.2. Indemnification by the Company. Subject to the limitations
respecting the survivability of representations and warranties contained in
Section 9.1 hereof, the Company agrees to indemnify and hold Galileo, the
Merger Sub and the Surviving Corporation, and their respective successors and
assigns harmless from and against all liability, loss, cost or expense,
including, without limitation, reasonable attorneys' fees, expenses and costs
of litigation and, in the case of Environmental Laws, the costs and expenses
of taking any investigative, removal or remedial actions (hereinafter
referred to individually as "Loss" and collectively as the "Losses"), which
Galileo, the Merger Sub or the Surviving Corporation or their respective
successors or assigns may, directly or indirectly, sustain by reason of any
of the following:
(a) The inaccuracy of any representation or warranty of the
Company herein set forth;
(b) The inaccuracy of any certificate or Schedule to this
Agreement delivered by the Company or the Subsidiary to Galileo in
accordance with the provisions hereof;
(c) The breach of any of the agreements or covenants of the
Company contained herein or in any certificate or other document
delivered by the Company or the Subsidiary to Galileo in accordance
with the terms hereof; and
(d) The inaccuracy of any representations made by any of the
holders of the Company Stock pursuant to the provisions of Section 1.7
hereof.
Notwithstanding the foregoing, the maximum aggregate liability of the Company
to Galileo for breaches of the representations and warranties of the Company
hereunder shall not exceed $20,000,000 (the "Maximum Liability") and Galileo
may not make a claim against the Company for any such breach or breaches
until Galileo, the Merger Sub or the Surviving Corporation has sustained
Losses of at least $500,000 (the "Claim Threshold") in connection with any
such breach or breaches. After such Claim Threshold has been met, any Losses
included in the calculation of the Claim Threshold shall be recoverable by
Galileo to the same extent as any other Losses. The foregoing limitation on
the recovery of Losses shall not apply to any Losses relating to or resulting
from any fraudulent representations or warranties. The $20,000,000 which is
to be deposited into the Escrow is intended by the parties to serve as the
sole source for the recovery of any Losses recoverable pursuant to the
provisions of this Section 9.2. Galileo may from time to time make a claim
for any Loss by requesting the Escrow Agent to pay to Galileo or the
Surviving Corporation the amount thereof from the funds held by the Escrow
Agent under the terms of the Escrow Agreement.
Article 10
Registration of Galileo Shares
Subject to the applicable provisions of any preexisting agreement to
which Galileo is a party, Galileo shall prepare and file within 60 days
following the date of Closing, and shall use its reasonable commercial
efforts to have declared effective, at Galileo's expense, a S-3 Registration
Statement relating to 50% of the Galileo Common Stock issued pursuant to this
Agreement, and to maintain the effectiveness of such S-3 Registration
Statement through the earlier of (i) 90 days after the effectiveness of such
S-3 Registration Statement, and (ii) the date on which a prospectus is no
longer required to be delivered under the Securities Act. Galileo shall
prepare and file within 90 days after the effective date of such S-3
Registration Statement, and shall use its reasonable commercial efforts to
have declared effective, at Galileo's expense, a S-3 Registration Statement
relating to the remaining 50% of the Galileo Common Stock issued pursuant to
the Agreement, and to maintain the effectiveness at such S-3 Registration
Statement until the earlier of (i) 270 days after the effectiveness of such
S-3 Registration Statement, and (ii) the date on which a prospectus is no
longer required to be delivered under the Securities Act. During the period
that either S-3 Registration Statement referred to in this Article 10 is
effective, Galileo shall have the right by giving written notice to the
holders of Galileo Common Stock whose shares are to be sold pursuant to said
S-3 Registration Statement to suspend their right to effect sales pursuant to
such S-3 Registration Statement for valid business reasons, but only in the
event that the officers of Galileo are restricted from making sales of
Galileo Common Stock.
Article 11
Miscellaneous Provisions
Section 11.1. Notices. Each notice, request, demand, approval or other
communication which may be or is required to be given under this Agreement
shall be in writing in English and shall be deemed to have been properly
given when delivered personally at the address set forth below for the
intended party during normal business hours at such address, when sent by
facsimile or other electronic transmission to the respective facsimile
transmission numbers of the parties set forth below, or when sent by
recognized overnight courier service or by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to Galileo or Merger Sub: Galileo International, Inc.
9700 West Higgins Road
Suite 400
Rosemont, Illinois 60018
Attn: General Counsel
Facsimile: (847) 518-4915
Confirm: (847) 518-4801
With a copy to: Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
Attn: Michael P. Barrett
Facsimile: (312) 701-2361
Confirm: (312) 845-3770
If to the Company: Trip.com, Inc.
6436 South Racine Circle
Suite 202
Englewood, Colorado
Attn: Brian K. Thomson
Facsimile: (303) 790-9350
Confirm: (303) 790-9360
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attn: Roger E. George
Facsimile: (650) 493-6811
Confirm: (650) 320-4612
Notices shall be given to such other addressee or address, or both, or by way
of such other facsimile transmission number, as a particular party may from
time to time designate by written notice to the other party hereto. Each
notice, request, demand, approval or other communication which is sent in
accordance with this Section shall be deemed given and received for all
purposes of this Agreement as of three (3) business days after the date of
deposit thereof for air mailing in a duly constituted United States post
office or branch thereof, one business day after deposit with a recognized
overnight courier service or upon confirmation of receipt of any facsimile
transmission. Notice given to a party hereto by any other method shall only
be deemed to be given and received when actually received in writing by such
party.
Section 11.2. Further Assurance. Each of the parties hereto hereby agrees
that after the Closing Date it will from time to time, upon the reasonable
request of another party hereto, take such further action as the other may
reasonably request to carry out the Merger and the other transactions
contemplated by this Agreement, including, without limitation, the execution
and delivery of all further evidences and instruments of transfer and
assignment.
Section 11.3. Execution and Counterparts. This Agreement may be executed
in any number of counterparts, each and all of which shall be deemed for all
purposes to be one agreement.
Section 11.4. Headings. The headings in this Agreement are intended
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
Section 11.5. Effectiveness. This Agreement shall have no force or effect
whatsoever unless and until the same shall have been executed and delivered
by Galileo, the Merger Sub and the Company.
Section 11.6. Miscellaneous. This Agreement (a) constitutes the entire
agreement and supersedes all other prior agreements and undertakings, both
written and oral, between the parties hereto with respect to the subject
matter hereof; (b) is not intended to confer upon any other person or entity
who or which is not a party hereto any rights or remedies hereunder;
(c) shall be binding upon and inure to the benefit of Galileo, the Merger Sub
and the Company and their respective successors and assigns; and (d) shall be
governed by and construed in accordance with the internal laws, and not the
law of conflicts, of the State of Delaware.
Section 11.7. Publicity. Galileo and the Company shall use their best
efforts so that the Company and the Subsidiary shall not issue or cause the
publication of any press release or other announcement with respect to this
Agreement, or otherwise make any disclosures relating thereto to the press or
any third party other than their respective attorneys, accountants and other
agents without the prior consent of Galileo and the Company, which consent
shall not be unreasonably withheld; provided, however, that such consent
shall not be required where such release, announcement or disclosure is
required by applicable law or the rules or regulations of a securities
exchange, other self-regulatory authority or governmental agency.
In Witness Whereof, the parties hereto have caused this Merger
Agreement to be executed as of the day and year first above written.
Galileo: Company:
Galileo International, Inc. Trip.com, Inc.
By _________________________________ By _________________________________
Its ______________________________ Its______________________________
Galileo Acquisition Co.
By _________________________________
Its ______________________________
<PAGE>
Exhibit 10.20
ADDENDUM NUMBER 1
[ ] TO MASTER TERMS AND CONDITIONS
[X] CANDLE CORPORATION LICENSE AGREEMENT
Commencing on: March 22, 1996
[ ] OR CANDLE CORPORATION RIDER
(hereinafter "Agreement")
BY AND BETWEEN CANDLE CORPORATION AND
GALILEO INTERNATIONAL PARTNERSHIP
THIS ADDENDUM is entered into by and between Candle Corporation
(hereinafter "Licensor") and GALILEO INTERNATIONAL PARTNERSHIP
(hereinafter "Licensee").
THE AGREEMENT is hereby modified as follows:
Fees for the Maintenance and Enhancement Plan (the "Plan") will be
billed annually based on the then-current price list (effective as of
the date the plan is renewed).
Licensee, at its option, is entitled to receive and install multiple
copies of the mainframe Product(s) licensed under this Agreement, at
the designated site(s) within North America in any combination, or on
any configuration of hardware providing the number of Mainframe MVS
MIPS at the site(s) does not exceed 472.
The "Mainframe MVS MIPS" is defined as the sum total of the MIPS for
each CPU (not physical or logical partition, or prism) running MVS
installed at the site(s), excluding only that LPAR on CPU 5995-10670
Serial #2104 which is (i) running VM, and (ii) not running MVS as a
subsystem or otherwise. The MIPS ratings are based on Gartner Group
publications and includes all MIPS added by CMOS, other technologies,
hardware or software products.
If, at any time, the number of Mainframe MVS MIPS exceeds the number
licensed per this Agreement, then Licenses shall immediately notify
Licensor, in writing, of such increase and shall upgrade this License
to provide for the additional MIPS and pay the associated license, the
amounts of which will be determined by Licensor by reference to the
then-current price list. In addition, fees for the Plan will also be
adjusted effective as of the date the number of Mainframe MVS MIPS were
exceeded and such fees will be determined by Licensor by reference to
the then-current price list. No credit will be given for license fees
or Plan fees in the event of a reduction of Mainframe MVS MIPS
installed at the site(s). If the number of Mainframe MVS MIPS are
lower than the number licensed per this Agreement, future Plan fees
will be adjusted effective as of the date the Plan is renewed and such
fees will be determined by Licensor's then-current price list in effect
as of the date the Plan is renewed.
MIP LEVEL
PRODUCTS PROTECTED THROUGH
OMEGAVIEW 472
This Addendum is effective as of the 22 day of March, 1996. All other
terms and conditions of the Agreement shall remain in full force and
effect.
ACCEPTED BY LICENSEE: ACCEPTED BY LICENSOR:
Company Name:Galileo International Partnership Candle Corporation
2425 Olympic Boulevard
Company Address 5350 S. Valentia Way Santa Monica,
California 90404
Englewood, CO 80111
By: Ellen Thelen By: Mark Carlson
Name: ELLEN THELEN Name: Mark Carlson
Title: MAR 20 1996 Title: Business Operations
Manager
Date: PURCHASING Date: April 10, 1996
Purchase Order #: 11G0005-17
(For invoicing purposes only)
CANDLE CORPORATION
LICENSE AGREEMENT
Customer's Name & Address: GALILEO INTERNATIONAL PARTNERSHIP
5350 SO VALENTIA WAY
ENGLEWOOD, CO 80111
Customer Site ID #: 713
Total Licensed Total
Licensed Products/Services
MIPS Fee(s)
OMEGAVIEW
472
Quoted Fees and Terms Valid Through: March 29, 1996
License Type: Perpetual License Commencement Date: March 22, 1996
TOTAL FEES: $66,000 (exclusive of shipping, handling and applicable taxes)
Payment Terms
Net 30 days from invoice date
Billing Address
GALILEO INTERNATIONAL PARTNERSHIP
5350 VALENTIA WAY
ENGLEWOOD, CO 80111
Attention: Ellen Thelen
Supplemental Terms
This License Agreement ("Agreement") is between Candle Corporation
("Licensor"), a
California corporation and GALILEO INTERNATIONAL PARTNERSHIP ("Licensee").
This Agreement and Addendum 1 incorporates by reference the master terms and
conditions number C02-0307/United Airlines Denver Technological Center
subsequently assigned and transferred to Covia Partnership.
For the licensed OMEGAVIEW Product, all reference(s) to "Authorized CPU" in
this Agreement shall be deemed to read "Authorized Site". If a CPU is
upgraded or installed at the site which is larger than what Licensee is
protected through, an additional license fee may be due and fees for the Plan
will be adjusted as of the effective date of the upgrade. The amount of the
license fee and the Plan fee adjustment will be determined in accordance with
this Agreement's Maintenance terms.
Pursuant to this Agreement, Licensor will provide Licensee the Product(s)
and/or Services listed above, for use by Licensee only for its own internal
use and benefit within North America. Licensee agrees that it shall not use
the Product(s) or permit the Product(s) to be used for providing data
processing services for any other parties. If the Product(s) licensed herein
is a Tiered license, then Licensee may only use the Product(s) on the
Authorized CPU listed herein.
To assist Licensor in protecting its proprietary rights, Licensee agrees to
allow Licensor, or its representatives, upon reasonable notice and during
normal business hours, to inspect Licensee's systems to verify that Products
under this Agreement, and other Candle products under other agreements, are
being used consistent with their respective license terms. Licensee shall not
copy without Licensor's consent, in whole or in part, except for one back up or
archival copy, the Product(s) and the printed materials, which are provided
under this Agreement.
Licensee agrees not to disclose the pricing and any other terms of this
Agreement to any third parties and to use the same degree of care a
reasonable business person uses to protect its own confidential information.
The quoted fees and terms and conditions of this Agreement are valid until
March 29, 1996.
THE MEDIA ON WHICH THESE PRODUCT ARE DELIVERED MAY INCLUDE ADDITIONAL
SOFTWARE FOR WHICH LICENSEE IS NOT LICENSED. A PORTION OF THIS NON-LICENSED
SOFTWARE MAY, AS A RESULT OF THE INSTALLATION PROCESS, RESIDE ON LICENSEE'S
HARDWARE. LICENSEE EXPRESSLY AGREES NOT TO ACCESS OR USE, OR ALLOW ANY THIRD
PARTIES TO ACCESS OR USE THE NON-LICENSED SOFTWARE. IN ADDITION, LICENSEE
EXPRESSLY AGREES THAT LICENSEE'S NONDISCLOSURE AND CONFIDENTIALITY
OBLIGATIONS WITH RESPECT TO THE PRODUCTS SHALL ALSO APPLY TO THE NON-LICENSED
SOFTWARE. IN NO EVENT SHALL LICENSOR BE LIABLE TO LICENSEE OR ANY THIRD PARTY
FOR ANY DAMAGES WHATSOEVER ARISING FROM THE USE AND/OR ACCESS TO THE
NON-LICENSED SOFTWARE.
This Agreement constitutes the entire agreement between the parties in
connection with the subject matter hereof, and supersedes, merges and voids
all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties with respect thereto.
This Agreement may only be modified by a written amendment signed by
authorized representatives of the parties hereto. Licensor hereby reserves
the ability to assign its rights to receive monies due hereunder to third
parties. This Agreement shall not be binding upon Licensor until received and
signed by an appropriate Corporate Officer at Licensor's corporate
headquarters. THERE ARE NO WARRANTIES, REPRESENTATIONS, AND/OR AGREEMENTS
BETWEEN THE PARTIES IN CONNECTION WITH THE SUBJECT MATTER HEREOF EXCEPT AS
SPECIFICALLY SET FORTH OR REFERRED TO HEREIN.
ACCEPTED BY LICENSEE: ACCEPTED BY LICENSOR:
Galileo International Partnership Candle Corporation
5350 South Valentia Way 2425 Olympic Boulevard
Englewood, CO 80111 Santa Monica,
California 90404
By: Ellen Thelen By: Mark Carlson
Name: ELLEN THELEN Name: Mark Carlson
Title: MAR 20 1996 Title: Business Operations
Manager
Date: PURCHASING Date: April 10, 1996
Purchase Order #: 11G0005-17
(For invoicing purposes only)
<PAGE>
Exhibit 10.20
ADDENDUM NUMBER TWO
TO THE CANDLE CORPORATION LICENSE AGREEMENTS
Commencing on: September 1, 1995, and March 23, 1996
(hereinafter "Agreement")
BY AND BETWEEN CANDLE CORPORATION AND
GALILEO INTERNATIONAL PARTNERSHIP
THIS ADDENDUM is entered into by and between Candle Corporation (hereinafter
"Licensor") and Galileo International Partnership (hereinafter "Licensee").
THE AGREEMENT is hereby modified as follows:
This addendum is notification that we have updated our records to reflect
your authorized Licensed Capacity has been upgraded from 472 MIPS to 569 MIPS
effective June 30, 1997 on the following products:
OMEGAMON II for MVS
OMEGAVIEW
Your authorized Licensed Capacity of the following product remains 386 MIPS:
OMEGAMON PERFORMANCE PAC for VM
Payment Terms
In accordance with the terms contained in this Agreement and/or Addendum,
Licensee hereby makes a binding, non-contingent, irrevocable and
non-cancelable commitment to make payments to Licensor as follows:
Payment No. Due Date Total
Down Payment June 30, 1997 $ 53,000.00
2. May 1, 1998 $ 63,808.00
3. May 1, 1999 $ 63,808.00
4. May 1, 2000 $ 63,808.00
TOTAL $244,424.00
The above payments are inclusive of the Hardware upgrade charges through 569
MIPS and Maintenance charges through 569 MIPS for OMEGAMON II for MVS and
OMEGAVIEW. These payments are also inclusive of Maintenance charges through
386 MIPS for OMEGAMON PERFORMANCE PAC for VM.
The above payments supersede all previous committed payments pertaining to
the products above.
Maintenance Terms
In consideration for receiving Fixed Cost Maintenance and Enhancement Plan
fees for the Product(s), Licensee hereby makes a binding, non-contingent,
irrevocable, and non-cancelable commitment to extend its participation in the
Maintenance and Enhancement Plan ("the Plan") and pay the associated fees for
Three (3) years and Ten (10) months beginning June 30, 1997 and ending on
April 30, 2001 ("the Period") and said fees shall be billed annually in
advance during the Period included in the Payment Plan above. At the end of
the Period, fees for the Plan will be billed annually in advance based on the
then-current Plan price list in effect as of the date the Plan is renewed.
Licensee, at its option, is entitled to receive and install multiple copies
of the licensed Product(s), providing the Product(s) do not exceed the
Licensed Capacity as specified in this Agreement.
If at any time during or after the Period, the Licensed Capacity is exceeded,
Licensee shall immediately (1) notify Licensor of such increase or change in
writing, (2) modify this Agreement to provide for the additional capacity,
and (3) pay an additional license fee. In addition, fees for the Plan will be
adjusted as of the date of the increased capacity. The amount of the license fee
and the Plan fee adjustment will be determined by the then-current price
list(s).
No credit will be given for either license fees or Plan fees in the event of
a decrease in Licensed Capacity, although future Plan fees arising after the
Period will be adjusted as of the date the Plan is renewed.
This Addendum is effective as of the 30th day of June, 1997. All other terms
and conditions of the Agreement shall remain in full force and effect.
ACCEPTED BY LICENSEE: ACCEPTED BY LICENSOR:
Galileo International Partnership Candle Corporation
5350 South Valentia Way 2425 Olympic Boulevard
Englewood, CO 80111 Santa Monica, California 90404
By: XXXXXXX By: Gretchen Nail
Name: XXXXXXXX Name: Gretchen Nail
Title: XXXXXXXXXXXXX Title: Business Operations Manager
Date: 6/30/97 Date: July 17, 1997
Purchase Order #: 11G0005-16 A
(for invoicing purposes only)
ASSIGNMENT AND TRANSFER
This Assignment and Transfer of Candle Corporation's License Agreements,
dated September 1, 1995, March 22, 1996 and December 31, 1996, is entered
into by and among Candle Corporation (hereinafter referred to as "Candle"),
Galileo International Partnership (hereinafter referred to as "Assignor") and
Galileo International L.L.C., a wholly owned subsidiary of Galileo
International, Inc. (hereinafter referred to as "Assignee").
WHEREAS: Candle has developed and owns software products more
specifically described in the attachment(s).
WHEREAS: By Software License Agreements dated September 1, 1995,
March 22, 1996 and December 31, 1996 (hereinafter referred to as "the
Licenses") Candle licensed to Assignor the use of computer software products
OMEGAMON II for MVS, OMEGAMON PERFORMANCE PAC for VM, OMEGAVIEW, and DB2
SOLUTION PAC, as described in the attachments, subject to the terms and
conditions set forth in Master Terms and Conditions C102-0307/United Airlines
Denver Technological Center subsequently assigned and transferred to Covia
Partnership, dated May 1, 1981 ("T&C").
WHEREAS: Assignor (check where appropriate):
________ changed its name to ________________________________ on
______________; or
________ was acquired by Assignee on ___________; or
____X___ is an entity controlling Assignee, including without
limitation subsidiaries, and
Partnerships, joint ventures and other entities or
operations for which Assignee has
operational or management responsibility;
and
WHEREAS: Assignor is desirous to transfer and assign the Licenses
and the T&C to Assignee.
NOW THEREFORE, the parties, in consideration of mutual covenants,
agreements and understanding, hereto agree as follows:
1) Candle acknowledges that the "Licensee" has been changed to Assignee.
2) Candle consents to the transfer and assignment of the Licenses and the
T&C to Assignee, effective July 1, 1997.
3) Assignee hereby accepts the transfer and assignment of the Licenses and
the T&C and agrees to be bound by all the obligations and duties
set forth in the Licenses and the T&C.
4) Assignor shall continue to be bound by its confidentiality and
non-disclosure obligations as set forth the Licenses and the T&C.
5) Assignor shall continue to be bound by its payment obligations set
forth in the Licenses and the T&C and shall be responsible for
all payment obligations of Assignee under the Licenses and the
T&C.
6) The data center hardware and software will be located at the locations
designated in the Licenses and the T&C.
7) There is no special or one time fee for this transfer and assignment of
the Agreement.
IN WITNESS WHEREOF, the parties have caused this Assignment and
Transfer to be executed as of the dates indicated.
Agreed and accepted by: Agreed and accepted by:
Candle Corporation Galileo International Partnership
(Assignor)
XXXXXX Lori M. Tobin
By (Authorized Signature) By (Authorized Signature)
Bob XXXXXX Lori M. Tobin
Name (Type or print) Name (Type or print)
Title: Sup. Business Operations Title: U.S. Purchase Manager
Date: 2-28-1997 Date: 25 July 1997
Agreed and accepted by:
Galileo International L.L.C., A wholly owned subsidiary of
Galileo
International, Inc. (Assignee)
Lori M. Tobin
By (Authorized Signature)
Lori M. Tobin
Name (Type or print)
Title: U.S. Purchase Manager
Date: 25 July 1997
<PAGE>
Exhibit 10.20
ADDENDUM NUMBER THREE
CANDLE CORPORATION LICENSE AGREEMENT
Commencing on: September 1, 1995, March 22, 1996, and December 31, 1996
(hereinafter "Agreement")
BY AND BETWEEN CANDLE CORPORATION AND
GALILEO INTERNATIONAL, L.L.C., A WHOLLY OWNED SUBSIDIARY OF
GALILEO INTERNATIONAL, INC.
THIS ADDENDUM is entered into by and between Candle Corporation (hereinafter
"Licensor") and Galileo International, L.L.C., A Wholly Owned Subsidiary of
Galileo International, Inc. (hereinafter "Licensee").
THE AGREEMENT is hereby modified as follows:
This Addendum is notification that we have updated our records to reflect
your authorized Licensed Capacity has been upgraded effective November 30,
1997 as follows:
Licensed Products/Services
Licensed Capacity
OMEGAMON II for
MVS 800
MIPS
OMEGAVIEW
800 MIPS
DB2 SOLUTION PAC (which includes: OMEGAMON II for DB2, 800 MIPS
IDB/DASD, IDB/EXPLAIN, IDB/QUICKCHANGE, IDB/SMU,
IDB/WORKBENCH, and IDB/QUICKCOMPARE)
OMEGAMON PERFORMANCE PAC for VM 530 MIPS
Candle Professional Services as defined in the attached PSP AMENDMENT
Payment Terms
Net 30 days from invoice date
In accordance with the terms contained in this Agreement and/or Addendum,
Licensee hereby makes a binding, non-contingent, irrevocable and
non-cancelable commitment to make payments to Licensor as follows:
Payment No. Due Date Total
Down Payment November 30, 1997 $220,642.00
2. May 1, 1998
83,395.00
3. May 1, 1999
96,992.00
4. May 1, 2000 140,744.00
Total Payments $541,673.00
The above payments include Candle Professional Services, Hardware Upgrade
charges through 800 MIPS and Maintenance fees through 800 MIPS on OMEGAMON II
for MVS, OMEGAVIEW, DB2 SOLUTION PAC.
These payments also include Hardware Upgrade charges through 530 MIPS and
Maintenance fees through 530 MIPS on OMEGAMON PERFORMANCE PAC for VM.
These payments supersede all previously committed payments.
Add the following Definitions
"Licensed Capacity" means a Product's Licensed Mainframe MIPS, Processor
Points, Quantity or Tier, as identified in this Agreement.
"Mainframe MIPS", means the sum total of MIPS, as published by Gartner Group,
for each CPU Complex at the Designated Site(s). The MIPS ratings are based on
the entire CPU Complex, not a physical or logical partition, or PR/SM and
includes MIPS added to the CPU by CMOS or other technologies, hardware or
software products.
"Copy" means one physical or logical copy of the Product for use on one
server, one workstation, or a single physical or logical CPU on any platform
supported by the product.
"Candle Command Center for Distributed Systems" include the Licensed Agents
and Servers as identified in this Agreement and all Candle Management
Workstation(s) Components that are Generally Available to Licensor's
commercial customers.
Maintenance Terms
In consideration for receiving Fixed Cost Maintenance and Enhancement Plan
fees for the Product(s). Licensee hereby makes a binding, non-contingent,
irrevocable, and non-cancelable commitment to extend its participation in the
Maintenance and Enhancement Plan ("the Plan") and pay the associated fees for
Three (3) years and Five (5) months beginning November 30, 1997 and ending on
April 30, 2001 ("the Period") and said fees shall be billed annually in
advance during the Period included in the Payment Plan above. At the end of
the Period, fees for the Plan will be billed annually in advance based on the
then-current Plan price list in effect as of the date the Plan is renewed.
Licensee, at its option, is entitled to receive and install multiple copies
of the licensed Product(s), providing the Product(s) do not exceed the
Licensed Capacity as specified in this Agreement.
If at any time during or after the Period the Licensed Capacity is exceeded,
Licensee shall immediately (1) notify Licensor of such increase or change in
writing, (2) modify this Agreement to provide for the additional capacity,
and (3) pay an additional license fee. In addition, fees for the Plan will be
adjusted as of the date of the increased capacity. The amount of the license
fee and the Plan fee adjustment will be determined by the then-current price
list(s).
No credit will be given for either license fees or Plan fees in the event of
a decrease in Licensed Capacity, although future Plan fees arising after the
Period will be adjusted as of the date the Plan is renewed.
This Addendum is effective as of the 30th day of November, 1997. All other
terms and conditions of the Agreement shall remain in full force and effect.
ACCEPTED BY LICENSEE: ACCEPTED BY LICENSOR:
Galileo International, L.L.C. Candle Corporation
A Wholly Owned Subsidiary of Galileo International, Inc. 2425 Olympic
Boulevard
5350 South Valentia Way Santa Monica, California 90404
Englewood, CO 80111
By: Lori M. Tobin By: Benjamin C. Schafer
Name: Lori M. Tobin Name: Benjamin C.
Schafer
Title: Supervisor,
Title: Senior Manager, Purchasing Business
Operations and Negotiator
Date: 30 December 1997 Date: February 4, 1998
Purchase Order #: 11G0005-18
(for invoicing purposes only)
PSP Attachment to Addendum Three
Effective November 30, 1997
By and Between Candle Corporation and Galileo International, L.L.C.,
A wholly owned subsidiary of Galileo International, Inc.
Professional Services Pac I
PSP I includes 110 Consultant Service Units ("CSUs")
Add the following Definitions:
Professional Service Pac Services ("PSP Services"): Any services listed in
Licensor's then-current Services Policy that are requested by the Licensee
may be performed during this contract period; however, it is agreed that
there are no specific Deliverables associated with this Agreement. A copy of
Licensor's Services Policy will be provided to the Licensee, on request.
DESIGNATED CONTACTS:
Licensee Designated Contact: Jim Payton
Phone: 303-714-7680
Fax: 303-397-5000
Licensor Designated Contact: Cindy Zovich
Phone: 310-582-4543
Fax: 310-582-4233
In the License Grant Section add:
Licensor shall hold all rights, title and interest in and to the Services and
Deliverables, and does not waive any moral rights which Licensor has or may
have in any Services and/or Deliverables. Licensor grants Licensee a
non-exclusive, non-transferable license in the United States and Canada to
use any Services and/or Deliverables herein pursuant to the terms and
conditions of this Agreement.
The Professional Services Pac includes only the PSP Services defined herein,
and does not include licenses to any products other than the Deliverables
provided hereunder. There will be no implied deliverables with the
Professional Services Pac unless they are written into this Agreement and
approved in writing by Licensor prior to signature by Licensee. A separate
Services Agreement shall govern any other services not covered in this
Agreement that Licensor provides.
Customer may utilize CSUs for professional services in accordance with the
provisions of this Agreement and according to the conversion formula
contained herein.
In the Supplemental Terms Section add:
Licensee must request a consultant's services from Licensor a minimum of two
(2) weeks in advance of the desired date of delivery of those Services, and
must specify the desired skill and start date. Consultant Service Units
("CSUs") must be used in contiguous increments of five (5) or more days.
CSUs will be delivered based upon a Licensor standard eight (8) hour workday
("Licensor FTE Day"). Any consulting effort delivered in excess of a Licensor
FTE Day will be subject as an allocation of a fractional rate of CSUs of at
least .5 CSUs per Consultant per hour, or portion thereof.
Conversion of CSUs: CSUs provided hereunder shall be consumed at the rate
indicated below, depending upon the type of services required and the
consultant skill level needed to deliver the PSF Services:
Consultant Capabilities
CSUs per Day
Senior Documentation Specialist
1.5
Associate Consultant
3
Consultant; Basic Product Support
Specialist 4
Senior Consultant; Designer
5
Principle Consultant; Architecture; Project Manager; Education
Instructor 6
Time of Performance of all Deliverables and Services to be completed by:
November 30, 1998. Services must be used within 12 contiguous months from the
Effective Date. There will be no carry over of Services to a subsequent year.
Licensee shall reimburse Licensor for actual and reasonable expenses incurred
including automobile mileage, auto rental, lodging, air travel and meals
incurred as a result of the Services, and in accordance with Galileo's Travel
Policy.
This Agreement, once signed by Licensee, will be non-cancelable and
non-refundable. Licensor's invoice for the entire Professional Service Pac
Fees amount must be paid prior to any work being performed by Licensor.
All references in the Master Terms and Conditions to "Product" under LICENSE,
LIMITATIONS OF LIABILITY, NONDISCLOSURE, and TERMINATION shall be deemed to
include "Product, Services and Deliverables".
All Services provided by Licensor hereunder will be performed in a
professional manner by qualified personnel. EXCEPT AS OTHERWISE PROVIDED
HEREIN, LICENSOR PROVIDES THE QUICK START SERVICES AND DELIVERABLES "AS IS"
AND MAKES NO WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE.
ACCEPTED BY CUSTOMER: ACCEPTED BY CANDLE:
Galileo International, L.L.C. Candle Corporation
A Wholly Owned Subsidiary of Galileo International, Inc. 2425 Olympic
Boulevard
5350 South Valentia Way Santa Monica, California 90404
Englewood, CO 80111
By: Lori M. Tobin By: Benjamin C. Schafer
Name: Lori M. Tobin Name: Benjamin C.
Schafer
Title: Supervisor,
Title: Senior Manager, Purchasing Business
Operations and Negotiator
Date: 30 December 1997 Date: February 4, 1998
Purchase Order #: 11G0005-18
<PAGE>
Exhibit 10.21
AMENDMENT NUMBER 2 TO
ORDER FORM AND MIPS BASED LICENSE ADDENDUM
EFFECTIVE SEPTEMBER 30, 1998 (THE "LICENSE")
BETWEEN
COMPUTER ASSOCIATES INTERNATIONAL, INC. ("CA")
AND
GALILEO INTERNATIONAL LLC ("LICENSEE")
Effective September 30, 1999 the License is hereby amended as follows:
1. Section 2 of the License is deleted in its entirety and replaced with
the following:
The License Fee, inclusive of usage and maintenance of the Licensed
Programs expiring on January 29, 2002, is $xxxxx, payable as follows:
Amount Due
September 30, 1998
September 30, 1999
December 30, 1999
March 30, 2000
September 30, 2000
December 30, 2000
March 30, 2001
2. Except as expressly provided herein, the terms and conditions of the
License shall remain in full force and effect.
COMPUTER ASSOCIATES LICENSEE: GALILEO
INTERNATIONAL, INC. INTERNATIONAL, LLC
By:Brian Wright By: Lori Tobin
(Authorized Signature) (Authorized Signature)
Sales Accounting Division Manager Senior Manager Purchasing
September 30, 1999 September 30, 1999
<PAGE>
Exhibit 10.24
AGREEMENT FOR THE PROVISION
OF TELECOMMUNICATIONS SERVICES
BETWEEN
SOCIETE INTERNATIONALE DE
TELECOMMUNICATIONS AERONAUTIQUES
AND
GALILEO INTERNATIONAL, L.L.C.
Proprietary Notice:
(C) COPYRIGHT SITA 1999
No part of this document may be reproduced, transmitted, or otherwise disclosed
in any form or by any means for any purpose except as expressly authorized in
writing by SITA.
<PAGE>
Table of Contents
AGREEMENT FOR THE PROVISION OF TELECOMMUNICATIONS SERVICES
Page
1. Scope 5
2. Duration 6
3. Notice 6
4. Other Terms 7
GENERAL TERMS AND CONDITIONS
DEFINITIONS 8
ARTICLE 1 PROVISION OF SERVICES 9
ARTICLE 2 SUPPORT SERVICES 10
ARTICLE 3 ORDERING PROCEDURE 11
ARTICLE 4 EQUIPMENT 12
ARTICLE 5 CHARGES PAYABLE TO SITA 13
ARTICLE 6 WARRANTIES & LIABILITY 15
ARTICLE 7 FORCE MAJEURE 18
ARTICLE 8 TERMINATION 18
ARTICLE 9 PATENTS, COPYRIGHTS AND OTHER INTELLECTUAL PROPERTY
RIGHTS 19
ARTICLE 10 CONFIDENTIALITY 20
ARTICLE 11 MODIFICATION OF AGREEMENT 21
ARTICLE 12 SUBCONTRACTING 21
ARTICLE 13 BINDING EFFECT, SUCCESSORS AND ASSIGNS 21
ARTICLE 14 SEVERABILITY 22
ARTICLE 15 WAIVER 22
ARTICLE 16 GOVERNING LAW AND ARBITRATION 22
ARTICLE 17 COMPLIANCE WITH LAWS 23
ARTICLE 18 STANDARD OF CONDUCT 23
SERVICE SCHEDULES: DATA TELECOMMUNICATIONS
AX.25 Direct Access 24
CPE Access 25
Electronic Commerce - Trading Services 26
Frame Relay Access 27
Global Messaging - GMS Fax Service 28
Global Messaging - GMS Mail Service 29
Global Messaging - SITATEX Service 30
Global Messaging - Type B Messaging Service 31
Global Messaging - X.400 Service 32
High Speed Data Service 33
Intranet Connect 34
ISDN Dial Back-Up 35
SERVICE SCHEDULES: DATA TELECOMMUNICATIONS - cont'd Page
LAN Access 36
Link Service 38
P1024B/C Direct Access 39
Point-To-Point Protocol Dial Access 40
Remote LAN Access 41
SDLC Direct Access 42
Type B Messaging Service 43
X.25 Direct Access 44
X.25 Private Dial Access 45
X.28 Dial Access 46
SUPPORT SERVICES
1. Customer Support Help Desk 47
2. Escalation Procedure 48
PRICING SCHEDULE
ARTICLE 1 Telecommunications Operator Charges - General 50
ARTICLE 2 MDNS Leased Line Connection Requirements 51
ARTICLE 3 Remote Access Services 56
ARTICLE 4 Frame Relay Access Service 59
ARTICLE 5 LAN Access Service 60
ARTICLE 6 Intranet Connect Service 62
ARTICLE 7 US Domestic Charges 64
ARTICLE 8 Switzerland 68
ARTICLE 9 HTDS 70
ARTICLE 10 Global Messaging Services 71
ARTICLE 11 Electronic Commerce - Trading Services 73
ARTICLE 12 Customer Premises Equipment 74
ARTICLE 13 Management only of Customer Provided Routers 76
ARTICLE 14 Guaranteed Minimum 77
ARTICLE 15 Validity 78
<PAGE>
AGREEMENT FOR THE PROVISION OF TELECOMMUNICATIONS SERVICES
Between:
Societe Internationale de Telecommunications Aeronautiques, a Belgian
cooperative company having its registered office at 14, avenue Henri Matisse,
1140 Brussels, Belgium, under number RC 217.548 ("SITA").
And:
Galileo International L.L.C., a Delaware limited liability company having its
registered office at 9700 West Higgins Road, Rosemont, Illinois, 60018, United
States of America ("Customer" or "Galileo").
1. Scope
SITA and the Customer hereby enter into this Agreement for the Provision of
Telecommunications Services ("the Agreement"). The Agreement is comprised of the
following:
o this Agreement document
o the General Terms and Conditions
o the Service Schedule(s), describing the Services offered to the
Customer
o the Support Services Schedule
o the Pricing Schedule
o the statement regarding the Performance Level Schedule
o the Historical Local Access Line Schedule
o any other SITA document referred to in one of the above.
The Customer agrees that throughout the term of this Agreement, they will not
directly or indirectly connect to the SITA Network, resell, or in any other way
provide or allow access to the Service, or a part of it, to any third party who
is not an Authorized User (as defined below). Any breach of that provision by
the Customer will be considered as a material breach of this Agreement.
<PAGE>
For the purposes of this Agreement, "Authorized User" includes any or all of the
following: (1) any Affiliate of Galileo ("Affiliate" means an entity that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with Galileo.); (2) any Subscriber
("Subscriber" means an entity in the air transport community and/or travel
industry that is a party to an agreement with Galileo (or an Affiliate) whereby
such entity is permitted to access the computerized reservation service system
operated by Galileo; (3) any Vendor ("Vendor" means an entity that is a party to
an agreement with Galileo (or an Affiliate) whereby such entity is permitted to
display its products and/or services on the computerized reservation service
system operated by Galileo; and (4) any Distributor ("Distributor" means any
entity appointed by Galileo as a distributor of its services within a defined
geographic region.); and (5) any other entity that the parties have mutually
agreed in writing to consider as an "Authorized User".
2. Duration
The Initial Term of the Agreement will be three (3) years (the "Initial Term")
commencing the first (1st) day of January 2000 (the "Effective Date"). It will
then be automatically renewed for successive one (1) year terms, unless either
Party gives written notice to the other Party of its intention to terminate the
Agreement at least six (6) months prior to the end of the Initial Term or any
renewal thereof.
3. Notice
Any notice, by either Party to the other, must be in writing and will be deemed
to have been duly given if delivered personally or by registered mail, addressed
to the other Party at the following address, or at such other address as such
Party hereto may hereafter specify to the other Party pursuant to the provisions
of this Article 3:
The Customer SITA
Attn: Legal Dept. Attn: Secretary General
Galileo International 14, avenue Henri Matisse
5350 S Valentia Way 1140 Brussels
Greenwood Village, CO 80111 Belgium
USA
With copy to:
------------
SITA
Attn:President-The Americas
3100 Cumberland Blvd.
Suite 200
Atlanta, GA 30339
USA
<PAGE>
4. Other Terms
The Customer agrees to all terms and conditions of this Agreement including all
the documents specified in Article 1 above and forming part of this Agreement,
and in particular the terms of Article 16 of the General Terms and Conditions
regarding Governing Law and Arbitration.
The Customer: SITA:
Name: Name: Nick J. Morrell
Title: Title: President - The Americas
/s/ /s/
(Signature) (Signature)
Date: Date:
<PAGE>
GENERAL TERMS AND CONDITIONS
These General Terms and Conditions govern the relationship between the Customer
and SITA in relation to the supply of the Services.
Definitions
"Connection" means a connection to the SITA Network via Local Access Lines or by
dial-in access of equipment located at the offices of the Customer (workstation,
computer equipment or any other terminal equipment), where SITA provides the
Service to the Customer.
"Connection Request" or "Service Request Form" means a form, as described in the
SITA Services Ordering Procedure (as updated from time to time), submitted by
the Customer to SITA in accordance with the provisions of Article 3, by which
the Customer requests a Connection.
"Date of Connection" means the date on which SITA has installed a Connection and
performed the tests confirming that the Services are functioning at such
Connection, based on the "cutover" rules as defined in SITA's Tariff of Products
and Services ("TOPS").
"Equipment" means any equipment including software, required to link a
Connection to the SITA Network via the Local Access Line or dial-in access, such
as, but not limited to, modems or routers and provided by SITA to the Customer
in connection with the Service.
"ISDN" means the integrated services digital network, a digital switched network
operated in a telecommunications operator at speeds up to 384 kilobits per
second.
"Local Access Line" means those dedicated telecommunications circuits or other
capacities leased from a Telecommunications Operator which permit the permanent
link of a Connection to the appropriate node of the SITA Network where such
connection is required in order to provide a Service hereunder.
"Local Access Lines Equipment" means any equipment ancillary to the Local Access
Lines, which is not provided and/or owned by SITA or the Customer but which is
ordered by SITA from a Telecommunications Operator or another third party, to
enable the Customer to access the Service.
"PSTN" means the public switched telephone network, a voice network operated by
a Telecommunications Operator.
"Service" means the services described under this Agreement and more
specifically in the Service Schedule(s) which SITA provides to the Customer as
per the terms of this Agreement and as specified in a Connection Request or
Service Request Form.
<PAGE>
"SITA Network" means the telecommunications network which SITA presently or in
the future, owns, leases or shares and uses for itself and/or on behalf of its
users, excluding the Local Access Lines and Local Access Lines Equipment.
"SITA Services Ordering Procedures" means the manual published and updated from
time to time by SITA, containing the necessary information for submitting
orders, including Service Request Forms.
"Tariff of Products and Solutions" or "TOPS" means the SITA price list as
modified from time to time by SITA during the term of this Agreement or such
other charging methods as may be adopted from time to time in lieu of the
previous price list.
"Telecommunications Operator" means a governmental or non governmental entity,
authority or enterprise which (i) is empowered to own/lease and operate
telecommunications circuits or other capacities and to lease said circuits or
capacities to parties such as SITA and the Customer and/or (ii) is empowered
with the administrative or jurisdictional powers necessary for regulating the
telecommunications market. "Telecommunications Operator" may refer to the
regulatory authority, the national carrier or any telecommunications operator.
ARTICLE 1 - Provision of services
1.1 As requested and directed by Customer, SITA will supply the Customer
with the Services described in the Schedules attached to the Agreement
(the "Service Schedules") and these General Terms and Conditions.
1.2 Unless the parties have agreed on specific dates for the installation
of a Connection in an Implementation Schedule signed by the parties,
SITA will implement promptly the Service or any Service Request
received from the Customer.
1.3 The Customer agrees to follow SITA's reasonable instructions as to the
use of the Service and other operational procedures.
1.4 On a few occasions during each year, for maintenance purposes, upgrades
of our network equipment, and other reasons, SITA may have to interrupt
or reduce the Service in certain areas. Such interruptions are very
short and will usually take place in accordance with the change
management procedures agreed by the parties from time to time and at
times when they will cause little disturbance to the Service. In such
an event, SITA will give the Customer reasonable notice of the period
during which the Service will be interrupted or reduced and will
restore the Service as soon as possible.
<PAGE>
1.5 Without prejudice to (i) the "Guaranteed Minimum" under Article 14 of
the Pricing Schedule; and (ii) Customer's responsibility for payment of
any charges associated with any applicable minimum duration periods
specified by this Agreement for certain Services; Customer may elect to
add, change, or discontinue any of the Services (or portions thereof),
provided that Customer gives SITA at least 30 days (or such other
period of time as the parties may agree) prior written notice thereof.
ARTICLE 2 - Support services
2.1 In addition to the Services described in the Service Schedules, SITA
will, on behalf of the Customer:
o order from the relevant Telecommunications Operator the Local
Access Lines required to provide the Service to the
Customer
o test the Local Access Lines before or at the time of the
installation of a Connection
o pay to the Telecommunications Operator all charges, fees and
taxes relative to the lease and usage of Local Access Lines and
recharge such amounts to the Customer pursuant to the provisions
of Article 5
o supervise the Local Access Lines, report to the
Telecommunications Operator faults and failures related to
services provided by the Telecommunications Operator, and
follow-up the Telecommunications Operator repair services.
2.2 In the alternative to Article 2.1, following written notice to SITA,
the Customer may elect to order from the relevant Telecommunications
Operator the Local Access Lines required to provide the Service to the
Customer, in which case the Customer will receive the invoice directly
from the relevant Telecommunications Operator, and the Customer (rather
than SITA) will be responsible for the obligations set forth in Article
2.1, with necessary adaptations.
2.3 Where SITA is not authorized or permitted by local regulations to order
and lease Local Access Lines, SITA will promptly inform the Customer,
so that the Customer can order and pay for such Local Access Lines. In
such event, the Customer will give to SITA a copy of its order to the
Telecommunications Operator and all related documentation. Upon SITA's
reasonable request, the Customer agrees to inform SITA of the status of
such order and the availability date for the Local Access Lines.
2.4 When SITA is to order the Local Access Lines Equipment necessary to
implement the Service from the Telecommunications Operator, the
provisions of Articles 4.2, 4.3, 4.4, and 4.5 will be applicable as if
all references therein to Equipment were to Local Access Lines
Equipment and as if all references to SITA were references to the
Telecommunications Operator. Should SITA be prevented from ordering
such Local Access Lines Equipment, the Customer will be responsible for
it as per the terms of Article 2.3.
2.5 The Customer agrees to pay to SITA the charges related to the rental of
the Local Access Lines Equipment, as specified in Article 5. In
relation to the supply of Local Access Lines and Local Access Lines
Equipment, a Telecommunications Operator will not be regarded as acting
as a sub-contractor of SITA.
2.6 The SITA customer support help desk facilities and escalation
procedures are available to the Customer, to obtain technical advice
and guidance on the operation and use of the Service and also for the
reporting of Service faults, as described in the Support Service
Schedule.
2.7 SITA hereby represents and warrants to Customer that the attached
Historical Local Access Line Cost Schedule accurately sets forth the
monthly average costs invoiced to Customer for Customer's Local Access
Lines over the period July 1998 through October 1999, which reflected
the then current geographic distribution of Customer's connections and
the relevant Telecommunications Operator charges as they were invoiced
to SITA.
ARTICLE 3 - Ordering procedure
3.1 When wishing to receive a Service at a new location, the Customer will
complete the Connection Requests provided by SITA in the SITA Services
Ordering Procedure, or any other procedure as agreed in writing between
SITA and the Customer. For the Customer's convenience, the latest
versions of the Connection Requests are available, in electronic
format, from the SITA Service Delivery Department database. All
instructions for the completion of a Connection Request, are contained
in the SITA Service Ordering Procedure manual.
3.2 Any order for Equipment or Service placed by the Customer will be
automatically subject to the present terms and conditions, which will
override any other terms and conditions referred to expressly or
implicitly by the Customer or SITA, including but not limited to the
Customer's purchase order or any other form of writing.
3.3 The Customer understands that local laws and regulations may, in some
places, impose restrictions on the availability of certain Services
ordered by the Customer. SITA will inform the Customer of such
restrictions.
3.4 Subject to the prior written agreement among SITA, the Customer and the
Distributor concerned, if a Distributor who is a member of SITA orders
any Services on behalf of Subscribers, SITA will charge the Customer
(rather than the Distributor) for such Services at the applicable rates
specified in the attached Pricing Schedule.
ARTICLE 4 - Equipment
4.1 If requested by the Customer and subject to the further terms and
conditions of this Agreement, SITA will, where permitted by local
regulations, provide and install the Equipment necessary for the
provision of the Service. Where local regulations do not allow SITA to
provide Equipment, the parties will agree whether this Equipment will
be ordered from the Telecommunications Operator by SITA on behalf of
the Customer or will be provided by the Customer. Where the Equipment
is provided by the Telecommunications Operator, SITA will pay all
applicable fees associated with that Equipment and will charge those
fees back to the Customer, pursuant to the provisions of Article 5.
4.2 When as part of the Service, the parties have agreed on the provision
of certain Equipment, SITA will be responsible for installation of such
Equipment (except as otherwise agreed in writing by the parties). To
permit the installation of the Equipment and the provision of the
Service, the Customer agrees to prepare the site where the Equipment is
to be installed (provision of space, power supply, electrical
installations and cabling), to give SITA or its subcontractor access to
the premises where the Equipment is to be installed or maintained and,
if necessary, to authorize SITA or its subcontractor to disconnect and
remove any other equipment and/or obtain every necessary consent or
authorization required for the performance of this Agreement.
4.3 The Customer agrees that any Equipment supplied by SITA remains the
exclusive property of SITA. The Customer agrees to be responsible to
SITA for any damage to or loss of the Equipment, from the moment of its
delivery to the Connection.
4.4 The Customer undertakes to follow (i) SITA's; or (ii) the
manufacturer's instructions that are actually delivered to the
Customer; regarding the operation, care, use and environmental
conditions of any Equipment located on the premises of the Customer or
any Authorized User. The Customer agrees not to disconnect, remove,
alter, interfere or make any modification to such Equipment or use it
in conjunction with other equipment incompatible with the Equipment or
Services provided by SITA. Except for fair wear and tear, the Customer
will ensure that the Equipment is returned to SITA in good working
order and condition.
4.5 The Customer will ensure that all Customer-provided equipment conforms
and continues to conform to technical standards and communications
protocols compatible with the operation of the SITA Network. Upon
request by the Customer, SITA will: (a) provide to the Customer
technical specifications for the Equipment and communication protocols
used; and (b) be available to the Customer to answer questions about
any of the foregoing. Unless otherwise agreed in writing between the
parties, the Customer will remain responsible for the operation,
maintenance, and management of such equipment.
4.6 SITA will provide management of Customer-provided equipment in
accordance with Article 13 of the Pricing Schedule. Upon mutual
agreement of the parties on a case-by-case basis, SITA management at
additional sites for Customer-provided routers and for additional types
of Customer-provided equipment may be added by way of an amendment to
this Agreement.
4.7 Every visit to a location and intervention on the Equipment which is
made necessary by: (a) improper treatment or use of Equipment by the
Customer,(b) servicing and maintenance other than normal servicing
performed by SITA or its sub-contractor, (c) modifications which have
not been carried out by SITA or its sub-contractor, (d) failure by
the Customer to meet (i) SITA's or (ii) the manufacturer's
instructions that are actually delivered to the Customer, (e)
negligence by the Customer, will be charged separately to the
Customer, in addition to the charges set forth in the Price Schedule,
for any material or Equipment expenditures and on an hourly basis.
ARTICLE 5 - Charges payable to SITA
5.1 All charges payable by the Customer in consideration for the Services
provided by SITA will be invoiced at the rates specified in the Pricing
Schedule. All charges for telecommunications services will commence on
the Date of Connection. Where SITA is not responsible for the
installation work which is to be performed at the Customer's premises,
charges will commence seven (7) days after completion of the
configuration of the port on the SITA Network.
5.2 The Customer agrees to reimburse SITA for all charges corresponding to
Local Access Lines and Local Access Lines Equipment (including any
charge for the installation of the Local Access Lines, rental charges,
PSTN usage charges, and SITA's standard circuit-related management
charges) (the "Telecommunications Operator Charges"). SITA's standard
circuit-related management charges refers to the *** administration
and handling charge added to the pass through circuit charges based on
the Telecommunications Operator Charges. In order to verify the
accuracy of SITA's invoices to the Customer for Telecommunications
Operator Charges, the Customer may request from SITA, on a monthly
basis, substantiating Telecommunications Operator invoices to SITA for
up to three (3) countries, subject to a maximum of one (1) such
verification for the same country during a six (6) month period if the
scope of that verification covered the majority or all of the Local
Access Lines in that country. If, following any such monthly
verification by the Customer, the Customer considers that further
justification or investigation is needed, the Customer may escalate the
matter to the parties' regional Presidents for discussion and
resolution of any issues within sixty (60) days.
5.3 All charges (including the charges referred to in Article 5.2 above),
will be invoiced by SITA monthly and are payable by the Customer in
United States dollars within thirty (30) days from the Customer's
receipt of the invoice.) If the Customer does not pay any undisputed
invoice in full within this thirty (30) day period, interest on any
unpaid amount will automatically and without further notice accrue, on
a day basis, commencing on the end of the thirty (30) day period up
until the date on which payment is received by SITA. The rate of such
late payment interest will be equal to the LIBOR 12 months rate (as
quoted by Barclays Bank PLC from time to time and published by Reuters
Services), multiplied by:
o 125% for amounts due for over 30 days,
o 150% for amounts due for over 60 days,
o 175% for amounts due for over 90 days.
Notwithstanding any provision to the contrary in this Agreement, SITA
will permit the Customer a four (4)-month grace period commencing from
the first month under this Agreement month (i.e. January 2000 through
April 2000 inclusively), during which the Customer may pay its invoices
within forty-five (45) days of receipt of the invoice, without accruing
interest.
5.4 Notwithstanding Articles 5.1 through 5.3, with regard to amounts the
Customer in good faith disputes the Customer will notify SITA in
writing of such disputed charges and the reason for such dispute. SITA
will investigate the disputed charges and will, within thirty (30) days
from the date of the Customer's notice, either adjust all or a portion
of the disputed amount, or provide the Customer with written notice
explaining the reason why all or any portion of the disputed charges
are correct and copies of documentation substantiating such charges and
explanation. Pending resolution of any dispute, the Customer will be
entitled to deduct from any invoice the amount in dispute. Payment for
the correct charges indicated in such SITA explanation is due within
thirty (30) days after the date on such notice, unless the Customer in
good faith continues to dispute such amounts. In the event such
disputed amounts total in the aggregate more than one million five
hundred thousand United States dollars (USD 1,500,000), the Customer
will pay such disputed amounts into an interest-bearing escrow account.
Upon resolution of the dispute, the Customer and SITA will allocate the
money in the escrow account, plus any interest earned on such money and
any fees relating to the opening and maintaining the escrow account,
according to the resolution of the dispute.
5.5 Any claim for payment or credit under this Agreement must be brought
by the party asserting such claim within two (2) years from the date
on which the claim arose.
5.6 The charges set forth in this Agreement do not include any country,
state, departmental, city, local, or other taxes imposed on the
Services however designated. The Customer will be responsible for any
such taxes paid or payable by SITA with respect to the Services (net of
any reclaimable taxes or applicable credits), irrespective of the
country or authority to which such taxes are paid or payable. Within
fifteen (15) business days from the date of Customer's request, SITA
will provide to the Customer invoices for such taxes.
5.7 In the event the Customer wishes to dispute any charge imposed by a tax
authority or a Telecommunications Operator, SITA will cooperate with
the Customer and provide reasonable assistance as may be required.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
5.8 Upon reasonable notice to SITA and subject to SITA's confidentiality
obligations to its other customers and its reasonable security
precautions, the Customer will have the right, on an annual basis and
at its expense, to have an independent auditor conduct an audit of
SITA's records at a mutually agreed location during normal business
hours to verify that the charges invoiced to the Customer under this
Agreement have been in accordance with the Pricing Schedule and other
terms of this Agreement. In the event such an audit discloses that the
Customer has been overcharged, the Customer will provide SITA
documentation substantiating such overcharge, and SITA will credit the
Customer's account for future amounts due. If, following any such
annual audit by Customer, Customer considers that further justification
or investigation is needed in order to prevent future invoicing errors,
Customer may escalate the matter to the parties' regional Presidents
for discussion and resolution of any issues within sixty (60) days.
ARTICLE 6 - Warranties & liability
6.1 SITA warrants that it will use the reasonable care and skill
that can be expected of a competent telecommunications provider.
6.2 SITA warrants that it will take necessary action and provide resources
to enable all software (including software and any firmware), hardware,
networks and equipment over which it has Control used in connection
with the provision and operation of the Service ("SITA Systems") to be
Year 2000 Compliant. In respect of relevant systems that SITA does not
Control, including without limitation, all relevant systems operated
by, or proprietary to telecommunications operators and third party
interfaces, SITA will endeavor to obtain a Year 2000 Compliance
statement from the relevant suppliers and will advise the Customer as
to the results thereof and thereafter keep the Customer informed of
changes in status. SITA will use reasonable endeavors to mitigate any
fault in the Service caused by the non-Year 2000 Compliance of any
systems it does not Control but will not be liable to the Customer for
any loss or damages in the event that any such non-Year 2000 Compliance
causes a fault in, or the non-availability of the Service. The Customer
will ensure that any of its programs or systems or data into which the
SITA Systems used in the provision and operation of the Service will
communicate or integrate, are Year 2000 Compliant. SITA will not be
liable for any faults in or non-availability of Service or SITA Systems
provided under this Agreement which arise out of non-Year 2000
Compliance except to the extent expressly provided above. Furthermore,
SITA will have no liability under this warranty for any breach arising
from the use of non-Year 2000 Compliant third party or Customer systems
or data with SITA Systems.
For the purposes of this warranty, SITA will be deemed to "Control" a
SITA System if it operates and owns the SITA System, including the
intellectual property rights thereto, and "Year 2000 Compliant/ce"
means the ability to accurately process date data from, into and
between the twentieth and twenty-first centuries and accurately perform
leap year calculations. Interfaces of all SITA Systems used in
connection with the provision and operation of the Service will comply
with either the ISO 8601 date format or, where applicable, the IATA
Information Management Committee (IN4C) date format. This warranty is
to be read in conjunction with all other terms and conditions of the
Agreement and will apply to any Exhibits or future amendments which are
or may be made hereto. This warranty supersedes any previous statement
or contractual commitment made by SITA relating to the subject matter
hereto.
6.3 Warranty Disclaimer. In this service Agreement, the warranties set
forth at Articles 6.1 and 6.2 are in lieu of any other warranty of any
kind, express or implied, statutory or otherwise, including, without
limitation, any warranty for latent defects or warranty as to fitness
for a particular purpose.
6.4 LIMITATION OF LIABILITY. NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR
ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGE, LOSS OF
REVENUE, PROFIT OR GOODWILL, EITHER IN CONTRACT, TORT OR OTHERWISE,
EVEN WHEN SUCH DAMAGE WAS CAUSED AS A RESULT OF SUCH PARTY'S OR ITS
SUBCONTRACTORS' GROSS NEGLIGENCE.
6.5 LIMITATION OF LIABILITY. EACH PARTY'S LIABILITY TO THE OTHER, PER EVENT
OR SERIES OF CONNECTED EVENTS GIVING RISE TO LIABILITY IN TORT OR FOR
BREACH OF CONTRACTUAL OBLIGATIONS, WILL NOT EXCEED, PER CONTRACTUAL
YEAR, A TOTAL AMOUNT OF THE LESSER OF: (A) *** UNITED STATES DOLLARS
(USD ***); OR (B) *** OF THE SERVICE CHARGES ACTUALLY PAID BY
CUSTOMER TO SITA DURING THE *** PERIOD PRECEDING THE CLAIM. CUSTOMER
AND SITA EXPRESSLY ACKNOWLEDGE AND AGREE THAT THE LIMITATIONS AND
EXCLUSIONS CONTAINED HEREIN REPRESENT THE PARTIES' AGREEMENT AS TO THE
ALLOCATION OF RISK BETWEEN THE PARTIES IN CONNECTION WITH SITA'S
OBLIGATIONS UNDER THIS AGREEMENT. THE PAYMENTS PAYABLE TO SITA IN
CONNECTION HEREWITH REFLECT THIS ALLOCATION OF RISK AND THE EXCLUSION
OF CONSEQUENTIAL DAMAGES IN THIS AGREEMENT.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
6.6 Nothing in this Agreement will be interpreted as excluding or limiting
either party's liability in case of death or personal injury.
6.7 SITA and Customer each will defend, indemnify, and hold harmless the
other and its affiliates, and any Authorized Users, and their
respective officers, employees, and agents against and from all claims,
suits, judgments, losses, damages, fines or costs (including reasonable
attorneys fees and expenses) resulting from any claim, suit or demand
by any third party arising out of (i) the death or bodily injury of any
agent, employee, customer, or business invitee of the indemnitee; or
(ii) the damage, loss, or destruction of any tangible property, plant,
or equipment of the indemnitee (collectively referred to as a "Claim"),
in the event and to the extent that such Claims result from the
negligent or otherwise wrongful acts or omissions of the indemnifying
party, or its agents, subcontractors or service representatives, during
the course of performance under this Agreement.
Further, Customer will defend, indemnify, and hold harmless SITA and
SITA's affiliates and their respective officers, employees and agents
against and from all Claims, in the event and to the extent that such
Claims result from the negligent or otherwise wrongful acts or
omissions of an Authorized User, or its agents, subcontractors or
service representatives, in connection with this Agreement.
The indemnifications under this Article 6.7 are subject to the other
terms and conditions of this Agreement, including the limitations under
Articles 6.4 and 6.5 in case of damage to tangible property, plant or
equipment of an indemnitee. The obligations under this Article 6.7 will
survive the termination of this Agreement.
6.8 Each party agrees that it will be responsible for any damage to or
destruction of any property, plant, or equipment belonging to the other
(or any Authorized User) that is caused by such party or its affiliate
or its subcontractor.
ARTICLE 7 - Force majeure
7.1 Except as other-wise specified in this Agreement, events of force
majeure and other unforeseeable events or situations beyond the control
of a party hereto, will relieve such party from its obligations imposed
by this Agreement which may not be performed as a result thereof, for
so long as such event, or its consequences, continue. The other party
will have no right to claim or receive damages for any nonperformance
of its contractual obligations by such party resulting from an event of
force majeure.
7.2 In the event that any or both of SITA and/or the Customer is/are
unable, as a result of an action or omission by a Telecommunications
Operator, or any other governmental authority, to lease, obtain or
provide the Services governed by this Agreement, including, among
others, the Local Access Lines, Local Access Lines Equipment and
Equipment, or is prevented from importing Equipment in to a country,
such inability will (unless it results from the negligence or willful
misconduct of the party not performing) be deemed to constitute an
event of force majeure and, as such, will not constitute a breach of
this Agreement.
ARTICLE 8 - Termination
8.1 Where the Customer is a member of SITA, SITA may terminate this
Agreement without notice if, pursuant to the terms of SITA's Articles
of Association, the Customer ceases to be a member of SITA.
8.2 Either party may immediately terminate this Agreement by giving
notice in writing to the other party, in the following events:
(a) if the other party commits any material breach, non-observance
or non-performance of its obligations hereunder and does not
remedy the same within thirty (30) days of receipt of written
notice of such failure or breach
(b) if an order is made or an effective resolution is passed for the
dissolution or winding up of the other party except for the
purposes of an amalgamation, reorganization, bulk transfer of
assets or merger
(c) if a creditor takes possession of or a receiver is appointed
over the whole or any material part of the undertaking or
assets of the other party
(d) if the other party becomes insolvent or makes any special or
general assignment for the benefit of its creditors or is the
subject of a voluntary or involuntary (not discharged within 60
days) filing under the bankruptcy laws of any jurisdiction.
8.3 On termination of this Agreement for any reason whatsoever, each party
will (except as otherwise agreed) return forthwith to the other any and
all Equipment, Local Access Line Equipment, or other property of
whatever kind and nature, provided by a party hereto for the delivery
of a Service under this Agreement.
8.4 (a) SITA acknowledges that upon termination or expiration of
this Agreement, a successor service provider may be retained by
the Customer to provide telecommunications services. Subject to
paragraph (b) of this Article 8.4, SITA agrees to cooperate with
the Customer in order to allow an orderly and efficient
transition to the successor service provider.
(b) Upon the termination or expiration of this Agreement other than
for the Customer's failure to pay or to be a member of SITA,
SITA will continue to provide telecommunications services to the
Customer at the charges set forth in SITA's Tariff of Products
and Solutions ("TOPS"). Upon mutual written agreement of the
parties as to scope and applicable charges, transition services
may also include (i) consulting services in relation to the
transition to be carried out; and (ii) the sale to the Customer
or assumption of leases by Customer of/for Equipment previously
made available to Customer by SITA under this Agreement.
8.5 Notwithstanding any provision to the contrary in this Agreement, upon
termination of this Agreement, the Customer may offer employment to any
SITA employee who is then dedicated to providing the Services to the
Customer.
ARTICLE 9 - Patents, copyrights and other intellectual property rights
9.1 The Customer recognizes that all intellectual property rights in the
software programs or other materials provided by SITA to the Customer
pursuant to this Agreement, are either licensed to, or are the property
of SITA, and nothing contained herein will be deemed to convey any
title or ownership interest therein to the Customer. The Customer's
only right with respect to such intellectual property rights belonging
to or licensed to SITA, is the right to use such intellectual property
rights in relation to the Services provided by SITA and in accordance
with the provisions of this Agreement.
9.2 If at any time, an allegation of infringement of copyright or other
intellectual property right is made against the Customer by a third
party in respect of the Service or Equipment, the Customer undertakes to
immediately inform SITA of such alleged infringement or claim. SITA will
then have the right to replace or modify the Equipment or any infringing
part of the Service so as to avoid the infringement, provided that such
modification does not substantially alter the Service as previously
rendered to the Customer. Should this be insufficient to prevent damages
from occurring, SITA undertakes to defend, indemnify, and hold the
Customer harmless from any claims, suits, judgments, losses, damages,
costs and expenses (including reasonable attorneys fees) resulting from
any claim(s) brought by a third party for alleged infringement of its
intellectual property rights, provided that the Customer does not make
any admission as to the claim(s) or other statement prejudicial to SITA
and in due course authorizes SITA to start negotiating or litigating on
the Customer's behalf. The Customer agrees to give SITA all reasonable
assistance in such negotiation or litigation.
ARTICLE 10 - Confidentiality
10.1 The Customer and SITA acknowledge that they will receive confidential
information and trade secrets (the "Confidential Information") from
each other in connection with this Agreement. The Confidential
Information will be deemed to include all the information each party
receives from the other, provided such information is in written or
other tangible form that is clearly marked as "proprietary" or
"confidential", or, if disclosed orally, is identified as proprietary
or confidential at the time of disclosure. The Customer and SITA agree
to maintain the secrecy of the Confidential Information and agree
neither to use it (except for purposes of performing hereunder) nor to
disclose it to anyone outside the Customer or SITA or to anyone within
the Customer or SITA other than employees, consultants, or professional
advisors who have a need to know it in order to perform under this
Agreement. Moreover, the parties hereto acknowledge and confirm that
the contents of, and their performance under this Agreement constitute,
for the purposes of this Article 10, Confidential Information.
10.2 Confidential Information will not include any information which is
publicly available at the time of disclosure or subsequently becomes
publicly available through no fault of the Customer or SITA, or is
rightfully acquired from a third party who is not in breach of an
agreement to keep such information confidential. Disclosure of
Confidential Information will not violate the confidentiality
obligations imposed by this Article to the extent that Confidential
Information must be disclosed pursuant to a court order or as required
by any regulatory agency or other government body of competent
jurisdiction. Disclosure may be made in response to an informal
regulatory requirement/order if it is limited to this Agreement and the
attachments hereto. A party required or ordered to disclose the other
party's Confidential Information will notify the other party
immediately upon receipt of such an order or requirement to disclose
and use its best efforts to resist, or to assist the other party in
resisting, such disclosure and, if such disclosure must be made, to
obtain a protective order or comparable assurance that the Confidential
Information disclosed will be held in confidence and not be further
disclosed absent the original disclosing party's prior written consent.
10.3 Neither party may release any information to the public concerning this
Agreement or its existence without the prior written consent of the
other party with respect to both the content and the timing of such
announcement.
ARTICLE 11 - Modification of Agreement
No waiver or modification of this Agreement or of any of its provisions,
will be valid unless in writing and executed by duly authorized representatives
of both parties.
ARTICLE 12 - Subcontracting
The Customer agrees that SITA has the right to subcontract all or part
of its obligations hereunder. The use of any sub-contractor will not modify
SITA's obligations towards the Customer. Upon the Customer's request, SITA
agrees to inform the Customer of any subcontractor used.
ARTICLE 13 - Binding effect, successors and assigns
13.1 This Agreement may not be assigned by either party without the prior
consent of the other party, which will not be unreasonably withheld.
Notwithstanding the foregoing, the Customer may assign this Agreement
to a present or future Affiliate or successor-in-interest ("Successor
Entity") provided such Successor Entity (i) has a creditworthiness
rating equal to or greater than the Customer's; (ii) is not a
competitor of SITA; (iii) meets SITA's then current membership
requirements; (iv) assumes all of the rights and responsibilities of
the Customer, without exception, upon any such assignment.
13.2 Subject to Article 13.1 all the terms and conditions of this Agreement
will be binding and will inure to the benefit of the parties and their
respective permitted successors and assigns.
<PAGE>
ARTICLE 14 - Severability
If one or more provisions of this Agreement is at any time found to be
invalid by a court, arbitral tribunal or other forum of competent jurisdiction
or is otherwise rendered unenforceable, such provision or provisions will be
severable from this Agreement so that the validity or enforceability of the
remaining provisions of this Agreement will not be affected.
ARTICLE 15 - Waiver
The failure of either party to enforce any provision of this Agreement
or to exercise any power given to it under this Agreement will not waive its
right subsequently to enforce such provision or exercise such right.
ARTICLE 16 - Governing law and arbitration
16.1 This Agreement will be governed by and construed in accordance with
the laws of New York, without regard to principles of conflict of laws.
16.2 All disputes arising out of or in connection with this Agreement will
be finally settled under the Rules of Conciliation and Arbitration of
the International Chamber of Commerce by a single arbitrator appointed
in accordance with the said rules. The parties hereto request the ICC
Court of Arbitration to attempt to appoint an arbitrator who is
knowledgeable in the area of telecommunications; if no such arbitrator
can be appointed, the normal appointment process will apply.
16.3 The arbitration will take place in New York, New York in the English
language.
16.4 Notwithstanding Article 16.2, to the extent that any violation of the
provisions of this Agreement may cause irreparable injury to a party
hereto, that party shall, in addition to any other remedies available
to it, be entitled to seek injunctive relief, specific performance, or
any other equitable remedy.
ARTICLE 17 - Compliance with Laws
SITA agrees that it will comply with all applicable laws in connection
with its provision of the Services.
ARTICLE 18 - Standard of Conduct
SITA will ensure that the service representatives of SITA and its
subcontractors will at all times while on the premises of Customer or of any
Authorized User conduct themselves in a professional manner and in a manner such
as will preserve or enhance Customer's goodwill with its employees and
Authorized Users.
<PAGE>
SERVICE SCHEDULES: DATA TELECOMMUNICATIONS
AX.25 DIRECT ACCESS
Optimized data networking for the air transport and travel industries
o AX.25 is a derivative of the ITU-T, X.25, 1984 protocol adapted
specifically for the air transport industry in conjunction with IATA.
o AX.25 can carry different airline-specific protocols (Type A and Type B)
over the same host connection. It operates using permanent virtual circuits,
and individual Logical Channel Numbers (LCN) are assigned to the different
traffic types.
o AX.25 provides a local connection into our global network via Local Access
Lines. At the remote site, terminals can be connected using our P1024B/C
Direct Access, which supports AirLine Control (ALC) P1024B and Universal
Terminal System (UTS) P1024C devices. The AX.25 connections can be used for
both host-to-host and terminal-to-host applications.
Typical applications
AX.25 Direct Access is suitable for most air transport and travel industry
applications such as:
o Airline reservation systems access for airline offices
o Airline check-in at airports
o Baggage tracking
Key service features
o Multiple access speeds: from 2.4 to 56/64 Kbps (depending on location)
o Multiple packet size negotiation: Up to 1024 bytes and non-standard
packet sizes (240 bytes) maximizes throughput for particular
applications.
o Window size negotiation: Send and receive window sizes supported with
values from one to seven to improve performance.
Options
o Agent Set Control Unit multiplexing: One ASCU per logical channel number or
groups of ASCUs with the same protocol (P1024B or P1024C).
Service availability is subject to local technical and regulatory conditions
<PAGE>
CPE Access
Fully managed service
CPE Access extends your networking capabilities by providing managed
concentration devices equipment on your premises.
Our CPE Access service consists in installing, managing and maintaining the
concentration devices on your premises.
CPE Access allows you to link multiple terminals and hosts to our network over a
single Local Access Line ordered from the local Telecommunications Operator. By
reducing the number of Local Access Lines connections needed to and from each
office to connect to the network, CPE Access significantly lowers your costs.
CPE Access meets today's requirements for all types of business data, offering
full support for our X.25, SDLC, Frame Relay and X.28 Direct Access services, as
well as SNA Token Ring Access.
Typical applications
CPE Access Service can be provided in relation to the following situations: o
Terminal-to-host: Connection of multiple asynchronous (X.28) users at a single
site o Host-to-host: Connection of multiple host connections (X.25, SDLC, frame
relay or X.28) at a single site.
Key service features
Multiple access speeds: From 9.6 Kbps to 2 Mbps, depending on location.
Service availability is subject to local technical and regulatory conditions
<PAGE>
Electronic Commerce - Trading Services
The core of the Trading Services is an EDI Clearing House, a central service
accessed via a local node, which provides the equivalent functions to existing
EDI VAN services in the marketplace. Trading Partners can exchange ASC X12,
EDIFACT messages, or binary files using various access methods including X.400
for store and retrieve, and store and forward modes.
Service availability is subject to local technical and regulatory conditions
<PAGE>
Frame Relay Access
High performance networking
The Frame Relay Access services provides a high speed data networking service
for the interconnection of geographically dispersed Local Area Networks (LANs)
and IBM environments.
The Frame Relay Access service provides sophisticated bandwidth management
capabilities, allowing the service to be tailored to the requirements of
individual sites. It includes the creation of a Permanent Virtual Circuit
between two sites, across the SITA network, through an allocated bandwidth
level: this Committed Information Rate (CIR) is the network bandwidth capacity
that we commit to provide to you on our Network. The ability to burst above CIR
is provided to you through the Excess Information Rates (EIR), depending on the
remaining availability of the network. All data in excess of the CIR will be
marked as Discard Eligible and may be discarded by the system in case of network
congestion.
Frame relay is transparent to the higher level LAN protocols used, such as
TCP/IP, Novell IPX, DECNET or NETBIOS.
Typical applications
The Frame Relay Access service is ideal for both LAN interconnection and
communications between IBM host systems: o LAN interconnection: Applications of
frame relay in LAN environments include : - Client/server communications -
Terminal-to-host applications - E-mail applications - Mixed media applications o
IBM communications: The combination of frame relay's streamlined implementation
and the sophisticated flow-control and error handling systems of SNA provide
a highly effective solution for IBM host-to-host communications.
Key service features
o Flexible access: Frame relay compatible LAN routers, IBM front end
processors (frame relay compatible).
o Flexible bandwidth management: Depending on the location, CIRs of up
to 2Mbps can be pre-selected between each pair of locations.
o Support for traffic bursts: Ability to send bursts of user data at up to
150% of CIR for continuous periods, and, subject to availability of
bandwidth, up to access speed for instantaneous bursts.
Service availability is subject to local technical and regulatory conditions
<PAGE>
GLOBAL MESSAGING - GMS FAX SERVICE
Global e-mail-to-fax service
GMS Fax Service is a global e-mail-to-fax service, and is automatically
available to users of Type B and X.400 messaging services, SITATEX and GMS Mail.
Typical applications
GMS Fax Service enables communication between SITA customers and millions of fax
users worldwide.
Key service features
o Economy and ease of use: GMS Fax Service provides easy, cost-effective access
to fax users, direct from the desktop. o Standard features:
- optional cover sheets; - automatic retries for busy fax numbers; -
optional positive / negative delivery notifications.
o Enhanced features:
- customizable cover sheets including graphics; - alternative destinations
for very busy fax numbers; - support for attached word processor files.
Service availability is subject to local technical and regulatory conditions
<PAGE>
GLOBAL MESSAGING - GMS MAIL SERVICE
Global mailbox service
GMS Mail Service is a global dial-up mailbox service based on the X.400
standard. It allows individual PC users to dial in over the SITA X.28 network to
a central, SITA-provided mailbox server. GMS Mail Service enables users to send
messages, business documents and faxes quickly and securely throughout the
world.
Typical applications
Designed to provide secure e-mail for:
o Travelling executives;
o Sales / support representatives;
o Small offices needing quick, low-cost messaging solutions;
o Remote offices with limited access to centralized support
resources; and
o Locations with limited local telecommunications or IT infrastructure.
Key service features
o User-friendly: GMS Mail Service is easy to install and simple to use.
o Password access: Each GMS Mail Service user is allocated a unique
mailbox and password.
o Message exchange: The Service can be used in conjunction with GMS
Fax, and allows messages to be exchanged with:
- other GMS Mail users;
- SITATEX users,
- Type B users;
- X.400 messaging service users; and - the Internet.
Service availability is subject to local technical and regulatory conditions
<PAGE>
GLOBAL MESSAGING - SITATEX SERVICE
PC messaging software package
SITATEX Service is a powerful and versatile messaging application based on the
Type B messaging standard.
Typical applications
SITATEX Service enables the worldwide exchange of messages, documents, faxes and
telexes.
Key service features
o User-friendly: SITATEX Service provides user-friendly message and
address management facilities.
o DOS or Windows: Is available for use within the DOS or Windows
operating environments.
o Different configurations: Can be deployed as either standalone or in
a LAN configuration.
o Service Access: Connection to the SITA Type B Messaging Service may
be either by X.28 dial-up or via a dedicated circuit, with access
speeds of up to 9.6 Kbps for the DOS version and up to 64 Kbps for the
Windows version.
Service availability is subject to local technical and regulatory conditions
<PAGE>
GLOBAL MESSAGING - TYPE B MESSAGING SERVICE
One of the world's largest, fastest and most reliable messaging services
o SITA's Type B Messaging Service is a world leader in air transport
messaging, and is used by over 700 of the world's largest air transport and
travel-related companies. The system, know for its performance and
reliability, regularly handles over 10 million messages per day.
o This service is based on the International Air Transport Association
(IATA)Type B messaging standard.
Typical applications
Diverse, mission-critical applications are run over this service, such as:
o booking seats
o tracking cargo
o issuing flight plans
o providing aerospace parts and repairs
Key service features
o Performance and reliability: SITA's Type B Messaging Service provides the
expected levels of performance and speed and the reliability needed for
operational and time-critical messaging.
o Assured delivery: The Service provides assured message delivery using
serial numbering and end-to-end delivery protocols. o Security and
storage: Messages are secure, and are centrally stored after delivery to
enable message retrieval on request.
o Flexible options: The Service provides flexible addressing and
routing options, such as:
- multiple delivery for a single message;
- multiple routings for a single address;
- group coding for multiple addresses;
- broadcast lists for delivery to a large number of destinations.
Access
Local access is available in over 180 countries at speeds of up to 64 Kbps via
dedicated connections using P1024, P1124, AX.25 or X.25 protocols.
Type B users can access SITA's Cargo Community Service (CCS) and EDI/Trading
Services, including SITA's ASC X12 - SPEC 2000 Conversion Service. Messages can
be sent to and from users of Type B and SITATEX, GMS Mail, X.400 Messaging
Services, other public and private networks (e.g. telex and Aeronautical Fixed
Telecommunications Network) and the Internet. Type B Messaging Service also
allows access to GMS Fax.
Service availability is subject to local technical and regulatory conditions
<PAGE>
GLOBAL MESSAGING -X.400 SERVICE
Global managed service
X.400 Service is a global managed service, providing secure and reliable e-mail
connectivity.
Typical applications
X.400 Service is used for business-critical messaging between business partners
worldwide.
Key service features
o Secure and reliable: X.400 Service allows users of most office e-mail
systems to exchange messages with numerous e-mail communities worldwide,
without compromising security or reliability.
o Access to the SITA network: Connectivity is provided to the SITA network
through X.25 fixed connections.
o One connection required: With just one connection, users can communicate
with business partners around the world whether they are connected to SITA
or to other service providers via X.400, the Internet, Type B SITATEX or
fax.
o Gateway: A gateway is provided to allow connection of STMP-based
e-mail systems to the X.400 messaging services.
Service availability is subject to local technical and regulatory conditions
<PAGE>
HIGH SPEED DATA SERVICE
High Speed Data Service (HTDS) is a special service provided to Galileo in place
of clear channel bandwidth.
Service availability is subject to local technical and regulatory conditions
<PAGE>
Intranet Connect
A fully managed global intranet tailored to your business needs
The Intranet Connect service provides the connectivity necessary for the
provision of truly value-added intranetworking services. It enables you to
interconnect your global locations, and benefit from new Internet technology
such as Web browsers and search engines.
This Service provides IP routing over our IP network, with a dedicated access
layer for each specific intranet. This provides the privacy and security
necessary to exclude users on separate intranets from accessing each other's
intranet.
For organisations in any industry, our Intranet Connect service provides the
means to build a high-performance, reliable and secure private communications
environment, connecting the global enterprise.
Typical applications
Intranet connect is ideal for sharing information with employees and business
partners using web based technology in a secure environment.
Key service features
o A single, seamless intranet solution, available globally: Our Intranet
Connect service offers you a single, seamless intranet solution based on one
global network.
o Constant communications, with flexibility for growth and change:
o Enables your sites to remain in constant link with each other, by
permitting any-to-any communication between user groups. o Choice of
configuration that suits your individual organisation (one-to-many, for
example, where the customer is able to provide information to clients
from distributed servers, with no communication between clients).
o Scaleable network architecture, allowing for rapid expansion of your
existing infrastructure and easy deployment of new intranets.
Superior security features:
o The dedicated access layer offers a high level of security against
unauthorized access and intrusion, as well as data integrity.
o This is made by configuring the boundary routers, which define your
intranet. Each boundary router is dedicated to a specific intranet.
Service availability is subject to local technical and regulatory conditions
<PAGE>
ISDN Dial Back-Up
A high-speed back-up option
ISDN (Integrated Services Digital Network) Dial Back-Up offers you high-speed
dial back-up service option for our MDNS Direct Access services in the event of
Local Access Line failure. This allows your end-users to continue to access
critical business applications at high speeds until the Local Access Line is
restored.
ISDN Dial Back-Up is now available in many countries and provides a viable
alternative to traditional PSTN, low-speed dial back-up.
We will order, install and maintain the ISDN terminal adapters Equipment at both
your end-user site and our local site. We will also obtain from the
Telecommunications Operator, the ISDN connection at our nearest site. You will
be responsible for obtaining the ISDN connection at your end-user site and for
paying for all outgoing calls, if any.
In the event of the Local Access Line failing, our ISDN dial back-up adapter
automatically senses the line failure and initiates a back-up ISDN dial
connection. ISDN call charges from SITA to you are paid by SITA. The ISDN
terminal adapter continues to monitor the Local Access Line connection and when
the Local Access Line is restored to normal operation, the application is
switched back to the Local Access Line.
Typical applications
As more and more users move to high-speed MDNS Direct Access services, such as
our LAN Access and Frame Relay Access, the need to support the Local Access
Lines with high-speed back-up becomes even more important.
Key service features
o Automatic ISDN dial back-up: In the event of the Local Access Line failing,
users are automatically switched to ISDN Dial Back-Up, offering higher
availability for critical applications.
o Increased resilience at reduced cost: ISDN Dial Back-Up provides a
lower-cost alternative to expensive, multiple Local Access Lines for
back-up.
o Range of ISDN dial back-up speeds: ISDN speeds of 64, 128, 256 and 384 Kbps
are supported for dial back-up, depending upon location.
o Managed end-to-end service: The equipment and service option is standard
world-wide. We order, install and maintain the ISDN Dial Back-Up equipment,
and monitor the Local Access Line so that service can be restored when the
Local Access Line is returned to normal operation.
o Supported MDNS Direct Access services: The ISDN Dial Back-Up service option
is available for our MDNS Direct Access services. These include X.25 Direct
Access, SDLC Direct Access, CPE Access, LAN Access and Frame Relay Access.
Service availability is subject to local technical and regulatory conditions
<PAGE>
LAN Access
Creating and managing global LAN communities
The LAN Access service provides a communication service for the interconnection
of globally dispered Local Area Networks (LANs).
Our LAN Access service consists in installing, managing and maintaining routers
on your premises and providing wide area connectivity with speeds of up to 2
Mbps, depending on the location. Connectivity is provided through either X.25 or
Frame Relay protocols.
This, combined with high availability, widespread access locations and support
of common LAN protocols such as TCP/IP and IPX, means that we offer you the
service that match your LAN interconnect requirements.
LAN Access service employs router equipment from Cisco systems.
Typical applications
LAN Access is suitable for most of today's data communication applications that
involve the transfer of information between LANs :
o Client/server environments: Enabling LAN users to access remote database
servers and print documents across the network.
o Transaction processing: Consolidating access to traditional mainframe
based applications.
o High-speed file transfer and multimedia: Supporting CAD/CAM and other
applications requiring high bandwidth.
o LAN Access Internet Gateway: If necessary, a LAN Access Internet
Gateway option is available, allowing corporate LAN users to access
Internet facilities.
Key service features
o Multiple access speeds: From 19.2Kbps to 2Mbps, depending on location and
frame relay Committed Information Rate (CIR) support (suitability depends on
LAN application and location).
o Multiple LAN protocol support: TCP/IP, Novell Netware, DECnet, Source Route
Bridging, Transparent Bridging and Banyan Vines.
o Flexible implementation: Can be tailored using multiple service options.
o Integrated routing: Route re-distribution into routing protocols OSPF,
EIGRP, IGRP & RIP on your LAN.
o LAN router management: Turnkey service including design, installation,
testing, configuration, software maintenance, hardware maintenance and
pro-active management.
o Official IP addresses: We only provide official IP addresses with the
LAN Access service.
<PAGE>
Options
The LAN Access service offers four service options that enhance the service
functionality :
o Mission-critical sites:
- Fault tolerant networks can be configured with active Permanent Virtual
Circuits (PVCs) for load sharing and resilience, or with an alternative path
(shadow PVCs) for a more cost effective solution. - Dual router
configurations ensure that key sites are always available.
o X.25/Frame Relay Gateway: The LAN Access service can be integrated into WANs
over X.25 or frame relay giving integrated cost-effective solutions. Using
the X.25/Frame Relay Gateway gives any-to-any connectivity without the need
to provide a private gateway for the Virtual Private Network (VPN).
o LAN Access Internet Gateway:
- Simple Internet access for enterprise networks integrated with the LAN
Access service which provides reliable connectivity to the Internet from
within a multi-protocol corporate network. - We employ filtering and
anti-spoofing techniques (used to detect unauthorized users mimicking
authorized addresses) at the Internet Gateway. However, we cannot guarantee
the integrity of used or data coming from the Internet and we would strongly
recommend that you use a firewall between your VPN and the VPN gate router
(The VPN garte router is the LAN Access service router designated as the
customer access point to the LAN Access Internet Gateway).
Service availability is subject to local technical and regulatory conditions
<PAGE>
Link Service
The means to connect to the Network
The Link Service covers the provision, maintenance and supervision of a modem or
a Network Terminal Unit necessary to access the SITA Network and use the
Service. It also includes the supervision of the Local Access Lines ordered by
SITA from the Telecommunications Operator.
Typical applications
o Direct access: All direct access services, such as X.25 Direct Access, Frame
Relay etc.
Key Service Features
o Fully managed service: Should problems occur with the Local Access Line this
will be detected and reported to the Telecommunications Operator.
o Maintenance: Modems are maintained by SITA.
Service availability is subject to local technical and regulatory conditions
<PAGE>
P1024B/C Direct Access
Global networking for the air transport industry
The P1024B/C Direct Access service is the appropriate service to have access to
a whole range of global networking applications in the air transport and travel
industries.
With access speeds of up to 19.2Kbps, depending on location, the Service allows
short response times for time-critical applications, world-wide coverage, in
compliance with industry standards.
P1024B/C Direct Access provides a local connection into our SITA Nework via
Local Access Lines.
Both P1024B and P1024C can connect to P1X24, AX.25 and Exchange of Mixed Traffic
over X.25 (EMTOX) hosts.
Typical Applications
P1024B/C Direct Access is suitable for most air transport/travel industry
applications such as: o Computer Reservation System (CRS) access for airline
offices and booking agents o Airline check-in at airports o Baggage tracking
Key service features
o Multiple access speeds: 19.2, 14.4, 9.6, 4.8, 2.4, and 1.2 Kbps.
(Depending on Location)
o Standards: Supports AirLine Control (P1024B) and Universal Terminal
System (P1024C) standards.
Service availability is subject to local technical and regulatory conditions
<PAGE>
POINT-TO-POINT PROTOCOL DIAL ACCESS
Remote dial access to your LANs, intranet or the Internet
PPP (Point-to-Point Protocol) Dial Access provides easy-to-use, high speed
occasional access to the SITA Network. The service allows your users to access
LANs, intranet and Internet information and resources without the need for
connection via Local Access Line to the Internet or intranets.
To extend global reach, this service is often used in conjunction with the
Remote LAN Access Service.
Typical application
PPP Dial Access is a key solution for mobile intranet users and users who
require fast Remote LAN Access to their office LAN while travelling, as well as
remote small office/home office users.
Key service features
o Migration path to higher speed operation without the need to go to Local
Access Lines: the service offers a migration path to higher speeds for X.28
Dial Access and Remote LAN Access service customers. It offers an immediate
operational speed of up to 64 Kbps. All this without the need to justify the
use of Local Access Line connection to the SITA network.
o Ideal for data-intensive applications: The service is designed to exceed the
level required to handle the high throughput for data-intensive
applications, such as LANs and intranets. Users can access their preferred
LAN using a native LAN protocol, initially TCP/IP.
o Flexible support options:
- support for 64 Kbps ISDN and up to 33.6 Kbps PSTN access for TCP/IP
applications, is available depending on the location.
- the customer central site connection is connected to the Network using
either frame relay or X.25 protocol.
o Stringent security: PPP Dial Access fully supports Challenge Handshake
Authentication Protocol (CHAP) procedures: domain name, username and
password permission are controlled to give access to the network/LAN and
open an IP session.
Service availability is subject to local and technical regulatory conditions
<PAGE>
Remote LAN Access
Remote access to intranets and corporate LANs
The Remote LAN Access service allows your mobile or remote PC users to dial into
any of our global network's dial service access points world-wide to link with
your intranet or corporate LANs.
As more and more small branch offices need to access information on LANs
globally, Remote LAN Access provides an ideal solution to improve communications
and reduce costs. With Remote LAN Access, costly Local Access Lines and
international or long distance telephones calls are avoided.
The Remote LAN Access user dials into a local node of our X.28 Dial Access
service to connect to one of your corporate LAN routers on our global network.
For the mobile executive, a global system mobile (GSM) phone can be used with a
GSM data-compatible modem where this service is available.
To improve performance at key business centres this service is often used in
conjunction with the PPP Dial Service.
Typical applications
This is a key solution for mobile intranet users and users who require access to
their office LAN while travelling.
Key service features
o X.28 Access: PC users call their LANs at access rates from 9.6 Kbps up to
28.8 Kbps.
o Remote users can access corporate information as easily as local users:
- Once connected to our global network, full Point-to-Point Protocol (PPP)
access is provided by the software-based servers integrated into the LAN
routers. These are supplied as part of our LAN Access service. - Remote LAN
Access users therefore enjoy the same functionality remotely as they would
with a direct connection to the corporate LAN, for such applications as
groupware, E-mail and file transfer. This has the benefit of providing
faster access to vital information and increasing user productivity.
o Stringent, dual-level security: Users will be fully authenticated using the
dual-level security system. The system demands that each user has a valid
Network User Identifier, then having provided this, the user is prompted for
a password using the Challenge Handshake Authentication Procedure (CHAP), a
sophisticated three-way handshake technique.
o A solution using de facto protocol standards: Remote LAN Access supports
industry de facto standards using PPP for remote LAN access applications in
the TCP/IP and Novell IPX environments.
o Occasional users can be given dynamic access: Upon request, we may configure
the server router so that he will dynamically allocate temporary IP
addresses from an address pool on the router for those remote users who only
need occasional access. This, greatly simplifies IP address allocation.
Service availability is subject to local technical and regulatory conditions
<PAGE>
SDLC Direct Access
Connecting global IBM environments
The SDLC Direct Access service provides a wide range of capabilities for
IBM-based networking applications.
SDLC Direct Access offers access through Local Access Lines into our global
network, at speeds of up to 256 Kbps.
SDLC Direct Access is the de facto standard for interconnecting IBM devices
within an SNA environment. SDLC Direct Access supports three types of SNA
Physical Unit (PU) - PU2, PU2.1 and PU4.
We offer an industry-leading portfolio of SDLC Direct Access services for
mainframe host, AS/400, PC and other IBM equipment.
Typical applications
SDLC Direct Access is ideal for most data communication applications, such as:
o Terminal-to-host: connecting PCs and remote cluster controllers to a
host or Front End Processor for order entry, E-Mail and other
applications.
o Host-to-host: file transfer to data between two mainframes.
o Peer-to-peer: transfer of data between two applications running in a
distributed environment for LU6.2 applications.
Key service features
o Multiple access speeds:
PU4 connections : 4.8 to 256Kbps.
PU2 and PU2.1 connections: 2.4 to 64 Kbps, depending on location.
o Fast response time: Response time is minimized through use of local
polling at the remote site.
o Protocol conversion: SDLC Direct Access is capable of interworking with
X.25 Direct Access and SNA Token ring Access on PU2-to-PU4 links,
depending on your requirements.
o Data stream protocol: 3270 and 5250 data stream protocols supported.
Options
o Multi-drop support: Where needed, multiple PU2 connections can be
linked to a single PU4 connection.
o Group poll support: Where needed, PU4 connections support IBM's
group poll feature, enabling a high concentration of remote PU2
devices on a single SDLC host access line.
Service availability is subject to local technical and regulatory conditions
<PAGE>
Type B Messaging Service
Type B Messaging Service Description
Type B Messaging Service is a message switching service which allow customers
to, with a single connection to the SITA Network, to exchange electronic
messages with their own locations and their business partners worldwide.
Options
Messages can be sent from and delivered to a variety of types of equipment, some
of which include:
o Host computers (mainframes, minis, PCs)
o Any equipment running the SITATEX or SkyForm software
o Telex machines
Connection to the SITA Network may be made using a variety of protocols and
access methods:
o Dedicated connections using P1024, P1124, AX.25 or X.25
o Dial-up access via X.28 or P1024C (available to SITATEX and SkyForm
users only)
o Dial-up telex protocol for telex machines
Service availability is subject to local technical and regulatory conditions
<PAGE>
X.25 DIRECT ACCESS
Reliable global networking
o Our X.25 Direct Access service is based on the telecommunications standard,
defined in 1988 by the ITU-T in its Recommendation X.25 for Interface
Between Data Terminal Equipment (DTE) and Data Circuit-Terminating Equipment
(DCE) for terminals operating in the packet mode and connected by dedicated
circuits to Public Data Networks.
o This service offers access speeds of up to 256Kbps. X.25 Direct Access
provides a local connection into one of SITA's global access locations using
Local Access Lines. The international X.25 standard protocol contains a
corruption-free delivery feature which contributes to the reliability of
this Service.
Typical applications
X.25 Direct Access is ideal for many communications applications.
Terminal-to-host X.25 Direct Access supports:
Remote order entry systems
Computer Reservation Systems
Mobile users
X.25 Direct Access can be used in conjunction with X.28 Dial Access, for
terminal access.
Host-to-host:
o Transferring accounting record filed from regional offices to
headquarters
o Electronic Mail
o Corporate MIS applications.
PC-to-PC: PCs can connect to remote Local Area Networks (LANs) to exchange files
and electronic mail.
Key service features
o Multiple access speeds: Depending on the location from 4.8Kbps to
256Kbps.
o International standard: ITU-T 1984, and 1988, compliance.
o Simultaneous user support: Up to 1024 logical channels per link.
o Packet size negotiation: To maximize throughput for particular
applications.
Options
o Higher Security: You may ask for our Closed User Groups feature, which
provides for call barring and call restrictions.
o Improved availability: If you wish to improve the availability of
the Service, dial back-up of Local Access Lines is available.
o Quick Start Option: This option uses temporary dial-up connections
to offer network access prior to the availability of leased lines.
Service availability is subject to local technical and regulatory conditions
<PAGE>
X.25 PRIVATE Dial Access
Simple access to IBM hosts over our global network
o The X.25 Private Dial Access service is typically designed as a
complementary service for customers with X.25 devices who need only
occasional access to IBM hosts over SITA's global network.
o This service is based on the telecommunications standard, defined in 1988 by
the ITU-T in its Recommendation X.25 for Interface Between Data Terminal
Equipment (DTE) and Data Circuit-Terminating Equipment (DCE) for terminals
operating in the packet mode and connected by dedicated circuits to Public
Data Networks.
Typical applications
X.25 Private Dial Access service is ideal for many host-to-host communications
applications which require occasional but fast access to our network.
Key service features
o Occasional Access: provides access to the SITA network by means of
dial-up connections when leased line is not justified.
o Dedicated Port: provides access to an X.25 dial-up port that is
dedicated to one customer.
Please note that for terminals, a PAD (Packet Assembler/Disassembler) is needed.
Service availability is subject to local technical and regulatory conditions
<PAGE>
X.28 Dial Access
Simple, asynchronous access to our global network
o The X.28 Dial Access service is typically designed for mobile executives,
remote offices, trading partners and customers who will have simple
asynchronous access to the SITA Network over local public telephone
networks.
o Your end users can dial into the network at speeds of up to 28.8Kbps to
access their applications.
o This service is based on the X.28 protocol defined by the ITU-T in 1984. It
allows your end-users to access your host applications from terminals or PCs
using low-cost, asynchronous, dial-up modems or GSM mobile phones with a
compatible modem.
Typical applications
X.28 Dial Access service is ideal for many data communication applications which
require occasional but fast access to our network.
o Regional offices can dial rapidly into central computers to access latest
product and pricing information
o Mobile executives can stay in touch with their offices and gain access
to vital information while on the move, using either the local PSTN or their
GSM mobile phone.
o The service provides access to our electronic commerce and E-mail services,
enabling you to communicate quickly with a multitude of trading partners.
o Credit card authorisation, travel reservation and other transactions can
be accomplished quickly and cost effectively.
Key service features
o Secured Access: Network User Identification (NUI) and password provide
secure access and itemisation of traffic usage. You should however ensure
that only authorized people have access to your NUI.
o Multiple access speeds: Speeds of up to 9.6Kbps are available worldwide and
the market-leading 28.8 Kbps service is increasingly available in key
business locations, giving quick response times and high throughput.
o Data compression and error correction: V.42bis and MNP5 data compression
standards provide enhanced data throughput. Error correction standards V.42
and MNP4 provide potentially error free communications.
o International standard: ITU-T 1984, standard
Options
o 1-800: If necessary, you may request that option, which will allow you to
have access to a toll-free single telephone number from within continental
United States. There is a surcharge for using this service.
o Security: A Closed User Group (CUG) can be implemented to ensure only
your NUIs can make a call request to your hosts. o Documentation: Full,
detailed technical documentation allows easy customisation of standard
communication software packages for use with the service.
Service availability is subject to local technical and regulatory conditions
<PAGE>
SUPPORT SERVICES
This document describes the services provided by SITA to its customers as part
of the SITA managed service, if and when a problem occurs in the use of the
Services.
1. Customer Support Help Desk
1.1 The Customer Support Help Desk is the centre to which end users of the
Service may report faults or problems in the functioning of the Service. In the
main SITA Centres, a twenty-four (24) hour telephone number is available.
1.2 The Customer Support Help Desk will take ownership of the problem identified
by you analyze and resolve it. If the problem is not one that can be resolved
immediately, the Customer Support Help Desk is responsible for referring the
fault on to the appropriate service within SITA or to the local PTT or any other
party responsible for the problem you have reported.
1.3 When you report a fault or problem, the Customer Support Help Desk opens a
trouble ticket. This trouble ticket ensures follow-up of the problem until it is
resolved. It contains the following information:
o a description of the nature of the problem
o the time and date the problem was reported to SITA
o the time and date the end user noticed the problem
o other information relating to the place where the ticket is opened
o the time and date the problem was solved
o the time and date the trouble ticket was closed
o any relevant update information.
Trouble tickets remain open as long as a problem which is SITA's responsibility
is not resolved. The Customer Support Help Desk provides updates of the progress
made in solving the problem via the trouble ticket.
<PAGE>
1.4 The Customer Support Help Desk reporting system can be represented as
follows:
[GRAPHIC OMITTED]
2. Escalation Procedure
2.1 The existence of a Customer Support Help Desk trouble ticket means any fault
which is not resolved rapidly is automatically escalated to the next responsible
person within the SITA organisation.
Automatic Escalation is as follows:
After 4 hours Shift Supervisor
After 6 hours Customer Support Help Desk Manager /
Assistant SITA Centre Manager
After 8 hours SITA Centre Manager
After 24 hours Network Manager / Customer Operation Manager
After 48 hours Regional Manager
2.2 Should the problem not be resolved to your satisfaction, you may escalate
the problem yourself by calling the person indicated in your Customer Support
Pack. The Customer Support Pack provides you with tips on how to report and
escalate problems through your Customer Support Helpdesk.
To ease access to your Customer Support Help Desk, your Customer Support Pack
contains stickers for the end-users work places. These show your end-user
identification number and your Customer Support Help Desk telephone number. If
you don't have a Customer Support Pack, ask your SITA account manager for one.
2.3 The following diagram illustrates the double escalation capability
offered by our Customer Support System:
[OBJECT OMITTED]
<PAGE>
PRICING SCHEDULE
ARTICLE 1.0 TELECOMMUNICATIONS OPERATOR CHARGES - GENERAL
1.1 Telecommunications Operator Charges
Local Access Lines and Local Access Lines Equipment will be charged to
the Customer in accordance with Article 5.2 of the General Terms and
Conditions of this Agreement, except if expressly noted in this Pricing
Schedule that Local Access Lines charges and/or Local Access Lines
Equipment charges are included in a SITA Service charge.
Telecommunications Operator Charges (as defined at the aforementioned
Article 5.2) are subject to change by the Telecommunications Operators
according to their practice and are subject to exchange rate
fluctuations. SITA bases all invoices on the IATA exchange rates.
<PAGE>
ARTICLE 2.0 - MANAGED DATA NETWORK SERVICES (MDNS) LEASED LINE CONNECTION
REQUIREMENTS
2.1 Galileo MDNS Geographic Zone Definitions
Appendix 1 provides a breakdown of the "Galileo MDNS Geographic Zones"
applicable to the MDNS Leased Line Connection requirements set forth in
this Article 2:
2.2 Low Speed Connections up to 19.2 Kbps (X.25, X.28, SDLC, Airline
Specific Protocols and Low Speed Frame Relay)
2.2.1 Connection Types
The following Connection types, as defined in MDNS section of
the TOPS, are subject to the charges set forth in paragraph
2.2.2 below.
(a) Connection Types A1 - applies to P1024B/C, P1X24 and AX.25
synchronous connections on shared ports up to 9.6 Kbps;
(b) Connection Type AX1 - applies to X.25 and SDLC direct access via a
leased line up to 19.2 Kbps;
(c) Connection Type AX5 - applies to X.28 direct access via a leased
line up to 9.6 Kbps or X.28 Private Dial (via PSTN and private port;
(d) Connection Type AX7 - applies to indirectaccess in X.25 via a Public
Data Network (PDN) where available. The access speed is up to 19.2
Kbps;
(e) Connection Type AX10 - applies to dial-in connections in X.25 and
SDLC to a private port at an access speed up to 14.4 Kbps;
(f) Connection Type FR00 - applies to low speed Frame Relay direct
access via a leased line up to 19.2 Kbps (this type of access is
currently under study by SITA Engineering and Operations); and
(g) Connection Type P00 (private Connections).
2.2.2 Low Speed Connection Local Access Line Exclusive Charges
Subject to the additional terms and conditions set forth in
paragraph 2.2.3 below, for those Connections set forth in
paragraph 2.2.1 above, the "bundled" low speed Local Access
Line exclusive monthly charges set forth in Table 1 will
apply per Connection. This bundled charge covers the pricing
elements set forth below.
(a) Connection charges - Types A01, AX1, AX5, AX7, AX10, FR00 or P00;
(b) Transmission charges - international and domestic;
(c) X.25/X.28 miscellaneous charges - additional Permanent Virtual
Circuits (PVCs), Logical Channels, Closed User Groups, and Call
Attempts;
(d) Link Service charges - covering the survey of the access line, the
provision and maintenance of equipment (e.g., modems, DSUs) to
operate the line (including provision of spares, repair and on-site
maintenance) as further defined in the TOPS; and
(e) Denver CPE equipment including up to two (2) Passports and six (6)
AMs. There are currently 2 AMs in the Galileo KF1 building and 3 AMs
in the KF2 building.
Connection, Transmission and Link Service charges are as defined
in the MDNS section of the TOPS.
Sample Low Speed Connection Rates by Country (based on actual
billed Connections on the Galileo November 1999 Invoice) are set
forth in Appendix 2.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
TABLE 1
- ----------------------------------------------------------------------------------------------------------------------
- ------------- ------------------
- -------------------------------------------------------------------------------------
Level No. of Charge Per Connection Per Month,
Connections By Galileo MDNS Geographic Zone (In
USD)
- ------------- ------------------
- -------------------------------------------------------------------------------------
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
NAM1 EUR1 EUR2 FEA1
FEA2 ROW1 ROW2
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
1 Less than 25 $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
2 25 - 100 $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
3 101 - 175 $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
4 176 - 350 $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
5 More than 350 $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ------------- ------------------ ------------ ----------- ----------- -----------
- ------------ ----------- -----------
</TABLE>
Sample Calculation: France with 320 low speed connections would be
charged at the EUR1 Level 4 rate of $*** per connection
per month.
2.2.3 Low Speed Connection Additional Terms and Conditions
The following terms and conditions apply to the low speed
connections covered by paragraph 2.2.2:
(a) The number of Connections will be based on the number of mnemonics by
Connection type. Charges will be prorated based on the number of days
operational each month; and
(b) A surcharge of USD $*** per Million Characters per Month ("MCM") for
traffic generated by Type A1, AX1, AX5, AX7, AX10, FR00 or P00
Connections will apply to the global average traffic per Connection
if the global average traffic exceeds *** MCM per connection.
The parties agree to review in good faith this traffic cap of *** MCM per
connection during the first quarter of 2000, taking into consideration
traffic analysis under study at the time of execution of this Agreement.
2.2.4 Netherlands Multiplex Connection Charges
Notwithstanding the above, any AX1 connection in the
Netherlands connected via a cascaded multiplexor link will
be charged $*** USD per connection per month.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
2.3 High Speed Connection Types (X.25, SDLC, Airline Specific Protocols) -
Charges
2.3.1 For Airline Specific Connection Types A02, A03 and A04, the
traffic insensitive connection charges set forth in Table 2
apply:
------------------------------------
TABLE 2
------------------------------------
------------------ -----------------
Charge per
Connection Connection
Type Per Month
(in USD)
------------------ -----------------
------------------ -----------------
Type A02 $ ***
------------------ -----------------
------------------ -----------------
Type A03 $ ***
------------------ -----------------
------------------ -----------------
Type A04 $ ***
------------------ -----------------
2.3.2 For standard MDNS Connection Types X02, X03 and X04,
the traffic insensitive connection charges set forth in Table
3 apply:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
TABLE 3
- ---------------------------------------------------------------------------------------------------------------------------
- -------------------------
- -------------------------------------------------------------------------------------------------
CHARGE PER CONNECTION PER MONTH,
BY GALILEO MDNS GEOGRAPHIC ZONE (IN
USD)
- -------------------------
- -------------------------------------------------------------------------------------------------
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
<S> <C> <C> <C> <C>
<C> <C> <C>
Connection Type NAM1 EUR1 EUR2 FEA1
FEA2 ROW1 ROW2
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
64 Kbps - Type X02 $*** $*** $*** $***
$*** $*** $***
up to 25 MCM
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
64 Kbps - Type X02 $*** $*** $*** $***
$*** $*** $***
more than 25 MCM
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
128 Kbps - Type X03 $*** $*** $*** $***
$*** $*** $***
up to 25 MCM
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
128 Kbps - Type X03 $*** $*** $*** $***
$*** $*** $***
more than 25 MCM
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
256 Kbps - Type X04 $*** $*** $*** $***
$*** $*** $***
up to 25 MCM
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
256 Kbps - Type X04 $*** $*** $*** $***
$*** $*** $***
more than 25 MCM
- ------------------------- ------------- ------------- ------------- -------------
- ------------- ------------- -------------
</TABLE>
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
2.3.3 The bundled charges set forth in Tables 2 and 3 cover the
pricing elements set forth below:
(a) Connection charges - Types A02, A03, A04, X02, X03 and X04
including CPE UTP connections;
(b) X.25/X.28 miscellaneous charges - additional Permanent
Virtual Circuits (PVCs), Logical Channels, Closed User
Groups, and Call Attempts;
(c) Link Service charges - covering the survey of the access
line, the provision and maintenance of equipment (e.g.,
modems, DSUs) to operate the line (including provision of
spares, repair and on-site maintenance) as further defined
in the TOPS; and
(d) Transmission charges.
Connection, Transmission and Link Service charges are as
defined in the MDNS section of the TOPS.
2.3.4 Canadian CAS X04 Netlink Connections
SITA *** the X04 Netlink Connections associated with the
existing Canadian CAS routers.
X.25/2115157/CANADA CAS1
X.25/2115158/CANADA CAS2
2.4 Transmission Surcharge for CPE, Host-to-Host and Southern Cross
(1K) Traffic
Traffic generated from the sources set forth in paragraphs (a) through
(c) below will be accumulated monthly and will be subject to the
following transmission surcharge:
USD $ *** per MCM.
(a) Traffic from Connections indirectly connected to the SITA
network via CPEs including but not limited to the Denver
and Paris CPEs;
(b) Host-to-Host traffic set out in the SITA report entitled
"Statistical Information - Host to Host Traffic" in the
MDNS section of the SITA invoice; and
(c) Southern Cross (1K) international traffic (on the Galileo
invoice) from American Samoa, Australia, Cooks Island, New
Zealand or any other future 1K market which communicates with
the Galileo Host.
Sample Calculation:
Denver CPE Traffic ***
HTH Traffic ***
1K International Traffic ***
Total Traffic in MCM ***
Traffic Surcharge @ USD $ ***/MCM USD $ ***
2.5 Invoicing for Non-Galileo International Transmission Only
Charges for traffic appearing on the Galileo invoice which is not
generated by a Connection also appearing on the Galileo invoice will be
(a) subject to mutual agreement on a case-by-case basis; or (b) in
accordance with Table 3A below for those countries specified; in either
case subject to the company generating this traffic approving in
writing such re-arrangement of the invoicing pursuant to Article 3.4 of
the General Terms and Conditions of this Agreement.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
- ------------------------------------------------------------------------------
TABLE 3A
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NON-GALILEO INTERNATIONAL TRANSMISSION CHARGES
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Millions of Characters Category A Category B Category C
$USD per MCM $USD per MCM $USD per MCM
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
up to 250 MCM $ *** $ *** $ ***
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
251 - 500 MCM $ *** $ *** $ ***
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
501 - 1,000 MCM $ *** $ *** $ ***
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1,001 - 2,500 MCM $ *** $ *** $ ***
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
2,501 - 5,000 MCM $ *** $ *** $ ***
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
above 5,000 MCM $ *** $ *** $***
- ------------------------------------------------------------------------------
Category A includes Indonesia, Malaysia, Pakistan and Sri
Lanka Category B includes Bahrain, Jordan, Kenya, Kuwait,
Lebanon, Oman, Qatar and U.A.E. Category C includes Syria and
Yemen
Sample Calculation:
Assume the monthly international traffic between Kenya and USA
generated by another SITA member's connections is ***. Upon
mutual agreement by all parties involved, SITA shall invoice
Galileo for the Kenya to USA transmission at the Category B
rate of $*** per MCM.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 3.0 - REMOTE ACCESS SERVICES
3.1 X.28 Dial Access to Shared Ports Via PSTN
The charges set forth in Table 4 below apply to X.28 Dial Access
Service to shared ports:
- ------------------------------------------------------------------------------
TABLE 4
- ------------------------------------------------------------------------------
- ----------------------------------------- ------------------------------------
ITEM CHARGE (IN USD)
- ----------------------------------------- ------------------------------------
- ----------------------------------------- ------------------------------------
Domestic USA.Hourly Usage $ *** per hour
- ----------------------------------------- ------------------------------------
- ----------------------------------------- ------------------------------------
Domestic Canada and Domestic EUR1
In-Country (per Appendix 1) Hourly Usage $ *** per hour
- ----------------------------------------- ------------------------------------
- ----------------------------------------- ------------------------------------
Canada to/from USA Hourly Usage $ *** per hour
- ----------------------------------------- ------------------------------------
- ----------------------------------------- ------------------------------------
International Hourly Usage $ *** per hour
- ----------------------------------------- ------------------------------------
- ----------------------------------------- ------------------------------------
Call Attempt Charges ***
- ----------------------------------------- ------------------------------------
Network User Identifier (NUI) $ *** per month per NUI
- ----------------------------------------- ------------------------------------
Sample Calculations:
Denver, CO to Atlanta, GA $*** per hour Montreal, Canada to
Toronto, Canada$*** per hour Manchester, UK to London, UK $***
per hour Montreal, Canada to Denver, CO $*** per hour Vienna,
Austria to London, UK $*** per hour Hong Kong to Denver, CO
$*** per hour
X.28 Dial Access to shared ports offers dial connection up to 9.6
Kilobits per second ("Kbps") in all X.28 locations and up to 28.8 Kbps
where available. Galileo's special pricing covers both remote access
connection types A-X-6 and A-X-13 as further defined in the TOPS. The
usage charge includes the connection and traffic based on the duration
of the connection. The International X.28 hourly charge is applicable
worldwide with the exception of United Arab Emirates ("UAE") as noted
below. The Domestic X.28 hourly charge is applicable to countries
listed in Article 2.1 as EUR1 or NAM1. Network User Identifiers (NUI)
are required for security and billing purposes.
Any UAE surcharges for International X.28 service under the TOPS will
apply to Galileo. (UAE Telecommunications Operator imposes a surcharge
on all SITA customers. The number assigned is a 'premium' type number
i.e. similar to '900' numbers in the USA. SITA will pass such UAE
surcharges on to its customers through any surcharges set forth in the
TOPS.)
3.2 Point-to-Point Protocol (PPP) Dial Access Service Via PSTN
The charges for Point-to-Point Protocol (PPP) Dial Access Service via
PSTN are as set forth below:
the same as set forth in Article 3.1 above for X.28 PSTN service.
The PSTN PPP Dial Access Service is available for speeds up to 56 Kbps
subject to the quality of the local PSTN.
3.3 Point-to-Point Protocol (PPP) Dial Access Service Via ISDN
The charges for Point-to-Point Protocol (PPP) Dial Access Service via
ISDN are as set forth below:
PPP Dial Access charges at TOPS ***
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
.
<PAGE>
3.4 Customer Access Service Routers (Remote LAN Access)
A "Customer Access Service" ("CAS") router is a customer access CPE
(Customer Premises Equipment) router that provides translation between
PPP and IP (Internet Protocol) protocols at the target LAN (Local Area
Network) that is accessed by a remote subscriber. The CAS will be
connected to the network via X.25 to support X.28 Remote LAN Access
(RLA) Service and Frame Relay to support PPP dial service.
The charges for CAS are as set forth in Table 5 below, based on the
Galileo High Speed Intranet Connect geographic zones defined in Article
6.1 below:
------------------------------------------------------------
TABLE 5
------------------------------------------------------------
GEOGRAPHIC ONE-TIME MONTHLY
ZONE INSTALLA-TION CAS CHARGES
CHARGE (IN USD)
(IN USD)
----------------------- ---------------- -------------------
Denver *** $ ***
----------------------- ---------------- -------------------
NAM1 $ *** $ ***
----------------------- ---------------- -------------------
----------------------- ---------------- -------------------
EUR1 $ *** $ ***
----------------------- ---------------- -------------------
----------------------- ---------------- -------------------
EUR2 $ *** $ ***
----------------------- ---------------- -------------------
----------------------- ---------------- -------------------
FEA1 $ *** $ ***
----------------------- ---------------- -------------------
----------------------- ---------------- -------------------
FEA2 $ *** $ ***
----------------------- ---------------- -------------------
----------------------- ---------------- -------------------
ROW1 $ *** $ ***
----------------------- ---------------- -------------------
----------------------- ---------------- -------------------
ROW2 $ *** $ ***
----------------------- ---------------- -------------------
The following additional terms and conditions apply:
(a) X.25 Direct Access. The Connection charge will apply as per
Galileo's special charges in effect. No additional transmission
will be charged as this is already covered by the PPP usage
charges;
(b) Frame Relay Access. The Connection charge will apply as per
Galileo's special charges in effect. A local CIR (Committed
Information Rate) will be configured to the IPNET core subject to
normal Frame Relay rules; however there will be no charge for this
CIR as the usage is covered by the hourly PPP Dial charge. Any CIR
value above *** will require SITA Engineering approval; and
(c) Standard CAS Configuration. The CAS pricing is based on a standard
configuration which includes a Cisco 4700 chassis with 32
Megabytes memory, a four (4) port serial interface option (NP-4T),
IP software and RLA support.
3.5 Other CAS Router Configurations
Charges for other CAS router configurations not covered by Article 3.4
are as set forth below:
LAN Access charges at TOPS ***.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 4.0 - FRAME RELAY ACCESS SERVICE
4.1 Frame Relay Installation and Monthly Connection charges
Frame Relay installation and monthly Connection charges will be
provided at the charges set forth below:
TOPS charges ***.
4.2 Frame Relay Transmission (CIR) charges
4.2.1 Frame Relay monthly international Transmission between the USA
and the Frame Relay geographic zones as defined in the TOPS
are as set forth in Table 6 below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
TABLE 6
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
AFR FEA EUR EEUR MEA
NAM SAM CAM
CIR TO/FROM TO/FROM TO/FROM TO/FROM TO/FROM
TO/FROM TO/FROM TO/FROM
BANDWIDTH USA USA USA USA USA
USA USA USA
(IN USD) (IN USD) (IN USD) (IN USD) (IN USD) (IN
USD) (IN USD) (IN USD)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
8 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
16 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
24 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
32 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
48 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
64 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
96 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
128 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
192 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
256 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
384 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
512 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
640 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
768 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
1024 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
1536 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
2048 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
4.2.2 All other CIR flows outside the USA will be based on the TO
PS charges ***.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
4.3 Additional Conditions
Other conditions for Frame Relay as may be set forth in the TOPS apply,
including any minimum duration requirement.
ARTICLE 5.0 - LAN ACCESS SERVICE
5.1 LAN Access Service Charges for a Cisco 2501 or 2610 Router or
Equivalent
The one-time installation charges and recurring monthly charges set
forth in Table 7 apply for LAN Access Service, based on the Galileo
MDNS geographic zone definitions set forth in Article 2.1.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
TABLE 7
- -------------------------------------------------------------------------------------------------------------
----------------------------- ---------- ----------- ---------- -----------
- ---------- ---------- -----------
<S> <C> <C> <C> <C>
<C> <C> <C>
GALILEO MDNS GEOGRAPHIC ZONE
NAM1 EUR1 EUR2 FEA1
FEA2 ROW1 ROW2
----------------------------- ---------- ----------- ---------- -----------
- ---------- ---------- -----------
----------------------------- ---------- ----------- ---------- -----------
- ---------- ---------- -----------
ONE-TIME INSTALLATION CHARGE
$ *** $ *** $ *** $ *** $
*** $ *** $ ***
----------------------------- ---------- ----------- ---------- -----------
- ---------- ---------- -----------
----------------------------- ---------- ----------- ---------- -----------
- ---------- ---------- -----------
MONTHLY CHARGE
OPTION ONE $ *** $ *** $ *** $ *** $
*** $ *** $ ***
CS2501 or CS2610
----------------------------- ---------- ----------- ---------- -----------
- ---------- ---------- -----------
----------------------------- ---------- ----------- ---------- -----------
- ---------- ---------- -----------
MONTHLY CHARGE
OPTION TWO $ *** $ *** $ *** $ *** $
*** $ *** $ ***
Low End CS1005
----------------------------- ---------- ----------- ---------- -----------
- ---------- ---------- -----------
</TABLE>
The following additional terms and conditions apply to the charges set
forth in Table 7:
(a) Option One charges cover the following configuration: a Cisco
2501 or 2610 router (or comparable Cisco router to be
specified by SITA) one (1) ethernet port, two (2) serial
ports, 8 Megabytes DRAM memory, dual 8 Megabytes flash memory
and IP software;
(b) Option Two charges cover the following configuration: a Cisco
1005 router (or comparable low end Cisco router to be
specified by SITA) one (1) ethernet port, one (1) serial port,
8 Megabytes DRAM memory, dual 4 Megabytes flash memory and IP
software;
(c) These charges can be added to the Low Speed Connection
charges in Article 2.2 to provide an Intranet Connect
solution where required;
(d) The monthly charges cover all aspects of the LAN router
supply and on-going management;
(e) The monthly charges include customer support during local
working hours only with an on-site response time of four (4)
hours for customer sites within 50 km of a SITA Group
operations center;
(f) These monthly charges do not include cabling to connect the
LAN Access Service router to the customer's LAN;
(g) These monthly charges include standard Cisco serial cable.
Any additional cable required to connect to the NTU (Network
Terminating Unit) or similar is Galileo's responsibility; and
(h) Multi-protocol support can be provided on a Cisco 2501 or
2610 router (or comparable Cisco router to be specified by
SITA) router for the following additional monthly charge:
(i) To add IPX support: Add USD $ *** per month; and
(ii) To add IPX and IBM support: Add USD $ *** per month.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
5.2 Other LAN Access Router Configurations
Charges for other LAN Access router configurations not covered by
Article 5.1 are as set forth below:
LAN Access charges at TOPS ***.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 6.0 - INTRANET CONNECT SERVICE
6.1 Galileo High Speed Intranet Connect Geographic Zone Definitions
Appendix 1 provides a breakdown of the "Galileo High Speed Intranet
Connect Geographic Zones" applicable to the High Speed Intranet
Connection requirements set forth in this Article 6 with the exception
of Switzerland which is treated under Article 8 of this Pricing
Schedule.
6.2 High Speed Intranet Connect Service Charges
6.2.1 The monthly Intranet Connect Service charges applicable to the
non-Denver remote connections for a throughput that provides
access to the Intranet based on geographic zone and capacity
are set forth in Table 8A below. These charges include an
Intranet X.25 or Frame Relay Connection to a SITA center with
a minimum access speed of 56/64 Kbps, the appropriate
throughput costs and a Customer Managed Router, Cisco 1005/IP,
2501/IP or 2610/IP router (or comparable Cisco router to be
specified by SITA). They are exclusive of Local Access Line
charges.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
TABLE 8A
- --------------------------------------------------------------------------------------------------------------------------------
CHARGE PER CONNECTION PER MONTH,
BY GALILEO HIGH SPEED INTRANET CONNECT GEOGRAPHIC
ZONE DEFINITIONS
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
<C> <C>
Domestic
Throughput NAM1 EUR1 EUR2 FEA1 FEA2
ROW1 ROW2 AU and NZ
- --------------------------------------------------------------------------------------------------------------------------------
8 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
16 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
24 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
32 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
48 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
64 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
96 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
128 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
192 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
256 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
384 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
512 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
640 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
768 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
1024 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
1536 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
2048 Kbps $ *** $ *** $ *** $ *** $ *** $
*** $ *** $ ***
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
6.2.2 High Speed Intranet Connect Volume Discount
An additional High Speed Intranet Connect Volume Discount set
forth in Table 8B below applies per country based on the
actual number of High Speed Intranet Connections:
-----------------------------------------
TABLE 8B
-----------------------------------------
-----------------------------------------
High Speed Discount
Intranet Connections off
per Country Special Rates
-----------------------------------------
-----------------------------------------
Less than 25 ***
-----------------------------------------
-----------------------------------------
26 100 ***
-----------------------------------------
-----------------------------------------
101 - 250 ***
-----------------------------------------
-----------------------------------------
251- 500 ***
-----------------------------------------
-----------------------------------------
501 or more ***
-----------------------------------------
6.2.3 The following one-time installation charge applies for High Speed
Intranet Connect per connection, worldwide:
USD $ *** per Connection.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 7.0 - US DOMESTIC CHARGES
7.1 Denver Hub Worldwide Intranet Connect Service Charge
The monthly charges applicable to the Denver Host connections based on
required throughput are as set forth in Table 9 below. The Denver
Intranet Connect charge includes the connection, required throughput,
and Cisco 2501/IP or 2610/IP router (or comparable Cisco router to be
specified by SITA).
- ---------------------------------------------------------------------
TABLE 9
- ---------------------------------------------------------------------
DENVER INTRANET
WORLDWIDE MONTHLY
THROUGHPUT CHARGE
(IN USD)
- -------------------------- ------------------------------------------
256 Kbps ***
- -------------------------- ------------------------------------------
- -------------------------- ------------------------------------------
384 Kbps ***
- -------------------------- ------------------------------------------
- -------------------------- ------------------------------------------
512 Kbps ***
- -------------------------- ------------------------------------------
- -------------------------- ------------------------------------------
748 Kbps ***
- -------------------------- ------------------------------------------
- -------------------------- ------------------------------------------
1024 Kbps ***
- -------------------------- ------------------------------------------
- -------------------------- ------------------------------------------
1536 Kbps ***
- -------------------------- ------------------------------------------
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
7.2 USA Remote Endpoint Charges
If the number of Domestic USA connections is less than ***, the
charges set forth in Table 1 and Table 7 for NAM1 will apply per
Connection.
The Domestic USA charges set forth in Table 10 and Table 11 below are
applicable per Connection when the number of Domestic USA is ***
Connections or more. These "bundled" USA charges for the remote
endpoints include:
(a) Connection charges;
(b) Transmission charges for low speed connections up to 9.6
Kbps. Frame Relay CIRs will be priced out separately based
on throughput;
(c) Link Service charges;
(d) Monthly Local Access Line charges; and
(e) One-time telecommunications operator installation charges.
- ------------------------------------------------------------------------------
TABLE 10
- ------------------------------------------------------------------------------
- ------------------------------ ----------------------- -----------------------
ACCESS TYPE OF MONTHLY
SPEED ACCESS CHARGE
(IN USD)
- ------------------------------ ----------------------- -----------------------
Up to 9.6 Kbps ALC/SDLC/X25 ***
- ------------------------------ ----------------------- -----------------------
56 Kbps Frame ***
- ------------------------------ ----------------------- -----------------------
128 Kbps Frame ***
- ------------------------------ ----------------------- -----------------------
256 Kbps Frame ***
- ------------------------------ ----------------------- -----------------------
384 Kbps Frame ***
- ------------------------------ ----------------------- ----------------------
512 Kbps Frame ***
- ------------------------------ ----------------------- -----------------------
768 Kbps Frame ***
- ------------------------------ ----------------------- -----------------------
1024 Kbps Frame ***
- ------------------------------ ----------------------- -----------------------
1536 Kbps Frame ***
- ------------------------------ ----------------------- -----------------------
Charges for Frame Relay PVC within the USA will be as set forth below:
USD $ *** for each ***
(e.g. 32 Kbps at USD $ ***)
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
Any-to-Any connectivity will require an Intranet Connect Router
CS2501/IP or 2610/IP (or comparable Cisco router to be specified by
SITA) as previously described in Article 5.1. Charges for such
connectivity are as set forth in Table 11 below:
-----------------------------------------------------
TABLE 11
-----------------------------------------------------
------------------------------------- ---------------
ITEM USA
------------------------------------- ---------------
------------------------------------- ---------------
Monthly Charge $ ***
------------------------------------- ---------------
------------------------------------- ---------------
One-time Installation Charge $ ***
------------------------------------- ---------------
Sample Calculation: Charges for a 56 Kbps Intranet Connection with 16 Kbps
domestic USA throughput would be calculated as follows:
56 Kbps Connection $***
16K CIR ***
CS2501/IP or 2610/IP Router ***
Monthly Total $***
7.3 Local Access Line Costs
The Denver Hub Local Access Line costs will be invoiced at cost, in
accordance with Article 1. Only the USA Local Access Line costs are
bundled into the charge once the number of Connections is *** or more.
7.4 Link Service
Local Access Lines will be ordered from the Telecommunications
Operators. SITA will assist in the ordering and pay for these lines on
behalf of Galileo. Where allowed by local regulations, modems or
digital service units (DSUs) will be provided by SITA.
Link Service charges cover the survey of the physical access medium
(e.g. analog or digital circuit) for the provision and maintenance of a
means to operate a circuit, including the provision of spares, all
repair and intervention.
Modem/DSU charges are included in the Low Speed International and all
USA domestic rates. The International High Speed Connections will be
charged for Link Service based on SITA's standard Link Service rates
reflected in the TOPS dependent upon the country of operation. When
equipment to operate the Local Access Line is provided by the local
carrier (due to local regulations) a half Link Service is charged for
the survey of the Local Access Line.
7.5 ISDN and Dial Back Up
SITA can provide Analog Dial Backup as an option to increase
resiliency.
When the Local Access Line is analog, the costs of the PSTN
subscription and usage will be charged back to the user. An extra
charge equal to *** of the corresponding Link Service Charge is levied
for this option.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
When the access circuit is digital, an additional charge is applied to
cover the provision of the necessary analog dial backup modules. An
extra charge equal to *** of the corresponding Link Service Charge is
levied for this option. The customer is responsible for the costs of
the PSTN subscription and usage.
ISDN Digital Backup service provides high speed digital backup over the
public ISDN Network up to 384 Kbps where available. The monthly service
charge covers the ISDN line rental, the call charges (initiated by
SITA) and the rental of the equipment at both the customer and the SITA
side. Customers are responsible for the costs of all calls they
initiate.
ISDN and Dial Back service will be provided at the charges set forth
below:
ISDN and Dial Back Up Service charges at TOPS ***.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 8.0 - SWITZERLAND
8.1 Switzerland Intranet Connect Charges
The monthly Connection charges set forth in Table 12 below apply for
Intranet Connect Service, for Switzerland. This monthly Connection
charge is a flat rate per Connection which includes the Connection
charge, the CIR charge, a Cisco 2501/IP or 2610/IP Ethernet or 2502/IP
Token Ring router (or comparable Cisco router to be specified by SITA),
the Link Service charge and the Local Access Line charges.
- ------------------------------------------------------------------------------
TABLE 12
- ------------------------------------------------------------------------------
- --------------------------------------------- ---------------- --------------
MONTHLY ONE-TIME
ACCESS SPEED / THROUGHPUT CONNECTION INSTALLATION
CHARGE CHARGE
(IN USD) (IN USD)
- --------------------------------------------- --------------- --------------
64 Kbps Frame Relay / up to 16 Kbps CIR *** ***
- -------------------------------------------- --------------- ---------------
64 Kbps Frame Relay / 32 Kbps CIR *** ***
- --------------------------------------------- --------------- ---------------
64 Kbps Frame Relay / 48 Kbps CIR *** ***
- --------------------------------------------- --------------- ---------------
128 Kbps Frame Relay / 48 Kbps CIR *** ***
- --------------------------------------------- --------------- ---------------
128 Kbps Frame Relay / 64 Kbps CIR *** ***
- --------------------------------------------- --------------- ---------------
256 Kbps Frame Relay / 64 Kbps CIR *** ***
- --------------------------------------------- --------------- ---------------
256 Kbps Frame Relay / 128 Kbps CIR *** ***
- --------------------------------------------- --------------- ---------------
8.2 Switzerland Optional Service and Charges
8.2.1 The following charge will apply for an additional PVC
(Permanent Virtual Circuit) on a circuit to provide a backup
CIR at an equivalent speed to ensure network resiliency
between the same two (2) connections as the primary PVC, for
Switzerland:
A charge of *** of the monthly Connection charge (above the monthly
Connection charge in Article 8.1 above).
8.2.2 The charges set forth in Table 13 below apply for a Mission
Critical Site with a Standby Option or a Mission Critical Site
with a Load Sharing Option, for Switzerland. These charges
apply above the monthly Connection charge set forth in Article
8.1 above.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
- -------------------------------------------------------------------------------
TABLE 13
- -------------------------------------------------------------------------------
- ------------------------------------------ ---------------- ----------------
MISSION MISSION
ACCESS SPEED / THROUGHPUT CRITICAL CRITICAL
STANDBY LOAD-SHARING
OPTION OPTION
(IN USD) (IN USD)
- ------------------------------------------ ---------------- ----------------
128 Kbps Frame Relay / 48 Kbps CIR *** ***
- ------------------------------------------ ---------------- ----------------
128 Kbps Frame Relay / 64 Kbps CIR *** ***
- ------------------------------------------ ---------------- ----------------
256 Kbps Frame Relay / 64 Kbps CIR *** ***
- ------------------------------------------ ---------------- ----------------
256 Kbps Frame Relay / 128 Kbps CIR *** ***
- ------------------------------------------ ---------------- ----------------
8.3 Switzerland Dial-Up Access Service and Charges
The monthly Connection charges set forth in Table 14 below apply for
Dial-Up Access Service, for Switzerland. The monthly Connection charges
for PPP Dial Access via ISDN, as set forth in Table 14 below, include
all domestic transmission charges at that connection.
-----------------------------------------------------
TABLE 14
-----------------------------------------------------
----------------------------------- -----------------
MONTHLY
DESCRIPTION CHARGE
(IN USD)
----------------------------------- -----------------
----------------------------------- -----------------
PPP Dial Access with router ***
----------------------------------- -----------------
----------------------------------- -----------------
One-time router installation ***
----------------------------------- -----------------
----------------------------------- -----------------
PPP Dial Access without router ***
----------------------------------- -----------------
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 9.0 - HIGH SPEED DATA SERVICE (HTDS)
9.1 HTDS Service Charges
Charges for High Speed Data Service (HTDS) will be based on TOPS
standard Frame Relay pricing inclusive of a Connection at each end,
Link Service charges and a CIR with a CIR Speed equal to the Connection
Access Speed for each individual Connection. Galileo must confirm with
SITA the availability of the corresponding bandwidth between the
concerned sites on a case-by-case basis. These charges are exclusive of
Local Access Line charges.
HTDS availability and charges for the existing HTDS Links are as set
forth in Table 15 below:
- -------------------------------------------------------------------------------
TABLE 15
- -------------------------------------------------------------------------------
- --------------------------------------------- ---------------------------------
AVAILABILITY CHARGE (IN USD)
- --------------------------------------------- ---------------------------------
Johannesburg 128 Kbps HTDS to Denver $ *** per month for primary flows
$ *** per month for backup flows
- --------------------------------------------- ---------------------------------
Rome 256 Kbps HTDS to Denver $ *** per month
- --------------------------------------------- ---------------------------------
Athens 64 Kbps HTDS to Denver $ *** per month
- --------------------------------------------- ---------------------------------
Dublin 64 Kbps HTDS to Denver $ *** per month
- --------------------------------------------- ---------------------------------
London Heathrow 64 Kbps HTDS to Denver $ *** per month for primary flows
$ *** per month for backup flows
- --------------------------------------------- ---------------------------------
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 10.0 - GLOBAL MESSAGING SERVICES
10.1 Type B Messaging Service, SITATEX Service, GMS Fax Service
The monthly traffic charges set forth in Table 16 below cover the
following Global Messaging Services for Galileo (1G) and Covia (1V):
(a) standard Type B Connections;
(b) Type B addresses;
(c) Type B Transmission (with the exception of USA and Canada
which are covered under Article 10.2 below);
(d) Relay Through Broadcasting;
(e) SITATEX; and
(f) GMS Fax Services.
- ---------------------------------------------------------------------
TABLE 16
- ---------------------------------------------------------------------
- --------------------------------- -----------------------------------
CHARGEABLE TRAFFIC MONTHLY CHARGE
(IN USD)
- --------------------------------- -----------------------------------
Up to 400 MCM $ ***
- --------------------------------- -----------------------------------
Between 400 - 650 MCM $ ***
- --------------------------------- -----------------------------------
Above 650 MCM $ ***
- --------------------------------- -----------------------------------
Sample Calculation: Charges for 750 MCM would be calculated at ***
The maximum number of dedicated Type B and SITATEX Connections is ***.
The charge for additional Connections is as set forth below:
USD $ *** per Connection inclusive of address charges.
The maximum number of GMS Fax pages is ***. The charge for additional
pages is as set forth below:
USD $ *** per page.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
10.2 Domestic Type B Messaging Service
The traffic within the USA, the traffic within Canada and the traffic
between the USA and Canada will be regarded as one territory to
determine the applicable monthly flat rate charge set forth in Table 17
below (hereinafter, the "Domestic Traffic"):
- ----------------------------------------------------------------------
TABLE 17
-----------------------------------------------------------------------
- ----------------------------------- -----------------------------------
TRAFFIC VOLUME FLAT RATE MONTHLY CHARGE
(characters per month) (IN USD)
- ----------------------------------- -----------------------------------
20,000,000 - 40,000,000 $ ***
- ----------------------------------- -----------------------------------
40,000,001 - 80,000,000 $ ***
- ----------------------------------- -----------------------------------
80,000,001 - 160,000,000 $ ***
- ----------------------------------- -----------------------------------
160,000,001 - 320,000,000 $ ***
- ----------------------------------- -----------------------------------
320,000,001 - 640,000,000 $ ***
- ----------------------------------- -----------------------------------
640,000,001 - 960,000,000 $ ***
- ----------------------------------- -----------------------------------
960,000,001 - 1,440,000,000 $ ***
- ----------------------------------- -----------------------------------
1,440,000,001 - 1,920,000,000 $ ***
- ----------------------------------- -----------------------------------
1,920,000,001 - 2,560,000,000 $ ***
- ----------------------------------- -----------------------------------
2,560,000,001 and above $ *** plus $ *** per MCM
- ----------------------------------- -----------------------------------
If the Domestic Traffic is less than ***, it will included and charged
per the international rates set forth in Article 10.1.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 11.0 - ELECTRONIC COMMERCE - TRADING SERVICES
Electronic Commerce - Trading Services "bundled" charges are as set forth in
Table 18 below. These bundled charges include the following, as described in the
TOPS under the Electronic Commerce - Open Trading section of the TOPS:
(a) Initial registration fee;
(b) One mailbox per Interchange partner;
(c) Processing charges;
(d) Transmission charge to any Galileo Mailbox destination with an average
traffic allowance of 2 MCM of traffic per connection;
(e) Software Charge; and
(f) PC provisioning when necessary.
- ---------------------------------------------------------------------
TABLE 18
- ---------------------------------------------------------------------
- --------------------------------- -----------------------------------
ITEM MONTHLY CHARGE
(IN USD)
- -------------------------------- -----------------------------------
- --------------------------------- -----------------------------------
Interchange Charge per Mailbox $ ***
- --------------------------------- -----------------------------------
- --------------------------------- -----------------------------------
Additional Traffic Above 2 MCM $ *** per MCM
Average
- --------------------------------- -----------------------------------
"Session only" and "Optional Services" (as described in the TOPS) will be
charged per the TOPS.
Sample Calculation (based on 1999 TOPS)
TOPS Charges:
Number of Mailboxes 23 Mailboxes
Millions of Characters 156.068 MCM
TOPS Charges USD $ ***
Special Open Trading (OT) Charges:
OT Mailbox Charges 23 Mailboxes x USD $ *** each = USD $ ***
Add'l Traffic Charges ***
110.068 MCM x $ *** per MCM = $ ***
Total OT Charges ***
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 12.0 - CUSTOMER PREMISES EQUIPMENT
12.1 Standard CPE
SITA can install, configure, manage and maintain Nortel-based equipment
which may allow Galileo to reduce the cost of accessing the Global SITA
network by connecting multiple terminals, hosts or LANs over a leased
line. Galileo can choose from nine (9) standard CPE options with
different configurations of V.24, V.35 and Token Ring ports, as further
defined in the TOPS. The monthly service charge covers the management
and maintenance of the service including the rental of the hardware and
software. The following charges and pricing conditions apply for
standard CPE:
(a) CPE Installation charges are ***;
(b) Monthly CPE Standard Service Charge is at TOPS ***;
(c) Network Charges for the UTP Network Links and associated
Transmission Charges will be based on the rates defined in
Articles 2.2 and 2.3 above;
(d) Minimum contract term for standard CPE Access Service is ***
per the TOPS; and
(e) Any additional conditions in the TOPS apply.
12.2 Non-Standard CPE
Non-standard CPE may be available upon request and is subject to mutual
agreement on a case by case basis. Charges for non-standard CPE
equipment currently installed on the Galileo premises are set forth in
paragraphs 12.2.1 through 12.2.4.
12.2.1 Denver AMs and Passports
SITA *** the existing Denver CPE AM and Passport equipment or
for certain potential expansion during the Initial Term. This
expansion can cover up to one (1) new AM in addition to the
existing two (2) Passports and five (5) AMs in Galileo's KF1
and KF2 buildings. Expansion beyond this planned configuration
will result in an adjustment to the charges. The cost of this
equipment is covered by the remote end Connection charges
outside of Denver. The existing equipment in Denver includes:
Passport 160 ***
CDEN2
CDEN3
AM DPN-100-15 ***
ADEN3
ADEN4
ADEN5
ADEN6
ADEN10
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
12.2.2 Denver IWS SUN Sparc
The monthly charges set forth below apply to the IWS SUN Sparc
installed in Denver:
USD $ *** per month.
Any future software or hardware upgrades to maintain the
operational functionality of this system will be passed
through to Galileo.
12.2.3 Denver Cisco 7000 Routers
The monthly charges set forth below apply to the two (2) existing Cisco
7000 routers installed in Denver: USD $ *** per month per router.
12.2.4 Denver RS/6000
The monthly charges set forth below apply to the RS/6000
equipment installed in Denver for Galileo Bank Settlement Plan
(BSP) support. These charges are valid for the existing
configuration including two (2) units as follows:
DEN RS/6000 USD $ *** per month (for both units)
RS6000 HW Rack Mounted (2 units for resiliency) AIX and HW
Support (7 x 24) OFTP SW and support for 2 units OFTP License
Fee for 2 units.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 13.0 - MANAGEMENT ONLY OF CUSTOMER PROVIDED ROUTERS
13.1 SITA will provide the following management services in
relation to Customer-provided and SITA-approved Cisco routers in
specific countries at the charges listed in Table 19 set forth
below:
(a) Router configuration;
(b) Continuous service monitoring - remote router and Frame Relay
or X25 network link supervision;
(c) Fault diagnostics, and
(d) Technical software support.
----------------------------------------------
TABLE 19
----------------------------------------------
----------------- ----------------------------
MONTHLY CHARGE
COUNTRY (IN USD)
----------------- ----------------------------
----------------- ----------------------------
Hong Kong $ *** per router
----------------- ----------------------------
----------------- ----------------------------
Indonesia $ *** per router
----------------- ----------------------------
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 14.0 - GUARANTEED MINIMUM
14.1 Galileo is required to purchase from SITA under this Agreement a
specified minimum amount of Intranet Connect, MDNS and/or Fram
Relay Services(herein referred to as the "International Guaranteed
Minimum Term Commitment"). During the Initial Term, the International
Guaranteed Minimum Term Commitment is that amount of such Services
that would cause the aggregate charges for such Services to be
equal to ***. During any renewal term, the International Guaranteed
Minimum Term Commitment is that amount of such Services that would
cause the aggregate charges for such Services to be equal to ***.
14.2 The "Domestic USA Guaranteed Minimum Payment" by Galileo under this
Agreement will be Galileo's migration over a *** migration period
of at least ***. If the number of USA connections remain less
than *** following this migration period, the charges in Tables
10 and 11 will not apply for the remainder of the term of this
Agreement, and domestic USA charges will be based on the NAM1 rates
set forth in Tables 1, 7 and 8 during such remainder.
14.3 At the time of execution of this Agreement, SITA was providing Galileo
with SPOC (Single Point of Contact) and IOC (Intraconnect Operations
Center) personnel at Galileo's premises in support of SITA's provision
of Intranet Connect, MDNS and Frame Relay Services. If Galileo's
combined spend on Intranet Connect, MDNS and Frame Relay Services
hereunder falls below ***, SITA reserves the right to dissolve this
on-site capability and to relocate such functions to SITA regional
centers. In the event of such dissolution and relocation, if Galileo
requires the continuation of such on-site capability, Galileo may opt
to pay SITA for this capability on a time and material basis, at
charges to be mutually agreed.
- --------
*** Certain terms have been omitted pursuant to a request for confidential
treatment, and the omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ARTICLE 15.0 - VALIDITY
15.1 Validity
Galileo must sign this Agreement on or before 31 December 1999 in order
for the pricing provided in this Pricing Schedule to be valid.
<PAGE>
Exhibit 10.28
Printed in U.S.A.
AMENDMENT TO AT&T CONTRACT TARIFF ATTACHMENT TO MASTER AGREEMENT BETWEEN AT&T
CORP.
AND GALILEO INTERNATIONAL, L..L.C.
The AT&T Contract Tariff Attachment to the Master Agreement between AT&T
Corp. ("AT&T") and Galileo International, L.L.C. ("Customer"), dated
December 28, 1998, (the "Attachment"), whereby Customer ordered certain
telecommunications services ("Services") from AT&T pursuant to AT&T Contract
Tariff No. 10906 (the "CT"), is hereby amended as set forth below:
1. The CT shall be revised consistent with the contract tariff revisions
attached hereto as Exhibit A. The revisions to the CT are indicated by
letter symbols on the margins of Exhibit A, or by a notation at the top
of a page that all material on that page is new.
2. AT&T will file with the Federal Communications Commission (the "FCC")
revisions to the CT consistent with Exhibit A.
3. This Amendment shall be subject to the filing and effectiveness with
the FCC of the revisions to the CT. Upon such filing and effectiveness,
Services shall be furnished under the CT, as revised.
4. Each party, by signing below, acknowledges that it has read,
understands and agrees to the provisions of this Amendment. Each
individual signing below represents that such individual is duly
authorized to sign this Amendment on behalf of the party for whom such
individual is signing.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date fully executed below.
CUSTOMER:
GALILEO INTERNATIONAL, L.L.C. AT&T CORP.
By: /s/ Lori M. Tobin By: R.J. Paliseno
Senior Manager, Purchasing District Manager
May 6, 1999 May 11, 1999
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10906
Adm. Rates and Tariffs 1st Revised Page 1
Bridgewater, NJ 08807 Cancels Originals Page 1
Issued: May 21,1999 Effective: May 22, 1999
CONTRACT TARIFF NO. 10906
CHECK SHEET
The Title Page and Pages 1 through 25 inclusive of this tariff are effective
as of the date shown. Original and revised pages as named below contain all
changes from the original tariff pages that are in effect on the date shown.
Number of Revision
Number of Revision
Page Except as Indicated Page
Except as Indicated
1 1st*
16 1st*
7 1st*
24.1 Original*
9 1st*
24.2 Original*
14 1st*
24.3 Original*
15 1st*
25 1st*
*New or revised page
TABLE OF CONTENTS
Page
Check Sheet........................................................ 1
List of Concurring, Connecting and Other Participating Carriers.... 1
Explanation of Symbols - Coding of Tariff Revisions................ 1
Trademarks and Service Marks....................................... 2
Explanation of Abbreviations....................................... 2
General Provisions................................................. 3
Contract Summary................................................... 4
LIST OF CONCURRING, CONNECTING AND OTHER PARTICIPATING CARRIERS
Concurring Carriers - NONE
Connecting Carriers - NONE
Other Participating Carriers - NONE
EXPLANATION OF SYMBOLS - Coding of Tariff Revisions
Revisions to this tariff are coded through the use of symbols. These symbols
appear in the right margin of the page. The symbols and their meanings are:
R - to signify reduction.
I - to signify increase.
C - to signify changed regulation.
T - to signify a change in text but no change in rate
or regulation.
S - to signify reissued matter.
M - to signify matter relocated without change.
N - to signify new rate or regulation.
D - to signify discontinued rate or regulation.
Z - to signify a correction.
Other marginal codes are used to direct the tariff reader to a footnote for
specific information. Codes used for this purpose are lower case letters of
the alphabet, e.g., x, y and z. These codes may appear beside the page
revision number in the page header or in the right margin opposite specific
text.
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10906
Adm. Rates and Tariffs 1st Revised Page 7
Bridgewater, NJ 08807 Cancels Original Page 7
Issued: May 21, 1999 Effective: May 22, 1999
5.Discounts (continued)
B. AT&T Private Line and AT&T Local Channel Services
1. The Customer will receive the following discounts, each month, in lieu
of the MultiService Volume Pricing Plan (MSVPP) discounts. These discounts
will be applied in the same manner as the MSVPP discounts as specified in
AT&T Tariff F.C.C. Nos.9 and 11, as amended from time to time.
Service Components Discount
Domestic ASDS 9.6/56/64 kbps 25%
Domestic ASDS 128 kbps and above 40%
Domestic DDS 40%
Domestic ACCUNET T1.5 55%
Domestic ACCUNET T32 50%
Domestic ACCUNET T45 50%
Domestic ACCUNET Fractional T45 55%
AT&T VGLCs and AT&T DDLCs at speeds of 9.6 kbps & below 20%
AT&T DDLCs at speeds of 56/64 kbps 20%
AT&T ACCUNET GDA at speeds of 9.6/56/64 kbps 20%
AT&T Terrestrial 1.544 Mbps Local Channel Service 20%
(excluding the components in Section 5.C., following)
2. The Customer will also receive the following discounts in any month
that the Customer's undiscounted domestic charges for the MSVPP-eligible AT&T
Tariff F.C.C. Nos.9 and/or 11 service components provided under this CT
exceed $2,600,000. This additional discount will be determined based on the
total undiscounted domestic monthly charges as specified below and will be
applied to the entire eligible charges as specified below for that month as
shown in the following example: If the Customes undiscounted domestic
monthly charges are $3,000,000, and the discount for the service specified
below is 14%, then the Customer will receive a discount amount of $420,000
for that service ($3,000,000 x .14 = $420,000). The amount of such
additional discount, if any, will be applied as a credit to the Customers
bill for the MSVPP-eligible service components provided under this Contract
Tariff.
MONTHLY DISCOUNTS
ASDS at
speeds VGLCs, Terrestrial
of 9.6 DDLCs 1.544
Total Undiscounted and and ACCUNET Mbps
MSVPP-eligible 56/64 ACCUNET T1.5 Local
Domestic Charges kbps GDA Service Channels DDS
$0 up to $2,600,000 0% 0% 0% 0% 0%
over $2,600,000 up to $4,000,000 15% 13% 14% 13% 13%
over $4,000,000 0% 0% 0% 0% 0%
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10906
Adm. Rates and Tariffs 1st Revised Page 9
Bridgewater, NJ 08807 Cancels Original Page 9
Issued: May 21, 1999 Effective: May 22, 1999
5. Discounts (continued)
D. AT&T InterSpan Frame Relay Services
C
1. The Customer will receive a discount of 45%, each month, in lieu of the
FRVPP discounts. This discount will be applied to the sum of the Domestic
Access Port Monthly Charges, and to the FRVPP-Eligible FRS Charges in the
same manner as the FRVPP discounts as specified in AT&T Tariff F.C.C. No.4,
as amended from time to time. This discount does not apply to the Alaska PVC
Charges specified in Section 7., following.
2. The Customer will also receive a 2% discount in any month that the
Customer's total domestic and international FRVPP Eligible FRS Charges and
Domestic Access Ports Charges are at least $2,000,000. This additional
discount will be determined based on the total amount of domestic and
international FRVPP Eligible FRS Charges incurred by the Customer and will be
applied to the entire eligible charges for that month. For example: If the
Customer's total monthly domestic and international FRS charges and Domestic
Access Port Charges are $2,500,000, the Customer will receive a discount
amount of $50,000 ($2,500,000 x .02 = $50,000). This discount does not apply
to the Alaska PVC Charges specified in Section 7., following.
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10906
Adm. Rates and Tariffs 1st Revised Page 14
Bridgewater, NJ 08807 Cancels Original Page 14
Issued: May 21, 1999 Effective: May 22, 1999
6.C. Promotions, Credits and Waivers (continued)
2. Recurring Charges
(a) 50% of the PRI Office Function recurring Monthly Charge.
(b) The recurring Monthly Charges for each ACCUNET T1.5 Access
Connection, M-24 Multiplexing Office Functions and ASDS and DDS Access
Connections as specified in AT&T Tariff F.C.C. No.9, as amended from time to
time, and Access Coordination Functions as specified in AT&T Tariff F.C.C.
No. 11, as amended from time to time, associated with AT&T Terrestrial
1.544 Mbps Local Channel Services, 64 kbps and below ACCUNET GDA and Voice
Grade Local Channel Services and 64 kbps and below DDLC Services provided
under this CT, provided such service components are associated directly with
the Services provided under this CT. There is no minimum retention period
associated with this waiver.
(c) The recurring Monthly Charges for each MSVPP-eligible service
component for DDS Subrate Data Multiplexors and ASDS Subrate Data
Multiplexors (excluding Access Connections to AT&T Switched Services) as
specified in AT&T Tariff F.C.C. No.9, as amended from time to time.
(d) The recurring Monthly Charges for each Analog and Digital Multipoint
Charge, as specified in AT&T Tariff F.C.C. No. 9, as amended from time to
time, for each Customer Premise on a local channel service for which the
Access Coordination Function (ACF) is provided by AT&T.
3. Recurring, Nonrecurring and Usage Charges
(a) Under the Term Plan Feature Package: The $50.00 per 800 number
Monthly Charge is waived. The maximum total charge to be paid by the
Customer over this CT Term, for the $25.00 nonrecurring Installation Charge,
for each installation or change per 800 number, is $1,000 per Billing
Account. There is no minimum retention period associated with this waiver.
(b) Split Access Flexible Egress Routing (SAFER): For AT&T SDN Services,
the per primary SDN central office Special Access Line Grouping nonrecurring
Installation Charge is waived for no more than 25 Special Access Line
Groupings, and the recurring Monthly Charge per AT&T Terrestrial 1.544 Local
Channel or equivalent at the primary SDN central office is waived for the
first 6 full billing months. For AT&T MEGACOM 800 Services, the nonrecurring
Installation Charge per 800 Number per Customer Location is waived for no
more than 25 800 numbers.
4. Credits
(a) AT&T will apply a credit of $89,400 to the Customer's bill in the 3rd
full billing month following the TSD. If the Customer discontinues this CT
for any reason prior to the expiration of the CT Term and incurs a
Termination Charge as specified in Section 6.D., following, AT&T will bill
the Customer, at the time of discontinuance, the entire amount of the credit
received. Any such bill must be paid by the Customer within 30 days.
(b) During year one of the CT Term, AT&T will apply a $20,000 credit,
each month, to the Customer's bill.
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10906
Adm. Rates and Tariffs 1st Revised Page 15
Bridgewater, NJ 08807 Cancels Original Page 15
Issued: May 21, 1999 Effective: May 22, 1999
6.C.4.Credits (continued)
(C) AT&T will apply a credit of $134,100 in the 15th full billing month
following the TSD and a credit of $223,500 in the 27th, 39th and 51st full
billing months following the TSD provided that: (i) the Customer is current
in all payments to AT&T and (ii) the Customer has satisfied the MARC for the
previous year. If the Customer discontinues this CT for any reason prior to
the expiration of the CT Term and incurs a Termination Charge as specified in
Section 6.D.3., following, AT&T will bill the Customer, at the time of
discontinuance, the entire amount of the credits received. Any such bill
must be paid by the Customer within 30 days.
(d) During the first 12 months following the CISD for AT&T Private Line
Services, AT&T will apply a quarterly credit to the Customer's AT&T Private
Line Services bill equal to $33.84 per DS0 access line in service each month
for the preceding three months in which the credit is to be applied, provided
the DS0 access line is associated with the AT&T Digital Data Local Channel
Services (DDLC) and AT&T ACCUNET Generic Digital Access Service (GDA) at
speeds of 56 kbps and below provided under this Contract Tariff. The
credit(s), if any, will be applied in the 4th, 7th, 10th and 13th months
following the CISD for the AT&T Private Line Services provided under this CT.
(e) AT&T will apply a one-time credit of $15,000 to the Customer's bill
in the 3rd full billing month following the TSD.
(f) AT&T will apply a credit of $250,000 to the Customer's AT&T InterSpan
Frame Relay Services bill in the 4th full billing month following the TSD.
If the Customer discontinues this CT for any reason prior to the expiration
of the CT Term and incurs a Termination Charge as specified in Section
6.D.3., following, AT&T will bill the Customer, at the time of
discontinuance, the entire amount of the credit received. Any such bill must
be paid by the Customer within 30 days.
(g) AT&T will apply a credit, not to exceed a total of $20,000 for each
year of the CT Term, equal to the charges associated with the Recurring and
Nonrecurring Charges of any new AT&T Services not previously subscribed to by
the Customer during the CT Term which are provided under this Contract
Tariff. The credit, if any, will be applied in the 13th, 25th and 36th full
billing months following the TSD.
D. Discontinuance-In lieu of any Discontinuance With or Without Liability
provisions that are specified in the AT&T tariffs referenced in Section 1.,
preceding, the following provisions shall apply.
1. The Customer may discontinue this CT prior to the end of the CT Term,
provided the Customer replaces this CT with other AT&T Services or another
AT&T CT for AT&T Tariffed Interstate Services having: (i) an equal or
greater new annualized MARC for the "MARC-eligible Services" specified in
Section 3., preceding, and (ii) a new term equal to or greater than the
remaining term, but not less than 3 years. The Customer will also be billed
a Shortfall Charge equal to: the difference between (1) the prorated MARC for
the year in which the Customer discontinues and (2) the total of the actual
MARC-eligible charges incurred for that year, provided the amount in (2) is
less than the amount in (1).
Certain material previously found on this page can now be found on Page 16.
AT&T COMMUNICATIONS contract tariff NO. 10906
Adm. Rates and Tariffs 1st Revised Page 16
Bridgewater, NJ 08807 Cancels Original Page 16
Issued: May 21, 1999 Effective: May 22, 1999
6.D.Discontinuance (continued)
2. The Customer may discontinue this CT in the 50th month following the
TSD, provided that the Customer has: (i) satisfied at least $86,400,000 in
"MARC-eligible" charges at the time of discontinuance and (ii) notifies AT&T
in writing, no less than 30 days prior to the effective date of
discontinuance. If the Customer elects to discontinue this CT under this
option, the Customer will not be responsible for repayment of any credits
received or waived nonrecurring Installation Charges and waived recurring
Monthly Charges, as specified in Section 6.C., preceding.
3. If the Customer discontinues this CT for any reason other than
specified in Section 6.D.1. or 6.D.2., above, prior to the expiration of the
CT Term, a Termination Charge will apply. The Termination Charge will be an
amount equal to 35% of the unsatisfied MARC for the year in which the
Customer discontinues this CT and 35% of the MARC for each year remaining in
the CT Term. However, the Customer will also be billed an amount as
specified in Sections 6.C.4.(a), (c) and (f), preceding.
E. Other Requirements - AT&T will provision up to twenty (20) Access Ports
per month (at speeds of 64 kbps and below) within twenty-two (22) calendar
days.
AT&T will provision 95% of the remaining Access Ports (not to exceed
thirty-seven (37) Access Ports per month) within twenty-seven (27) calendar
days.
AT&T will provision Access Ports in excess of those specified above within
the standard interval of thirty (30) calendar days.
The Customer will designate each Access Port to be provisioned within the
twenty-two (22) calendar day interval, the twenty-seven (27) calendar day
interval of the standard thirty (30) calendar day interval.
F. Availability - This Contract Tariff is available only to Customers who:
(1) concurrently order this CT only once, either by the Customer or any
Affiliate of the Customer, which is any entity that owns a controlling
interest in either the Customer or an Affiliate of the Customer, or any
entity in which a controlling interest is owned by either the Customer or an
Affiliate of the Customer and (2) ordered service in a previous availability
period or who orders service within 30 days after May 22, 1999 for initial
installation of the Services Provided under this CT within 30 days after the
date ordered.
Certain material on this page formerly appeared on Page 15.
AT&T COMMUNICATIONS contract tariff NO. 10906
Adm. Rates and Tariffs Original Page 24.1
Bridgewater, NJ 08807
Issued: May 21, 1999 Effective: May 22, 1999
** All material on this page is new. **
7.H. AT&T InterSpan Frame Relay Service Rates (continued)
III. AT&T International End-to-End (E2E) Frame Relay Service (FRS) - The
charges for E2E FRS consist of Non-Recurring Charges and Monthly Charges for
Domestic Ports, Global Ports, Non-US Ports and E2E PVCs. An E2E FRS network
must contain at least one PVC connecting to a Domestic Port or a Global Port
in the US.
A. Non-US Port - A Non-US Port is required to connect to an E2E PVC in
the international locations specified in Section 14.12.1., of AT&T Tariff
F.C.C. No. 4 as amended from time to time.
1. Non-US Port Type I - Non-US Port Type I Ports are required to connect
E2E PVCs between international locations. The following Monthly Recurring
Charges for Non-US Ports Type I will apply during the CT Term.
(a) Non-US Port Type I Recurring Charges Table: Region 4
Port Monthly
Speed Charges:
kbps Region 4
56/64 $ 323.00
128 $ 538.00
192 $ 856.00
256 $1,232.00
384 $1,744.00
512 $2,156.00
768 $2,876.00
1024 $3,424.00
1536 $4,382.00
1920 $5,478.00
1984 $5,478.00
2048 $5,478.00
AT&T COMMUNICATIONS contract tariff NO. 10906
Adm. Rates and Tariffs Original Page 24.2
Bridgewater, NJ 08807
Issued: May 21, 1999 Effective: May 22, 1999
** All material on this page is new. **
7.H.III.A. Non-US Port (continued)
2. Non-US Port Type II - Provides connection capability within a single
country. The following Monthly Recurring Charges for Non-US Ports Type II
will apply during the CT Term.
(a) Non-US Port Type II Recurring Charges Table: Region A
Port Monthly
Speed Charges
kbps Region A
56/64 $ 306.00
128 $ 465.00
192 N/A
256 $ 709.00
384 N/A
512 $1,052.00
768 N/A
1024 $1,626.00
1536 $1,993.00
1920 $1,993.00
1984 $1,993.00
2048 $1,993.00
3. E2E PVC - An E2E PVC is an end-to-end, full channel logical connection
between the US and an international location, or between international
locations. E2E PVCs are available only in a two-way configuration. An E2E
two-way PVC provides full two-way connectivity. E2E PVCs may be connected to
Domestic Ports or Global Ports in the US and to Non-US Ports in international
locations.
(a) E2E PVC Recurring Charges - The following Recurring Monthly Charges
will apply for each 1-Way portion of a 2-way E2E PVC as specified in the
following E2E PVC Recurring Charges Tables during the CT Term.
E2E PVC Recurring Charges Table: Bands 2, 17, B
E2E 1-Way E2E 1-Way E2E 1-Way E2E
PVC PVC Monthly PVC Monthly PVC Monthly
CIR Charges: Charges: Charges:
kbps Band 2 Band 17 Band B
4 $ 30.00 $ 645.00 $ 16.00
8 $ 48.00 $ 846.00 $ 22.00
16 $ 73.00 $ 1,097.00 $ 34.00
24 $ 98.00 $ 1,398.00 $ 42.00
32 $ 123.00 $ 1,640.00 $ 50.00
48 $ 153.00 $ 2,090.00 $ 58.00
56/64 $ 196.00 $ 2,370.00 $ 66.50
96 $ 256.00 $ 3,183.00 $ 101.00
128 $ 267.00 $ 3,586.00 $ 117.00
192 $ 306.00 $ 5,039.00 $ 175.00
256 $ 367.00 $ 6,004.00 $ 234.00
384 $ 514.00 $ 8,907.00 $ 351.00
512 $ 685.00 $11,822.00 $ 467.00
AT&T COMMUNICATIONS contract tariff NO. 10906
Adm. Rates and Tariffs Original Page 24.3
Bridgewater, NJ 08807
Issued: May 21, 1999 Effective: May 22, 1999
** All material on this page is new. **
7.H. Rates (continued)
IV. Alaska PVC - An Alaska PVC is a logical connection to an Alaska
location. An Alaska PVC is a two-way half channel PVC that connects to a
two-way half channel PVC furnished by another Carrier or administration in
Alaska to provide full two-way connectivity. An Alaska PVC can be connected
to a Global or a Domestic Port.
A. Alaska PVC Installation Charges - The following Installation Charges
will apply for the installation of each Alaska PVC during the CT Term.
Installation
Charge
per PVC $0.00
B. Recurring Charges - The following Recurring Monthly Charges will apply
for each Alaska PVC, during the CT Term.
Alaska PVC Charges Table
Alaska Alaska
Two-Way Two-Way
Half Channel Half Channel
PVC PVC
Monthly Monthly
PVC CIR Charge PVC CIRkbps Charge
kbps
4 $36.30 448 $543.40
8 $49.50 512 $620.95
16 $90.20 576 $697.95
32 $180.95 640 $776.05
48 $270.05 704 $853.60
56/64 $315.70 768 $931.15
128 $346.50 832 $1,008.70
192 $351.45 896 $1,086.25
256 $360.80 960 $1,164.35
320 $451.00 1024 $1,241.90
384 $465.30
AT&T COMMUNICATIONS contract tariff NO. 10906
Adm. Rates and Tariffs 1st Revised Page 25
Bridgewater, NJ 08807 Cancels Original Page 25
Issued: May 21, 1999 Effective: May 22, 1999
7. Rates (continued)
I. AT&T Private Line Services - The following AT&T Private Line rates will
apply during the CT Term, in lieu of those specified in AT&T Tariff F.C.C.
No. 9.
1. ACCUNET Spectrum of Digital Services
(a) Inter Office Channel
MONTHLY CHARGES
Mileage PER CHANNEL
Band USOC Fixed Per Mile
per 9.6 kbps IOC 1+ 1LNVX $230.00 $0.29
per 56/64 kbps IOC 1+ 1LNVX $230.00 $0.29
2. AT&T ACCUNET T1.5 Service
(a) Inter Office Channel
MONTHLY CHARGES
Mileage PER CHANNEL
Band USOC Fixed Per Mile
per 1.5 Mbps IOC 1+ 1LNVX $3,500.00 $3.95
<PAGE>
Exhibit 10.28
Printed in U.S.A.
SECOND AMENDMENT TO AT&T CONTRACT TARIFF ATTACHMENT TO MASTER AGREEMENT
BETWEEN AT&T CORP.
AND GALILEO INTERNATIONAL, L..L.C.
The AT&T Contract Tariff Attachment to the Master Agreement between AT&T
Corp. ("AT&T") and Galileo International, L.L.C. ("Customer"), dated
December 28, 1998, (the "Attachment"), whereby Customer ordered certain
telecommunications services ("Services") from AT&T pursuant to AT&T
Contract Tariff No. 10906 (the "CT"), is hereby amended as set forth below:
1. The CT shall be revised consistent with the contract tariff
revisions attached hereto as Exhibit A. The revisions to the CT are
indicated by letter symbols on the margins of Exhibit A, or by a
notation at the top of a page that all material on that page is new.
2. AT&T will file with the Federal Communications Commission (the
"FCC") revisions to the CT consistent with Exhibit A.
3. This Amendment shall be subject to the filing and effectiveness with
the FCC of the revisions to the CT. Upon such filing and
effectiveness, Services shall be furnished under the CT, as revised.
4. Each party, by signing below, acknowledges that it has read,
understands and agrees to the provisions of this Amendment. Each
individual signing below represents that such individual is duly
authorized to sign this Amendment on behalf of the party for whom
such individual is signing.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date fully executed below.
CUSTOMER:
GALILEO INTERNATIONAL, L.L.C. AT&T
By: /s/ Lori M. Tobin By: /s/ R.J. Paliseno
Senior Manager, Purchasing District Manager
July 23, 1999 July 27, 1999
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10906
Adm. Rates and Tariffs 2nd Revised Page 1
Bridgewater, NJ 08807 Cancels Original Page 1
Issued: July 29, 1999 Effective: July 30, 1999
CONTRACT TARIFF NO. 10906
CHECK SHEET
The Title Page and Pages 1 through 25 inclusive of this tariff are
effective as of the date shown. Original and revised pages as named below
contain all changes from the original tariff pages that are in effect on
the date shown.
Number of Revision
Number of Revision
Page Except as Indicated Page
Except as Indicated
1 2nd*
16 2nd*
7 2nd*
24.1 Original
9 1st
24.2 Original
14 1st
24.3 Original
15 1st
25 1st
*New or revised page
TABLE OF CONTENTS
Page
Check Sheet........................................................ 1
List of Concurring, Connecting and Other Participating Carriers.... 1
Explanation of Symbols - Coding of Tariff Revisions................ 1
Trademarks and Service Marks....................................... 2
Explanation of Abbreviations....................................... 2
General Provisions................................................. 3
Contract Summary................................................... 4
LIST OF CONCURRING, CONNECTING AND OTHER PARTICIPATING CARRIERS
Concurring Carriers - NONE
Connecting Carriers - NONE
Other Participating Carriers - NONE
EXPLANATION OF SYMBOLS - Coding of Tariff Revisions
Revisions to this tariff are coded through the use of symbols. These
symbols appear in the right margin of the page. The symbols and their
meanings are:
R - to signify reduction.
I - to signify increase.
C - to signify changed regulation.
T - to signify a change in text but no change in rate
or regulation.
S - to signify reissued matter.
M - to signify matter relocated without change.
N - to signify new rate or regulation.
D - to signify discontinued rate or regulation.
Z - to signify a correction.
Other marginal codes are used to direct the tariff reader to a footnote
for specific information. Codes used for this purpose are lower case
letters of the alphabet, e.g., x, y and z. These codes may appear beside
the page revision number in the page header or in the right margin
opposite specific text.
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10906
Adm. Rates and Tariffs 2nd Revised Page 7
Bridgewater, NJ 08807 Cancels Original Page 7
Issued: July 29, 1999 Effective: July 30, 1999
5. Discounts (continued)
B. AT&T Private Line and AT&T Local Channel Services
1. The Customer will receive the following discounts, each month, in
lieu of the MultiService Volume Pricing Plan (MSVPP) discounts. These
discounts will be applied in the same manner as the MSVPP discounts as
specified in AT&T Tariff F.C.C. Nos.9 and 11, as amended from time to
time.
Service Components Discount
Domestic ASDS 9.6/56/64 kbps 25%
Domestic ASDS 128 kbps and above 40%
Domestic DDS 40%
Domestic ACCUNET T1.5 55%
Domestic ACCUNET T32 50%
Domestic ACCUNET T45 50%
Domestic ACCUNET Fractional T45 55%
AT&T VGLCs and AT&T DDLCs at speeds of 9.6 kbps & below 20%
AT&T DDLCs at speeds of 56/64 kbps 20%
AT&T ACCUNET GDA at speeds of 9.6/56/64 kbps 20%
AT&T Terrestrial 1.544 Mbps Local Channel Service 20%
(excluding the components in Section 5.C., following)
2. The Customer will also receive the following discounts in any month
that the Customer's undiscounted domestic charges for the MSVPP-eligible
AT&T Tariff F.C.C. Nos.9 and/or 11 service components provided under this
CT exceed $2,600,000. This additional discount will be determined based
on the total undiscounted domestic monthly charges as specified below and
will be applied to the entire eligible charges as specified below for that
month as shown in the following example: If the Customer's undiscounted
domestic monthly charges are $3,000,000, and the discount for the service
specified below is 14%, then the Customer will receive a discount amount
of $420,000 for that service ($3,000,000 x .14 = $420,000). The amount of
such additional discount, if any, will be applied as a credit to the
Customer's bill for the MSVPP-eligible service components provided under
this Contract Tariff.
MONTHLY DISCOUNTS
ASDS at
speeds VGLCs, Terrestrial
of 9.6 DDLCs 1.544
Total Undiscounted and and ACCUNET Mbps
MSVPP-eligible 56/64 ACCUNET T1.5 Local
Domestic Charges kbps GDA Service Channels DDS
$0 up to $2,600,000 0% 0% 0% 0% 0%
over $2,600,000 up to $8,000,000 15% 13% 14% 13% 13%
over $8,000,000 0% 0% 0% 0% 0%
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10906
Adm. Rates and Tariffs 2nd Revised Page 16
Bridgewater, NJ 08807 Cancels Original Page 16
Issued: July 29, 1999 Effective: July 30, 1999
AT&T COMMUNICATIONS contract tariff NO. 10906
6.D. Discontinuance (continued)
2. The Customer may discontinue this CT in the 50th month following the
TSD, provided that the Customer has: (i) satisfied at least $86,400,000
in "MARC-eligible" charges at the time of discontinuance and (ii) notifies
AT&T in writing, no less than 30 days prior to the effective date of
discontinuance. If the Customer elects to discontinue this CT under this
option, the Customer will not be responsible for repayment of any credits
received or waived nonrecurring Installation Charges and waived recurring
Monthly Charges, as specified in Section 6.C., preceding.
3. If the Customer discontinues this CT for any reason other than
specified in Section 6.D.1. or 6.D.2., above, prior to the expiration of
the CT Term, a Termination Charge will apply. The Termination Charge will
be an amount equal to 35% of the unsatisfied MARC for the year in which
the Customer discontinues this CT and 35% of the MARC for each year
remaining in the CT Term. However, the Customer will also be billed an
amount as specified in Sections 6.C.4.(a), (c) and (f), preceding.
E. Other Requirements - AT&T will provision up to twenty (20) Access
Ports per month (at speeds of 64 kbps and below) within twenty-two (22)
calendar days.
AT&T will provision 95% of the remaining Access Ports (not to exceed
thirty-seven (37) Access Ports per month) within twenty-seven (27)
calendar days.
AT&T will provision Access Ports in excess of those specified above within
the standard interval of thirty (30) calendar days.
The Customer will designate each Access Port to be provisioned within the
twenty-two (22) calendar day interval, the twenty-seven (27) calendar day
interval of the standard thirty (30) calendar day interval.
F. Availability - This Contract Tariff is available only to Customers
who: (1) concurrently order this CT only once, either by the Customer or
any Affiliate of the Customer, which is any entity that owns a controlling
interest in either the Customer or an Affiliate of the Customer, or any
entity in which a controlling interest is owned by either the Customer or
an Affiliate of the Customer and (2) ordered service in a previous
availability period or who orders service within 30 days after
July 30, 1999 for initial installation of the Services Provided under this
CT within 30 days after the date ordered.
Certain material on this page formerly appeared on Page 15.
<PAGE>
<TABLE>
COMPUTATION OF EARNINGS PER SHARE Exhibit 11.1
(in thousands, except per share data)
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Average shares issued (proforma for 1997) 104,899 104,807 95,000
Effect of dilutive options and restricted stock 673 390 24
Treasury stock (6,758) (11) -
----------- ---------- ----------
Total 98,814 105,186 95,024
=========== ========== ==========
Income before income taxes as reported $ 361,272 $ 325,481 $ 205,613
Income taxes (proforma for 1997) 143,064 129,867 82,245
Net income to common stockholders (proforma for 1997) 218,208 195,614 123,368
=========== ========== ==========
Earnings per common share:
Basic earnings per share (proforma for 1997) 2.22 1.87 1.30
=========== ========== +=========
Diluted earnings per share (proforma for 1997) 2.21 1.86 1.30
=========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
Exhibit 21.1
GALILEO INTERNATIONAL, INC.
Schedule of Subsidiaries
Place of
Organization/
Name and Business Address of Subsidiary Ownership Incorporation
- --------------------------------------- --------- -------------
<S> <C> <C>
Apollo Galileo Mexico S.A. de C.V. 99% Apollo Galileo USA Partnership Mexico
Edificio Corporativo Polanco 1% Habinus Trading Corporation
Jaime Balmes #8
Mezannine 7y8
Col. Los Morales Polanco
11570 Mexico D.F.C.P.
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 Martineau DuMoulin
Toronto Dominion Bank Tower, Box 20, Ste. 4200
Toronto-Dominion Center
Toronto, Ontario M5K 1N6 CANADA
Distribution Systems 100% Galileo BA, Inc. Delaware,
9700 W. Higgins Road, Stuite 400 United States
Rosemont, Illinois 60018 USA
GIO Services, L.L.C. 100% Galileo International, L.L.C. Delaware,
9700 W. Higgins Road, Suite 400 United States
Rosemont, Illinois 60018 USA
Galileo Acquisition Co. 100% Galileo International, Inc. Delaware,
9700 W. Higgins Road, Suite 400 United States
Rosemont, Illinois 60018 USA
Galileo Asia Limited 100% Galileo International, L.L.C. Delaware,
9700 W. Higgins Road, Ste. 400 United States
Rosemont, Illinois 60018 USA
Galileo BA, Inc. 100% Galileo International, Inc. Delaware,
9700 W. Higgins Road, Suite 400 United States
Rosemont
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
Galileo Canada Holding Inc. 100% Galileo International, Inc. Canada
C/o Fasken Martineau DuMoulin
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 Martineau DuMoulin
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,
c/o Stewart McKelvey Stirling Scales Canada
1959 Upper Water Street
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 1 % Galileo Brasil Limited
475-8 Andar
Edificia Kyoei
CEP 01311-908
Sao Paulo - SP
BRAZIL
Galileo Espana, S.A. 100% The Galileo Company Spain
Peonias 2
Edificio Piovera Azul
28042 Madrid
SPAIN
Galileo France SARL 100% The Galileo Company France
7/13 Paul-Emile Victor
92521 Neuilly-sur-Seine Cedex
FRANCE
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 House
2 Windsor Dials
Windsor, Berkshire SL 1RS
UNITED KINGDOM
Galileo International Services, Inc. 100% Apollo Galileo USA Partnership Delaware,
Gasheka Street 7 Ste. 900 United States
Moscow 123056
RUSSIA
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
P.O. Box 3064, 2139KB
THE NETHERLANDS
Galileo Nordiska AB 100% Galileo International, Inc. Sweden
Oxoorgsgatan
P.O. Box 7512
10392 Stockholm
SWEDEN
Galileo Portugal Limited 100% The Galileo Company United Kingdom
Edif. Amadeu Souza Cardosa
Alameda Antonio Sergio 22 - 3 A
Mira Flores
1498-132 ALGES
PORTUGAL
Galileo Switzerland AG 100% Galileo International, Inc. Switzerland
Grindelstrasse 6
8303 Basserdorf
SWITZERLAND
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 1060
Caracas
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 Europe 1% Non-GI Entities
2 Windsor Dials
Arthur Road
Windsor, Berkshire, SL4 1RS
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 the incorporation by reference in the registration statements (No.
333-71507, No. 333-55767 and No. 333-77421) on Form S-8 of Galileo
International, Inc. of our report dated January 31, 2000, except for Note 15
which is as of February 8, 2000, relating to the consolidated balance sheets of
Galileo International, Inc. and subsidiaries as of December 31, 1999 and 1998,
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,
1999, which report appears in the December 31, 1999 annual report on Form 10-K
of Galileo International, Inc.
Chicago, Illinois
March 8, 2000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27.1
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted form the
Annual report on Form 10-K for the year ended December 31, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,794
<SECURITIES> 11,492
<RECEIVABLES> 185,942
<ALLOWANCES> 7,819
<INVENTORY> 0
<CURRENT-ASSETS> 230,450
<PP&E> 433,375
<DEPRECIATION> 242,498
<TOTAL-ASSETS> 1,255,193
<CURRENT-LIABILITIES> 319,253
<BONDS> 434,484
0
0
<COMMON> 1,050
<OTHER-SE> 392,543
<TOTAL-LIABILITY-AND-EQUITY> 1,255,193
<SALES> 0
<TOTAL-REVENUES> 1,526,102
<CGS> 0
<TOTAL-COSTS> 1,213,200
<OTHER-EXPENSES> (48,370)
<LOSS-PROVISION> 2,569
<INTEREST-EXPENSE> 17,528
<INCOME-PRETAX> 361,272
<INCOME-TAX> 143,064
<INCOME-CONTINUING> 218,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218,208
<EPS-BASIC> 2.22
<EPS-DILUTED> 2.21
</TABLE>
